Addus HomeCare Corporation (ADUS) Earnings

Management highlights

- Overall Financial Performance * Total Q2 2026 revenue grew 8% YoY to $377.4 million; adjusted EPS increased 16.1% YoY to $1.73; adjusted EBITDA grew 11.9% YoY to $49.2 million; cash flow from operations was $40 million YoY, up from $22.5 million in Q2 2025. * The company ended the quarter with $99.6 million cash, $64.3 million total bank debt (a $30 million reduction from Q1 2026), and $577.8 million available under its revolving credit facility, providing strong financial flexibility for acquisitions. * Gross margin was 32.2% (flat slightly down from 32.6% YoY, up 30 basis points sequentially from Q1 2026); adjusted G&A expense was 19.2% of revenue, down from 20% YoY, reflecting cost discipline and operating leverage. - Strategic Growth & Acquisitions * Closed the acquisition of Fort Wayne, Indiana-based personal care operation Home Court HomeCare on May 1, 2026, marking entry into Indiana adjacent to the company's largest market Illinois. * A second Indianapolis-area personal care acquisition is pending regulatory review and approval, expected to close after satisfying customary conditions. * The company continues to pursue a scale-focused growth strategy, with an increasing pipeline of personal care acquisition opportunities and growing optimism around home health deal flow following the release of the 2027 CMS proposed payment rule. - Regulatory Updates * CMS issued a proposed 2027 home health payment rule that proposes a net 2.1% rate increase, though management remains concerned about the ongoing negative 3% temporary adjustment and supports industry efforts to eliminate it. * The final 2027 hospice payment rate was set at a 2.3% increase, down slightly from the proposed 2.4% and the 2.6% 2026 final increase. * Management continues to expect the 80-20 provision of the CMS Medicaid Access Rule will be eliminated by the end of 2026, which would be positive for the industry with no current impact to operations. - Operational Highlights * Personal care hiring averaged 104 hires per business day, in line with Q2 2025 levels, consistent with organic growth targets; the fill rate (percentage of authorized hours served) improved to 84-85% consolidated, driven by early traction from the new caregiver app rollout in Texas. * Hospice average daily census exceeded 4,000 in July 2026, marking continued steady growth; the company experienced $3 million in Medicare cap exposure in Q2 2026 primarily in the Ohio market, with mitigation plans in place.

Guidance

- Adjusted EBITDA margin is expected to stay relatively stable from Q2 2026 to Q3 2026, then increase in Q4 2026, pushing full year 2026 adjusted EBITDA margin to the higher end of the 12-13% range. - The company expects to return to year-over-year same store ADC growth for personal care in the second half of 2026, with Illinois and New Mexico already growing and Texas expected to accelerate. - Consolidated personal care fill rate is targeted to reach the upper 80% range over time, up from the current 84-85% level. - Without an extension of the Work Opportunity Tax Credit (WOTC) that expired at the end of 2025, the full year 2026 effective tax rate is expected to be in the upper 20% range. - Cash flow is expected to moderate slightly in the second half of 2026 after strong working capital benefits in the first half, but remain consistent overall. - Hospice segment margins are expected to remain relatively stable in 2027, as 2% average reimbursement increases offset ~3% wage inflation, with non-labor cost mitigation offsetting remaining pressure. - Conversion of all legacy business to the HomeCare HomeBase EMR system is on track to complete by the end of Q1 2027, with Gentiva EMR conversion and expected ~$1 million in annual cost synergies to follow in 2027.

Segment performance

Total company revenue for Q2 2026 was $377.4 million, an 8% increase year-over-year (YoY). 1. Personal Care: Revenue of $296 million, accounting for 78.4% of total revenue. It achieved 6.8% organic same-store revenue growth YoY, with 2.2% YoY growth in same-store hours per business day. Same-store sequential census increased 1.2% YoY. 2. Hospice: Revenue of $64.2 million, accounting for 17% of total revenue. It delivered 11.1% organic same-store revenue growth YoY. Same-store average daily census increased 6.5% YoY to 3,964. 3. Home Health: Revenue of $17.2 million, accounting for 4.6% of total revenue. Same-store revenue decreased 2.8% YoY, an improvement from the 6.6% decrease in Q1 2026, with sequential improvement in revenue, operating income, and new admissions (new admissions up 9.8% in the quarter).

Risks & headwinds

- The ongoing 3% temporary payment adjustment included in the 2027 CMS proposed home health payment rule creates uncertainty for future home health reimbursement levels. - The Work Opportunity Tax Credit (WOTC) expired at the end of 2025; without a retroactive extension, the company's effective tax rate will increase to the upper 20% range. - Medicare hospice cap creates annual marginal exposure in a small number of markets; the company recorded $3 million in cap-related expense in Q2 2026 primarily in Ohio, though management expects no additional exposure for the full year. - State budget pressures could lead to stagnant reimbursement rates in some markets, creating pressure on margins if wage inflation outpaces fixed rates. - Hiring and caregiver retention remain the primary constraint on organic personal care growth; limited caregiver availability could slow growth if hiring targets are not met. - Federal focus on Medicaid fraud and abuse has led to payment withholding in some states, though the company has not experienced this in any of its operating markets to date.

Analyst Q&A

• Q: What is the recent census trajectory for the company's three largest states (Illinois, New Mexico, Texas), and what progress has been made on the caregiver app rollout in Texas and New Mexico? /

  A: Management reports strong census momentum in Illinois and New Mexico, while Texas census has held steady with expectations for acceleration soon. The consolidated fill rate increased to 84-85% this quarter, driven by faster-than-expected adoption of the caregiver app in Texas, which has pushed Texas fill rate into the mid-to-upper 80% range. New Mexico's rollout has progressed slower due to integration requirements with the state's existing EVV app, with more modest progress to date. (293 characters)

• Q: What is driving the recent uptick in personal care and home health acquisition opportunities, and what is the company's appetite for larger scaled platform deals? /

  A: Management notes that market participants have become more comfortable that Medicaid regulatory changes will not have a large negative impact on the industry, leading more owners to consider selling. For home health, growing optimism around the 2027 proposed CMS payment increase has reduced market uncertainty, spurring more deal activity. The company has maintained a strong, disciplined balance sheet to pursue opportunities of all sizes, including larger scaled transactions, and is actively evaluating attractive pipeline opportunities. (401 characters)

• Q: What is the current status of Medicare hospice cap exposure in Ohio, and what target patient mix does management aim for to mitigate cap risk? /

  A: The company recorded a total of ~$3 million in cap-related accrual in Q2 2026, all concentrated primarily in the Ohio market. Management has implemented mitigation strategies, and does not expect any additional cap exposure for the remainder of the 2026 cap year, and expects to potentially recover some of the recorded accrual by the end of the year. There are no competitive or operational barriers to maintaining the desired balanced mix of long and short stay patients, which is the core strategy to manage cap exposure. (372 characters)

• Q: What impact has the caregiver app had on caregiver retention in Illinois, and what is the timeline and expected benefit of expanding the internal patient referral bridge program across all service lines? /

  A: Over 90% of caregivers in Illinois now use the app, and management has measured a slight reduction in caregiver turnover, which helps expand capacity to serve more clients. The bridge program, which refers patients across personal care, home health, and hospice, currently requires mostly internal team education and careful compliance with state marketing rules, with early progress in Tennessee and New Mexico. Once all business lines are converted to the unified HomeCare HomeBase EMR by the end of Q1 2027, cross-service referrals will become much easier, enabling broader expansion of the program. (438 characters)

• Q: What are the underlying supply and demand dynamics for personal care, and is caregiver availability a material constraint on growth? /

  A: Management confirms underlying demand remains very strong, driven by aging Baby Boomers moving into the prime age range for personal care services, so demand is not a limiting factor in most markets. The primary constraint on organic growth is caregiver availability: in most major operating markets, state reimbursement is adequate to pay competitive wages and attract new hires, which is why the company exited New York a few years ago due to inadequate reimbursement that made hiring unsustainable. The caregiver app and streamlined hiring processes are focused directly on alleviating this constraint. (421 characters)