Addus HomeCare Corp (ADUS) September 2026 Conference Transcript

Awesome. Good morning and welcome again to the 2026 Jeffree's Healthcare Services Conference. I'm Brian Tomkeel, Healthcare Services Analyst and IT Analyst here at Jeffree's. With us this morning is Addis Home Care, ticker ADUS, one of the largest operators of home health services in the country. And joining us this morning are Brian and Brad from the company. And maybe, guys, there was a big announcement yesterday, so let's start with that. What are we doing?

Yeah, Brian, I think, you know, we had obviously, you know, been indicating to people that we had some maybe opportunities on some larger kind of Gentile sized assets that we were going to come to market. And this obviously was one of those. So pretty excited to get this deal announced and out there and obviously now going to be working toward close. But really nice addition for us. So 10 states overall, but really big concentration in Texas, some in Illinois, some in California and some in Arizona. is probably 90 plus percent of the overall business should be a nice overlay into our business gives us good concentration in those markets for what we thought was a was a pretty reasonable price as well so pretty excited about this opportunity Brad maybe I'll ask you does as you think about these assets anything you can share with us in terms of what it will take to integrate them and what are you buying exactly and is it just agencies or does it have a back office like what are the operational things that you need to bring to the table to get this up and running and really accretive yeah I mean it's a very similar to

the transaction we completed I guess a couple years ago the Gentiva transaction where it's the personal care division out of a larger home health hospice platform so not a lot of back office came with it although within the division there was a fair amount of support for the personal care so you know it'll be an interesting integration it's good that we've done one already very similar to that. In fact, the Gentiba one was probably even more challenging just because we had a tighter time frame to switch over for payroll systems. I mean, it was kind of interesting to have to cut 15,000 checks almost day one. So this one, actually, I think we have a little more favorable time frame. Got a really good integration team. We've been working through due diligence and at the same time putting together plans uh good open communication with the accident care team so uh you know we'll have the system conversions uh you know from the the billing side and the scheduling side we've got the payroll the front office uh certainly will be some opportunities as we go through that process to get some synergies because there is some overlap in operations brian just to the point of synergy so maybe if you can share any financial metrics or how should we think about the creation i think in the release you said this is an accretive transaction so anything you can share with us on that front yeah i mean i think the way to think about this so 280 million dollars in revenue uh kind of run rate i think our expectation

is you know gross margin um should be similar profile to our pcs business i think kind of upper 20 range um you know there's probably as brad kind of indicated on the sgna side there's probably some efficiencies that that we'll need to gain here so their EBITDA you know right now or out of the gate is probably going to be just under sub 10 percent so we'll have some opportunity we think to bring that up kind of to our normal level of our PCS division that'll probably take us we think you know 12 to 18 months to fully realize those synergies but we'll probably start to get some of those fairly quickly it won't be kind of a cliff situation you know we're on a couple of EMRs today on the billing side that we actually use so our teams are familiar with them we'll ultimately obviously convert them over to home care home base like the rest of our business they'll probably go kind of the end of our conversion schedule we're going through our conversion internally now so that'll probably happen you know toward the end of 27 early 2028 just from a timing perspective we think this probably closes at the earliest q1 of 27 pending kind of regulatory approvals we'll go through that but don't have any concerns on an antitrust basis right now but you know that's kind of the way to think about the financial profile Brad, what are the key hurdles or the key checkpoints as you think of integrating this?

I mean, when Brian says 12 to 18 months, what does that look like, especially in the EMR side? I know you guys have done a home care home-based rollout. What does that look like from a clinician's perspective or a caregiver's perspective?

Yeah, I mean, I think, as Brian alluded to, we're familiar with the systems that they're on currently. So we will keep them on those systems until, you know, pace it with our home care home-based rollout. They'll probably be more on the back end because Texas is kind of scheduled for the back end for us. So we've got the ability to kind of pace that. But, you know, from a clinician standpoint, I think, you know, the good news is with the home care home base rollout that we're doing, you know, we're learning a lot in that process. We've got the training resources. By the time we're doing, you know, getting around to the accent care assets, you know, we'll have the super users in place. So I think we'll be able to manage that process very well.

Awesome. So this sounds really exciting. Congrats. So maybe, Brian, let's take a step back. Second quarter was really good. We saw some acceleration, same store performance here. Just curious, what's driving some of this improvement in metrics and admissions and census and all that?

Yeah, on the PCS side, I think obviously, you know, we've done, I think, really well in our efforts to kind of increase our fill rates. So basically the number of hours that we serve to the authorized hours. So we've gotten that up between 84, 85 percent in Q2, as we kind of talked about. So some efforts that we've done through our caregiver app and other things we're doing out in the field to kind of make sure we're taking advantage of all the hours that have been authorized to us and being as efficient as we possibly can, I think, has definitely helped on just the hourly growth side. So, you know, we have talked about trying to target between two and two and a half percent hours growth year over year on a same store basis. That's kind of our target range. We've been kind of squarely in that range for the last several quarters. I think that's been part of it. Another focus of ours is obviously been on just just pure census as well. And we've seen some sequential gains there through this year. So that's been helpful. And we're still actually, you know, getting some contribution from some rate support. So the Illinois rate increase that kicked in Jan 1st of this year, you know, we got Texas, you know, the last cycle as well. We got a New Mexico increase that will help us a little bit in the back half of this year. But that's all been helpful to keep us kind of above kind of the high end of that three to five kind of target range that we typically have talked about. We anticipate we'll probably be toward the top end of that with New Mexico rate increase kind of through the end of this year. Then we get into next year, you know, we're not going to get an Illinois rate increase next year. Texas does go into session, but anything we get from them will be toward the end of the year. They usually kick that in on September 1st. So just kind of thinking ahead a little bit, you know, our expectation is, you know, probably first half of next year, you're probably more back in that three to five range. And then if we get more rate support from Texas or some others, then you can see that accelerate a little more.

Brad, maybe if I may double click on just the caregiver app, what does it do exactly and how does it drive the volumes higher or utilization?

Yeah, I think, you know, I mean, Illinois is where we've had the longest experience with it. And we're spending, you know, more time fully developing the functionality and focusing on Illinois rather than, you know, really trying to blast it out to all the locations. You know, the biggest feature it has is the ability for caregivers to see whether or not they're going to be over-serving or under-serving a client. and if they are in a situation where they're it looks like they're going to be underserving a client they can get with the client decide how many you know when are we going to schedule those additional hours so that we make sure that you're getting all the care that you're you're supposed to under the authorized hours and they can do that automatically adjusting their schedule without having to go to a service coordinator and so it really allows greater visibility for the caregiver to get the hours that they've been wanting to work and what the client deserves to have provided to them without having to go through the office. And then on top of it, we're actually rolling out in Illinois this week a texting feature built into the app that we think will avoid a lot of the back-and-forth phone calls with service coordinators and schedulers so that they will be able to interact and communicate more readily. And I think that's going to help drive even further, you know, buy-in from caregivers, utilization, you know, in not just Illinois, where we have really good utilization of the app, but in the other states where we go roll it out.

Maybe, Brian, as I think about that, right, I think Illinois, your fill rate's in the 90s now. Broadly speaking, you were saying 84 to 85. How do we think about the margin flow through once you push, say, New Mexico and the broader number to, like, close to 90 percent? that?

Yeah, I would say just from a margin perspective, there's probably not going to be a lot of impact in increasing the full rate. It's really going to be increase in hours. There could be, you know, maybe some efficiencies if you're serving more hours of the same clients. So if you're thinking about maybe travel time or some of those costs in between clients, there might be some mitigation there, but that's going to be pretty minor. So I wouldn't really think of it as a margin expansion opportunity, but more so just of a volume potential opportunity as we increase that. So Illinois today, we're actually running just under 90%, it's kind of upper 80%, and it's been pretty consistent in that range since we rolled the app out Texas was the next state that we went to we've seen some nice improvement in their fill rate as well so I think you know our our hope or I guess anticipation is as we roll this out in more states and become more efficient can we get our consolidated 84 85 percent can we get that up into that upper 80 percent range we see you know Illinois and we have a few other states that operate in that range pretty consistently so we definitely see that that is achievable we'd like to try to get you know as much as we can our consolidated business up into that range as well.

Maybe a last question for me on the PCS side. I mean, what does the labor environment look like today? I mean, that's a conversation, you know, I've had so many times in the past. Labor market seems to be okay. So I'm curious what that means for you guys.

Yeah, I mean, I think we're in a pretty good spot labor-wise. I mean, when I first came on board, you know, 10 years ago, you know, rates were, our rate structure was such that we just weren't as competitive with a lot of other options for people uh with all the rate support that we've had from states over the last uh you know eight nine ten years uh we're in a pretty good spot to be competitive with what a lot of options are and then on top of that you know we provide the flexibility uh in scheduling uh for caregivers so you know i think labor in most markets uh is not the kind of gating factor for us uh so i think we're in a good spot there brian maybe shifting gears when i think about your home nursing side of the business um i think you put up like what 9.8 percent admissions in q2 what's driving that

is is that like all these cms activities and like team and other programs like that or is it more company specific i think for us and brad can give a little call on this as well i think you know we made some some changes in leadership in that division uh toward the end of last year early this year that we think um are really starting to pay some dividends so it's been a small segment for us so it's you know four or five percent of our overall revenue base um you know we had some leadership in place there that we had kind of picked up through the acquisitions that we've done so we really operate really in three key states in home health a little disparate we went through some process you know a year plus ago where we kind of try to standardize a lot of the processes out there in the field and that really i think helped from a profitability standpoint we really weren't seeing kind of the the momentum we would like to see to your point on the volume side i'm just kind of really seeing that increase so made some changes brought in a very experienced leader overall for that division made some also changes on the sales teams as well and i think some of the things that they're doing and changing the way that they go about you know their referral visits and all the things that go with that that process have really started to pay some dividends so i think our our hope and we're kind of seeing a track toward that expectation is we get to the back half of this year you know we've kind of been kind of up and down right haven't been real consistent on volume can we get to the back half of this year and really start to be consistent and maybe start to see some year over year just pure same store revenue growth over prior year I think we're headed for them yeah and I would add that you know we have had the additional kind of sales

resources operational leadership you know home health I think we were really focusing to your point just basic kind of labor management just blocking and tackling just make sure that we've got a good gross margin profile and one that's more consistent with our peers and I think we're have kind of reached that point there's still probably some tweaking to do there but really before we kind of press down on the gas to really grow just I mean let's make sure it's profitable growth and so I think I feel good that we're you know consistently posting good numbers from a gross margin perspective and now it's time to really grow the business and you know we've been also kind of looking at just a mix of patients and that sort of thing and that's why I think you see

a lot of admission growth you haven't seen as much just pure volume growth when you throw in recertifications but i think we're now in a pretty good spot there and the rate outlook is actually pretty good going forward it feels like i know you're in the middle of a big acquisition here in the personal care side but do you have any appetite right now for home health deals or is that kind of on the sidelines for now yeah i mean i i think obviously with uh maybe the shift in the wins right in the reimbursement uh in the home health sector you know probably puts us it's similar to a lot of people probably puts this position where we're a little more open to doing some things there i think we've continued to do small deals um even in kind of some of the faces some of the headwinds that we've seen over the last several years we think it's you know a nice service it's important to put that where we have personal care or hospice um you know we get a lot of good admissions into our own hospice from our own home health um so there's some revenue synergy as well but I think if you kind of look at you know where what sector are we more focused on from NMA perspective obviously personal care is going to probably always lead um you know even with accent care coming on board we think there are you know a couple other you know larger similar sized opportunities that we think will come to market over the next say 12 to 18 months as well so you know we'll see how those um you know the timing perspective and how the cadence of those come come into play but you know I think we're definitely open to doing some things on the home health side for the right prices um you know our expectation is with maybe some of the shift here does that that change some seller sentiment as well are you going to see maybe more opportunities where people are like hey i don't have to worry about you know a buyer trying to bake in a you know a rate cut on me now maybe there's actually some support and maybe i feel better about coming to market um so our expectation is we'll probably start to see maybe more opportunities out there as well all right so maybe i'll pull the discussion up a little bit here to a more macro level so there's a lot of fraud, waste, and abuse discussions in Washington.

We had the COO of CMS speak last night, and clearly that's front and center focus for them. So how are you thinking about how all these efforts affect your business, positive or negative?

I'll start. We certainly welcome the efforts to ferret out the fraud, waste, and abuse that's in the system. Some of the reports that you read in the news articles i mean some of it is so obvious uh and so uh i've been pleased and i probably shouldn't get up on the soapbox about this but in the past frankly when they've talked about fraud waste and abuse it's kind of like let's go after the big companies and see if we can you know collect a tax essentially uh it's refreshing to see that they're actually going for the people that they may not get any money out of it but they're putting a stop to it uh because some of it like i say some of the stories that you hear on the hospice side and on home health the data was there i mean it's just flashing red lights uh so it's good to see that they're taking those steps now is it going to be you know is it painful for the industry i mean i've been in health care for i guess now approaching you know almost 30 years uh you know you go through these cycles uh where you have increased audit scrutiny and you just deal with it and we've you know put a lot of resources into our compliance program uh you know i know brian every year when we do the budget he's like do they really need to add some more resources there and the answer is yes and we're all very supportive of it uh so i think uh we feel like we're in a good place is it going to be a lot of work to get through some of that it's great uh are there tweaks i would like them to make uh on some of their uh efforts certainly but i do uh applaud them for at least going after some of the truly bad actors which is nice to see brian anything on your side on the financial side yeah yeah i just concur with brad i think um you know one of the conversations

that we've had i think the industry has been having um we've had some direct conversations with some folks in congress as well that are focused on this issue um it really you know try to avoid trying to put something in place that makes it painful for everyone and really be more targeted to where the actual fraud and abuse is coming from and i think we're we're seeing some efforts where they're trying to be more targeted in that respect so you know yeah we might see a little bit of enhanced you know kind of audit activity but it feels like they're not throwing a blanket across you know the whole industry and trying to make it really painful for for everyone they're trying to be more focused on where is the real fraud and abuse coming from you know we we encourage that i think it creates opportunities for us i think we've we've been saying large scale providers that do spend a lot on their compliance programs you know are not concerned about those efforts we actually think it's going to be good to get rid of some of the bad actors in the industry it probably is helpful in thinking about you know the spend and and what this service actually provides um and being focused on that so we we actually applaud those efforts brian i think one of the things that cms is doing as a way to approach us is holding back payments to states or the matching dollars to states that are that have not done audits i think the states you're in have already done gone through that right like illinois i think went through some of their audits is that the right way to think about that from an from an ar perspective yeah we we haven't been impacted we've had none of our payments withheld i think even some of the The headlines about California, for instance, you know, keep in mind most of the business we do in California is private pay or VA. So it's federally funded or direct to consumers. So there's no Medicaid dollars flowing to us. So we've not been impacted in that regard. Illinois has continued to be a very consistent payer for us. We've had no kind of hiccups in our payment streams there. So they're withholding some of those dollars and making it painful on, it seems like, very targeted states, not across the board. That tends to not last that long.

Got it. so the next thing we're thinking about is medicaid work requirements um not from a qualification perspective but more from a disruption perspective i think you and i have had discussions in the past when it was redeterminations and then eventually it kind of had a trickle down headwind impact on you guys so how are you thinking about work requirements going forward yeah i mean i think it's kind of a double-edged sword so could it provide some headwinds in the near term possibly just because it's taking some resources that are used for qualifying people and making sure that they remain eligible you know we're thinking through what can we do to help with that process and so we've actually added some resources in some of our larger markets where we are engaging with our payers uh you know this be at the state or uh managed care to help them with just some basic things like you know one of the the things that really slows down you know somebody is going through a redetermination process is just getting a hold to the family or the or the client to be able to facilitate getting paperwork back uh so we're putting some of those resources in place to help kind of reduce that burden a little bit on the states but again you know any impact there I think again is going to be kind of short duration now on the plus side you know you look at okay somebody who needs to get 80 hours of work in or whatever that number is we're kind of the perfect employer for that individual I mean we offer flexibility on schedules you know so you can pretty much I mean we do weekend work we have night work you know we can we can fit a schedule for them that works with their lifestyle if they have kids whatever so I think it should provide some tailwind on the recruiting side as well Brad how are you positioning for that to like run the recruitment uh process both on the kind of advertising it out there and then second what's that training process like for someone who has never done this yeah I mean uh you know on the recruitment side I mean that's one thing that we've been we're constantly looking at how can we help with our recruitment efforts uh and so we've spent you know a lot of time on the front end when I came on board really trying to refine that process and try to hire and get somebody to their first billable cases as quickly as possible we continue to look at that we're looking at our job placements all the time you know a lot of the traffic comes in through Indeed they seem to be good at changing their algorithm periodically and so you have to kind of try to figure out what exactly are they doing you know so modifying you know the spin that we have with indeed uh to make sure that we've got the the visibility in the markets that we really have the demand uh as far as the training side of it you know we've moved to you know in some markets where we have online training um you know in most cases you know it's an in-person training for them uh but uh you know it's uh you know we've got that process down pretty good uh you know this isn't a highly skilled workforce so the you know training requirements aren't too in-depth us to be able to get somebody up to speed so that they can provide services in a quality manner.

Got it. Brad, maybe a follow-up to a point you just made. I mean, when we think of payers, there's obviously more managed Medicaid out there today. What does that look like for you guys, both from a value-based kind of care perspective and other initiatives that you're doing with the payers?

Yeah, you know, at the acquisition we just announced, I mean, we've gotten some feedback from payers on that very positive feedback there's no shortage of interest in value-based contracts I mean I will say every major payer that's putting in an RFP comes to us for a letter of support and wants to talk and talk top value-based arrangements you know where we're really focusing on are working with payers who really truly want to develop a value-based arrangement and not just check a box you know how are we impacting the quality of care provided to a consumer how are we bending the cost curve because we we view that that's the opportunity where if you're successful there you know payers are wanting to kind of shift they would like to have a reason frankly to have a smaller network of providers out there and work with fewer people and ones that are going to provide the quality of care and provide these types of additive services. So no shortage of interest in it. This most recent transaction, you know, it impacts a lot of managed care payers because of the footprint in Texas and Illinois. You know, I think they're looking to work with us to say, you know, let's put this program in place. Let's figure out how we can bend the cost curve, how we can provide better care to consumers, and let's, you know, more importantly, from our perspective, How do we incentivize people to go to you as the provider of choice?

That makes sense. Brian, maybe just shifting gears here, obviously big acquisition in front of you. How should we think about your view today of the balance sheet and capital deployment and the right capital structure going forward?

Yeah, I mean, I think, you know, where we sit here today, you know, if this closes, let's just say in Q1 of 27, you know, right now with our cadence and cash flow, you know, we'll most likely be, you know, debt-free by the time this closes. So $275 million purchase price, we'll probably have built a little bit of cash, extra cash on the balance sheet by that time. All that being said, we'll probably be just over one time's leverage even after doing this and completing this transaction. So a lot of capacity still left. Like I said, we've kind of hinted at maybe some additional larger deals that might be coming down the pike that we should still be in a great position to be able to be aggressive on. We'll think about, obviously, timing and integration efforts are going to play into some of that as well. But I think, you know, our interest isn't continuing to be acquisitive beyond accident care. We think there's more consolidation opportunities. But we think from a capital perspective, we're going to be in a great position to continue to do that.

Brad, maybe as I think about Brian's comment there, when you think of the ideal acquisition candidate in personal care, what does that look like? Is that new at this point, right? Is that new market entry?

What does the IT system have to look like for you to be interested in them? um patient population all that you know like what is that ideal yeah i mean you know we have talked about if we're going to enter a new market has to be we would like to do it at scale so you know that again going back to the gentiva transaction we were able to enter texas at scale and then aside from that follow it up with additional transactions being tuck-ins or in this case with the accent care transaction i mean it's a pretty sizable texas book of business that we'll add still a lot of opportunity in texas still highly fragmented uh so uh a lot of you know market share that's that's out there uh so i think first and foremost you know if we're going to go into a new state let's do it in the right way and let's you know i think the indiana transaction we you know did a smaller transaction we're looking to try to add to that uh footprint you know to bolster uh our presence in indiana we'll continue to look at doing that system wise pretty agnostic to that honestly I mean we'll move them to our system and you know we've had a lot of experience with a lot of different systems out there so we you know kind of you know have built up some familiarity with those and we can get them moved over pretty quickly you know it'll certainly be easier once we get home care home base rolled out everywhere but you know the other piece of it is you know strong you know compliance and you know clinical

processes in place we don't want to be buying anybody's problems that makes a lot of sense Brian maybe just on the rate side you've had some good rate tailwinds behind you what does that look like going forward or how are you guys thinking about this the key states especially for Addis yeah I mean I think you know we've gotten really good support especially some of our larger states over the last few years coming out of COVID I think you know we've been you know basically indicating for a while now that we expect you know that's probably going moderate and temper a little bit and i think we're definitely seeing that going into next year um you know certain states you know may have you know some indirect impact on their you know budgets from you know some provisions in ob3 that might kick in certain states will not um so you think about texas and mexico places that didn't have expansion populations that they're not going to feel that same pressure with that said you know we expected that probably you would see states maybe kind of hold steady um for a bit see how kind of all that plays out and maybe we wouldn't get kind of the same consistent year-over-year rate increases that we've been getting and I think that's what we're seeing Illinois this year there was a push you know the union I think is a really good you know lobbyist for us they go and and press every year for a rate increase they're very helpful but this year the state decided to kind of hold status quo but keep in mind you know we don't raise wages if our reimbursement doesn't increase so there's no impact on our margin profile we did get New Mexico this year last year when OB3 was kind of you know being discussed you know they were in session thinking about an increase and didn't know how that was going to turn out so they held steady and we were hopeful that now with everything kind of flushing through they would say okay now it's time and we actually saw that happen so we'll look at you know Texas is the next big one for us next year they go they only meet every two years so they're back in session early next year I think our lobbyists in the industry are prepared to have conversations to see if there's opportunities for additional rate from them next year but we can we consistently get you know increases from some of our smaller states we've gotten a couple this year in Oregon some of the triple A's in Michigan and places like that so you know that's what we talk about if we see two two and a half percent same store hours growth we're getting you know even incremental rate support you're going to be you know nicely in that three to five if we get some rate support from some of our larger markets that's going to push you to the top end of that three to five or maybe above and that's where we've been the last couple years. So you got a minute here left just curious is there anything that you think investors don't focus enough about on your business about your business or anything you want to share with us as you think through the acquisition that's pending here yeah I can just a couple things just real quick I think obviously you know from the regulatory side and a lot of the the rhetoric and the ways that's been out there where there's OB three and fraud waste and abuse I think we tried to be you know pretty pretty transparent on how we think that will impact our business but if you really think about what we do and the value proposition that we provide to states we are the low cost in-home provider so if you think about it while we are medicaid funded primarily you know if those folks are not getting service from us they're going to end up in a nursing home it's triple the cost so i think from our perspective in an environment where you may have to do more with less a state would would basically could could utilize us and we could be part of that solution for them not part of the problem for them so that's something maybe we'd like to to clarify but like I said there's there's a lot of swirl out there that we can't control but I think you know we think from our perspective we have not really been impacted by that and don't really expect to see a lot of material impact there and then the acquisition like I said we're very excited about you know finally getting something done it's been a bit we've done a couple smaller deals it's nice to put some of our capital to use you know we don't like to be debt-free we don't want to be over levered but we'd like to use you know use our balance sheet appropriately to give return to our shareholders and we think this should provide that for them awesome thank you so much guys.

Thanks for having us.