Good day, and welcome to the Addus HomeCare second quarter 2022 earnings conference call. All participants will be in a 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. Please go ahead. Thank you. Good morning, and welcome to the Addus HomeCare Corporation second quarter 2022 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 2022 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 2022 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. Thank you, Dru. Good morning, and welcome to our 2022 second quarter earnings call. With me today are Brian Poff, our Chief Financial Officer, and Brad Bickham, our President and Chief Operating Officer. As we do on each of our earnings calls, 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. While Brian will give you a more detailed review of our financial results, I wanted to highlight a couple of items from our second quarter performance. First, even with the labor challenges we are seeing in parts of our industry, our team grew revenue 8.7% to $236.9 million for the second quarter of 2022 as compared to the second quarter of 2021. This resulted in sequential adjusted earnings per share growth to $0.91 as compared to $0.77 for the Omicron-impacted first quarter of this year. Second, we had a strong cash flow from operations of $56.5 million this quarter, which reduced our net leverage position to less than 1x EBITDA. While we expected our results to return to a more normal level following the decrease driven by the first quarter Omicron surge, it is nice to see our team actively manage the challenge and make it a reality. I am very pleased overall with our second quarter performance, with favorable trends beginning around mid-February, continuing each month through the end of the quarter and further through July. Even with the growing prevalence of the most recent Omicron subvariant, our team has continued to perform. Let me discuss this latest COVID subvariant that we have started to see. Throughout most of the second quarter, we saw little effect from the COVID virus. During April and May, we saw a continued decline in the number of patients and caregivers who were in quarantine from the first quarter Omicron wave. However, during June, we saw an increased effects of the new Omicron subvariant, primarily in our personal care segment. This newest wave has resulted in a slight increase in our consumer and employee quarantines, which so far has had a minimum impact on our financial results as total quarantines remain significantly below those we saw with the Delta and original Omicron waves. We continue to monitor quarantine rates closely, but believe that we will be able to successfully work through these ongoing surges as we have historically. As we discussed last quarter, the labor environment remains one of our most challenging issues. While we are still facing this issue across our company, we are starting to see improvements in our personal care segment, with hires per business day for the second quarter of 2022 increasing approximately 21% over the second quarter of 2021 and approximately 9% on a sequential basis over the first quarter of this year. This improving hiring trend has continued into July, with hires per business day running slightly ahead of our second quarter of 2022 performance. As we previously discussed, we are constantly evaluating our sourcing, hiring and onboarding processes to further improve our personal care hiring numbers to meet the continued demand for our services. While hiring in the hospice and home health business remains a challenge, we did see improvement over the last couple of quarters, with an increasing ability to hire new clinicians as well as a modest reduction in our clinical turnover numbers. Overall, we feel the trend in both hiring and turnover is moving in a positive direction in all segments of our business. During this quarter, we started to receive more substantial funding from our states as they implement their plans to deploy funds provided to them under the American Rescue Plan Act, or ARPA. With respect to our three largest states, Illinois used the funding to accelerate last year's rate increase by two months, as well as fund the upcoming statewide rate increase, which will be effective January 1st, 2023. New Mexico and New York have provided funding for direct payments to providers to be used primarily to assist in recruitment and retention of caregivers. Several other states have been given either temporary or permanent rate increases, which should help us hire and retain more caregivers, as the majority of these funds are to be passed along to our employees in wage increases. As for Illinois, our largest state of operation, we will receive a $0.70 per hour statewide rate increase effective January 1st, 2023. However, on July 1st of this year, we saw an approximate $0.40 per hour minimum wage cost of living increase for our Chicago area personal care caregivers, which will have a slight negative effect on our margins over the next two quarters until the upcoming rate increase occurs. Once we receive the statewide rate increase, we expect to be able to adjust wages for our remaining Illinois employees, which we believe will continue to help with caregiver recruitment. Now let me discuss our same-store revenue growth for the second quarter of 2022. For our personal care segment, exclusive of New York's CDPAP program and the ARPA funds, our same-store revenue growth was 2.5% when compared to the second quarter of 2021. However, while our personal care hours were down year-over-year, we did see the first sequential growth in hours in a number of quarters. Our second quarter personal care hours were up 3.8% over the first quarter of this year as we continue to see improved hiring and lower quarantine levels. We have seen sequential growth each month this year since January in personal care starts of care, employees worked, and clients served. Turning to our clinical care operations, our home health segment same-store revenue was up 24.6% from the prior year and 36.4% sequentially. We continue to see improving home health admissions, which were up 25.2% over the second quarter of 2021. We are excited about our home health operation as it complements our personal care services, particularly where we participate in value-based contracting models. We will continue to focus our efforts on expanding these services into our existing personal care markets. As we anticipated on our last call, our hospice same-store revenue increased 2.5% over the second quarter of 2021. We also saw a sequential increase in our average daily census as our median length of stay improved to 23 days in the second quarter as compared to 17 days for the second quarter of 2021 and 20 days for the first quarter of this year. Overall, our hospice ADC increased to 3,333 for the second quarter of 2022, as compared to an ADC of 2,460 for the second quarter of 2021, inclusive of the ADC attributable to our JourneyCare acquisition, which closed on February 1 this year. As for our development efforts, over the past quarter, most of our deal flow has consisted of smaller acquisition opportunities across all three levels of care. We continue to have conversations with brokers and other third parties, and based on the feedback we've received, we expect to see an increase in potentially larger transactions in late 2022 and early 2023. I do want to mention that with the proposed rate cut by CMS in home health, we are seeing an overhang related to differing price expectations from buyers and sellers. We have seen some home health deal processes being put on hold while waiting for the publication of the final rule in late October. We expect there to be a lower level of transaction activity in the skilled home health sector until reimbursement is finalized. Once the final home health rule is published, we expect to see activity in this sector increase and believe we are well positioned to take advantage of these opportunities. While skilled home health activity may be slower in the short term, we are still very optimistic on our M&A outlook and will continue to build a pipeline focusing primarily on personal care and home health. We continue to believe that acquisitions will remain an important part of achieving our 10% minimum annual revenue growth target, which we have exceeded for the past few years. As we have previously discussed, we are starting to see additional momentum in our value-based care efforts. Currently, we have four value-based contracts which are now in three of our states. These contracts are focused on helping our patients avoid both unnecessary emergency room visits and hospital admissions, as well as readmissions at various time frames following a hospital discharge. These programs currently cover approximately 4,700 of our personal care clients. An important component of each of these contracts is a focus on care quality measures and metrics. We feel this quality focus fits well with our overall mission at Addus. To date, we have been able to show measurable improvements in these targeted goals, which is what we believed would occur as our personal care and clinical staff are able to closely follow these patients. To help us with data collection and analysis of our patient outcomes, we plan to invest in additional software tools which will help us as we continue to scale these type of arrangements. While the revenue generated from our value-based efforts are relatively immaterial today, we continue to expect them to grow to a more meaningful amount over the next few years. While the COVID virus continues to be difficult for everyone, our team has been able to prove the value of taking care of elderly and disabled consumers and patients in their homes. The home remains one of the safest and most cost-effective places to receive care and is also the place where most elderly individuals and their families prefer to be. 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. As I mentioned on our last earnings call, we understand and appreciate that our operations and growth are dependent on our dedicated caregivers who work so incredibly hard providing outstanding care and support to our consumers, patients, and their families. I am thankful for each of our team members, and I'm proud of the job they have done in the past and continue to do each day. It is important that we all focus on achieving our mission by putting our consumers and patients first. With that, let me turn the call over to Brian. Thank you, Dirk, and good morning, everyone. Addus had a solid financial performance for the second quarter. Our results reflect positive same-store growth trends in all three segments compared to the second quarter last year. We also benefited from our hiring and retention efforts and an improving labor market for our personal care business segment compared to prior quarters. Our home health business continues to expand and reflects the addition of the two acquisitions we completed in 2021, Armada Home Health and Hospice and Summit Home Health. We are also pleased to see more historically normalized trends for our hospice business. We experienced strong cash flows during the quarter and remain well positioned in the current inflationary environment. As Dirk noted, total net service revenues for the second quarter were $236.9 million. The revenue breakdown is as follows. Personal care revenues were $174.3 million or 73.6% of revenue. Hospice revenues were $52.1 million or 22% of revenue. When compared to the second quarter last year, hospice care revenues include the addition of the hospice division of Armada, which closed on August 1st, 2021, and the first full quarter of the acquired hospice operations of JourneyCare, which closed on February 1st, 2022. Home health revenues were $10.5 million or 4.4% of revenue. As noted, these results include the operations of two acquisitions, the home health division of Armada, which closed on August 1st, 2021, and Summit Home Health, which closed on October 1st, 2021. We have a strong business model in place across our home care continuum and believe we are well positioned in all our operating segments. In addition to our strong organic growth, we have added $55 million in revenue to date in 2022 with the acquisition of JourneyCare. We continue to evaluate and pursue other acquisition opportunities and have a robust pipeline of potential transactions that meet our criteria. As Dirk mentioned, the overhang from the proposed reimbursement changes in home health and lack of visibility on the ultimate financial impact on potential acquisition targets has delayed the transaction process with respect to some potentially larger acquisitions in skilled home health. We expect this to be a timing issue on rate information that will largely be resolved in the fourth quarter, and we continue to actively pursue other strategic acquisitions that meet our criteria. Other financial results for the second quarter of 2022 include the following. Our gross margin percentage was 31.9%, compared with 31.6% for the second quarter of 2021, as we continue to see the benefit from a higher proportion of clinical services. However, we were negatively impacted by approximately 20 basis points during the second quarter from the initial reinstatement of Medicare sequestration, with a 1% cut effective April 1st. We expect to see an additional 20 basis point impact in the third quarter with the additional 1% cut as implemented. Additionally, we will have a short-term headwind from the July 1, 2022 minimum wage cost of living increase in our Chicago market, which will have a negative impact of approximately 30 basis points through the end of the year. We are scheduled to receive a statewide reimbursement increase in Illinois effective January 1st, 2023, that will offset this most recent minimum wage increase. We were pleased to see the recent announcement regarding the upcoming hospice rate adjustment with some recognition of the current inflationary market. This increase will be effective on October 1st, 2022, and will benefit our consolidated gross margin by approximately 50 basis points. Like others in the industry, we continue to advocate against the proposed home health rule, although our exposure is minimal as home health constitutes less than 5% of our consolidated revenues. G&A expense was 23.3% of revenue, slightly higher than 22.1% of revenue a year ago, and primarily due to a larger percentage of clinical services with a higher G&A profile. That also includes the first full quarter of our JourneyCare acquisition, which closed on February 1st, 2022. Adjusted G&A expense was 21.3% of revenue for the second quarter, compared to 20.4% for the same period last year, and up slightly sequentially from 21.1% in the first quarter. The company's adjusted EBITDA increased to $25.1 million compared to $24.3 million a year ago. Adjusted EBITDA margin in the second quarter was 10.6% compared with 11.2% for the second quarter of 2021. Adjusted net income per diluted share was $0.91 compared with $0.90 for the second quarter of 2021. The adjusted per share results for the second quarter of 2022 exclude the following, acquisition and de novo expenses of $0.08 and non-cash stock-based compensation expense of $0.13. The adjusted per share results for the second quarter of 2021 exclude the following, the impact of the retroactive Illinois rate increase of $0.07, acquisition and de novo expenses of $0.11, restructure and other nonrecurring costs of $0.02, and non-cash stock-based compensation of $0.12. Our effective tax rate for the second quarter of 2022 was 25.1%, within the range of our expectation. For full calendar 2022, we expect our tax rate to remain in the 25%-26% range. DSOs were 45.9 days at the end of the second quarter of 2022, compared with 52.4 days at the end of the first quarter of 2022. We continue to see consistent payments from the majority of our payers across all of our operating segments and expect to see this trend continue, especially in our key markets where the states currently have budget surpluses and a focused approach to payments. Our DSOs for the Illinois Department on Aging for the second quarter were consistent with the first quarter at 43 days. Our second quarter net cash provided by operations was very strong, totaling $56.5 million, inclusive of a net $14.2 million in ARPA funding and based primarily on our strong collection activity. As a result, during the quarter, we were able to pay down approximately $60 million on our revolver, reducing the outstanding bank debt balance to $196.3 million and reducing our exposure to rising interest rates. As of June 30th, 2022, the company had cash of $120.9 million, with capacity and availability under our revolver of $376.4 million and $168.4 million, respectively. While we remain focused on pursuing our acquisition strategy, we will continue to be opportunistic in further reducing our already low net leverage, which is currently just under 1x. This concludes our prepared comments this morning. We'd like to thank you for being with us. I'll now ask the operator to please open the line for your questions. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you are 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. In the interest of time, 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 Brian Tanquilut with Jefferies. Please go ahead. Hey, good morning, guys. Dirk, thanks for all the discussion on the value-based progress that you're making. Maybe if you can help us understand, you know, what you're seeing there in terms of the economics or maybe the margin profile that you're getting out of that business, and then your thoughts on how that could be scaled and what it would take for greater adoption with some of the managed care or managed Medicaid plans and even Medicare Advantage plans that are looking to employ more personal care going forward. Yeah. You know, interesting, Brian, with the value-based care, it's something that we have seen continually become more important over the last few quarters. As we see today, we've got, you know, four contracts. They now expanded into three of our states. The important part we see is that having personal care with clinical services is very important to these contracts. You know, our ability to, depending on the contract, and they're somewhat structured differently, depending on who it's with, but our margin profile is basically consistent with what we've seen in the past. In some contracts, we get paid for our personal care service plus a savings. In others, it's more of a payment for our personal care services and then certain bonus payments based on what we're able to help accomplish that the particular payer wants to accomplish. You know, again, today, we've been in a couple of our contracts over a year. We're starting to develop outcome data, which I think is extremely important as we try to scale this up in the future. I believe over the next two or three years, you will continue to see this grow to be a more material part of our business and one in which, honestly, we spent some money, and we're gonna continue to invest some dollars as we look to We're gonna help develop some software to help us with analytics and looking at what we have from outcomes coming from our patients. Generally, we're very excited about, again, not material today, but we think in the next two or three years will become more so. I appreciate that. I think just about organic growth, right? I mean, in the quarter, you did 2.5% same-store rev growth. You know, your long-term guidance has been 3%-5% for a long time now. Just wanting to hear your thoughts on, you know, the opportunity to accelerate growth. I know you're still winding down the CDPAP business in New York, but maybe, you know, without going to guidance, just your thoughts on organic growth for the back half of the year and in the next year. Well, you know, 3%-5%, as you say, has been our target for a long time. It's, you know, we've come through a very interesting timeframe, as you know, with the COVID environment over the last 2+ years. We've been able, in most quarters, to hit that 3%-5% range, largely, due to rate increases over the last couple years. It's not been as much focused on volume as it has been in the historical part of our biz, if you look back historically over our business operation. We were excited to see this quarter, our personal care hours start to grow from the first quarter. That's exciting. You know, again, part of what we've been facing is not just us hiring caregivers that help us with this growth, but also some of our states and others being able to hire personnel to actually get through the authorization process to allow us then to have those hours to serve our clients. As this continues to move forward, and if we continue to see the trended growth that we've seen over the last few months, we expect that 3%-5% to be a solid number. You know, hopefully, we would believe we could get towards the higher end of that, towards you know, in the next couple, three quarters, especially as you see, again, the rate increase we're gonna get from Illinois in the first part of the year, which will be very helpful. Gotcha. Thanks, Dirk. The next question comes from Joanna Gajuk with Bank of America. Please go ahead. Yes, thank you. I guess to follow up, so one is you mentioned the improved hiring in personal care. Can you give us a little more color there in terms of, you know, what's driving that improvement? I guess, how would you contrast this with what you're seeing in hospice and home health? Hey, Joanna Gajuk, this is Brad Bickham. Well, on the personal care side, we have seen a nice trend and increase in hiring for business day, which is a metric that we follow. I think from a, you know, kind of the reasons behind that, I think one, you know, you've seen the federal stimulus money kind of play out. You know, it really ended kind of at the end of last year. The unemployment benefits went down. You have also seen kind of a higher inflationary environment. I think people need to work more hours, and also potentially another looking for a, you know, maybe a second job. That's something that personal care is set up for very well, that we have, you know, quite a bit of part-time employees. I mean, that's primarily what our workforce is based on. It allows people that if they just need to pick up some extra hours, they can do that readily. When you contrast that on the home health and hospice side, you know, we've seen it's certainly a more challenging environment than we have on the personal care. That being said, we've seen some kind of, you know, improvement. There's still certain markets that are a little tighter than others, where we have more challenges to you know, to retain staff and to recruit new staff. It does seem to be improving a little bit, just not as you know, readily available or obvious as the personal care side, where we've seen a nice pickup in hiring. No, definitely good to hear about that on the personal care side. Just follow up talking about value-based care. I just wanna ask your opinion, and I guess how meaningful this could be, because I wanna say a couple of weeks ago already, right, CMS published the first quality measure set for home and community-based services, where they try to encourage the use of some sort of consistent quality measures within the, and you know, across different states that participate in the program. What are the implications for you and kind of would this be helping with the value-based care, you know, kind of a shift towards value-based care? Yeah, this is, you know, kind of something that we've been pushing forward, and I think the industry has as well, to have some standards out there on the personal care side. You know, if we look at, you know, I know one value-based contract in particular actually tracks some of those same metrics that CMS is looking to implement. I think, you know, our value-based contracting that we have today is gonna position us well for when those metrics, if and when those get formally adopted. It's certainly something that I think the industry as a whole and us, in particular, we've been kind of pushing on. I think it should be helpful for us going forward. Thank you. Next question comes from Scott Fidel with Stephens. Please go ahead. Hi, thanks. Good morning. First question, just wanted to follow up on the cash flows and really maybe get some feedback or guidance from you on thinking about modeling operating cash flow for the back half of the year. Obviously a really strong print on cash flow in the second quarter. Brian, you called out some of those ARPA funds that did contribute to that. You know, maybe it would be helpful if, you know, how you're thinking about, I guess, the ARPA fund flow through. Continuing in the back half of the year, and then any other, you know, sort of notable working capital items that you would call out for the back half of the year. Yes, Scott, I think it was definitely a great quarter for us. I think as we noted our first quarter call, you know, we had some timing differences with payroll and some of those items that we normally would see. I think we got some benefit from a working cap perspective in the second quarter just on that timing. The ARPA funding is net about $14.2 million. I think we're still expecting to get additional funds later this year. We have not received all the funding that we've been scheduled to receive yet. You'll still see some of that come through. At $56.5 million for the quarter, you back out the $14.2 million in net ARPA, you know, we're right at, you know, $42 million for the quarter. I think it's $48 million net of ARPA year-to-date. I think, you know, our expectation, just thinking about kind of our, you know, full year projection, you know, our conversion rate from, you know, an adjusted EBITDA perspective is, you know, in the upper 60s to close to 70%. That would put us in that kind of mid- to upper 60s range for a full year target, and we're tracking at $48 million, kind of year-to-date through the second quarter. Nicely ahead. I think definitely seeing DSOs come down was a big contributor during the quarter. Obviously wouldn't expect to see, you know, continued movement in that regard, you know, getting down into the 30s. I think definitely we've seen strong collections year-to-date and would expect to see consistent payments going forward. Got it. Yeah, just my follow-up question, just wanted to revisit on the M&A dynamics, and that was helpful sort of, you know, framing that Dirk had given just around some of the dynamics with the proposed home health rule. I guess, sort of I have two just sort of follow-up questions on that. The first one would be just, you had mentioned some of the larger deals getting deferred maybe to later this year into next year. I just want to confirm, is that specifically in home health because of the uncertainty around the proposed home health rate, or was that in some of the other, you know, markets as well, like personal care and hospice? That would be the first part. Dirk, just when you had mentioned some of the differentials between buyers and sellers on valuation, is that just that the sellers are actually still wanting the same values, you know, despite the proposed home health rule, or is it just simply too hard to determine intrinsic value right now until we get those final 2023 home health rates? Yeah, Scott, as part of the first part, what we've mainly seen in the larger transactions that we've been a part of have been home health. Realistically, as we talked about in the last couple of quarters, we're focused more on home health and personal care acquisitions today than hospice. Doesn't mean we wouldn't look at a hospice if it was appropriate and in markets where we had strong personal care coverage. But so far this year, we've really focused more of our efforts in the other two segments. Some of the processes, a couple of processes we were in were well underway, and when the proposed rule came out, and at that point in time, they went into a holding pattern waiting for the publishing of the final rule later on this year. As we would talk about, somewhat of the overhang because of the differences in valuation costs between buyers and sellers, I think it really goes, most of what we're talking about there is in the home health. I think the sellers believe that the rule's not really going to be a big deal and that we should be willing to pay out value regardless. I think buyers are looking and saying, "Great, that if that's the way it works out in October, November, and when the published rule comes out, we're fine." I think if that understanding comes out the same way, then the value between buyers and seller in home health, I don't think is really that much of a disconnect. I do think there's still somewhat of a disconnect between sellers of hospice programs and buyers. You know, the markets seem to have come down, the public multiples have come down. I don't think all of the sellers' thought process have quite come down to that level. To personal care, you know, great thing about personal care, it stays pretty consistent. You know, smaller deals, as Brian has said in the past, in the 6-7 x range, larger deals, maybe 8-9x, a really larger deal that's very strategic might be 10. Those are all very reasonable multiples that we, I think, could agree with. Realistically, the rule is probably the biggest impediment right now to signing deals in the home health market. Helpful color. Okay, thanks. The next question comes from Tao Qiu with Stifel. Please go ahead. Hey, good morning. This is Seth Canetto on for Tao. I just had a question on the personal care. You know, you mentioned earlier the improvement in the hiring and the labor improvement there, but the volumes were a little bit lighter than we had expected. How much of an impact is labor still having on personal care volume? You know, as the labor force continues to improve, how much acceleration could we see into the second half of 2022? Yeah, Seth, this is Brad. I think really what you saw, you know, we experienced a pickup in the COVID quarantines really that last week in May carrying over into June that dampened our June results. I think that's what you know had kind of a more of an impact on the numbers rather than the hiring numbers. The hiring numbers, like I say, were, you know, have been very robust. You know, we you know expect as you know we're still seeing some you know case counts that are still a little elevated, but again, nothing like we experienced in Q1 or in back in the fall with the Delta variant. Optimistic that those numbers should start coming back up for us, and we should see some better volume numbers towards the back half of the year. Great. Thanks for that color. My last question was just on the American Rescue Plan funding. I think you guys received $14 million in the second quarter. Do you still expect to receive the full $20 million or so in benefit funding that you alluded to last quarter? If so, when should you expect to receive those remaining funds? Yeah. We still expect to receive the additional amount that's scheduled. I think it's just timing on when we're receiving those fundings from the state. I think we expect to see most of that money, to be honest, through the third quarter. Great. Thanks for taking my questions. The next question comes from Matt Borsch with BMO Capital Markets. Please go ahead. Could you just touch on the, as you talk about potential acquisitions, what you think is motivating sellers here? You know, is it retirement of the key owner or, you know, some perhaps sense that they're at a scale disadvantage? I don't know if you know that motivation, but also if you just combine with that question on how high you'd be willing to go on your debt leverage to do a larger acquisition. Let me talk about what we're seeing with some of the sellers, I believe, and then Brian will talk about our leverage. I think if we look at the two particular deals we've been looking at this year, that have now been kind of placed on hold, I think the motivation of the seller might be twofold. One, I think, in a lot of cases, the last couple years of operating through the COVID environment has been very tough. It's been a difficult environment, and I think some of the owners of these companies, as they've gotten towards, really towards the end of, hopefully the major effect of the COVID surges on business, see an opportunity to say, "Look, it may be time that we ought to see if we can get some value out of the business." I think the other motivation is some of these sellers are at a point in their life where they're looking to do other things, whether that be retirement or other businesses, and it's time for them to see about monetizing what they put in to the companies for a number of years. That's really, I think, the motivation we've seen so far. Yeah. I'll just add to that quickly, Matt. I think on the skilled side particularly, I think obviously, you know, private equity has been very active in, you know, putting assets together, you know, with a return in mind. With the markets the way they've been the last couple of years, have done very well. We've seen, you know, quite a bit of those instances where private equity would, you know, buy a platform, put together, you know, several acquisitions, then, you know, get those things integrated and look to sell those. We see more of that on the home health and hospice side. I I think the personal care side is where we see more of what Dirk was alluding to with, you know, more individual proprietors that have kind of run those businesses and looking for an exit strategy. I think on leverage, I think obviously we're very well capitalized today. You know, I think, you know, we said historically in the past, you know, we'd be very comfortable, you know, at the 2.5-3 x range. We'd be willing to go higher than that for the right deals. It made a lot of strategic sense for us if we saw a path to kind of bring that leverage down through cash flow on the other side. I think that's pretty consistent with our thinking today. We can find the deals that could put us into that range. Thank you. Thank you. That was very helpful. The next question comes from John Ransom with Raymond James. Please go ahead. Hey, good morning. Dirk, you know, the home health companies have been struggling with this transition to Medicare Advantage. You know, one of the big companies has been publicly talking about changing the economics to something more of a case rate versus a per visit. My question, I know this is like a hypothetical on top of a hypothetical, but as you look at a home health asset, do you think, you know, you're big enough, you'd be big enough to go in to see UnitedHealthcare, Humana, Aetna, and say, "Gosh, guys, I'd like to be paid differently on this book of business?" Or is that something that you would just have to fight through that, you know, transition to per visit at a lower margin and put that in the valuation? Hey, John, this is Brad. You know, I think when we're thinking about Medicare Advantage and trying to migrate from a per visit to more of a case rate or episodic type payment, you know, I think a couple of factors. One, when you think about size, we're not that large in home health yet. We're certainly continuing to grow that platform and get more scale. We do have a very large personal care component, and most of those payers have Medicaid plans. You know, I think we have the ability to leverage the personal care size and scale to have those conversations with a UnitedHealthcare or an Aetna. Secondly, I think you also have to look at, you know, it's, you know, one thing is to have scale nationally, but probably even more relevant is having scale in a regional or localized market, I think is important. That's where, you know, kind of our philosophy is, you know, we're not looking to put pins on in all the states for having locations. We're really more focused about getting a density in specific geographic areas, which I think would help us with those negotiations. Okay. Just as a follow-up, this might be unfair, but once your Chicago rate goes into effect, and we look at kind of 1Q 2023, how does your rate per day compare to, say, 2019 versus your cost per day once everything's kinda normalized out? Just thinking about the business over the COVID valley. Thank you. Hey, Joe, this is Brian. I think, you know, if you look at, you know, where we are, you know, this quarter compared to last year, maybe as a good proxy, you know, on average across our personal care business, our bill rates are up, you know, a little over 5% year-over-year. Most of our states are increases over the prior year. You know, wage rates I think have slightly outpaced that growth with some of the inflationary pressures and things that we've seen this year. I think going into 2023, you know, sans any further activity and things that we don't expect from a COVID perspective, et cetera, I think with the next rule on our rate increase obviously still being our largest market, you know, that's gonna bring us probably between $9 million and $10 million in additional kind of new annualized revenue, starting January 1, at a kind of our normal margin, which is gonna be in that, you know, probably upper 20% range, is gonna be very helpful. I think we've seen that dynamic the last couple of years. I think we're gonna see another benefit in early 2023 from that will be impactful. I think our expectation going forward is we should see those level off where you're not gonna see wage rates, you know, outpace reimbursement. I think that was more a factor of what we've seen over the last year, but we would not expect to see that going into 2023. Thanks so much. Yeah. The next question comes from Matt Larew with William Blair. Please go ahead. Hi, this is Madeline Mollman on for Matt Larew. Circling back to M&A, I know that you said right now you're having some trouble finding, common ground with sellers. Wondering in general, after a couple of years of higher funding levels, higher reimbursement, the sequestration suspension, would you expect home health valuations to come down as separate from the CMS rule as sequestration phases back in? Like, what do you expect long term, for home health multiples? Yeah. I think this year, you know, our expectation that we wanna talk about it on the last couple of calls is, you know, valuations in home health, you know, with some of those pressures, we expected to see a more rational market coming to this year. I think a lot of us have been kinda waiting for more of that influx of smaller, you know, organizations coming to market. I think the things you mentioned have kinda kept some of those guys afloat. To your point, you know, those things have come to an end. Sequestration coming in, you know, in Q2, now in Q3, is gonna put more pressure. I think when there's some more clarity on the rule and how that's going to impact, I think that definitely is going to probably, you know, help rationalize margins a little bit as well, depending on how that turns out. I think, you know, our view is like Dirk mentioned, some of the larger prospects, they've kinda put themselves in a holding pattern. You know, some of the smaller prospects where maybe the proposed rule wouldn't be as impactful, I think are still willing to have conversations and trade. I think we still got some opportunities there. I think overall, our expectation is that home health multiples will probably be a little bit lower, on the other side of this than what we saw maybe a couple of years ago. Great. Thank you. One other question. You mentioned that you were building out a personal care version of Homecare Homebase. Just wondering how that was coming along and how it would integrate with the traditional Homecare Homebase. I think when we got into this project with Homecare Homebase, you know, I don't know if they fully realized the complexity of personal care. You know, when I say the complexity as compared to the skilled side where Medicare is your predominant payer, you know, personal care is a totally different animal from the standpoint that you're dealing with multiple states, different types of programs within those states. The reimbursement codes, all that sort of thing is a lot more complicated. All that being said, you know, we've been pleased with the progress. We anticipate, you know, possibly being able to roll out some pilot sites kind of Q1 of next year. You know, the main thing is we wanna make sure that we have a product that, you know, that we're satisfied with, before we go forward with it. You know, I think they've certainly indicated their willingness to put those resources to develop that product. As far as integration- Great. Thank you so much. Yeah. Just to add to the second part of the question regarding integration with the Homecare Homebase, the clinical side. You know, just think about it from the standpoint that all of those patient records will be in one system that we'll be able to access through. We think that that's really kind of one of the, you know, an important component of really recognizing the benefits of the value-based contracting potential on the personal care side. Also just when you think about referrals coming from personal care to home health and to hospice, really helping facilitate that on a larger scale. Great. Thank you so much for the color. As a reminder, if you would like to ask a question, please press star then one to be joined into the queue. The next question comes from Mitra Ramgopal with Sidoti. Please go ahead. Yes. Hi. Thanks for taking the questions. I was just wondering if you could provide some additional color in terms of the new hiring and retention strategies to combat the tight labor market you're seeing, especially on the clinical side? Yeah. If you think about on the clinical side, you know, it's really putting more recruiting resources to the clinical side. You know, again, that's a little more challenging. If you think about personal care versus the skill component, it's kind of a different recruiting environment. We have you know, kind of a corporate recruiters that focus on filling positions on the clinical side, plus kinda your general administrative positions, whereas our recruitment efforts are predominantly on the PCS side are at the branch level. You know, it's certainly on the clinical side, a challenging environment. You know, when you look at personal care, you know, we've got the ARPA funds that, you know, really, we haven't, you know, tapped into in a meaningful way yet. I mean, those programs and retention programs that we're putting in place to both help keep caregivers, encourage caregivers to work more hours, and also help with our recruitment efforts, that's really just getting started on the PCS side. Okay, thanks. That's great. Brian, there was a significant debt reduction in the quarter. I was just curious in terms of the capital allocation priority, if it's more a question of trying to overcome the higher interest rate environment versus maybe a shift in priorities. Yeah, Mitra. I don't think it was a shift in priorities. I think we'd still prefer to use that capital toward M&A, when those are available. I think in absence of that and some of the overhang currently, particularly in the home health segment, I think you guys probably heard us talk on our last call, you know, more of our pipeline was slanted that direction. During that period of kind of call it a delay, we've tried to be opportunistic and at least limit our exposure to the rising interest rates. I think it's gonna be, you know, meaningful savings and interest expense for us. I think we'll continue to do that until we see M&A pick up. You know, with the access to being full revolver now, not a term loan, you know, we have that ability to draw that and use that, you know, at the time that we need it. That'll be kind of our focus over the next, you know, couple of quarters. Okay, that's great. Thanks for taking the questions. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Dirk Allison, Chairman and CEO, for any closing remarks. Thank you, operator. I wanna thank you for your interest in Addus and for your being a part of our earnings call today, and hope you have a great week. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.