Addus HomeCare Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2025

Key Takeaways

  • Positive Sentiment: Q2 results showed 21.8% revenue growth to $349.4 M, a 24.5% rise in adjusted EBITDA, a 10.4% increase in adjusted EPS to $1.49, and net leverage under 1×, supporting financial flexibility.
  • Positive Sentiment: New Medicaid rate hikes in Illinois (+3.9% to $30.80/hr) and Texas (+9.9% to $17.13/hr) are expected to add about $35 M in annualized revenue at roughly 20% margins.
  • Negative Sentiment: CMS’s proposed 2026 home health payment cut of 6.4%—an industry‐wide reduction of $1.1 B—is seen as improper and likely to pressure service availability and costs.
  • Neutral Sentiment: Clinical segments diverged: hospice same‐store revenue rose 10% with a 7% boost in daily census, while home health same‐store revenue fell 6% but saw ongoing margin improvement.
  • Positive Sentiment: The acquisition of Helping Hands Home Care (~$16.7 M in revenues) expands personal care density in Western Pennsylvania and adds home health and hospice capabilities.
AI Generated. May Contain Errors.
Earnings Conference Call
Addus HomeCare Q2 2025
00:00 / 00:00

There are 11 speakers on the call.

Operator

Good morning, and welcome to the Addus Home Care Second Quarter twenty twenty five Earnings Call. All participants will be in listen only mode. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touchtone phone. To withdraw your question, please press star, then 2.

Operator

Please note this event is being recorded. I would now like to turn the conference over to Drew Anderson. Please go ahead.

Speaker 1

Thank you. Good morning, and welcome to the Addus Home Care Corporation's Second Quarter twenty twenty five 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 2025 or beyond.

Speaker 1

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 ATTA's filings with the Securities and Exchange Commission and in its second quarter twenty twenty five 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.

Speaker 1

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.

Speaker 2

Thank you, Drew. Good morning, and welcome to our twenty twenty five second quarter earnings call. With me today are Brian Popp, our Chief Financial Officer and Brad Bickham, our President and Chief Operating Officer. As we do on each of our quarterly 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, the three of us would be happy to respond to any questions.

Speaker 2

As we announced yesterday afternoon, our total revenue for the 2025 was $349,400,000 an increase of 21.8% as compared to the $286,900,000 for the 2024. This revenue growth resulted in adjusted earnings per share of $1.49 as compared to adjusted earnings per share for the 2024 of $1.35 an increase of 10.4%. Our adjusted EBITDA was $43,900,000 compared to $35,300,000 for the 2024, an increase of 24.5%. During the 2025, we continued to experience consistent cash flows. As of 06/30/2025, we had cash on hand of approximately $91,000,000 During the second quarter, we reduced our bank debt by $30,000,000 leaving a balance of $173,000,000 at quarter end.

Speaker 2

This gives us a conservative net leverage position at under one times adjusted EBITDA, allowing us the flexibility to continue to evaluate and pursue strategic acquisition opportunities. Now let me discuss certain areas of our operation. During the 2025, we continued to experience strong hiring performance success, especially in our Personal Care segment. During the 2025, we began to include our Gentiva PCS operation in our hires per business day statistics. During the first quarter of this year, we saw our hires per business day at 108 when we include Gentiva.

Speaker 2

For the second quarter of this year, we achieved hires per business day of 105. In addition to our strong hiring numbers, we continued our momentum in improving starts per business day, which we have seen over the past few quarters. With respect to our clinical line, as we have been consistent over the past few quarters, we continue to see improvements in the overall clinical labor environment. However, we do believe that for the foreseeable future, clinical hiring will remain more challenging and geographically variable than what we see in our PCS segment. On 05/31/2025, the state of Illinois finalized its fiscal twenty twenty six budget with an inclusion of a 3.9% increase in the base hourly reimbursement rate to $30.8 per hour to sustain a minimum wage of $18.75 per hour for direct in home care service workers.

Speaker 2

The company expects this rate increase will add approximately $17,500,000 in annualized revenues for Addus, with margins consistent with our existing Illinois personal care business in the low 20% range and in compliance with the state of Illinois 77% requirement for caregiver wages and benefits. The Illinois rate increase will be effective 01/01/2026, subject to the standard federal approval process. In addition, on 06/03/2025, the state of Texas finalized its fiscal twenty twenty six budget with the inclusion of a 9.9% increase in the base hourly reimbursement rate to $17.13 per hour. The company expects to generate approximately $17,700,000 in additional annualized revenue, assuming implementation consistent with historical precedent of the Texas Health and Human Services Commission and the Texas managed Medicaid health plans with margins expected to be largely consistent with our existing Texas personal care business at just over 20% after caregiver wages are adjusted. The Texas rate increase will be effective 09/01/2025, again, subject to the standard federal approval process.

Speaker 2

In our personal care segment, our services continue to receive favorable reimbursement support from many of the states in which we operate. We are confident that personal care services continue to deliver real value to state Medicaid programs, as well as our managed care partners through a reduction in the overall cost of care. As we stated earlier, we believe these and other benefits associated with home care, home based care, put us in a favorable position as changes to funding and other aspects of various Medicaid programs are considered. As for our clinical segments, on August 1, CMS issued the twenty twenty six final rate for hospice providers, which will be effective on October 1. The final rate increased 20 basis points over the earlier proposed rate, leading to an average 2.6 increase for hospice providers.

Speaker 2

While we appreciate CMS slightly increasing this final rate, we are disappointed that this increase does not more fully reflect the increasing cost of care for this service. Earlier on June 30, the Centers for Medicare and Medicaid Services released calendar year 2026 home health proposed payment rule. This proposed rule projects a 6.4% aggregate reduction in Medicare payments to home health agencies in 2026, amounting to an estimated $1,100,000,000 decrease compared to 2025. The proposal includes a 2026 market basket payment update of 2.4%, reduced by a 3.7% decrease from the permanent behavioral adjustment, as well as a first time 4.6% decrease from the temporary adjustment, which is the result of the CMS determination that a clawback of past payments is warranted to maintain budget neutrality. It is our view that this clawback is improper and results from an incorrect belief that home health providers have received unjustified rate increases in the last few years.

Speaker 2

We, along with others in the industry, believe that this reduction will have a significant negative impact on the availability of home health care and will potentially lead to many individuals having to access skilled post acute services in a more expensive facility based setting. Addus will continue to work with our leading home health providers along with the National Alliance for Care at Home, our industry trade group, to advocate for a final rule that more appropriately reflects the true cost of care for home health providers. Now, me discuss our same store revenue growth for the 2025. For our personal care segment, our same store revenue growth was 7.4% compared to the 2024. During the 2025, we also saw personal care same store hours increase by 1.6% compared to the same period in 2024.

Speaker 2

On a sequential basis, personal care same store hours and billable census increased by 1.70.3% respectively. As we have stated over the past several quarters, we expect volume growth to comprise a greater percentage of our personal care same store revenue growth going forward. In that regard, it is encouraging that we continue to see incremental improvements percentage of hours served compared to authorized hours. We continue to work towards our goal of consistently growing same store hours at a minimum of 2% year over year. Turning to our clinical operations, our hospice same store revenue increased 10% when compared to the same quarter of 2024.

Speaker 2

Our same store average daily census increased to 3,720 for the second quarter, up from 3,477, an increase of 7% compared to the same period last year and an increase of 5.8% on a sequential basis. Our second quarter twenty twenty five same store admissions were up 2.1% year over year. For the 2025, our hospice mean length of stay was twenty eight days as compared to twenty nine days for the 2025. Overall, we are pleased by the continued improvement in our hospice segment over the past several quarters. While our home health segment same store revenue decreased 6% when compared to the same quarter of 2024, our home health profitability continues to improve as our management continues to right size our expense base.

Speaker 2

We have new leadership in our Illinois and New Mexico home health operations that are focused on returning this segment to profitable same store revenue growth. Yesterday, we announced that on August 1, we closed on our acquisition of Helping Hands Home Care, which is based in Western Pennsylvania. This acquisition increases our personal care density in this area of Pennsylvania, while also adding home health and hospice operations. This transaction continues our strategy of developing geographic coverage in the states where we operate, while adding clinical services to our network of personal care locations. Our team is excited about this acquisition and I want to officially welcome the Helping Hands team to Addus.

Speaker 2

As we have with this most recent acquisition, our development team will continue to focus on both clinical and non clinical acquisition opportunities that increase both the density and geographic coverage to our current states. While the proposed home health rule will most likely continue to delay any meaningful home health opportunities, we will be evaluating smaller clinical transactions along with personal care service transactions that fit our strategy. 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 the overwhelming majority of clients and patients want to receive care at home, which remains one of the safest and most cost effective places to receive this care. We believe the heightened awareness of the value of home based care is favorable for our industry and will continue to be a growth opportunity for our company.

Speaker 2

We understand and appreciate that our operations and growth are dependent on both our dedicated caregivers and 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.

Speaker 3

Thank you, Dirk, good morning, everyone. We delivered another strong financial and operating performance in the second quarter with our results reflecting consistent organic growth and additional support from our most recent acquisition. We achieved 21.8% revenue growth and a 24.5% increase in adjusted EBITDA compared with the second quarter last year. These results include the second full quarter of the Gentiva Personal Care operations, our largest acquisition to date, which we completed on 12/02/2024. Our Personal Care Services segment was the key driver of our business, with a solid 7.4% organic revenue growth rate over the same period last year.

Speaker 3

This growth trend has consistently tracked well above our normal expected range of 3% to 5%. These results were supported by strong hiring trends and favorable rate support for personal care services in some of our larger markets, including a statewide reimbursement increase in Illinois, our largest market, which was effective 01/01/2025. Going forward, we expect to benefit from additional rate increases in Illinois and Texas. Both state's legislatures recently finalized their fiscal twenty twenty six state budgets, each of which included reimbursement rate increases for personal care services. Illinois included a 3.9% increase, which is set to be effective 01/01/2026, and will add approximately $17,500,000 in annualized revenue for Addus, with margins in the low 20% range, consistent with the state's 77% pass through requirement.

Speaker 3

The state of Texas included a 9.9% increase in its fiscal twenty twenty six budget, which is set to be effective 09/01/2025. We expect this to add approximately $17,700,000 in annualized revenue for Addus, with margins consistent with our existing Texas personal care business of just over 20%. Both rate increases are subject to customary federal approval. With the acquisition of the Gentiva operations, Texas now represents our second largest state for personal care operations behind Illinois. Following the organizational changes we made late last year, we continued to see steady improvement in our hospice business in the second quarter.

Speaker 3

We achieved 10% organic revenue growth and higher average daily census, patient days, and revenue per patient day compared with the second quarter last year, with average daily census up 7%. As Dirk mentioned, the 2026 hospice reimbursement update of 2.6% has been finalized, and we will see this increase beginning 10/01/2025. Hospice care accounted for 17.8% of our business in the second quarter. For our home health services, which accounted for 5.2% of our business, organic revenue was 6% lower compared with the second quarter of last year. Over the past several quarters, we have seen significant improvement in our operating margin profile as we work with payers to improve our reimbursement rates and streamline our processes.

Speaker 3

While this is our smallest business segment, we believe home health is an important clinical partner to our personal care and hospice services, and we continue to look for appropriate acquisition opportunities to support this service line. In addition to organic growth, we have benefited from our acquired operations, and we remain focused on identifying acquisitions that will be accretive to our operations and support our ability to expand our market reach. The Gentiva acquisition, completed in December 2024, was the largest in our history, adding approximately $280,000,000 in annualized revenues and significantly expanding our market coverage. Yesterday, we announced the acquisition of Helping Hands Home Care, a provider of personal care, home health, and hospice services in Western Pennsylvania, with annualized revenues of approximately $16,700,000 We believe this acquisition is a great fit for Addus as it expands the density of our personal care operations, while also adding clinical capabilities in both hospice and home health. For the remainder of 2025, we will continue working to identify additional similar acquisitions, as well as opportunities to add new personal care markets where we can enter at scale, as we believe having geographic coverage and density provides us with a competitive advantage.

Speaker 3

With our size and expanding scale and the support of a strong balance sheet, we are well positioned to execute our acquisition strategy. As Dirk noted, total net service revenues for the second quarter were 349,400,000 The revenue breakdown is as follows. Personal care revenues were $269,200,000 or 77% of revenue. Hospice care revenues were $62,200,000 or 17.8% of revenue, and home health revenues were $18,000,000 or 5.2% of revenue. Other financial results for the 2025 include the following: Our gross margin percentage was 32.6% compared with 32.5% for the 2024.

Speaker 3

As expected, we saw the normal sequential expansion in our gross margin percentage from the first quarter, primarily as a result of meeting certain payroll tax thresholds. Looking forward, we continue to expect typical seasonality with gross margin percentages remaining fairly consistent in the third quarter and some expansion in the fourth quarter due to the impact of the hospice rate increase as well as additional benefit from a reduction in payroll tax. G and A expense was 22.1% of revenue compared with 22.2% of revenue for the second quarter a year ago. Adjusted G and A expenses for the second quarter were 20%, a decrease from 20.2% in the comparable prior year quarter and a slight increase sequentially from 19.9% in the 2025. The company's adjusted EBITDA increased to $43,900,000 compared with $35,300,000 a year ago, an increase of 24.5%.

Speaker 3

Adjusted EBITDA margin was 12.6% compared with 12.4% for the 2024 and an increase of 60 basis points sequentially from the 2025. Adjusted net income per diluted share was $1.49 compared with $1.35 for the 2024. The adjusted per share results for the 2025 exclude the following: acquisition expenses of $0.11 and noncash stock based compensation expense of $0.18 The adjusted per share results for the 2024 excluded the following: acquisition expenses of $0.13 and non cash stock based compensation expense of $0.12 Our tax rate for the 2025 was 26.4%, within our expected range. For calendar 2025, we continue to expect our tax rate to remain in the mid-twenty percent range. DSOs were thirty seven point seven days at the end of the 2025 compared with thirty six point nine days at the end of the 2025.

Speaker 3

We have continued to experience consistent cash collections from the majority of our payers. Our DSOs for the Illinois Department of Aging for the second quarter were thirty eight point eight days compared with forty seven point six days at the end of the 2025. Our net cash flow from operations was $22,500,000 for the 2025. As of 06/30/2025, the company had cash of $97,000,000 with capacity and availability under our revolving credit facility of $635,600,000 and $454,600,000 respectively. Total bank debt was $173,000,000 at the end of the quarter, a reduction of $30,000,000 from the first quarter.

Speaker 3

We have continued to reduce our revolver balance with $50,000,000 paid through the first half of this year. Importantly, we have a capital structure that supports our ability to continue investing in our business and pursuing our strategic growth initiatives, including acquisitions. As mentioned, we will continue to selectively pursue acquisitions in 2025 that complement our organic growth and align with our strategy. At the same time, we will maintain our disciplined capital allocation strategy and continue to diligently manage our net leverage ratios ongoing debt reduction. This concludes our prepared comments this morning, and thank you for being with us.

Speaker 3

I'll now ask the operator to please open the line for your questions.

Operator

Thank you. We will now begin the question and answer session. And our first question comes from Steven Valiquette from Barclays. Please go ahead.

Speaker 4

Hi, this is Andrew Mock from Barclays. I think you mentioned in your prepared remarks an effort to increase reimbursement from payers, but nearly all the national Medicaid payers called out HCBS home health as a pressure point to their margins in the quarter. So just curious how you're thinking about the overall reimbursement environment and how you expect this to unfold over the next few quarters? Thanks.

Speaker 3

Yes, Andrew, I think we've continued to see pretty strong support over the last couple of years from most of our larger markets. I think, you know, coming out of COVID, I think we would have expected probably the cadence of rate increases in personal care to mitigate some. We've actually been pleasantly surprised to see states really appreciate the value our services provide and give us rate increases, not in response to minimum wage, but in conjunction with trying to increase caregiver wages to provide access to service. So seeing Illinois and Texas put through new rate increases in their budgets this year, there were a couple of our larger states that were considering rate increases that table those conversations for the moment with some of the overhang from the reconciliation bill still not finalized at the time. So we are optimistic maybe we'll see something from them in the next cycle.

Speaker 3

But I think, you know, longer term, I think our comments continue to be pretty consistent that we would expect the cadence to probably mitigate some over the next couple of years, probably not see the same rate, but we think there's a real value in our services and states are appreciating that.

Speaker 4

Great. And then maybe just a follow-up on volumes. Same store revenue was strong in the quarter, but the same store census looks like it was down about 5% or so, which implies very strong rate. Can you elaborate on what's driving the negative volumes on a negative comp in the second quarter? Are you seeing a reacceleration in redeterminations or anything of that nature?

Speaker 4

Thanks.

Speaker 5

Yes, we are. And I mean, what you're seeing is that the 5.5% that's actually inclusive of New York, which we've disposed of. So that is why the comparison kind of isn't really apples to apples. If you look at where we are today, you actually saw a sequential increase in same store census between Q1 and Q2. So it's moving in the right direction.

Speaker 4

Just to be clear, you continue to report New York in the same store numbers?

Speaker 3

It's included, Andrew, in our prior year number. It's not in this year. I think next month or next quarter, I'm sorry, we'll spike that out so it's a little clear. I think it's not a closed location, so it's in our existing legacy operations, but we'll spike that out going forward in Q3.

Speaker 4

Great. Thank you.

Operator

And the next question comes from Matthew Gillmor from KeyBanc. Please go ahead.

Speaker 6

Hey, thanks for the question. I wanted to circle back on the personal care hiring and labor comments. Dirk had mentioned some favorability with trends and the press release also spoke to systems and tools that have been rolled out. Can you talk about where you are with that rollout? I think maybe that started in Illinois, but just where you are on that journey, how that's impacting performance, and if you had any comments on retention, that'd be great.

Speaker 5

Yeah, so we've rolled out our caregiver application is what you're referring to. And that doesn't necessarily impact the hiring numbers. The hiring numbers come through actually kind of a different system. But what the caregiver app does is it helps us with our fill rates and increasing fill rates by giving caregivers greater visibility into their schedules, also the ability for a caregiver to flex their schedule if it looks like they're going to under serve a client during the month. So we've gotten really good adoption in Illinois.

Speaker 5

I think we've got about 90% of our caregivers that are registered on the caregiver application. We are in the process of rolling it out in New Mexico. As soon as we get New Mexico up and running good, we'll look at other states where we have an opportunity to implement the application. The challenge is when you talk Medicaid, the application has to be customized for every state that you roll it out to. So we've selected Illinois, our largest market, New Mexico, third largest market.

Speaker 5

We'll probably look at Texas down the road as a place to also implement that. Seeing good adoption by caregivers.

Speaker 6

Got it. And Brad, just as

Speaker 2

a follow-up to that, do

Speaker 6

you find that that improves your retention because then the folks can get as many hours as they want or more hours than they otherwise would be able to?

Speaker 5

We think it will. I mean, I think it's a little too early to tell for sure because there's just so many other factors that go into retention, looking at kind of overall economy and that sort of thing. But when we've done conducted surveys of caregivers, one of the reasons why they talk about leaving is because they're not getting enough hours. So intuitively we think it will help in the long run with the turnover. It's just hard to kind of isolate it and give you kind of an update today.

Speaker 5

I think over the next year, year and a half, we should be able to glean from the data whether this is making an impact. But just looking at the surveys that we've conducted, clearly hours are a big thing. And so this certainly helps address part of that challenge.

Speaker 6

Okay. I'll go ahead and leave it there. Thanks, guys.

Operator

The next question comes from Jared Haas from William Blair. Please go ahead.

Speaker 7

Hey guys, good morning and thanks for taking the questions. Maybe I'll ask another one around labor, but a bigger picture question. I'm curious how you're thinking about immigration policy changes and the impact that that could have on the home care workforce over the next couple of years. Obviously, there's been a lot of media coverage about kind of the prevalence of immigrants in the health care workforce and especially in home and community based settings. So just curious to hear your perspective and how you're thinking about that over the next couple of years.

Speaker 5

Yeah, I mean, right now we're not seeing any impact from it. We don't have a large workforce that is kind of green card or work eligible. I think we roughly about 600 caregivers out of our workforce of 50,000. So it's a pretty small number for us. We haven't seen any instances where they're not getting those renewed.

Speaker 5

Now we'll say, I mean, long term, it could make it more competitive if you have a smaller workforce or a pool of employees that you're trying to pull from or candidates that you're trying to pull from, but we're not seeing any impact right now. Certainly not seeing it in the hiring numbers. And again, we don't have a large workforce that is susceptible to those challenges.

Speaker 7

Okay, got it. That's helpful. And then maybe I'll double click on the hospice segment and nice to see another good quarter of about 10% same store growth. Is that the right level of organic growth we should look for going forward? Obviously, got the final rate rule for 2026, which I know you mentioned, it's maybe a little bit disappointing relative to cost trends, but just curious how you'd bubble set sort of the right way that we should be thinking about same store growth for hospice going forward?

Speaker 5

Yes, we've talked about long term. I mean, I think it's really probably more in the 5% to 7% range when you factor in rate plus sort of the volume increase over. I think hospice is doing very well. I think some of it is coming out of COVID. I think the industry has rebounded.

Speaker 5

But then also, we made some additions on the operations and the sales side that I think have really helped drive same store growth for us. But I think long term, more in the 5% to 7% range.

Speaker 7

The

Operator

next question comes from Raj Kumar from Stephens.

Speaker 8

I just have one on the kind of follow-up on the labor piece. Seems like there's like a provision there from the Department of Labor or rule just kind of maybe carving out companionship services out of like the federal minimum wage and over time provisions, which on the mid wage front, kind of irrelevant, but thinking about over time and how you've talked about scheduling being the most prevalent piece of turnover as caregivers aren't getting the hours that they need. Maybe just kind of thoughts on that provision and maybe if any states are moving towards creating their own versions of overtime provisions based on this proposed rule.

Speaker 5

Yeah, I haven't seen anything moving at the state level yet. It is an interesting proposal. If you think about impact on us, there's some nuances in that rule that would make it a little challenging to implement across our services because some of the services we provide wouldn't qualify for that exemption. So it becomes a little challenging. And plus, we have collective bargaining agreements for a sizable portion of our workforce that would cover overtime rules anyway.

Speaker 5

Now where it could have some potential is more on the private pay side of the business, much smaller business for us. We'll certainly keep an eye on it. And it's interesting to kind of read through it, get some guidance on how that would actually work. But I think minimal impact for us except maybe a little bit on the private pay side.

Speaker 8

Got it. And then just on the hospice portion, I know some of your peers have called out cap issues, maybe if Addus saw any of that in the quarter. Then another on the policy front, it seems like with the big beautiful bill and the increase in federal deficit, there might be an automatic trigger to the sequestration to increase. I guess And for that to be waived, there'd need to be like a Senate vote on that. Maybe any movement on that part to not have the sequestration go from like 2% to 6% based on that automatic trigger?

Speaker 5

I'll start with the cap. So on the cap, having a balanced link referral base is important. We do have a little bit of cap that we booked this quarter, a little over a million dollars, but that's kind of part and parcel. I mean, we also have, if you think about it, we have opportunities one to look at changing or improving our referral mix in a couple of programs to get out of cap, but certainly manageable. We also have opportunity in other programs that we have a very short length of stay and we need to diversify our referral base to get some longer stay patients to kind of balance that out.

Speaker 5

So really when you think about CAPP, it's been around forever since the benefit was implemented. I think where it's running into some challenges right now is there's a little bit of a disconnect between the wage index and cap. And so it's not wage index for individual markets. I don't know if I really want CMS to do that, frankly, because I'm not sure how that would work for rural providers. But it's certainly manageable for us.

Speaker 5

And then on the sequestration front, I'll let Bert Yeah, think, look,

Speaker 2

sequestration, we expect Congress to handle this like they have in the past. The Trump administration has very clear that they're not going to cut Medicare. This would obviously be a cut to Medicare. So our thinking is and what we've been hearing is it will be addressed in time. So that's kind of our thinking today.

Speaker 8

Got it. Thank you.

Operator

The next question comes from Brian Tanquilut from Jefferies. Please go ahead.

Speaker 6

Hey, good morning, guys. Congrats on the quarter. Maybe Brian, as I think about your original commentary at the beginning of the year, you're expecting EBITDA margins about 12% for 2025. Just curious how you're thinking about that now given this acquisition coming in and then the Texas rate increase that kicks in September 1?

Speaker 3

Yes, I think our expectation for margins, Brian, for the rest of this year are still pretty consistent. So starting in Q1 at over 12%, obviously saw the normal kind of expansion into Q2. We'd expect to remain pretty static in Q3 and then see additional expansion at the end of the year. So I think for the full year, I think we're still going to be squarely between 1213%. I think the Texas rate increase coming in at kind of just right or up just above 20% margin probably is not going to move the needle much.

Speaker 3

The new acquisition is about 84% personal care in Pennsylvania. A little bit of clinical, so not enough really to kind of probably move the needle up much, but will be nice to have those abilities through the services to PA. But probably still pretty consistent with our prior commentary for the rest of this year right now.

Speaker 5

Got it. Okay. Thank you.

Operator

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

Speaker 2

Thanks. Maybe related to Matt's question, it sounds like hires per business day continues to run pretty strong. But Dirk, I think I heard you say clinical hiring is going to be more challenging. Is that just sort of a tight labor market dynamic or changes in competitor behavior or anything else you'd call out there?

Speaker 5

No, I mean, is Brad. I think, really it's just not enough nurses out there. It's a challenge in certain markets. So I think it's just going to be long term, just more competitive. Right now, it's not putting any type of pressure on being able to accept patients or volumes or anything like that.

Speaker 5

I just think that that's going to be a little more challenging certainly than our personal care side.

Speaker 7

Okay. Thank you.

Operator

The next question comes from Constantine Davidas from Citizens. Please go ahead.

Speaker 9

Hey, guys. Just last quarter, I think you talked about some larger clinical assets coming to market. Just wondering if you can talk about that part of your M and A pipeline and should we expect more transactions along the lines of what you're doing in Pennsylvania or are there some larger assets out there, we could see some movement on? Thank you.

Speaker 2

Well, I think when we were talking about there could be some larger ones. There were some talk about some hospice opportunities coming out. We have heard some of those are still looking at it. I understand that maybe the multiples have come in just a bit on those than maybe what people were expecting from last year. So, again, we haven't been a main player in the hospice market for the last two or three years just because of that very high valuation expectation most of them had.

Speaker 2

Our focus has been more on the larger personal care, which we saw with Gentiva. And then even the home health right now, some of the things that we're hearing is with this potential 6.4% reduction, which we all believe should be somewhat moderated by the when the final rule comes out. But even so, is a change and this is an unknown that I think has caused some of the players that might have been looking to come out and see what might be out there from the standpoint of acquisition opportunities. I think it's probably delayed some of those folks coming out. So really, from our standpoint, we're gonna be very focused on somewhat what you saw with our most recent Helping Hand acquisition, finding markets where it strengthens our personal care markets, can add some clinical services, smaller deals that probably are not as much affected by this potential rate reduction at home health or potentially even what you may be seeing valuations with hospice.

Speaker 9

Great. And then if I could just sneak one more in. Any other states that you're monitoring with the potential for a favorable rate movement in the next twelve to eighteen months?

Speaker 3

Yeah, I think, Constantine, a couple that we referenced earlier that were considering rate increases this year ended up holding kind of steady. And maybe look to next year, New Mexico and Pennsylvania think, were two that we were watching pretty closely this year. Both had conversations. Again, no guarantee that we'll see something next year, but potential for maybe both of those next year. So I think the Pennsylvania acquisition we just did would fit in nicely if we got something from them, you know, next year, but we'll keep monitoring the states and see maybe what some chatter is going into the next budget cycle next year.

Speaker 8

Thank you.

Operator

The next question comes from John Ransom from Raymond James. Please go ahead.

Speaker 10

Good morning. Just a couple for me. Dirk, first of all, what are your public advocacy priorities now? And other than obviously the home health final rule, what are some of the things that you and your government affairs folks are working on either at the state level or the federal level that we should keep an eye on? And then secondly, just to kinda go into the question about payer contracting, Have the contracts gotten any more, I guess the word interesting in terms of some kickers and some value base?

Speaker 10

Or is it still kind of very much the traditional structure that you've always had? Thanks.

Speaker 2

So I'll talk about the public advocacy. You know, what's really interesting if you look at our three segments of care, we've been very consistent over the last number of years with our state advocacy. We've had great success. We have good relationships with most of the really all the states in which we operate. And I think we've been able along with others in the industry to continue to discuss the value proposition of the personal care service as it relates to maybe some facility based care.

Speaker 2

And so we've had great success. You saw that with Illinois. You saw that with Texas. Brian mentioned a couple other states that we're working with. So we're pretty comfortable with our state advocacy.

Speaker 2

We started about, oh, I don't know, two or three years ago, really, with some federal advocacy, especially as we were getting more 20% plus in clinical services. And as you will probably expect right now, the majority, if not all, of our efforts on the clinical side are in home health. I think this most recent proposed rate reduction, the industry and the alliance which we work with, we all have concerns about the way that was calculated, the need for any kind of clawback over the last four years since the pandemic. So certainly from our standpoint, we're doing a lot with the industry trying to get our story out to those that matter in the administration, telling them about the, you know, the real effect we can have on cost in the home health segment. So really, that's what we've been focused on on the federal side.

Speaker 2

There's a lot going on, but I wish I could tell you we had some information today that would possibly help us with a final rule. But right now it's still very deep into working with trying to get that changed.

Speaker 5

Yeah, and I'll talk about the payer contracting. In the personal care side, we're still having the discussions on the value base. The structure is largely similar to what we've been doing in the past. I will say that the is we're now talking to the payers and the payers are talking to us about how do we get more volume into those plans and into those arrangements because we have been able to show that we can address the overall cost of care through those arrangements. So I would say that's probably the of the newer discussions now is just how do you drive volume into those plans or into those arrangements.

Speaker 5

On the home health side, we continue to talk to payers about implementing a case rate or an episodic type payment. Have had a couple of wins there and continue to have positive discussions on that front.

Speaker 2

Great. Thanks so much.

Operator

And our next question comes from Joanna Gajuk from Bank of America. Please go ahead.

Speaker 1

Hi, good morning. Thanks for taking the question. So maybe, if I may, first follow-up on the commentary around the acquisition you just announced today. Can you give us you gave the breakdown on the revenues. Any comment you can provide us in terms of the margins?

Speaker 1

Is it sort of comparable to your PCS business? And also, I guess, is Pennsylvania a good market for Personal Care? That's the reason why you were kind of adding on in that market?

Speaker 3

Hey, Joanne. I'll talk about the margin profile real quick and I'll let Brad talk about Pennsylvania market. But it should be pretty comparable to our Personal Care business. But obviously, this being a smaller acquisition, we're not going to have to add much in the way of anything really on the kind of thing about corporate and back office type. So it's going to be probably more 13%, 14% EBITDA margins.

Speaker 3

Gross margins will be consistent with our business there, but should be somewhere in that range. So I'll let Brad talk a little bit about the just the Pennsylvania market.

Speaker 5

Yeah, I think when you look at the Pennsylvania market, really where this asset is located, Western Pennsylvania, we like that area. It's not quite as competitive as maybe a Philadelphia and one of the really urban markets. So I feel good about personal care business here, interested to kind of look at the home health and the hospice opportunity that we have there. It certainly is complementary a little bit to our Ohio hospice operations. So excited to see what we can do there.

Speaker 5

Also, you look at Pennsylvania, I think Brian alluded to that that is a state that we're looking at possibly some rate increases. They did a wage study. They were pretty far along in this past legislative session looking like they were going to do something rate wise on personal care, but because of some of the budget uncertainty with around the Medicaid cuts that had not been finalized, they backed off of that. But we think there's an opportunity in next year or certainly in the next few years to be able to get some additional rate from the states in Pennsylvania.

Speaker 1

Okay, thanks for that. And I guess it's tied to your last commentary around the rate increases. My question is about just, I guess, the policy changes that are coming under the reconciliation bill. Personal care is not targeted for cuts, right? But there are cuts to enrollment in Medicaid to the different provisions there, right?

Speaker 1

And so that, you know, highly likely puts pressure on state budgets, So in the can you maybe talk about, you know, how you're thinking about how this might play out and impact, you know, personal care business? Because I guess maybe talk about the in the prior cycles of budget pressure Seems like some states did reduce personnel spending since this is a voluntary service. So how do you expect states to respond to budget pressure this time around? And would it be a different, I guess, versus say, 02/1929? Thank you.

Speaker 5

Yeah, think, I mean, if you look at the impact on budgets, keep in mind, a lot these provisions don't come into play until 2028. So we're several years away from seeing those actual cuts impact state budgets. I think we feel good about the services we provide, primarily services to an elderly and disabled population. Politically, that's a tough population to cut. We haven't really seen states do that in the past where states have, you know, we had a couple of states that, you know, years ago tried to implement some rate cuts, pretty modest.

Speaker 5

Those didn't stick. They quickly came back and adjusted those rates back up. So I think in the near term, over the next couple of years, I think about this not going be a lot of impact, negative impact on the state budgets. Come 2028, there could be some, but I do think we're in a favorable position by the nature of the population we serve and the fact that I think we've established pretty well that it's more expensive to take care of these individuals in an institutional setting. And there's a lot of research and data analysis out there to that effect.

Speaker 5

Cutting access to our services actually could exacerbate state budget pressures.

Speaker 1

Thank you. Thank you so much for taking my question.

Operator

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

Speaker 2

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

Operator

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

Powered by Quartr