Addus HomeCare Q2 2026 Earnings Call - Cash Flow Surges and Hospice Growth Offset Cap Headwinds as Platform Scales

Conference Operator: Good morning, welcome to Addus HomeCare’s second quarter 2026 earnings 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 a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Dru Anderson, senior partner, FINN Partners. Please go ahead.

Dru Anderson, Senior Partner, FINN Partners: Thank you. Good morning, welcome to the Addus HomeCare Corporation second quarter 2026 earnings conference call. Today’s call is being recorded. To the extent any non-GAAP financial measure is discussed in today’s call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company’s website and reviewing yesterday’s news release. This conference call may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Addus’ 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, set forth in Addus’ filings with the Securities and Exchange Commission and in its second 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, Addus HomeCare Corporation: Thank you, Dru. Good morning, welcome to our 2026 second quarter earnings call. With me today is Brian Poff, our Chief Financial Officer. As we do on each of our earnings call, I will begin with a few overall comments, and then Brian will discuss the second quarter results in more detail. Following our comments, we would be happy to respond to any questions. As we announced yesterday afternoon, our total revenue for the second quarter of 2026 was $377.4 million, an increase of 8% as compared to the $349.4 million for the second quarter of 2025. This revenue growth resulted in adjusted earnings per share of $1.73 as compared to adjusted earnings per share for the second quarter of 2025 of $1.49, an increase of 16.1%. Our adjusted EBITDA was $49.2 million, compared to $43.9 million for the second quarter of 2025, an increase of 11.9%.

For the second quarter of 2026, cash flow from operations was $40 million as compared to $22.5 million for the same period in 2025. As of March 31, 2026, we had cash on hand of approximately $100 million. With our strong cash flow in the second quarter, we reduced our bank debt to $64.3 million, leaving us with the financial flexibility to consider larger acquisition opportunities as we continue to pursue expansion of our market reach and increasing our geographic density. As we announced on May 1st, we closed on the acquisition of the personal care operation of HomeCourt Home Care based in Fort Wayne, Indiana. This acquisition marks our entry into an attractive state which is adjacent to our largest personal care market of Illinois. We have been interested in Indiana for some time as we look to enter new markets that fit our strategic profile.

As we announced last quarter, we have also entered into a definitive purchase agreement to acquire certain operating assets of a similarly sized personal care provider based in Indianapolis, Indiana area, which will complement our HomeCourt Home Care operation. We anticipate closing this acquisition subject to satisfaction of customary closing conditions, including regulatory review and approval. These two acquisitions continue our strategy of entering new markets with some scale and the ability to expand our services. On July 1st of this year, CMS issued a proposed 2027 Home Health Payment Rule. CMS proposed to increase payments to home health agencies by 2.4%, or $420 million, which reflects the impact of a 2.1% update in payments due to the statutory required annual payment update and a 0.3% increase in payments related to the proposed update to the fixed dollar loss ratio used for outlier payments.

CMS is also proposing to implement a negative 3% temporary adjustment, the same as was applied last year. The net result is a proposed payment rate increase of 2.1%, compared to last year’s rate decrease of 1.3%. While we are pleased with the positive rate increase for 2027, we are concerned about the continuing effect of the temporary adjustment, and we support the industry’s ongoing efforts to eliminate these adjustments. Comments on the proposed rules are due by August 31st, 2026, with the final rule expected around the end of October 2026. On July 30th, CMS published the final fiscal 2027 hospice rate, which will be effective on October 1st, 2026. The final rate equates to a 2.3% increase versus the 2.4% proposed rate increase. While we are appreciative of this increase, it does reflect an approximate 30-basis-point decrease from the fiscal 2026 final hospice rate increase of 2.6%.

While as of today, there has been no additional movement to announce, we continue to believe that the 80/20 provision of the CMS Medicaid Access Rule will be eliminated in the near future, potentially by year-end. While implementation is still several years away and has no current impact on our business or financial performance, we believe this outcome would be an encouraging development for both our industry and our company. Our team continues to work with CMS to eliminate this portion of the Medicaid Access Rule. During the second quarter of 2026, we continued to experience positive hiring trends in our personal care segment. Our number of hires per business day in the second quarter of 2026 was 104, which was down modestly from the prior quarter, but approximately the same rate we saw in the second quarter of 2025.

Our team continues to do a nice job making sure we keep our hiring numbers at the level needed to meet our organic growth targets. Let me discuss our same-store revenue growth for the second quarter of 2026. For our personal care segment, our same-store revenue growth was 6.8% compared to the second quarter of 2025. During the second quarter of 2026, we saw personal care same-store hours increase by 2.2% compared to the same period in 2025. While our percentage of authorized hours served in the second quarter saw incremental improvement into the mid-80s as expected. On a sequential basis, personal care same-store census increased 1.2% as we are seeing growth in the majority of our markets. During the second quarter, we saw growth in clients served in Illinois, our largest market, which is something we had anticipated for several quarters.

This is important as we look to achieve year-over-year same-store census growth during the last half of 2026. Turning to our clinical operations, our hospice same-store revenue increased 11.1% compared to the same quarter of 2025. We did experience some impact from Medicare cap this quarter, primarily in our Ohio market, which as previously noted, is excluded from our same-store calculation. We continue to focus on maintaining a balanced mix of patients and operating within the Medicare cap. We typically have some marginal cap exposure in a few provider locations each year, and consistent with our approach, have mitigation strategies in place to reduce the ultimate impact. We are pleased to see our same-store average daily census increase to 3,964 for the second quarter, up from 3,720 for the same period last year, an increase of 6.5%.

Our growth in hospice has continued in July, with our average daily census exceeding 4,000. For the second quarter of 2026, our hospice median length of stay was 24 days, as compared to 23 days for the fourth quarter of 2025 and 22 days for the second quarter of 2025. Overall, our hospice segment has continued to generate consistent growth over the past several quarters. While our home health same-store revenue decreased 2.8% when compared to the same quarter of 2025, it was an improvement from the decrease of 6.6% we saw in the first quarter of this year. Importantly, we also saw sequential improvement in revenue, operating income, and admissions. We continue to focus on upgrading leadership, conversion of referrals to admissions, and focusing on timeliness of admissions.

We continue to believe that creating size and scale are important in post-acute healthcare services. As you know, we have been focused on the development strategy for the past 10 years. Our development team continues to evaluate opportunities which would increase both density and geographic coverage as we seek to further strengthen our relationship with states and managed care organizations. Recently, we have begun to see an increasing number of personal care opportunities, which we will be actively pursuing. Since the announcement of the 2027 proposed home health rule rate, there is more optimism around potential deals in skilled home health care. While there is still some uncertainty around the temporary adjustment and its impact on future rate increases, there does seem to be more potential activity in home health care.

While we will be open to considering home health opportunities, we will continue to be diligent as we evaluate possible transactions to further our strategy. Before I turn the call over to Brian, it is important to thank our Addus team for the care they are providing to our elderly and disabled consumers and patients. We have all come to understand that the overwhelming majority 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 is favorable for our industry and will continue to be a growth opportunity for our company.

We understand and appreciate that our operations and growth are dependent on both our dedicated caregivers and 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, Addus HomeCare Corporation: Thank you, Dirk, and good morning, everyone. The company continued its trajectory of solid growth and consistent operational execution during the second quarter of 2026. We delivered an 8% top-line revenue increase, bringing total net service revenues to $377.4 million, alongside a strong 11.9% year-over-year rise in adjusted EBITDA to $49.2 million. Our personal care segment accounted for 78.4% of revenues, achieving a 6.8% organic revenue increase compared to the second quarter of last year. Growth was bolstered by higher volume trends with an increase of 2.2% in same store hours per business day within our target range of 2%-2.5%. The second quarter also included two months of the operations of HomeCourt Home Care, our Indiana acquisition, which closed on May 1st.

We continue to realize positive contributions from state-level rate support, including the 9.9% reimbursement rate enhancement in Texas enacted late last year, as well as a 3.9% increase in Illinois that took effect January 1st of this year. Our hospice operations delivered steady performance, representing 17% of overall second quarter revenue with an 11.1% organic revenue increase over the same period from last year. The steady expansion was powered by favorable year-over-year metrics across our average daily census and revenue per patient day. Turning to home health, our operations accounted for 4.6% of second quarter revenues, we are encouraged by strengthening volume and admission trends. As we have noted previously, home health remains an important component of our comprehensive care continuum strategy, allowing us to offer all three levels of care to patients in select markets, which strengthens our value-based care capabilities and our relationships with payers.

We continue to generate strong cash flow from operations through the first six months of the year, which leaves us very well capitalized. Our balance sheet management and low leverage profile provide us the flexibility to strategically pursue targeted non-clinical and clinical acquisitions designed to deepen our market density and expand regional reach. As Dirk noted, total net service revenues for the second quarter were $377.4 million. The revenue breakdown is as follows: Personal care revenues were $296 million, or 78.4% of revenue. Hospice care revenues were $64.2 million, or 17% of revenue. Home health revenues were $17.2 million, or 4.6% of revenue. Other financial results for the second quarter of 2026 include the following: Our gross margin percentage was 32.2%, compared with 32.6% for the second quarter of 2025. Sequentially, our gross margin percentage reflects an expansion of 30 basis points from the first quarter of 2026.

As expected, we saw improvement in our gross margin percentage as employees began to meet annual payroll tax thresholds and anticipate our gross margin percentage will continue following our historic annual pattern. G&A expense was 20.8% of revenue, compared with 22.1% of revenue for the second quarter a year ago. Adjusted G&A expense for the second quarter was 19.2%, compared with 20% a year ago, as we continue to generate leverage on higher revenues and maintain cost discipline. The company’s adjusted EBITDA for the second quarter of 2026 was $49.2 million, compared with $43.9 million a year ago, an increase of 11.9%. Adjusted EBITDA margin was 13%, compared with 12.6% for the second quarter of 2025. We continue to expect our full year adjusted EBITDA margin percentage to remain between 12% and 13%. Adjusted net income per diluted share was $1.73, compared with $1.49 for the second quarter of 2025.

The adjusted per share results for the second quarter of 2026 exclude the following: acquisition expenses of $0.06, non-cash stock-based compensation expense of $0.17, restructure and other non-recurring costs of $0.01. The adjusted per share results for the second quarter of 2025 exclude the following: acquisition expenses of $0.11, non-cash stock-based compensation expense of $0.18. Our tax rate for the second quarter of 2026 was 26.9%, slightly higher than our historical average, primarily due to the lack of an extension for the Work Opportunity Tax Credit, or WOTC program, which expired at the end of 2025. While traditionally, this program has been extended as part of broader legislation, retroactively if necessary, without a further extension, we expect our tax rate to be in the upper 20% range.

DSOs were 35.5 days at the end of the second quarter of 2026, compared with 36.3 days at the end of the first 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 second quarter were 26.8 days, compared with 47.4 days at the end of the first quarter of 2026, as we saw strong collections at the end of the second quarter. Our net cash flow from operations was $40 million for the second quarter of 2026, continuing our trend of consistently strong performance. As of June 30th, 2026, the company had cash of $99.6 million, with capacity and availability under our revolving credit facility of $650 million and $577.8 million, respectively.

Total bank debt was $64.3 million at the end of the quarter, a reduction of $30 million from the first quarter of 2026. We have also continued to reduce our revolver balance with $10 million paid to date in the third 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, we will selectively pursue acquisitions that complement our organic growth and align with our strategy while maintaining our disciplined capital allocation and managing our net leverage ratio through ongoing debt reduction. This concludes our prepared comments this morning, and thank you for being with us. I’ll now ask the operator to please open the line for questions.

Conference Operator: Thank you. 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’re using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from Raj Kumar with Stephens. Please go ahead.

Raj Kumar, Analyst, Stephens: Hey, good morning. I appreciate all the color on the census commentary for PCS. Maybe kind of thinking about the back half here, maybe thinking about the big three states, Illinois, New Mexico, and Texas. Just curious on what you’re seeing quarter to date there on that trajectory, and then also specifically towards New Mexico and Texas, would appreciate any additional color on the caregiver app rollout and what inning you guys see that being in right now.

Brian Poff, Chief Financial Officer, Addus HomeCare Corporation: Hey, Raj. I’ll start first on the first part of the question. I think we’re seeing nice momentum so far, I think particularly Illinois and New Mexico on just patient census. I think Texas for us has been not declining, but has been kind of holding steady. I think we’re trying to see if we can get that accelerating at the same level that we’re seeing in Illinois and New Mexico. I think both of those states are performing very well. I think on your question around the fill rate and the caregiver app, we actually saw a nice uptick this quarter. Our fill rate on a consolidated basis was between 84% and 85%, so up a little bit from kind of the lower eighties where we’ve been lately. I think the big driver of that actually has been Texas. We’ve rolled out that caregiver app.

We talked about it last quarter. Probably expected it to take a few months to really see some traction. I think that actually is actually ahead of schedule. It is ramping a little quicker than we probably even expected. Texas has gotten up in that mid sliding toward the upper 80% range in fill rate. New Mexico, as we kind of expected with that rollout, having to work through the state’s EVV app, has been a little bit slower. We’ve seen a little bit of progress there, but not to the same level so far that we’ve seen in Texas.

Raj Kumar, Analyst, Stephens: Great. As my follow-up, I was just thinking about the margin profile of the business trending towards the upper end, it seems like, towards the 12%-13% kind of guide. I guess it would be helpful to go through the color commentary on sequential movements in the back half, and then ultimately also thinking about the Gentiva integration and synergies there. I think you spoke more to that in the back half of this year, I am curious on progress on that front as well.

Brian Poff, Chief Financial Officer, Addus HomeCare Corporation: Yeah. I think on margin profile, I think we typically see Q2 to Q3 remaining pretty consistent, somewhere in a similar range. Q4 is usually a higher percentage quarter for us. We get the hospice rate increase. We don’t have additional costs to go with that, so that’s usually impactful. We see, I think, some additional relief on payroll tax thresholds being met. Our expectation would be Q2 to Q3, probably pretty consistent, maybe a slight tick up and then a higher jump going into Q4. I think you put all that together, that’s probably going to put us toward the higher end of the 12%-13% for the full year. I think really nice for us to see 13% in Q2.

I think it sets us up well to be at that or above that for the remainder of this year, which we’d really like to see. I think on Gentiva and synergies, I think the one thing that we’ve kind of consistently talked about there is some duplication of cost in their EMR. I think right now we’ve always talked about that as being a transition that we’ll probably see in 2027. Right now, we’re in the midst of doing our conversion of our legacy business into HomeCare HomeBase. That’s going very well so far, but that’ll probably get us into early 2027. We’ll probably see the Gentiva business come off their EMR into that system sometime in that year.

We’ve always, I think, indicated that we expect to see probably close to probably at $1 million in synergy as we eliminate some of those duplicate costs at that time.

Dirk Allison, Chairman and Chief Executive Officer, Addus HomeCare Corporation: Let me just add to what Brian said. I do think the fact that the true transition of Gentiva has occurred, we’re very comfortable where we are in that process. I think the interesting thing in Texas right now is the rollout of our app. We have great hope that as we continue to roll that out and more people use that app, we’ll continue to see growth in that particular market.

Raj Kumar, Analyst, Stephens: Great. Thank you.

Conference Operator: Thank you. The next question comes from Ben Hendrix with RBC Capital Markets. Please go ahead.

Ben Hendrix, Analyst, RBC Capital Markets: Hey, thank you very much. I wanted to jump over to hospice real quick and talk about the cap issue. I was wondering if you could elaborate a little bit more on kind of what your target balance is for long and short stay patients and types of referrals in your Ohio and other markets, and if there are any impediments or competitive pressures that are kind of impeding you reaching that balance. Thanks.

Brian Poff, Chief Financial Officer, Addus HomeCare Corporation: Hey, Ben. Yeah, I think as Dirk kind of mentioned in his comments, we did have some cap this quarter that we recorded primarily in our Ohio market. I think we feel pretty comfortable that we’re not going to have any additional exposure to cap for the remainder of this year. I think we’ve got some mitigation strategies in place that hopefully actually will help us mitigate some of the expense that we’ve taken to date as we get closer to the end of the cap year. For us, I think it’s always a key just operationally to make sure we have a good balanced mix of patients and making sure we’re calling on the right referral sources. We typically have some programs. You’re trying to maximize ADC growth, also making sure that you’re operating within the cap.

We typically have some programs every year that might slip in slightly. We kind of saw that in Q2. I think we feel pretty comfortable with where we are going forward the rest of this year. I think for us, the key is just making sure we maintain that balanced kind of mix. To the second part of your question, we’re not necessarily seeing any operational or competitive pressures that are maybe limiting certain type of admissions. That’s not really a factor that we’re seeing.

Ben Hendrix, Analyst, RBC Capital Markets: Okay. Just to follow up to one of Dirk’s comments, you mentioned the final rule, the 2.3%, a little bit below your expectations there, a little less than what you’ve seen prior. Just wondering how that 2.3% translates to the actual rate update you’ll see in your markets and if that is going to create any incremental cap cushion or going into fourth quarter and into fiscal 2027. Thanks.

Brian Poff, Chief Financial Officer, Addus HomeCare Corporation: Yeah, I think initial modeling for us, based on wage index and where we operate, will probably be a little bit less than the 2.3 national average. We’re just kind of waiting for the finalized calculation through HomeCare HomeBase typically models that for us in a pretty detailed fashion, initially I think we’ll be a little under that. I don’t think it really impacts our view on where we think we’ll be with cap through the end of this year. I think we don’t anticipate having any additional cap expense exposure through the end of this year.

Dirk Allison, Chairman and Chief Executive Officer, Addus HomeCare Corporation: I think one of the things we did, we always have our leadership working on trying to make balance between, as Brian Poff said, long and short stay patients to manage your cap. Right now, our focus is on Ohio. Our team is working on that. They have a plan. As Brian Poff said, we don’t expect any more cap. In fact, there could be some mitigation before the end of the cap year. We’ll continue to work on that. There’s nothing that should keep that from occurring.

Ben Hendrix, Analyst, RBC Capital Markets: Great. Thank you.

Conference Operator: Thank you. The next question comes from Matthew Gilmore with KeyBanc. Please go ahead.

Matthew Gilmore, Analyst, KeyBanc: Hey, thanks for the question. I wanted to follow up on some of the M&A comments. Just seeing if there’s any more details to share. More specifically, I was curious if there was anything causing the uptick that Dirk mentioned in terms of personal care opportunities and some of the optimism around home health as well. Any additional details on the M&A front would be great.

Dirk Allison, Chairman and Chief Executive Officer, Addus HomeCare Corporation: Well, I think part of what we’re seeing is that in the personal care segment, people are getting used to the fact that the changes that the administrator make on Medicaid is not really affecting our business or our industry near as much as people thought. I think owners are now comfortable in considering putting their business up for sale. We’ve seen a number of businesses out there we’re looking at, and we continue to be very active. It’s just sometimes it takes a while to get some of these things over the finish line. As it relates to the home health, realistically probably starting about four, five, six months ago, there started to be optimism in the industry. If you listen to people, they started talking about, we feel like the proposed rate coming out will be better than what we’ve seen in the last few years.

I think that optimism actually increased when the proposed rule came out. The fact that some of the issues we were fearful of were not there. Really the real issue out there is still the temporary adjustment. I think people have gotten comfortable with that to believe that that’s going to be handled in the next year or two. That’s why I think you’re seeing some of the opportunities in the home health starting to come about.

Matthew Gilmore, Analyst, KeyBanc: Got it. Following up on just the state budget topic, anything to report in terms of where things have landed across some of your key states, especially Illinois, now that we’re towards the tail end of the typical budgetary cycle?

Brian Poff, Chief Financial Officer, Addus HomeCare Corporation: I think most states that have finalized their budgets, I think a lot of people had some concerns that, hey, you might see some pressure. I think all the states that have finalized have maintained our rates. In fact, we’ve had a couple of states, particularly Oregon and Michigan, smaller states Actually given us increase going into this next cycle. I think some of the concerns people had about some of the impact of OB3 coming in 2027 at least don’t seem to be resonating with states that impact their view of us, our services or our reimbursement at this time. I think we feel it’s pretty stable. I think we announced on the last call that Illinois has finalized their budget. We’re not going to get a rate increase this next cycle, but everything else is going to remain consistent.

Just keep in mind, when we don’t get reimbursement increases in states, we don’t have wage inflation in those markets either. It kind of goes hand in hand. Margin profile should remain consistent.

Dirk Allison, Chairman and Chief Executive Officer, Addus HomeCare Corporation: Great. Thank you.

Conference Operator: Thank you. The next question comes from Sean Dodge with BMO Capital Markets. Please go ahead.

Sean Dodge, Analyst, BMO Capital Markets: Yeah, thanks. Good morning. Dirk, you mentioned hiring has continued to progress. In the states where the Caregiver app has been rolled out the longest, so I guess primarily Illinois, have you seen that have any impact on retention or churn within those caregiver bases there that had any kind of quantifiable benefit on that yet? What % of your caregivers are using the app in Illinois now?

Brian Poff, Chief Financial Officer, Addus HomeCare Corporation: Yeah, I’ll take the second part. I’ll let Dirk talk about the hiring piece, Sean. In Illinois, I think we’re at probably into the 90-plus % range of people that have downloaded and are using the app. I think we were hopeful to see similar adoption rates as we move into other states, Texas, New Mexico. I think we’re seeing Texas is not at that level at this point, but like I said, has ramped probably quicker than we had anticipated. We’ll be continuing to roll that out in additional states as we move forward. I’ll let Dirk talk a little bit about kind of just the impact from the app on recruiting and retention.

Dirk Allison, Chairman and Chief Executive Officer, Addus HomeCare Corporation: Yeah. I think what we’re seeing from the app is that our turnover is down slightly, which I think is exciting, because again, that’s part of the whole aspect of making sure you have enough caregivers to take care of the clients that are out there in needing of care. Our team does a great job. Our recruiting team, our operations team in the field does a great job of making sure they’re doing the things to get people on board, narrowing the time between when we actually hire somebody and when they get them their first client. That along with and maintaining that mid 104, 105, 106 per business day target that we have, that along with the slightly lower turnover, I think has certainly helped us as we try to continue to maintain the growth targets that we’ve given in PCS.

I do think a part of the app is the reason why the turnover is slightly lower.

Sean Dodge, Analyst, BMO Capital Markets: Okay, great. On the Bridge Program, you’ve rolled that out in New Mexico and Tennessee. Sounds like putting a little bit more muscle behind it in Illinois now. What’s actually involved in rolling that Bridge Program out? Is it mostly just some type of technology implementation or is it a lot of market education you have to do? What I wanted to understand a little bit better is just the lead time from when you roll that out in a market to how quickly you can start to move the needle on volumes toward your clinical asset there.

Dirk Allison, Chairman and Chief Executive Officer, Addus HomeCare Corporation: Well, I think right now a lot of it is internal marketing to our teams, making sure that they’re talking. From standpoint of home health to hospice, it’s a lot easier because we’re on HomeCare HomeBase. Making sure that the leadership of the markets understand the Bridge Program. We do have some limitations as to marketing outside of our team in certain states. There’s things you can and cannot do, we have to be very careful with that. We are seeing progress in Tennessee. As you know, New Mexico has been a great market for us. Now we’re moving into Illinois with it.

One of the aspects that’s really encouraging to us, Brian mentioned in his comments or one of the answers to the question that we are in the middle of our conversion of our personal care business to HomeCare HomeBase. That is going very well. We are right now scheduled to be through by the end of the first quarter of 2027. Once that occurs, the Bridge Program, inclusive of PCS all the way up through home health and hospice, will be much easier because we’ll be on one EMR. That’s a timeframe that we’re very excited and something we’re looking forward to as we try to expand the Bridge more into the PCS world at that time.

Sean Dodge, Analyst, BMO Capital Markets: Okay, great. Thanks again for the detail.

Conference Operator: Thank you. The next question comes from Brian Tanquilut with Jefferies. Please go ahead.

Brian Tanquilut, Analyst, Jefferies: Hey, good morning. Maybe Dirk or Brian, as I think about some of the headlines we’re seeing about the federal government withholding payments on Medicaid to certain states because of audits and whatnot, just curious what you’re seeing and how you’re thinking about the states that you operate in given this environment.

Dirk Allison, Chairman and Chief Executive Officer, Addus HomeCare Corporation: Well, I think there’s a very political environment now, obviously with the fraud and abuse out there, the focus by the current administration. I think the things we’re seeing in most of the states, the two big states that we’ve seen are Minnesota and California. If you look at our business, we don’t do business in Minnesota. In California, almost our entire business is VA or private pay. It really hasn’t affected us. If you think about the other states in which we operate in, we really haven’t seen a lot of issues or concerns, at least today from the state, around withholding of monies due to fraud and abuse.

I do want to make the added statement, Brian, we’ve always said as a company, we are very supportive of the appropriate focus on fraud and abuse in the personal care and in the clinical side of the business. We believe very strongly that companies need to be focused on making sure that we’re following the rules and we’re doing everything we can to make sure that we ourselves are taking care of any fraud, waste, and abuse. We’re very supportive of the action, to your main point, we have not seen that in any of our markets to any degree.

Brian Tanquilut, Analyst, Jefferies: Appreciate that, Dirk. As I think about your press release and your prepared remarks, it sounds to me like we’ve really seen this pickup in M&A on the pipeline. When I think about your appetite for platform deals or bigger transactions, what does that look like today, especially given what we’re hearing in terms of assets that are potentially coming up for sale that are very well scaled? Just curious how you’re thinking about sizing and your appetite there.

Dirk Allison, Chairman and Chief Executive Officer, Addus HomeCare Corporation: One of the things we’ve done over the last few years, Brian, is we’ve really tried to maintain that disciplined balance sheet to allow us to take advantage of opportunities like you saw with Gentiva a couple of years ago when we were able to go out and do that. There are some scaled assets out there today. We are very interested in looking at those scaled assets. Of course, we’ll always be careful and make sure that we’ve done our work, our due diligent work beforehand. You can assume that our appetite for deals, whether they’re small or large, that’s part of what we do, and we have our team out there really pushing forward to try to get to success in some of those particular opportunities.

Brian Tanquilut, Analyst, Jefferies: Awesome. Thank you, Dirk.

Conference Operator: Thank you. The next question comes from Joanna Gajuk with Bank of America. Please go ahead.

Joanna Gajuk, Analyst, Bank of America: Hi, good morning. Thanks so much for taking the question. Quick follow-up first. Would you be able to quantify the Medicare cap accrual in hospice and can you talk about the margins in that segment, operating margins?

Brian Poff, Chief Financial Officer, Addus HomeCare Corporation: Yeah, Joanne, I think the total accrual we had in the second quarter was a little over $3 million. Again, we don’t expect to see any additional expense the remainder of this year. In fact, hope to be able to mitigate some of that before the end of the cap year. It definitely was impactful. If you think about from a gross margin perspective, it impacted our hospice segment. I think we would have been in a really nice spot without the cap this quarter. It also obviously would have translated down to EBITDA as well.

Joanna Gajuk, Analyst, Bank of America: Okay, thank you for that. Thanks for the color on the Illinois budget approval. Rates flat there, but wages will be flat, right? When I think about the next year, we know that Texas, I guess, those rates will be flat through the end of September next year. Can you talk about the New Mexico rate? Was this finalized and also some of these other states? What I’m getting at is how should we think about the overall sort of average rate increases you would expect next year? Should we expect gross margins to expand a little bit or flattish next year when we think about the rate increases?

Brian Poff, Chief Financial Officer, Addus HomeCare Corporation: Yeah, Joanne, I’ll start with New Mexico first. I think that’s the most recent. We had announced or talked about on our last call that they had allocated some additional funds for our services in their budget this year. They are a 7/1 fiscal, theoretically, that should be beneficial to Q3. We were waiting to see exactly how the state was going to dictate to the plans to pass those dollars through. It seems where they’ve landed is they literally have left it up to the plans and the states to talk individually to providers. We’re having those conversations with the MCOs in New Mexico. I think at this time, until we finalize those conversations, we’re not probably going to talk about a specific number.

I would say, generally, we feel pretty optimistic that we’re going to get our portion of what that rate increase should be for us, which we had indicated before would be around 4% rate increase for us. We feel we’re directionally in that same ballpark, but we’ll talk about it more formally once we finish those conversations with the plans. Thinking ahead, Texas, you’re right, they did not meet this year. They meet every two years. Any rate increase we would get from them, we’ll start having those conversations when they get back in session in early 2027. Any rate increase we would be able to achieve through that budget cycle should be impactful starting September 1st of next year.

Joanna Gajuk, Analyst, Bank of America: What about some other states or kind of what are some of the average sort of rate increase into next year?

Brian Poff, Chief Financial Officer, Addus HomeCare Corporation: It’s going to be state to state. Like I mentioned earlier, we did get some rate support this year in these cycles from Michigan and Oregon. Smaller states, we are seeing some movement there. There are states that we would like to see. It’s been multiple years without a rate increase that they really need one. Pennsylvania is probably one that’s toward the top of that list that the last couple of years I think has had a very difficult budget cycle overall. It’s held pretty consistent. There are other states that we’re working with and lobbying on to try to see if we can get additional rate support from them. It’s going to be a factor of kind of each state and their budget cycle and timing of when those occur.

I think you look back over the last several years, what kind of rate support have we gotten? I mean, Illinois, New Mexico, Texas have all been pretty consistent. We’ve been at the very high end. I think we’ve said for the next few years, we’d expect to see that temper with not getting one from Illinois this year. It’s probably going to be the case. Kind of hard for us to put a specific number on what we would expect from a percentage increase overall. It’s going to be state to state, cycle to cycle.

Joanna Gajuk, Analyst, Bank of America: All right. Thank you so much.

Conference Operator: Thank you. The next question comes from Andrew Mok with Barclays. Please go ahead.

Andrew Mok, Analyst, Barclays: Hi, good morning. In PCS, you noted growth in the majority of your markets but haven’t quite achieved same store year-over-year census, organic census growth yet. Can you provide more color on the markets that haven’t achieved growth and what gives you confidence that you’ll return to growth in the back half? Thanks.

Dirk Allison, Chairman and Chief Executive Officer, Addus HomeCare Corporation: If you look at all of our markets, we started seeing New Mexico turn over a year ago, which we were glad to see. It took a little while for Illinois. That was one that was challenging the last few quarters. We did mention a quarter or two ago, we thought we were going to see that turn, and it has. Now we’re starting to see Illinois add that ADC growth year-over-year. Texas is the last one. We’re starting to see some nice movement in that. It is our hope that during the second half of 2026, we not only will continue to see sequential growth in ADC, but you will also return to the year-over-year growth.

Andrew Mok, Analyst, Barclays: Great. As a follow-up, the same store new admissions in home health were up 9.8% in the quarter. Can you help us understand what’s driving the better results there and where you’re seeing traction in the market? Thanks.

Dirk Allison, Chairman and Chief Executive Officer, Addus HomeCare Corporation: Yeah, we hired some new leadership to come into home health. We spent a lot of time focused on it. Even though while it’s a smaller part of our business, it’s still a very important part as we look at the Bridge Program and other aspects of value-based care. That leadership is now starting to make some changes and reflected in the growth you saw. We’re pretty excited that we will continue to see incremental improvements in that particular segment leading to overall growth, as we go through the year.

Andrew Mok, Analyst, Barclays: Great. Thank you.

Conference Operator: Thank you. The next question comes from Ryan Langston with TD Cowen. Please go ahead.

Ryan Langston, Analyst, TD Cowen: Thanks. Good morning. Obviously really strong cash flow over the past couple of quarters. Sorry if I missed this, how should we think about that trending over the rest of the year, just given the performance in the first half?

Brian Poff, Chief Financial Officer, Addus HomeCare Corporation: Yeah, Ryan, I think it’s been very consistent, very strong first half of this year, as you indicated. I think we would expect to see it probably temper a little bit. We’ve gotten some nice working cap credits the first part of the year as well. I think that’s probably just under $20 million of working cap changes benefit. Wouldn’t expect to see that probably continue at that pace, we’ll still continue to see consistent cash flow through the back half of this year. Overall, DSOs kind of in that mid-30s is probably going to be pretty consistent. As I indicated, Illinois with kind of their payment cycles were really low coming out of the end of the quarter. Wouldn’t expect to see that stay in the 20s. That’s probably not a realistic expectation.

That’ll moderate, still should be pretty consistent through the back half of the year, but probably not quite to the level that we’ve seen in the first six months.

Ryan Langston, Analyst, TD Cowen: Okay. Then just sort of broadly on billable hours per census per month. I guess that’s been a bright spot, too. Just where do you see the terminal level you can get on that metric maybe over the next few years, especially with the app rollout and just some other things that you’re doing? Thanks.

Brian Poff, Chief Financial Officer, Addus HomeCare Corporation: Yeah. I think the big thing for us and the indicator that we point to that really drives that number, is really just the fill rate, which is just the amount of hours that we’re actually servicing to the authorized hours we’re given, by the state or by the plan. I think we mentioned we’re kind of in that between 84% and 85% range. This last quarter, I think in our mind, should we be able to get that up at least up into the, on a consolidated basis, up into the upper 80s seems like a reasonable expectation. If you start thinking about 90+, that probably gets to be pretty difficult. Not that it’s not attainable, but we still think there’s some room to move up at least into that upper 80s on a consolidated basis. That’s a big focus of ours.

Ryan Langston, Analyst, TD Cowen: Appreciate it. Thank you.

Conference Operator: Thank you. The next question comes from Jared Haase with William Blair. Please go ahead.

Jared Haase, Analyst, William Blair: Are you taking the questions? I wanted to ask another one related to some of the trends you’re seeing on the census front with personal care. I heard you mention Texas is more holding steady while you’re seeing growth in New Mexico and Illinois, and I guess I just wanted to double-click on that. Is there anything specific you would call out that makes Texas a little bit nuanced compared to the experience you’re seeing in the other states? Anything either administratively at the state level, anything in terms of, let’s say, competitive landscape or anything along those lines? I know you mentioned the rollout of the caregiver app should be a nice tailwind, but just wanted to understand if there was anything else that you guys are seeing in that market. Yeah, I don’t think there’s anything systemic with the Texas market.

Dirk Allison, Chairman and Chief Executive Officer, Addus HomeCare Corporation: That’s why it was a little bit lower growth over the last year or so. I do know from a company standpoint, again, just like we did in Illinois, it’s one of the markets we put together a plan. We’ve talked to our leadership. We’re focused on that growth, that ADC growth. Again, I don’t want to be redundant because I know you guys have heard me say this time and time again. You balance billable hour growth, which is what you bill, with ADC growth, which is where those billable hours come from. I think sometimes you get a little out of focus with that balance. We have really gone back and worked with our team to make sure that they understand both are important. We’re starting to see, as I said, New Mexico, Illinois, that result.

We expect the same result in Texas that we’ve seen coming into the last half of the year. That’s very helpful. As a follow-up, with the visibility that you have now on the hospice rate increase for calendar 2027, I’m just curious, any color you’d share in terms of level setting expectations for what the segment profit margin could look like, either gross margin or operating income, going into next year, which I guess is really a comment on what you’re seeing in terms of wage expense inflation on the clinical side. Just curious how you would sort of frame expectations in terms of hospice margin going into next year.

Brian Poff, Chief Financial Officer, Addus HomeCare Corporation: I think generally, Jared, I think we’ve gotten back into a rhythm where our average rate increase on the wage side has been probably closer to 3%, which is kind of consistent with our historical. Wages are a big component of cost, but it’s not the only cost. If we’re going to get, say, closer to 2% on overall reimbursement, that’s across the board. We’re still doing 3-ish%. I don’t think it’s going to put really a lot of pressure or to look at compression of our margins. It might hold a little bit steady. We’ve done a lot, I think, over the last few years to help mitigate some of the expenses that are non-personnel.

Think about as we’ve gotten larger and hospice has given us some ability to go out and have conversations with our med supplies, DME, pharmacy providers, things like that, to help mitigate some costs. Overall, I think our view going into next year for margin profile and hospices is it should remain fairly consistent with where we’ve been.

Conference Operator: Thank you. Again, if you have a question, please press star then one. The next question comes from Clarke Murphy with Truist. Please go ahead.

Clarke Murphy, Analyst, Truist: Hey, good morning, guys. Thanks for taking my questions. Just wanted to start on the Indiana acquisition. Just wanted to see how the HomeCourt Home Care acquisition has gone versus what you had expected. If there’s anything that you’ve learned from that deal that you could potentially apply to the second tranche of the operations that you’re acquiring there, and if your strong presence in kind of surrounding states has helped you guys drive that integration.

Brian Poff, Chief Financial Officer, Addus HomeCare Corporation: Yeah, Clarke. I think Indiana, the HomeCourt acquisition, has actually gotten off to a very good start. I think actually from a volume perspective, it’s actually exceeded our expectations slightly. Really nice to see. I think it does help a lot that it is so close to some of our larger markets. Pretty easy for us to kind of tuck that under our regional leadership teams that are already operating in Illinois and Ohio and Michigan. There’s always going to be a period of time where they have to become integrated with Addus and our processes and our culture. I think it’s actually gotten off to a really good start. I think once we close the second acquisition, our intent is to just fold that into the first one that we’ve already done at being HomeCourt.

Our expectation is that we’ll continue to perform just as well.

Clarke Murphy, Analyst, Truist: Great, thanks. As my follow-up, appreciate the commentary that you guys made around the 80/20. There were some kind of broader rumblings about a month ago about a potential repeal of 80/20 as part of a broader kind of reform package. Just kind of wanted to see if your conversations with regulators have changed at all on that front or if there’s anything that you’d call out that’s kind of increasing perhaps your optimism around that.

Dirk Allison, Chairman and Chief Executive Officer, Addus HomeCare Corporation: Yeah. I think certainly it’d be nice if it was part of a broader package, I don’t think it’s dependent on having a broader package. I think CMS can change their interpretation of the rule, as it relates to certain aspects, and 80/20 is one of the things we’ve talked to them about. Our belief is, again, just based on the conversations our team in the industry has had, we would believe there’s a likelihood that the 80/20 portion of the Medicaid access rule will be eliminated sometime this year. Again, with everything going on, I don’t have to explain to you with the various things the administration is having to face right now, then the fact that you’ve got a midterm election coming up. We’ll see if it gets done by the end of the year, as they’re indicating to us.

Conference Operator: Thank you. The next question comes from A.J. Rice with UBS. Please go ahead.

A.J. Rice, Analyst, UBS: Hi, everybody. Maybe first, just every once in a while, I want to just step back and ask you about the broad drivers of growth in personal care services. Can you just comment on, is the demand for the service, the underlying demand, is that consistent with what you’ve seen the last few years? Is there any change there? When you think about gating factors on growth, is need for caregivers, the availability of that, is that a constraint in any way? Then in most of your markets, is reimbursement adequate to attract those caregivers? Just a sense of underlying supply-demand dynamics.

Dirk Allison, Chairman and Chief Executive Officer, Addus HomeCare Corporation: Yeah. If you think about the personal care industry, we started seeing a couple, three, five years ago, the baby boomers turning 65, and now they’re aging into their 70s and mid-70s, which is really the prime age for the personal care client, which we serve. I think, and this is most markets. There might be an exception or two, but most of the markets in which we operate, the limitation on growth is not the ability to find the patients that need the care. It’s generally finding, as you mentioned, the caregivers to be able to give that care. That’s why our team has really been focused on doing things or speeding up the way, making it easier for people to apply, making it quicker to get to their first client being covered, because again, the reason they apply with you is they need a job.

For us, we’re pretty comfortable that our biggest issue of growth, organic growth, in most markets relates to the caregivers and being able to hire them. Now, in most of our markets, if you think through it, the big markets of Illinois, Texas, New Mexico, Ohio, Tennessee, I can name them, the state has been very, very supportive in rate. We’ve been able to take that rate, and by passing along the appropriate amount to our caregivers, we’ve been able to continue to bring in those caregivers that we needed. The one state, A.J., that you mentioned, is there a state that didn’t support? The biggest state that was difficult for us to be able to support the cost of caregiver and still stay in business in the state was New York.

That was a very difficult one up there, and that’s one of the reasons two or three years ago we left the state. Other than that, the remaining states in which we operate, we feel very comfortable that they are providing enough support from a rate standpoint to allow us to hire the caregivers we need.

A.J. Rice, Analyst, UBS: Okay. The other thing I wanted to ask about was, I know we focus on the states and the state updates, obviously, in many states, you’re working with the managed care companies. I wondered, in the way you’re interacting with them, contracting with them, looking at any kind of value-based arrangements, whatever, is there any change that’s going on or any emerging trends that we should be aware of?

Dirk Allison, Chairman and Chief Executive Officer, Addus HomeCare Corporation: Well, I think the change we’ve seen is as we’ve gotten bigger, especially with the Gentiva acquisition we made a couple of years ago, we’ve become much more of an important provider to these large managed care players. We continue to strengthen that relationship and work with them. It also allows us to try to look for opportunities to go into new states where they have business and they’d like to see us in. I would say nothing has changed, really, other than the fact that we’ve become, I think, a more important provider to them, and we’re able to speak to them at a level because of our breadth, both from a number of states in which we operate, but also the geographic coverage in those markets. I think that’s continued to enhance our ability to work with them.

That’s also one of the reasons, like Ron mentioned in New Mexico. New Mexico is a state that gave a price increase, but basically said the managed care providers are the ones that are going to determine how that is passed through to the providers. The fact that we’re the largest provider in personal care services in that market, and we’re a partner to all of the payers in that market, I think helps us as we sit across the table from them trying to maintain our rates or increase our rates as we go forward.

A.J. Rice, Analyst, UBS: Okay. Thanks so much.

Brian Poff, Chief Financial Officer, Addus HomeCare Corporation: Thanks, A.J.

Conference Operator: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Dirk Allison for any closing remarks.

Dirk Allison, Chairman and Chief Executive Officer, Addus HomeCare Corporation: Thank you, operator. I want to thank each of you for taking the time and for your questions today, and we hope that you have a great week. Thank you very much.

Conference Operator: Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.