Hello, and welcome to the Addus HomeCare's Fourth Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. As a reminder, this conference is being recorded. I would now like to hand the call to Dru Anderson. Please go ahead.

Thank you. Good morning and welcome to the Addus HomeCare fourth quarter 2024 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’s expected quarterly and annual financial performance for 2025 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 fourth quarter 2024 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 will now turn the call over to the Company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir.

Thank you, Dru. Good morning and welcome to our 2024 fourth quarter earnings call. With me today are Brian Poff, our Chief Financial Officer, and Brad Bickham, our President and Chief Operating Officer. As we do on each of our quarterly calls, I will begin with a few overall comments and then Brian will discuss the fourth quarter results in more detail. Following our comments, the three of us would be happy to respond to any questions. Before I discuss our earnings, which we announced yesterday, let me express some thoughts related to the potential Medicaid program changes being discussed by the new Administration and Congress. It is well documented that the new Administration is actively pursuing spending cuts across virtually all areas of federal spending. This includes health care service spending, although I note the precedent recently indicated that Medicare and Medicaid would not be touched as part of the cuts. Still, there are many proposals being floated, so I wanted to spend a few minutes sharing our view on some of these. As part of the Congressional discussions concerning possible cuts to federal spending, the following have been listed, among others, as potential areas to reduce federal spending on Medicaid. Per capita caps, lowering of the FMAP floor Medicaid FMAP penalty for covering undocumented immigrants with state only money reverse or limit state directed Medicaid payments, limit Medicaid provider taxes, repeal the American Rescue Plan FMAP state incentive, Medicaid work requirements and reversal of certain Biden Administration rules such as nursing home staffing ratios and Medicaid access and enrollment rules. The aggregate federal savings of this list, if implemented, could be as high as $2.3 trillion over a 10-year period of time. However, it is believed that a number of these items on the list cannot be implemented concurrently. Also, the most recent House of Representative budget resolution includes a health spending reduction of $880 billion over 10 years rather than the $2.3 trillion but provides no details regarding specific spending reductions. As you know, the population Addus serves is overwhelmingly older adults and people with disabilities, or in many cases, both. Most of the approaches that I just listed would not directly impact the population we serve, but there are a couple of items that I would like to address in more detail. Per capita caps, this idea, discussed during the first Trump administration, would set an annual upper limit on federal payments per Medicaid enrollee. Each state's total federal funding would be limited to the product of the number of enrollees times the capped per enrollee spending amount. The payment spending caps could vary for the different Medicaid eligibility groups in each state. We understand that some proposals under discussion would only apply these spending caps to certain Medicaid eligible populations and not across the board. We believe our populations are less likely to be among the cap populations in those proposals. Lowering of the FMAP Floor. Currently, the federal government reimburses states no less than 50% of the expenditures related to Medicaid. Some states are paid a higher percentage based on the relative per capita income of the state, but all states receive no less than the 50% floor payment. Reducing the floor to the FMAP funding formula would impact a number of states with relatively higher earning population as they will receive less matching funds. According to a July 2024 report by the Paragon Institute, the only states we serve that could be impacted by the lowering or removal of the FMAP Floor would be California and Washington, which their combined Medicaid revenue represents approximately 2% of our total consolidated revenue. While proposed changes to federal Medicaid funding could shift additional costs to the states, we are optimistic that there is sufficient bipartisan support for the services we provide to avoid significant reductions at the state level. I believe it is important to remember that the services we offer reduce the overall cost to state Medicaid programs as the alternative is an increased frequency of Medicaid patients receiving more expensive institutional care. Obviously, we cannot predict which if any of these measures will be implemented or the net effect of any changes. However, we believe passage out of committee and then the House are both top orders and our government relations team believes passage in the Senate will be daunting even at this level of reduction. In fact, the Senate is pursuing its own budget resolution that contemplates significantly lower spending cuts to Medicaid programs, again with unknown results. I want to be sure you understand our thinking concerning any potential Medicaid reductions. Medicaid is a viable state and federal lifeline to the extremely at-risk population that we serve, which, if cut, could lead to much higher total cost of care for both states and the federal government. At Addus, we are focused on our strategy of expanding our services to this population as it relates to home care, which we believe remains valuable to both our states as well as Congress and this Administration. We are encouraged by the bipartisan congressional comments opposing cuts to the Medicaid program. As we continue to work with our contacts in Washington, we believe that as a low-cost provider to the elderly and disabled, we are in a good position to minimize any effect which may occur from the budget proposal as presented by the House. Now let me talk about the financial results we announced yesterday. Our total revenue for the fourth quarter of 2024 was $297.1 million, an increase of 7.5% as compared to $276.4 million for the fourth quarter of 2023. This revenue growth resulted in adjusted earnings per share of $1.38 as compared to adjusted earnings per share for the fourth quarter of 2023 of $1.32, an increase of 4.6%. Our adjusted EBITDA was $37.8 million compared to $34.3 million for the fourth quarter of 2023, an increase of 10.3%. This past year has been an exciting one for our company. We continue to be focused on our stated goal concerning growth and profitability, as we demonstrated with the completion of our largest acquisition to date. For 2024, our total revenue was $1.2 billion, including just one month of our Gentiva personal care acquisition that closed on December 2, which is an increase of 9.1% as compared to the $1.1 billion for 2023. This revenue growth resulted in adjusted earnings per share of $5.26 as compared to adjusted earnings per share for 2023 of $4.58, an increase of 14.9%. Our adjusted EBITDA for 2024 was $140.3 million as compared to $121 million for 2023, an increase of 15.9%. During 2024, we continued to experience consistent cash flows. As of the end of 2024, we had cash on hand of approximately $100 million. Following the close of our Gentiva PCS transaction on December 2, 2024 and borrowing of $233 million to fund this acquisition, the amount outstanding on our bank line of credit was approximately $223 million as of December 31, 2024. We continue to have a conservative leverage position at just under one times of Adjusted EBITDA, allowing us the flexibility to continue to evaluate and pursue strategic acquisition opportunities. Let me share with you an update on our Gentiva personal care transaction which I mentioned closed this past December. Following several months of joint planning with the Gentiva PCS team, we took over operations of this large PCS business with minimal disruption. Both teams did an excellent job of preparing for the December closing, understanding that Addus would need to provide most back office services from day one. While we normally have additional time following the closing of a transaction to transfer certain back office systems, we did not have the runway in this case. However, with the detailed planning I just mentioned, we experienced a smooth process of moving this business into our Addus corporate structure. Recently, I had the opportunity to spend the day with Brad and the leadership team from our acquired Gentiva operations. The focus of the day was to help orient this new leadership team with the systems and methods of the legacy Addus operation. I was encouraged by both the enthusiasm and deep experience that our new team brings to Addus. It gives me a great deal of confidence in our ability to continue to take care of the many new consumers we added as a result of this acquisition while also meeting the financial goals we developed during the due diligence and transition planning process. I want to officially welcome all of our Gentiva teammates to Addus. Before I discuss our labor and operations, let me talk about the corporate office lease write-off we included in our results announced yesterday. Just prior to the 2020 pandemic, we had doubled the size of our corporate office footprint to support our corporate team and our potential future growth. After going remote for a number of weeks during the pandemic, our leadership team made the decision to utilize a modified remote work schedule for our Dallas team going forward, as many companies have. In addition, we found that after an acquisition, we were better able to keep key leadership if we allowed certain new members of our team to remain in their current location as opposed to requiring them to relocate to Dallas. With our company's operations spread over 20 plus states, it has allowed leadership to be closer to our field operations. We've seen this change in approach work extremely well for our corporate and operations staff. For this reason, we concluded there was excess space at our corporate office. After researching the limited opportunities in the sublease market, we determined it made sense to take a one-time write-off of approximately $4.9 million in our fourth quarter 2024 financial statements in order to accelerate the remaining cost related to this excess space. Now let me discuss certain areas of our operation. During the fourth quarter of 2024, we continued to experience solid caregiver hiring success, especially in our personal care segment. During the fourth quarter of 2024, we saw personal care hiring at 76 hires per day, up 2 hires per day when compared to the fourth quarter of 2023. Please note that the hiring numbers exclude our New York operations, which we divested, as well as the recently acquired Gentiva PCS Operation. Hiring is always more challenging in the fourth quarter of the year with both the Thanksgiving and Christmas holidays, so it is encouraging to see our hiring numbers remain in the mid-70s. In addition to our strong hiring numbers, we continued the momentum in starts per business day which we have seen over the past few quarters. With respect to our clinical service line, as has been consistent over the past few quarters, we continue to see improvements in the overall clinical labor environment, although we do believe that for the foreseeable future clinical hiring will remain more challenging and geographically variable than what we see in our personal care segment. As we have over the past few years, we continue to utilize the funding we received from the American Rescue Plan Act or ARPA. During the fourth quarter of 2024, we received a small amount of additional ARPA funding while we utilized over $2.7 million, leaving approximately $11 million remaining in accessible funds. These funds are continuing to be used to help caregiver recruitment and retention efforts as well as other opportunities to enhance our caregivers' experience and training. In our personal care segment, our services continue to receive favorable reimbursement support for many of the states in which we operate. We are confident that personal care services continue to deliver real value to state Medicaid programs as well as our managed care partners through a reduction in the overall cost of care and as we stated earlier, put us in a favorable position as various Medicaid changes are considered. On January 1, 2025, Illinois, our largest state for personal care services, enacted a 5.5% rate increase for personal care services, bringing the rate per hour to $29.63. We continue to appreciate the strong support that home and community-based services receive from the leadership of this state. Brian will give you more information on how we anticipate that this increase will positively impact our personal care financial performance for 2025. Now let me discuss our same-store revenue growth for the fourth quarter of 2024. For our personal care segment, our same-store revenue growth was 5.8% compared to the fourth quarter of 2023. During the fourth quarter of 2024, we saw personal care same-store hours increase by 0.7% as compared to the same period in 2023. We saw a slight impact to our same-store hours growth due to continued Medicaid redeterminations primarily in the northern part of Illinois. While this process has taken longer in Illinois, we believe this is nearing an end. It is encouraging that we continue to see improvement in our percentage of hours served compared to authorized hours as we show nice improvement over the fourth quarter of 2023. This continued improvement along with the completion of the Medicaid redetermination process should help us as we focus on returning our same-store personal care hours growth rate to over 2%. Turning to our clinical operations, our hospice same-store revenue increased 7.8% when compared to the fourth quarter of 2023. Our total average daily census increased to 3,472 for the quarter, up from 3,381 for the same period last year. Our same-store average daily census increased 2.7% when compared to the same quarter last year. For the fourth quarter of 2024, our hospice median length of stay was 26 days as compared to 31 days for the third quarter of 2024 as we saw an increase in the number of short length of stay patients in the fourth quarter. Our stated target for this metric is mid-to-high 20s. Overall, while we are pleased with the improvement of our hospice segment this year, we have recently hired new operations and sales leadership to further accelerate improvement in this segment. We are in the final stages of an overall sales retraining project which will conclude this month and we expect to drive continued volume improvements as the current year progresses. Our home health segment same-store revenue increased 1.6% when compared to the same quarter of 2023. We are pleased to see this segment of our business return to a positive same-store revenue growth and anticipate this growth will continue in 2025. As we have previously discussed, our home health is an important partner to our hospice and personal care segments in the markets in which we have these overlapping services, which allow us to provide our patients with the optimal care continuum to ensure our patients have the access to the right care at the right time. As demonstrated by the Gentiva personal care transaction, acquisitions continue to be an important part of our growth strategy at Addus. Our targeted minimum annual revenue growth of 10% remains our goal even with the larger size of our revenue base. Specifically for home health opportunities, we continue to see more small transactions coming to market at this point in time. We feel this dynamic will continue until we know how CMS will handle annual home health rate rulemaking under the new administration, along with any visibility we can obtain regarding the potential revenue clawback. We will, however, continue to look for those potential home health transactions that fit our strategy of adding clinical services in our existing personal care markets. Now that we have a strong presence in Texas, our team has started looking for both clinical and non-clinical acquisition opportunities in that state which will allow us to start the process of statewide coverage in all three levels of home care. We are currently looking at certain smaller transactions which fit well with this strategy. While there are indications of a number of larger clinical service acquisition opportunities potentially coming to market later in 2025, we remain committed to maintaining our conservative approach to pricing and overall due diligence which we feel has proven to be advantageous for us over the past several quarters. Before I turn the call over to Brian, I want to thank the Addus team for the care they are providing to our elderly and disabled consumers and patients. We all understand that the majority of the elderly and disabled clients and patients want to receive care at home, which remains one of the safest and most cost-effective places to receive this care. We believe this heightened awareness of the value of home-based care is favorable for our industry and will continue to be a growth opportunity for our company. We understand and appreciate that our operations and growth are dependent on both our dedicated caregivers and other employees who work so incredibly hard providing outstanding care and support to our clients, patients, and their families. With that, let me turn the call over to Brian.

Thank you, Dirk and good morning everyone. Our fourth quarter financial results marked a strong finish to 2024 as we continue to deliver consistent, profitable growth throughout the year. We achieved 7.5% top line growth and a 10.3% increase in adjusted EBITDA compared with the fourth quarter last year. For the year, revenues were up 9.1% and adjusted EBITDA increased 16% over 2023. Our personal care services segment was the key driver of our business, with a solid 5.8% organic revenue growth rate over the same period last year. This growth trend has consistently tracked well above our normal expected range of 3% to 5% this year. These results were supported by strong hiring trends and favorable rate support for personal care services in some of our larger markets. As a reminder, going forward, we will benefit from the statewide reimbursement increase in Illinois effective January 1, 2025, which will contribute approximately $23 million in annualized revenue with a margin in the low 20s consistent with the 77% rule in the state. The consolidated results for the fourth quarter included one month of the personal care operations of Gentiva, acquired on December 2, 2024 and excluded the company's previous operations in the State of New York as a result of our agreement to divest these operations and exit the state. However, during the fourth quarter, we did receive approximately $3.5 million in retroactive rate increases from the State of New York as a result of our previous reimbursement rate appeal. This revenue has been excluded from our adjusted results and same store metrics. We saw steady improvement in our hospice business in the fourth quarter, supported by the 2025 hospice reimbursement rate update effective October 1, 2024. We achieved 7.8% organic revenue growth and higher average daily census patient days and revenue per patient day compared with the fourth quarter last year. Hospice care accounted for 20.1% of our total revenue for the quarter. For our home health services, which is our smallest segment, accounting for 6.1% of our total revenue, we saw a return to positive organic revenue growth of 1.6% over the fourth quarter of last year. We believe home health continues to be complementary to our personal care and hospice services. In addition to organic growth, we have benefited from our recently acquired operations and we remain focused on identifying additional acquisitions that will be accretive to our operations and support our ability to expand our market reach. The Gentiva acquisition was the largest in our history, adding approximately $280 million in annualized revenues and significantly expanding our market coverage. As we continue to look for acquisitions that align with our growth strategy, our primary objective is to find operations and markets where we can leverage our strong personal care presence and add clinical services so we can offer all three levels of home-based care. We also look for select opportunities to add new personal care markets where we can enter at scale. With the support of a strong balance sheet, even after the Gentiva acquisition, we are well positioned to execute our acquisition strategy. As Dirk noted, total net service revenues for the fourth quarter were $297.1 million, or $293.7 million, excluding the retroactive New York rate increase. The revenue breakdown excluding New York is as follows; Personal care revenues were $216.9 million, or 73.8% of revenue, hospice care revenues were $59 million, or 20.1% of revenue, and home health revenues were $17.8 million, or 6.1% of revenue. Sequentially from the fourth quarter 2024 revenue of $293.7 million, we expect the first quarter of 2025 to benefit from both the Illinois rate increase and two additional months of Gentiva revenue, partially offset by one less business day in personal care and some seasonal impact from the winter storms we experienced in certain of our markets. Other financial results for the fourth quarter of 2024 include the following. Excluding the impact of the retroactive New York rate increase, our gross margin percentage was 33.4%, essentially flat from the fourth quarter of 2023. As expected, we saw a positive impact sequentially from the third quarter of 2024 from the Medicare hospice rate increase and the divestiture of our lower-margin New York business. Looking ahead to the first quarter of 2025, we expect our gross margin percentage to be negatively impacted by our annual merit increases and the normal annual reset of payroll taxes as well as the mixed shift toward personal care from a full quarter of the Gentiva operations and the Illinois rate increase. Cumulatively, we expect these items to contribute a decline sequentially in gross margin percentage of approximately 200 basis points compared to the fourth quarter of 2024, although we will see higher gross margin dollars with the first full quarter of the Gentiva operations and the Illinois statewide rate increase. G&A expense was 24% of revenue compared with 22% of revenue for the fourth quarter a year ago, primarily as a result of higher acquisition expenses related to Gentiva, which included investment banking and professional fees of approximately $5.6 million. Adjusted G&A expenses for the fourth quarter of 2024 were 20.5%, a decrease from 20.6% in the comparable prior year quarter. As expected, we saw an increase sequentially from the third quarter in our adjusted G&A expense percentage as a result of the divestiture of the New York operations and the respective revenues no longer included in our financial results. The company's adjusted EBITDA increased 10.3% to $37.8 million compared with $34.3 million a year ago. Adjusted EBITDA margin was 12.9%, an increase from 12.4% for the fourth quarter of 2024 and higher sequentially from 11.8% in the third quarter of 2024. As expected, the divestiture of our New York operations had a positive impact of approximately 90 basis points on our adjusted EBITDA margin percentage sequentially from the third quarter of 2024. Adjusted net income per diluted share was $1.38 compared with $1.32 for the fourth quarter of 2023. The adjusted per share results for the fourth quarter of 2024 exclude the following; gain on sale of assets related to the New York divestiture of $0.15, the impact of the lease impairment of $0.20, the impact of the retroactive New York rate increase of $0.14, acquisition expenses of $0.29 and non-cash stock-based compensation expense of $0.11. The adjusted per share results for the fourth quarter of 2023 exclude the following; impact of retroactive collective bargaining agreements of $0.07, acquisition expenses of $0.07 and non-cash stock-based compensation expense of $0.12. Our tax rate for the fourth quarter of 2024 was 25.5% down sequentially from the third quarter as a result of our New York divestiture as expected. For calendar 2025, we expect our tax rate to remain in the mid-20% range. DSOs were 34.9 days at the end of the fourth quarter of 2024 excluding the Gentiva acquisition compared with 31.7 days at the end of the third quarter of 2024. We have continued to experience consistent cash collection from the majority of our payers. Our DSOs for the Illinois Department of Aging for the fourth quarter were a more normalized 40 days compared with 32.5 days at the end of the third quarter. Our net cash flow from operations was $10.4 million for the fourth quarter and $116.4 million for the full year 2024. As expected, we saw a lesser benefit from working capital changes in the fourth quarter sequentially from the third quarter. During the fourth quarter of 2024, we received $320,000 in ARPA funding, which we believe is our last currently scheduled disbursement. We utilized approximately $2.7 million in ARPA funds during the fourth quarter and we have approximately $11.2 million in funds remaining to be utilized. As of December 31, 2024, the company had cash of $98.9 million with capacity and availability under our revolving credit facility of $577.7 million and $346.6 million, respectively. As previously disclosed, during the fourth quarter, we entered into an amended and restated credit agreement to increase our revolving credit facility from $600 million to $650 million and extend the maturity date through July 2028. With our consistently strong cash flow, we have already been able to make payments on our revolver subsequent to the Gentiva acquisition, with a $10 million reduction in late December and an additional $10 million reduction to date in the first quarter of 2025. We have a capital structure that supports our ability to continue to invest in our business and pursue our strategic growth initiatives, including acquisitions. We will continue to selectively pursue acquisitions in 2025 and complement our organic growth and align with our strategy. At the same time, we expect to maintain our disciplined capital allocation strategy and continue to diligently manage our net leverage ratio through ongoing debt reduction. With a current net leverage of just under one time, we are well positioned as we head into 2025. This concludes our prepared comments this morning and thank you for being with us. I'll now ask the operator to please open the line for your questions.

Thank you. We will now start the question-and-answer session. Today's first question comes from Joanna Gajuk with Bank of America. Please go ahead.

Oh, yes, hi. How are you? Thanks so much for taking the question here. So I guess maybe first on the quarter, a couple of questions. In terms of the average revenue per hour in the quarter, Q4, right? It was a sequential, so I assume that the Gentiva deal impacted there. So as we think about kind of the run rate, including fully Gentiva for 3 months, we're coming up with, call it, $25, $50 per hour versus the legacy Addus of $28. So is it in the ballpark as I understand that Texas average hourly rate is much lower? So I just want to confirm kind of the math we're doing here.

Yes, Joanna, I think that's right. Texas is a lower bill rate. We had one month in Q4. We'll have a full quarter in Q1. So I definitely wouldn't anticipate that to impact that and bring that average per hour down. So the reimbursement rate in Texas is a little under $17 an hour. So it definitely has a little different profile as we've talked about previously. Now we will see a little bit of offset to that because we are getting the 5.5% increase in Illinois, which is our largest state. So net-net, there will be kind of a plus and minus there. So I would expect to see it probably slightly down as a result of that, but that's the kind of progression Q4 into Q1.

Okay, thank you. And another, I guess, number question here. So in the quarter, you said the organic volumes in your personal coverage, did I get that right? Was it up slightly? Could you, I guess, remind me that number? And I guess, how does it compare versus your third quarter? Because I think in the third quarter, the growth was maybe comparable like 0.6% or something like that, organic expenses.

Yes. I think if you look at just personal care hours quarter-over-quarter, we were up slightly year-over-year, we're at about just under 1%, down slightly sequentially is basically flat. And if you look at just kind of volumes in PCS in Q4 and what impacted, we've talked about the redeterminations. We saw a spike in discharges in October started seeing that number decrease steadily through the remainder of the fourth quarter in November and December, January, again, saw a little deceleration there in discharges. So we believe that the redetermination process is largely done, if not completely done, and we're starting to see admission volume start to tick up, but at least we did in January. So optimistic that when we look at just volume growth and PCS for 2025, we've talked about our long-term goal of a 3% to 5% revenue increase. I think we'll be at kind of the high end of that range again.

I'm sorry. So you're talking about for the full year, 2025 to be towards the higher end.

Correct.

Right. Okay. And then, so I guess you alluded to like growing volumes maybe 2%. So I'm just trying to bridge how you're going to get from call it a little bit less than 1%, I guess, to 2% because I want to say, you also talked about previously about using your new scheduling up and, I guess, improving utilization there and average fill rate. So can you kind of walk us through maybe kind of the build, how are you going to get the 2% growth in organic volumes?

Yes. I mean I think if you see one, we see that the redetermination process is largely done. So we're not seeing the discharge rates coming down to a more normalized level. We're also starting to see admission volumes tick up, which tells me that our referral sources are now more focused on new clients rather than looking in redetermination. So I think just on the volume side from the referral side, we're starting to see that number come up. As you point out, we have done a lot of things with our caregiver application. We're continuing to roll that out. It's fully rolled out in the State of Illinois. We began the rollout in New Mexico and I'm optimistic that we'll see some continued growth through that process, helping us with our service percentage. I think optimistically, we're shooting for that 2% to 2.5% hours growth. And I think Brian alluded to in his comments that we saw a little bit of challenges volume-wise in Q1 related to weather in January. That's kind of normal, it kind of depends on when a snowstorm hits. If it's a weekend, good; if it's a Monday, not so good. So we saw a little bit of challenge there early in January, but again, January numbers look pretty good in spite of that.

Thank you. And if I may, thank you for the comments at the start of the call around the potential performance, which we don't know which items are going to be finalized and you mentioned two of them. Our interpretation was there's some support for the work requirements as well. So can you talk a little bit about how that would, if at all, impact your business if that was to happen nationwide? Thank you.

Yes. I mean we just don't see any direct impact from that. If you think about the clients we serve, the majority elderly, in many cases, also disabled. So work requirement would have a negligible direct effect. If anything, it might actually potentially add some caregivers availability to us. So we don't see any negative to our kind of primary clients that we take care of.

The next question comes from Ben Hendrix with RBC Capital Markets. Please go ahead.

Hi, this is Mike Murray on for Brian. Thanks for taking my questions. I wanted to drill down a little bit more into the Texas market. There's a sizable difference between health care, minimum wage and the statement on wage. You've obviously had a lot of success driving volumes with rate. Do you think you could outgrow your long-term personal care growth target of 3% to 5%, given this delta and the attractive demographics in Texas? Thanks.

Entering the Texas market has been a long-standing goal for us, driven by the state's population growth and the increase in its elderly population. We believe this will help us stay within our 3% to 5% growth target. However, whether we can surpass that because of the Texas market remains to be seen, as we are still relatively new to it. Nonetheless, we regard this as a positive factor for our same-store growth.

Alright, thank you. I just have a quick follow-up or a different question. So hospice saw continued admission pressure, which led to a sequential decline in census I appreciate that you're putting in a new operations and sales leadership in the segment. But I wanted to see if you could walk us through the drivers of the softness. Are you seeing lower admissions from certain referral sources? Are you seeing increased competition? Any color would be helpful. Thank you.

Yes. Regarding admission volume, I'm not overly concerned. As we mentioned, we've revamped our sales and marketing team and have been undergoing ongoing sales training that started in Q4, and actually at the end of Q3. We've just completed that training this past week, so the sales team is fully retrained. I'm feeling optimistic about this new sales leadership. If you look at our January numbers, they were quite strong from an admission perspective, so I’m not worried there. Traditionally, in hospice, pre-COVID, there was some seasonality with admission volumes in ADC. Q4 has typically been a more challenging quarter due to the holidays, but Q1 generally looks good afterwards. I believe the changes in our sales leadership will bring positive results for us in 2025, and we've mentioned a target of 5% to 7% growth on the hospice side. I'm hopeful we’ll be towards the higher end of that range for 2025.

Awesome. Thank you so much.

The next question comes from Brian Tanquilut with Jefferies. Please go ahead.

Hey good morning. Maybe, Dirk, just a follow-up on the questions on policy. As we think about the potential for changes to the FMAP, how are you thinking about how that could impact you given, number one, the geographic footprint that you have? And then maybe the flip side of this, any case studies that you can point to where in states where maybe they've block granted Medicaid, kind of like what have the states done in terms of adapting to that maybe using more home health and just measures like that, that you can point us to so that we can frame how to think about your exposure to Medicaid risk if Congress changes the program? Thanks.

Yes. Well, if there's a reduction in FMAP or quite honestly, if FMAP match or block grants we believe and have consistently believed and stated that Addus is in the right place in the Medicare environment. We are the company. We're the low-cost provider. We're in the home. We're not in the institutions. We have demonstrated over the last four years or five years with our value-based care approach in two or three of our markets that we're able to lower the cost to the state or to the particular Medicaid payer in that market, whether it be fewer room visits, whether it be readmits to hospitals, trying to keep patients out of the hospitals and quite frankly, as you're aware, we're much less expensive for our general population base. If we're able to keep them in their home as opposed to them ending up in a nursing facility, which is going to have to be paid at that higher cost by the state. So again, we're watching all of the issues I mentioned earlier as it relates to Medicaid. We've been working very closely with our state and federal lobbyist as to what may happen. But at this point, we're pretty positive on the fact that whatever change may or may not happen through Medicaid, Addus is in the right place, and we believe we'll be able to handle those changes.

I appreciate that. As a follow-up to Joanna's question on volumes, can we assume that there is still a supply/demand imbalance and that you are not fulfilling every order? As you increase hiring, should we expect some volume growth that reaches at least the 2% figure you mentioned? Is that the correct way to think about it?

Yes, I believe we face a supply and demand imbalance in most of our markets. There's an opportunity for us to better utilize our current workforce by providing them with more hours, which we are concentrating on now. We're in a good position regarding hiring, but I want our teams to improve on maximizing hours for our existing staff. This approach is cost-effective and should also reduce turnover rates, as many caregivers leave due to not getting the hours they desire. This is where we're focusing our efforts, and I see potential for achieving consistent hours growth of 2% to 2.5%.

The next question today comes from Tao Qiu with Macquarie. Please go ahead.

Hi, good morning. Thank you for taking my question. Just to follow up on Medicaid. Thinking about the mechanics here, if the 2025 budget contains certain cuts to the federal share of Medicaid dollars, when do you think that will hit your state reimbursement later 2025 event or more of a 2026 event? And I think you also mentioned that state lawmakers could step in to soften the blow, given the value proposition, curious what are the discussions there today?

Yes. I think as far as when it would hit. I don't think it would affect 2025 at all. It would be years after that, that I think anything that might be changed when Medicaid would come into effect.

Yes. I think a lot of states are currently in their budget process. And so I agree with Dirk, I think really if you saw pressure on state budgets it's probably more of a 2026 item than a 2025 item for them.

Yes, thanks for the clarity. So Brian, you talked about the expected 200 basis point margin decline from the fourth quarter to the first quarter. How much of that is attributed to Gentiva? I'm wondering what the margin profile is today and how much cost synergies you can extract following the system integrations that you have?

Yes. I think if you think about it, with Gentiva, Texas being the largest piece of that, their gross margins are kind of in that low 20s. So that's definitely going to be impactful as part of the mix with additional two months. We typically are going to see the normal every year annual reset of payroll taxes and merits and those kind of things are probably a little over 100 basis points for us just sequentially. So it's probably just under 100 basis points. It's probably just a mix shift overall.

Got you. And lastly, if I may. The hospice revenue per patient day grew 5.6% year-on-year, which is higher than the Medicare rate increase in October. What's contributing to that strengthening rate in hospice?

Yes. I think in the quarter, so we got the hospice rate increase, which is obviously the larger component there. Outside of that, we had probably just a little bit of mix shift. We also had, I think, a positive impact in the quarter from an implicit price concession in hospice; they performed very well. And I think that was the other difference in what you saw year-over-year in Q4.

Great. Thank you. The next question comes from Andrew Mok with Barclays. Please go ahead.

Good morning. This is Evan on for Andrew. How is the integration of Gentiva progressing? Is there any timeline you can share to achieve mature EBITDA margins? And does this acquisition impact free cash flow conversion and the pace of deals for 2025? Thanks.

Yes, I'll start with just talking about the pace of integration. As Dirk mentioned, this is not our typical integration, even though it was our largest transaction to date. There were a lot more functions we took over day one, the biggest of which was really payroll and benefits, and hats off to the team, both internally at the support center and then also looking at the Gentiva team, they did a remarkable job in making that happen and go very smoothly, surprisingly smooth process on that integration. Really, if you look at just kind of pace of integration, we're steadily kind of working through the other items, not as heavy of a lift as the payroll and benefits, probably the biggest one that will be out there is converting billing and scheduling system. We're waiting until we get Homecare Homebase that we've been working with over the past several years developing a new product that is personal care focused before we roll that out to the Gentiva team. So that's probably more like an 18-month time frame before they come on the dock, and they'll be kind of back-end loaded on that process. So that's probably the biggest remaining integration item. But again, it's pretty far off in the future.

Yes. And just real quick on the cash flow. So I think out of the gate early on, we've had a pretty good transition as far as billing practices and over into our system. So as Brad mentioned, we've not changed their billing systems. So a lot of that is going to remain pretty static. So no real impact there. I think conversion on cash flow was going to remain pretty consistent. A couple of little things as we kind of move through some of the enrollment changes, but nothing material. So I think we're actually very pleased with how that's progressed for the first 2.5 months of the acquisition.

And just a quick follow-up on Gentiva, the $5.6 million in investment banking and professional fees during the quarter. Was that included in the $7 million worth of acquisition expenses? Thanks.

That is included in that $7 million. So those are the larger components of why it was $7 million during the quarter and all-in acquisition costs.

Thanks for the color.

The next question is from Scott Fidel with Stephens. Please go ahead.

Thanks, good morning. First question, Dirk, I wanted to follow up on your comments about prioritizing acquisition opportunities in the personal care sector. Could your team provide some insight into the pipeline regarding the number of available properties for M&A? Also, from a timing standpoint, you’ve reiterated your commitment to your core M&A strategy, as mentioned in your comments today and the press release. Would you want to wait to see how the legislative process unfolds in Washington, particularly in relation to potential changes in Medicaid reimbursement? Or would you still consider pursuing an opportunity that arises before that clarity is achieved?

Yes. I believe that potential legislative changes regarding Medicaid will be manageable for our company due to our strong market position. Therefore, we are not adjusting our strategy or the timing of potential deals based on this. However, we will monitor the situation closely. We are currently exploring opportunities that could enhance our personal care services across various states, as well as expand into all three levels of care in accessible markets. Regarding the number of opportunities, we are identifying several smaller deals that will likely dominate our activities throughout 2025. Additionally, based on recent discussions, there may be larger transactions emerging towards the end of 2025, particularly in the clinical care sector, where pricing may pose challenges, but we will actively consider these opportunities. Overall, our strategic goal related to development and acquisitions, aiming for a 10% target, remains intact, and we do not currently view potential Medicaid changes as a concern.

Okay. Got it. And then as a follow-up question, just wanted to go back to margins. And Brian, I appreciate some of the color on sequential good guys and bad guys on margin for the first quarter. So it might be helpful to just maybe to expand it out in terms of your thinking for the full year and anything you'd want to call out as we think about modeling either from a positive or negative perspective in terms of sort of, I guess, the integration of Gentiva. Does that provide sort of a ramping dynamic on margins to some degree, improvements in hospice same-store growth that Brad had mentioned, normal seasonal factors? Just thought anything you could throw at us to help sort of provide more details on how you see margins sort of playing out over the rest of the year and then even from a year-over-year perspective in 2025 versus 2024. Thanks.

Yes, Scott. And I'll preface that just thinking about the business that we have today. Obviously, any additional acquisitions, particularly in the clinical services space, is very going to change that mix a little bit. But that aside, I think our normal seasonality that we expect as we kind of look at gross margins down to EBITDA, Q1 is always our low watermark with payroll tax resets and merits and everything like that. We usually see a little bit of lift into Q2. I think it's typically been historically 30, 40 basis points in the Q2 improvement. Q2 to Q3, usually pretty flat. Nothing really kind of moving the needle there and then Q4 is usually our best quarter of the year. We get our hospice rate increase then, which is today about 20% of our business. But we also kind of get some additional relief on some of those payroll tax caps in Q4 as well. So it's kind of a step-up kind of through the year, which has been our typical historical trends.

Great. I'm going to try to sneak one more in here, if I could. Just I appreciate the update just on the debt pay down. Brian, is there any type of placeholder. I know, obviously, this could be contingent on M&A, but if we're thinking about sort of utilizing free cash flow and to pay down debt, any type of marker you'd want to give us on maybe what for 2025 could be sort of a good bogey for full year debt pay down?

Yes. If you think about just kind of our typical conversion rate from operating cash flow, we usually see that kind of in that mid-70s of GAAP EBITDA. So if you think about projections for this year, that would anticipate us being kind of that $115 million, $120 million in free cash flow for this year. So in the absence of M&A and working capital changes, a lot of that would be targeted toward debt repayment. Again, there could be some timing differences quarter-to-quarter but that would be kind of how we would see it for the full year. So you can kind of break that down and do have to kind of see what the potential is there. So coming out of the year at $220 million in debt. I mentioned we've already paid down $10 million this quarter on the revolver. Obviously, opportunities to continue to lighten that load through cash flow in the absence of M&A. But again, our preference and our focus is on continuing to utilize our balance sheet on the M&A front.

At this time, there are no further questions. I would like to turn the call back over to Dirk Allison for closing remarks.

Thank you, operator. We want to thank each of you for taking time to join us today on our earnings call. I hope you all have a great week. Goodbye.

The conference has now concluded. Thank you for participating. You may now disconnect your lines.