Good day, and welcome to the Addus HomeCare's Fourth Quarter and Year-End 2025 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead.

Thank you. Good morning, and welcome to the Addus HomeCare Corporation Fourth Quarter and 2025 Earnings Conference Call. Today's call is being recorded. To the extent of 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 regarding Addus' expected quarterly and annual financial performance for 2026 or beyond. You are hereby cautioned that these statements may be affected by important factors set forth in Addus' filings with the Securities and Exchange Commission and in its fourth quarter 2025 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, Mr. Dirk Allison. Please go ahead, sir.

Thank you, Dru. Good morning, and welcome to our 2025 fourth quarter earnings call. With me today are Brian Poff, our Chief Financial Officer; and Heather Dixon, our President and Chief Operating Officer. As we do on each of our quarterly earnings calls, I'll 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. As we announced yesterday afternoon, our total revenue for the fourth quarter of 2025 was $373.1 million, an increase of 25.6% as compared to $297.1 million for the fourth quarter of 2024. This revenue growth resulted in adjusted earnings per share of $1.77 as compared to adjusted earnings per share for the fourth quarter of 2024 of $1.38, an increase of 28.3%. Our adjusted EBITDA was $50.3 million compared to $37.8 million for the fourth quarter of 2024, an increase of 33.3%. For 2025, our total revenue was approximately $1.4 billion, which is an increase of 23.2% as compared to approximately $1.1 billion for 2024. This revenue growth resulted in adjusted earnings per share of $6.23 as compared to adjusted earnings per share for 2024 of $5.26, an increase of 18.4%. Our adjusted EBITDA for 2025 was $180 million as compared to $140.3 million for 2024, an increase of 28.3%. For the fourth quarter of 2025, cash flow from operations was $18.8 million as of December 31, 2025, and we had cash on hand of approximately $81.6 million. We ended the fourth quarter with bank debt of $124.3 million, leaving us with a net leverage of under 1x adjusted EBITDA, allowing us flexibility. We continue to evaluate and pursue acquisition opportunities that meet our ongoing strategy of creating geographic density and scale while focusing on the full continuum of home care. As we mentioned on our last earnings call, both the states of Texas and Illinois have recently increased our rates in personal care services. The Texas rate increase was effective on September 1, 2025. The Illinois rate increase went into effect on January 1, 2026, and will be reflected in our 2026 first quarter results. While there are potential future changes to Medicaid due to OB3, we believe that our value proposition for personal care services is recognized by the states where we operate. We will continue our legislative efforts in states where we operate to emphasize the benefits generated by their continuing support of these services. As we've stated before, we continue to believe that the 80/20 provision of the Medicaid access rule will be eliminated in the near future. While implementation is still several years away and has no current impact on our business or financial performance, we believe this outcome would be a significant and encouraging development for the industry and our company. During the fourth quarter of 2025, we continued to experience positive current trends in our Personal Care segment. While the holiday is typically slow for hiring, we are still able to achieve 101 hires per business day during the fourth quarter. As we began 2026, our hiring numbers for the first two weeks of January increased to 107 hires per business day. However, we saw a slight slowdown in hiring due to severe weather in certain of our markets over the last couple of weeks of January. We have seen hiring rebound in February as the winter storms have dissipated. As we have mentioned in the last few quarters, our clinical hiring remains consistent and has been mostly stable outside of a few more challenging urban markets. Now let me discuss our same-store revenue growth for the fourth quarter of 2025. As a reminder, these calculations exclude our Gentiva acquisition as they were not part of our business for the entire fourth quarter in 2024. For our Personal Care segment, our same-store revenue growth was 6.3% compared to the fourth quarter of 2024. During the fourth quarter of 2025, we saw personal care same-store hours increase by 2.4% compared to the same period in 2024, while our percentage of authorized hours served in the fourth quarter remained consistent with what we experienced in the third quarter of 2025. On a sequential basis, personal care same-store billable census was down slightly, although we continue to see census growth in the majority of our key states. This should positively impact our billable census during 2026. During the fourth quarter, our personal care same-store growth was more evenly divided between volume and rate as we have been expecting. Turning to our clinical operations, our hospice same-store revenue increased 16% compared to the fourth quarter of 2024. Our average daily census increased to 3,885 for the fourth quarter, up from 3,472 for the same period last year, an increase of 11.9%. For the fourth quarter of 2025, our hospice median length of stay, inclusive of our Illinois JourneyCare operation was 25 days as compared to 22 days for the third quarter, again, including JourneyCare. We are very pleased by the continued growth in our Hospice segment over the past several quarters as a result of operational improvements. While our home health same-store revenue decreased 7.4% when compared to the same quarter of 2024, it is important to point out that over 25% of our hospice admissions in New Mexico and Tennessee are currently coming from our Addus HomeCare operations, which overlap in these two markets. We are pleased to see more patients receiving the benefit of the full continuum of post-acute care and anticipate seeing similar clinical collaboration and support develop in Illinois, where we also have both home health and hospice operations. Our development team continues to focus on both clinical and non-clinical acquisition opportunities, which would increase both density and geographic coverage. We will continue our disciplined approach to identify strategic personal care service transactions as well as to evaluate smaller clinical transactions. That said, while there is more optimism around home health care due to the final health rule for 2026 being more favorable than was originally proposed, questions remain about potential future rate increases and the uncertainty of the retrospective payment adjustments. Before I turn the call over to Brian, I want to thank the Addus team for the care they are providing our elderly and disabled consumers and patients. We all have come to understand that the overwhelming majority of this population prefers to receive care at home, which remains one of the safest and most cost-effective places to receive this care. We believe the 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 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 to everyone. The fourth quarter of 2025 marked a strong finish to another year of growth and progress for Addus. Our results for the year reflect the continuing execution of our strategy, which allows us to both deliver consistent organic growth and realize the benefit of our recent acquisitions. Our results were highlighted by 25.6% top line revenue growth and a 33.3% increase in adjusted EBITDA compared with the fourth quarter last year. Our Personal Care Services segment was the primary driver of our business with a solid 6.3% organic revenue growth rate over the same period last year, above our normal expected range of 3% to 5%. Our results were supported by stable hiring trends and favorable rate support for personal care services in some of our larger markets, including a 9.9% rate increase in Texas that was effective September 1, 2025. The State of Illinois, which represents our largest personal care market, had previously approved a 3.9% increase that became effective January 1, 2026, and is expected to add approximately $17.5 million in annualized revenue for Addus with margins consistent in the low 20% range. Our Personal Care results include the Gentiva Personal Care operations, our largest acquisition to date, which we completed on December 2, 2024. The results also include Great Lakes Home Care acquired on March 1, 2025, Helping Hands Home Care Services acquired on August 1, 2025, and the personal care operations of Del Cielo Home Care acquired on October 1, 2025. Additionally, during the fourth quarter, we had a benefit of approximately $1.9 million related to accounts receivable settlements from our previously divested New York operations. This was reflected as a positive revenue adjustment and has been excluded from our adjusted results and same-store metrics. We continue to see solid performance in our hospice business, which accounted for 18.9% of our revenue for the fourth quarter. The operational improvements we have made over the past year resulted in solid 16% year-over-year organic revenue growth, supported by increases in admissions, average daily census, and revenue per patient day. We also benefited from an approximate 3.1% increase in the 2026 Medicare hospice reimbursement rate that became effective October 1, 2025. Our Home Health services represent our smallest segment, accounting for 4.6% of fourth quarter revenue. We continue to look for ways to support and expand this service line, including via acquisitions, as we believe there are synergy opportunities associated with offering all three levels of home-based care in the markets we serve. In addition to the consistent organic growth achieved in 2025, we have also benefited from our recent acquisitions. Last year was the first full year to include the acquired personal care operations of Gentiva, which we completed in December 2024, adding approximately $280 million in annualized revenues and significantly expanding our market coverage. In 2025, we completed three other acquisitions, the operations of Great Lakes Home Care in Michigan on March 1, Helping Hands Home Care Service in Pennsylvania on August 1, and the personal care operations of Del Cielo Home Care Services in Texas on October 1. We will continue to source and evaluate additional similar acquisitions that are strategic for Addus. Our primary focus will be on markets where we can leverage our strong personal care network as we believe having geographic coverage and density provides us with a competitive advantage. We will also look for opportunities to add clinical services in pursuit of our goal of offering the full continuum of home-based care in the markets we serve. With our size and expanding scale and the support of a strong balance sheet, we are well positioned to execute our acquisition strategy. As Dirk noted, total net service revenues for the fourth quarter were $373.1 million, or $371.2 million, excluding the impact of the New York accounts receivable settlements. The revenue breakdown, excluding the New York impact is as follows: Personal Care revenues were $284.1 million, or 76.5% of revenue. Hospice care revenues were $70 million, or 18.9% of revenue, and home health revenues were $17.1 million, or 4.6% of revenue. Sequentially from the fourth quarter of 2025 revenue of $371.2 million, excluding the New York impact, we expect the first quarter of 2026 to benefit from the Illinois rate increase, offset by two fewer business days in personal care and some seasonal impact from the winter storms we experienced in certain markets. Other financial results for the fourth quarter of 2025 include the following: excluding the impact of the New York accounts receivable settlements, our gross margin percentage was 32.8% compared with 33.4% for the fourth quarter of 2024, primarily driven by a higher mix of personal care services from the Gentiva acquisition. As expected, we saw a positive impact sequentially from the third quarter of 2025 from the Medicare hospice rate increase and lower unemployment taxes. Looking ahead to the first quarter of 2026, we expect normal seasonality in our gross margin percentage with a negative impact from our annual merit increases and the normal annual reset of payroll taxes. Cumulatively, we expect these items to contribute to a decline sequentially in gross margin percentage of approximately 120 basis points compared to the fourth quarter of 2025. G&A expense was 20.7% of revenue compared with 24% of revenue for the fourth quarter of a year ago, primarily due to lower acquisition expenses as well as incremental leverage from our higher revenue base. Adjusted G&A expense for the fourth quarter was 19.1%, a decrease from 20.5% in the comparable prior year quarter and lower sequentially from 19.8% in the third quarter of 2025. The company's adjusted EBITDA increased 33.3% to $50.3 million compared with $37.8 million a year ago. Adjusted EBITDA margin was 13.6% compared with 12.9% for the fourth quarter of 2024 and higher sequentially from 12.5% in the third quarter of 2025. Adjusted net income per diluted share was $1.77 compared with $1.38 for the fourth quarter of 2024. The adjusted per share results for the fourth quarter of 2025 exclude the following: the impact of New York accounts receivable settlements of $0.07, acquisition expenses of $0.05, and non-cash stock-based compensation expense of $0.18. 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, impact of lease impairment of $0.20, 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. Our tax rate for the fourth quarter of 2025 was 25.8%, within our expected range. For calendar 2026, we expect our tax rate to remain in the mid-20% range. DSO was 38.2 days at the end of the fourth quarter of 2025 compared with 35 days at the end of the third quarter of 2025. We have continued to experience consistent cash collections from the majority of our payers. Our DSO for the Illinois Department of Aging for the fourth quarter increased to 54.7 days compared with 32.5 days at the end of the third quarter of 2025, as we saw some expected timing differences in payment cycles. In the first quarter of 2026, we have seen our DSO in Illinois return to a level more consistent with what we experienced for the majority of 2025. Our net cash flow from operations was $18.8 million for the fourth quarter of 2025 and $111.5 million for 2025, with some negative working capital impact in the fourth quarter, primarily from the increase in Illinois DSO. During the fourth quarter of 2025, we did receive approximately $7.2 million in Phase 3 ARPA funding from New Mexico, with an additional $5.8 million received from the state in the first quarter of 2026 for a total of $13 million. We anticipate these to be the last scheduled disbursements from New Mexico, which will leave us with approximately $17.5 million in funds remaining to be utilized. As of December 31, 2025, the company had cash of $81.6 million with capacity and availability under our revolving credit facility of $650 million and $517.7 million, respectively. Total bank debt was $124.3 million at the end of the quarter, a reduction of $30 million from the end of the third quarter. During 2025, we were able to reduce our revolver balance by $98.7 million as we continue to experience consistent cash flow. We have a capital structure that supports our ability to continue to invest in our business and pursue our strategic growth initiatives, including acquisitions. Looking ahead, we will selectively pursue acquisitions in 2026 that complement our organic growth and align with our strategy. At the same time, we will maintain our disciplined capital allocation strategy and continue to diligently manage our net leverage ratio through ongoing debt reduction. 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.

The first question today comes from Ben Hendrix with RBC Capital Markets.

Just a quick question on the rate backdrop. I appreciate all your commentary about state receptivity to the PC setting amid the OBBBA headwinds. But outside of Texas and Illinois, can you give a little bit of context on how your rate conversations are going? I'm thinking particularly in states like New Mexico and Tennessee.

Ben, this is Brian. Yes, I think it's still a little early in the year, but some of the legislative sessions that have already started for states that have mid-year fiscals, we've gotten some information. I think probably the key one there being New Mexico, our understanding is there is what we estimate to be probably between a 4% and 5% rate increase has been passed through the legislature and is waiting for the governor's signature. We don't have any reason to believe that it won't be signed, but that we would anticipate that to benefit us in the back half of this year. So I think we had mentioned last year, New Mexico was a state that had considered one, kind of held PAT with OB3 and kind of some of the noise there, but we were hopeful that they would readdress that this year. So nice to see that it looks like that may actually come through. Outside of that, I think nothing else really to report on a lot of other states. I know in Illinois, Governor Pritzker has kind of put out his initial view on the budget, currently does not have a rate increase in there for us for next year, but would point out that's consistent with where he started last year, and we did get something toward the end; not to say that we will necessarily this year, but something that we'll continue to watch as the legislative session goes through their process. But that's probably the two that I would flag out for the moment.

The next question comes from Brian Tanquilut with Jefferies.

Congrats on the quarter and the year. Maybe, Brian, just to follow up on Ben's question on New Mexico. How do we think about the pass-through there in terms of margin flow-through? I know New Mexico, I think, if I'm not mistaken, doesn't have a mandatory pass-through rule. So just curious how you're thinking about that.

Yes. There is a mandatory pass-through rule. It's not similar to Illinois or Texas where it's formulaic. So I think we're probably still in the early stages of making some decisions on what and where we'll pass through some of that to caregivers in the form of salaries and additional wages. So probably still early that our team is continuing to assess, but fair to say there will be some portion of that definitely will be passed through to caregivers.

Okay. That makes sense. And then maybe as we talk about caregivers, just curious what you're seeing on the labor market. Obviously, things are different today versus a year ago. So just curious what recruiting looks like and retention for your caregivers.

Brian, it's Heather. I'll take that question. Dirk mentioned that our hires per day for Q4 were right at 101. And that's typically what we would expect to see from Q3 to Q4 as we move and see the effects of seasonality, because November and December, the holidays impact some of our hiring activities. Dirk mentioned also that in January, we had a strong start to the month as we would expect after we come back from that holiday period, but then some slower volumes for hiring towards the back half of the month when we saw some geographies that were impacted by the weather that passed through the country. But then so far in February, we are seeing strong hiring trends, and we would expect to finish the month in a really good position for hiring overall. We're not seeing any impacts or difficulties hiring. We are not seeing anything to point out. We continue to see stability. The numbers point to that, but also just in our hiring efforts in the markets. We always have small pockets here and there, usually in more densely populated urban areas, not all of them, but a couple of them. And those are usually related to specific jobs on the clinical side, but nothing really to call out. We're seeing consistency. We're seeing good progress on the hiring front.

The next question comes from A.J. Rice with UBS.

Just first of all, part of the long-term growth algorithm for Addus has been tuck-in deals. We had a little bit of a slowdown in the back half of last year. I wonder if you could comment a little further on what you're seeing in the pipeline, prospects for transactions, tuck-ins or even bigger transactions, where you're seeing opportunities?

A.J., I think where we sit today, kind of early this year, we've heard from a lot of folks that I think are optimistic there's going to be more opportunities this year. I think we've said before, we've heard that before as well. But I think where we sit today is probably looking at more things in our pipeline that are comparable to the deals that we closed last year. So probably mostly in markets that we're in today, maybe some adjacencies to create density. I think our understanding is, and we've alluded to this, I think, on some prior calls, there are some potential larger personal care assets that we think will be coming to market and would be available. Right now, I think our estimate is those are probably mid-year or towards the back half of the year based on the timing that we're hearing. So obviously, we'll be looking at those. But I think in the interim, we'll still continue to be focused on the type of deals that we did in 2025. We'd love to have a little more of a cadence on those. Our guys are out working really hard to try to find deals that make sense for us in the right spaces. But hopefully, we're able to be successful in that.

Okay. And then I just wanted to ask you about the adult home care business. Obviously, the industry was geared up that it might have to absorb a 6.5% hit. It ended up getting phased or rolled back significantly to 1.5%. I wonder if that was a little bit of a tailwind you could look forward to in '26 that you geared up for a much more significant cut that didn't materialize. And then the other thing I wanted to ask you about with that was it does seem like some of the players in the space are seeing whatever CMS is trying to say in that final rule as incremental clarity that allows them to go out and start to look at acquisitions in that area. Obviously, we saw the Enhabit go-private transaction announced yesterday. I just wanted to put a finer point on it. Are you guys now open to being a little more active there? It sounds like in your prepared remarks, you're still somewhat cautious.

A.J., I appreciate the question. Listen, we've always been a little bit cautious as we look at acquisitions out there. We want to make sure that they meet our strategy and that we do so thoughtfully as far as the valuation of what we're able to pay. That being said, look, we're encouraged by the final rule that came out. That's interesting to say when it was still a rate reduction, but it was positive movement. I think it was due to a lot of very strong work by both companies in the industry as they worked with the federal government to prove that there is real value to home health care services. And so we agree with that. We support that theory. We will continue to look at opportunities in home health. And if the larger transaction comes up that we think can make sense for us as far as valuation strategy where it fits geographically, we will certainly look at that. But again, there are still a couple of things out there we would like to see them finalize. And hopefully, maybe they'll give a little more clarity this coming year on some potential clawback.

The next question comes from Andrew Mok with Barclays.

Same-store billable census was down 1.1% year-over-year, and you mentioned that it was down slightly sequentially. But I think you also said that you're seeing growth in a majority of your key states. So can you help us understand that dynamic and provide more detail on the geographies and items that are weighing on the portfolio?

Andrew, I'll take that question. Yes, I'll give some color on what we're seeing in terms of volume and census. We've mentioned that same-store hours increased 2.4% and were roughly in line with Q3 as well. And during 2025, we've mentioned before that we had a focus on serving to authorized hours as well as census. And we've seen some positive movement in terms of the service percentage year-over-year. Again, it was essentially flat on a sequential basis just as a result of normal seasonality that we would expect. But then as we think about census growth, we have seen some trajectory that we like that we're seeing. We've seen sequential census growth. We've been focused on that for 2025, and we have seen that each quarter during 2025 until a slight tick down in Q4, again, from the holidays as we would have expected. We're closing that census gap on a same-store basis. And as we move into the second half of 2026, I would expect that we would start to see positive year-over-year growth, particularly as we continue to consistently see admissions and starts of care outpacing discharges.

Great. And just as a follow-up, there's been heightened attention recently on fraud, waste, and abuse in the personal care space. Can you talk about how states are approaching this issue and what steps you're taking to ensure that you're aligned with the evolving policy and guidelines?

Yes, Andrew, when we joined Addus nearly 11 years ago, our management team aimed to establish a robust compliance program. We invested significantly to develop this program, and we have a leader who is well-versed in the clinical and non-clinical aspects related to audits from state and federal agencies. We acknowledge that fraud and abuse can happen across all levels of care we provide. It is vital to recognize that we appreciate the attention given to fraud and abuse because we believe it ensures we are spending additional resources and time to comply with regulations, which smaller operators may not be able to afford. This focus on fraud and abuse might present us with growth opportunities, especially if smaller, less compliant businesses decide to exit. Therefore, we are encouraged by the emphasis on this issue and remain committed to maintaining our compliance standards.

The next question comes from Matthew Gillmor with KeyBanc.

You all have done a good job driving penetration of authorized hours, particularly in Illinois you've rolled out the caregiver app. I was curious how the rollout has gone in New Mexico, just where that stands? And can you help us think through the sort of future opportunity in terms of driving greater penetration of authorized hours as you roll out to New Mexico and other states?

Sure. Matthew, it's nice to hear from you. I'll address that. So you are correct that we are seeing some very nice momentum in terms of service percentage that I just talked about. We are seeing that momentum in Illinois specifically, where we've had the caregiver app rolled out for the entire year of 2025. We have seen that service percentage rate up in the upper 80th percentile consistently. We believe that is due to the app that we rolled out. We've also seen utilization by the caregivers in that market of flex hours on a pretty steady basis, which is also very encouraging. As you mentioned, we began to roll that out in 2025 to New Mexico, and we're making steady progress there. We are also beginning to deploy in Texas here imminently in Q1, and we aim to have that complete in Texas by the end of Q2 or early into Q3. We believe that our greater opportunity to capture some momentum will be in that Texas market just due to some of the market dynamics and how some of the EVV is submitted in Texas versus in New Mexico or in Illinois. So we are pleased with what we're seeing, and we are still carrying that momentum forward to continue to roll it out.

That's great. And then as a follow-up, I was curious, this may be a Brian question. But as we think about Gentiva rolling into the same-store base, will that be sort of additive to the same-store growth? You reported Gentiva growing sort of in line to below sort of the corporate average? Just wanted to get a sense for how when Gentiva rolls into the same-store base that influence your same-store growth metric.

Yes, Matt, I think it's fair to say Gentiva probably is following a fairly similar path to the remainder of our business. So not expecting material uptick or downtick from putting Gentiva in that number. It should be fairly consistent in our view.

The next question comes from Jared Haase with William Blair.

Maybe just to unpack the comments on the personal care labor side a little bit more. I'm curious how much of the strong hiring trends that you've experienced over the last couple of months, would you attribute to, I guess, things Addus can control. So thinking, obviously, just having a good caregiver experience, maybe some improvement around the onboarding process to get caregivers matched up with patients efficiently as opposed to maybe just broader macro trends that might be bringing incremental caregivers into the market?

Sure, I'll take that. It's definitely a mix of both. I think maybe starting in reverse order from a macro perspective, we're certainly seeing some trends that are working in our favor that are helping with our results from a hiring perspective. From our perspective, we are absolutely focused on what we can control, and that includes sourcing and recruiting caregivers all the way through how we can ensure that they are getting a schedule and are ready to go very quickly after they have been through the hiring and training process to make sure that we capture that momentum. So all of the things in between as well. But I would say it's a mix of both of those things.

Yes. I mean, I think our thesis has always been, as we continue to see consistent top line growth, we should get leverage, particularly on G&A. So, looking at the landscape right now in '26, we would expect to see something similar occur this year. We finished last year in a pretty good spot. I think a couple of years ago where we had some higher wage pressures coming out of COVID with some of the nursing shortages and the like. We haven't seen that in the last couple of years. Don't expect to see that this year. So I think that's reasonable to think just from an EBITDA perspective, top line growth should continue to drive some bottom line additional leverage for sure.

The next question comes from Sean Dodge with BMO Capital Markets.

This is Thomas Keller on for Sean. I wanted to follow up on the caregiver app, and I might have just missed it, but are you able to more specifically quantify the volume lift that you've seen that you think is directly attributable to the app?

Internally, we measure growth through various metrics, although we can't directly link specific growth to the app. However, we've observed some encouraging trends. Firstly, the number of caregivers using the app has increased throughout the year in Illinois and has stabilized, indicating that we have captured most caregivers who are actively using it. Secondly, we're noting an increase in the frequency with which caregivers utilize the app. We're able to distinguish between regular users and those who only downloaded it once, and we're seeing a trend of increasing usage among the regular users. Finally, there's the aspect of flex hours, where caregivers can access additional hours through the app to ensure they are serving their clients within authorized limits. This feature also allows them to earn extra hours. We are seeing positive movement and strong ongoing utilization in this area, reflected in our service percentages. While I hope this clarifies how we view the benefits of the app, we can't provide a direct number due to the various factors involved.

Yes. That's helpful. And then on the Homecare Homebase CMR transition in PCS, is there any update on the timeline there? And how soon after the integration should that start to drive more clinical referrals and value-based opportunities?

Yes. I think where we are with Homecare Homebase, we've been obviously working with them for quite some time. We've got probably 30-plus of our locations are on the system today over a few different states as we move through just developing the software. I think we've got a schedule for a more enterprise-wide rollout. But as we've always talked in the past, we're going to take a very measured approach to that. So we'll be working on that over '26 and probably into the better part of '27 before we get all of our personal care business over onto that platform. Again, we'll be looking to market-to-market one at a time to make sure that goes very smoothly. But that's kind of the existing expectation on timeline today.

The next question comes from Ryan Langston with TD Cowen.

Dirk, you mentioned you believe the 80/20 will ultimately be repealed. And I think you actually said specifically in the near future. Are you hearing anything specific from CMS or your lobbyists that give you the confidence they're going to ultimately repeal that rule?

Well, Ryan, it's important to note that anything we hear is always subject to change, as you know. However, we've been receiving positive feedback. Our team has been collaborating with our lobbyists and engaging with CMS. We believe they are currently reviewing these rules and making some adjustments. We have received indications that any changes may occur sooner rather than later. Nevertheless, I want to emphasize that this rule will not take effect for several years, so there isn't an urgent timeline. That said, based on what we are hearing, we anticipate that this rule will change, and we hope it will happen soon. This change should signal to the industry and investors that this is no longer a concern.

The next question comes from Clarke Murphy with Truist.

Just had a question on your payer mix in the quarter, specifically in personal care, shifting a little bit towards managed care. Just kind of wanted to get a sense for was that by design? Or is that kind of just happenstance? And anything that we should be thinking about as it relates to personal care payer mix would be helpful.

Clarke, that was just a direct result of the Del Cielo acquisition we did in Texas. Texas is a heavy managed Medicaid state. So that is what impacted the mix in the fourth quarter with that acquisition.

Okay. Great. And then just as my follow-up, can you give us an update on the home health and hospice bridging program that you guys have in place, kind of how much more wood there is to chop on that front? And if we could start to see a potential return to growth in 2026 on the restart side?

Sure, let me break that down into a couple of points. Firstly, regarding the bridging program, we are placing a strong emphasis on it because we recognize the advantages it brings. It ensures our clients and patients receive the appropriate levels of care in the right settings, and it also allows us to transition patients to hospice when they are ready instead of home health. We've observed positive transitions and referrals from home health to hospice, particularly in regions where we have a significant presence and have been concentrating on this program for some time. In New Mexico, for example, we have a strong presence as we operate home health, hospice, and PCS services in close proximity, creating great opportunities. We're optimistic about the results we are seeing and anticipate continued success as we collaborate closely with our operations and sales teams. In Tennessee, we launched the program in 2025 and are beginning similar efforts with encouraging outcomes. To further develop this program, we will continue to promote it in markets where we have a strong presence, and as growth opportunities arise in specific areas for home health and hospice, we expect this will be advantageous for expanding these services. Moving to the second part of your question about home health, we are actively pursuing growth in this area. We have made some adjustments to focus on core elements. For example, we did see a slight increase in admissions from Q2 to Q3 to Q4, indicating a positive trend. Some of our key markets are showing momentum, which reinforces our confidence in returning to growth. To highlight our commitment, we recently appointed a new market president for the home health sector, someone with relevant industry experience who will guide our efforts. Additionally, we are working on strengthening our sales leadership to complement this new role. These intentional changes are designed to enhance our focus on home health and seize growth opportunities moving into 2026 and further. We expect to start seeing growth in this sector by the second half of 2026.

The next question comes from John Ransom with Raymond James.

Hard to just come up with a clever question, 54 minutes into a call. I just want to explain that. So my question is, a lot of companies are getting asked about technology, AI, etc. It wouldn't appear from the outside that there's a ton of opportunity there. I know you rolled out the caregiver app, but I'm thinking in terms of back office automation and AI. Is there a technology lever longer term that we're not thinking about that the company is working on?

Yes, John. I think in a couple of places, we see there's some opportunity, and we're working with our vendors to see if there are ways to see some AI implementation. But I think the two we would flag out, obviously, you referenced this back office rev cycle. There should be some opportunities there that we're looking at. I think the other large one for us is just, we think about scheduling and the logistics of our personal care business. Can we use some AI there to help automate some of those processes on the front end rather than having to have as many manual interventions? I think those are probably the two big areas. But I would say we've got an AI committee internally formed across multiple of our disciplines led by our CIO that is looking at ways to implement AI in a way that would benefit and work well for the company, but all things that we're looking at.

Okay. And then just kind of speaking of your rate negotiations, is it different when you're talking to a Medicaid payer versus directly to the state? Do the payers seem more rational? Or is it kind of the same conversation regardless of where it comes from?

It depends on the state. I think, as you know, most states, even if they have managed Medicaid, the payers really have no voice in that because it's a rate set by the state. They act more as a TPA. So there's not really a lot of opportunity to talk rates with them. I think the one difference we have is in New Mexico, we actually have the ability there to negotiate directly with the three large MCOs. I referenced earlier that the state increase will be kind of across the board to the MCOs, and then we have the ability to go have conversations with the MCOs and get some leverage. We've been very successful in New Mexico. I think we've done well. We're obviously the largest in the state, so have a pretty good leverage. I think with all three lines of care, I think that's also a benefit for us, but really kind of isolated to that state and those conversations with payers on the personal care side today.

The next question comes from Joanna Gajuk with Bank of America.

And actually, I want to follow up on this last commentary around payers because we actually do hear so managed Medicaid plans calling out higher LTSS and that includes home care spending. It sounds like you have a good relationship in New Mexico, but any incremental changes you're seeing there from any of your payers at the state level? I'm thinking anything about denials or just delaying payments or anything else that maybe you're watching?

Not that we've seen, Joanna. I think in all the other states where they kind of are acting in that kind of TPA role, we haven't seen any changes in behavior, haven't seen any shifts in utilization or authorized hours. Those are all processes that the state usually has somebody independently go in and assess what the needs are in the patient's homes. So I haven't seen any change or pressure there. That would be something that the state would control, but not today. No changes that we've noticed.

And as it relates also to payers, in the past, we talked about some opportunity there in managing the dual population because that's more underserved and high cost. So maybe give us an update where you stand there? Are you engaging any specific contracting that targets the dual population? And could this be an opportunity for you guys?

Yes. We've been doing some things on the value-based side, where we are working with managed Medicaid, where they have some high-risk populations that they're responsible for. I think we've shown some fairly compelling results if you're leading with personal care and mitigation of some of the costs for those high-risk patients. So I think New Mexico, obviously, the market where we've been doing that the longest and have some pretty mature data. We've been implementing those as well in Illinois and have started in Tennessee, probably still a little earlier there, but I think early on seeing similar results. So probably isn't going to be something just from a contractor perspective that's going to turn into a sizable revenue opportunity. But I think the information that we're gathering, the data and the savings that we're showing when you lead with personal care, we think is fairly compelling and it should be helpful in conversations in the future.

The next question comes from Raj Kumar with Stephens.

Maybe just kind of focusing on hospice length of stay. 4Q tends to be a seasonal high point, but it was a nice sequential bump. So I'm just kind of curious on what were kind of the underlying drivers, maybe kind of referral normalization or further play out of that? And then I guess maybe just any commentary around comfortability around kind of cap space on the hospice payment front as well.

We've previously discussed our focus for 2025 on diversifying and ensuring we have the right mix of referral sources in each market, which varies a bit. We are deliberately addressing each market's specific needs regarding referrals. This approach is contributing to positive trends in the length of stay and has also led to an increase in the mix of patients and admissions of new patients throughout 2025. Regarding our cap position, we observed improvements in Q4, with a slight benefit that had a positive impact overall. This is largely attributed to the sales team's renewed efforts to diversify our referral mix.

Got it. Could you provide some insight into the labor environment and potential benefits from Medicaid work requirements, particularly in relation to Arkansas? Specifically, how has the implementation of Medicaid work requirements impacted the labor market in Arkansas, especially regarding hiring? As other states may begin to adopt similar requirements towards the end of 2026, what implications do you foresee?

Sure. There's nothing I would point to specifically in relation to Arkansas. I know they've had those in place before, and that's been part of how they operate, but we haven't seen really anything to point out in terms of what our hiring prospects have looked like as a result of that. We actually see the opportunity as you were alluding to here for us in terms of the work requirements as being something that could benefit us as people are looking for work, looking for incremental work or even flexible or part-time work, we can help with that. We don't see it as something that we need to be cautious of; we see it as potentially an opportunity.

This concludes our question-and-answer session. I would like to turn the conference back over to Dirk Allison for any closing remarks.

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

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.