Q3 2024 Addus HomeCare Corp Earnings Call
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.
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Speaker Change: At this time I would 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 drew.
Dirk Allison: Morning, and welcome to our 2024 third quarter earnings call.
Dirk Allison: With me today are Brian Poff, our Chief Financial Officer, Brad Bickham, Our President Chief operating officer as.
As we do on each of our calls quarterly calls I'll begin with few comments and then Brian will discuss the third quarter results in more detail.
Dirk Allison: Following our comments the three bus would be happy to respond to any questions.
Brian Poff: As we announced yesterday, our total revenue for the third quarter of 2024 was $299.8 million, an increase of 7% as compared to $277 million for the third quarter of 2023.
Dirk Allison: This revenue growth resulted in adjusted earnings per share of $1 30 as compared to adjusted.
Dirk Allison: Adjusted earnings per share for the third quarter of 2023 of $1 15, an increase of 13%.
Dirk Allison: Our adjusted EBITDAR was $34.3 million compared to 39 million for the third quarter of 2023, an increase of 11, 1%.
Dirk Allison: During the third quarter of 2024, we continued to experience consistent cash flows.
Dirk Allison: <unk> ended the third quarter of 2024, we had cash on hand of approximately $223 million.
Dirk Allison: This cash along with our line of credit will be used to fund our previously announced acquisition of the Gen team of personal care operation.
Dirk Allison: Once this transaction is closed we will remain in a conservative leverage position, allowing us to continue to evaluate larger strategic acquisition opportunities.
Dirk Allison: Yeah.
Dirk Allison: With respect to our ongoing acquisition activities I'd like to provide an update on the Gentiva transaction, we announced on June 10th of this year.
Dirk Allison: Recapping our strategy, we believe our personal care segment benefits from both scale and broad you'd get graphic coverage in the states, where we operate.
Dirk Allison: This is particularly true in managed Medicaid states and as a result of the final Medicaid access rules, if and when it may be implemented.
Dirk Allison: This scale and coverage allows us to spread our cost over a larger revenue base and provides us with the opportunity for meaningful advocacy with the states in which we operate while also promoting a more favourable hiring and retention environment.
Dirk Allison: This strategy led us to pursue the acquisition from Gen Tivo as.
Dirk Allison: As we previously stated upon the close of this transaction as it will be the largest provider of personal care services in the state of Texas, which is primarily a managed Medicaid market.
Dirk Allison: In addition, this transaction will give us a larger presence in Arkansas, strengthen our California, and Arizona private pay and veterans affair businesses.
Dirk Allison: And we'll add a location in eastern Tennessee to our existing operations in the state and provide entry into both Missouri.
Dirk Allison: In North Carolina.
Dirk Allison: We have spent the last several months working with members of the team of personal care team preparing for the close and transition of this business and to add it.
Dirk Allison: I believe we have done a very good job of planning for the changes that will occur once this acquisition closes.
Dirk Allison: Our parents planning has been focused on minimizing the impact on frontline staff and ensuring the continuation of the provision of all of these services to our customers as we go through the integration process.
Dirk Allison: We are appreciative of the efforts of the team of personal care team as they continue to provide quality services to its customers. We look forward to the many new team members, who will be joining the <unk> family. Once the transaction is closed.
Dirk Allison: As we stated on our last call. We believe this closing will occur in the fourth corner of this year.
Dirk Allison: Now, let me discuss certain areas of operations.
Dirk Allison: During the third quarter of 'twenty 'twenty four weeks.
Dirk Allison: We experience continued to experience solid results related to our ability to a hard caregivers, especially in our personal care segment.
Dirk Allison: In the second quarter of this year, we achieved 86 hires per business day.
Dirk Allison: When adjusting for the disposition of our New York Operation that second quarter number was 79 harsh per business day.
Dirk Allison: During the third quarter of 'twenty 'twenty four we saw our personal care hiring numbers continuing the strong trend at 79 hours per business day, while our turnover rates have remained at historically low levels.
Dirk Allison: 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, which continues to be a focus of our operations team.
Dirk Allison: With respect to our clinical service lines, we continue to see improvements in the overall clinical labor environment consistent with the last few quarters.
Dirk Allison: As we have over the past few years, we continued to utilize the funding we received from the American Rescue plan Act or ARPA.
Dirk Allison: During the third quarter of 2024.
Dirk Allison: We received an additional $3.2 million in funding.
Dirk Allison: And utilized over $2 5 million, leaving approximately $13 million remaining inaccessible funds.
Dirk Allison: These funds are continuing to be used to help with caregiver recruitment and retention efforts.
Dirk Allison: As well as other opportunities to enhance our caregivers experience and training.
Dirk Allison: And our personal care segment or.
Dirk Allison: Our services continue to receive favorable reimbursement support for many of the states in which we operate.
Dirk Allison: We continue to believe that our states remain in good financial position as the economy seems to be stable at this time.
Dirk Allison: We are confident that personal care services continued to deliver real by you just say Medicare programs as well as our managed care partners through a reduction in the overall cost of care.
Dirk Allison: Let me remind you that effective January one 2025, Illinois, our largest state for personal care services will enact a 5.5% increase for personal care services.
Dirk Allison: Brian will give you more information on how this increase will possibly impact our personal care performance for 2025.
Dirk Allison: As for our clinical segments.
Dirk Allison: Effective October one 2020 for Medicare Hospice reimbursement was increased by approximately 2.9% largely consistent with what we have seen over the past few years.
Dirk Allison: This increase rate will be reflected in our fourth quarter results.
Dirk Allison: We are pleased with the support from CMS for this valuable end of life care.
Dirk Allison: On Friday of last week, CMS announced the final health care rule effective January one 2025, which including all adjustments results in a 0.5% rate increase versus a previously proposed reduction of four 7%.
Dirk Allison: While we are appreciative of the final rate adjustment being slightly more positive than the proposed right. We are disappointed that CMS continues to pursue both temporary and permanent reimbursement reductions from home health providers, which we believe limits patient access to this valuable and much needed service.
Dirk Allison: Although the current Medicare home health rate remains challenging and appears will also be in 2025, we continue to believe that traditional Medicare home health reimbursement pressures are likely to moderate over the next few years in response to well documented patient access issues.
Dirk Allison: Now, let me discuss our same store revenue growth for the third quarter of 2024.
Dirk Allison: For our personal care segment, where same store revenue growth was six 8% when compared to the third quarter of 2023.
Dirk Allison: During the third quarter of 2024, we saw personal care same store hours increased by 46% as compared to the same period in 2023.
Dirk Allison: This growth was negatively impacted by the Medicaid reader person re determination process, which appears to have slowed the approval of new personal care clients.
Dirk Allison: We believe that all of the states. We currently operate in well have completed this redetermination process by the end of the fourth quarter.
Dirk Allison: It is encouraging that we will continue to see improvements in our percentage of hours served compared to authorized hours. This improvement along with the completion of the Medicaid redetermination process and our stage.
Dirk Allison: It should help us return to our target same store personal care hours growth rate of approximately 2%.
Dirk Allison: Turning to our clinical operation our hospice same store revenue increased three 5% when compared to the third quarter 2023.
Dirk Allison: Our same store average daily census, increased two 1% when compared to the same quarter last year.
Dirk Allison: As of the third quarter of 2024, our hospice medium length of stay was 31 days as compared to 29 days for the second quarter of 2024.
Dirk Allison: While we have seen our same store admissions decreased last couple of quarters, we have implemented changes to our operation, which we believe will have a positive impact on our ongoing emissions trends overall, we are pleased by the steady improvement in our hospice segment. This year.
Dirk Allison: Our home Health segment same store revenue decreased one 7% when compared to the same quarter 2023.
Dirk Allison: This decrease was primarily due to the implementation of a standardized intake and scheduling process and our acquired Illinois, and Tennessee markets that we believe will ultimately lead to an increase in our referral conversion rate.
Dirk Allison: <unk>, our administrative cost and allow our clinical staff to increase their focus on providing outstanding patient care.
Dirk Allison: The implementation of these process changes should be complete by the end of the fourth quarter after which we expect to see our same store revenue growth improve.
Dirk Allison: As demonstrated by the Gentiva care transaction Act.
Dirk Allison: Acquisition continued to be an important part of our growth strategy at Atlas.
Dirk Allison: Our targeted minimum annual revenue growth of 10% remains our goal even with the larger size of our revenue base.
Dirk Allison: Rest of meet or exceed these goals, we will continue to be focused on using our capital to find additional acquisition targets that meet our strategic criteria.
Dirk Allison: While we await the closing of the Gentiva transaction, we are looking for potential acquisitions for both personal care and skilled segments, particularly home health.
Dirk Allison: Over the past couple of years, the acquisition opportunities that meet our strategic objectives have been somewhat limited due to some favorable on.
Dirk Allison: Some unfavorable general market conditions.
Dirk Allison: However, we are starting to see a few more opportunities that could strengthen all three of our segments and markets, where we currently operate.
Dirk Allison: We remain committed to making future acquisitions will help us to achieve our overall growth targets, while maintaining a conservative approach to our capital deployment.
Dirk Allison: 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.
Dirk Allison: These last few years have shown that the vast 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.
Dirk Allison: We believe the heightened awareness of the value of the home based care is favorable for our industry and we will continue to be a growth opportunity for our company.
Dirk Allison: 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 to our clients patients and their families.
Dirk Allison: With that let me turn the call over to Brian.
Brian Poff: Thank you Derek and good morning, everyone. Our third quarter financial results reflect the continued momentum in our business throughout this year with solid execution, we delivered impressive 7% top line growth and an 11% increase in adjusted EBITDA compared with the third quarter last year.
Dirk Allison: Driven primarily by favorable reimbursement trends, our personal care segment had another impressive performance with solid six 8% organic revenue growth over the same period last year.
Dirk Allison: This growth trend has consistently tracked above our normal expected range of 3% to 5%. This year as we have continued to see strong hiring trends and rates support.
Dirk Allison: With the upcoming statewide reimbursement increase in Illinois is scheduled for January one 2025, we expect our same store revenues to remain towards the high end of our normal expected range for the next several quarters.
Dirk Allison: As a reminder, we anticipate the Illinois rate increase to generate approximately $23 million in annualized revenue with a margin in the low twenties consistent with the 77% rule in the state.
Dirk Allison: As we have discussed previously we anticipated that the divestiture of our New York operations may qualify for sale treatment under GAAP prior to closing.
Dirk Allison: On October one 2020 for their requirements for qualification have been met and the results of our New York operations will no longer be included in our consolidated financial results beginning in the fourth quarter of 2024.
Dirk Allison: In the third quarter of 2020 for our New York operations contributed $21 $2 million in revenues, which were not included in our same store numbers and no EBITDA contribution.
Dirk Allison: With the majority of new clients being directed to buyer over the past few months, we have seen some degradation in our topline revenues client counts and ours, but with no earnings impact.
Dirk Allison: On the clinical side, our third quarter results included the operations of Tennessee quality care, a provider of home health hospice private duty nursing services, which we acquired August one 2023.
Dirk Allison: Tennessee quality care will be reflected in our same store revenues effective in the fourth quarter.
Dirk Allison: We saw a steady improvement in our hospice business in the third quarter with 3.5% organic revenue growth and higher average daily census, and patient days and revenue per patient day, compared with the third quarter last year.
Dirk Allison: Sequentially from the second quarter, our average daily census grew by one 6% primarily due to an increase in our length of stay.
Dirk Allison: Looking ahead, we anticipate the benefit of our 2025 hospice reimbursement update to begin in the fourth quarter with an increase in annualized revenues of approximately $6 $8 million.
Dirk Allison: Hospice care accounted for 19, 8% of our business, including the operations of Tennessee quality care.
Dirk Allison: For our home Health services, which is our smallest segment accounting for five 9% of our business. We saw a modest improvement in new admissions re certifications and total volume compared with the third quarter of 2023.
Dirk Allison: Our mix of episodic service business continues to remain stable, including both traditional Medicare episodic Medicare advantage volumes.
Speaker Change: As Dirk referenced the final rule for home health reimbursement effective January one 2025 was published last week.
Dirk Allison: This rule will result in a 5% increase in reimbursement nationally and we are currently evaluating the impact on our business.
Dirk Allison: Due to our limited exposure in home health today, we expect this to be immaterial to us.
Dirk Allison: Outside of ongoing reimbursement pressures, we believe home health as a valuable service that is complementary to our personal care and hospice services and we continue to look for opportunities to support and expand the service line appropriately.
Dirk Allison: In addition to organic growth we have benefited from our recently acquired operations. We remain focused on identifying acquisitions that will be accretive to our operations and support our ability to expand our market reach.
Dirk Allison: Our primary objective is to find operations in markets, where we can leverage our strong personal care presence at our clinical services. So we can offer all three levels of home based care.
Dirk Allison: We also look for opportunities to add new personal care markets, where we can enter at scale.
Dirk Allison: The pending Gentiva acquisition fits squarely in this strategy and provides an opportunity to add personal care market coverage in seven states with the majority in Texas.
Dirk Allison: We currently expect the Gentiva acquisition to close in the fourth quarter and will add $280 million in annualized revenues and personal care services.
Brian Poff: As Dirk noted total net service revenues for the third quarter were $289 $8 million.
Dirk Allison: The revenue breakdown is as follows.
Dirk Allison: Personal care revenues were $215 $4 million or 74, 3% of revenue.
Dirk Allison: Hospice care revenues were $57 $3 million or 19, 8% of revenue.
Dirk Allison: Home health revenues were $17 million or five 9% of revenue.
Dirk Allison: Other financial results for the third quarter of 2024 include the following.
Dirk Allison: Our gross margin percentage was 31, 8% compared with 32% for the third quarter of 2023 and have declined sequentially from 32, 5% in the second quarter as expected.
Dirk Allison: As previously indicated we saw some moderation in the benefit from a lower implicit price concession that we experienced in the first and second quarters of 2024, as we return closer to historical levels.
Dirk Allison: Additionally, we experienced some margin compression sequentially from both an additional holiday in the third quarter and the impact of the P. T O caregiver benefits in Illinois.
Dirk Allison: However, in the fourth quarter, we anticipate our gross margin percentage to expand sequentially by approximately 40 basis points from the hospice reimbursement update and an additional approximately 150 basis points as a result of the New York divestiture.
Dirk Allison: G&A expenses were 21, 7% of revenue compared with 22, 3% of revenue for the third quarter a year ago.
Dirk Allison: G&A expenses were also lower sequentially from 22, 2% in the second quarter of 2024, primarily due to lower acquisition expenses.
Dirk Allison: Adjusted G&A expenses for the third quarter of 2024, or 20% a decrease from 26% in the comparable prior year quarter.
Dirk Allison: With the divestiture of our New York operations, we anticipate our adjusted G&A expense percentage to increase by approximately 60 basis points going forward as the New York revenues will no longer be included in our financial results.
Dirk Allison: The company's adjusted EBITDA increased 11% to $34 $3 million compared with $39 million a year ago.
Dirk Allison: Adjusted EBITDA margin was 11, 8% an increase from 11, 4% for the third quarter of 2023, but lower sequentially from 12, 3% in the second quarter of 2024, primarily as a result of ongoing leverage from our revenue growth and lower legal expenses.
Dirk Allison: We expect the divestiture of our New York operations to have a positive impact of approximately 90 basis points on our adjusted EBITDA margin percentage beginning in the fourth quarter of 2024.
Dirk Allison: Adjusted net income per diluted share was $1 30, compared with $1 15 for the third quarter 2023, an increase of 13%.
Dirk Allison: The adjusted per share results for the third quarter of 2024 exclude the following.
Dirk Allison: Acquisition expenses of eight cents and noncash stock based compensation expense of 12 cents.
Dirk Allison: The adjusted per share results for the third quarter of 2023 exclude the following.
Dirk Allison: Acquisition expenses of eight.
Dirk Allison: The noncash stock based compensation expense of 12 subs.
Dirk Allison: Our tax rate for the third quarter of 2024, it was 26, 1% in the range of our expectations.
Dirk Allison: For calendar 2024, we expect our tax rate to remain in the mid 20% range.
Dirk Allison: With the divestiture of our New York operations and the related higher tax rate from the state we anticipate a favorable impact to our effective tax rate of approximately 50 to 60 basis points beginning in the fourth quarter of 2024.
Dirk Allison: Dsos were $31 seven days at the end of the third quarter of 2024, compared with 36 days at the end of the second quarter of 2024, as we have continued to experience consistent cash collections from the majority of our Payors.
Dirk Allison: Our dsos for the Illinois Department of aging for the third quarter were $32 five days compared with 37.3 days at the end of the second quarter.
Dirk Allison: Our net cash flow from operations was $48 $5 million for the third quarter and included a one time working capital benefit of $9 $7 million, which we expect to revert in the fourth quarter.
Dirk Allison: Exclusive of this onetime benefit our cash flow from operations would have been $38 $8 million.
Dirk Allison: During the third quarter, we received approximately $3 $2 million in ARPA funding, partially offset by $2 $6 million in ARPA funds utilized.
Dirk Allison: As of the end of the third quarter, we still have approximately $13 $1 million in ARPA funds outstanding to be utilized primarily in new Mexico.
Dirk Allison: As of September 32024, the company had cash of $222 $9 million with capacity and availability under our revolving credit facility of $511 $5 billion and $503 $5 million respectively.
Dirk Allison: As previously disclosed subsequent to the end of the quarter, we entered into an amended and restated credit agreement to increase our revolving credit facility from 600 million to 650 million.
Dirk Allison: Expand our incremental facility from 125 million to $150 million and extend the maturity date through July 2028.
Dirk Allison: We appreciate the leadership from capital one on this transaction and the support from all our current banking partners.
Dirk Allison: Following the expected closing of Argentina that acquisition, we will continue to have the financial flexibility to invest in our business and pursue our strategic growth initiatives, including acquisitions.
Dirk Allison: As mentioned, we will continue to selectively pursue acquisitions that align with our strategy.
Dirk Allison: At the same time, we will continue to be disciplined with our capital spending and diligently manage our net leverage ratio.
Dirk Allison: This concludes our prepared comments this morning, and thank you for being with Us and I'll ask the operator to please open the line for your questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please 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 two.
Dirk Allison: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Brian Tim Quillin with Jefferies. Please go ahead.
Speaker Change: Hey, good morning, guys and congrats on the quarter, maybe Brian just to clarify your comments on margin direction sequentially am I right in thinking it should be up about 190 basis points on gross margin between hospice and the divestiture and then maybe also going forward how should we be thinking about.
Dirk Allison: DNA and just the margins overall.
Speaker Change: Yeah, that's correct, Brian combined between the two it'll be 100 different from the New York divestiture. Another 40 on top of that from the hospital side then on the gross margin line that is accurate.
Dirk Allison: Moving ahead, we're going to see some margin expansion and bottom line.
Dirk Allison: 90 basis points from just New York, you'll see some impact positively from hospice as well fall to the bottom line in Q4, we will see our normal rate increases the hospital offset some of that towards the end of Q1, when we give those merits.
Dirk Allison: But I think with New York being out of our numbers going forward you should see some expansion in our margin profile.
Speaker Change: Got it and then maybe Dirk as I think about the Gentiva acquisition, it looks like you're expecting it to close here pretty soon so number one how are you thinking about your ability to as you've looked at that asset further through this process. You know just the ability to grow that business going forward and maybe drive some margin and then at the same time we're in.
Dirk Allison: You stand in terms of your appetite or willingness or ability to do further acquisitions as you integrate gentiva.
Dirk Allison: Yeah, Brian you know one of the things we've learned by.
Dirk Allison: By having these months to work together with the Gentiva personal care service team is is really get to appreciate what they've done and how they built their business over the last few years. We're excited about the fact that now I'm coming home with a company that is.
Dirk Allison: Truly focused on personal care services has the history that says that our operation team along with their operations team.
Dirk Allison: We'll be able to drive growth in Texas is a great state as you know.
Dirk Allison: It's all about 80% plus of the business. We're acquiring so we're very excited about our ability not only to bring it on appropriately.
Dirk Allison: But also about the ability that we can continue to look at all the markets in which they operate and get them in a growth profile, which is very similar to ours, which remains our target of 3% to 5% same.
Dirk Allison: Same store growth over the next few years.
Dirk Allison: As it relates to our appetite.
Dirk Allison: One of the things we did following the acquisition of the June tea personal care service.
Speaker Change: Go out and raise some equity to clean up our balance sheet make sure. We were prepared going forward and so today as we sit Brian mentioned or 200 million of cash. We've got you know the new $650 million line of credit with expansion capabilities, there for a deal and so our appetite remains strong and.
Dirk Allison: Obviously as we've gotten larger certainly looking at some of the larger opportunities may arise just interesting to us and we will continue to be interesting at us I think our key will be.
Dirk Allison: Looking at deals that need our strategic.
Dirk Allison: Direction in which we're driving the company and also making sure that it can be accretive and positive to our shareholders and so from that standpoint, we are still looking we are still excited but we do have that criteria as we look at deals.
Speaker Change: Awesome. Thank you.
Speaker Change: The next question comes from Julian I got you with Bank of America. Please go ahead.
Dirk Allison: Okay.
Speaker Change: Joanna Your line is open you may ask your question.
Julian: Hello can you hear me now.
Dirk Allison: Hello.
Speaker Change: Hello, Johnny you can ask your question.
Dirk Allison: Hi, This is Joe and I got you. Okay. Thank you so much for taking the questions. So just a follow up first on the organic census growth you talk about that viewpoint, a 6% increase and yeah, you mentioned, where the termination process would be a headwind there, but I guess that was there any anything else I guess to call out that you know Oh what about.
Dirk Allison: The New York market being a headwind there and you also said you expect it to still I guess, we accelerated 2% Oh I guess heading into next year for that Inc.
Dirk Allison: Census growth. So can you give us a sense you know what.
Dirk Allison: What gives me the confidence you can you can go with that thank you.
Dirk Allison: Hey, Joanna this is Brad.
Dirk Allison: When you look at the New York is actually carve out of our same store growth numbers. So we've already kind of clean that up and look at that.
Dirk Allison: Number you know if you think through the Redetermination process, there's certainly been a lot of noise about that this year I think our CMS came out with some guidance probably late in the last 30 45 days to try to help states with the you know how they're handling re determinations that probably would've been better if they would've given that out about <unk>.
Dirk Allison: Six months ago, I think it might have helped the process a little bit, but what we're saying is I think.
Dirk Allison: The states that we operate in are largely done and I think will be wrapped up by the end of Q4.
Dirk Allison: And what we've seen there is no one we lost a few class nothing material, it's really been more impactful honestly on getting new clients through the system. If you think about on the state side going through this process.
Dirk Allison: That was a lot of added work they didn't have additional staff. So the staff is doing new determined new admissions into the program same staff that was doing re determinations and so you can still see a little more but you know a little bumpy ness and the.
Dirk Allison: The referrals week to week.
Dirk Allison: I think that's going to steadily get better. So I think you know optimistic I'm optimistic that our we kind of get back to more regular cadence going into 2025, where I think that the dark alluded to you know that kind of a 2% a target on the same store hours is certainly achievable.
Speaker Change: Thank you and I guess, a similar question on hospice. So you mentioned that admissions were down but I guess since it's still a great cause I like to think it could put anybody can say mission nava with disappointing in the quarter and it sounds like you're making some changes in that segment. So can you talk about how we should think about the progression into next year when it comes to.
Dirk Allison: Hospice census growth. Thank you.
Speaker Change: Yeah, we did a we've made some leadership changes on the hospice side.
Speaker Change: L a and a little bit in some of the ops positions, but also in the sales leadership positions. We've made some pretty significant changes there I'm really optimistic about the team that we have on board.
Dirk Allison: Really the sales leader change out middle of September. So he is just now.
Dirk Allison: Now are kind of getting his feet wet he's been out and met with all the teams are realize that theres a lot of potential out there for us. So we're going through sales training over the next couple of months to just kind of reeducate and work with our on the ground sales team. So optimistic that though we'll be back into you know I think that you know kind of mid to high single digits are on.
Dirk Allison: Our growth rate.
Dirk Allison: With admission volume increasing.
Speaker Change: Great. Thank you so much.
Speaker Change: The next question comes from Tao Chu with Macquarie. Please go ahead.
Tao Chu: Thank you good morning, I appreciate the comment Gentiva.
Tao Chu: Comment you can provide regarding the reimbursement environment in Missouri, and North Carolina into two new states, you're getting to these managed Medicaid States says well if any initial thought on the potential EPS accretion from the transaction for 25. Thank you.
Speaker Change: Yeah. So if you look at the new states that we're entering into a North Carolina, and Missouri, a reimbursement environment in Missouri, I think it is solid kind of consistent with what we see in the other markets now the North Carolina. The book of business is actually a little different is actually case management very small good margin business.
Tao Chu: But it actually gives us an entre into North Carolina, and a little bit of a different kind of business other than traditional kind of personal care, but again very small piece of the the total pie, but its certainly interesting in as good a good margin business with it.
Tao Chu: Yeah.
Speaker Change: On the EPS accretion I know youre not providing guidance for 25, just any high level insight you can provide there would be appreciated.
Speaker Change: Yeah I'd tell this is Bryan I think we definitely expect it to be accretive to our numbers I think we've talked about you know opportunities.
Speaker Change: 12 months to 18 months out for some additional synergies as well that I think is going to be helpful. Primarily most of those coming from the system conversion currently the system. They're on today will convert to homecare homebase once we get that set up but that's probably going to be sometime a little bit down the road, so probably not as quite as high level out of the gate, but definitely it will be accretive on EPS.
Tao Chu: Sure.
Speaker Change: Gotcha My phone off it's about some of the policy proposals in the spirit of the election day here could.
Speaker Change: Could you talk about the potential impact of the proposed federal minimum wage increases, particularly as it pertains to the Texas market, which follows the federal rate and also theres been a lot of discussion about the Medicare potential medical uses machine to cover on the personal care services.
Speaker Change: If that were to become the reality of what changes you would make to your long term strategy I think I heard you mention the interesting Additionally, investing in home health.
Speaker Change: Harris proposal make you more likely to be salary investment in clinical businesses.
Speaker Change: Yeah, I think when you look at the kind of the election minimum wage is certainly something that we're always monitoring our Texas does follow the federal rate, but keep in mind, I mean were paying way above the federal rate intact.
Tao Chu: We'll be paying way above the federal rate in Texas as well as in the other states that we operate so I don't see that as being a material at this time, but you know theres a lot to flesh out what those proposals might be and certainly the election.
Tao Chu: You know it seems to be trending towards more of a split government. So I'm not sure how much of some of the proposals for either candidate we'll get through with respect to our V. P. Harris's comments about expanding the benefit to Medicare are very positive I mean, it's great that the.
Tao Chu: There's not a lot of detail around it but it's certainly great to see discussions along those lines I think we think that there's a real opportunity.
Speaker Change: And benefit to expanding their services to the Medicare population I think we've shown that it's a certainly where people want to be taken care of as also the lower cost setting. So certainly an interesting proposal. Yeah. I think also let me add to Fred's comments, you know one of the great things about where we sit with our company is that regardless.
Speaker Change: Which party wins the presidential election, I think we have benefits on both sides you know so.
Speaker Change: The Republican Democrats would come out.
Speaker Change: And Paris has said that she's supports expanding elderly care, which is very exciting although not a lot of specifics at this point, but at the same time then.
Speaker Change: President Trump came out and and also mentioned.
Speaker Change: Supporting elderly care.
Speaker Change: Through tax nine means and so for us. It. We're just we're just excited that both sides have looked at what we do we being at us in the industry in which we operate taking care of the elderly and disabled population their home and both feel supportive of that so.
Speaker Change: We believe we're in good shape, regardless of how the election ends up Tonight.
Speaker Change: Okay.
Speaker Change: Great. Thank you guys.
Speaker Change: The next question comes from Scott Fidel with Stephens. Please go ahead.
Scott Fidel: Hi, Thanks. Good morning first question just wanted to make sure. We've got all the moving pieces for modeling the operating cash flow.
Scott Fidel: In the fourth quarter, Brian maybe if you could just sort of walk us through those so we've got I know the the.
Speaker Change: The $9 7 million, you know sort of a benefit to get into <unk> that reverses, but maybe if you could walk us through as well any other.
Speaker Change: Moving pieces to operating cash flow in the fourth quarter.
Brian Poff: Yes got outside of that that's going to be the big ease sequentially Q3 into Q4, I think even without that benefit in Q3. It was still a very strong cash flow quarter for us, which we expected I think largely kind of just benefiting from from working cap changes. So we were down a little bit in Q2, I think if you look at our Dsos variety of ways, specifically just their payment side.
Brian Poff: Oh, you know they were very strong payer for us in Q3, and there's always a little bit of timing difference between when we get there payments kind of quarter to quarter. So nothing I would kind of call out or say, hey should be definitely material.
Brian Poff: Impacts into Q4 outside of the 9.7 reversing so you are going to see a little bit lower as the river.
Brian Poff: A result of that in Q4, but nothing else that I would flag out of that which would be unusual.
Speaker Change: Okay got it and then just my follow up question just curious on looking out to 2025 any any additional contracts that you're implementing in terms of your.
Speaker Change: Preferred payer strategy on home health and you know sort of maximizing the margin opportunity on the MA business that also curious there's been quite a bit of discussion that I would say is probably increased over the last several quarters just around you know payor sort of fresh.
Speaker Change: Chen with.
Speaker Change: With providers and and sort of Gumming up the works I guess, a little bit around approvals and prior authorizations and you know clearly that's been a lot I would say sort of heavily focused on the acute care hospitals, but I'm. Just curious you know as you look at your three lines of business in terms of.
Speaker Change: The posture of payers managed care payors, whether you've seen any any changes from them around approvals and end and sort of denials and just sort of level of friction.
Speaker Change: Yeah, I think if you look at it on the payer side I mean, let's start with D. C is our largest business, we really haven't seen any noticeable changes in our relationships with payers other than frankly with the judge empty. The acquisition certainly a lot more interest in talking to us about the looking at some creative the creative value based type of.
Speaker Change: <unk>. So I think there's certainly opportunities to work with those payers, but good relationships on the personal care side. They are also offered to kind of help us out on the skilled side, making contacts so when you switch over to the hospice, there's not a lot of payer activity. There is pretty minimal home health. We have had and are continuing to have ongoing discuss.
Speaker Change: <unk> you know we've had some wins on the payer front typically it's just really increasing the per visit rates. So haven't had as much success moving to a full episodic payments with some of the larger kind of payers or on a national basis, but certainly we'll continue to.
Speaker Change: Pursue that Ah in 2025, and certainly if we can get some quick wins are just getting just a base increase in rates per visit rates will start there, but it will certainly be continuing to push for a episodic or some sort of case a case rates are with those payers really haven't seen a lot on the prior authorizations are with that.
Speaker Change: M a players as far as any changes in.
Speaker Change: And posturing there. So I think that's really has not been that big of a factor for us.
Speaker Change: Okay, great. Thanks.
Speaker Change: The next question comes from Jared Haas with William Blair. Please go ahead.
Jared Haas: Yeah, good morning, and thanks for taking the questions I appreciate the commentary in the prepared remarks on the outlook for state budgets, maybe I'll just follow up to that and you know theres been a lot of noise recently from the larger managed Medicaid payers on the unfavorable rates that they're currently getting from states relative to sort of risk pools.
Speaker Change: After a redetermination I'm curious as kind of states update there the rates that they're paying for managed Medicaid does that factor in at all.
Speaker Change: So your outlook for state budgets and I'm wondering if that has any impact on I guess the availability for funding for clinical services like personal care.
Speaker Change: You know.
Speaker Change: I think most of the states in which we operate and the person care environment understand the value of our personal care. It's something that is very important to them, we've seen great support through that and so and as far as their status today their budgets are.
Speaker Change: We think most of them are in pretty good shape. The ones you know the biggest state we had concerned about was new York, which were no longer in.
Speaker Change: As far as some of the pressures that the Medicare.
Speaker Change: Vantage are better managed Medicaid providers, we're seeing from the states, we have not seen that affect us.
Speaker Change: From the standpoint of the state you know almost all of our states.
Speaker Change: But one dictate the price that we get so it's a stated price and.
Speaker Change: Managed Medicare providers when they sign on they are subject to paying is that right. So at this point in time, it's really business as usual and we're really kind of excited about where we see our states today as far as financial stability.
Speaker Change: Okay I appreciate that.
Speaker Change: And then maybe as a follow up just one on the labor environment and it seems like things have been fairly stable across the board for several quarters now do you feel like that's sustainable going into 2025, and I guess is there anything you're monitoring in terms of either the broader economic environment or the the industry that could impact hiring trends in your in your view.
Speaker Change: No I mean, I think when you look at our hiring.
Speaker Change: We've been very solid, particularly on the personal care side for probably a year year and a half now with some good solid hiring numbers. So I think we're in a good place there clinical services, we certainly seen that improve over the last six to nine months. So I think that trend continues to be favorable there will always be some challenges on the Glen.
Speaker Change: Nickel side, depending on markets, but that's nothing that I think is unusual.
Speaker Change: I don't see anything going kind of in the future that would materially.
Speaker Change: The impact that kind of continued improvement.
Speaker Change: All of the hiring numbers on the personal care side and continued improvement on the skilled side.
Speaker Change: Okay, Great I appreciate all the color.
Speaker Change: The next question comes from Matthew Gillmor with Keybanc. Please go ahead.
Matthew Gillmor: Hey, Thanks for the question I wanted to follow up on the personal care growth metrics, I think Turkish referenced improvement and the fill rate, which we see in the hours per census metric I was curious what was driving that is that more favorability in terms of just the labor dynamic and caregivers billing hours or is there in <unk>.
Matthew Gillmor: Operational thing going on behind behind the scenes that is also helping that and just overall, what's sort of the sustainability around that favorable fill rate.
Speaker Change: Yeah, I think it's two things one is certainly the hiring environment has helped us on the fill rate, but also from an operational standpoint.
Speaker Change: We've provided additional tools to our schedulers that I think has enhanced that.
Speaker Change: And I will continue to look at.
Matthew Gillmor: Opportunities to make the scheduling process better so I think there's a opportunity for incremental improvement in that number but certainly very pleased how that number has rebounded and again I think it's kind of two fold one strong hiring but then also some of the things that we're doing on the operational front to identify where we have availability with caregivers who want.
Matthew Gillmor: To work more hours what their hours when they are with what their availability is during the week and getting that more in real time has certainly helped us increase that fill rate.
Speaker Change: And then I wanted to ask on the value based care topic I was curious with the close to <unk> that was.
Matthew Gillmor: Serving as a key.
Matthew Gillmor: Catalyst to move things forward, particularly given their exposure to Texas, which is a stronger value based care market and then anything new to report in terms of how youre thinking about value based care with Argentina.
Matthew Gillmor: But just keep a close.
Speaker Change: Yeah, No. We're excited about that with the additional size and moving into the export market will be able to work with some of the payers in those type contracts just realized that from a value based standpoint.
Matthew Gillmor: It's really about relationships. If you think about it the value based itself are the revenue as we've said before is somewhat immaterial to a company our size, but what it allows us to do is to prove our ability to help our payers reduce their overall cost.
Matthew Gillmor: Some of the high cost kind of clients are patients that we take care of it. So we will continue along those lines, it's exciting, but it really to us really helps us solidify our relationships with these payers.
Speaker Change: Got it thank you.
Speaker Change: The next question comes from Andrew Mok with Barclays. Please go ahead.
Andrew Mok: Hi, Good morning wanted to follow up on the labor comments I understand there's been some nice hiring trends in the broader home care sector and in your personal care segment, but wage inflation and unit cost inflation still looks like it's running a bit elevated in the 5% to 6% range or so so we'd love to hear your outlook on wage inflation over the next 15 months or so and what it's going to take to dry.
Andrew Mok: The unit cost inflation down to more historical levels. Thanks.
Speaker Change: Well when you look at the on the personal care side, we really haven't seen that type of wage inflation and we've been fortunate in the markets or larger markets that we've gotten our rate increases that offset that and been able to kind of maintain our gross margin.
Speaker Change: While on the personal care side. So that's the three fourths of our business. There when you look at the skilled side.
Speaker Change: Well again I think it has gotten better I think we're actually kind of running more in that 3%, depending on maybe 3% to 4% wage inflation in markets there might be a market or two that's an outlier there, but I think overall that has improved on the clinical side, but again on the personal care side.
Speaker Change: We've been fortunate to get the rate increases that have been able to offset those pressures.
Speaker Change: Right understood, but the underlying cost inflation is still running in that mid single digits here, just getting the the higher reimbursement to offset that correct.
Speaker Change: It really depends on the personal care side, you know, where we have markets, where we either have a union contract. So those wage rates as were largely set in those markets and those that have minimum wage pressures that we've seen over the last few years, you know that that could be anywhere from two to three 4% dependent on kind of what the raises are there.
Speaker Change: For a minimum wage, but we've seen a corresponding reimbursement offsets for those.
Speaker Change: Okay, Great and then on the on the hospice side length of stay it seems to be bouncing around quite a bit in recent years I know M&A skew some of those metrics, but hoping you could provide a bit more color on underlying trends in length of stay what's driving some of the variability in that line and where would you expect that to stabilize on a normalized basis. Thanks.
Speaker Change: Well I think on the the hospice, they're actually starting to see that those numbers stabilize I mean, certainly if you're comparing it to the COVID-19 years, there, where we certainly saw a a much shorter length of stay there were things that were in place during the public health emergency that influenced that.
Speaker Change: That really drove down length of stay particularly are in skilled facilities.
Speaker Change: Those left this kind of ended you've actually started seeing length of stay numbers, which are Bert back to a more normalized basis. So I think where we currently sit is about right. Both from an average length of stay and honestly even from a median length of stay.
Speaker Change: Right. Thank you.
Speaker Change: As a reminder, if you would like to ask a question. Please press Star then one to be joined into the queue.
Speaker Change: The next question comes from Ryan Langston with TD Cowen. Please go ahead.
Ryan Langston: Hi, maybe back to the P. C S rate environment, I mean, you keep getting pretty good rates I think five 5% and 25 in Illinois, I guess at some point should we maybe beyond 2025 sort of think about reverting back to more lower single digit rates or maybe now are we structurally thinking slightly higher than his.
Speaker Change: Oracle rates and might those assumptions kind of change depending on the outcome of today's election.
Speaker Change: Yeah, Ryan I think you know with Illinois, five 5% I think is a good example of some of the markets that we've seen recently that have decided to start giving rate increases for our services not in you know necessarily relation to rising minimum wages or we've seen the last several years, but actually in an effort to expand and increase access.
Speaker Change: So the service. So you know we've already nicely ahead of even where Chicago minimum wage for instance wasn't Illinois rate increase we're getting a gain of 25 actually continues to put us. Even further ahead of the minimum wage skill there in order to try to get more access and we are starting to see that in a few of our markets that are giving us rate increases, which is a little bit of a new dynamic I think.
Speaker Change: As you know 234 years with minimum wage coming up that's really been the impetus for a lot of the reimbursement increases. So you know I think our comments at a high level have been yes over the next couple of years, we expect probably the frequency of rate increases to probably go back to more of a historical norm keeping is kind of in that 3% to 5% overall.
Speaker Change: Kind of growth rates. So we kind of talked earlier on our call about you know targeting a two ish percent increase in hours growth. So the rest of that would be from rate.
Speaker Change: But what it is but to see that moderate but again, so promising to see certain markets that are doing you know things in order to increase access and actually giving us good support in that in that effort.
Speaker Change: Okay, and then just last one for me on the Gentiva acquisition can you remind us if theres any unusual seasonality the cadence of revenues or EBITDA may be different from your current P. C. S book and I know, you're not planning to bring them onto your EMR for a little bit but are you able to overlay any sort of internal technology or planned initiatives in the next maybe year or two.
Speaker Change: 18 months until you get them onto our homecare homebase. Thanks.
Speaker Change: Yeah, no nothing else from a seasonality standpoint that would be any different than our kind of normal business. I think that's the big drivers there, obviously and vcs, particularly we see Q1, usually being the lowest margin quarter for us just from the reset of payroll taxes things like that you usually see some step up into Q2 and Q3 and Q4 is usually our best quarter in P. C. S more along those that.
Speaker Change: Economic lines of payroll taxes, but nothing else to note really cause any different image into the business, but I think from a perspective of technology, you know theyre going to come onto our payroll system very quickly. So anything that we have and we've implemented in our businesses to kind of support you know the hiring efforts onboarding our efforts on the caregiver app things like that those are all things I think.
Speaker Change: We'll be able to deploy them into that population, even before going into an EMR or a patient billing system down the road.
Speaker Change: The next question comes from Ben Hendrix with RBC capital markets. Please go ahead.
Speaker Change: Hi, This is Mike Murray on for Dan.
Speaker Change: Hospice same store ADC growth was pretty good but admissions were a little bit softer Q touch on the competitive dynamics in this segment and do you expect same store ADC growth to you to.
Speaker Change: To continue to improve moving forward.
Speaker Change: Yeah, I think when you look at the same store numbers I am optimistic that those numbers will continue to improve on a sequential basis also think that there's opportunity to move more into that kind of the mid to upper single digits.
Speaker Change: On the same store growth there. So I think we're in a good place I think with.
Speaker Change: The new sales leadership is going to certainly be helpful. There.
Speaker Change: Got it brings new energies and new thoughts new ideas around it but certainly I think there's a continued improvement.
Speaker Change: Alright, Thank you and then just another.
Speaker Change: Another question.
Speaker Change: So same store home health that seem to be trending in the right direction last few quarters, obviously, they took a meaningful step back during the quarter.
Speaker Change: I appreciate the commentary on the operational.
Speaker Change: Investments in certain markets. Excluding these markets can you give us a sense of what same store would have been.
Speaker Change: Yeah, I think we would just continue to see actually if you look at our one of our larger markets that has a went through the process. The operational changes earlier, we actually saw a nice growth there not quite to the mid <unk> mid to upper digits that we'd like to see it up but certainly are more in the 2% to 3% range. There. So there are.
Speaker Change: Certainly opportunities to improve on home health and certainly optimistic that once we get through these operational changes there as far as its kind of around centralization of admissions and ER intake and scheduling I think theres going to be some real opportunities to improve the numbers on the out of the home health side.
Speaker Change: Alright, thank you.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Dirk Allison for any closing remarks.
Dirk Allison: Thank you very much operator, I want to thank everyone for their interest and that is today and for being part of our call. We hope everyone has a good day and a good week. Thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].