Q4 2023 Addus HomeCare Corp Earnings Call

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Operator: Good morning, everyone, and welcome to the Addus Homecare's fourth quarter and year end 2023 earnings conference. All participants will be in a listen-only mode.

Speaker Change: Good morning, everyone and welcome to the out of home care is fourth quarter and yearend 2023 earnings conference call.

Speaker Change: All participants will be in a listen only mode should you need assistance. Please see no conference specialist by pressing the star key followed by zero.

Operator: For assistance, please send to a 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 and one using a touch-tone telephone. To withdraw your questions, you may press start and...

Speaker Change: After today's presentation will be an opportunity to ask questions.

Speaker Change: Ask a question you May press star and one using a touchtone telephone to withdraw your question you May press star and two.

Operator: Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Dru Anderson, and please go ahead. Thank you. Good morning and welcome to the Addus Homecare Corporation fourth quarter in 2023 earnings conference call. Today's call is being recorded. To the extent any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company's website and reviewing yesterday's news release. This conference call may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Addus' expected quarterly and annual financial performance for 2024 or beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements.

Speaker Change: Also note todays event is being recorded.

Speaker Change: I'd like to turn the floor over to drew Anderson. Please go ahead.

Dru Anderson: Thank you good morning, and welcome to the Atmos Homecare Corporation fourth quarter, and 2023 earnings Conference call.

Dru Anderson: This call is being recorded.

Dru Anderson: Any non-GAAP financial measure is discussed in today's call. You'll also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company's website and reviewing yesterday's news release.

Dru Anderson: This conference call May also contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Dru Anderson: Statements among others regarding atoms expected quarterly and annual financial performance for 2024 or beyond.

Dru 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.

Dru Anderson: Without limiting the foregoing, discussions of forecasts, estimates, targets, plans, beliefs, expectations, and the like are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by important factors, among others, set forth in Addus filings with the Securities and Exchange Commission and in its fourth quarter 2023 news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statement. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. I would now like to turn the call over to the company's chairman and chief executive officer, Mr. Dirk Allison. Please go ahead.

Dru Anderson: Without limiting the foregoing discussions of forecast estimates targets plans beliefs expectations and the like are intended to identify forward looking statements.

Dru Anderson: You are hereby cautioned that these statements may be affected by important factors among others set forth.

Dru Anderson: Sure and <unk> filings with the Securities and Exchange Commission and then its fourth quarter 2023 news release.

Dru Anderson: Consequently, actual operations and results may differ materially from the results discussed in the forward looking statements. The company undertakes no obligation to update any forward looking statements, whether as a result of new information future events or otherwise.

Dru Anderson: I would now like to turn the call over to the Companys, Chairman and Chief Executive Officer, Mr. Dark Allison. Please go ahead Sir.

Dirk Allison: Thank you, Dru. Good morning and welcome to our 2023 fourth quarter earnings call. With me today are Brian Poff, our Chief Financial Officer, and Brad Bickham, our President and Chief Operating Officer. As we do on each of our quarterly calls, I will begin with a few overall comments, and then Brian will discuss the fourth quarter results in more detail. Following our comments, the three of us would be happy to respond to any questions.

Dark Allison: Thank you drew good morning, and welcome to our 2023 fourth quarter earnings call.

With me today are Brian Poff, our Chief Financial Officer, Brad Bickham, our President and Chief operating Officer.

Brian W. Poff: As we do on each of our quarterly calls I won't give him a few overall comments and then Brian will discuss the fourth quarter results in more detail.

Brian W. Poff: Following our comments the three of us would be happy to respond to any questions.

Brian W. Poff: Yesterday, we announced our results for the fourth quarter and full year of 2023.

Dirk Allison: Yesterday, we announced our results for the fourth quarter and full year of 2023. These results highlight another strong year of financial performance by Addus. This performance is made possible by the hard work and dedication of all of our employees as they continue to provide quality care to our clients and patients by helping to fulfill our mission of taking care of people in their homes. I am both amazed and thankful for all of them that our employees do for our company.

Brian W. Poff: These results highlight another strong year of financial performance by at US. This performance is made possible by the hard work and dedication of all of our employees as they continue to provide quality care to our clients and patients by helping to fulfill our mission of taking care of people in their homes ironbark amazed and.

Brian W. Poff: Well all of them that our employees do for our company.

Dirk Allison: As we announced yesterday, our total revenue for the fourth quarter of 2023 was $276.4 million, an increase of 11.9% as compared to $247.1 million for the fourth quarter of 2022. This revenue growth resulted in adjusted earnings per share of $1.32 as compared to adjusted earnings per share for the fourth quarter of 2023 of $1.11, an increase of 18.9%. Our adjusted EBITDA of $34.3 million was an increase of 21.3% over the fourth quarter of 2022. Our total revenue for 2023 was approximately $1.1 billion, an increase of 11.3% as compared to the $951.1 million for 2022. This revenue growth resulted in adjusted earnings per share of $4.58 as compared to adjusted earnings per share for 2022 of $3.73, an increase of 22.8%.

Brian W. Poff: As we announced yesterday, our total revenue for the fourth quarter of 2023 was $276 $4 million, an increase of 11, 9% as compared to $247 $1 million for the fourth quarter of 2022.

Brian W. Poff: This revenue growth resulted in adjusted earnings per share of $1 32, as compared to adjusted earnings per share for the fourth quarter of 2023.

Brian W. Poff: All are 11, an increase of 18, 9%.

Brian W. Poff: Our adjusted EBITDA of 34, $34 3 million was an increase of 21, 3% over the fourth quarter of 2022.

Brian W. Poff: Our total revenue for 2023 was approximately $1 $1 billion, an increase of 11, 3% as compared to the $951.1 million for 2022.

Brian W. Poff: This revenue growth resulted in adjusted earnings per share of $4.58 as compared to adjusted earnings per share for 2022 or $3.73 an increase.

Brian W. Poff: <unk> of 22, 8%.

Dirk Allison: Our adjusted EBITDA of $121 million was an increase of 19.3% over 2022. During 2023, we continued to experience strong cash flow from operations as our states and other payers have continued to pay in a timely manner. This allowed us to reduce our debt balance to approximately $126 million, inclusive of the funding of our acquisition of Tennessee Quality Care on August 1, 2023. At year-end, our cash balance was approximately $65 million, which together with $335 million of availability under our existing credit facility, continues to give us the financial flexibility to be opportunistic as we anticipate seeing additional acquisition opportunities coming to market over the next several quarters.

Brian W. Poff: Our adjusted EBITDA of $121 million was an increase of 19, 3%.

Brian W. Poff: Over 2022.

Brian W. Poff: During 2023 we continued to experience strong cash flow from operations as our states and other payers have continued to pay in a timely manner.

Brian W. Poff: This allowed us to reduce our debt balance to approximately $126 million inclusive of the funding of our acquisition of Tennessee quality care on August one 2023.

Brian W. Poff: At year end, our cash balance was approximately $65 million, which together with 335 million of availability under our existing credit facility continues to give us the financial flexibility to be opportunistic as we anticipate seeing additional acquisition opportunities coming to market over the next several quarters.

Dirk Allison: It remains our primary focus 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 personal care market. Let me provide you with some thoughts related to the Medicaid access proposed rule that was introduced last year. Many comments were submitted expressing concern toward the proposed 80% compensation requirement to be implemented by states within a four-year period. A final rule concerning this issue was sent to the Office of Management and Budget on January 26 for their review and clearance. Based on this timing, we feel that the rule is on track to be finalized in April of this year. The contents of the final rule are unknown at this time and could be significantly different than the proposed rule.

Brian W. Poff: It remains our primary focus is 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 personal care markets.

Brian W. Poff: Let me provide you with some thoughts related to the Medicaid access proposed rule that was introduced last year.

Brian W. Poff: Many comments were submitted expressing concern toward the proposed 80% compensation requirement to be implemented by states within a four year period.

Brian W. Poff: A final rule concerning this issue was sent to the office of management and budget on January 26 for their review and clearance.

Brian W. Poff: Based on this timing we feel that the rule is on track to be finalized in April of this year.

Brian W. Poff: The contents of the final rule are unknown at this time and could be significantly different than the proposed rule.

Dirk Allison: While we aren't sure whether this rule will contain the 80% requirement, a different percentage requirement, or ultimately be implemented, we would not be surprised to see the four year implementation period extended. We do believe that a key for personal care providers to be successful with any minimum requirement for direct wages is to have scale in each state in which they provide care. This will not only allow those providers to spread their costs over a larger revenue base, but also will provide more opportunity for meaningful patient advocacy within the state in which they operate. As for Addus, we are currently in the process of looking at personal care opportunities, which would give us a larger presence in a number of our current states. We are also looking for opportunities where we can enter new states in a material way.

Brian W. Poff: While we aren't sure whether this rule will contain the 80% requirement.

Brian W. Poff: Different percentage requirement are ultimately be implemented we would not be surprised to see that for your implementation period extended.

Brian W. Poff: We do believe that a key per person care providers to be successful with any minimum requirement for direct wages is to have scale in each state in which they provide care.

Brian W. Poff: This will not only allow those providers to spread their cost over a larger revenue base, but also will provide more opportunity for meaningful patient advocacy within the states in which they operate.

Brian W. Poff: S. Paradis, we are currently in the process of looking at personal care opportunities, which would give us a larger presence in a number of our current states.

Brian W. Poff: We are also looking for opportunities, where we can enter new states in a material way.

Dirk Allison: Personal care is a valuable service that is being provided to our elderly and disabled population, and we are optimistic that states will evolve their programs to be viable regardless of how this rule is finalized. During the fourth quarter, we continued to experience solid results related to our ability to hire caregivers, especially in our personal care segment. During the fourth quarter of 2023, our personal care hiring was up 3.9% over the fourth quarter of last year at 80 hires per business day. Sequentially, our hires per day was slightly lower than the third quarter of this year, which was not unexpected due to the normal slowdown during the holiday season.

Brian W. Poff: Personal care is a valuable service that is being provided to our elderly and disabled population and we are optimistic that statesville above their programs there being viable regardless of how this rule is finalized.

Brian W. Poff: During the fourth quarter, we continued to experience solid results related to our ability to heart caregivers, especially in our personal care segment.

Brian W. Poff: During the fourth quarter of 2023, our personal care hiring was up three 9% over the fourth quarter of last year at 80 harsh per business day.

Brian W. Poff: Sequentially, our highest per day was slightly lower than the third quarter of this year, which was not unexpected due to the normal slowdown during the holiday season.

Brian W. Poff: In addition to our strong hiring numbers, we saw a 30 basis point improvement in our starts per business day as compared to the fourth quarter of 2022.

Dirk Allison: In addition to our strong hiring numbers, we saw a 30 basis point improvement in our starts per business day as compared to the fourth quarter of 2022. As we have mentioned on previous calls, making sure that hires actually start caring for consumers has been a key contributor in the past few quarters to our growth in personal care. As for our clinical segments, hiring has continued to improve over what we experienced in previous quarters. As we have over the past couple of years, we continue to utilize the funding we received from the American Rescue Plan Act, or ARPA. Today, we have received approximately $28 million, of which we have $6 million remaining to utilize.

Brian W. Poff: As we have mentioned on previous calls, making sure that hires actually start carrying for consumers. That's been a key contributor in the past few quarters to our growth in personal care.

Brian W. Poff: As for our clinical segments hiring has continued to improve over what we experienced in previous quarters.

Brian W. Poff: As we have over the past couple of years, we continued to utilize the funding we received from the American Rescue plan Act or ARPA.

Brian W. Poff: To date, we have received approximately $28 million of which we have 6 million remaining to utilize.

Dirk Allison: 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 continue to utilize the funds to improve our caregivers' experience through the implementation of enhanced caregiver training and the continued development of a caregiver application that we believe will improve our retention and overall service delivery. In our personal care segment, our services have continued to receive reimbursement support from the states in which we operate. We believe that states continue to see the value of personal care services we provide, especially with all the broader market disruption that has occurred across the country over the past three years in health care services.

Brian W. Poff: 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.

Brian W. Poff: In addition to utilizing the ARPA punch for direct recruitment and retention of caregivers. We continued to utilize the funds to provide our caregivers.

Brian W. Poff: To improve our caregivers experience through the implementation of enhanced caregiver training and the continued development of our caregiver application that we believe will improve our retention and overall service delivery.

Brian W. Poff: And our personal care segment, our services have continued to receive reimbursement support from the states in which we operate.

We believe that states continue just seen the value of personal care services, we provide especially with all of the broader market disruption that has occurred across the country over the past three years in health care services.

Dirk Allison: Although some of the federal financial support to states have been reduced, we feel confident that personal care services continue to show true value to the state's various state Medicaid programs as well as our managed care partners, and we expect the support for our services to continue. As for our clinical segments, effective October 1, 2023, Medicare hospice reimbursement was increased by approximately 3.1%. On January 1 of this year, home health Medicare reimbursement was increased by approximately 0.8%. Although this year's home health rate increase was below what is required to recover ongoing operating increase.

Brian W. Poff: Although some of the federal financial support to states have been reduced we feel confident that personal care services continued to show true value to the states various state Medicaid programs as well as our managed care partners and we expect the support for our services to continue.

Brian W. Poff: As for our clinical segments effective October one 2023, Medicare hospice reimbursement was increased by approximately three 1%.

Brian W. Poff: On January one of this year home health Medicare reimbursement was increased by approximately 8%.

Brian W. Poff: Although this year's home health rate increase was below what is required to recover ongoing operating increases we believe the traditional Medicare home health reimbursement pressures are likely to moderate over the next few years and we will continue to look for a home health acquisition opportunities that are strategic to our overall growth.

Dirk Allison: We believe that traditional Medicare home health reimbursement pressures are likely to moderate over the next few years, and we will continue to look for home health acquisition opportunities that are strategic to our overall growth. Now let me discuss our same store revenue growth for the fourth quarter of 2023. For our personal care segment, our same store revenue growth was 11.2% when compared to the fourth quarter of 2022. During the fourth quarter of 23, we saw personal care same store hours per business day grow 2.7% over the same period in 2020, and also increased on a sequential basis.

Brian W. Poff: Now, let me discuss our same store revenue growth for the fourth quarter of 2023.

Brian W. Poff: For our personal care segment, our same store revenue growth was 11, 2% when compared to the fourth quarter of 2022.

Brian W. Poff: During the fourth quarter of 'twenty three.

Brian W. Poff: We saw personal care same store hours per business day grow two 7% over the same period in 2022 and also increased on a sequential basis.

Dirk Allison: Importantly, over 75% of our personal care states showed hourly volume growth over the same period in 2022. We are excited to see our investments in hiring and scheduling optimization initiatives taking hold and contributing to our strong, sequential hours growth over the past several quarters. Turning to our clinical operations.

Brian W. Poff: Importantly, our 75 importantly over 75% of our personal care states showed hourly volume growth over the same period in 2022.

Brian W. Poff: We are excited to see our investments in hiring and scheduling optimization initiatives, taking hold and contributing to our strong sequential hours grow over the past several quarters.

Brian W. Poff: Turning to our clinical operations, our hospice same store revenue increased three 5% when compared to the fourth quarter in 2022.

Dirk Allison: Our hospice same store revenue increased 3.5% when compared to the fourth quarter in 2022. While our same-store ADC was down 1% when compared to the same quarter last year, we did see a sequential quarterly increase in same-store admissions of 2.7%. As of the end of the fourth quarter of 2023, our hospice median length of stay was 28 days exclusive of journey care and our recently acquired Tennessee Quality Care Operations. For comparison purposes, we have historically excluded our journey care operation as it is a higher proportion of shorter length of stay patients due to our inpatient units in the Chicago area. While median length of stay was lower than the third quarter, we were not surprised due to the expected seasonality from the holiday season.

Brian W. Poff: While our same store ADC was down 1% when compared to the same quarter last year, we did see a sequential quarterly increase in same store admissions to two point set up two 7%.

Brian W. Poff: As of the end of the fourth quarter of 2023, our hospice median length of stay was 28 days exclusive of journey care and our recently acquired Tennessee quality care operation.

Brian W. Poff: For comparison purposes, we have historically excluded our journey care operation as it is a higher proportion of shorter length of stay patients due to our inpatient units in the Chicago area.

Brian W. Poff: While median length of stay was lower than the third quarter, we were not surprised due to the expected seasonality from the holiday season.

Dirk Allison: We are, however, encouraged by the steady sequential improvement in admissions volume in our hospice segment and anticipate those favorable trends continuing into 2024. Our home health segment, same store revenue, decreased 17.8% over the same quarter in 2022, as we continue to reduce admissions from payers that do not currently reimburse us adequate rates to cover our costs, as most home health providers have experienced. We continue to be affected by the movement of Medicare beneficiaries from Medicare fee-for-service to Medicare Advantage. We are continuing to work with our Medicare Advantage payers to obtain higher per-visit rates as they work in parallel to transition to episodic or case rates. But this process takes time.

Brian W. Poff: We are however, encouraged by the steady sequential improvement in admissions volume in our hospice segment and anticipate those favorable trends continuing into 2024.

Brian W. Poff: Our home Health segment same store revenue decreased 17, 8% over the same quarter in 2022.

Brian W. Poff: As we continued to reduce emissions from payers that do not currently reimburse us adequate rates to cover our cost.

Brian W. Poff: As most home health providers have experience, we continued to be affected by the movement of Medicare beneficiaries from Medicare fee for service to Medicare advantage.

Brian W. Poff: We are continuing to work with our Medicare advantage payers to obtain higher per visit rates as they work in parallel to transition to episodic or case rates, but this process takes time.

Dirk Allison: In the meantime, we have limited certain admissions due to the lower contract rate. Even with this payer shift and the reimbursement pressures in home health, 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 service by allowing us to provide the full continuum of home-based care. As for our development efforts, we continue to focus on opportunities that help to further our strategy, especially as it relates to value-based care and obtaining much-needed scale in our current personal care state. We are continuing to see small tuck-in acquisition opportunities, which offer us the ability to add to our service coverage in our current market, and with the expected timeline for the publishing of the Medicaid Access Rule approach.

Brian W. Poff: In the meantime, we have limited certain admissions due to the lower contract rates.

Brian W. Poff: Even with this payer shift and the reimbursement pressures in home health, 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.

Brian W. Poff: And our hospice service by allowing us to provide the full continuum of home based care.

Brian W. Poff: As for our development efforts, we continue to focus on opportunities that help to further our strategy, especially as it relates to value based care and obtaining much needed scale in our current personal care space.

Brian W. Poff: We are continuing to see small tuck in acquisition opportunities, which offer us the ability to add to our service coverage and our current market cap.

Brian W. Poff: And with the expected timeline for the publishing of the Medicaid access real approaching we are hopeful that we will start to see more personal care acquisition opportunities.

Dirk Allison: We are hopeful that we will start to see more personal care acquisition opportunities develop, which should help us to continue adding scale in our current market. As I had mentioned earlier, we believe that the large providers of personal care services in states will have a significant advantage to continue operating effectively at scale and expanding market share. For value-based care efforts, I noted last quarter we had gathered data over time to be able to demonstrate material reductions in both emergency room visits as well as the percentage of patients readmitted to the hospital at various post-discharge entrances. In addition, as I noted, we have been able to help with the improvement of PETA scores and the closure of care gaps relating to these patients. We continue to believe our success is due to our ability to provide both non-clinical personal care services to identify changes in condition and clinical resources as needed for specific skilled patient care interventions.

Brian W. Poff: All up which should help us to continue adding scale in our current markets.

Brian W. Poff: As I had mentioned earlier, we believe that the large providers of personal care services in states will have a significant advantage to continue operating effectively at scale and expanding market share.

Brian W. Poff: Our value based care efforts I noted last quarter, we had gathered data over time to be able to demonstrate material reductions in both emergency room visits as well as the percentage of patients readmitted to the hospital at various post discharge intervals.

Brian W. Poff: In addition, as I noted, we have been able to help with the improvement of heated scores and the closure of care gaps relating to these patients.

Brian W. Poff: We continue to believe our success is due to our ability to provide both non clinical personal care services to identify changes in condition and clinical resources as needed or specific skilled patient care interventions.

Dirk Allison: We are now using this information as part of our conversations with various Medicare Advantage and commercial payers to demonstrate how Addus can be a part of providing quality, cost-effective care to their members that can reduce the overall medical loss ratio while simultaneously improving overall quality of care. During the first quarter of 2024, we also began to use our new value-based care management system. We are excited about this technology, as it will allow us to increase both the scale and efficiency of our value-based programs, which we believe is important as we continue to further develop these type relationships with our large payers. Before I close my remarks, I want to once again say how proud I am of our team for the care they are providing, to our elderly and disabled consumers and patients. There is no question that the majority of clients and patients want to receive care at home, which remains one of the safest and most cost-effective places to receive care.

Brian W. Poff: We're now using this information as part of our conversations with various Medicare advantage and commercial payers.

Brian W. Poff: Demonstrate how AD is can be a part of providing quality cost effective care to their members that can reduce the overall medical loss ratio while simultaneously.

Brian W. Poff: Proving overall quality of care.

Brian W. Poff: During the first quarter of 'twenty 'twenty four we also began to use our new value based care management system.

Brian W. Poff: We are excited about this technology as it will allow us to increase both the scale and efficiency of our value based programs, which we believe is important as we continue to further develop these type relationships with our large payers.

Speaker Change: Before I close my remarks, I want to once again say, how proud I am of our team for the care they are providing.

Speaker Change: Who are elderly and disabled consumers and patients.

Speaker Change: There's no question that the majority of clients and patients want to receive care at home, which remains one of the safest and most cost effective devices to receive care.

Dirk Allison: 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. We understand and appreciate that our operations and growth are dependent on both our dedicated caregivers and other employees who work so incredibly hard providing outstanding care and support to our clients, patients, and their families. With that, let me turn the call over to Brian.

Speaker Change: We believe the heightened awareness of the value of home based care is favorable for our industry.

Speaker Change: We will continue to be a growth opportunity for our company.

Speaker Change: We understand and appreciate that our operations and growth are dependent on both our dedicated caregivers and other employees, who worked so incredibly hard providing outstanding care and support.

Speaker Change: Our clients.

Speaker Change: Patients and their families.

Speaker Change: With that let me turn the call over to Brian.

Brian W. Poff: Thank you, Dirk, and good morning, everyone. Addus had a very strong financial and operating performance for the fourth quarter, marking a strong finish to a record year. Our results were driven by robust demand for our services, led by 11.2% year-over-year organic growth and personal care services revenue, well above our normal expected range of 3 to 5%. For the year, personal care revenues were up 12.1% compared with the prior year, a record annual rate of growth for Addus. This impressive growth reflects both higher volumes as well as the benefit of ongoing rate support for our personal care services. Our fourth quarter results included a full three months of operations of Tennessee Quality Care, a provider of home health, hospice and private duty nursing services, which we acquired on August 1st, 2023. The integration process has gone as expected, and we are excited about the opportunities to serve more patients in this strategically important market.

Brian: Thank you Dirk and good morning, everyone.

Brian: I just had a very strong financial and operating performance for the fourth quarter, marking a strong finish to a record year.

Brian: Our results were driven by robust demand for our services led by 11, 2% year over year organic growth in personal care services revenue well above our normal expected range of 3% to 5%.

Brian: For the year personal care revenues were up 12, 1% compared with the prior year a record annual rate of growth for Altus. This impressive.

Brian: Growth reflects both higher volumes as well as the benefit of ongoing rate support for our personal care services.

Brian: Our fourth quarter results included a full three months of operations of Tennessee quality care, a provider of home health hospice and private duty nursing services, which we acquired on August one 2023.

Brian: The integration process has gone as expected and we are excited about the opportunities to serve more patients in this strategically important market.

Brian W. Poff: Acquisitions remain an important part of our growth strategy, especially situations with a profile similar to Tennessee Quality Care, where we have the ability to leverage our strong personal care presence and add clinical services. We are optimistic that we will see additional attractive acquisition opportunities in 2024 as we gain more clarity on pending reimbursement issues and other regulatory changes that could affect Addus and our industry. We were pleased to see positive year-over-year trends in our hospice business during the fourth quarter with increases in revenue, average daily census, length of stay, patient days, and revenue per patient day, inclusive of our Tennessee Quality Care Act. While we did see sequential growth in same-store admissions of 2.7% between the third quarter and fourth quarter, our ADC declined slightly between the quarters on a higher number of discharges. Same store revenue for our home health services, which was 6.2% of our business, was down 17.8% from the same period a year ago.

Brian: Acquisitions remain an important part of our growth strategy, especially situations with a profile similar to Tennessee quality care, where we have the ability to leverage our strong personal care presence and add clinical services. We are optimistic that we will see additional attractive acquisition opportunities in 'twenty 'twenty four as we gain more clarity on pending reimbursement issues.

Brian: The regulatory changes that could affect us in our industry.

Brian: We were pleased to see positive year over year trends in our hospice business during the fourth quarter with increases in revenue average daily census length of stay patient days and revenue per patient day inclusive of our Tennessee quality care acquisition.

Brian: While we did see sequential growth in same store admissions, a 2.7% between the third quarter and fourth quarter, our ADC declined slightly between the orders at a higher number of discharges.

Brian: Same store revenue for home Health services, which was six 2% of our business was down 17, 8% from the same period a year ago.

Brian W. Poff: This volume trend reflects our strategy to intentionally limit admissions from payers with less favorable reimbursement rates, as we have seen a 500 basis points shift in our same-store episodic-non-episodic mix from the prior year. We continue to look for ways to more effectively balance our mix of episodic cases versus non-episodic cases and our focus on opportunities to negotiate more favorable rates with certain payers. As Dirk noted, total net service revenues for the fourth quarter were $276.4 million. The revenue breakdown is as follows. Personal care revenues were $204.5 million or 74% of revenue. Hospice care revenues were $54.7 million or 19.8% of revenue, home health revenues were $17.1 million or 6.2% of revenue.

Brian: This volume trend reflects our strategy to intentionally limit admissions from payers with less favorable reimbursement rates as we have seen a 500 basis points shift in our same store episodic non episodic mix from the prior year.

Brian: We continue to look for ways to more effectively balance our mix of episodic cases versus non episodic cases and are focused on opportunities to negotiate more favorable rates with certain payers.

Brian: As Dirk noted total net service revenues for the fourth quarter were $276 $4 million. The revenue breakdown is as follows.

Brian: Arsenal care revenues were $204 $5 million or 74% of revenue.

Brian: Hospice care revenues were $54 $7 million or 19, 8% of revenue.

Brian: Home health revenues were $17 $1 million or six 2% of revenue.

Brian: In addition to Tennessee quality care. These results include the operations of Apple home Health, which we acquired in October of 2022 and is included in our same store numbers for the first time.

Brian W. Poff: In addition to Tennessee quality care, these results include the operations of Apple Home Health, which we acquired in October of 2022, and is included in our same store numbers for the first time. Other financial results for the fourth quarter of 2023 include the following. Our gross margin percentage was 33.4% compared with 31.9% for the fourth quarter of 2022 and a sequential improvement compared to 32% for the third quarter of 2023. As expected, the addition of the Tennessee Quality Care Operations created a higher overall proportion of clinical services and had a resulting positive impact on gross margins.

Brian: Other financial results for the fourth quarter of 2023 include the following.

Brian: Our gross margin percentage was 33, 4% compared with 31, 9% for the fourth quarter of 2022, and a sequential improvement compared to 32% for the third quarter of 2023.

Brian: As expected. The addition of the Tennessee quality care operations created a higher overall proportion of clinical services and our resulting in positive impact on gross margin.

Brian W. Poff: We also benefited from the 3.1% annual hospice rate increase effective October 1st, 2023. Exclusive of the retroactive positive impact from collective bargaining negotiations, our gross margin percentage was 33% for the fourth quarter of 2023, an increase of 100 basis points sequentially and slightly above expectations. As we continue to experience strong cash flows, particularly in our personal care segment, we have benefited from a lower implicit price concession requirement and saw this impact us positively in the fourth quarter, which contributed to our higher gross profit. For the first quarter of 2024, we expect our gross margin percentage to be negatively impacted by our annual merit and, and the normal annual reset of payroll taxes, as well as the expected compression we previously discussed from certain collective bargaining negotiations.

Brian: We also benefited from the three 1% annual hospice rate increase effective October one 2023.

Brian: Exclusive of the retroactive positive impact from collective bargaining negotiations our gross margin percentage was 33% for the fourth quarter of 2023, an increase of 100 basis points sequentially and slightly above expectations.

Brian: As we continue to experience strong cash flows, particularly in our personal care segment, we have benefited from a lower implicit price concession requirement and saw this impact us positively in the fourth quarter, which contributed to our higher gross margin.

Brian: For the first quarter of 'twenty 'twenty four we expect our gross margin percentage to be negatively impacted by our annual merit increases and the normal annual reset of payroll taxes as well as the expected compression. We previously discussed from certain collective bargaining negotiations.

Brian W. Poff: Cumulatively, we expect these items to contribute a decline sequentially of approximately 140 basis points compared to the fourth quarter of 2023. Additionally, we anticipate our implicit price concession to return to a more normal level in the first quarter, resulting in an additional 30 basis points of compression from the fourth quarter of 2023. G&A expense was 22% of revenue, consistent with 22% of revenue for the fourth quarter a year ago, but it declined sequentially from 22.3% in the third quarter of 2020, adjusted GNA expense for the fourth quarter of 2023 was 21 percent, up slightly from 20.4 percent in the same period of the prior year.

Brian: Accumulatively, we expect these items to contribute a decline sequentially of approximately 140 basis points compared to the fourth quarter of 2023.

Brian: Additionally, we anticipate our implicit price concession to return to a more normal level in the first quarter, resulting in an additional 30 basis points of compression from the fourth quarter of 2023.

Brian: G&A expense was 22% of revenue consistent with 22% of revenue for the fourth quarter, a year ago, but declined sequentially from 22, 3% in the third quarter of 2023.

Brian: Adjusted G&A expense for the fourth quarter of 2023 was 21% up slightly from 24% in the same period of the prior year.

Brian W. Poff: The company's adjusted EBITDA increase to $34.3 million compared with $28.2 million a year ago, an increase of 21.6%. Adjusted EBITDA margin was 12.4% compared with 11.4% for the fourth quarter of 2022, and an increase sequentially from 11.4% in the third quarter of 2023, primarily as a result of the expansion in our gross margin. Adjusted net income per diluted share was $1.32 compared with $1.11 for the fourth quarter of 2022. The adjusted per share results for the fourth quarter of 2023 exclude the following. The retroactive impact of collective bargaining negotiations of seven sons. Acquisition expenses of $0.07 and non-cash stock-based compensation expense of $0.12.

Brian: The company's adjusted EBITDA increased to $34 $3 million compared with $28 $2 million a year ago, an increase of 21, 6%.

Brian: Adjusted EBITDA margin was 12, 4% compared with 11, 4% for the fourth quarter of 2022.

Brian: And an increase sequentially from 11, 4% in the third quarter of 2023, primarily as a result of the expansion of our gross margin percentage.

Brian: Adjusted net income per diluted share was $1 32, compared with $1 11 for the fourth quarter of 2022.

Brian: The adjusted per share results for the fourth quarter of 2023 exclude the following.

Brian: The retroactive impact of collecting bargaining collective bargaining negotiations of southern subs acquisition expenses of southern subs and noncash stock based compensation expense of 12 cents.

Brian W. Poff: The adjusted per share results for the fourth quarter of 2022 exclude the following, acquisition expenses of $0.06, restructure and other non-recurring costs of $0.01, and non-cash stock-based compensation expense of $0.13. Our effective tax rate for the fourth quarter of 2023 was 22.8% in line with our expectations. For calendar 2024, we currently expect our tax rate to be in the mid-20% range. DSOs were 39.1 days at the end of the fourth quarter of 2023 compared with 41.5 days at the end of the third quarter of 2023, as we have continued to experience consistent cash collections from the majority of our payers. Our DSOs for the Illinois Department of Aging for the fourth quarter were 49.5 days compared with 41.8 days at the end of the third quarter of 2023. Our cash flows were very strong throughout 2023, with our fourth quarter net cash provided by operations at $30 million. For the year, net cash provided by operations was $119.8 million, exclusive of $7.6 million in ARPA net spend.

Brian: Adjusted per share results for the fourth quarter of 2022 exclude the following.

Brian: Acquisition expenses of six cents restructure and other nonrecurring costs of <unk> and noncash stock based compensation expense of 13 cents.

Brian: Our effective tax rate for the fourth quarter of 2023 was 22, 8% in line with our expectation for.

Brian: For calendar 'twenty 'twenty four we currently expect our tax rate to be in the mid 20% range.

Brian: Dsos were 39, one days at the end of the fourth quarter of 2023, compared with 41 five days at the end of the third quarter of 2023.

Brian: We have continued to experience consistent cash collections from the majority of our players.

Brian: Our dsos for the Illinois Department of aging for the fourth quarter were 49.5 days compared with 41.8 days at the end of the third quarter of 2023.

Brian: Our cash flows were very strong throughout 2023 with our fourth quarter net cash provided by operations at $30 million for.

Brian: For the year net cash provided by operations was $119 $8 million exclusive of $7 $6 million in ARPA net spending.

Brian W. Poff: As of the end of the fourth quarter, we still have approximately $6 million in ARPA funds outstanding to be utilized. As of December 31st, 2023, the company had cash of $64.8 million, with capacity and availability under our revolver of $470 million and $335.6 million respectively. With our strong cash flow, we have continued to pay down debt in 2023 and reduced our revolver balance by an additional $40 million in the fourth quarter. Net of borrowings to fund our acquisitions during the year, we still lowered our revolver balance by $8.5 million from the end of 2020. We continue to have the financial flexibility to invest in our business and pursue our strategic growth initiatives, including acquisition. As we mentioned, we will continue to selectively pursue strategic acquisitions in 2024, dependent on market conditions. At the same time, we will also continue to diligently manage our net leverage ratio, which is currently well under one times net of cash on hand.

Brian: As of the end of the fourth quarter, we still have approximately $6 million in ARPA funds outstanding to be utilized.

Brian: As of December 31, 2023, the company had cash of $64 $8 million with capacity and availability under our revolver of $470 million and $335 $6 million respectively.

Brian: With our strong cash flow, we have continued to pay down debt in 2023 and reduced our revolver balance by an additional $40 million in the fourth quarter.

Brian: Net of borrowings to fund our acquisitions during the year, we still lowered our revolver balance by $8 $5 million from the end of 2022.

Brian: We continue to have the financial flexibility to invest in our business and pursue our strategic growth initiatives, including acquisitions.

Brian: As we mentioned we will continue to selectively pursue strategic acquisitions in 2024 dependent on market conditions at the same time. We will also continue to diligently manage our net leverage ratio, which is currently well under one times net of cash on hand.

Brian W. Poff: With another record year in 2023, we look forward to our future opportunities and ability to increase shareholder value. This concludes our prepared comments this morning, and thank you for being with us. I'll now ask the operator to please open the line for your... Ladies and gentlemen, at this time, we'll begin that question and answer session. To ask a question, you may press star and one on your touch-tone phone. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys to ensure the best sound quality.

Brian: It was another record year in 2023, we look forward to our future opportunities and ability to increase shareholder value.

Speaker Change: This concludes our prepared comments this morning, and thank you for being with US I'll now ask the operator to please open the line for your questions.

Speaker Change: Ladies and gentlemen at this time, we'll begin the question and answer session.

Speaker Change: To ask a question you May press Star and one on your Touchtone phone you are using a speaker phone. We do ask you. Please pickup your handset before pressing the keys to ensure the best sound quality.

Joanna Gadjuk: To withdraw your questions, you may press star and two. Again, that is star and then one to join the question queue, pause momentarily to assemble the, And our first question today comes from Joanna Gadjuk from Bank of America. Please go ahead with your question. Thank you. Good morning.

Speaker Change: Withdraw your question you May press Star two.

Speaker Change: Once again that is star and then wanted to join the question queue.

Speaker Change: Momentarily to assemble the roster.

Speaker Change: And our first question today comes from Julianna <unk> from Bank of America. Please go ahead with your question.

Julianna: Oh. Thank you good morning, Thanks for taking the question. So first maybe on that on the quarter for yourselves and I guess as it relates to our 24 mm, which you know you don't give specific outlook.

Joanna Gadjuk: Thanks for taking the questions. So, I guess, first, maybe on the quarter results, and I guess as it relates to 24, which, you know, you don't get specific outlook, but just to get a sense of Q4 margins were above 12%, right? Clearly outperformed here and up 100 basis points year over year. So I guess you outlined a couple of different things.

Julianna: Just to get a sense of Q4 margins were bass, 12% likely outperform here and a 100 basis points year over year.

Speaker Change: So against that you outlined a couple of different things I guess are the bad debt benefit. It seems like you don't assume it's gonna per se, but I guess outside of that how much of this margin improvement is sustainable and you know when we think about 'twenty four I understand you know you talk about Q1, being a weaker quarter, especially sequentially.

Joanna Gadjuk: I guess the bad debt benefit seems like you don't assume it's going to persist. But I guess outside of that, how much of this margin improvement is sustainable? And, you know, when we think about 24 as a full year, I understand, you know, you talk about Q1 being a weaker quarter, especially sequentially. As we think about the full year, you know, it's 11.4, I guess, that you reported in 22 years.

Speaker Change: But as I think about the full year you know is down 11.4, I guess that you could put it in 22 years.

Joanna Gadjuk: As you adjusted into the down margin, is that a good starting point for the full year 24? How should we think about the full year? Thank you.

Speaker Change: Adjusted EBITDA margin is that a good starting point for them for the full year 'twenty four or how should we think about the full year. Thank you.

Speaker Change: Yeah, Joanna I think I'm, obviously, I gave a little bit of color on expectations sequentially from Q4 to Q1, you're right. One just you know typical seasonality with payroll taxes and merits, we typically see our lowest margin in Q1, we typically see that kind of ease through the year I think we would expect to see that again in 2024.

Brian W. Poff: I think, obviously, give a little bit of color on expectations sequentially from Q4 to Q1. You're right on this, you know, typical seasonality with payroll taxes and merits, we typically see our lowest margin in Q1. We typically, you know, see that kind of ease through the year. I think we would expect to see that again in 2024.

Brian W. Poff: But I think, you know, with, you know, not not expecting, I guess, for the same cadence of rate increases on the personal care side in 24 that we've seen, we expect margins to be fairly consistent. But I think, you know, part of the wildcard there is, you know, how successful we are at acquisition. You know, if that mix of the clinical business continues to creep up, that's obviously going to be beneficial overall to margins, but otherwise we would expect this to be a fairly standard year in 24. Thank you.

Speaker Change: But I think you know with you know not not expecting I guess for the same cadence of rate increases on the personal care side and 24 that we've seen.

But we'd expect margins to be fairly consistent but I think you know part of the wildcard. There is you know how successful we are at acquisitions, you know what that mix of the clinical business continues to creep up that's obviously going to be beneficial overall to margins, but otherwise we would expect this to be a fairly standard year in 'twenty four.

Speaker Change: Thank you and I guess follow up to that when it comes to the rate increases in personal care.

Brian W. Poff: And I guess follow up to that, when it comes to the rate increases in personal care. So previously, you talk about the rate increase you expect in Illinois, January 1. Any other states with rate increases?

Contingency you talk about that that the rate increase you are studying Illinois January one any other states would pay increases and I guess, what what kind of average rate increased excluding Illinois, you didn't expect.

Brian W. Poff: And I guess what kind of average rate increase excluding Illinois do you expect, you know, for the year and going forward? Yeah, I think currently right now, we don't see any other material rate increases from from states that are currently scheduled. I think as we move through the year, obviously, that's always kind of subject to change. We did recently receive notice, we're going to get another rate increase in our VA program, which is the federally funded program, and that'll impact us in a few of our markets, but nothing else really probably sits a note. Yeah, I think, you know, one of the things that we have said for a number of years is we wanted to get back, to where when you look at our personal growth rate, you had about half to two thirds in volume and the rest in price increases.

Speaker Change: You know for the year and going forward.

Yes, I think currently right now we don't see any other material rate increases from from states that are currently scheduled I think as we move through the year. Obviously, that's always subject to change. We did recently received notice we're gonna get another rate increase in our VA program, which is the federally funded program, although it will impact us in a few of our markets, but nothing else.

Speaker Change: Really probably sits a note.

Speaker Change: I think you know.

Speaker Change: One of the things that we have said for a number of years as we wanted to get back.

Speaker Change: To where when you look at our personal care.

Speaker Change: Our growth rate you had about half to two thirds.

Speaker Change: In volume.

Speaker Change: And the rest.

Speaker Change: And price increases and a well during the pandemic, we saw that shift and mainly get price increases as far as our growth. We haven't seen that start to revert back to normal. So for 2024, we expect that to be the case about a third of our growth will be through rate increases.

Brian W. Poff: And while during the pandemic, we saw that shift and mainly get price increases as far as our growth, we have seen that start to revert back to normal. So for 2024, we expect that to be the case. About a third of our growth will be through rate increases, you know, 50% to two-thirds of our growth should be through volume. And I guess to that end... Since you mentioned it, so is it fair to assume, you know, you're kind of a 3-5% organic group for personal credit too? I've been talking about it in the past, you know, is that a fair assumption for 24?

Speaker Change: 50% to two thirds of our growth should be through volume increases.

Speaker Change: And I guess to that and.

Speaker Change: Since you mentioned it that is it fair to assume you know you kind of a 3% to 5% organic growth for personal credit you.

Speaker Change: <unk> been talking about it.

Speaker Change: In the past is that a fair assumption for a 24.

Speaker Change: Yeah, I think obviously getting another rate increase in Illinois, we talked about some of the margin profile of that previously not not expect a lot of pass through but it is you know are still a nice rate increase one of our largest markets, but I think our expectation. This year 2023, we were obviously over double digits, all you're not expecting to see that same rate in 'twenty four but.

Brian W. Poff: Yeah, I think obviously getting another rate increase in Illinois, we talked about some of the margin profile that previously not not expecting a lot of pass through, but it is, you know, still a nice rate increase, one of our largest markets, but I think our expectation this year, 2023, we were obviously over double digits all year, not not expecting to see that same rate in 24, but would expect to be toward the top end of that three to five, if not slightly above for 24. And if I may just squeeze the very last one on the cash flow following up very strongly in Q4 and the year. So I guess if you adjust for the ARPA funds utilization, so it's almost like 100% EBITDA conversion for the full year. So how should we think about this cash flow conversion going forward? Is that sustainable?

Speaker Change: We would expect to be towards the top end of that three to five if not slightly above 24.

Speaker Change: And if I may I, just squeeze a very last one on the on the casual following up very strongly in Q4 and end the year. So I guess, if you adjust for the the ARPA funds.

Speaker Change: Utilization, so it's almost like 100% EBITDA conversion.

Speaker Change: Whole year, so how should we think about this cash flow conversion going fully that's sustainable or how should we think about I think rational for 'twenty four and going forward. Thank you.

Brian W. Poff: Or how should we think about offering cash flow for 2024 and going forward? Thank you. It's not going to be at 100% rate. We got some very positive working capital tailwind, I think, on our cash flow in 23. We wouldn't expect that.

Speaker Change: It's not going to be 100% Ray we got some some very positive working capital tailwind I think on our cash flow in 'twenty three we wouldn't expect that obviously, that's not sustainable you know long term, but I think we've talked about our cash flow conversion in the past have been you know, 75% to 80% of kind of adjusted EBITDA, which I think is pretty.

Brian W. Poff: Obviously, that's not sustainable, you know, long term. But I think we've talked about our cash flow conversion in the past of being, you know, 75 to 80% of kind of adjusted EBITDA, which I think is pretty consistent expectation for 24. Thank you. Our next question comes from Scott Fidel from Stevens, please go ahead with your question. Thanks. Good morning.

Speaker Change: So some expectation for 'twenty four.

Yeah.

Speaker Change: Okay.

Speaker Change: Our next question comes from Scott Fidel from Stephens. Please go ahead with your question.

Scott J. Fidel: Thanks, Good morning, Chris.

Scott J. Fidel: Appreciate, Dirk, all the comments you gave us just on the final rule and, you know, I thought your tone maybe sounded a little more positive, you know, as we're getting closer to the final rule here in terms of maybe some potential flexibilities that will be included in the final rule and then just tone around, you know, deploying, continuing to deploy capital into the personal care market. You know, sort of as we move past this final rule. First, I want to get a sense of whether that's accurate. And then I thought it might be helpful if, you know, you just wanted to talk about, you know, when you see the final rule, you know, maybe what would be some of the key changes specifically that you'll be looking for that you would view as sort of, you know, milestones that would, you know, keep you confident in deploying capital for the long term in the personal care market. Thank you, Dirk. Now, Scott, thanks.

Scott J. Fidel: Appreciate all.

Scott J. Fidel: All the comments you gave us just start.

Scott J. Fidel: The final rule in and.

Scott J. Fidel: I thought your tone, maybe kind of a little more positive as we're getting closer to the final rule here in terms of.

Scott J. Fidel: Maybe some potential flexibilities that will be included in the final rule.

Scott J. Fidel: And then just tone around deploying continuing to deploy capital into the personal care market.

Scott J. Fidel: As we move past. This final rule first wanted to get a sense of whether that that's accurate and then I thought it might be helpful. If you.

Scott J. Fidel: Just wanted to talk about you know.

Scott J. Fidel: When you see the final rule.

Scott J. Fidel: Maybe what would be some of the key changes specifically that you'll be looking for that you would view as sort of you know our milestones that would.

Scott J. Fidel: Keep your confidence and deploying capital after the long term in the personal care market.

Speaker Change: Yeah, Scott. Thanks, Oh, we are more positive about the Medicaid access rule, we think theres been a number of comments.

Dirk Allison: We are more positive about the Medicaid access rule. We think there's been a number of comments, from various stakeholders, including a number of the states, a number of which we mentioned to you before were Democratic states that are close to the Biden administration. I think the thing that we all understand about the Biden administration is they're very supportive of the personal care industry. They want to make sure that our elderly and disabled population have greater access to care, not less care. And so as we continue to work through the comments of the rule and look at our own situation of how we would operate if the rule at various aspects are put in, we become very very bullish on the fact that that this industry is going to continue to grow. It is going to be one that we believe will be supported by the states. We believe state programs will look at any final rule.

Speaker Change: From various stakeholders, including a number of the states a number of which we mentioned to you before we're democratic stage that are close to the Biding administration.

Speaker Change: I think the the thing that we all understand about the Baidu administration as they are very supportive of the personal care industry. They want to make sure that our elderly and disabled population have greater access to care not less care.

Speaker Change: And so as we continue to work through the comments of the rule and look at our own situation of how we would operate at.

Speaker Change: If the rule at various aspects or put in we become very.

Speaker Change: Very bullish on the fact that this industry is going to continue to grow.

Speaker Change: It is going to be one that we believe will be supported by the states. We believe state programs will look at any final rule in and again realizing that just becomes a final rules published doesn't mean that we'll never get in there'll be legal challenges and other things that will go through but as we prepare going forward, we're doing things such as creating a more efficient ways of.

Dirk Allison: And again, realizing that just because the final rule is published doesn't mean that'll ever get in. There'll be legal challenges and other things that we'll go through. But as we prepare going forward, we're doing things such as creating more efficient ways of scheduling. We're putting dollars into our ability to take some of the cost out of scheduling and to be more effective in our cost basis so that whatever structure that comes through at us will be one of the survivors of the industry and will grow as we did, as you kind of saw through the situation in Illinois when that percent was put in and larger providers were able to operate very effectively and gain market share through the period.

Speaker Change: Scheduling.

Speaker Change: We're putting dollars into our ability to take some of the cost out is scheduling and to be more effective in our cost basis, so that whatever structure they come through.

Speaker Change: <unk> will be one of the survivors of the industry and will grow as we did as you kind of saw through the situation in Illinois win when that percent was put in and and larger providers were able to operate very effectively and gain market share through the period. So for US we're doing things alone.

Dirk Allison: So for us, we're doing things along investments into scheduling, investments into recruitment and retainage, our value-based investments. And then also, we're really focused now on both the backfill acquisition opportunities we're seeing as well as some of the larger opportunities we expect to see, which could take us into new markets, for Addus, but in such a manner that would start in a material way, because we believe the large providers, as I stated in our script, we believe the large providers are going to have a tremendous benefit in the person care side as this rule, if this rule is ever put into place. Okay, got it.

Speaker Change: <unk> into scheduling investments into recruitment to retain each our value based investments and then also we're really focused now on the both the backfill acquisition opportunities we're seeing.

Speaker Change: As well as some of the larger opportunities, we expect to see which could take us into new markets paradis, but in such a manner that would start in a material way because we believe the large providers as I stated in our script. We believed the large providers are going to have a tremendous benefit and the person.

Speaker Change: Her side.

Speaker Change: As this rule.

Speaker Change: Rule is ever put into place.

Speaker Change: Okay got it and just as my follow up just on the business.

Scott J. Fidel: And just as my follow-up, just on the business, just, you know, we'd be curious if you wanted to maybe drill a little bit into how you're thinking about hospice segment margins for 2024. You know, obviously, had the rate increase effective in 4-1. So, you know, maybe how you're thinking about sort of that rate against maybe how you're thinking about cost per visit for hospice and, you know, and then with some of the volume trends, how you're thinking that could translate into margins for hospice. Do you think this could be a year for margin expansion in hospice, or are you targeting, you know, trying to hold margins relatively constant? Yes, Scott, I can take the first part on the margins.

Speaker Change: Would be curious if you if you wanted to maybe drill a little bit into how youre thinking about hospice segment margins for 2020 for obviously had the rate increase effective in four one.

Speaker Change: So you know, maybe how you're thinking about sort of that rate against maybe how you're thinking about cost per visit for hospice in and and you know how and then with some of the volume trends are how you're thinking that could translate into what into margins broad hospital. You think this could be a year for margin expansion in hospice are you targeting trying to hold margins relatively.

Speaker Change: Content.

Speaker Change: Yeah, Scott I can take the first part on the margins and I'll, let Brad talk a little bit about just some of the volume expectations, but I think obviously with a three 1% increase you know our typical merit is probably around that 3% range. Obviously wages are 100% of our cost bases. So because there's probably a little bit of pull through there, but I think our expectation overall is not.

Brian W. Poff: And I'll let Brad talk a little bit about just some of the volume expectations. But I think, you know, obviously, with a 3.1% increase, you know, our typical merit is probably around that 3% range, obviously, wages aren't 100% of our cost base. And so, yeah, there's probably a little bit of pull through there.

Brian W. Poff: But I think our expectation overall is not to really see, you know, material margin expansion and hospice, but to maintain maybe a little bit, like I said, of a pull through. I'll let Brad talk a little bit about kind of volume expectations. Yes, Scott, on the volume side, you know, we, if you look at our year over year results, you know, we were essentially kind of flattish on the volume side. Having said a lot of that was due to some, you know, has pretty heavy discharges in Q4.

Speaker Change: Really see you know a material margin expansion in hospice, but to maintain maybe a little bit like I said have a pull through but I'll, let Brad talk a little bit about kind of volume expectations for this year, yes, Scott on the volume side.

Brad: If you look at our year over year results.

Brad: You know we were essentially kind of flattish on the volume side that means that a lot of that was due to some.

Brad: Pretty heavy discharges in Q4.

Brad Bickham: We expect, you know, with the strong admission volumes that we've seen over the past couple of quarters, that'll start translating into some ADC growth. So I think we're kind of looking in that, you know, five to 7% revenue growth for the hospice segment. Okay, got it. So it sounds at the top end of that, Brad, pretty evenly split between rate and volumes with a 3% rate increase. Yeah, roughly.

Brad: We expect our you know with the strong admission volumes that we've seen over the past couple of quarters that will start translating into some ADC growth. So I think we're kind of looking in that.

Brad: 5% to 7%.

Brad: Our revenue.

Brad: <unk> growth for the hospice segment.

Speaker Change: Okay got it so sounds at the top end of that Brad pretty evenly split between rate right and volumes.

Speaker Change: For with a 3% rate increase.

Brad: Yes, roughly.

Speaker Change: Okay. Thank you.

Scott J. Fidel: Okay, thank you. Our next question comes from Brian Tanquilut from Jefferies. Please go ahead with your question. Hey, good morning, guys, and congrats on the quarter. Dirk, maybe as I think about your M&A philosophy, I understand, obviously, staying on the sidelines right now given the regulatory uncertainty, but how are you thinking about, you know, if the rule comes out and the 80% rule goes through, is that the opportunity point, you know, given maybe the stress or concerns among other players in the space, or does that preclude you from getting more aggressive and, you know, as you wait for finality on the rule? How are you thinking about that?

Brian W. Poff: Our next question comes from Brian check with Jefferies. Please go ahead with your question.

Brian W. Poff: Hey, good morning, guys and congrats on the quarter.

Brian: Maybe as I think about your M&A philosophy, I understand obviously save the sidelines right now given the regulatory uncertainty, but how are you thinking about you know if the rule comes out and the 80% rule goes through.

Brian W. Poff: Is that the opportunity point, you know given maybe distress or concerns among other players in the space or does that preclude you from getting more aggressive and you know as you wait for finality on the rule how are you thinking about that.

Brian Gil Tanquilut: Yeah, you know, I think once we have a final rule, we're of a size and have financial flexibility enough that we're going to operate, I think very effectively in whatever rule comes through. So what we'll do, we'll wait and see what the final rule is. We'll also have to understand the particular challenges that may occur with those rules.

Brian Check: Yeah.

Brian Check: Once we have a final rule were of a size and a financial flexibility enough we're going to operate.

I think very effectively in whatever rule comes through so what we'll do we'll wait and see what the final rule is well also have to understand the particular challenges that may occur with those rules, but once it comes out.

Dirk Allison: But once it comes out, we've started thinking through how do we grow our business in what particular markets, there'll be certain states that will be more advantageous for us to look to grow in, there may be some states that will have to wait and see what the various Medicaid programs in those states try to do, think to do in response to any particular rule. So I think for us, just the fact that we have a final rule, even though we know it will be challenged by various states, will allow us to then refine our strategy and continue with what we're doing. And as I mentioned, we're already starting to do some of the things that we think will make a successful in whatever the rule is. And that is investment in technology, as it relates to scheduling, trying to take cost out of the back office in our scheduling, looking at how we can more appropriately use the caregivers we have and give them more hours, which will help both with retaining them as well as recruitment costs for new folks. So we're pretty excited.

Brian Check: We've started thinking through how do we grow our business and what particular markets there'll be certain states that will be a more advantageous for us to look to grow in there may be some states that we'll have to wait and see what the various Medicaid programs in those states try to do a thing to do in response to.

Brian Check: Any particular rules so I think for US just the fact that we have a final rule, even though we know it will be challenged by various states will allow us to then refine our strategy and continue with what we're doing and as I mentioned, we're already starting to do some of the things we think will make us successful and whatever the rule is and that is <unk>.

Brian Check: <unk> and technology.

Brian Check: As it relates to scheduling trying to take cost out of the base ex the back office and our scheduling looking at how we can more appropriately use the caregivers, we have and give them more hours, which will help both with.

Brian Check: Retaining them as well as recruitment costs for new products. So we're pretty excited.

Dirk Allison: You know, obviously, We would rather us be able to have a little more flexibility depending on the state in which you operate. We hope that's where the final rule goes, but we're prepared to operate in any manner in which it is finalized. I appreciate it.

Brian Check: You know obviously.

Brian Check: We would rather us be able to have a little more flexibility depending on the state in which you operate and we hope that's where the final rule goes.

Brian Check: But we're prepared to operate in any manner in which it is finalized.

Speaker Change: No I appreciate it and then my one follow up as I think about your comments on value based care and trying.

Brad Bickham: And my one follow up, as I think about your comments on value based care, and you know, trying to get make inroads there, what what does Addus need to do, whether it's investment in capacity or investments in capabilities or expansion and of service lines? I mean, what will you as a company need to do to gain traction and really get the ball rolling there? Well, I think, you know, if you look at our value based programs that we've been in several for, you know, two years now, and they've collected a lot of favorable information that we believe will be useful in demonstrating value to, you know, manage Medicaid that has full risk, but then also potentially Medicare Advantage as well.

Speaker Change: Trying to get to make inroads there.

Speaker Change: What does it add as needed to do whether it's investment in capacity or investments in capabilities or expansion of service lines. I mean, what will you as a company need to do to gain traction and really get the ball rolling there.

Speaker Change: Well I think if you look at our value based programs that we've been in several for.

Speaker Change: Two years now and they have collected a lot of favorable information that we believe will be useful and demonstrating value to.

Speaker Change: To.

Speaker Change: Managed Medicaid that has full risk, but then also potentially Medicare advantage as well.

Brad Bickham: I think Dirk alluded to in his comments that we have recently implemented a new case management software that's going to allow us, scale that program, I think, significantly. It'll also allow us to do some analytics that we haven't had access to before that I think will help further improve the outcomes that we've already demonstrated. So I think there's a real opportunity there. You know, what we have found that's kind of interesting is, you know, it really starts with personal care in the home and the information that we can collect from our caregivers regarding the clients that we're serving can really influence outcomes. So we're very positive on where the value-based program is going, and we'll continue to invest time. Awesome.

Speaker Change: Dirk alluded to in his comments that we have recently implemented a new case management software that's going to allow us to scale that program I think significantly it'll also allow us to do some analytics that we haven't had access to before that I think will help further improve the outcomes that we've already demonstrated so I think there's.

Speaker Change: You know reel.

Speaker Change: Opportunity there are you know what.

Speaker Change: We have found is kind of interesting as you know it really starts with personal care in the home and the information that we can collect from our caregivers are regarding the clients that we're serving can really influence the outcomes. So we're very positive about where the value based program is going and will continue to invest in it.

Speaker Change: Awesome. Thank you guys.

Brad Bickham: Thank you, guys. Our next question comes from Ryan Langston from TD Cowen. Please go ahead with your question. Hi, good morning. Just a couple quick ones for me.

Our next question comes from Ryan likes then from TD Cowen. Please go ahead with your question.

Speaker Change: Yeah.

Ryan: Hi, Good morning, just a couple quick ones for me I guess, maybe Brian how do we think about the progression just quarter to quarter seasonality from these union negotiations maybe outside of the first quarter.

Ryan Langston: I guess maybe, Brian, how do we think about the progression, just quarter to quarter seasonality? Detail there. And then it looks like billable hours per employee in PCS, www.addushomecare.com, Yeah, I'll take the first part. I'll let Brad talk about the hours for caregiver. But on the on the union side, I think really, we've talked about the impact that's going to kind of come through with the Illinois rating freeze, Chan one, we made some concessions, their enhanced benefit packages for those employees. So we're not expecting to see, you know, much of any real margin kind of pull through in q1. But there's really no other seasonality.

TD Cowen: [noise] detail there and then.

Ryan: Like billable hours per employee and P. C. S. Just continues to kind of steadily move up a little bit sequentially I understand certain markets have caps on allowable hours and things, but how do we think that may be progressing over the next one to two years.

Speaker Change: Yeah, I'll take the first part I'll, let Brad talk about the hours for caregiver, but on the on the Union side I think really we talked about impact that's going to kind of come through with the Illinois rate increase Gen. One we made some concessions there enhanced benefit packages for those employees. So we're not expecting to see much if any real margin kind of pull through.

Brad: In Q1, but theres really no other seasonality once that's kind of in it and there's no kind of adjustment in Q2, Q3, So I wouldn't expect to see any other adjustments up or down kind of through the year. It should be whatever we kind of see it in Q1, which we've kind of indicated what we think that will look like it should be pretty static for the year.

Brian W. Poff: And once that's kind of in, it's in, there's no kind of adjustment, q2, q3. So wouldn't expect to see any other, you know, adjustments up or down kind of through the year, it should be whatever we kind of see in q1, which we've kind of indicated what we think that will look like, should be pretty static for the year. Yeah, and then when you're looking at the hours piece, you know, we have seen improvement in what we call our service percentage or fill rate. You know, a lot of that is due, I think, to some of the initiatives that we've put in place this year to really refocus on scheduling clients and caregivers. We still have room to go. As far as you alluded to kind of the cap, which is the authorized hours, we still have continue to have some opportunity there to improve those numbers. Got it, thank you. Once again, if you would like to ask a question, please press star and then one. To remove yourself from the question queue, you may press star and two.

Brad: Yeah, and then when you're looking at the hours. These are you know we have seen improvement in what we call our service percentage or fill rate you know a lot of that is due I think to some of the initiatives that we've put in place this year to really refocus on scheduling our clients and caregivers are we still have room to go as.

Brad: Far as you'd alluded to kind of the cap, which is the authorized hours are we still have a continue to have some opportunity there to improve those numbers.

Speaker Change: Got it thank you.

Speaker Change: Once again, if he would like to ask a question. Please press star and then one for me.

Speaker Change: Yourself from the question queue, you May press Star two.

Brad Bickham: Our next question comes from John Ransom from Raymond James. Please go ahead with your question. Hey, good morning, you know, this small part of your business, but this, you know, this relentless makeshift and you know, payor mix in the home health business. Dirk, do you think, I mean, yeah, the two of the big M.A.

Speaker Change: Our next question comes from John Ransom from Raymond James. Please go ahead with your question.

John Ransom: Hey, Yeah good morning.

John Ransom: You know this small part of your business, but you know this relentless mix shift and.

John Ransom: Yeah payer mix in the home health business.

John Ransom: Or do you think.

I mean, you know that two of the big MAA payers or are digesting our acquisitions.

John Ransom: payers are digesting, you know, acquisitions of home health, and so they're going to push some stuff, but do you think once they've digested these mergers and have figured out how much they can allocate to their internal home health, is there any sort of daylight, in your opinion, on the rate release? And then secondly, does it help to have, you know, personal care and hospice to trade when you have these discussions? Or should we just expect kind of this just continued relentless shift to keep going and the payers to kind of stick with a relatively low kind of per visit rate? You know, I think they'll continue just for home health companies. I think they'll continue to be pressures as the percent of Medicare beneficiaries move more toward Medicare Advantage and away from fee-for-service. I think we've seen that the last couple years.

John Ransom: Acquisitions of home health.

John Ransom: And so they're going to push some stuff, but do you think once they've adjusted these mergers and figure out how much they can allocate to their internal home health.

John Ransom: Is there any sort of daylight.

John Ransom: In your opinion on the rate on rate relief and then secondly, it does it does it help to have you.

John Ransom: Personal care and hospice to trade when you have these discussions or should we just expect kind of it's just continued relentless shift to keep going in and the payers to kind of stick with a relatively low kind of per visit rate calculation.

Speaker Change: Yeah, you know I think they'll continue just for home health companies I think they'll continue to be pressures as are.

Speaker Change: The percent of Medicare beneficiaries moved more toward Medicare advantage and away from fee for service I think we've seen that the last couple of years I think the great thing for US remember home health, 6% of our business. It's not a business that is when we'd look to what home health is for US it's an important part of our business.

Dirk Allison: I think the great thing for us, remember, home health is 6% of our business. It's not a business that, when we look to what home health is for us, it's an important part of our business, but it really works with value-based care for us. It works to supplement what we do on our personal care side. So for us, we're able to sit across, in those markets where we have all three levels of care, specifically as it relates even just to personal care and home health, we're able to use our personal care coverage across the state as leverage, with our payers to help us drive rates to a more appropriate level, much more so than in those markets where if we just would have home health by itself. So while the, You know, why the big acquisitions by the big payer?

Speaker Change: It really works with value based care for us It works to supplement what we do on our personal care side. So for US we're able to set across in those markets where have all three levels of care specifically as it relates even just to personal care and home health, we're able to use our personal care coverage across the state as leverage with.

Speaker Change: Our payors to help us drive rates to a more appropriate level much more so than in those markets, where if we just would have home health by itself. So while the you.

Speaker Change: You know why the big acquisitions by the Big payer.

Dirk Allison: certainly going to continue to affect the market for a long period of time. It really doesn't affect Addus much at all, just because of our locations and the size of our home health and what we really are focused on, which is building our personal care business, our value based business and using clinical services on top of that to help supplement that particular growth. Great.

Speaker Change: Certainly going to continue to affect the market for a long period of time, it really doesn't affect as much at all just because of our location and the size of our home health and what we really are focused on which is building our personal care business, our value based care business and using clinical services on top of that to help.

Speaker Change: I meant that particular growth.

Speaker Change: Great and then my follow up and again. These are I recognize this is a personal care but.

Dirk Allison: And then my follow-up, and again, these are, I recognize this is not personal care, but, Do you all think that the pandemic-induced changes in hospice and also kind of the mortality, we lost too many seniors in 2021, 2022, but do you think hospice will normalize and go back to its old growth rates? Or is there something also structural there that just means that it's maybe a less growthy business than it used to be? Well, I do think there was a lot of structural changes that that happened to hospice during the pandemic. You had the accelerated death rates of the elderly population that normally would be your clients in hospice down the road. We have expected this to return to a more normalized level the last couple of years, and we're still at times, struggling with some of the things that have occurred as far as trying to get back to that normal rate. But I will say this. I do believe it will get back. I believe hospice is a much needed service.

Speaker Change: Do you all think that the the pandemic induced changes in hospice and also the kind of the mortality that we lost with so many seniors in 2021 'twenty two but do.

Speaker Change: Do you think the hospice will normalize and go back to its old growth rates or is there something also structural there that's meaningful that maybe are less grocery business than it used to be.

Speaker Change: Well I do think there was a lot of structural changes that are there.

Speaker Change: That happened the hospital during the pandemic had the accelerated at the rates of the elderly population that normally would be your clients in hospice down the road.

Speaker Change: We have expected this to return to a more normalized levels. The last couple of years and we're still at times struggling just.

Speaker Change: With some of the things that have occurred as far as trying to get back to that normal rate, but I will I will say this I do believe it will get back I believe hospice is a.

Dirk Allison: And I think as we continue down the road, you'll see the admissions rate level out and become back more to what we were expecting. I think you'll see the ADC growth start to, see the more consistent than what we've seen maybe the last couple of years. I mean, even in our business, as we've seen it, while we've struggled with things such as making sure we could hire enough caregivers, that's been a challenge the last couple of years. But we're starting to see on the hospice side of our business, it really start to level out a bit. I mean, we had three point one, three point five percent growth while our ADC was down. As Brad mentioned on one of his questions, we had a extraordinary number of discharges in the fourth quarter above what we have seen historically in our company. And we don't expect that to continue.

Speaker Change: Much needed service and I think as we continue down the road you'll see the the.

Speaker Change: Admissions rate level out and they come back more to what we were expecting I think you'll see the ADC growth start to.

Speaker Change: C B, a more consistent and what we've seen maybe the last couple of years I mean, even in our business as we've seen them. All we've struggled with things such as making sure we could hire enough caregivers Oh, that's been a challenge the last couple of years.

Speaker Change: But we're starting to see on the hospice side of our business it really.

Speaker Change: Start to level out a bit I mean, we had $3 one 3.5% growth while our ADC was down a branch as Brad mentioned on one of his questions. We had a extraordinary number of discharges in the fourth quarter above what we have seen historically in our company and we don't expect that to continue so once that comes back.

Dirk Allison: So once that comes back, we believe that hospice will get back to where it was at prior to pandemic level. All right, thanks so much. Thank you, John. And ladies and gentlemen, in showing no additional questions, we'll be ending today's question and answer session. And I'd like to turn the floor back over to Dirk Allison for any closing remarks. Thank you, operator. We want to thank everybody today for your interest in Addus and for being part of this call. And we hope that you have a great, And ladies and gentlemen, with that, we'll conclude today's conference call. We thank you for attending today's presentation. You may now disconnect your

Speaker Change: If we believe that our hospice will get back to where it was at a prior.

Speaker Change: Prior to pandemic levels.

Speaker Change: Alright, thanks, so much.

Speaker Change: Thank you John.

Speaker Change: And ladies and gentlemen, im showing no additional questions. We will be ending today's question and answer session and I'd like to turn the floor back over to Dirk Allison for any closing remarks.

Dirk Allison: Thank you operator, we want to thank everybody today for your interest in <unk> and for being part of this call and we hope that you have a great week.

Speaker Change: And ladies and gentlemen, with that we'll conclude today's conference call. We thank you for attending today's presentation. You may now disconnect your lines.