Morning to be joined by management from Addus HomeCare Corporation. We have Dirk Allison, Chairman and Chief Executive Officer, and Brian Poff, Executive Vice President and Chief Financial Officer. Thank you, gentlemen, for joining us today.
Thank you.
Maybe we can kind of give a little bit of an update for people less familiar with the story. You guys are a home care provider with the core being personal care. Can you maybe give us a little kind of overview of that business and how it's differentiated in the home care space?
Sure. You know, personal care has been around a long time. It is a non-clinical home-based care service. We help basically the elderly, certainly the disabled too, but mainly our client base is the elderly population that needs help with what's called activities of daily living, whether that's dressing, feeding, things such as that, bathing. It is a service that states pay for through the Medicaid program, through maintenance, through waiver programs. We do about 75% of our home care business in the non-clinical space.
We also started in 2018 adding clinical services with a strategy that, because we're in the home first, if you think about personal care services, we get in the home when an elderly patient needs help with certain non-clinical items, but eventually they progress or they might have a home health need or eventually may need to be talked about as far as hospice. We started adding clinical services to get that continuum of care in the home in 2018. Today we do about 20% thereabout of our business in hospice and then about 5% or so in true clinical home health.
Got you. In the personal care, we saw really strong results on a same store basis, 7.4% same store organic growth, and then that's higher than your stated target that you've talked about in the 3-5% range. Maybe you can kind of talk about the trends you're seeing in personal care and kind of what's driving that strong growth.
Yeah, I think, you know, specifically in Q1, we got a rate increase in Illinois, which is our largest personal care market, of 5.5%. That was definitely impactful. We've gotten really good rate support over the last few years. I think, you know, our focus this year, and we saw it in Q1, was getting back into a cadence of, you know, 2-2.5% just pure volume growth on the hours basis. We saw that in Q1, so that was impactful as well. I think the way we're kind of looking at the rest of this year and potentially into 2026 is behind some of the rate support we've seen is probably be at the top end or maybe slightly above that kind of long-term 3-5% range.
We are, you know, waiting to hear if we're getting a rate increase in Texas, which we anticipate. If that comes through, that would go into effect this September. That could be helpful from a same store perspective into 2026 from the Geneva acquisition. That could keep us again next year toward that top end of that 3-5%. I think 3-5% overall is still kind of our long-term range, but as long as we're getting, you know, some of these larger rate increases in some of our bigger markets, it could put us at the top or above that range.
On the volume side, you guys noted that hours are kind of getting back to your target levels, and you've called that out before. I just wanted to kind of get an idea of the visibility you have on that aspect of it and what's helping act as a tailwind to some of these volumes that you're seeing.
I think on the hour side, I think the key for us is hiring. I think, you know, we can talk about that as well. That has been very consistent for us. I think with inflation, the way that it has been the last year, year and a half, that has helped. You know, typically we are a little countercyclical where unemployment is high, typically good for us, but I think, you know, inflation has kind of, you know, stepped into that void as unemployment has been a little bit lower and kept us in a really good hiring position. Some of the things that we have done internally, which Dirk, I do not know if you want to talk a little bit about some of those initiatives to try to ease, you know, the hiring process for us.
I think some of the rate support that we've talked about has put us nicely above minimum wage in a lot of markets. I think that's helped us. We've seen the impact of, you know, states that have been supportive on the rate side, allowing us to pay more to caregivers, and we're not directly in competition with retail, hospitality, some of the other potential places that our folks could go work. I think it's helped us as well on the hiring front. I know hiring is a leading indicator of us on what will happen on the volume side, but also mining, you know, internally our own, you know, existing caregiver workforce and our clients and trying to maximize the number of hours we provide under their authorizations.
I think one of the things we've talked about the last few quarters that we're starting to really come out of is the state's redetermination process. That was a real impediment to volume growth for a period of time because when states were asked to go through that and they had a short period of time to do it, they didn't have a lot of excess personnel to do that. Some of the folks that would normally be going out and authorizing new hours for new clients all of a sudden were pulled into doing redetermination. We saw some of our states, really Texas went through it just before we acquired them. We kind of saw that go down and now it's back up. New Mexico, same thing we saw. We're through that. We're starting to see volume growth again. The last one was probably Illinois.
Certain parts of Illinois were a little slower to get started. First Quarter, that was just a little bit of a problem. It seems to since then, really since February, March and on into April, we're starting to see that trend of discharges versus admissions turnaround. I think realistically, if you think about our targeted 2-2.5% volume growth, I think we're pretty comfortable that this year we should be at that target.
Got you. Maybe we could talk a little bit, go back to the hiring aspect of stuff because this is a little bit different industry than we're used to in other clinical areas. Kind of what does the turnover landscape look like and kind of what levers do you have to pull to mitigate turnover and increase hiring new hires?
You know, this industry has always had a high turnover. If you go back prior to the pandemic, you probably were in the 75-80% turnover range because our caregivers are lower wage. Now they're above minimum wage in a lot of states, but they're still lower wage workers and they usually average about 20 hours of care because of, you know, there's a real focus on providers. We can't pay overtime because the state does not pay us in overtime. So we're very careful how we schedule folks. What we found over the period of years is that the number 1 reason people turn over is because they can't get enough hours. You know, these caregivers would like to have more hours and sometimes companies do not do as good a job trying to match, well, you may have 20 hours left before overtime.
What can we do to fill that? We started about two or 3 years ago developing a care system that our caregivers can utilize to tell us, do they want more hours? When is their availability? Keeping it up to date. Because again, that's something that if you don't keep up to date, what might have been a good additional schedule for you last week may not work for you this week because your lifestyle might have changed some way. It's really helped us as we look at trying to lower our turnover. We've probably lowered our turnover from 60-65% down to about 50, maybe 55% because we're able to give a few more hours. We're still working on that. We've rolled it out to Illinois. We're rolling it out to New Mexico now.
Obviously, Texas will be a big market eventually to roll it out to. The whole goal is not only to try to control that overtime, but also that drives your ability to grow because now all of a sudden your percentage of worked hours versus hours you're authorized by the state continues to grow. As we do that, that also helps with unit growth.
Got you. Where do you think the turnover rate could probably go on a long-term basis? Is that something you have a target on or is it?
You know, you always would like to lower it more. We've been pretty consistent the last year in that 50-55% range. It's going to be hard to lower it a whole lot more just due to the nature of the industry because remember, 30-35% of our caregivers are family caregivers. And if you're taking care of your mom or your grandmother and you no longer need that care at some point in time, you're probably not going to keep working for the company and take somebody that's not in the family. You've got turnover built into that system because of those family caregivers. There is a limit as to how low you can get. We certainly will continue to try to lower it, but we've been pretty consistent in that 50-50 plus range for the last year or 2.
Got you. Maybe we can now shift over and talk about Geneva, your biggest acquisition to date and kind of how that integration is going and what you're seeing in Texas, which is a new very large market for you guys.
Yeah, it's an exciting market for us because of the, you know, you look at Texas, it's a huge market. It's a growing market with our population base, 65 and older. The state's financial condition is pretty solid. So we don't have budget worries. Now the key is, can we grow in the state? And when we brought Geneva in, obviously Texas was a big attraction. They brought other states that have been great too. I'm not downplaying them, but you know, Texas was about 70-75% of the business. We now are the largest personal care provider in the state of Texas. We have a little bit in the central section hospice, but we have no other clinical services in the market. One of the things as we look at the acquisition we brought it in is doing well. It's hitting our targets.
We brought in a really fantastic team that's been there a long time. They understand operations in Texas. It's been, you know, there's always things when you do an acquisition like that that you learn, but mostly we've understood we had a long period of time between sign and close that we could work with their team and plan the transition. It's gone relatively smooth. We're pretty excited about it. Now the real thinking for us as far as Texas is not just the organic growth. We're excited about that, as I mentioned, with the growth in the market, but it's also the ability to open up our M&A and look for additional personal care acquisitions, as well as now we can look at home health and hospice in the state of Texas and try to develop our 3 levels of care.
Maybe we can touch on that a little bit on the home health side. Clearly, people are waiting to see if we're going to have a proposal with a clawback on the reimbursement, Medicare reimbursement for home health. What are your thoughts there and what could that landscape look like as we get more clarity on the regulatory side?
Yeah, I think you're right. I think it's been a little bit frustrating the last 2 or 3 years not understanding what the government, they keep kind of pushing it down the road, talking about a clawback and then not giving us rate increases that really cover the cost of care. We believe, we hope, we think we're getting closer to a resolution. We'd like to think that. We've heard some thinking that maybe that's being discussed. I think if we could get some answers, whatever those answers are, some certainty around the clawback, some certainty around are we going to continue to face long-term pressure on rates. If we could get that settled, then I think the fact that companies like ourselves that want to grow in home health, I think we would open up our look and see for companies that maybe are a little bigger.
Now we have continued to buy some of the smaller operations because they tuck in nicely with what we do. From a standpoint of trying to price in there what might be a solution at the end is a little easier, but you get a little bigger transaction and it makes it a little difficult. I think we're all waiting to see if that comes to some sort of conclusion in the next year or so.
Got you. Maybe we can talk about the other clinical area on hospice. You know, we have heard a lot of your hospice competitors talk about areas where they're rubbing against Medicare caps, but it seems like you guys have navigated that fairly well. Just want to get your thoughts there and if it's something that, you know, you see as maybe a headwind in the future.
You know, cap's been around since the program was developed back in the 1980s. I think it took probably until the late 1990s, maybe early 2000s for people to realize it was in the rule because nobody had a problem with cap up until that point. We all came from the hospice industry back many years ago where we had to really focus in that early part of the 2000s on the cap. And what we realized was you have to have a balanced approach to your marketing to deal with cap. I mean, because the whole idea of cap is to maintain that length of stay in a range that makes sense for the program. You need to make sure that not only are you really marketing towards the short stay length of pay, which tends to be hospital discharges.
Folks that come out of hospital tend to have a shorter length of stay. You also need to balance that with some potential ALFs and some institutional care that people come out and may have a little longer length of stay. That is the real challenge of the cap. Can you do that? We have been fortunate in our various with our Medicare license that in those markets we have been able to work with those, that balance and maintain a cap situation that has worked pretty well for our company. It is not something you can change immediately if you get into a cap situation, but if you think long term, how do we mitigate cap and stay out of cap, I think you are able to do so.
Got you. Thank you for that. Just wanted to kind of close out on the Medicaid piece of it, going back to personal care. Clearly, we can't talk about a Medicaid levered company without discussing the policy backdrop. Of course, you guys have talked about getting good rate updates from Illinois and Texas, but just wanted to get your thoughts on kind of the broader discussions in Washington. We've had some news on the development of potential Medicaid cuts over the last week or so. It seems like you are fairly insulated, but just maybe you can kind of wrap some parameters around that for us.
Yeah, you know, 1 of the big ones that they continue to talk about and I think pretty much has the support of the Republican Party is the work requirements. Work requirements for us probably is not a true negative because the people we take care of, think of the patient basis or the consumer basis, they're the disabled population or they're the folks over 65 years of age. They are not going to be required to go out and work this 20 hour a week they're talking about. On the other hand, it could be an opportunity for us because as we talk about growth, Brian mentioned the fact 1 of the limiting factors for our growth is to be able to hire enough caregivers going forward to take care of a growing population.
If all of a sudden folks are, the younger folks, the below 65 folks are required to go out and get 20 hours of work a week, that's our average. That's what we do. That's our average caregiver works that part-time basis. We also have very flexible schedules. If people have some limitations on when they can work during the day, we would be a great employment opportunity for them. We don't look at work requirements as the issue. I think a bigger issue for the industry itself with all they're talking about is if they make some changes that maybe reduces some of the match. They're talking about maybe they want to reduce the 90% match on the expansion population.
We did not get any benefit from the expansion population, but if states' budgets have to look at what do we do with less money, would that affect a company like Addus? It could just because there is less dollars, but we feel comfortable because we are the low-cost provider. We are the folks that if the state really is saying, how do we take care of the elder population and control our dollars, if we can help keep them out of the institutional settings, we can save money for the state. Nothing we are seeing today do we believe is a huge impediment to what we are doing, our strategy. We are pretty comfortable that if the changes made that they are discussing will be fine.
Just another requisite question on topical issues, the tariff exposure. What have you guys said in terms of how you're levered there? Any headwinds that you can see?
Yeah, we really do not have any exposure to some of the tariff kind of noise that is out there. If you think about our business, it is largely services and personnel are the bulk of our costs. You start thinking about in our clinical services, you know, maybe there is a little bit of pressure on things like med supplies and things like that, but it is going to be fairly immaterial for us. Nothing that we are concerned about really impacts us.
Kind of just moving on to your outlook, you're expecting EBITDA margin above 12% for 2025. Just wanted to get your thoughts on kind of how that progresses, how you generally see seasonality and what your thoughts are on the margin development, you know, as we get through the year.
Yeah, I think from our end, I think starting off in Q1, which is typically our low watermark from a quarterly basis every year, you know, being at 12% out of the gate, I think is a very strong start to this year. Our normal kind of seasonal cadence, which we would expect this year, there is really nothing unusual that we see on the horizon right now. Would typically be, you know, some improvement from Q1 into Q2. Usually we see some relief from, you know, payroll tax caps being hit. We usually see 40-50 basis points of expansion in Q2 on average. You know, usually Q2 to Q3, pretty static, not a lot of movement, should be pretty consistent. Usually Q4 is our best quarter.
Again, we get a little bit of relief typically from some additional payroll tax caps being hit, but also that's when our hospice rate increase drops in on October 1 without any kind of corresponding or all of our merits and increases on the wage side. We usually do those in March. We don't see that corresponding increase in wages. We get the benefit of the hospice rate increase for Q4. That's kind of the way we would see the cadence for this year continuing to move.
Just to go back, I'm sorry to jump around here, but it just reminded me you have talked about really strong hiring, you know, and cost controls and efficiencies on the PC side, maybe on the clinical side in terms of hiring, any kind of margin pressures you expect there from having to ramp up that, you know, that clinical workforce?
You know, I think if you go back 4 or 5 years ago, we were all really struggling with the clinical side as far as what does it take from a salary standpoint, the increases with some of the opportunities that the clinical staffs had elsewhere. We've really seen that moderate. Now I will say hiring on the clinical side is a little bit more difficult than hiring on the non-clinical side, but it's eased up the last 12 to 18 months. Where we saw the wage increases probably a couple of years ago, 4-5% running on the clinical side, it's probably moderated more to the 3-4% this last year.
While it's still a little higher than maybe you would see on the non-clinical side, it's really gotten back into more normalized increases as well as ability to hire as we've seen in our clinical side.
Maybe we can just move over to the, you know, balance sheet and liquidity. You know, when you think about, you know, putting cash to work, how do you balance, you know, debt reduction, acquisition activity, potential investments in operations, you know, as we look forward?
Yeah, I think our priority would be, our preference would be, you know, to deploy capital through M&A. But I think obviously that's going to be, you know, based on opportunities that are out there. I think right now what we're seeing in the market are probably things more on the smaller side. So there are things that we're looking at kind of across, you know, to be honest, all three service lines today, but on the smaller side. So I think in the absence of M&A or while we're working on some of those projects, you know, we'll continue to pay down on our revolver. We've made some good progress already this year, paid down $20 million in Q1, have already paid down another $20 million in Q2 to date so far.
You know, we're still, you know, levered less than one times, but we still have, you know, some debt on our balance sheet so we can mitigate some interest. I think overall our preference would be to continue to source and find and put that money to work through M&A.
You know, one thing we have been able to do the last couple of years is we've invested a little more in the technology side with our capital. We've used some of the ARPA funds that have allowed us to do some of that. It led to what I mentioned earlier ago, this caregiver app that we have, which is very critical. It's the 1 place that we can give our workforce where they can go, they can look at their schedule. We can eventually make changes in that schedule. There's a number of things there they can do. They can make sure their paycheck is going to be correct, which is very important to our caregivers. It's really been a nice investment. We also are in the early stages of working with Homecare Homebase. Well, I say early.
For us making the final commitment, we're getting closer, but Homecare Homebase centers have been working for the last three to four years on developing a personal care technology that will allow us to have all clinical services and non-clinical services on the same EMR, which will be very important as we look to try to move patients from 1 service level to the next. That has been another use of what we can do with our capital and our keeping our balance sheet clean to allow us down the future, not only to grow, but also to look at how we can cut expense growth going forward by using technology. That is very important.
Yeah, we've heard actually the flexibility with home care, home-based, easing M&A as well. Is that something that you think could kind of help your tuck-in initiative as you go forward?
Yeah, I think having everything on one platform is going to provide a lot of benefits for us. I think, you know, in the clinical side, obviously every deal we do, maybe they're already on Homecare Homebase, but if they're not, we immediately move them onto our platform. I think having a unified platform for personal care should help ease that process. Yes.
Just in the last minute here, maybe you can just talk about kind of what kind of valuation multiples you're seeing out there for tuck-ins and kind of across the different segments.
Yeah, I mean, particularly, you know, probably the 2 that are a priority for us right now are personal care and then maybe some clinical home health where we have personal care. Most of the deals that we're looking at are going to be, you know, in the single digits. So, you know, on the smaller end for personal care, those could be as low as four or five times. You know, if they're a little more sizable, it could be, you know, six, seven, eight times. On the home health side, I think it's similar. If it's on the smaller end, it's going to be, you know, mid, maybe slightly upper single digits. You know, things of scale on the home health side will probably tip, you know, 10 or low double digits. I think most things we're looking at today are in the single digit multiples.
Great, guys. I think that brings us to time. I appreciate you being with us today.
Thanks a lot. Appreciate it.