Q2 2024 Addus HomeCare Corp Earnings Call
Good day and welcome to the Addis Homecare's second quarter 2024 earnings conference call. All participants will be in listen-only mode.
Operator: 24 earnings conference call. All participants will be in listen-only mode.
Operator: Should you need assistance, please signal 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, then one on your touchtone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead.
Speaker Change: Should you need assistance, please signal 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, then 1 on your touch-tone phone.
To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead.
Drew Anderson: Thank you, good morning, and welcome to the Addus Homecare Corporation second quarter 2024 earnings conference call. Today's call is being recorded.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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: Without limiting the foregoing, discussions of forecast, estimates, targets, plans, beliefs, expectations, and the like are intended to identify forward-looking statements.
Speaker Change: You are hereby cautioned that these statements may be affected by important factors, among others, set forth in Addus filings with the SEC and in its second quarter 2024 news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements.
Dru Anderson: The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
Speaker Change: The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
Speaker Change: I would now like to turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir.
Dirk Allison: Thank you, Dru. Good morning and welcome to our 2024 second quarter earnings call. With me today are Brian Poff, our Chief Financial Officer, Brad Bickam, our President and Chief Operating Officer.
Speaker Change: As we do on each of our quarterly calls, I'll begin with a few overall comments, and then Brian will discuss the second quarter results in more detail. Following our comments, the three of us would be happy to respond to any questions.
Speaker Change: Before I discuss our results for the second quarter of 2024, I wanted to bring you up-to-date on our recent secondary stock offering, which we completed at the end of June.
Speaker Change: As part of a review of our capital structure pending the acquisition of the personal care operation of Genteva,
Speaker Change: management and our board of directors concluded that it would be prudent to proactively raise common equity
Speaker Change: which would keep our net debt leverage to just over one times following the close of the Gentiva transaction.
Speaker Change: With the help of both Bank of America and Jefferies, along with other of our investment banking partners, we were able to complete a successful stock offering which resulted in our raising net cash proceeds of approximately $176 million after the expenses of the stock offering.
Speaker Change: It is our intention, as we have done previously following similar stock offerings, to utilize these funds over the next 12 to 24 months to allow us to continue sourcing acquisitions of the size and type that will bring additional value to our shareholders.
Speaker Change: I want to thank our banks and shareholders that supported this offer. Our team looks forward to continuing to maintain a conservative ballot sheet while using our capital in a way that brings value to all shareholders of Addus.
Speaker Change: Now let me turn to our financial performance in the second quarter.
Speaker Change: As we announced yesterday, our total revenue for the second quarter of 2024 was $286.9 million
Speaker Change: an increase of 10.4% as compared to $260 million for the second quarter of 2023.
Speaker Change: This revenue growth resulted in adjusted earnings per share of $1.35, as compared to adjusted earnings per share for the second quarter of 2023 of $1.07, an increase of 26.2%.
Speaker Change: Our adjusted EBITDA of $35.3 million was an increase of 24.7% over the second quarter of 2023.
Speaker Change: During the second quarter of 2024, we continued to experience consistent cash flows.
Speaker Change: That, along with our equity offering, has allowed us to pay off all of our outstanding debt and leaves us with approximately $173 million in cash on hand at quarter end.
Speaker Change: It remains our focus to use our financial capacity to acquire strategic operations that align with our overall growth strategy of adding clinical services where we have a strong personal care presence.
Speaker Change: enhancing our existing personal care markets and adding select new personal care markets where we can enter at scale.
Speaker Change: We believe this acquisition strategy will continue to strengthen our ability to participate in value-based contracts with our payers and to adapt to potential any reimbursement changes.
Speaker Change: On June 10, 2024, we announced that we are acquiring the personal care assets of Gentivo, one of the largest providers of hospice services in the United States.
Speaker Change: We believe it is important that personal care providers have scale and broad geographic coverage in states where they operate to be successful, particularly in managed Medicaid states and as a result of the final Medicaid access rule.
Speaker Change: This scale and coverage helps facilitate the development of value-based contracting arrangements.
Speaker Change: allows these providers to spread costs over a bigger revenue base and provides more opportunity for meaningful advocacy with the states in which they operate while also promoting a more favorable hiring and retention dynamic.
Speaker Change: This belief led us to pursue this acquisition with Gentivo.
Speaker Change: Once this deal is closed, Addus will be the number one provider of personal care services in the state of Texas.
Speaker Change: which is primarily a managed Medicaid market. In addition, this transaction gives us larger presence in Arkansas, strengthens our California and Arizona private pay and veterans of their businesses.
Speaker Change: adds a location in eastern Tennessee to our existing operations in the state and provides entry into both Missouri and North Carolina.
Speaker Change: Effective last week, the required waiting period under the Hart-Stock-Rodino Antitrust Act expired in connection with this acquisition, which satisfies one of the key regulatory conditions necessary for the completion of the transaction.
Dru Anderson: This was an important step toward closing. These funds are helpful with both our personal care caregiver recruitment. Over the past couple of years, the acquisition opportunities that aid our strategic opportunities have been somewhat limited due to some unfavorable general market conditions.
Speaker Change: This was an important step toward closing.
Speaker Change: We are targeting finalization of this transaction in the fourth quarter of this year, subject to satisfaction or waiver of the remaining customary closing conditions, including regulatory approvals related to the Texas operation.
Speaker Change: We are very excited about the many new team members that will be joining Addus once this transaction is closed. This team has done a great job in growing the business and providing quality services to customers, which we expect to continue as part of our company.
Speaker Change: Currently, our team is working diligently in transition planning in anticipation of closing.
Speaker Change: During the second quarter, we continued to experience solid results related to our ability to hire caregivers, especially in our personal care segment.
Speaker Change: During the second quarter of 2024, we saw our personal care hiring set a company record at 86 hires per business day, while turnover rates have remained at historically low levels.
Speaker Change: In addition to our strong hiring numbers, we have continued to see consistent momentum in our starts per business day over the past few quarters.
Speaker Change: As for our clinical segment, hiring has continued to improve and seems to be returning to a more normalized pre-COVID hiring environment.
Speaker Change: 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.
Speaker Change: During the second quarter of 2024, we received an additional $2 million, bringing our total to date to approximately $40 million, of which we have over $13 million remaining to utilize.
Speaker Change: These funds are helpful with both our personal caregiver recruitment and retention efforts.
Speaker Change: In our personal care segment, our services continue to receive favorable reimbursement support from many of the states in which we operate, and we believe that our states remain in stable financial condition.
Speaker Change: We feel confident that the personal care services continue to deliver real value to state Medicaid programs as well as our managed care partners through reduction in overall cost of care.
Speaker Change: As for our clinical services, effective October 1, 2023, Medicare hospice reimbursement was increased by approximately 3.1%.
Speaker Change: Earlier this year CMS announced the preliminary fiscal 2025 hospice rate increase of 2.6 percent which will be effective on October 1, 2024.
Speaker Change: On July 30th, the hospital rate increase was finalized at 2.9%.
Speaker Change: Consistent with recent years, we were pleased to see an incremental positive adjustment in the final hospice rate as compared to the original proposal, which may bode well for the pending finalization of the proposed home health rule due later this year.
Speaker Change: On January 1st of this year, home health Medicaid reimbursement was increased by approximately .8%.
Speaker Change: In late June of this year, CMS announced the preliminary rate for home health that would be effective on January 1, 2025, resulting in a reduction of approximately 1.7 percent if finalized as proposed.
Speaker Change: We believe that the final rate for home health may improve slightly based on the increase of the hospice rate between the proposed and final hospice rate rule and consistent with what we have seen over the past few years.
Speaker Change: It is disappointing that CMS continues to pursue reimbursement reductions for home health providers, which we believe limits patient access to this valuable and much-needed service.
Speaker Change: Although the current Medicare home rate environment remains challenging, we continue to believe that traditional Medicare home health reimbursement pressures are likely to moderate over the next few years.
Speaker Change: Now let me discuss our same-store revenue growth for the second quarter of 2024.
Speaker Change: For our personal care segment, our same store revenue growth was 8.8% when compared to the second quarter of 2023.
Speaker Change: During this second quarter of 2024, we saw personal care same-store hours increase by 0.7% as compared to the same period in 2023, and 2.1% as compared to the first quarter of this year.
Speaker Change: Helping us with this growth is our record 86 hires per business day, which I mentioned previously.
Speaker Change: We also saw continued improvement in our percentage of hours served compared to authorized hours, which also has helped our growth.
Speaker Change: While we are pleased to see continued positive momentum in our first care volume trends, at the same time we have seen a slight slowdown in the speed at which new consumers are authorized for care.
Speaker Change: In a few of our person care markets, the Medicaid redetermination process appears to have diverted some state resources from the initial enrollment process, leading to this temporary slowness in qualifying new consumers.
Speaker Change: We anticipate a return to more normal processes as redeterminations are completed in each state.
Speaker Change: Turning to our clinical operations, our hospice same-store revenue increased 6.3% when compared to the same quarter in 2023.
Speaker Change: Our same-store average daily census increased 1.7% when compared to the same quarter last year and was up 3.6% sequentially.
Speaker Change: At the end of the second quarter of 2024, our hospice medium length of stay, exclusive of our journey care and recently acquired Tennessee quality care operations.
Speaker Change: was 29 days as compared to 27 days for the first quarter of 2024.
Speaker Change: As we have done previously, we include our during care operation as it is a higher proportion of shorter length-of-stay patients due to our inpatient units in the Chicago area.
Speaker Change: We are pleased by the steady improvement in our hospice segment this year and anticipate those favorable trends continuing into the second half of 2024.
Speaker Change: Our home health segment saw a same-store revenue increase of 1.6% when compared to the same quarter of 2023, and we saw a same-store total volume increase of 2.1% on a sequential quarterly basis.
Speaker Change: As most home health providers have experienced,
Speaker Change: We continue to be affected by the movement of Medicare beneficiaries from Medicare Pays for Service to Medicare Advantage. However, we have seen steady volume improvements sequentially over the past four quarters in our episodic to non-episodic mix.
Speaker Change: seems to have stabilized over the past several quarters.
Speaker Change: We are continuing to work with our Medicare Advantage partners on near-term per-visit rate increases as we discuss moving to longer-term episodic reimbursement methodologies.
Speaker Change: As we have demonstrated by our recent announcement in the Tiva Trends section.
Speaker Change: Acquisitions continue to be an important part of our growth strategy at Addus. Our targeted minimum annual revenue growth of 10% remains our goal, even with the added size of our revenue base.
Speaker Change: For us to meet or exceed this goal, we will continue to be focused on using our capital to find additional acquisition targets that meet our strategic criteria.
Speaker Change: While we await the closing of the GENTIVA transaction, we will be looking for potential acquisitions for both our personal care and skilled segments, particularly home health.
Speaker Change: Over the past couple of years, the acquisition opportunities that meet our strategic opportunities have been somewhat limited due to some unfavorable general market conditions.
Speaker Change: Our team continues to review opportunities which would strengthen all three of our segments and markets where we currently operate. However, the flow of potential deals continues to be slower than we saw three or four years ago.
Speaker Change: Even with this slower flow of potential deals, we still believe we will be able to complete strategic acquisitions in our markets that will allow us to meet our growth objectives, and we continue to maintain a capital structure that will allow us to take advantage of acquisition opportunities.
Speaker Change: that arise similar to the Gentiba acquisition.
Speaker Change: As for our value-based care efforts, I noted last quarter that we continue to gather data which demonstrates material reductions in both emergency room visits as well as the percentage of patients readmitted to the hospital at various post-discharge intervals.
Speaker Change: 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.
Speaker Change: We are now using this information as part of our conversations with various Medicare Advantage and commercial payers.
Speaker Change: to demonstrate how Addus can be an integral part of providing quality, cost-effective care to plan members that can reduce the overall medical loss ratio while simultaneously improving overall quality of care.
Speaker Change: With our recently announced acquisition of Genteva Personal Care Operations, we will now have the opportunity to enter into Texas with value-based care.
Speaker Change: This is an important market for our growth in diabetes care as we have strong relationships with the managed care payers in the Texas Medicaid program.
Speaker Change: We expect to be able to work with certain of these payers in a value-based approach once the transaction closes.
Speaker Change: Before I close my remarks, I want to thank our team for the care they are providing to our elderly and disabled consumers and patients.
Speaker Change: These last few years have shown that the vast majority of our cases to clients and patients want to receive care at home, which remains one of the safest and most cost-effective places to receive this care.
Speaker Change: We believe the heightened awareness of the value of home-based care is favorable for our industry and will continue to be a growth opportunity for our company.
Speaker Change: 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.
Speaker Change: With that, let me turn the call over to Brian .
Brian: Thank you, Dirk, and good morning, everyone. Addus had another solid financial and operating performance for the second quarter, as we saw positive momentum across all three segments of our business.
Brian: Our results were driven by favorable demand trends for our services, with positive year-over-year and sequential revenue growth in all business lines.
Speaker Change: For the second quarter of 2024, our personal care organic growth was 8.8%, continuing to be well above our normal expected range of 3 to 5 percent.
Speaker Change: This impressive growth reflects continued favorable rate support for personal care services in some of our larger markets, as well as a higher volume of hours. Billable hours per business day were higher by 0.7% over the same quarter last year, and we saw sequential growth in the first quarter of 1.9%.
Speaker Change: While we expect our overall growth from reimbursement increases to moderate as we move through the second half of 2024, we were pleased to see Illinois include another reimbursement increase for our services in their final 2025 state budget.
Speaker Change: Affected January 1st, 2025, our reimbursement rate in the state will increase by approximately 5.5% and will support a minimum wage for our caregivers of $18 per hour.
Speaker Change: This will translate into approximately $23 million in annualized revenue with a margin in the low 20s consistent with the 77% rule in the state.
Speaker Change: We saw further steady improvement in our hospice business in the second quarter, with 6.3% year-over-year organic revenue growth.
Speaker Change: Same store revenue for our home health services, which is our smallest segment, returned to positive growth trends with 1.6% organic revenue growth and higher admissions and volumes compared to the second quarter last year.
Speaker Change: As Dirk noted, total net service revenues for the second quarter were $286.9 million. The revenue breakdown is as follows.
Dru Anderson: Our gross margin percentage was 32.5% compared with 31.7% for the second quarter of 2020. This increase is primarily due to a higher mix of clinical services, as well as a favorable experience in our implicit price concession requirement, as we have continued to see strong cash collections from a majority of our payers. The company's adjusted EBITDA increased 24.7% to $35.3 million compared with $28.3 million a year ago. While we anticipate some slight sequential margin compression primarily in the third quarter, as I discussed, we continue to expect our full-year 2024 adjusted EBITDA margin percentage to remain in the high 11 to 12 percent range.
Dirk Allison: Adjusted G&A expense for the second quarter of 2024 was 20.2%, a decrease from 20.4% in the comparable prior year quarter.
Speaker Change: As a result of the agreement to divest our New York operations, we will bear certain costs in order to effectuate the transfer of the net economic benefit to the buyer under the terms of the agreement.
Speaker Change: As these costs are recorded in our G&A expenses, we saw an increase of 30 basis points in the second quarter of 2024.
Speaker Change: We anticipate the transaction may qualify for sale treatment under GAAP prior to closing.
Speaker Change: As such, we expect to see a total negative impact of approximately 60 basis points in each full quarter going forward until either the transaction qualifies for sale treatment or closing occurs following full regulatory approval.
Speaker Change: The company's adjusted EBITDA increased 24.7% to $35.3 million compared with $28.3 million a year ago.
Speaker Change: Adjusted EBITDA margin was 12.3%, compared with 10.9% for the second quarter of 2023, and was up sequentially from 11.6% in the first quarter of 2024.
Speaker Change: While we anticipate some slight sequential margin compression primarily in the third quarter, as I discussed, we continue to expect our full year 2024 adjusted EBITDA margin percentage to remain in the high 11 to 12 percent range.
Speaker Change: Adjusted net income per diluted share was $1.35 compared with $1.07 for the second quarter of 2023, an increase of 26.2%.
Speaker Change: The adjusted per share results for the second quarter of 2024 exclude the following. Acquisition expenses of $0.13 and non-cash, stock-based compensation expense of $0.12.
Speaker Change: The adjusted per share results for the second quarter of 2023 exclude the following.
Speaker Change: The impact of the retroactive New York rate increase of $0.05, acquisition expenses of $0.08, and non-cash, stock-based compensation expense of $0.13.
Speaker Change: Our tax rate for the second quarter of 2024 was 26.3% within our expectation.
Speaker Change: For calendar 2024, we continue to expect our tax rate to remain in the mid-20% range.
Dru Anderson: DSOs were 36 days at the end of the second quarter of 2024 compared with 34.6 days at the end of the first quarter of 2024. As we have continued to experience consistent cash collections from the majority of our payers. As we anticipated, we saw the timing differences in our receivable payments reflect in our working capital, resulting in net cash flow from operations of $18.8 million for the second quarter, with $57.5 million for the six months ended June 30, 2024.
Speaker Change: The ESOs were 36 days at the end of the second quarter of 2024, compared with 34.6 days at the end of the first quarter of 2024, as we have continued to experience consistent cash collections from the majority of our payers.
Speaker Change: Our DSOs for the Illinois Department of Aging returned to a more historical level for the second quarter at 37.3 days compared with 30.2 days at the end of the first quarter.
Speaker Change: As we anticipated, we saw the timing differences in our receivable payments reflect in our working capital, resulting in net cash flow from operations of $18.8 million for the second quarter, with $57.5 million for the six months ended June 30, 2024.
Speaker Change: We received approximately $2 million in ARPA funding during the quarter, partially offset by a $2.4 million in ARPA funds utilized, and as of the end of the second quarter, we still have approximately $13.1 million in ARPA funds outstanding to be utilized.
Speaker Change: The net proceeds from the offering to Addus after deducting underwriting discounts, commissions, and estimated offering expenses
Speaker Change: We used approximately $81.4 million of the net proceeds for the repayment of all indebtedness outstanding under our credit facility, and the remainder will be used for general corporate purposes, including funding the Gentiva acquisition and any future acquisitions or investments.
Speaker Change: As of June 30, 2024, the company had cash of $173.3 million, with capacity and availability under our revolver of $504.4 million and $496.4 million, respectively.
Speaker Change: We have a solid foundation and the financial flexibility to continue to invest in our business and pursue our strategic growth initiatives, including acquisitions.
Speaker Change: As mentioned, we will continue to selectively pursue acquisitions that align with our strategy, while at the same time being disciplined with our capital spending and managing our net leverage ratio.
Speaker Change: This concludes our prepared comments this morning and we'd like to thank you for being with us.
Speaker Change: I'll now ask the operator to please open the line for your questions.
Operator: To ask a question, you may press star, then one on your touchtone phone. Please do not use a speakerphone, but pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star, then 1 on your touch tone phone. Please do not use a speakerphone, but pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Dao Hui with Macquarie. Please go ahead.
Dao Hui: Hey, good morning. Congrats on a strong quarter. I just want to clarify on two comments earlier. I think, Dirk, I heard you mention there's some slowdown in new consumer growth in personal care services in the United States.
Speaker Change: where Medicaid redetermination is having an effect. Could you quantify the volume implications for the second half?
Brian: And Brian , I think you mentioned the return on price concession leading to margin compression in the third quarter and possibly expansion in the fourth quarter. How do you think your overall margin profile compared to the first half? Thanks.
Brian: Yes, I'll talk about what we're seeing with the reterminations and slowdown. You know, it's not all over our business.
Speaker Change: specific markets, some states.
Speaker Change: seem to have difficulty with the resources that have been allocated and the amount of redeterminations needed during this
Speaker Change: [inaudible]
Speaker Change: And that is that some of the same individuals that would normally look at new consumers and qualify them with authorizations for care, they're being delayed a little bit because those individuals that would do that are still working on finalizing.
Speaker Change: The redetermination process is going on. So, while it's been immaterial, we have noticed it in a couple of markets, but we do believe, as I said, that it returned very quickly to a more normalized state.
Dru Anderson: And Tao, just the second part of your question on implicit price concession, I think the gap that we would see going back to more kind of normal historical levels is probably going to be probably in the 40 to 50 basis points range, so we would expect to see that impact, you know, in Q2 into Q3 to get back into that kind of normal historical pattern.
Speaker Change: And Tal, just the second part of your question on implicit price concession, I think kind of the gap that we would see going back to more kind of normal historical levels is probably going to be probably the 40 to 50 basis points range, so we would expect to see that impact, you know, Q2 into Q3 to get back into that kind of normal historical pattern.
Tao Qiu: Great. And then on the labor trend, we saw a favorable payroll report last Friday, you know, in terms of weakening the broader economy, but stronger hiring in healthcare, particularly home health. Are you seeing any further hiring retention improvement in the third quarter? And are there any meaningful differences between clinical labor and attendant care?
Speaker Change: Great. And then on the labor trend, we saw a favorable payroll report last Friday, you know, in terms of weakening the broader economy, but stronger hiring in.
Operator: Thanks.
Speaker Change: healthcare, particularly home health.
Speaker Change: Are you seeing any further hiring retention improvement in the third quarter?
Speaker Change: And are there any meaningful differences between clinical labor and attendant care? Thanks.
Dru Anderson: From a hiring standpoint, Q3 seems to be consistent with what we saw in Q2, which was record hiring for us. Certainly, on the PCS side, we've had strong hiring numbers for the past year plus. The clinical service line has really consistently improved since probably mid-year last year.
Speaker Change: Yeah, from a hiring standpoint, I mean, Q3 seems to be consistent with what we saw in Q2, which was record hiring for us.
Speaker Change: Certainly on the PCS side we've had, on the personal care side, we've had strong hiring numbers for the past year plus. The clinical service line has really consistently improved since probably mid-year last year.
Speaker Change: Great, thanks for the time.
Speaker Change: The next question is from Scott Fidel with Stevens. Please go ahead.
Scott Fidel: Hi, thanks. Good morning. The first question just would be interested on the home health side. If you wanted to walk us through, you know, what percentage of your contracts would you estimate at this point had been repriced on to the
Speaker Change: on to the preferred contracts and just thinking about, you know, sort of looking at the overall business, sort of how much do you think is sort of baseline now on rates where you can
Speaker Change: You can look to grow volumes in that business and then how much of it is still in that bucket where you're effectively, you know, not allocating as much resources due to not getting sufficient rates from your payer partners.
Speaker Change: Yeah, I mean we've actually we've had some pretty nice wins of late where we've at least moved some payers to kind of closer to lupa rates Maybe not necessarily episodic, but that's a nice wins in a couple of markets I want and particularly actually involved a Medicaid managed provider that in a market that that's a fairly significant payer for us So we're continuing to work that I would say as far as
Speaker Change: Contracts that though, you know, we're not able to service because of a rate. I mean, that's, you know, there's still, you know, in a couple of markets. We have a handful of those, but it has certainly improved over the past couple of quarters.
Speaker Change: Okay and you know I know it's something we haven't talked as much about since there really hasn't been a lot of change it feels like the last several quarters or frankly a couple of years I guess but just you know interested just if you wanted to give us an update on on the Medicare Advantage.
Speaker Change: just as it relates to personal care and, you know, separate from value-based contracting, but just thinking more about
Speaker Change: the benefits that Medicare Advantage providers
Speaker Change: are authorizing and the trends there. I know that it's been pretty slow to ramp, particularly around authorized hours. And just interested in sort of what type of feedback you're seeing for 25. Clearly, it's been a pretty challenged environment in Medicare Advantage in terms of utilization and then reimbursement for MA plans. So just interested how much of a gating factor you think that's gonna be on the 25 trends as it relates to trying to get more, frankly, reasonable sort of levels of hours authorized for personal care services.
Speaker Change: Yeah, I mean, when you look at the supplemental benefit, you know, it came in, you know, several years ago when that came into being. And what we noted back then was that, you know, the number of hours authorized, very low compared to what our main book of business is on the personal care side. They tend to be more challenging to staff.
Speaker Change: You know, infrequent, low hours, even low hours per shift, which makes it challenging to find staff for that.
Speaker Change: We really don't do much of that, I think, outside of maybe about one state. We really had, you know, any kind of, and I wouldn't even call it...
Speaker Change: It's certainly not material from the supplemental benefit, but 2025 is such a small piece of our business that you do see some plans cutting back on that, but we really don't have enough business for that to really make a difference for us.
Speaker Change: Scott, I think, you know, we've been hoping that Medicare Advantage, we'd be able to move from this respite type care to a more traditional
Scott Fidel: personal care. We believe that it has a lot of advantages and the data we're gathering can lead that direction, but it hadn't gathered a lot of
Speaker Change: at this point in time, so it's still some time away. I think the one thing that our numbers do show is that it really solidifies the partnership we have with the Medicaid payers that we have today. They see the benefit.
Speaker Change: of our ability to lower medical loss ratio. So we hope over time, this will move over to the Medicare Advantage.
Dru Anderson: Yeah, I mean, as Doug mentioned, we're really kind of focusing on the value-based side of it, rather than looking at the supplemental benefit portion, because, as we said, that's not a big opportunity there.
Speaker Change: [inaudible]
Speaker Change: Got it. So bottom line on the sub-benefits, clearly not much tailwind for 25 but not much headwind either since there's just limited amount of revenues from that in the base.
Dru Anderson: Yeah, that's a great way to summarize it.
Speaker Change: Yeah, that's a great way to summarize it.
Speaker Change: Okay, got it. Thanks.
Speaker Change: The next question is from Brian Tanquilut with Jefferies. Please go ahead.
Brian Tanquilat: Hey, good morning, guys, and congrats on the quarter. Maybe, Dirk, as you see the recruiting...
Brian Tanquilat: success that you're experiencing right now and
Speaker Change: the
Brian Tanquilat: increase in the number of hives per day, are you seeing any signs that this is the counter-cyclical impact of the economy? And then maybe if we could dig deeper into how you're thinking about the defensiveness of your business if that has changed, you know, post-COVID.
Speaker Change: You know, and by the way, thanks. We appreciate it, Brian .
Speaker Change: You know, as it relates to any kind of recessionary environment we operate in, historically over the last 34 years...
Addis: When that has occurred, Addis has done very well. If you think in terms of our caregivers, it's...
Speaker Change: It's a minimum wage, type caregivers, part-time hours.
Speaker Change: And so what that allows us to do is in those times when maybe people are struggling a bit and they're looking for additional hours of work.
Speaker Change: Maybe you have folks that want to come into the work environment. They have not been in it for a while. We have the ability to operate and to offer them employment or expanded hours because in our business.
Speaker Change: Our demand is pretty recessionary proof. People still need the care. Our reimbursement comes from Medicaid or Medicare in some aspects. And so really, from that standpoint, it's really somewhat defensive in the...
Speaker Change: recessionary environment doesn't affect us and in times it really helps our ability to hire caregivers which should drive continued growth in a personal care business particularly.
Brian Tanquilat: Okay, that makes sense. And then maybe Brian , as I think about just the dynamics on interest expense or interest income for Q3, Q4, I know a lot of that depends on when the GENTIVA deal closes. Just curious how you're thinking about that.
Brian Tanquilat: Yeah, I mean, obviously, we've paid off all of our revolvers, so we've invested, you know, a large portion of our cash on hand in this money market, interest-bearing accounts.
Speaker Change: Any rate you can share with Brian in that, just curious.
Speaker Change: The next question is from Jared Haase with William Blair. Please go ahead.
Speaker Change: Yeah, with respect to, I mean, you're not going to miss out on the clients. It's really just more of a delay in the start-up care. You know, and with respect to new clients coming on board, there's just kind of limited what we can do other than kind of, you know, get those individuals in touch with the appropriate individuals who are the case managers and who are doing the qualification work.
Speaker Change: case managers is they have to kind of work through redeterminations, but then also they have this client, new client workload, and they have kind of a due date to get through the redetermination process, so that is taking up some of their time. But again, as Dirk pointed out, you know, we've seen it just in a couple of markets, and I'll tell you, I mean, frankly, it seems like that's, you know, in those markets, it's starting to get better. We're starting to see volume, a new client volume, actually get, you know, back towards kind of normalized levels.
Speaker Change: Yeah, I mean, if you look at our hiring initiatives, the things that we've done on the front end to make the hiring process smoother, cut down on the delays in getting somebody hired in their first start of care, our billable hours, I think that certainly has helped. We've done some things from a scheduling and IT standpoint to make it easier for service coordinators to schedule and identify where they have open shifts and where they have caregivers that have availability. You know, I think there's still some opportunity to make some incremental improvements there. But, you know, we've made some pretty significant advances over the past year or so. I think the improvements going forward will be more incremental.
Speaker Change: Okay, that's great. Thank you.
Speaker Change: The next question is from Joanna Gajuk with Bank of America. Please go ahead.
Johanna Gajuk: Hi, thank you so much. This is Joanna Gajuk here. So I guess, first clarification question.
Johanna Gajuk: to some degree, I guess, to the EBITDA margins this quarter, where it was better, and your outlook calls for higher margins compared to your prior comments, because you kind of talk about above 11, but now you're talking about like
Speaker Change: I guess, could you, maybe I missed it, but could you frame for us, you know, what drove that, what's driving this better, either the MRG, because it sounds like embedded in this is some heroin you're seeing from the New York...
Margie: Transitioning still, so excluding that, what's driving that better EBITDA margin?
Speaker Change: I think just sequentially, I think, you know, we obviously get relief as we move through the year from payroll taxes.
Margie: is usually low for us, so there's some impact there. I think we expected.
Margie: You know, it puts the price concession, as we talked about, to kind of come back to more historical, and it stayed pretty low, still in.
Margie: in Q2, but we expect that to come back up. But I think, you know, our comments around our bottom line, even the...
Margie: At some point, if we were to receive sale consideration or we get the regulatory approvals and we close that transaction, that should have a positive impact on our bottom line, even at margins at that time, with that business being low margin to begin with, but like I mentioned in my comments.
Speaker Change: You know, we have a mechanism where essentially we have zero EBITDA from that business affected with the signing.
Speaker Change: of that agreement, which was kind of mid-May. So we'll see the first full quarter of that in Q3, which we think will, again, impact us slightly, because you'll have a little bit of that, you know, further EBITDA digression in that quarter. But when it comes out, to your point, yes, it will have a positive impact on EBITDA margin percentages, bottom line.
Speaker Change: So yeah, so that's in the future, so you're not, the comment about, you know, full year margins being close to 12%, that does not reflect the New York.
Speaker Change: Exits. That's what it's getting at. Like, it sounds like maybe these press concessions were better in this quarter. Was there anything else? I mean, it sounds like volumes in personal care services are actually doing pretty well based on the hiring commentary, and that's despite some, I guess,
Speaker Change: issues around, you know, getting people authorized for care. So was there anything else around, you know, what would drive the better margins in the quarter?
Speaker Change: is performing well.
Margie: [inaudible]
Speaker Change: And so what was your personal care segment margin in the quarter, sorry?
Speaker Change: Are personal care margin in the quarter? Yes, either the margin yet or afforded margin, yes.
Speaker Change: The segment margin.
Margie: Even a margin in personal care, I think, was close to 20%.
Dru Anderson: Keep in mind, that's before any kind of corporate allocation. That's just...
Speaker Change: Okay great, so that's up, I see.
Speaker Change: Keep in mind that's before any kind of corporate allocation, that's just personal care.
Speaker Change: Right, yeah, exactly. And it was nicely up versus last year, so that's helping here. All right, and then on hospice, so yes, you mentioned hospice also did better in the quarter, and census, you know, St. Louis Census turned positive, so that's good. So I guess, would you actually put
Speaker Change: you know, your improvement there. And I guess is that sustainable? You know, how should we think about the rest of the year for hospice when it comes to census and margins? Thank you.
Speaker Change: I think with respect to census growth, I mean, you know, we've had a nice, some favorable trends there. I think, you know, you should continue to look at, you know, census growing in that 2 to 3 percent year over year. When you look at throwing a rate increase on top of that, you're kind of in that 5 to 7.
Speaker Change: Great, thank you so much. Thanks for taking the questions.
Speaker Change: The next question is from John Ransom with Raymond James. Please go ahead.
John Ransom: Hey, good morning. Maybe this one's for Dirk.
Dirk Allison: The landscape now, personal care, home health, and hospice.
John Ransom: How do you see sort of the supply demand of transactions and how we're trading multiples have gone and when you look at a
Speaker Change: personal care deal how are you thinking about you know the 20% rule either staying or going away and how you factor that into what you pay for these businesses. Thanks.
Speaker Change: As I mentioned in my comments, things have been a little slower the last three or four years.
Speaker Change: Right now, what we're seeing are smaller deals than Chenteva. The multiples, again, smaller deals, obviously we see less.
Dru Anderson: The valuations have remained somewhat steady is the fact that we're just not seeing as many of the smaller deals that maybe we saw before and we're hoping that that comes back as the market kind of solidifies over the next, you know, six to 12 months. As it relates, to what was a As it relates to 80-20, what we're thinking of, it really doesn't matter to us. We have decided that because of our size and our strategy that we'll be able to operate in markets and be extremely well taken care of from a standpoint of profitability and taking care of our consumers in those markets regardless whether 80-20 remains or not.
Speaker Change: I'm sorry, 80-20. Oh yeah, the 80-20, I'm sorry. As it relates to 80-20, you know, what we're thinking of, it really doesn't matter to us.
Dru Anderson: If you think of the overall rule itself, it's still six years away. We have a very interesting election coming up right now. It could go either way. For us, as we look at what it means for the 80-20 rule, we still think long term there's going to be states that are not going to want to participate in this and will be looking from a legal aspect of how they can make changes.
Speaker Change: It could go either way. For us, as we look at what it means for the 80-20 rule, we still think...
Speaker Change: Long-term, there's going to be states
Speaker Change: that are not going to want to participate in this and will be looking from a legal aspect of how they can make changes. So we really don't see any real change today with that. We're gonna look at deals.
Dru Anderson: So we really don't see any real change today with that. We're going to look at deals, particularly the large deals, and we're going to understand that regardless of whether 80-20 stays or goes, we'll be able to be very successful.
Speaker Change: Thanks. We'll shake loose a little bit from private equity, especially if rates start to come down. I know there's some opportunities there. Or is this going to be more... And the second thing is, like, who are the strategic buyers now that you compete with? Are the Medicare or the managed care plans?
Dru Anderson: You know, realistically, over the last 12 to 18 months, we've not seen a lot of competition out there. You know, there's been the occasional smaller strategic player that's bought a few deals on a localized basis. From a PE standpoint, it's really been very slow as far as competition goes for the last bit. Now, obviously, if rates come down in September, as everybody's expecting, there'll be a point where PE will come back in, and that's fine. It's been a market in which, up until the last year or so, we've always operated.
Andrew Mok: The next question comes from Andrew Mok with Barclays; please go ahead.
Speaker Change: It took many months to look through and make sure that this worked for both sides.
Speaker Change: And it's unfortunate that it did and so.
Speaker Change: From our standpoint.
The process had been continuing even though it was larger than what we've done in the past the process really didnt change for us It was make sure that strategically fit make sure. Our team helped from a due diligence standpoint, we could handle bringing it on in a manner and station in such that make sense for us as far as when.
Speaker Change: We take over certain aspects of the care that is currently underway right now our team meets weekly we're.
Speaker Change: We're having conversations with the other side, we are preparing for whenever this closes right now while we don't have a definitive time frame, we're hoping that it will be in the fourth quarter as we get through the state regulatory approvals that are necessary. So we believe we're in good shape and while it is bigger we're not concerned that we won't be able to handle that art.
Speaker Change: Team has done a great job in planning and I have all the confidence in the world that will be able to bring it on board as we have others over the last few years.
Speaker Change: Great and if I could just follow up on the slowing M&A pipeline comment that you made over the last few years I was just curious is that comment specific to personal care and as you look to deploy capital from here how would you prioritize the different segments are you looking to diversify exposure or lean into your expertise on the personal care side. Thanks.
Speaker Change: Yeah.
Speaker Change: Yeah. Andrew This is Bryan I think you know we've seen kind of across all three segments. The last couple of years has been a little tougher I think you know the last two years specifically.
Speaker Change: There's been a lot of folks that are expected you know more consolidation in the home health market, especially with some of the pressures I think some of the market conditions and some of that pressure honestly I'm.
Speaker Change: It was kind of prohibited certain of those assets will come into market, but I think it's kind of across all three segments, but you know I think we continue to be creative in the ways that we source and the opposite is kind of.
Speaker Change: The normal kind of broken processes.
Speaker Change: Tivo is a good example of that because that was not a broken process. So we will continue to pursue similar type transactions as we move or even.
Speaker Change: With the market hopefully starting to lighten up a little bit but.
Speaker Change: But I think as far as priorities and kind of what we're looking for across all three I think we've been pretty consistent I think personal care is our largest business and we continue to be focused on building density in markets, where we have personal care operations today, maybe select new markets.
Speaker Change: This was a great one for us to add Missouri kind of this most recent deal that we'll continue to look for things like that I think secondary to that is this adding clinical services, where we have personal care, probably little more slanted towards more skilled home health I think that typically probably helps us a little more when you think about the value based type of arrangements that we do but I think that their hospice opportunities.
Speaker Change: It tends to be the more expensive of the three segments, we operated from an acquisition perspective.
Speaker Change: But if there are good opportunities that are nice fits those are things that we would also look out.
Speaker Change: Great. Thanks for all the color.
Speaker Change: The next question is from Ben Hendrix with RBC capital markets. Please go ahead.
Ben Hendrix: Thank you very much just a quick question on a follow up on the Gentiva acquisition with some of the newer markets and expansion into the Texas and I was wondering if you could.
Speaker Change: Have any comments on or offer any comments on the minimum wage trends in those states in those markets and they are and also overall receptivity of state legislatures to two rate adjustments.
Dru Anderson: Yeah, well, you know, let me start first with the rate adjustment question. Over the last three or four years, we've had great support from our states with rate adjustment. And that is continued into this year. I think the question you might have is, you know, as we go forward towards any kind of potential 80-20 environment, will states be willing to discuss that? I think it's a little early to be able to say yes or no, but our belief is this.
Speaker Change: Yeah well.
Speaker Change: Let me start first with the rate adjustment question over the last three or four years, we've had great support from our states with rate adjustments.
Speaker Change: And that has continued into this year I think the question you might have is.
Speaker Change: As we go forward towards any kind of potential 80 20 environment.
Speaker Change: What states be willing to discuss that I think it's a little early to be able to say, yes, or no but our belief is this these programs are very valuable to the states as.
Dru Anderson: These programs are very valuable to the states. As we've indicated before and we've talked with states, our business allows these individuals to stay at home as opposed to going to, say, a SNP, where the costs are much higher for the state. So I think the states see the benefit of the plan. The question is, how will they respond if we get near to an 80-20? Again, because that's six years away, there's a lot of lawsuits that will probably happen between then, it is our belief that the states will continue to believe in the plan and hopefully will support that. We believe they will over that period of time.
Speaker Change: As we've indicated before and we talked with states.
Speaker Change: Our business allows these individuals stay at home.
Speaker Change: As opposed to go into say, a snip, where the costs are much more are much higher for the state. So I think the state to see the benefits of the plan. The question is how will they respond as we if we get nearer to an 80 20 again because that six years away. There's a lot of lawsuits that will probably happen between them.
Speaker Change: It is it is our belief that.
Speaker Change: Sites will continue to believe in the plan and hopefully will support that we believe they will over that period of time I think the real question is with the minimum wage like like Texas, Texas last year gave a nice price increase effective October one.
Dru Anderson: I think the real question is with the minimum wage. Like Texas last year gave a nice price increase, effective October 1. In that increase, they set some guidelines as to the minimum wage that you would pay to caregivers. And we think this is exactly the way it should work. We believe the state should be the driver of setting minimum wage rates for their healthcare workers. And by the way, we support that.
Speaker Change: And that increase a set some guidelines as to the minimum wage that you would pay to caregivers and we think this is exactly the way it should work.
Speaker Change: We believe the states should be the driver upsetting minimum wage rates for their health care workers and by the way we support that.
Dru Anderson: We've been a big supporter of minimum wage rate increases, and Illinois is a perfect example. We're up to about 18; we'll be up to $18 this coming January. The state has been very supportive along with the providers as we've been able to raise both rates on the reimbursement side as well as rates we're able to pay caregivers, which helps with our being able to attract caregivers overall. So as the, I think the federal government has wanted, what CMS's goal is, is to increase the ability to provide this service across the states. However, we disagree with the way they did it by setting a minimum 80%. We believe the way to do it is to encourage the states to set higher minimum wages.
Speaker Change: We've been a big supporter of minimum wage rate increases that Illinois is a perfect example, we're up to about 18 will be up to $18 come. This coming January the state has been very supportive along with the providers as we've been able to raise both rates on the reimbursement side as well as rates were able to pay caregivers, which helps with RMB.
Speaker Change: Are you able to attract caregivers overall, so as the I think as the federal government has wanted what CMS goal is is to increase the ability to provide this service across the states. We disagree with the way they did it my setting a minimum 80% we believe the way to do it is encouraged to states to set higher.
Speaker Change: Minimum wages.
Speaker Change: And in doing so yeah bright reimbursements to keep the providers home and so we're very excited about the states that seem to be operating that way. We believe all states will eventually realized and whether or not there's a minimum wage or not there was a rate we need to take pay caregivers, which needs to be supported by our approach.
Speaker Change: Preet reimbursement rate. So we're very excited about the long term potential of the personal care market.
Speaker Change: Great. Thank you and just finally any early thoughts on the implications to the regulatory backdrop from the Chevron ruling whether it be the the 80 20 or <unk> or maybe in home health are with regard to the rate setting methodology from CMS.
Speaker Change: Well I mean, I think there's a there's certainly a lot of eyes are on that decision.
Speaker Change: I think it does raise some opportunities.
Speaker Change: Starting to see it and other administrative actions where of course have a I think a belt that the administrative departments had gotten kind of a thing.
Speaker Change: The advantage of a kind of a blank check to do what they need to do without that having congressional action support. It. So I think that does raise some opportunities new ones for the associations to push back on the home health rules.
Speaker Change: Thank you.
Operator: Again, if you have a question, please press star then 1.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: The next question is from Ryan Langston with Cowen. Please go ahead.
Ryan Langston: Hey, good morning, Thanks for squeezing me in.
Ryan Langston: Brian I think I heard in the prepared remarks, you said, we'd see some gross margin expansion in the fourth quarter.
Speaker Change: Just want to make sure that as compared to the third quarter or were you talking about the second quarter and then just on the New York State.
Sale it sounds like this could drag on for a couple of quarters, maybe potentially longer if I heard it right I guess why does this deal.
Speaker Change: Steel in particular take so long to finalize is that just a state issue or something else going on there. Thanks.
Dru Anderson: Yeah, right. Just to clarify on the barge expansion fourth quarter, yes, my comments were sequential from the third quarter. So just thinking about a Q2, Q3, we would expect to see a little bit of compression, and then sequentially Q3 and Q4, some expansion from the hospice rate increase. And then keep in mind, traditionally in the fourth quarter is typically our lowest quarter for impacts from payroll taxes. We usually get a little step up there as well.
Speaker Change: Yeah, Ron just to clarify on the margin expansion of four part yes. My comments were sequential from the third quarter. So just thinking about Q2 Q3, we would expect to see a little bit of compression and then sequentially Q3 and Q4. Some expansion from the Haas was rent increase and then keep in mind traditionally in the fourth quarter is typically our lowest quarter for impact from payroll taxes, we usually get a little.
Speaker Change: Step up there as well so that should benefit the fourth quarter and then just on the New York front, it's a little unique transaction I would say in general, Yes, New York regulatory approval has historically been a long process.
Dru Anderson: So that should benefit the fourth quarter. And then just on the New York front, it's a little unique transaction, I would say. In general, yes, New York regulatory approval has historically been a long process, so nothing that's going to be different as far as the steel that we have in place today. So that kind of drives some of our commentary. It might take a little bit of time for us to get either still consideration or actually get the full regulatory approval for all the assets that were divested.
Speaker Change: So nothing that's going to be no different as far as you know what the steel that we have in place today, so that kind of drive some of our commentary it might take a little bit of time for us to get either so consideration or actually get the full regulatory approval for all the assets that we're divesting.
Operator: This concludes the question and answer session. I would like to turn the conference back over to Mr. Dirk Allison for any closing remarks.
Speaker Change: Alright. Thanks.
Speaker Change: [laughter].
Speaker Change: This concludes the question and answer session I would like to turn the conference back over to Mr. Dirk Allison for any closing remarks.
Dirk Allison: Thank you operator, alright, again want to thank everybody for your interest today and for being with US as part of our call. We hope you all have a great week. Thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.