Addus HomeCare Corp Q3 FY2021 Earnings Call

Good day and thank you for standing by. Welcome to the Addus HomeCare Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Dru Anderson. Please go ahead.

Thank you. Good morning and welcome to the Addus HomeCare third quarter 2021 earnings conference 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. This conference call may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Addus' expected quarterly and annual financial performance for 2021 or beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing discussions of forecasts, estimates, targets, plans, beliefs, expectations, and the like are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by important factors, among others, set forth in Addus' filings with the Securities and Exchange Commission and in its third quarter 2021 news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. I would now like to turn the call over to the company's Chairman and Chief Executive Officer, Dirk Allison. Please go ahead, sir.

Thank you, Dru. Good morning and welcome to our 2021 third quarter earnings call. With me today are Brian Poff, our Chief Financial Officer; and Brad Bickham, our President and Chief Operating Officer. As is our custom, I will begin with a few overall comments and then Brian will discuss the third quarter results in more detail. Following our comments, we'll be happy to respond to any questions. Yesterday, we announced our financial results for the third quarter of 2021 and we are proud of our operating performance. Our team was able to produce record results in the quarter despite certain pressures from the current operating environment that I will discuss. Our revenue for the third quarter of 2021 was $216.7 million as compared to $194 million for the third quarter of 2020, an increase of 11.7%. Adjusted earnings per diluted share for the third quarter of 2021 were $0.91 as compared to $0.76 for the third quarter of 2020, an increase of 19.7%. Our adjusted EBITDA for the third quarter of 2021 was $24.9 million as compared to $19.5 million for the third quarter of 2020, an increase of 27.4%. During the third quarter, we continued to see the positive effect of the $350 billion in State Aid which came from the most recent federal stimulus plan as our states have done a nice job in maintaining and, in some cases, increasing outstanding accounts receivable payments to Addus, leading to a strong cash flow quarter and a cash balance at September 30 of approximately $152 million. Over the past few years, I have discussed the minimum wage increases which were occurring in Chicago. These annual minimum wage increases have now been fully implemented. The final Chicago minimum wage increase of $1 per hour which takes the city's minimum wage to $15, was effective on July 1, 2021. It is important to note that this cost increase is reflected in our third quarter results without a corresponding reimbursement rate increase which had a negative effect on our operating margin. As we told you during our last earnings call, the State of Illinois budget for the fiscal year 2022 planned to offset the Chicago minimum wage increase with an additional statewide reimbursement rate increase which was to be effective January 1, 2022. However, with its receipt of the additional 10% FMAP funding through the previously mentioned stimulus bill, the State has requested approval from CMS to accelerate this rate increase by two months making it effective on November 1, 2021, and appears confident that they will receive approval for a November 1 increase. This rate increase will cover the entire state of Illinois and positively impact our fourth quarter financial results. Several other states have requested approval from CMS for changes to their home and community-based service programs utilizing the additional federal funds from the 10% FMAP. Many of these requests include proposed reimbursement rate increases for our services. We hope to see these requests approved by CMS in the near future and to learn more about the specific reimbursement rate increases included in those requests. Along with our positive operating trends, we saw some near-term pressure related to other developments that impacted our third quarter financial results. Our ability to continue our New York consumer-directed business, as we discussed on our last call, remains uncertain as we continue to await word on our formal protest concerning our non-award and the provider selection process for the CDPAP program. We anticipate hearing something from the State concerning this protest over the next few months, although no official timetable has been released. In the meantime, we filed our response to the state's follow-up survey which was created by the state to consider additional awards to providers for this program. While we continue to await decisions on any additional awards, we have stopped accepting most new referrals for the New York CDPAP program due to the uncertainty of continuity and negative reimbursement changes for a portion of our business that was already one of our lowest margin contracts. As a result of the COVID impact and our intentional approach to the New York CDPAP over the past 12 months, we have seen our revenue in this program decrease from an annualized run rate of approximately $52 million as of the third quarter of 2020 to approximately $44 million as of the end of our third quarter of 2021. We expect our revenues from the New York CDPAP to continue to decline in the absence of changes to the existing status as we continue to limit new referrals. Our third quarter results were also modestly impacted by an increase in the number of caregivers in quarantine due to the surge in COVID infections resulting from the Delta variant. While the impact of this most recent surge in the COVID virus was not as significant as the one we saw during the fourth quarter of 2020, we did see an increasing number of missed visits due to call-offs. These call-offs peaked in September and steadily decreased through the month of October. These call-offs had an immaterial effect on our third quarter revenues. While there was no impact to our third quarter results, another challenge that we, like most companies, face today is the issue concerning vaccinations. As many of you know, the federal government has proposed that all health care employees whose businesses operate under a condition of participation with Medicare or Medicaid must be vaccinated. This proposed vaccination mandate would cover our home health and hospice segments. In addition, New York, Delaware, and the City of Philadelphia have mandated that all health care companies, including personal care, must ensure that their employees in those markets are vaccinated. Companies like Addus are also operating under the potential of an OSHA requirement that all employers with 100 or more employees must mandate that their employees be vaccinated. These various city and state mandates, as well as the potential of federal mandates, make it imperative that we focus on getting as many of our employees vaccinated as possible. While Addus has not mandated vaccines for our employees, we have taken a number of steps to strongly encourage our employees to get the COVID vaccine. Over the past few months, we have implemented a number of initiatives designed to increase the vaccination rate of our employees. These include a stipend for getting vaccinated and an ongoing communication program centered around the theme of Be A Hero, which includes videos with corporate leadership and board members, as well as written communications with stories of caregivers who have received the vaccine and now a program that provides prize opportunities for vaccinated employees. These efforts have been effective as we have seen our vaccination rates continue to increase. With New York being our largest market with the current vaccine mandate, it has been a priority to get our employees vaccinated and to track vaccination status. Our dispersed workforce makes this process more challenging. But as of today, we have confirmed that roughly 93% of our New York caregivers have now been fully vaccinated or received their first dose of a two-shot regimen. We are very pleased with this response from our employees, but we also realize that all markets may not embrace the mandate like they have in New York. While vaccine mandates are a potential issue for Addus, we are pleased with the progress we are seeing. Overall, our confirmed vaccination percentages are 79% vaccinated in home health, 71% vaccinated in hospice, and 56% vaccinated for personal care. Based on our experience with our New York caregivers, we believe these numbers could be understated by some amount based on incomplete information. We are still working to ascertain vaccination status for all employees, which is an ongoing process, particularly with our dispersed personal caregivers. As of today, we have not seen any material effect on our revenues due to these various mandates and we continue our efforts to be well-positioned to adhere to any future mandates implemented as they occur. A critical item for our personal care organic growth is the ability to hire new caregivers. A tightening labor market had some effect on our growth in certain markets and particularly, Oregon, Idaho, and Tennessee. Many segments of the economy are seeing labor shortages which may continue and may be more severe in some areas of the country. However, our overall hiring in our Personal Care segment continues to see improvement. We saw solid growth in our hires per business day during the third quarter in our Personal Care segment, with September being our best hiring month of 2021. This favorable hiring trend continued into the month of October. Our personal caregiver hires in our third quarter were up slightly over the third quarter of the prior year and 5.8% on a sequential basis with most of the increase occurring in September. Now, let me discuss our revenue growth in our various operating segments. Our same-store revenue growth for our personal care operation exclusive of the New York CDPAP program was 4% when compared to the third quarter of 2020. This growth is within our range of expectations for our Personal Care segment. With our upcoming Illinois rate increase, we expect to be at the high end of this rate of growth over our next few quarters. We are pleased with the performance of this segment of our business in spite of the challenges we have faced over the last several quarters due to the pandemic. As for our Home Health segment, this segment of our company has continued its strong performance. During our third quarter of 2021, our same-store revenue growth was 24.8%. Since the beginning of 2021, our home health admissions have increased steadily with this favorable trend continuing throughout the third quarter. We are excited about our home health operation and we'll continue to focus our efforts on expanding this part of our company. On our last earnings call, we discussed our belief that we would start to see a steady growth in our hospice ADC during the last half of 2021. With strong hospice admissions since the beginning of the year, we believe that a corresponding increase in our ADC would come. We are pleased to see the beginnings of this growth in our third quarter hospice results. While our hospice same-store revenue decreased 4.8% over a strong third quarter in 2020, it was an approximately 400 basis point improvement over our second quarter same-store growth. As we saw in the second quarter of this year, our same-store admissions continued to be strong, growing 22.3% over the third quarter of 2020 and 14.5% on a sequential quarterly basis. This should continue to lead to higher census as the year progresses. Our hospice ADC grew to 2,629 for the third quarter of 2021 as compared to an ADC of 2,460 for the second quarter of this year. This improvement is consistent with our expectation of seeing our hospice census gradually improve over the last half of 2021 as our median length of stay also continues to improve from our low point in January of this year. We are also seeing an improvement in our hospice volumes in both ALS and SNFs, both of which have been slower to return than census outside of the facility setting. In July, we announced the acquisition of Armada Home Health and Hospice. Effective October 1, we closed on our acquisition of Summit Home Health, a home health provider in Illinois. This represents our entry into clinical services in Illinois, our largest state for personal care services. This is consistent with our strategy of adding clinical care to our personal care markets. We are excited about our Armada Home Health and Hospice as well as Summit Home Health being a part of our company and I want to welcome all of our new team members to the Addus family. As you saw with both of these purchases, we continue to focus on acquisitions which meet our goal of creating multiple markets where we provide all three levels of home care. We will continue to look at our opportunities in all three segments with a focus on acquiring services in markets where we have strong personal care coverage. This past 18 months has shown the value of taking care of elderly and disabled consumers and patients in their homes during the pandemic. We have invested in planning, preparations, and materials to assist us in safely fulfilling our role as we continue to monitor developments related to the pandemic and changes in the home care industry. We believe the pandemic has raised awareness about our industry's value and will continue to be a growth opportunity for our company. But our operations and resulting growth are dependent on our dedicated caregivers who work so hard providing outstanding care and support to our consumers, patients, and their families. I am thankful for each one of our team members, and I am proud of the job they have done in the past 18 months and continue to do each day. It is important that each of us focus on achieving our mission by putting our patients first. With that, let me turn the call over to Brian.

Thank you, Dirk and good morning, everyone. Addus had a record financial performance for the third quarter of 2021 with consistent profitable growth and solid volume trends. We saw strong organic growth in both Personal Care and home health with continued improvement in hospice as we expected. With sequential growth in hospice admissions, average daily census, and median length of stay, we anticipate a return to positive year-over-year organic growth in that segment by the end of 2021. As Dirk noted, total net service revenues for the third quarter were $216.7 million, up sequentially from $214.9 million in the second quarter when adjusting for the out-of-period Illinois retro rate increase that was included in our second quarter results. The revenue breakdown for the third quarter is as follows: Personal Care revenues were $169.6 million or 78.3% of revenue, an increase from $165.9 million in the prior year quarter. Hospice care revenues were $39.1 million or 18% of revenue, an increase from $24 million in the third quarter of 2020. And Home Health revenues were $8 million or 3.7% of revenue, an increase from $4.1 million in the prior year. As Dirk mentioned, we decided to suspend materially all new referrals in our New York consumer-directed program due to the continued uncertainty of the program. When excluding the New York Consumer-Directed revenues, our same-store revenue growth in Personal Care was 4%, consistent with our expectations and within our target range of 3% to 5%, and in spite of modest pressures during the quarter from the Delta variant and a tightening labor market. Home Health organic growth in the third quarter was 24.8% over the prior year with strong admission trends. Our hospice organic growth deficit is improving, down 4.8% for the third quarter of 2021 but an approximately 400 basis point improvement sequentially from the second quarter. Our Home Health and Hospice revenues during the quarter both benefited from the acquisition of Armada Home Health Hospice which was completed on August 1. We look forward to a full quarter contribution from Armada in both of these segments in the fourth quarter. Together with the recently completed Summit Home Health acquisition in Chicago, we have added combined total annualized revenue of approximately $30 million so far in 2021. We continue to evaluate and pursue other acquisition opportunities, and we have several projects in our pipeline that meet our criteria but primarily in clinical services. Other financial results for the third quarter of 2021 include the following: Our gross margin percentage was 30.9%, an increase from 29% for the third quarter last year, largely attributable to our growing mix of clinical services. This was a decrease sequentially from 31.6% in the second quarter of 2021 as we saw the impact from the final increment of minimum wage increase in Chicago negatively impact our gross margin as we have not yet received a corresponding reimbursement increase. With the state of Illinois application to advance their previously scheduled reimbursement increase from January 1, 2022 to November 1, 2021, we expect to see the benefit from this statewide increase in the fourth quarter. G&A expense was 21.4% of revenue, a slight increase from 21% of revenue a year ago and lower sequentially from 22.1% in the second quarter with lower acquisition and stock compensation expenses. Adjusted G&A expense was 19.5%, up slightly from 19% for the same period in the prior year on a higher mix of clinical services with a higher G&A profile. However, adjusted G&A expense was lower sequentially from 20% in the second quarter. The company's adjusted EBITDA increased to $24.9 million for the third quarter of 2021 compared to $19.5 million in the third quarter of 2020. Adjusted EBITDA margin was 11.5% compared with 10.1% for the third quarter of 2020 and an increase sequentially from 11.2% in the second quarter. Adjusted net income per diluted share was $0.91. The adjusted per-share results for the third quarter of 2021 exclude the following: acquisition and de novo expenses of $0.08 and noncash stock-based compensation of $0.11. The adjusted per-share results for the third quarter of 2020 exclude the following: COVID-19 expense of $0.02, acquisition and de novo expenses of $0.02, restructuring and other costs of $0.08, and noncash stock-based compensation of $0.07. Our tax rate for the third quarter of 2021 was 26.6% within the range of our expectation. For the full calendar 2021, we continue to expect a tax rate in the mid-20% range. DSOs were 52.9 days at the end of the third quarter of 2021 compared with 56.9 days at the end of the second quarter. We continue to see consistent payments from the majority of our payers, including another strong cash collection quarter from the Illinois Department of AG whose DSOs were down to 36.4 days at the end of the third quarter of 2021. We continue to see strong cash flows with our third quarter net cash provided by operations totaling $17.6 million. At September 30, 2021, the company had cash on hand of $152.4 million with $224.9 million of bank debt. Under our recently expanded revolver at the end of the third quarter, we had capacity and availability of $367 million and $123.8 million, respectively and remain well positioned to execute on our acquisition strategy. This concludes our prepared comments this morning, and we would like to thank you for all being with us. I'll now ask the operator to please open the line for your questions.

Our first question comes from Matt Borsch with BMO Capital. Your line is now open.

Yes. Impressive results, particularly given all the circumstances. Let me ask you about the M&A pipeline and how that may be changing given what we've been going through here. And to the extent you can comment at all about what kind of valuations are prevailing and how that may have changed? I'm particularly interested in the hospice side where for a while their valuation and maybe this is still the case that we've been quite elevated.

Yes, Matt. I think what we're seeing currently in the pipeline, I think our valuation ranges really haven't moved from the projects that we've been working on. I think we still have several things that we would like to continue to progress. But as you know, we're being very selective in what we're looking to acquire both from a valuation standpoint but also strategically with where we have overlap in our service lines. So I think we feel still pretty positive about what we're looking at today. Haven't seen valuations move. I will say I think we've seen probably a little bit of a slowdown in maybe things coming to market through brokered processes. I think two, three, four, five months ago, there was quite a bit more activity. We are seeing a little bit, I guess, less activity in that regard over the last couple of months.

Okay, great. And are you trying to emphasize the homecare side of the business just given that that remains a fairly small percentage of your overall revenue?

Yes, we have emphasized this in recent quarters. Our goal has been to expand clinical services in areas where we possess significant personal care assets. This remains consistent with our current strategy, and skilled home health represents a smaller segment of our operations. We were pleased to acquire Summit last quarter, marking our entry into clinical services in Illinois. While it was a modest acquisition, it aligns well with Chicago, our largest personal care market. We would like to pursue similar acquisitions in the future, and increasing our size and scale is always preferable.

Our next question comes from the line of Scott Fidel with Stephens. Your line is open.

Hi. Thanks, Brian. Good morning. Interested if you could maybe give us a little thoughts on the headwinds and tailwinds just in terms of thinking about modeling revenues and margins sequentially. Just thinking about in the last couple of quarters, it seemed like the street has probably been a little bit aggressive on the revenue side and a little bit conservative on the margin side. So trying to get in front of that a little bit here. And understand that you don't provide formal guidance but maybe giving us some framing to think about sequentially for 4Q relative to 3Q.

Yes, Scott. I think liked to fourth quarter, obviously, with the Illinois rate increase coming on board in November which we expect to get full approval on that from CMS or the state to get approval, I'm sorry, very shortly. Obviously, that's going to be a benefit, not just to revenue but also to margin as we've taken the impact of the Chicago minimum wage increase. Keep in mind, we'll give all of our non-Chicago workers that increase. At the same time, we get the rate increase. But so would be a benefit for us in Q4. So, I think your point is well taken, looking at Q3 as kind of a baseline moving into Q4, especially from the top line and revenue expectation we've seen consistent sequential growth. I think we would expect to see that continuing into Q4. We'll benefit from one extra month of Armada in Q4 and Summit, which is the small acquisition we did up in Chicago. But thinking about it from a margin perspective, we should see the benefit of Illinois particularly in Q4. If you look forward into 2022, especially in Q1, with reset of payroll taxes, you've got potentially the Medicare sequester holiday ceasing at the end of the year, probably would expect to see some of that rationalize in Q1.

Got it, thanks. And then just as my follow-up question, just I guess, back on to CDPAP and the situation there. And appreciate you calling out the annualized revenue contribution, that's helpful. That's still a bit tricky, I think, for all of us in terms of what to do with that contract in our models at this point and whether to keep it in or not? So not asking you what we should do with our models there but if you could give us some insight, I guess, into sort of where you think things sit from a timing perspective at this point. And I know you mentioned that it's a much lower margin now on that contract. But if you were able to clean out even more specifically what you think the annualized EBITDA contribution is from CDPAP, I think that would be helpful for us to try to ring-fence if that contract did go offline.

Yes. As we evaluate the future of the CDPAP program, we will continue to limit new referrals into it. Our concerns revolve around both our ability to operate within this program due to contract issues and its profitability, especially since the state has reduced reimbursement rates. Over the past year, we began restricting those referrals and have seen nearly a $10 million decline in revenue, bringing our annualized figures to approximately $44 million. We expect this downward trend to persist at a similar pace over the next year. The only scenario that might change this would be if the state provided us with a new contract and adjusted their rates to ensure that providers can achieve profitability, in which case we would consider accepting new clients. As it stands, we anticipate continued decreases.

Yes, Scott, to Dirk's point, we unfortunately don't have much insight into the timing right now. The state hasn't provided a clear timetable. A few months ago, there was a mention of a potential start date for transferring patients around November 1, but we were skeptical of that and it hasn't happened yet. It's difficult for us to predict when this transition will occur if we don't participate in the program through one of the methods Dirk described earlier. From a margin perspective, we're down to $44 million in annualized revenue, with margins in the mid- to upper single-digit range, making it a low-margin contract that is not significant for us. As this continues to decline, it will further reduce our exposure.

Okay, that's helpful. Thanks.

Our next question comes from the line of Frank Morgan with RBC Capital Markets. Your line is open.

Good morning. I wanted to revisit the momentum you're experiencing as you exit the quarter. You provided some insights regarding hospice, but I would like to hear about your observations across all three segments and what you've seen so far this year. Additionally, I'm interested in more details on the hospice sector, particularly regarding the recovery in the mix of SNF and Alpha pools, since that has been a challenge. That's my first question.

Yes, this is Brad. Regarding our performance in the various segments at the end of the quarter, we saw positive developments in personal care, which was significantly affected by COVID due to quarantined employees. We observed a decline in those numbers by the end of September, which has continued into October. Our hiring metrics have also been strong, with September being our best hiring month, not just this year but over the last two years. This improvement may relate to the conclusion of enhanced unemployment benefits, as the timing aligns. October hiring trends have remained favorable, and we continue to experience strong demand for our services. In Home Health, we have been consistently performing well and expect some challenges with our year-over-year comparisons due to our growth this year, but I remain optimistic about sustaining this trend. Typically, as the year progresses, many people tend to schedule surgeries to meet their deductible limits, so we anticipate a rise in activity in late Q4 and into Q1. For hospice, since January, we've seen an increase in our median length of stay, which is now around 20 to 21 days, moving up from its lowest point. It appears we may have added another day in October. We are also witnessing good admission volumes. However, hospice tends to slow down during the holidays in Q4 before picking up again in Q1. Regarding our service mix, we have seen growth in both ALS and nursing homes, with Smith volumes rising last quarter and ALS volumes increasing this quarter as well. We are not yet back to pre-pandemic levels, and that will take time as occupancy levels in facilities rise, but we are beginning to see encouraging signs.

Got you. Maybe as a follow-up, in terms of home health care and hospice how much agency labor or just premium labor that have you had to use? And then maybe a Brian question. Just remind us what the annualized effect of that sequester would be on all your Medicare revenues? Thanks.

Yes, I'll take the staffing question first. We really have used minimal outside staffing on both home health and hospice. We've been fortunate there.

Yes. On sequester, Frank, I think when that goes away just with the mix of our skilled business today, that would probably be around $3 million in total. But keep in mind, we're also going to get our kind of annual CPI rate increase here in the fourth quarter as well that will probably help to offset that. So I think the way we look at it going into next year, assuming that sequester holiday does go away, will be essentially flat but I wouldn't expect to see us have a net rate increase going into next year but essentially flat.

Okay, thanks.

Our next question comes from the line of Matt Larew with William Blair. Your line is open.

Yes. Hi, good morning. I just wanted to ask maybe the latest you're hearing around the potential for some HCBS funding and a legislative package before the end of the year. I know there's been many iterations and discussions around that but just kind of related to hearing on the whole.

Yes, we are waiting to see if the Democrats will come together and pass the reconciliation bill. Currently, there is $150 billion in the draft of the reconciliation bill that is allocated for home and community-based care. We do not have any further information on its status; we only know that it is still included in the bill, but we are uncertain when or if it will be passed.

Okay. And then, just one on a previous question. You mentioned you utilize much contract labor. Obviously, a number of your peers have referenced that. They also referenced things like additional bonuses, pretty significant increases in the wage trend. Did you also not experience that? And I guess, any thoughts on why you've been able to avoid some of those near-term staffing challenges?

Yes. When discussing staffing, our exposure in the clinical area is not as significant as some of our peers. However, we are beginning to experience wage pressure in specific markets. Nurses, in particular, have become more competitive, and we have had to make proactive adjustments to their compensation. We have so far avoided implementing special bonuses, but we are making necessary adjustments to wages, especially for nurses. Fortunately, we have been able to steer clear of premium labor costs so far, but the environment for clinical services remains competitive.

And administrative.

Yes. And we're starting to see administrative services kind of across all segments. That is a much smaller part of our cost structure. But certainly a service coordinators our personal care side which are schedulers certainly starting to see some wage pressures there.

Okay, appreciate it. Thanks.

Our next question comes from the line of Brian Tanquilut with Jefferies. Your line is open.

Thank you, everybody. Guys, I guess, Brian, first question for you or maybe for Dirk as well. I know in the past, you've talked about kind of like a goal of acquiring at least $100 million of revenue a year and year at $30 million this year. So I know you typically source your own deal. So just curious, Brian, you said you're not seeing that much or there's a slowdown in brokered deals but what are you seeing on the deal front from your own BD team? And are there any changes in the market that you would call out that would explain some of the slowdown in your typical M&A pace?

Yes, Brain. I think specifically, I just talk about kind of our pace for this year. And we had some projects that we were working on early this year. And I think as you guys know, we're pretty stringent in our diligence process. We also are looking at things that are very specific and strategic to us. We're not looking to necessarily just make acquisitions to make acquisitions. So kind of through that selective process and then some things that didn't get across the finish line, I think, has put us where we are a little behind where we'd like to be as far as acquired revenues for this year. I will say the year is not over just yet. It's still in November. But we still got some things in our pipeline that we're excited about and we'll see if we can get those through our process and to close. So I think from a market perspective, I think what we've seen, as I mentioned a little bit earlier, just broker processes, we're not seeing the level of activity we saw probably over the summer. It seemed like there were several things out in the market at the time. A lot of those that didn't fit well with us but we are probably feeling that broker processes a little slower towards the end of the year. I think you had a big bolus of people that we're looking to get out to the market and advance the potential cap gains issues. I think they realize now going into the end of the year, that's probably going to be difficult to get closed this year. So maybe their decision process to say it's better to kind of rebase off of a Delta wave and look at going out early next year, not really sure. That's a little speculative on my part. But that's probably all I can really say that what we're seeing different in the market today.

Yes. Again, Brian, we've been focusing on Medicare Advantage and our entire value-based care strategy. We have announced a deal with Presbyterian where we're implementing a value-based approach. We plan to announce additional deals soon, which indicate that we are involved in various pilots related to value-based care. The importance of this is that even though some pilots involve managed Medicaid providers, the data we are generating from these pilots will enable us to collaborate with Medicare Advantage providers on how to help reduce their medical loss costs. We remain very enthusiastic about this opportunity. We believe value-based care presents a significant chance for Addus and others in the industry, and we see the market trending in that direction. We have a dedicated team focused on value-based care and exploring future possibilities with Medicare Advantage. However, this will not yield immediate results for Addus in the next year. It will take about three to four years to continue engaging with these companies and showcase the benefits we can offer to lower their costs. We are still optimistic, but it will be a long-term endeavor.

Okay. Thanks, guys.

Our next question comes from the line of John Ransom with Raymond James. Your line is open.

Good morning. Have you seen any material inflection in labor supply since some of these states ended their unemployment benefits?

Yes, John, this is Brad. It certainly appears that our September hiring numbers correspond with the expiration of enhanced federal unemployment benefits across the country. We saw a significant increase, marking our strongest month for personal care hiring in over two years. While we're not entirely sure if that is directly tied to the benefits ending, it does seem to align, particularly with an increase in our hiring numbers in the Illinois market, especially in the Chicago area, which was one of the regions that had enhanced unemployment benefits until early September.

Great. In states where you are operating and that are implementing vaccine mandates as a precursor to the federal program you mentioned, have you been able to manage these situations as successfully, more successfully, or less successfully than you anticipated?

Yes, we've actually navigated the vaccine mandates more successfully than we initially expected. In New York, which has the largest mandate affecting our personal care caregivers, we ended up with about 93% vaccinated. There are still a few employees considering vaccination, but the impact has been minimal, probably less than 2% on hours since the mandate took effect. We're monitoring the situation closely and are unsure how New York will compare to places like Downstate Illinois, Montana, or Idaho. We're actively encouraging our caregivers to get vaccinated, not just in preparation for the mandate but because we genuinely believe it is in their best interest. The safety and efficacy of the vaccines support this view. Our main challenge is understanding the vaccination status of our largely part-time and dispersed workforce. We still have many unknowns to address, and that will be our focus in the coming month.

And just remind me the current stat on percent of your labor that's family members and how that may have evolved over the past couple of years?

Yes. We're probably around 35% family caregivers and that's a good point when it comes to the vaccine mandates. What we have seen at some of the local levels is that family caregivers or those that are residing in the home are typically exempt from those mandates. So we'll have to wait and see what happens on the federal front and with some of these other mandates but we have seen some relief there.

Okay, thanks so much.

Our next question comes from Mitra Ramgopal with Sidoti. Your line is open.

Hiring is not the problem?

Mitra, you're breaking up pretty bad.

Hey, Mitra, can you hear us?

Okay. Thank you. I am showing no further questions at this time. I'd like to turn the call back over to Dirk Allison for closing comments.

Thank you, operator. I want to thank each of you for your interest in Addus and for being part of our earnings call today. We hope you have a great week.

This concludes today's conference call. Thank you for participating. You may now disconnect.