Addus HomeCare Q3 2026 Earnings Call Transcript

Addus HomeCare (NASDAQ:ADUS) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Addus HomeCare Corporation reported a 7% increase in total revenue for Q3 2026, reaching $387.7 million, while adjusted earnings per share rose 17.3% to $1.83.

The company reduced its debt and is proceeding with the acquisition of AccentCare’s personal care services, which is expected to add $280 million in annualized revenue, enhance market density and expand the private pay home care business.

Strategic initiatives include leveraging the Caregiver app to improve service delivery and pursuing additional acquisitions in clinical areas such as home health and hospice to expand market presence.

Operational highlights included 6.9% same-store revenue growth in the personal care segment and positive hiring trends, with an expectation of achieving flat to slightly positive census growth in Q4.

Management expressed confidence in future growth supported by state rate increases, especially in New Mexico, and positive adjustments in home health services rates. The company plans to maintain active M&A activities while leveraging a strong balance sheet.

Full Transcript

OPERATOR

Good day, and welcome to the Addus HomeCare third quarter 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded.

I would now like to hand the call over to Brandon Cox. Please go ahead.

Brandon Cox

Good morning, and welcome to the Addus HomeCare Corporation third quarter 2026 earnings conference call. Today’s call is being recorded. To the extent any non-GAAP financial measure is discussed on today’s call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company’s website and reviewing yesterday’s news release. This conference call may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Addus’s expected quarterly and annual financial performance for 2026 or beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, discussions of forecasts, estimates, targets, plans, beliefs, expectations, and the like are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by important factors, among others, such as those set forth in Addus’s filings with the Securities and Exchange Commission and its third quarter 2026 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.

Dirk Allison (Chairman and Chief Executive Officer)

Thank you, Brandon. Good morning, and welcome to our 2026 third quarter earnings call. With me today is Brian Poff, our Chief Financial Officer. As we do on each of our quarterly earnings calls, I will begin with a few overall comments, and then Brian will discuss the third quarter results in more detail. Following our comments, we will be happy to respond to any questions. As we announced yesterday afternoon, our total revenue for the third quarter of 2026 was $387.7 million, an increase of 7% as compared to $362.3 million for the third quarter of 2025. This revenue growth resulted in adjusted earnings per share of $1.83 as compared to adjusted earnings per share for the third quarter of 2025 of $1.56, an increase of 17.3%. Our adjusted EBITDA was $51.2 million compared to $45.1 million for the third quarter of 2025, an increase of 13.5%.

For the third quarter of 2026, cash flow from operations was $40.9 million, with cash on hand on September 30th of just under $100 million. During the third quarter, we reduced our bank debt to $24.3 million, which provides us the financial flexibility to close on our previously announced AccentCare personal care services acquisition while still considering additional large acquisition opportunities as we continue to pursue expansion of our market reach and increase geographic density.

As we announced on September 14, we signed a definitive agreement to acquire the personal care assets of AccentCare. This acquisition excludes AccentCare’s New York operation and is expected to add approximately $280 million in annualized revenue. It furthers our strategy of creating density in our current markets while also enhancing our private pay home care business. Last week, the federal antitrust review period for the transaction expired. We are now waiting on additional customary regulatory approvals needed to complete the transaction.

We anticipate closing on this acquisition in the first quarter of 2027. On July 1st of this year, we received an approximate 4% rate increase from the state of New Mexico, our third largest personal care market. This was an important development, showing that states recognize supporting personal care services saves states money in caring for the elderly and disabled population covered by Medicaid. We continue to have discussions with other states concerning potential rate increases for 2027 as part of their normal state budgeting processes.

We still believe that we will see additional rate support from other states while also realizing that we are returning to a more balanced environment for same-store growth between rate and volume. As we mentioned on our last quarterly call, CMS published the final fiscal 2027 hospice rate, which was effective on October 1, 2026. This increase continues the consistent federal rate support we have seen for hospice services over the past few years. Currently, we are awaiting the final home health rate announcement from CMS for 2027. Based on the preliminary rate announcement which was made this summer, we expect to see a positive adjustment for our home health services, which would be an encouraging sign for this segment of our business considering the rate pressure the industry has experienced over the past three or four years.

During the third quarter of 2026, we continued to experience positive hiring trends in our personal care segment. Our number of hires per business day in the third quarter of 2026 was 100, up slightly from the prior period and within our target range. Our team continues to do a nice job of producing high hiring numbers at the level needed to meet our organic growth targets. As for clinical hiring, we continue to see a more normalized labor environment, as has been the case for the past couple of years.

Now let me discuss our same-store revenue growth for the third quarter of 2026. For our personal care segment, our same-store revenue growth was 6.9% compared to the third quarter of 2025. During the third quarter of 2026, we saw personal care same-store hours increase by 1.6% compared to the same period in 2025, while our percentage of authorized hours served in the third quarter stayed in the mid-80s, while our same-store average daily census for PC was down 0.4% over the prior period.

In the third quarter, we saw seven of our ten largest markets achieve positive year-over-year growth, with Texas and Illinois slightly negative for the quarter. Based on what we see to date in the fourth quarter, we currently believe we can achieve flat to slightly positive census growth in this current quarter. The slight decline in our personal care census over the prior year has primarily been in our lower-hour cases, as our higher-hour cases have increased year over year.

This, along with the continued improvement in our service percentage, has contributed to our year-over-year increase in same-store personal care hours. Turning to our clinical operations, our hospice service same-store revenue increased 4.1% compared to the third quarter of 2025. As discussed last year, our 2025 third quarter had a positive impact from implicit price concession, and excluding that impact, our same-store hospice revenue growth for the quarter was 8.8%, at the high end of our targeted goal for hospice. We were pleased to see our same-store average daily census increase to 4,031 for the third quarter, up from 3,866 for the same period last year, an increase of 4.3%.

Our growth in hospice has continued in October, with our average daily census exceeding 4,100. For the third quarter of 2026, our hospice median length of stay was 25 days as compared to 22 days for the third quarter of 2025 and 24 days sequentially. Overall, our hospice segment has continued to generate consistent growth over the past several quarters. Our home health same-store revenue increased 2.5% when compared to the same quarter in 2025. Also, same-store admissions in home health for the third quarter of 2026 grew 13.8% as compared to the third quarter of 2025. This is the first positive year-over-year revenue quarter we have had in a couple of years for home health, as we are seeing the impact made by our new leadership team. Importantly, we also saw sequential improvements in revenue and admissions.

As you can see with our pending AccentCare and previous Gentiva acquisition, we continue to believe that creating size and scale are important in post-acute healthcare services. This has been the long-term focus of our development strategy. Our development team continues to evaluate opportunities which will increase both the density and geographic coverage as we seek to further strengthen our relationships with states and managed care organizations.

Going forward, we anticipate being more aggressive in looking at various clinical opportunities which we believe will present themselves over the next few quarters. While we will still actively pursue PC opportunities, we believe it is time, with recent market changes, to consider adding more clinical acquisitions in both home health and hospice. Before I turn the call over to Brian, I want to thank the Addus team for the care they are providing to our elderly and disabled consumers and patients. We all have come to understand that most of this population prefers to receive care at home, which not only remains one of the safest but also the most cost-effective places to receive this care. We believe the heightened awareness of the value of home-based care has proven to be 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 our other employees who work so incredibly hard providing outstanding care and support to our clients, patients, and their families. With that, let me turn the call over to Brian.

Brian Poff (Chief Financial Officer)

Thank you, Dirk, and good morning, everyone. Addus HomeCare had a solid financial and operational performance in the third quarter of 2026. We generated a 7% top line increase in net service revenues to $387.7 million compared with $362.3 million in the third quarter of 2025. Our focus on cost discipline and operating leverage drove bottom line growth to outpace revenue gains, driving a 13.5% year-over-year improvement in adjusted EBITDA to $51.2 million, up from $45.1 million in the prior-year period.

Our personal care services segment remains the core driver of revenues, generating $301 million, or 77.6%, for the third quarter. The segment achieved a solid 6.9% organic revenue increase year over year. Performance in this segment was anchored by steady organic volume gains, continued contributions from the integration of our home care acquisition, and ongoing benefits from historical favorable rate enhancements across key state markets including Illinois, Texas, and New Mexico.

We continue to see solid caregiver hiring momentum and year-over-year improvement in our service percentage driven by the ongoing rollout and adoption of our internally developed caregiver app across our major markets. Our hospice operations delivered continued steady performance, accounting for 17.8% of our revenue for the third quarter and a 4.1% organic revenue increase year over year. As Dirk mentioned, exclusive of the differences in the implicit price concession from the prior year, our organic revenue growth was 8.8%. This steady growth was driven by two key factors: higher reimbursement per patient day and healthy volume gains in our organic average daily census, which rose 4.3% year over year.

As anticipated, our ongoing focus on case mix kept Medicare cap exposure within normal limits for the third quarter, with no further cap adjustments recorded. Looking ahead, the fiscal 2027 Medicare hospice reimbursement rate update has been finalized with an aggregate 2.3% net increase that became effective October 1, 2026. We expect the benefit to our hospice business to be just under 2% based on our geographic mix and related wage indices. Our home health services represent our smallest segment and account for 4.6% of third quarter revenues. Home health continues to show positive momentum with solid clinical intake and admission trends and an increase of 2.5% in organic revenue over the prior-year quarter. Maintaining all three levels of care remains an essential component of our value proposition, helping us deepen relationships with our managed care and value-based partners in key overlapping markets such as New Mexico and Tennessee.

Our clinical bridge program continues to yield significant value, with over 25% of our hospice admissions originating directly from our home health operations. We anticipate this program to have a positive impact in our Illinois market as we work to implement it in those operations. Looking at our financial position, we continued to generate strong cash flow from operations through the first nine months of 2026, which leaves us very well capitalized. Our disciplined balance sheet management and low leverage profile provide us the financial flexibility to pursue targeted acquisitions designed to deepen market density and expand regional reach in line with our strategic growth initiatives. During the quarter, we announced a definitive agreement to acquire the personal care division of Accent Care outside of New York for $275 million.

This acquisition aligns with our strategy to scale our core non-clinical platform in markets where we can leverage geographic coverage and density. The acquired operations will bring an average daily census of approximately 13,700 clients across a 10-state footprint and are expected to generate roughly $280 million in annualized personal care revenue, which represents an approximate 19% increase to our revenue base. Importantly, it significantly deepens our market density across Texas, Illinois, California, and Arizona while also adding operations in six additional markets.

We intend to fund the purchase price through a combination of cash on hand and borrowings under our revolving credit facility. Given the complementary operational footprint and financial profile, we expect the transaction to be accretive to our overall financial results while enhancing our collaborative capabilities with managed care organizations and value-based care partners. As Dirk noted, total net service revenues for the third quarter were $387.7 million. The revenue breakdown is as follows: Personal care revenues were $301 million, or 77.6% of revenue. Hospice care revenues were $69 million, or 17.8% of revenue. Home health revenues were $17.7 million, or 4.6% of revenue.

Other financial results for the third quarter of 2026 include the following: Our gross margin percentage was 32.1% compared with 32.2% for the third quarter of 2025, and sequentially our gross margin percentage stayed relatively stable as expected. Looking forward to the fourth quarter of 2026, we anticipate our gross margin percentage to experience normal seasonality with a benefit of approximately 50 to 60 basis points related primarily to the hospice reimbursement update and lower unemployment taxes.

G&A expense was 20.7% of revenue compared with 21.9% of revenue for the third quarter a year ago. Adjusted G&A expense for the third quarter was 18.9% compared with 19.8% a year ago and down sequentially from 19.2% in the second quarter of 2026. Our continued leverage on our cost structure from our expanding revenue base has driven G&A efficiency across our operations and should continue to benefit us going forward. The company’s adjusted EBITDA for the third quarter of 2026 was $51.2 million compared with $45.1 million a year ago, an increase of 13.5%. Adjusted EBITDA margin was 13.2% compared with 12.5% for the third quarter of 2025 and up 20 basis points sequentially from 13% in the second quarter. We now expect our full-year adjusted EBITDA margin percentage to be in the 13% range. Adjusted net income per diluted share was $1.83 compared with $1.56 for the third quarter of 2025.

The adjusted per-share results for the third quarter of 2026 exclude the following: acquisition expenses of $0.16, non-cash stock-based compensation expense of $0.12, and restructuring and other non-recurring costs of $0.01. The adjusted per-share results for the third quarter of 2025 excluded the following: acquisition expenses of $0.08, non-cash stock-based compensation expense of $0.18, and restructuring and other non-recurring costs of $0.06.

Our tax rate for the third quarter of 2026 was 26.9% as expected and consistent with the second quarter of 2026. For full-year 2026, we expect our tax rate to remain toward the upper 20% range. DSOs were 39.3 days at the end of the third quarter of 2026 compared with 35.5 days at the end of the second quarter of 2026. We have continued to experience consistent cash collections from the majority of our payers. Our DSOs for the Illinois Department on Aging for the third quarter were 48 days compared with 26.8 days at the end of the second quarter of 2026, as we experienced normal timing differences in payment cycles from the state.

Our net cash flow from operations was $40.9 million for the third quarter of 2026, continuing our strong performance this year. As of September 30, 2026, the company had cash of $98.5 million, with capacity and availability under our revolving credit facility of $650 million and $617.8 million, respectively. Total bank debt was $24.3 million at the end of the quarter, a reduction of $40 million from the second quarter of 2026. We have also continued to reduce our revolver balance, with $10 million paid to date in the fourth quarter.

Our capital structure and strong balance sheet continue to support our ability to invest in our business and pursue strategic growth initiatives, including targeted acquisitions. Looking ahead, as we prepare to fund and close the Accent Care transaction, we will continue to selectively pursue complementary acquisitions that align with our growth strategy while maintaining disciplined capital allocation and managing our net leverage ratio through ongoing debt paydown.

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 questions.

OPERATOR

We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble the roster. And our first question will come from Sean Dodge of BMO Capital Markets. Please go ahead.

Sean Dodge (Analyst)

Yeah, thanks. Good morning. Maybe just on the same-store billable census, Dirk, I know you said you were seeing strength in seven of your markets. It was something Texas and Illinois that continue to lag a little bit. Just the confidence that those are rebounding and that metric will turn positive in Q4. Have you seen inflections now in both of those markets? When did those happen, and what do you think are primarily driving that?

Dirk Allison (Chairman and Chief Executive Officer)

You know, we saw, I think we had talked earlier last quarter when we had the conference call, we had seen through July and on into August. It was trending towards we were going to be flat to slightly positive in our census. We saw Texas and Illinois in September flatten out just a bit. And that is what really kept us from achieving that goal that we had set for ourselves for the third quarter. I will say that today in the fourth quarter, it seems like both of those states have turned back around to what we were experiencing more in the July and August standpoint.

So no real reason why that may have happened in September, but it appears that we’re back on track to where we’d like to be, which is really working towards driving, and again, I’m going to say appropriate ADC, appropriate census growth in that fourth quarter. And we’re, you know, we’re certainly looking to try to achieve that this year.

Sean Dodge (Analyst)

And so maybe on that, the appropriate growth, kind of the advances we’ve seen in average billable hours per census, what’s the biggest contributor there? Is it kind of being a little bit more disciplined on what kind of referrals or patients you’re accepting? I know you’re also making gains in fill rates with the caregiver app. How much of each of those are contributing, and how much further do you think you can drive that metric, the average billable hours per census?

Dirk Allison (Chairman and Chief Executive Officer)

Well, you know, I think you hit it. There’s really two things that we’re looking at to try to continue to drive that number, and that is using our Caregiver app, our technology, which has done a really good job in Illinois, moving into Texas, now we’re moving into New Mexico. So we should continue to see some positive improvements in that metric, allowing us to serve more of the authorized hours that have been granted by the state. I think the other thing we’re trying to do, we’re just trying to be cautious and direct in trying to make sure that the census that we take are census that we can do the right job on. It’s, you know, when you take a very small-hour client on, it’s very difficult to staff because, you know, more and more caregivers want to get closer and closer to that 40-hour time frame and it’s hard to piece together small-hour patients. So what we’re trying to do is just make sure we’re looking at the patients that give us more hours.

We’re trying to balance that with our referral sources to make sure that we’re doing all things that are necessary. We’ll still take respite patients. We’re not saying that at all, but we’re trying to do it in a methodology that realizes that we can staff them appropriately and we can give the hours we want to give to our caregivers. And that’s really what our focus has been over the last few quarters.

OPERATOR

The next question comes from Ben Hendricks of RBC Capital Markets. Please go ahead.

Ben Hendricks (Analyst)

Thank you very much. Just wanted to follow up on some of Dirk’s comments around the AccentCare acquisition, particularly the higher mix of private pay. We tend to talk about PC purely in Medicaid terms. So just wanted to kind of get some of the nuances of the private pay business, specifically kind of the rate profile, the demand backdrop for the private pay, and also kind of what you’re seeing in terms of census mix dynamics in that business. And then also just what all that looks like on a pro forma basis for AccentCare.

Brian Poff (Chief Financial Officer)

Hey Ben, this is Brian. I think on that side, just a few of the numbers around that piece of that business. I think we traditionally have run around 2% of our ADC has been in the private pay or direct pay constituency. I think looking at AccentCare, I believe they’re closer to like the 7–8% of their business in that private payment arena. They’ve had a strategy over the last few years of actually pursuing de novo growth in the private pay business.

If you look at some of the smaller states that we’re getting in this transaction, that’s actually what those offices are, just pure private pay offices. So they’ve had, you know, some success there. I think we like the private pay business. Obviously it’s a little different business. You’re not exposed to maybe some of the Medicaid reimbursement issues or pressures that we’ve seen over the last year or so, but it’s market to market on what the reimbursement looks like, what folks are willing to bear from a competitive standpoint. But I think they’ve done very well. And I think there is a different constituency that you’re serving in a private pay business—folks that are not qualified for Medicaid but still need the care at home to stay there rather than go into an institutional setting.

So I think we’re excited about seeing a little bit of expansion in our overall portfolio, bringing them on board and probably learning some things from them as well and applying that to our business.

Ben Hendricks (Analyst)

Great, thanks. And can you talk a little bit about some of the census mix dynamics as they pertain to AccentCare’s markets? Thanks.

Brian Poff (Chief Financial Officer)

Yeah. Most of those markets, I mean, obviously the bigger pieces here are the key four, really: Texas, Illinois, then you get into California, then some in Arizona are really the big four states. Texas is going to be very similar to what we run, you know, a large Medicaid population. They do have a little more private pay, I think, in Texas than we do, and some VA business. Illinois is going to be very similar to ours as well, mostly Medicaid focused.

You get into California, still, again, very similar to our business there, which is primarily VA or private pay. They do have a little bit of participation—about, I think, about 10% of their overall business in California is through a CalAIM Medicaid program that they operate in that we do not. But it’s a small piece of the business that we’re getting with them. And then Arizona is going to be similar as well, Medicaid focused. Thank you.

OPERATOR

The next question comes from Andrew Mock of Barclays. Please go ahead.

Andrew Mock (Analyst)

Hi, good morning. Can you help us understand what’s going on with hospice revenue? You noted that there were no further Medicare cap adjustments, but there was a $1.4 million add-back to organic revenue in addition to the $1.5 million price concessions. And I guess, you know, just taking a step back, how are you responding to, you know, the higher average length of stay to the extent that it is putting pressure on some of these items operationally?

We’d love to hear your thoughts on that. Thanks.

Brian Poff (Chief Financial Officer)

Yeah, Andrew, I think things that we were looking at—if you’re referencing kind of the reconciliation on the adjusted same-store revenue—we had an implicit price concession benefit last year in Q3 that was really just related to collection on older AR that had some reserves associated with that. You compare that to what we experienced in the same implicit price concession this year, which was more in line with the way we think we would probably typically see.

But I think we also have in that reconciliation table there was some acquisition that we did last year as well that had some hospice business up in Pennsylvania. So there’s some revenue base there that’s part of that reconciliation. But I think on the cap side, you know, we had no further adjustments this quarter. I think the things that we believe we’ve done to mitigate some of that expense that we took in Q2 in this cap year have been very helpful in that regard. I think you look at the length of stay, our digital to stay—that was just a factor of those folks that left our service this quarter. I think we’re fairly in line, we think, with the industry, kind of in that low 100-day range, but no impact there.

No concern that we have around cap. I think we still feel very confident going into the fourth quarter that we will have no further cap adjustments this year. In fact, I think we kind of look at the end of the cap year and let some of those folks discharge and see where we land. Ultimately, we believe we’ll probably see a little bit of benefit actually in our ultimate cap reserve for this year.

Andrew Mock (Analyst)

Great. I think this helps us understand your latest thinking around the 80/20 rule. I think there was some expectation that it would get addressed this year. Does the changing of the congressional composition impact your view at all? Thanks.

Dirk Allison (Chairman and Chief Executive Officer)

Yeah, you know we were talking to our government relations folks this morning after the results of election. Now we still have a belief that CMS plans on changing the 80/20, doing away with that portion of the rule, while they will probably keep other aspects of that rule which we actually support. So we’ll wait and see. We didn’t expect—honestly, after the last four or five weeks we were told it wouldn’t be done until after the election. Now that the election has happened and obviously there is a big change in the dynamics of who will be in the House and the Senate, we will see on the timing, but we still do believe and expect by year-end we’ll see a movement on the 80/20 that it should come out of the rule.

Andrew Mock (Analyst)

Great, thank you.

OPERATOR

Our next question comes from Brian Tanquillet of Jefferies. Please go ahead.

Brian Tanquillet (Analyst at Jefferies)

Hey, good morning guys. Maybe Dirk, as I think about first when we think of the work requirement for Medicaid that’s going to get rolled out for 2027, how are you thinking about the impact on your business from that and maybe if you can share any insights from some of the states that have rolled out work requirements earlier where you operate?

Dirk Allison (Chairman and Chief Executive Officer)

Yeah. You know, so far, I think one or two states have rolled out the Medicaid reimbursement requirement—the work requirement—and we’ve seen no effect on our business at this point in time. We never expected it to really hurt us from a revenue standpoint, because I think there’s been some clarification around that particular work requirement that most of our folks that are receiving care are going to be qualified to avoid having to go to work. I think the bigger aspect we were considering and we’re thinking may be helpful is as states roll out work requirements, will there be opportunities for additional caregivers? Folks that maybe are on Medicaid, they’re now going to be required—they’re younger, they’re not disabled—they’re going to be required to show a certain number of hours per week or per month. Can we help them meet that goal and remain on Medicaid?

So you’re waiting to see that. In a couple states that rolled out, that hasn’t occurred yet—hasn’t been a negative on labor, but it hasn’t really been a positive. So the only other thing that I think we’ll be watching, and something you would expect, is to make sure that states are—hopeful that states have had enough time to prepare for the monitoring of work requirements, and hopefully that should not affect the rate at which we get new patients on board, because again, it’s going to be an additional burden on the state.

But they’ve gone through this before with redetermination, so we’re hopeful that they have that experience and they’re going to be prepared for it.

Brian Tanquillet (Analyst at Jefferies)

Appreciate that. Maybe, Brian, thanks for flagging the New Mexico rate increase. So when I think of 2027, if you can just walk us through, number one, how you’re thinking about the blended rate profile, given the different state rate adjustments, and then just broadly speaking, how you’re thinking about census growth as we think through 2027. Thanks.

Brian Poff (Chief Financial Officer)

Yeah, Brian, I think on the rate side, it was nice to see New Mexico come through with the rate increase this year. I know we talked last year, they had a rate increase on the table and with some of the OB3 conversations happened at the time, decided to hold flat. And we were hoping that they would look at this year now that they kind of understood the landscape of what that really meant for them as a state, that they would look for a rate increase this year.

And we were happy to see that come through. So that’s in our Q3 number. I think, looking ahead to next year, we still expect we’re probably going to see some rate updates in some smaller states. Obviously, the bigger states move the needle more for us. And so Texas and Illinois will be the two that we’ll watch early when they get seated back and go into session early next year. Will we see some additional movement from them? We didn’t get one from Illinois in the last session. So does that mean maybe there’s going to be some potential that we’ll see something that would impact, you know, really 2028 if they give us something?

Their budget, they’ve typically been doing it mid-year for them, which is January 1st starts. So our folks will be having those conversations. We expect we’ll get support in the session as we usually do, from the union and the state as well. And then Texas, who only meets every two years, they’ve had nice rate increases the last couple of cycles. We still think there’s some headroom ability for them to do some additional rate enhancement there based on where the rates are and kind of what we pay in the state.

So with some of the shifts in the Texas political landscape, we’ll be interested to see how that plays into that process as well when they get seated early next year. So I think the way we’re looking at, kind of just thinking about it from a same-store perspective, with some of the rate support in large states, we’ve been nicely above kind of the 3% to 5% target range for some time now. We anticipate, not having one from Illinois particularly that’ll go into effect early next year, we’ll probably be more in that 3% to 5% range the first half of next year. If we get some rate support from either Illinois or Texas or one of the other larger states or even New Mexico again next year, toward the back half of next year, you could see us go back to the top end of that 3% to 5%, if not above.

But those are things that we’ll be looking for.

Brian Tanquillet (Analyst at Jefferies)

Awesome. Thank you.

OPERATOR

The next question comes from Joanna Gaggio of Bank of America. Please go ahead.

Joanna Gaggio (Analyst)

Oh, hey, good morning. Actually, first one, just follow up on the question because I don’t think you answered the second part of the question. When we think about next year in terms of the census growth, how we should think about that.

Dirk Allison (Chairman and Chief Executive Officer)

Yeah, we expect that next year, certainly we’re moving as a team to try to get to the point where we’re seeing low percentage, PC same-store growth in census.

Brian Poff (Chief Financial Officer)

Yeah, I think, Joanna, just to add to that, we’ve talked about just on an hour basis, which is really the thing that we’re more focused on is can we continue to stay kind of in that 2% to 2.5% same-store hours growth range? Census will be a piece of that. But we think there’s still additional headroom. I think we talked earlier about the Caregiver app and the fill rate. We’re still kind of in that mid-80% range. So we still think there’s opportunity to increase our fill rate up into that upper-80% range if we can see that come to fruition.

And like Dirk said, some consistent, slight growth in the census as well. Hopefully that puts us in a good spot going into next year.

Joanna Gaggio (Analyst)

Great, thank you. If I may, on a little bit different topic in terms of your appetite for acquisition, so you mentioned in prior calls there could be a couple of larger personal care deals out there in the market. So you just did one and with that deal by taking, you said something like 12 months, maybe longer to fully integrate. So would you be still willing to execute another transaction of similar size during that period or should we expect more tuck-in acquisitions?

Brian Poff (Chief Financial Officer)

Yeah, I think we’re still open. So if we get AccentCare closed as we expect in the first quarter, I think really it won’t be a 12-month integration. I think we’ll see some synergy opportunities over kind of the 12 months post-closing. But I think a lot of the systems conversions, our payroll system, our benefit programs will happen very quickly and that’s usually the larger lift from an integration perspective. But I think we still expect to be very active in M&A going into next year.

I think we still, from a capital perspective, are in a great position to do larger deals still. I think internal bandwidth is going to be there as well to allow us to do larger deals if they’re available. So we’ll continue to look at some of the larger PC acquisitions that we expect are still going to come to market. But as Dirk referenced earlier, we think there’s going to be opportunities on the clinical side. If you look at kind of our footprint, particularly in home health, we’ve got a lot of green space in our portfolio where we can add operations there probably at good multiples, and hospice will really kind of just depend on where multiples are next year. It feels like maybe there’s some rationalization happening in the hospice area where maybe they’ll be a little more affordable. And if that’s the case, those are things we would like to be interested in or active in as well.

Joanna Gaggio (Analyst)

Great. If I may squeeze in on AccentCare, I appreciate the comment around the integration will be actually faster. So can you help us maybe quantify the ultimate EBITDA margin target here? Because it sounds like that asset actually has higher product pay, so higher margin, and also any color in terms of the magnitude of synergies that we should think about in terms of just realizing things in year one versus year two. Thank you.

Brian Poff (Chief Financial Officer)

Yeah, I think the way we’ve kind of talked about AccentCare, they operate today probably in a high single-digit percentage EBITDA range in their business in personal care, which is a little lower than what we would typically expect to see and what we see in our business. So we think there’s opportunity to get their operations up into that low double-digit range from an EBITDA perspective, primarily through G&A savings, to be fair. And I think the way we look at it over 12-plus months, we’ll probably see ratable synergies as we go along.

It won’t be something that we see that will be backloaded, but we’ll probably make those changes over a period of time as we don’t want to negatively impact the business in any way if possible.

Joanna Gaggio (Analyst)

Great. Thank you so much.

OPERATOR

The next question comes from A.J. Rice of UBS. Please go ahead.

A.J. Rice (Analyst)

Hi everybody. I know you have talked to some areas, but I just wondered to frame it a little better. I know you’re not giving formal 2027 guidance at this point, but when you think broadly about major puts and takes versus the baseline that you’ll establish for this year, how would you describe thinking about the swing factors for 2027 at this point?

Brian Poff (Chief Financial Officer)

Yeah, Jay, I think the main thing for us really, if you look at it going into next year, mix is obviously going to be a play. If you’re thinking about just margin profile with AccentCare coming on board, we’re going to shift more toward personal care, which is a little lower profile than you see in hospice and home health. So we’ll expect to see that have an impact. We think we’ll finish this year probably right at or very close to 13% EBITDA margins for the full year.

We expect to see that probably come down a little bit next year without any other acquisition activity just due to the mix from AccentCare. Outside of that, I think we expect to see kind of normal seasonal impacts in our margin profile overall, and we should continue to see, hopefully, some additional leverage on G&A with our top-line growth. We kind of talked about it a little bit earlier. I think PC next year is going to be probably more in that 3% to 5% or maybe not into that upper single-digit range like it’s been. So we won’t get some of the early rate that we’ve got in the last couple years.

But we still expect our hospice division to continue to run in that upper single-digit range from a growth perspective. We’re very pleased to see home health back to positive at 2.5% same store this quarter. We’d like to see that continue momentum into next year as well. But honestly, I think the other big thing will be how successful are we in M&A next year? Do we do some things on the clinical side that adjust that mix? I think that will be probably a pretty big factor in kind of what you see for us next year.

A.J. Rice (Analyst)

Okay. And I know Dirk in the prepared remarks referred to some of the pickup in same store, home health and hospice was attributed to the new management team there. I wondered, thinking about from here forward, where is their focus? Where are the greatest opportunities to improve performance? Is it just adding external referral sources and sales? Is it focusing on potential deals or are there operational things that they’re particularly focused on that could be an opportunity?

Dirk Allison (Chairman and Chief Executive Officer)

Well, I think one of the things you’re seeing is again, because it has been our smallest division, it’s one that probably didn’t receive quite as much attention as others. And so bringing on new management has allowed them to look at the overall aspect of our home health business, operationally and otherwise. So focusing on sales, focusing on some of the operational improvements, recruiting, number of things that they’re working on that you’re starting to see have positive effect on our growth.

So, again, I want to be careful. We are not a home health company per se today. We are a company that has a segment of home health and we want to continue to grow that appropriately as we have opportunities. I think what you’ll see going forward, the biggest opportunity in home health will be are we able to find some acquisitions that we can bring on board to strengthen our overall offering in the states in which we operate, especially in those states in which we have overlap between all three levels of care.

A.J. Rice (Analyst)

All right, thanks so much.

OPERATOR

The next question comes from Matthew Gilmore of KeyBank. Please go ahead.

Matthew Gilmore (Analyst)

Hey, thanks for the question. On the same-store billable hour metric, I think you said it was 1.6% in the quarter, there was a slight deceleration from where you’ve been. I was curious if there was anything to call out. Maybe that’s just normal fluctuation, but just wanted to see if there was any additional commentary you could provide.

Brian Poff (Chief Financial Officer)

No, there’s nothing to really call out. As I said, we had a little bit of softening in September in Illinois and Texas. Those are two big markets for us. Those have bounced back in October, so there’s nothing really there. Again, it was a small decrease. It fell below our target of 2% growth, but we think we’ll be back to that.

Matthew Gilmore (Analyst)

Got it. And then on the New Mexico rate update, I think last call, we knew that the funds had been allocated, but it was a little unclear how it would work through the MCOs. I was curious if you could provide some comments in terms of how that ultimately shook out and what enabled you to get access to that fund through the MCOs.

Brian Poff (Chief Financial Officer)

Yeah, Matt, we actually had to go, you know, to the different MCOs that run the managed Medicaid business in the state and have those conversations with them directly. I think, as you guys probably know, New Mexico is the one state we have where we actually do negotiate rate directly with the plans. It’s not a state-mandated rate, so we had to go through that process. And so our teams, I think, did a really good job of working with the MCOs there to effectuate the rates.

That kind of came back to an aggregate basis kind of right at or just above that, kind of that 4%, which is what the state had allocated to the services as an increase. So I think we landed exactly where we would expect to.

Matthew Gilmore (Analyst)

Great, thanks a lot.

OPERATOR

Again, if you would like to ask a question, please press star then one. Please also note to take yourself off of speakerphone before asking your questions. And the next question will come from Raj Kumar of Stephens. Please go ahead.

Raj Kumar (Analyst)

Hi, good morning. Maybe just one on ARPA funds and maybe just what was the utilization of those funds in the quarter? And then would be helpful to kind of remind us on maybe the kind of utilization dynamics in terms of the deadline of utilizing those funds for the remaining amounts that you guys have.

Brian Poff (Chief Financial Officer)

Yeah, Raj, most of the ARPA funds are really… All the ARPA funds that we have left on the balance sheet are related to New Mexico. So from a timing basis, they had a deadline in order to get those funds out to providers, but there’s no deadline on utilization for us, so we don’t have a ticking clock on that. We had a very low utilization this quarter. I think we’ve looked at using those in ways to continue to enhance, you know, opportunities in the state for us and our caregivers from, you know, hiring bonuses, retention bonuses, things along those lines, some technology advancements that benefit the caregiver that is allowed to be used in those funds as well. And we’ve done that historically. I think where we sit today, you know, we still have a pretty substantial balance on our balance sheet from New Mexico that we’ll have access to over the next, you know, few years, but no ticking clock on that.

Raj Kumar (Analyst)

Got it. And then maybe kind of looking at home health and seeing inflection in volume there also. It seems like your other payer mix there has also seen pretty substantial mix gain, so would be helpful if what’s kind of driving that. Is it VA? And then would be just also helpful on kind of how those reimbursements for those cases stand relative to fee-for-service.

Brian Poff (Chief Financial Officer)

Yeah, I think on the home health side, I think, you know, we’ve had a focus of trying to make sure that the cases that we take, you know, are at rates that make sense. I think a lot of folks in industry have really, you know, kind of drawn that line over the last couple years with some of the reimbursement pressure, particularly on the Medicare Advantage side. I think we’ve been really no different. I would say, you know, we’ve gotten some wins, I think, in some of our negotiations with those folks of either getting, you know, per-visit rate enhancement or actually moving to an episodic rate over the last couple of years.

I think some of the leadership changes that we made early this year have paid some dividends as well. So we brought in some folks that are very experienced and are very helpful in having those conversations. And I think that’s benefited our home health business. So we’ve been, you know, probably relatively stable from a mix perspective. You know, recently the last few quarters, it feels like, you know, some of the days of really just MA penetration have really slowed down, but we’ll continue to be focused on that and making sure that the business that we do and the growth that we see is in the right places.

OPERATOR

The next question comes from Constantine Davids of Citizens. Please go ahead.

Constantine Davids (Analyst at Citizens)

Thanks. Good morning. Just a couple questions on Indiana. Have you been able to close that second transaction yet? And then, on a related note, can you talk about the decision in the state to implement a moratorium on new providers and what you’re expecting in terms of potential for other states to maybe follow suit?

Brian Poff (Chief Financial Officer)

Yeah, Constantine, I’ll talk about the closing and let Dirk talk a little bit about the moratorium. We haven’t been able to get that second one done just yet through some of the regulatory approvals that we need inside of the state. It’s not necessarily related to the moratorium, but I think working through some of those, you know, back-channel approval processes is taking a little bit longer than we had anticipated. We still think we’re going to get that one closed, hopefully in the near future.

But I’ll let Dirk talk a little bit about the moratorium and impact there.

Dirk Allison (Chairman and Chief Executive Officer)

Yeah. You know, one of the things as a company and as an industry we talk about is an appropriate moratorium could make sense. One of the things with PCS, it’s a business fairly easy to enter into. And so we’ve seen over the last two or three years a number of new folks come in the business with very limited hours, which causes the states to have a lot of additional work, whether it relates to fraud and abuse issues, supervisory visits, other things that they need to do to make sure that there are appropriate operations going on in the state.

So we certainly have had discussions with various states, talking to them about what we would term an appropriate moratorium, which should be beneficial to those of us that are in the state, that are working hard to make sure that we’re very compliant with the state and we’re following through with all the rules and regulations. So it’s something we’ll continue to talk about and we believe could be an effective opportunity for the industry, but certainly for Addus, if we’re able to get some moratoriums through various states.

And then, Dirk,

Constantine Davids (Analyst at Citizens)

In your prepared remarks, you used the word density a couple times. And I’m just wondering, sort of on a bigger-picture basis, based on where you sit today, which is having a PC presence in 24 states, how many more states do you think you’d ultimately find attractive to expand into? And aside from a rate-versus-wage dynamic, what are the other considerations when you look at the attractiveness of entering a new market?

Dirk Allison (Chairman and Chief Executive Officer)

Well, if you look at our 24 states, we’re right now really more focused on taking those states and giving more density into those markets. Now, it doesn’t mean, just like we took the opportunity with Gentiva, they had a hot market presence in Texas. We were not in Texas. It allowed us into the state. Now with AccentCare, we continue to get much bigger in that market. And so we’ll always look at opportunities that may be out there. If it’s in a market that we’re not in, if we can enter with size to allow us to grow from there.

I think the things we look at when you look at various new states: How supportive have they been in history to the our-type program? Are they fiscally responsible as a state? I think that’s very important because, as you know, being a Medicaid program, states have to also be a financial participant in that along with the federal government. So it’s important the state finances can support it. Also the growth in the elderly population, another big aspect we have to look at, because if you think in terms of our population, our average personal care client is in the mid-70s or above.

And so again, as you’ve seen baby boomers a few years ago start coming and growing, we’re looking at those markets where those folks are now into their mid-70s and could be another impetus for growing the PCS market in that area. So those are really the two or three things we look at when we’re looking to go into enter into other states.

Constantine Davids (Analyst at Citizens)

Thanks, that’s helpful. And then last one for me, can you just update us on the latest and greatest with respect to the Homecare Homebase rollout? Thanks.

Dirk Allison (Chairman and Chief Executive Officer)

Yeah, we are in the middle of our Homecare Homebase rollout. Excuse me. We’ve been pretty busy with it, so sometimes we get a little tired. We should have the broad majority of our states done by the end of this year. Now, the big state of Illinois, obviously a big market for us, will be first quarter of next year, and that will be followed right after that with New Mexico. So probably by April or May of next year we should have all of our major markets that we’re converting to Homecare Homebase first off the old Horizon system, which we’ve been operating on for a number of years.

The one other large state, Texas, that we have acquired, they’re operating on a system that is still a system that is being supported and is not giving us pressure to convert. That will flow into the end part of next year. So by the time you get to December of 2027, we will hope to have all of the operations that we have on board today converted over to Homecare Homebase and on the PCS business, so that then we’d have them all into one.

OPERATOR

The next question comes from Ryan Langston of TD Cowen. Please go ahead.

Ryan Langston (Analyst)

Great, thanks. Good morning. On PCS census growth, Dirk, appreciate you saying Texas and Illinois in October moved back to July and August growth levels. Any insight into what October looked like for those Texas and Illinois markets?

Dirk Allison (Chairman and Chief Executive Officer)

Yeah, we continue to experience growth. I think I had mentioned in my script that we had had seven out of our 10 top states experience growth in PCS census. We continue to see that. So realistically, if you think in terms of the appropriate census growth for us, you have all your markets are important, don’t get me wrong. And it’s good to see all of those growing. Getting Illinois and Texas back to growing is key for us, and that’s been a real focus of our team.

And so again in October it’s looking good. Looks like they’re back to what we said was July and August. Hopefully we’ll continue to see that. You know, we’re coming up into those times. Obviously every year you have the holidays that come up. But our team is preparing for that, and hopefully we’ll be able to show again year-over-year growth as our target for next year—or for the fourth quarter, excuse me.

Ryan Langston (Analyst)

Got it. And then on the hours percent, this metric in PCS, can you remind us what that profile typically looks like on some of the smaller acquisitions you’ve completed recently? And do you happen to have that KPI for what AccentCare is currently running at? Thank you.

Brian Poff (Chief Financial Officer)

Yeah, Ryan, I think most times when we do smaller acquisitions, I mean typically those patients are going to be, you know, fairly comparable. There might be a little bit of a mix shift in there as well, but it’s going to be pretty in line with what we would see in our markets in the state. As you can imagine, even within, you know, the 24 states that we operate in, there&rs