Addus HomeCare at Oppenheimer Conference: Strategic Growth Amid Challenges

Addus HomeCare Corporation (NASDAQ: ADUS) presented a strategic overview at the Oppenheimer 35th Annual Health Care MedTech and Services Conference on Tuesday, 18 March 2025. The company discussed its position as a low-cost Medicaid provider, its M&A strategy, and AI integration, while also addressing potential Medicaid cuts. Executives expressed confidence in their growth prospects, despite regulatory challenges.

Key Takeaways

• Addus HomeCare is optimistic about its low-cost provider status in the Medicaid space, especially amid potential cuts.
• The company is progressing smoothly with the Gentiva integration and exploring acquisitions in Texas.
• AI is being piloted in scheduling to enhance caregiver utilization and reduce costs.
• Addus aims for 3-5% same-store growth in personal care, supported by Illinois rate increases.
• The company maintains a strong financial position with a net leverage ratio under 1x.

Financial Results

• Same-Store Growth (Personal Care): Targeting 3-5% growth, driven by Illinois rate increases. Aiming for 2-2.5% hours growth.
• M&A and Revenue Growth: Aiming for 10% overall revenue growth. Strong capitalization with a net leverage ratio under 1x. Focus on smaller acquisitions at reasonable prices.
• Margin Trajectory: Prioritizing gross margin maintenance through reimbursement offsets to rising wages. Anticipates bottom-line expansion via top-line growth and G&A leverage.

Operational Updates

• Gentiva Integration: Progressing ahead of schedule, with successful payroll changes for 12,000-14,000 employees. Positive feedback from site visits.
• Hospice Segment: Sales changes are yielding results with admission volume and ADC growth. Optimistic about hospice trends despite temporary cap issues.
• Home Health Segment: Stable episodic to non-episodic mix at 55/45. Centralizing admission processes with consultant help. Optimizing payer mix.
• Labor Market: Solid hiring on the personal care side. Skilled hiring has improved over the last 12-18 months.

Future Outlook

• M&A Strategy: Focus on personal care and complementary home health in existing markets. Open to strategic acquisitions at the right price.
• Medicaid Cuts: Confident in limited impact due to focus on the elderly and disabled. Opportunities with work requirements for part-time employment.
• AI and Technology: Piloting AI in scheduling to automate up to 80% of the process. Implemented caregiver application in Illinois and New Mexico.
• Home Health Regulations: Adopting a "wait and see" approach regarding home health clawback. Awaiting clarity on new administration’s stance.

Q&A Highlights

• Medicaid Cuts Impact: Minimal expected impact due to focus on elderly and disabled. Proven cost reductions through value-based contracts.
• State-Level Support: Continued support from states like Illinois, New Mexico, and Texas for home and community-based services.
• M&A Strategy: Focus on smaller tuck-in acquisitions in personal care and home health. Disciplined on price and quality assets.
• Labor Market Dynamics: Solid hiring trends with minimal impact from immigration policies. Challenges remain due to the growing elderly population.
• AI Integration: Piloting AI in scheduling to improve caregiver utilization. Caregiver application enhances availability updates.

Readers are encouraged to refer to the full transcript for more detailed insights.

Full transcript - Oppenheimer 35th Annual Health Care MedTech and Services Conference:

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: Welcome to Oppenheimer’s thirty fifth Annual Healthcare Conference. I’m Mike Wiederhorn, the healthcare services analyst. It’s my pleasure to introduce Addis Homecare. Today, we have chairman and CEO, Dirk Allison, president and CEO, Brad Bickham, and EVP and CFO, Brian Poff. Guys, thanks thanks for attending.

Looking forward to our fireside here. So we’ll just start right in we’ll get right into it. So maybe you can just start talking about how you feel you’re coming out of Q4 and the first three months of the year.

Brad Bickham, President and COO, Addis Homecare: Yes. I mean, coming out of Q4, we’ve the good news there is we had a little bit of noise on the redetermination process that we kind of battled all of 2024. We saw that peak as far as in our Illinois markets in Q4, the first part of Q4, looking at October, had a spike in discharges, a little slowdown in new admissions just because some of the noise around the redetermination process. The good news is that has really wrapped up in all our states. So coming into Q1, we’re starting fresh there.

Feel good about where we’re trending on the personal care side. We have some nice tailwinds with the Illinois rate increase January 1 that will help on the growth side. We’re also seeing a good momentum on our hospice segment. We made some changes there on the sales side and really starting to see the paid dividends there with the admission volume and more importantly on the ADC growth. So, hiring front looks good on the Personal Care side.

So we’re really seeing a nice hiring numbers going into Q1. Came Q4 was solid, a little bit of seasonality there, but feel pretty good about where we stand.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: Perfect. So same store growth, I think you said you expect to be at the high end 3% to 5% on the PCI same store side. Can you discuss some of the puts and takes? And how should we think about the volume contribution?

Brad Bickham, President and COO, Addis Homecare: Yes, I mean, I can start. We feel like the three to five is kind of our long term goal. We’ve been fortunate to be above that on the Personal Care side, look to be at or maybe slightly above the three to 5% this year with the Illinois rate increase the benefit there. What we’re really looking at is starting to see a return to the on the hours growth. We’ve been a little more on the flattish side, just in the 1%, one point five % looking back into that 2%, two point five % hours growth on the Personal Care side.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: Perfect. Well, you know what, we’ll jump into the question there, all the investors have been focused on regulatory CNC. We might as well get that out of the way early. You know, it seems like there’s been a disconnect in the market’s perception, might be, over your exposure to Medicaid cuts. Can you just talk about what you’re hearing on the latest cuts being discussed in Washington and how those cuts can impact you and how, you know, investors should be thinking about it because obviously the stock is does not reflect the fundamentals at this point.

Dirk Allison, Chairman and CEO, Addis Homecare: Yes. I think what we tried to do on the last call was give a complete listing of things that had been discussed. I think since we discussed that on our call, we’ve heard that from the president and from members of his staff that the caps are off the table. We’ve heard that the lowering of the match for FMAP is off the table, which if you really say that’s the case and you look at what’s left, there’s a number of dollars that were on the list we talked about that have either positive or no effect to us, such as they’re taking they’re saying at least today that there’s $120,000,000,000 positive giveback if the eightytwenty rule goes away permanently or past that ten year timeframe. That doesn’t affect us at all.

In fact, it’s very positive. Takes the overhang of eighty twenty if there’s any remaining. Talks about the, sniff nursing staffing ratio. That’s $20,000,000,000 Rules not in effect, but through accounting, they’re able to take that benefit towards whatever savings they have. And then even the work requirements.

You know, a lot of talk around work requirements. I think it’s about 130,000,000,000 or so. But if you look at our population, our population is generally our average age is around late 70s. We have very few people 65, a lot of which we have are disabled if they’re 65. So, the work requirements from a standpoint of hurting our patient base is non existent in our mind.

What really the work requirements could do, if you think it through, if there are younger individuals, maybe some of the expansion of Medicaid were in single family homes, maybe there’s a single parent has children at home. If they can go to work for a part time job and qualify as work related, that meets the need for them to stay on Medicaid. We’re a perfect employer for those folks. We can give them multiple hours throughout the week. We can work with their schedule around their ability to provide caregiving or have someone provide caregiving for them.

So we don’t think work requirements are an issue at all. So as we step back from the whole environment, we talk to our federal lobbyists and whatnot, it appears from what they’re hearing on the Hill, there’s limited appetite to make a number of these changes on the Medicaid side. There’s a real focus on taking care of the elderly and disabled. And even if, you know, there’s even some talk that if certain things did go in, you could exclude the elderly and the disabled from that. I think overall, while we take comfort at this, whatever change comes through, what we’re hearing now won’t affect the budgets in the states, we should be comfortable with.

But even if states, let’s say, the tax, they clean up the ability to charge tax and get that match back by the government. You know, that affects acute care facilities much more than us. I mean, we don’t tax is not charged on our service like it is in hospitals. But even if that lowered the amount of money they get from the Fed some, we are the solution to helping them take their Medicaid dollars and make it go further. We are the low cost provider.

We’ve shown in the last three plus years, if you think about all the value based contracts we have actually done with Medicare, excuse me, Medicaid, providers, people that are at Medicaid risk, how we’ve worked with them with our high cost patients, that are on Medicaid, and we’ve been able to lower emergency room visits. We’ve been able to lower readmits to the hospital. Those are real dollars that we’re saving the Medicaid program in that state. So we feel very comfortable that we’re in the right spot should, some of these changes be affected. But again, what we’re hearing is some of what’s been thrown out as far as potential savings, is is probably a a known nonstarter as it sits here today.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: Are you hearing anything from the state specifically from Illinois, New Mexico, your your your your, you know, areas that you’re big in? Are you hearing anything with the governors? Anything, you know, kind of what’s the thoughts? Obviously, like you said, your programs are they see a huge return on it, and it makes a lot of sense to to go after that cut that those areas, it seems to be illogical. But just kind of curious what’s kind of the rumbling from the on the state level?

Dirk Allison, Chairman and CEO, Addis Homecare: Oh, you know, we just got this the improved, rate increase in in Illinois in the first quarter. There was some discussion on in their budget they’re looking at now, showed they give another, rate increase. We don’t know if that will happen, but I think it’s positive that they’re talking about supporting, home and community based care services. New Mexico is thinking about a potential rate increase even with what’s going on. Texas is in the middle of their every two year session.

They’ve got rate increases for home and community based services out there. Both the Senate and the House have a preliminary bill that will have to be reconciled and then actually voted on and hopefully get through the, the governor. So in our top three states, all we’ve really heard is continued support for our services. And I think part of it, Michael, is what you talked about is, we really are in that spot of being a low cost provider. We take care of a population that is clearly important to the states, that elderly population, that disabled population.

And the fact that we can do that and be one of the low cost providers is what we do, I think, really is a plus not only to us, but we’ve been selling remember, we’ve been talking about this with states for years. This approach of us being the low cost provider to help you with your Medicaid dollars is not new. So, this isn’t something that just because somebody’s talking about Medicaid cuts, we’ve come in and started saying, we’ve been working with them over years, proving our work to the states and we think we’re in a good position.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: Perfect. So let’s move on from the regulatory environment. Let’s Gentiva, I talked about the integration of that deal and then opportunities where your thoughts on the TechSix market?

Brad Bickham, President and COO, Addis Homecare: Yes, I mean, the integration has gone very well for us. This is our largest acquisition to date, which is actually one of our more aggressive integration schedules. Normally, we have thirty to sixty days to implement payroll systems, benefits. This was a day one change and pretty daunting task to pay 12,000, 14 thousand people day one. Good news is that went very smoothly.

Hats off to both our internal teams and also the leadership team for the Gentiva operations that came on board. So far, very pleased with it. We’ve met numerous times with leadership. We’ve been making site visits and everything’s been very positive. And I think they’re one, they’ve been through this before, which is I think very helpful for us.

I mean, this asset has changed hands probably six or seven times and some of the most of those leaders have been around for all those changes. I think they were also glad to go with an operation or a company that is personal care focused. So now they see the investments that we make on that side of the business and I think are very appreciative of that. So, I’ve been very pleased with how that acquisition has gone. And I think it really presents well for us when you look at MA opportunities to do tuck in acquisitions in the State of Texas.

So, we’re certainly starting to look at those. Even though we’re the largest provider now in the State of Texas, still we only have about a 5% market share. So there is ample opportunity to do some tuck in acquisitions on the Personal Care side. Also looking to enhance our skilled platform, we’ve got hospice down kind of in the center part of the state. We’d love to expand that to match our personal care footprint and adds home health as well.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: So let’s talk about M and A. I mean, I guess, you used to have that 10% total revenue growth as a soft target. What should we think about your appetite for future deals? What segment do you view as the most attractive right now from a strategic and financial perspective?

Brian Poff, EVP and CFO, Addis Homecare: Yeah. I mean, I think, you know, the 10% overall revenue, you know, goal for us, I think we still feel is very attainable. On the M and A side, we’re still in a very well capitalized position. So sit here today, you know, net of cash on hand is just under one times from a leverage perspective, have a lot of capacity still. And I think we see that as important to our strategy to continue to enhance our personal care operations and markets that we operate in today.

If there are opportunities to enter at scale, similar to how we did with Gentiva and Texas, we would definitely, you know, be looking at those opportunities and then adding clinical services. So, I would say, you know, focus today for us, I would say is probably more primarily centered around additional PCS operations and then complementary home health, in markets where we have strong personal care. We like hospice as a business. I think our performance there is coming back in line with what we’ve seen historically. So, very pleased with that today, but those tend to be a little more on the expensive side.

I think especially with, you know, where we’re trading today, I think we’ll be focused on probably smaller acquisitions at reasonable multiples. We’re usually pretty disciplined when it comes to price. We have a pretty robust diligence process, so we’ll make sure what we’re buying are also quality assets. But I would say we’re slated more toward personal care and complimentary home health and markets where we have strong personal care today.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: Are there any specific markets you’re you’re interested in or entering? Did you wanna enter or anything like that?

Brian Poff, EVP and CFO, Addis Homecare: I think I think, you know, we we still have a lot of opportunity and markets that we’re in today to continue to build out kind of our coverage. But I think if there were opportunities in states that we’re not in today, specifically ones that are are either managed Medicaid or moving toward managed Medicaid, those are typically preferential to us. We can do things if we have clinical and non clinical services in those markets to consume value based or demonstration type projects with those folks and be helpful to them. So there were opportunities there. We would be interested in some of those markets potentially.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: I guess I gather from your your previous answer. You’re right now, it does not seem like you have any appetite for large scale m and a. Is that, you know, kind of

Brian Poff, EVP and CFO, Addis Homecare: I think if it was strategic and it made the right sense at the right price, we’re always willing to look and have an appetite to do something that makes sense for us and for our shareholders. So always open to those opportunities as they come along. But as we all know, those on a larger scale like Gentiva are quite a bit fewer of those out there than potentials for the smaller tuck in operations, yes.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: Okay. Let me move over to labor. What are you seeing in terms of PC hires per business day on that side of the business? And are you seeing any potential impacts from the immigration policy as well?

Brad Bickham, President and COO, Addis Homecare: Yes. I mean, actually, our hiring on the PCS front has been solid. We saw a little bit of a dip from Q3 to Q4, but that’s normal seasonality. If you look at Q4 over prior year, we actually had experienced a nice gain on the Hires per Business Day. Hiring coming into the year, January, February, we’ve been very pleased with that on the Personal Care front.

If you look at kind of what impact immigration might have, really not any type of material impact. I mean, if we look at our work force on the Personal Care side, the number of employees that may be over that are working for us currently that have work visas, it’s about 600 employees, so a very small number of our workforce. So, don’t see any big issues there. I think if anything, maybe there’s some potential indirect implications for us that there’s just a smaller work pool that we’re competing for. But as far as any direct impact is de minimis.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: And what about labor on the skills side? What are you seeing in hiring trends from that point?

Brad Bickham, President and COO, Addis Homecare: Yes, I mean, actually hiring has been good there. I mean, it certainly has been more challenging over the past several years versus the Personal Care side. But we’ve seen steady improvement over the last year, year and a half on the skill side. There’s still some pockets where it’s a little more challenging. You’re kind of wage inflation, we were running kind of that four to five.

Now it’s really more in that two to three in some markets, maybe it’s pushing in the three to four, but it’s getting steadily better. That being said, I mean, I think skilled hiring is just in general going to be probably more challenging just overall long term just because we’re the elderly population is growing and there’s not enough people going into nursing and some of the other skilled professions. But it has improved from where we were coming out of COVID.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: I think you mentioned some color on Illinois. So if you can dig a little bit more on Illinois, I know you did discuss some impact from the processing related to the redeterminations. Are you still comfortable that the volume trends should improve in that market? And any other color specific to Illinois?

Brad Bickham, President and COO, Addis Homecare: Yes. I mean, we saw the volume really was impacted early in Q4. We saw a spike in discharges in October. That number steadily dropped through November, December. And going into January, we saw that it kind of flattened out and is more on a kind of a pre redetermination cadence there.

We’re starting to see the admission volume come back. I think it’s taken a little while for those folks who were processing the redeterminations, they’re the same people that would be processing news. So, there was, I think, a little challenge on our kind of referral side, if you will, just their workload and challenges there. But optimistic that that’s moving in the right direction in Illinois and certainly we’ve seen that play out in other states. A good example is New Mexico where we got hit with redeterminations kind of earlier in the year.

It was more kind of in the spring of last year. We are starting to see actual positive census growth in New Mexico now as those agencies, I think, have gotten their footing in being able to process new participants in the program.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: Moving over to the skilled side, what are you seeing in terms of hospice trends? A couple of competitors have mentioned cap issues. Are you seeing any changes in your cap exposure? Just overall kind of your appetite and your thoughts around the business right now?

Brad Bickham, President and COO, Addis Homecare: Yes. I mean, I think we’ve had a little bit of cap exposure in Q4 in like one market, but it was really pretty temporary, honestly. I just had kind of a bad admission month there. We’ve, I think, addressed that. We’ve actually had location has had some really solid admission volume this year going in January and February.

But cap is to me, I mean, the function there is making sure that you have a balanced admissions kind of a referral mix in each of your markets and just maintain that. And I think with our new sales leadership that we brought in, much more data driven. And I think one of the they’ve got specific plans in each market, because we had the one market that had a little challenge with the cap. We’ve certainly made outreach to make sure we have a more balanced referral mix, but we have other markets that we have a really short length of stay and there’s opportunities to be make sure that we’re serving all the market and not just focusing on the short length of stay patients. So, it kind of cuts both ways.

And I think as the new sales leadership we have has done a very good job of driving admission volume, but more importantly also increasing ADC. So very optimistic on the hospice side.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: Okay. Moving over to home health, can you discuss some of the trends on the home health side? Are you still in the process of turning over to low margin contracts? Were you more comfortable with your current mix?

Brad Bickham, President and COO, Addis Homecare: Yes. I think, you know, we actually if you look at our episodic, and that includes Medicare Advantage on an episodic basis, from a volume mix, we’re sitting at about a 55, 40 five episodic to non episodic mix. Some markets a little heavier episodic than that, some a little bit less than that. But overall, pretty good mix and really hadn’t changed much over the past twelve to eighteen months. So we’ve been pretty stagnant there at that mix.

I think where we’ve got opportunities on the home health side is as our smallest segment, we haven’t spent as much time on that as we have on personal care and on the hospice side. We have started focusing really on home health trying to let’s get our operations very consistent from market to market. So, we brought in a consultant to help us on centralizing certain functions related to kind of the admission process. So that has been fully implemented in Q3 and Q4. So I think we’re in a pretty good place on the home health side as kind of a jumping off point going into 2025.

Again, I think from a volume standpoint, I think we’re still always looking at the payer mix and there are some payers that unfortunately we’re not able to deal effectively with and we’ll spend our time and energy taking care of patients with payers that are better partners. So, there’s still a little bit of that dynamic. But one thing I will say is, when we did the Gentiva acquisition, it certainly made us a bigger part of several of the national payers out there. And even though it’s on the Medicaid side, it’s gotten us some traction to have discussions with them on the Medicare Advantage side. So it’s opened some doors there.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: Perfect. Any color like upcoming home health regs? There’s obviously discussion around the clawback. Any thoughts on that?

Dirk Allison, Chairman and CEO, Addis Homecare: We’ve heard some rumblings that the clawback might be something might come out of that later this year to settle that. Our thoughts are we’ll wait and see. Will it be like the productivity adjustment that you see in hospice, something that lasts for a period of time. So, for us today, we’re taking away and see attitude. We’d like to see a little more clarity on the clawback.

We’d like to see a little more understanding of how the new administration thinks about the value of home care and the rates going forward. So, again, what that means is while we will continue to look for those smaller strategic home health operations, particularly in states like Texas, you won’t see us do anything material until we get some further understanding of what’s going to happen long term or what seems to be long happening long term with home health.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: Yeah. Perfect. What are your latest thoughts on the margin trajectory, you know, between PC and skilled and then for the blended company overall?

Brian Poff, EVP and CFO, Addis Homecare: Yeah. I mean, I think, you know, our focus always has been particularly in personal care is really, you know, gross margin So we’ve definitely seen that over the last several years. Even with some pressure on rising wages in certain markets and minimum wage, we’ve seen corresponding reimbursement offsets for those. So I think we don’t expect to see anything really different there. I think just broader company wide, our focus is on continuing to see top line growth and leveraging on G and A.

So as long as the mix, I think, remains pretty consistent between personal care and our skilled segments, we would anticipate seeing a lot of movement in our gross margin line. We do have some seasonality, kind of through the year, that’s pretty typical, but we would expect to see some continued bottom line expansion as we get that leverage on G and A with our growth.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: And winding down here, we talked about M and A, anything else you can add regarding your capital deployment strategy?

Brian Poff, EVP and CFO, Addis Homecare: Yes, I mean, I think M and A is going to be our focus, but again, that’s going to be where there are opportunities. I think where we’re trading at our evaluation is a little different with some of the things we talked about in some of the overhang. And obviously, we’ll take that into consideration when we look at potential targets and size and scale there. But outside of that, on the capital deployment side, you know

Dirk Allison, Chairman and CEO, Addis Homecare: We’re always talking with our board, certainly, but where our stock is today, we’re going to continue to have discussions. But are there other things we ought to look to from a capital standpoint? How do we put our dollars to work? And so we’ll keep talking to them and see what we can come up with.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: One last question we’ve been asking every company today, Emily, yesterday as well. Obviously, AI continues to be a hotspot in the world economy and continues to be discussed heavily. What do you see as the role of AI in your business model?

Brad Bickham, President and COO, Addis Homecare: Yes, I mean, I think we actually have piloted a little bit on the AI side on the scheduling. And so, I think there’s a real opportunity that could we have basically machine learning handle 80% of the scheduling? Is that a possibility? And I think down the road that might be. I don’t think we’re there yet.

Some of the things that we’re doing out in the field is not necessarily certainly AI driven, but we have unleashed our caregiver application in Illinois. We’ve implemented that across the board. We’re now putting that in New Mexico. And what’s kind of cool about that is it allows the caregiver to self serve. And one of the biggest challenges to being able to implement machine learning into a scheduling system is, we know the client’s availability, we know how many hours they want, when they want service, but we struggle with is what’s the caregiver availability, because the number one reason why caregivers leave us is generally for lack of hours.

They don’t get enough hours. They want to work thirty or thirty five hours and we got them scheduled for twenty. And so I think bridging that gap, in order to do that, we have to have the caregiver update their availability constantly. And that’s what the application allows them to do. And so, we’re starting to really see much better adoption of that in Illinois than I frankly had anticipated.

And I think once we get to that point where we’ve got caregivers updating their application, their availability on a regular basis, there’s actually a real opportunity on the machine learning or the AI side to be able to really kind of enhance our scheduling and potentially save some costs there.

Mike Wiederhorn, Healthcare Services Analyst, Oppenheimer: Perfect. Well, we are out of time and really appreciate you guys participating. Thanks again as always.

Dirk Allison, Chairman and CEO, Addis Homecare: Thank you very much.

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