Good day, welcome to the Addus HomeCare Second Quarter 2023 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 2023 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 2023 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 2023 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, welcome to our 2023 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 call, I'll begin with a few overall comments, 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. Before I turn the discussions to our results, I want to take a moment and update you on events related to the CMS proposed rule for Medicaid services. As you know, in early May of this year, the Health and Human Services Department introduced a proposed rule titled Ensuring Access to Medicaid Services. While we have previously stated our agreement with the goal of broadening coverage and expanding the caregiver workforce, we question the specific approach proposed and the target threshold concept for caregiver wages, as there are inherent challenges in setting a one-size-fits-all minimum percentage. This is due to the wide variance among state waiver programs, which directly impacts the administration burden required to provide home and community-based services in individual states. We also believe that many providers, especially small local providers and those operating in states with larger rural populations, may be unable to continue providing care due to the significant administrative burden and related costs required to provide quality, regulatory, compliant home and community-based services. These challenges, if not properly considered and addressed, may have the opposite effect intended by the proposed rule by inadvertently reducing access to services, particularly in rural areas. We recently submitted our comment letter to this proposed Medicaid access rule. We also participated in the development of comment letters from our various trade associations. Overall, over 2,000 comments were submitted to CMS, including comments from 31 states. From our review of the CMS database, comments related to the 80% threshold proposal were significantly opposed. Many other comments shared observations consistent with ours, including the difficulty in implementing a one-size-fits-all approach, the lack of evidence or data to support the 80% proposal, and the potential to negatively impact Medicaid service access. States including California, Oregon, and Washington, as well as the National Association of Medicaid Directors, expressed serious concerns or opposition to the 80% minimum threshold. Among the comments filed were letters from several law firms representing either providers, trade associations, or states, strongly asserting that Congress did not provide the Health and Human Services Department the legal authority to mandate the specific proposed 80% threshold rule on states, and that the setting of any national threshold based on a limited to no data is arbitrary and therefore invalid. On July 21st, Addus participated in a listening session with the CMS administrator, other CMS staff, and several home-based care trade associations. These associations verbally expressed providers' collective concerns regarding the proposed rule and presented alternative approaches primarily focused on increasing Medicaid rates to help alleviate the workforce crisis. As of now, advocacy and education to Congress and others will continue. However, no conclusive action will occur until CMS issues a final rule. Once a final rule is published, if it includes an 80% or similar threshold, we expect legal challenges to be initiated. While we do not know the outcome of all of our actions, we are encouraged by the volume of comments from many diverse parties, the vast majority of which express significant concern with any minimum wage percentage threshold. In summary, the volume, and substance of the comment letters may have an impact on the final rule, and the final rule, if implemented, is likely to be subject to legal challenge. It is important to note and emphasize that there are many unknowns around the proposed rule and its long-term impact on our operations, even if it were to be implemented as proposed and withstand legal challenges. Among these, we do not know when a final rule will be issued, and therefore, when the 4-year implementation period would begin, or if the implementation period might be extended for a longer time frame. In addition, we would explore operational changes to manage our business to minimize the potential impact of any final rule. The proposed rule, the rule, as proposed, also does not cover parts of our personal care services. We currently estimate that over 20% of our existing PCS revenue would not be covered by the proposed rule. Let me turn to the quarterly financial results. Yesterday, we announced our results for the second quarter of 2023. These results indicated continued strong financial performance by Addus. I want to thank our team for providing quality care to our clients and patients in the home while allowing us to deliver these consistent financial results. For the second quarter of 2023, our total revenue was $260 million, an increase of 9.7% as compared to $236.9 million for the second quarter of 2022. This revenue growth resulted in an adjusted earnings per share of $1.07, as compared to adjusted earnings per share for the second quarter of 2022 of $0.91, an increase of 17.6%. Our adjusted EBITDA of $28.3 million, was an increase of 12.7% over the second quarter of 2022. During the second quarter of 2023, we continued to see strong cash flow from operations as our states and other payers have continued to pay in a timely manner. This strong cash flow, along with conservative management of our balance sheet, has allowed us to maintain a net leverage position of less than 1x adjusted EBITDA, continuing to give us financial flexibility, which should enable us to be opportunistic as we anticipate seeing additional transactions come to the market over the next few quarters. While our goal is to use our financial capacity to acquire strategic operations that align with our overall growth strategy, we will continue to be diligent with the use of our capital. As has been the case over the last few quarters, the overall labor environment continues to improve. During the second quarter of 2023, we continued to experience solid hiring in our personal care segment, with 81 hires per business day. Our new candidate management and tracking system, which now has been fully implemented across all of our service lines, has allowed us to better engage with potential employees, shortening the time between application and hire by approximately 10 days. Finding ways to continue reducing the time frame between application and the first client visit is an area we will continue to focus on to help us meet our growth targets. Hiring in our clinical segment continues to be more challenging than in our personal care segment, although we have seen modest improvement as compared to this time in 2022. While hiring in our clinical segment continues to improve overall, there are certain markets that have been more difficult and have impacted our growth rate in those markets. During the second quarter, we continued to utilize the funding we received from the American Rescue Plan Act, or ARPA. To date, we have received approximately $25 million, of which we still have $10.6 million remaining to use over the next few quarters. As is previously mentioned, these funds have been helpful with our recruitment and retention, retention efforts to support patient care and should continue to help those efforts in the future as we deploy the remaining funds. As for Illinois, our largest state of operation, on April 1 of this year, we received an increase of $1.26 per hour. As a result, our Illinois state reimbursement rate is now $26.92 per hour. This increase covers the July 1, 2023 minimum wage increase in Chicago and allows us to continue to raise wages for all of our Illinois caregivers. We are pleased to see strong support from the state, as the most recent approved budget calls for an increase of $1.15 per hour in our reimbursement rate, effective January 1, 2024. One additional issue I'd like to discuss is proposed rate decrease for home health that CMS recently released. We are very disappointed that CMS continues to propose rates for this important level of home care that does not take into consideration the increase in wages and expenses our industry has experienced. While home health has only seen a proposed rate, hospice recently saw a slight improvement in the final rate for the coming year, we are hopeful that the final home health rate, when published, will more appropriately reflect our increased costs. However, we believe that these reimbursement pressures are likely to moderate over the next few years, and as such, we will continue to look for acquisition opportunities that are strategic to our overall growth. Let me discuss our same-store revenue growth for the second quarter of 2023. For our personal care segment, our same-store revenue growth was 12.6% when compared to the second quarter of 2022. During the second quarter of 2023, we saw personal care same-store hours for business day grow 3.8% over the same period in 2022, 1.2% on a sequential quarter basis. We are excited to see our various hiring and scheduling initiatives beginning to take hold and contribute to sequential hour growth over the past several quarters. Turning to our clinical operation, our home health segment same-store revenue decreased 10.9% over the same quarter in 2023, as we continued to reduce admissions from payers that do not currently reimburse us adequate rates to cover our costs. While we did see lower admissions, primarily due to intentionally limiting admissions from these nonstrategic MA plans, our gross margin improved, as did our mix of episodic volume and overall profitability. While we have limited certain admissions due to contract rates, our managed care team continues to work with our Medicare Advantage and commercial payers to adjust our contract rates to a more appropriate level, which will allow us to selectively accept more non-episodic volume going forward. In addition to renegotiating rates, our operations team continues to work on improving both case mix and staffing in home health to ensure we maximize the value of the services we provide. We remain excited about our home health operation as it complements our personal care services, particularly where we participate in value-based contracting models. Our hospice same-store revenue decreased 1.1% when compared to the second quarter in 2022. However, excluding the impact of sequestration, our hospice same-store revenue growth was basically flat year-over-year. While our hospice segment is continuing to take longer to recover from the difficult period during and after the pandemic, it is encouraging to see sequential growth in our ADC as compared to the first quarter of 2023. During the second quarter, we started to see an increasing length of stay from patients coming from skilled nursing facility referrals. As of the end of the quarter, our hospice median length of stay was 29 days, exclusive of our JourneyCare operations, which historically has a higher proportion of short-stay patients. We believe this is a trend towards a more typical length of stay from those referral sources, primarily due to the expiration of certain provisions implemented as part of the public health emergency declaration, which ended on May 11th. This morning, we announced we closed on our Tennessee Quality Care acquisition, a provider of home health, hospice, and private duty nursing services. Tennessee Quality Care serves an average daily census of approximately 1,800 patients through 17 locations, covering a service area of over 50 counties in Tennessee and generating approximately $40 million in annualized revenue. This is a very strategic acquisition for Addus, as it allows us to offer all three levels of home-based care in an attractive market, as well as being a significant of need state. With this transaction, we will also be able to expand our home health and hospice services into nine additional counties as we look to add de novo locations in the future. We are excited about the potential of this new operation and look forward to working with our new team members. Over the past few quarters, we have discussed our strategic focus around potential acquisition opportunities in both personal care services and home health care. With the announcement of the proposed Medicaid access rule from CMS, we have become far more selective in relation to potential acquisitions in the personal care service line. While we continue to believe strongly in our strategy of pairing home health care and hospice with personal care services, we believe it is prudent to focus our PCS efforts primarily towards modifying this proposed rule. However, we will remain open to development efforts in the PCS space if any highly strategic acquisition opportunities emerge. As for our value-based care efforts, we are continuing to see positive initial results from our various contracts and hope to have outcome data to share by the end of the year. While we are pleased with the current status of our value-based efforts, we are still in the early stages of our goal to have this segment grow into a more significant part of our long-term business. However, we continue to see a great deal of interest from payers wanting to work with us on these type of arrangements. We are continuing to invest in value-based strategies and related technology resources in 2023, which we believe will help give us an opportunity to accelerate our revenue growth in this part of our operation. With the addition of our most recent acquisition of Tennessee Quality Care, we now have three states where we can offer all three levels of care. We believe this coverage positions us well to continue to add value-based contracts in these markets. As I say each quarter, I am so proud of our team for the care they are providing to our elderly and disabled consumers and patients. There is no question that the majority of clients and patients want to receive care in the home, which remains one of the safest and most cost-effective place to receive this care. We believe the heightened awareness of the value of home-based care is favorable for our industry and will be a growth opportunity for our company. 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 clients, patients, and their families. With that, let me turn the call over to Brian. Thank you, Dirk. Good morning, everyone. Addus had a strong financial and operating performance for the second quarter of 2023, continuing our solid performance through the first half of the year. Our personal care results reflect robust demand for our services and a favorable rate environment, led by a very strong 12.6% year-over-year organic revenue growth for the quarter, well above our normal expected range of 3%-5%. We are very pleased with the momentum in the core personal care segment, with an 11.7% revenue increase for the year-to-date period over the prior year. As expected, we received our second statewide increase of the year in Illinois, our largest personal care market, on April 1st. This increase is in addition to our January 1st, 2023 increase in the state. Additionally, we received a retroactive reimbursement increase in New York, which was largely focused on our consumer-directed business and has brought our margins in this program more in line with our other programs in the state. As a result, we have resumed taking new clients into our consumer-directed program and therefore are no longer excluding those results from our same-store revenues. While our hospice business has been slower to recover to pre-pandemic levels, we experienced modest sequential improvement in several key metrics this quarter over the first quarter. Our average daily census, median length of stay, and patient days all improved from the first quarter of the year, with our median length of stay the highest we have seen since before the pandemic at 29 days. We expect to see further gradual improvement in our hospice business in the second half of this year, with the expiration of the public health emergency expected to lead to an increase in our skilled nursing facility hospice length of stay. The JourneyCare Hospice operations, acquired effective February 2022, are included in our same-store revenues for the first time this quarter. Same-store revenue for our home health services declined 10.9% from the same period a year ago, as we focused on appropriately balancing our mix of episodic versus non-episodic cases to improve profitability. We are continuing our efforts to negotiate more favorable rates with certain of our payers and have limited admissions under some agreements in the interim. Total net service revenues for the second quarter were $260 million. The revenue breakdown is as follows: Personal care revenues were $198.3 million, or 76.3% of revenue. Hospice care revenues were $50.2 million, or 19.3% of revenue, and home health revenues were $11.5 million, or 4.4% of revenue. In addition to JourneyCare, these results include the operations of Apple Home Health, which we acquired in October last year. As Dirk noted, we announced this morning that we completed our acquisition of Tennessee Quality Care, a provider of home health, hospice, and private duty nursing services, which will complement our personal care services in the state. For 2023, we will continue to actively pursue acquisitions that meet our criteria and further our growth strategy. While the market environment for acquisition opportunities continues to be somewhat suppressed, we believe we will have a more favorable market environment as we gain more clarity around proposed rule changes in reimbursement and program structures. Other financial results for the second quarter of 2023 include the following: Our gross margin percentage was 31.7%, a slight decrease compared with 31.9% for the second quarter of 2022, but an increase sequentially from 31.2% in the first quarter. With the most recent rate increase in Illinois, we will not experience the negative impact we have seen the past two years from the July 1s t increase to Chicago minimum wage, as our wage rates have been adjusted statewide to be higher than this requirement. With our Tennessee Quality Care acquisition, we will see the positive impact on our gross margins of a higher mix of clinical services beginning in the third quarter and fully realized in the fourth quarter. G&A expense was 22.1% of revenue, compared with 23.3% in the second quarter a year ago, reflecting the positive impact of leveraging our expenses as a percentage of our strong top-line growth. Adjusted G&A expense for the second quarter of 2023 was 20.4%, a decrease from 21.3% from the same period in the prior year, and a decline sequentially from 20.8% in the first quarter. The company's adjusted EBITDA increased to $28.3 million, compared with $25.1 million a year ago. Adjusted EBITDA margin was 10.9%, compared with 10.6% for the second quarter of 2022, a 50 basis point increase from 10.4% in the first quarter of 2023. Adjusted net income per diluted share was $1.07, compared with $0.91 for the second quarter of 2022. The adjusted per share results for the second quarter of 2023 exclude the following: the positive impact of the retroactive New York rate increase of $0.05, acquisition expenses of $0.08, and non-cash stock-based compensation expense of $0.13. 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. Our tax rate for the second quarter of 2023 was 23.8%, in line with our expectation. For calendar 2023, we continue to expect our tax rate to be in the mid-20% range. DSOs were 35.6 days at the end of the second quarter of 2023, compared with 43.7 days at the end of the first quarter of 2023. We have continued to experience consistent cash collections from most of our payers and received a material payment from the Illinois Department on Aging immediately prior to quarter end. As a result, DSOs for the Illinois Department on Aging for the second quarter were 22.3 days, compared with 43.7 days at the end of the first quarter of 2023. While we are appreciative of the department's continued emphasis on keeping their provider payments current, we would anticipate our DSOs to return to more normal levels in the second half of the year. Our cash flows have continued to be very strong in 2023, with our second quarter net cash provided by operations of $41.6 million. Year-to-date, cash flows from operations are $63.8 million, exclusive of $3.4 million in ARPA net spending, well ahead of our expectations. Primarily as a result of the accelerated cash collections we have experienced, we have seen a $23.2 million positive impact from working capital changes year to date, which we would not anticipate to continue long term. At quarter end, we have $10.6 million in ARPA funding still available to be utilized. As of June 30th, 2023, and prior to our borrowing related to the Tennessee Quality Care acquisition, the company had cash of $84.2 million, with capacity and availability under our revolver of $409.3 million and $319.9 million, respectively. With our strong cash flow, we have continued to pay down debt in 2023 and have reduced our revolver balance by $53.5 million since the beginning of the year, with a $30 million reduction in the second quarter. We have a capital structure that supports our growth initiatives and acquisition strategy, and as previously noted, we expect to remain active in the M&A market. At the same time, we will continue to diligently manage our net leverage ratio with the company debt-free at quarter end, net of cash on hand. 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. At this time, we will pause momentarily to assemble our roster. The first question today comes from Brian Tanquilut with Jefferies. Please go ahead. Good morning, guys. Dirk, I guess I'll start, you know, you mentioned that if the CMS rule is finalized, as proposed, Addus would explore operational changes. I, I know it's pretty early, but any details you can provide on what levers you can pull to offset any negative impacts from that rule? Well, you know, Brian, once we see what the rule, the final rule entails, there are things we can do, such as, we'll look at states which may be due to the rule, limit your ability to properly operate that state, and we will, potentially, look at moving out of those states if necessary. We would hate. We don't really want that to be the way the operations end up, but certainly, if the rule forces that, we will look at it. More importantly, what we really would do from an operations standpoint is really try to grow, in the markets in which the rule works. We would try to accelerate our both our M&A growth and our organic growth in those markets, really focused on the areas, the states that give us a high enough reimbursement rate to be able to pass along whatever percentage, if there is a percentage in final rule, whatever that is, to our caregivers. Let me, let me make sure you understand, and I, I know you do, Brian, but I want to state it publicly, and that is, we want to make sure that we pay our caregivers a living wage. That is absolutely critical for Addus and and our caregivers and both. The way to do it in our mind is not through this stated minimum percentage. It's more through making sure the states are paying an adequate rate, and that is what the states we would focus on in the future. I understand that. Maybe as I think about, you know, kind of like your fill rate, right? I know you've done a great job ramping up hiring on a daily basis. How are you thinking about the remaining opportunity to increase the fill rate, maybe get it back to pre-COVID levels and what that would take? Maybe kind of layering that on, you know, I know your quarter-over-quarter hours are up, you know, north of 1%. Just try to put that growth algorithm on what the remaining opportunity is to drive growth over the next, you know, couple of quarters. Thanks. Hey, Brian, this is Brad. Yeah, I have to discuss that. You know, when we're looking at the fill rate, we have certainly seen some nice improvement over the past 12 months. We've probably increased a couple, you know, 200-300 basis points on the fill rate. A lot of that is focused on the improved hiring that we've seen over the past 12 months. The things that we're focused on are, you know, frankly, in order to kind of get another 200 basis points out of that number to get back up to where we were, pre-pandemic is, you know, one, continue to focus on the hiring piece, but then also, you know, when you look at our new candidate tracking system and the speed to hire... ... getting those people on board and then also focusing on getting them to their first billable case, because we still lose too many caregivers between honestly hiring and when they actually take a billable case. Really focused on accelerating that process, which also will improve turnover as well, which actually takes a little bit of the pressure off of the hiring. You know, we've been really focused this year on getting back to the basics on the scheduling and the serving and assigning of caregivers. We've got some enhanced technology tools that we've added that help our schedulers, our service coordinators, to make their job easier. Certainly seeing good progress on that. I still think that we have a couple of hundred basis points more opportunity there. All right. Got it. Thank you! The next question comes from Scott Fidel with Stephens. Please go ahead. Hi, thanks. Good morning. First, just appreciate the color you gave us on the advocacy, advocacy efforts on the HCBS rule. My first question, though, was just wanted to ask on the home health contracting environment, if you can just give us a little more details on how those recontracting efforts are going with those, that lower tranche of payers. Is there any way that you can sort of, you know, quantify, I guess, what percentage of the MA payers would be in that insufficient reimbursement bucket? Then also just wondering, as, as you're bringing the Tennessee acquisition online, given the revenue mix is, is heavily weighted towards home health, how you would describe the, you know, the MA contracts, underneath that asset, and sort of, you know, against this backdrop of, you know, trying to be disciplined on, on your reimbursement with MA payers here? Yeah, Scott, this is Brad Bickham. Yeah, you know, we have been really focused on, you know, frankly, trying to get some quick wins. When you look at the Medicare advantage, really focusing on, let's introduce the concept of getting to an episodic type reimbursement. In the near term, let's really focus on just getting those per visit rates up. I think we've done a pretty good job of adjusting those rates in some key markets. Still have some work to do there, you know, but it's really kind of market by market as to which payers that we're focused on. When you look at the Tennessee Quality Care, you know, they're contracting, you know, pretty a good mix, but I think there's opportunities from upside there for it. That's one of the things that our contracting team will be focused on, is, is working on those rates as they continue to work with the other payers, to adjust, you know, not just trying to get to episodic, but also let's try to get those per visit rates up, to where we can start taking on more of those referrals and, you know, continue to have the good operating margins or improved operating margins that we currently are showing. Okay. Thanks for that, Brad. And then just, my follow-up question would just be on, you know, sort of taking the, the improvement that you've had in, in personal care, on the hours and, and sort of maybe sort of giving us some visibility into, into how you're thinking about, you know, that continuing to trend out, in the back half of the year, and any seasonality that you'd maybe want to, you know, comment on. Then separately, I guess, just, Brian, maybe for you, just on the Tennessee acquisition, you know, maybe just, sort of, I know you, you talked about, you know, sort of starting to see the, some positive impact on margin in the 3Q and then more fully realizing that in the 4Q. you know, any sort of, I guess, quanti- quantification you could give us on, what the, the gross margin impact would be to sort of start out there, you know, from that, that, that acquisition in the third quarter? That's it for me. Thanks. Sure, Scott. I'll start with the, the PCS question first. You know, I think, you know, we've talked about the last couple of quarters, there's been nice sequential growth, in hours per business day. I think Q4 and Q1 was 1.9%. We saw that at 1.2% quarter-over-quarter this year. I think our expectation is going to be probably more similar to what we've seen in this last quarter. You know, around 1%, you know, maybe give or take, you know, over Q3, Q4. There's not a lot of seasonality really in, in PCS. I think typically where we see impacts is, is more in the winter months, where maybe you have some service delivery issues or shifts get canceled, et cetera. Obviously, you're probably not going to see a lot of that. Q3, you might start to see some impact a little bit, you know, end of the year as things get colder, holidays, et cetera, but it's going to be pretty minimal. Wouldn't expect a lot of seasonality kind of in that, in that trajectory. On the Tennessee Quality Care, just a couple of metrics to give you guys. I think, you know, we mentioned they're about $40 million in annualized revenue. It's, it's a skilled business, so that gross margin profile is going to be in that, you know, mid to upper 40% range. I think we've talked about it before, the bottom line expectation, EBITDA, so it'd be in the more of that mid, mid-teens as a percentage. One thing I would just, you know, advise on as well, with an acquisition this size, obviously, there's going to be some depreciation, amortization that'll come into play with the intangibles. You know, we are borrowing for this acquisition. With the most recent, you know, hike from the Fed, our all-in interest rate now is just a little over 7%. We'll also be thinking about that from an interest expense perspective. Those are probably some good metrics, I think, from a, from a modeling perspective. Very helpful. Okay, thanks. The next question comes from Ben Hendrix with RBC Capital Markets. Please go ahead. Hi, this is Mike Murray on for Ben. Can you give us a little bit more color on hospice? same store ADC declined 3.2%, driven by lower admissions, with, with higher length of stay, a partial offset. Are you still seeing pressure from re- referral sources? Is there an increase in competition in some of your markets? Any color would be helpful. Hey, Mike, it's Brad. Yeah, we did see a kind of a drop on the admission front. What was encouraging is to start seeing that median length of stay increase, as Dirk pointed out in his comments, primarily in the nursing facility, which we'd anticipated with the expiration of certain provisions in the public health emergency. You know, frankly, we had kind of a slow May. You know, the second half of June, and it's continued in July, we've seen a kind of a pickup in admission volume, which has corresponded into increased ADC. You know, we did have sequential growth, but we saw some, you know, recovery from Q1. I anticipate that we'll continue to see recovery into Q3 and into Q4, both on, you know, from a, you know, an admission standpoint, but more importantly, on the ADC front. Awesome. That's helpful. Just switching gears a little bit. You've seen some nice operating leverage on G&A at the quarters, but it still remains around 21%-22% of revenue. How do you think about this line item longer term? Do you think you could get it back to pre-pandemic levels, which were, you know, call it 19%-20%? Yeah, Mike Murray, this is Brian Poff. I, I think we're continuing to see leverage. As our top line continues to grow, we definitely saw that from Q1 into Q2 with kind of a decline in that percentage. That would be our expectation. A lot of those costs, particularly on the corporate side, are, are fixed. You know, we'll flex a little bit in the field on, on SG&A, but that's probably gonna move, you know, more slowly than our revenue growth. Yes, we would anticipate over time, as we continue to see our top line growth, that we're gonna continue to get more leverage on G&A. All right. Thank you. The next question comes from Matt Larew with William Blair. Please go ahead. Hey, good morning. You gave us some metrics on, on hiring productivity. I'd be curious to hear a little bit on the other side of that, on the retention side, what sort of improvement you've seen, and if there are technology tools that you can implement or are evaluating to help drive that further? Thanks. Yeah, this is Brad. When you look at our personal care hiring and you carve out our family caregivers, so you look at kind of your traditional caregivers, we have seen nice improvement on the turnover rate, probably about, to the tune of, you know, we went from 64% roughly, Q1 of last year, we're down to 56%, which is, again, still ahead of industry standard. You know, I think, you know, some of the things that we're looking at that I think have helped us on the turnover is, you know, one, really working on caregiver engagement. Second, making sure that they have the hours that they wanna work, because it was still probably one of the biggest reasons that a caregiver leaves us, is because they're not getting sufficient hours. There's been a lot of focus on our part of trying to ascertain who wants more hours, what schedules are they looking at, and putting some technology tools that help match that those additional hours they're looking for with clients that are available. I think our, you know, IT team has done a great job of putting together some very helpful tools. We're continuing to modify and work with those. Again, I think speed to hire is important, you know, from a to really kind of maximize our fill rates. You know, honestly, it's really about making sure people are getting the hours. You know, in addition, we actually do conduct, you know, surveys with our caregivers. We just recently completed a round of surveys, got great response. Almost half of our caregivers responded. You think about, you know, you get input from, you know, 14,000 caregivers, you, you learn a lot. Again, it's been interesting, is hours, working and getting enough hours is probably one of their key things, and that's what we're focused on. Okay, understood. Then on M&A, Dirk, you spoke to sort of the added side of it, where you're focused from a PCS versus home health versus hospice perspective. Curious more on, on the supply side, what you all are seeing, given some of the reimbursement dynamics that might be affecting potential sellers' willingness to come to market, as well as maybe just a general sense of your activity levels. Obviously, you just completed the Tennessee deal, but maybe relative to historical, what, what you're seeing from an activity and pipeline perspective. Hey, Matt, this is Brian. I think, you know, on the supply side, I think, we kind of mentioned in our comments, it, it's, it's been slow. I think, you know, there are some opportunities out there. You know, we're being pretty selective on the ones that, that we're looking at with, some of the, the, the rule and reimbursement overhang. We're being, I think, you know, cautious on that front. I would also say the environment, has not, has not kind of turned, it's not what I would call robust at this point. There are still opportunities for us to look at. You know, I think still from a priority standpoint, you know, we still, you know, believe heavily in carrying skilled home health with our personal care, having hospice, as an available alternative as well. It really comes down to more strategic markets and pricing opportunities, I think, probably are, are driving us more today on what our, you know, opportunities are that we're gonna pay more attention to. Let me, let me add to what Brian has said, and that is, you know, we're, we're facing challenges right now, as you know, in, in both personal care and home health as it relates to either rule change, proposed rule changes or proposed rate reductions. Long term, we don't believe those should affect our strategy. We, we remain completely focused on our growth of all three levels of care in markets that allow us to appropriately deal with value-based care. One of the things we think these changes indicate is that you need to be larger as a company. So that when you sit across the table, certainly from Medicare Advantage payers, but, you know, others as needed, that you have something that they need, and that is size and quality of operation. So while we are currently being more focused on our strategic model as to what we will look at, if something came up in either one of these segments of care that was extremely strategic, we're not gonna let the proposed rules out there affect us long term. Now, whether or not it affects the price, that remains to be seen. I mean, certainly from our standpoint, we're gonna negotiate if we can, with the fact that there are these challenges out there, but we're still focused on the long-term growth and profitability of Addus. Okay, understood. Just quickly, one more, on the timeline for the Medicaid rule. I think in the past, you had mentioned you expected some update in the fall. I don't know if based on the quantity of comments and the listings that you had, if you have a different perspective on when that might come, acknowledging it's probably still somewhat uncertain. Yeah. Well, I think when it first was proposed, there was a discussion around the fact that if you look historically, some of these things could be actually finalized within a few months of, of getting the final comments in. I think at the last conference call, and certainly as we've made visits through the last quarter since then, our feeling is that that's probably shifted and won't be finalized until sometime in 2024, especially if you think about it when, when you've received so many comments and most of them are against the proposed change, I think there's a lot of thought process that has to go in from the CMS perspective. So we're expecting something probably more in line with first part to mid part 2024. Okay. Thank you. As a reminder, if you would like to ask a question, please press star and one to be joined into the question queue. The next question comes from Joanna Gajuk with Bank of America. Please go ahead. Good morning. Thanks for taking the questions here. I guess first on the Tennessee acquisition, you mentioned the fact that the situation in the state in terms of the payers would, you know, you makes this state as a target for value-based contracting. When should we expect, I guess, for you guys to have a contract like that in the state? Was it maybe that the payer there was actually asking for you to add more services? To kind of, you know, how you expect the, you know, the, the, the situation in the state on that front, you know, evolve with this acquisition now closed? Yeah, I think on the value-based, I mean, some of the payers that we work with, outside of Tennessee are similar to the payers that are in Tennessee. Now, it tends to be a different group of individuals that are overseeing those markets, but I think we'll at least be able to have an introduction pretty easily to start having those discussions around value-based. You know, I think that's something, it's still not something we'd probably be jumping into in, you know, in three months, but, you know, maybe towards the back half of an integration, you know, within the first 12 months, we'll probably be looking to get into a value-based arrangement. We'll, but we'll start exploring those, frankly, now, are engaging with payers to have some of those discussions as we work on some of the other rates, that are, with some of those managed care payers. Great. If I may also follow up on the fact, right, that this asset comes with a majority revenues being home health. You moving forward with acquisition, despite the rate cuts that are coming next year, likely, right, and there could be more cuts going forward with the recoupments. I guess, as we think about this business, home health segment, that is, with this, you know, let's say that the 2% rate cut is finalized, maybe a little bit better than proposed, would you expect to be able to grow EBITDA, you know, on a same store basis, I guess, with these types of rate cuts? Yeah, I mean, I think, Joanna Gajuk, I can talk about the rate cuts. I'll let Brad kind of talk about, you know, our, our growth opportunities with, with this acquisition. I think our, our deal in home health, it's a small segment for us today. The deals that we're looking at, this one, being a, a prime example, you know, we've taken those potential rate cuts over the next couple of years into consideration with our kind of long-term view on what we think our top line growth opportunity is there. We've modeled that in, and that flows through, obviously, you know, down to profitability for us and our expectation, and that's what we utilize in our pricing conversations with, with these targets. All, all part of our process, and, and we're aware of kind of the environment and take that into account. I think, you know, for this one, particularly. Brad kind of mentioned there are opportunities to get into other counties. I think we see some, some volume growth opportunities in the market. I'll I'll let Brad talk a little bit about that. Yeah, so I think there certainly are some volume opportunities with some potential de novos, based on kind of where they are. I mean, they cover a large geography in Tennessee. I think there's some opportunities to move into some of the more urban markets. They're primarily kind of more rural focused. You know, also, I think to Brian's point, I mean, home health is a relatively small segment for us, so there's operational efficiencies that we gain by scaling up. I think that really, you know, went into our calculus about doing this deal and about the opportunities to get some same store growth from a bottom-line perspective as well as top line. Appreciate it. Thank you. If I may, just a last question, I guess, more, more strategic, and I know this, this just came out yesterday, but CMMI announced a new voluntary demonstration, I guess, across all the states, with a focus on dementia patients. I don't know if something like this would be of interest to Addus? You know, the material from CMS talks about targeting, you know, dual-eligible population, but at the same time, they talk about, you know, this being open to Medicare certified providers. I don't know if this is something that I guess, you know, makes Addus here, you know, well-positioned given the kind of presence in both, you know, Medicaid or also Medicare home health? Yeah, Joanna, this is Brad. Very pleased with that announcement. It's certainly something that we're going to explore. I think it really fits well into our strategy of having all three levels of care 'cause it, it has a skilled component, with the home health, but it also has a personal care-type component as well. You know, and frankly, it's good to see CMS recognize that that's probably the population that honestly has, you know, the lack of services or potential lack of services. You know, those are individuals that, you know, they can need home health, they can need personal care, they may need hospice. By the same token, you know, it, it helps them. When you look at hospice, you get a lot of criticism where somebody's on length of stay, for, you know, for a long period of time. It's primarily, those neurological, disorders such as dementia. I think this is really trying to kind of fill some of that gap and some of the pressure you have in trying to take care of those individuals in the right place. Very pleased with it and certainly looking forward to exploring it. Thanks for the call. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mr. Dirk Allison for any closing remarks. Thank you, operator. I wanna thank each of you today for your interest in Addus and for being a part of our call. Hope you have a great week. The conference is now concluded. Thank Thank you for attending today's presentation. You may now disconnect.