Poff CFO of Addus, ticker ADUS. We've covered this one for quite a while, ever since Dirk Allison came out of retirement a few years back to fix the company. I think, you know, we can't decide if it's consistently boring or boringly consistent. This company just is a metronome, doesn't really miss numbers. What we like about it, in addition to just a high quality management team and a pristine balance sheet, is that, you know, they do net good for the system in terms of taking care of grandma on Medicaid and keep her out of the nursing home, and sometimes being cared for by family members. We think, you know, it saves the system money. Everybody loves them, including their clients. It's a, it's a unique staffing business.
Personal Care is a hard asset to scale. Other people have tried and failed, so they make it look easy, but it's not. With that, That's kind of a flowery one, that intro. Let's just kinda talk about, you know, a few things. First of all, just high level, just talk about what happened, you know. I'm not gonna use the word journey. I hate that word. The path you've been on since you and Dirk took the reins and, you know, what were you trying to do five years ago? What have you gotten done? What's still kind of top of mind to get this company to where you want it to be?
Yeah, John. I think, you know, it's probably going back, I mean, it's kinda crazy, but it's about 10 years ago, is when Dirk came on as CEO. I think back then, you know, we were a pure play Personal Care company. Margins, operating margins probably close to, like, 5%, 6 %. I think we looked at it and said we think there's a real opportunity. I think a lot of folks were doubtful that you could really make money in a Medicaid business.
I think we said, "Hey, with the right size and scale, we think this could be a double-digit margin company with the right growth profile." I think we spent a lot of time early on just kinda, you know, make sure we had the cost structure that we wanted in place, and really moved pretty quickly into M&A and growth. I think with the top line growth we've seen, the scale we've added, we have added some clinical services. We see some benefits of that, in markets where we have strong Personal Care presence. You know, we've grown to, you know, $1.5 billion plus in revenue now, and running, you know, probably pretty square between 12% and 13% bottom line margin.
I think that was always the vision that we saw was achievable, and I think it's taken a little bit, but we've gotten in a pretty good spot now.
There's a lot of angst about Medicaid, I think some, and fraud. I think some well-placed, some not. At a high level, talk about the price, kinda your net pricing you're seeing in 2026 over 2025. What's kind of in the books, and then what's that still out there? This percent of revenue's been soaking for us, this kind of rate, and that percent of revenue it will get. Typically states move in either end of year or midyear cycle, so I know it's a little lumpy. Just kinda talk about the pricing that you've gotten so far and where you're still kind of out there negotiating.
Yep. Yeah, I mean, I think most folks know, you know, every state that we're in, you know, we don't have an automatic kinda CPI price increase every year. It's usually a factor year to year of states and their legislative sessions and their budgets. I think the ones we primarily focus on, you know, our top three markets, Illinois, Texas, New Mexico, different cadence on their fiscal years. I think where we sit today and kinda off some of the headlines that we've seen with RB3 and you know, the last couple of years we've gotten really, really strong rate support. I think we've been saying for a bit we expected that cadence to probably slow a little bit.
I think we were hopeful this year we would still continue to see, you know, some rate support in certain of those markets. You know, we got almost 10% rate increase from Texas, kicked in September of 2025. They only meet every two years, so we won't see anything from them this year. Illinois has been pretty consistent in giving us rate increases every year for the last several. Had a rate increase kicked in Jan 1 of this year for them. They're a 7-1 fiscal. I think what we understand right now with Illinois is, the initial Governor Pritzker's budget does not have a rate increase for us next year, but that's similar to last year, and we still got one at the end. We'll wait and see how that plays out.
We won't know probably on that for the next couple of months. We did receive some information. Last year, New Mexico was looking at a rate increase, decided to hold pat with RB3 kind of out there at the same time. We were hopeful they would look at us again this year, and it looks like we're getting between a 4% and 5% rate increase in New Mexico. They're a 7-1 fiscal as well, so that should kick in the back half of this year. There's a handful of, like, smaller states that we're, you know, working with the legislators in our lobbying efforts on, so we'll wait and see, you know, what happens there.
I think we will get, you know, again, some rate support this year, or rate that we thought, you know, would be kind of more status quo, which was a positive for us.
Okay. remind us, like, if, for every $100 of PC revenue, what percent do you have to pass 100% through, versus what percent can you maybe hold back and manage margin a little bit?
It depends on the state. Like, a couple of states, Illinois, Texas, are kinda formulaic, where there's a percentage that you pass through. Other states, you have more flexibility to kinda make your own decisions. Typically, you know, we're usually gonna see our kinda gross margin or our pull-through on that's gonna be, you know, mid to upper twenties. Texas and Illinois are a little bit lower on their formula, but consolidated base is kinda more that mid-twenty range.
That's probably the only thing Texas and Illinois agree on, I would think.
They have different ways of getting there.
Yeah.
Otherwise similar, yeah.
Right. Right. You rolled out. Let's go back to, you know, obviously everybody's seen the stories out of Minnesota and home care and fraud. What does the company do when you get a new patient on service, just to make sure that all the I's are dotted, T's are crossed to make sure, you know, we're not getting in trouble?
We've invested, I mean, obviously, you know, we're in 23 states. Every state has their own rules on kinda what's required from a supervisory perspective. I think we've invested pretty heavily over the last 10 years in our internal compliance group, so we work a lot with our folks out there in the field. We have people that come on service. You know, we do pre-service training for our caregivers. We do supervisory visits in the home. We do kind of a robust survey process with all of our clients and their family members, just trying to see is there anything that we need to be, you know, more focused on. I think our efforts are very robust.
I know there's been a lot of headlines with, you know, some of the recent things that folks have seen. I will say at this point, we've not seen any change in behavior, as far as, like, cadence of state audits, things like that. That's usually things we deal with as part of our day-to-day operations. Something overall not really concerning to us. We actually probably would welcome a little more scrutiny in the industry, because in our mind, we feel like we are a very high quality provider. Like I said, we spend a lot of money there. I think, you know, where they might see issues if they, if they dug deeper would be some of the smaller providers where maybe some folks are cutting some corners.
Right.
Could that put some pressure there? Could that create maybe even some market, you know, share opportunities for us? You know, nothing that we're concerned about, but we understand obviously there's been some headlines, kind of around that.
The CBO, in the team's opinion, policy and myself, grossly exaggerated the Medicaid cuts and the what would happen with the population. Just to be clear, your population, 82 years old, not subject to work requirements, probably not a huge immigrant crackdown population. Could you sit here today and say that we don't really see any effect either on availability of labor or customer demand as a result of immigration and Medicaid cuts?
We've not seen... On the immigration side, we've not seen any impact and don't anticipate seeing anything there, 'cause you're exactly right on that point. I think our view on kinda some of the cuts and things to RB 3, there's nothing that directly impacts us or our services. I think the one thing that we'll watch is states that took advantage of the expansion population, they're probably gonna get a little bit of pressure on provider tax cuts coming down the road.
Right.
You think about our portfolio, Texas, New Mexico did not, Illinois did. I think Illinois really appreciates our service. We've been there for 40+ years. We're the low-cost provider. If there is some, you know, maybe a little bit of pressure on state budgets, you know, if they have to make some decisions, we actually think we can be helpful or part of that solution, not something that they look at and say there's an issue with Personal Care. That's, that's our perspective.
Just with that many states, how do you run a coherent, organized government relations effort? I mean, do you have to have a person in each state, trade group? How does that look?
Yeah. We have a group led by Darby Anderson, our Chief Government Relations Officer, internally. Darby's been around for a really long time, has a lot of good relationships. He heads that effort for us. I would say in most of the larger markets that we're in, we do engage, you know, state-specific lobbyists. We do have folks that advocate for us. We're a part of, you know, associations where those are available as well. If there's an industry advocacy effort that can be made, you know, we're part of those conversations as well. We've got some folks on our board that have, you know, deep relationships with, you know, the folks in Medicaid, both, you know, out in states, but also some folks on the Hill.
It's, it's kind of a concerted effort across the board.
Gentiva acquisition goes into the same store base this year. Maybe just take a step back for those who aren't familiar with your story. Talk about that deal. You know, how has it performed versus your expectations? What was the mix of revenue compared to what you had going in, and how do you think it affects same store metrics this year?
Yeah, Gentiva, we closed Gentiva, December of 2024. Largest acquisition that we've done to date. It was about $280 million in annualized revenue, all Personal Care. Multi-state, the largest of that being Texas. That was our entry into Personal Care in Texas. Made us the largest provider in Texas with only 5% of the market. Still a lot of-
Yeah
we think greenfield to continue to add to that. I think, you know, overall, I think it's performed very well and very in line with our expectations. I think, you know, when we closed that acquisition, we announced it, I believe, in May of 2024, closed it toward the end of the year. You know, a lot of states were going through redeterminations at that time. I think Texas was no exception. I think we saw probably a little bit of pressure on the top line early on as a result of that. I think that is definitely clear and is in the background and is performing very well for us now.
Margin profile I think was in line with what we anticipated, but I think moving into same store in Q1, you know, that we mentioned on our earnings call, we don't really anticipate that having a material impact on kinda where we've been tracking. That business is running largely in line with the rest of our organization.
There might be some weather since Texas not used to, they're not exactly equipped for blizzards. There might be a little bit of a nick on weather as you mentioned.
We mentioned. I think, you know, for us, you know, we're not gonna say there's anything material, but I think some of the late January storms, you know, might have caused a few missed visits here and there. We tried to do everything we could in advance to do some of those visits early, try to make up some late, but invariably you are gonna miss a few. There might be a little bit of that that we saw into January. Again, in our view, probably nothing material.
I don't know that people would think of Addus like Top of Mind as being this tech-forward company, but you rolled out a select caregiver app. Talk about where you are with that, what it did with your fill rates in Illinois, and what it could portend as you roll it out to the rest of the states?
I think so just one thing to understand about us, so we get pre-authorized a number of hours of care that come from the state agencies. Our goal there is to try to, you know, schedule and fill as many of those hours as we can. We typically, you know, on a consolidated basis probably run, you know, in the low 80% range. The caregiver app that John's mentioning, we developed, one thing that we saw and we heard from our caregivers, one of the reasons why we lose them, which sounds a little counterintuitive, is they don't get enough hours. We're like, "How can we..." You know, folks are working part-time, but they need an extra shift. You know, they need a little extra money.
How can we be helpful for that? We developed this app internally, developed it, rolled it out in Illinois. It's worked very well to give a lot of visibility to our caregivers on, they can see their schedule. They can see when they punch in, when they punch out. They can get a preview of their paycheck. The other thing is we can actually push what we call flex hours to them, where they can say, "If I wanna pick up an extra shift, I have some availability, I can pick up and select and take this extra shift," all kind of through this app. The impact we saw in Illinois, you know, traditional, they had run probably in that kinda low 80 range on fill rate.
You know, we don't require caregivers to use the app, but we did see through education, we saw probably a 90%+ adoption rate from the caregivers in that state, and we saw our fill rate go from low 80s up into the upper 80s. It's been pretty consistently in that range since. The thing we're doing now is going to our next two largest markets, which are New Mexico and Texas. We think the app will be available. We'll be doing everything we can to try to obviously influence and get some high adoption rates there as well. you know, Texas and New Mexico probably run in that kind of 80%-ish range on fill rate.
Can we see a similar impact on just the number of hours that we're providing to existing clients that we have that are pre-authorized from our existing labor pool? That's something we've been focused on and we would hope could be an incremental positive in those two markets as well.
What Personal Care revenue are we talking about in those two states? How much revenue roughly?
I mean, Texas and Illinois I mean, Texas and New Mexico-
New Mexico
are gonna run, you know, a few hundred million combined.
Yeah
in total. It could be impactful.
5% on, say, $300 million. That's not bad.
Yeah. We try not to put boxes around numbers, John, but yeah.
Yeah, yeah.
I know you like to do, fun with numbers.
See, there you go, Poff. That's our famous little franchise. Let's talk about, I think you're projecting that Personal Care census will start to grow in the second half of the year. We looked at it. It's down about 1.3%-1.4%. Probably will, you know, expect to be down. What's caused that census to stagnate? I mean, you've put up good numbers with fill rates and pricing, but the census has probably been the one number that hasn't been as strong as maybe people would hope. What caused that, and why do you think it's gonna rebound?
Yeah. I think for us, and we talked about it's been a while back, but, you know, I think the states had to go through redetermination, not that necessarily our clients were, you know, removed from service 'cause they were ineligible. I think we did see some pressure on census for a couple of reasons. Number one, you know, a lot of those states when they were going through that process didn't have additional resources or personnel to go through that. We saw that be impactful on the number of people that were kind of, you know, stacking up or basically being admitted into our service. We saw some impact there. I think we did have, you know, probably a handful of people that, you know, they did have to fill out their paperwork.
If they didn't get their paperwork in, even though they were otherwise qualified and eligible, they got kicked off the rolls and had to go back through that process again. We think that caused some headwind. I think the way we've kind of focused on it with all of that behind us now, I think we've been focused on trying to see sequential increases in census. I think, yeah, this last quarter, we were a little under 1% year-over-year. If you go back to Q1, we were 2.5% down year-over-year. That gap has been closing. That kind of is what is kind of feeding our narrative saying, "Hey, another quarter or two, we would hope to see a year-over-year positive number." That's our focus.
I think where we sit today, most states and most markets we're in, we are seeing sequential increases in census. Hiring is gonna be, you know, a key component of that as well, is making sure we have caregivers to service those folks. I think our numbers have been pretty strong on that front. I think the economy that we're in today, typically, we do a little bit better in times of higher unemployment. With that ticking up, that's usually helpful. I think we would also say, you know, over the last couple years, the pressure from inflation for the folks that we hire, if you think about the demographics, that has put some pressure on them as well. They need to make some more money. I think that's been helpful on hiring.
I think all that being said, that's where we were saying, "Hey, by middle of this year, you know, we should see hopefully positive year-over-year results as we kinda continue to make improvements there.
I think you mentioned, that Illinois also just getting the approvals back from the state. There's a bit of a bottleneck there. Did you see more pressure in Illinois because of just state-?
We did see a little pressure in Illinois. They were definitely kind of taxed. I think we also, you know, saw probably some turnover in those state agencies. They probably lost some folks. Our branch administrators, you know, usually are out there having, you know, pretty good relationships with those folks. I think, you know, having some new folks coming in, reestablishing certain of those relationships is something that's key for us. I think, yeah, Illinois did have a little bit of pressure from that process. It did, tax, I think, their resources a little bit more maybe than we saw in some other markets.
Okay.
Um, the
The Hospice business has been a success story for you. Just talk about when you guys entered Hospice, how it's performing, and then just kind of the whole post-COVID. There's just not a lot of public Hospice companies anymore, so that people probably aren't front of mind. Just how important is that to you? Why has it rebounded? What were some of the COVID things that were holding us back? I mean, my understanding, the M&A multiples have gotten quite rich, and you're not known for paying rich multiples. Is there stuff out there to buy, or is this kind of, given the multiple backdrop, probably not?
Yeah. We got into Hospice, a lot of us, you know, have a long history in the Hospice business. We did an acquisition back in New Mexico in 2018. It was kind of our first foray. We've done a couple acquisitions since to get into, I think we're in nine states now in Hospice. We run pretty good businesses in most of those markets. Hospice, we think, is a very valuable service. Obviously, our focus has been on taking care of the elderly population in their home. Personal Care definitely is part of that. Hospice, we do a little bit of skilled home health as well. I think for us, the Hospice business, you know, going through COVID, you know, there was obviously, you know, a lot of challenges, pressure.
There were some changes, I think, structurally in, you know, how skilled nursing facilities were handling those patients. I think it caused a decent amount of disruption just in the normal kind of patient flow. Post-COVID, I think it took a little bit to kinda get that back into a more, what we would say, kinda historical norm, on those flows. I think we've seen that. I think we've had to do some things in our Hospice business, over the last couple years. We've made some changes, particularly in our sales force. I think we, you know, we're seeing a lot of quarters where we had really strong admission growth, but length of stay was down, so it wasn't translating to ADC growth or vice versa.
Length of stay would be a little longer, admissions were a little down. I think we made some changes in our leadership and the sales group, done a lot of education and training with that team. Over the last year, I think we've seen the, the dividends really pay off 'cause we've had pretty consistent, strong ADC growth in that business. You know, we get consistent, you know, rate support, you know, 2.5%-3% every year. Doesn't have the same kind of pressure, home health.
I think, you know, where we see, in markets where we have skilled home health and Hospice, we see a lot of patient movement out of our home health into our own Hospice, 'cause you can, you know, use some technology tools to kinda look for folks that may be eligible for that service. I think our longer term vision is we think about what John mentioned earlier, the demographics of our Personal Care clients. They're mostly dual eligible, 80+ years old, in their home at some point. Are they going to potentially be in need of a home health episode, or will they be eligible for Hospice and have a need there?
I think that's been a large part of our strategy, being able to provide all of those levels of care to those individuals at the time that they need that service.
I mean, years ago, home health/Hospice providers thought there were some synergies that there really weren't. A different sales channel.
Yes
... for one thing. What have you done to solve for that? I know New Mexico is your market where you've got all the assets on the field, but what was done, you know, by Addus that counteracted some of the legacy problems with that strategy?
Yeah. We don't try to co-locate it. You're exactly right. We don't try to merge sales teams. We understand those are very different businesses and need to be run individually. I think what we've done is use technology to look at our home health clients to see who might be eligible for Hospice, have those conversations to where now in New Mexico, and now we're moving into Tennessee, we see probably about 20%-25% of our admissions into our Hospice business coming out of our own home health business. Pretty good opportunity there.
We've got some other markets, like Tennessee I think is probably the up next for us, where we kinda call it our bridge program, that we, you know, probably are still in the, you know, low double digit range. We've got some opportunity. If we can continue to see a similar impact there, maybe there's some volume opportunity. I think, you know, home health is very small for us. Economics are a very small piece. I think, you know, we've been intentional about trying to help people understand, even with the low economic contribution from our home health, there is a indirect contribution of volume into our Hospice business.
Public information that EHAB's being taken off the market by a financial sponsor. Were you surprised that there wasn't a strategic--? Does this say that there's no more managed care bid for home health? Some people speculated that you could get practically 80% or so of the EV just from the Hospice business. I was thinking they might. We don't follow it, but I was a little surprised at that multiple. What are your thoughts on that?
Yeah, I mean, obviously we've followed the EHAB story for quite some time. I think obviously they've been pretty open about looking at strategic alternatives. You know, our understanding is there probably were a handful of people that, you know, were continuing to look at that business. You know, I guess, you know, we had heard things recently that, you know, something might be happening this year. Didn't probably expect it quite as early. You know, I think our view is, you know, in home health, you know, I think a lot of folks are getting, you know, pretty comfortable or more comfortable, you know, with the reimbursement environment after the cut last year wasn't as bad as originally proposed. I think our view is it was still a cut.
We're probably, you know, a little still on the more skeptical side. It'll be interesting to see what the proposal is coming up here in a few months for this year. I think it'll be telling. You know, we'll see. Does it feel like maybe it's getting a little better? It's possible. I think our view as well is, you know, the clawback is still out there. They haven't addressed and said exactly what they're planning to do with that. Until, you know, we see a little more clarity there, we're probably not, you know, gonna be, you know, large players in home health. We'll probably still continue to look for the things that we've done the last few years.
You know, if there's opportunities for smaller deals in markets where we have Personal Care or Hospice, like we were discussing at low multiples, those still make sense for us. I think larger bets for us in home health are probably not something in our short-term future.
In my pathetic attempt to think like an investment banker, I was thinking, well, gosh, both companies are in Dallas. Maybe you guys could line up a buyer for home health and get out of markets. Was that just? I know you had to look at it, right? You could have bought it cheaper than anybody, but is that just like too much of a triple bank shot to try to buy, line up a sell, and just? Do you think ultimately you'd ever get there?
I mean, there's a lot of dynamics that we look at that are involved with every deal. I think, you know, Enhabit's probably no different. Yeah, I think there are a lot of people that spent time there. It's ultimately, you know, who can make the decision that it was worthwhile at the right price.
Mm-hmm
... that made sense for their business.
That's very, very well said. That's more than I usually get. You know, most people don't even give me that much. Just continuing on the M&A theme, you mentioned on the call that, you know, the pace of Personal Care, you know, is kind of lumpy. Maybe it's been a little softer. What, if anything, will get that going again? Is it regulatory pressure? Is it just, you know, time? What do you, what do you think about that?
I think in Personal Care, I think, you know, you know, smaller, you know, what you wanna call kind of tuck in type deals, and we've done a few of those this past year, are probably always gonna be available. They're usually, you know, low multiples, you know, mid single digits. Economically, they make a lot of sense. You know, we're always looking for those. I think our focus is, you know, Personal Care is extremely fragmented business, so there just aren't a lot of, you know, probably larger, chunkier type opportunities. I think when those are available, in the right markets, we've always been very specific about geography.
I think over the last couple of years, you know, there have been several Personal Care businesses that have been potentially available, all had large New York or Northeast presences, which, you know, we exited the New York market for a couple of different reasons. It just didn't make sense for us. I think what we have been alluding to the last, you know, couple of calls is, you know, we are aware, just, you know, in conversations that we have with folks in the industry that there might be, you know, some larger Personal Care assets that would be available in the market later this year. We think it's probably mid to late this year based on the timing that we're hearing. Obviously, where we sit today from a capital perspective, our balance sheet's very clean.
A lot of availability, intentionally to be able to be flexible and move quickly when needed. You know, those are things that we'll be, you know, definitely interested in taking a look at. In the meantime, you know, we'll continue to focus on the things that we've been doing. We still wanna be very active in M&A. That's still our preference, from a capital allocation perspective. Just continuing to create, you know, density in markets that we're in. Maybe there's a couple of adjacencies where there might be some opportunities that make sense for us as well. We'll continue to focus on those.
there are, you know what they are. There are at least two large distressed privates. Do you think that might create some opportunity for you this year? Are there conversations going on about maybe helping them out?
Yeah. Anytime that we're aware of those situations, and we've talked about those in the past, where there's carve-out opportunities, so large assets, maybe they're, you know, multi-segment, but maybe there's opportunities to talk about, you know, components of that, again, in the right geographies. Those are always things that we're willing to have conversations on. I think, particularly when you look at like a Gentiva, which wasn't a broker or a marketed process, we went directly to them. I think we've shown, hopefully, you know, an openness and an ability to be flexible, and creative, when necessary. Yeah, all things that we would definitely, you know, be willing to have conversations about.
Okay. That said, we have two minutes and 47 seconds. I'm happy to stand down and take any questions from the crowd, and I'll repeat the question if you ask it. It's a quiet room this morning. All right. This is always when I run out of questions, this is the one I kinda pull out of the file retrieve. What are the top of mind questions you're getting from smart investors and anything we didn't cover that you'd like to answer that I didn't, I wasn't smart enough to ask?
Yeah, I mean, I think the main things for us these days, obviously, you know, we kinda mentioned some of the headlines around Medicaid, and hopefully we've tried to talk about that and why we think that's something that, you know, is not really impactful for us specifically. I think, you know, always M&A, labor availability is always top of mind. It's a gaining factor for our business, then opportunities for growth. I think the one thing we didn't talk about a little bit was just, you know, thoughts about this year and margin profile and seasonality. I think, you know, we typically, you know, see pretty consistent movement kinda quarter to quarter. Q1 usually are a low point.
Not seeing a lot in our view that probably changes the profile materially from a headwind/tailwind perspective. I think our view has always been, you know, with top line growth, we should continue to get, you know, some leverage particularly on our G&A. I think this year our expectation is no different. When you're talking about bottom line and margin expansion, you know, we think there is, you know, continued incremental opportunity there with that kind of that consistent top line growth. We feel like we're, you know, probably positioned with some of the rate support we've gotten in Personal Care, with the New Mexico coming hopefully later this year if the Governor signs that. With Illinois, you know, does that keep us kinda the top end of that kinda 3%-5%, maybe slightly above, for this year?
Hospice and home health, you know, probably a little different. Hospice, we see long-term, you know, same store organic growth looking, you know, probably more upper single digits. We've been doing really well the last year, kind of in that double digit range. I think I've, you know, tried to help people understand that's probably not a good long term expectation.
Right.
That'll moderate at some point. You know, we're probably set up to be in a pretty good spot early this year, and that should moderate toward the back half. I think we feel, you know, right now at least, I'll knock on wood somewhere, you know, like we're in a pretty good position, heading into this year and just really, continuing to execute on the volume side is gonna be the big key for us.
Great. All right. Very good. 15 seconds. We'll call it a day. Thank you.
Thanks, John. Appreciate it.
Great job.
Thank you.