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Operator
Good day and welcome to the Addis Home Cares second quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone 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 Drew Anderson. Please go ahead.
Drew Anderson
Thank you. Good morning and welcome to the Addis Home Care Corporation second quarter 2024 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 Addis expected quarterly and annual financial performance for 2024 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 forecast, 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 Addis filings with the SEC and in its second quarter 2024 news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. I would now like to turn the call over to the company's chairman and chief executive officer, Mr. Dirk Allison. Please go ahead, sir.
Dirk Allison
Thank you, Drew. Good morning and welcome to our 2024 second quarter earnings call. With me today are Brian Poff, our chief financial officer, and Brad Vickomar, president and chief operating officer. As we do on each of our quarterly 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. Before I discuss our results for the second quarter of 2024, I wanted to bring you up to date on our recent secondary stock offering, which we completed at the end of June. As part of a review of our capital structure pending the acquisition of the personal care operation of Gentiva, management and our board of directors concluded that it would be prudent to proactively raise common equity, which would keep our net debt leverage to just over one times following the close of the Gentiva transaction. With the help of both Bank of America and Jefferies, along with other of our investment banking partners, we were able to complete a successful stock offering, which resulted in our raising net cash proceeds of approximately $176 million after the expenses of the stock offering. It is our intention, as we have done previously following similar stock offerings, to utilize these funds over the next 12 to 24 months to allow us to continue sourcing acquisitions of the size and type that will bring additional value to our shareholders. I want to thank our banks and shareholders that supported this offer. Our team looks forward to continuing to maintain a conservative balance sheet while using our capital in a way that brings value to all shareholders of Addis. Now let me turn to our financial performance in the second quarter. As we announced yesterday, our total revenue for the second quarter of 2024 was $286.9 million, an increase of .4% as compared to $260 million for the second quarter of 2023. This revenue growth resulted in adjusted earnings per share of $1.35 as compared to adjusted earnings per share for the second quarter of 2023 of $1.07, an increase of 26.2%. Our adjusted EBITDA of $35.3 million was an increase of .7% over the second quarter of 2023. During the second quarter of 2024, we continue to experience consistent cash flows. That, along with our equity offering, has allowed us to pay off all of our outstanding debt and leaves us with approximately $173 million in cash on hand at quarter end. It remains our focus to use our financial capacity to acquire strategic operations that align with our overall growth strategy of adding clinical services where we have a strong personal care presence, enhancing our existing personal care markets, and adding select new personal care markets where we can enter at scale. We believe this acquisition strategy will continue to strengthen our ability to participate in value-based contracts with our payers and to adapt to potential any reimbursement changes. On June 10, 2024, we announced that we are acquiring the personal care assets of Gentiva, one of the largest providers of hospice services in the United States. We believe it is important that personal care providers have scale and broad geographic coverage in states where they operate to be successful, particularly in managed Medicaid states and as a result of the final Medicaid access rule. This scale and coverage helps facilitate the development of value-based contracting arrangements, allows these providers to spread costs over a bigger revenue base, and provides more opportunity for meaningful advocacy with the states in which they operate, while also promoting a more favorable hiring and retention dynamic. This belief led us to pursue this acquisition with Gentiva. Once this deal is closed, HADAS will be the number one provider of personal care services in the state of Texas, which is primarily a managed Medicaid market. In addition, this transaction gives us larger presence in Arkansas, strengthens our California and Arizona private pay and veterans' affairs businesses, adds a location in East Tennessee to our existing operations in the state, and provides entry into both Missouri and North Carolina. Effective last week, the required waiting period under the Heart Stop Rodino Antitrust Act expired in connection with this acquisition, which satisfies one of the key regulatory conditions necessary for the completion of the transaction. This was an important step toward closing. We are targeting finalization of this transaction in the fourth quarter of this year, subject to satisfaction or waiver of the remaining customary closing conditions, including regulatory approvals related to the Texas operation. We are very excited about the many new team members that will be joining HADAS once this transaction is closed. This team has done a great job in growing the business and providing quality services to customers, which we expect to continue as part of our company. Currently, our team is working diligently in transition planning in anticipation of closing. During the second quarter, we continue to experience solid results related to our ability to hire caregivers, especially in our personal care segment. During the second quarter of 2024, we saw our personal care hiring set a company record at 86 hires per business day, while turnover rates have remained at historically low levels. In addition to our strong hiring numbers, we have continued to see consistent momentum in our starts for business day over the past few quarters. As for our clinical segment, hiring has continued to improve and seems to be returning to a more normalized pre-COVID hiring environment. As we have over the past couple of years, we continue to utilize the funding we received from the American Rescue Plan Act, or ARPA. During the second quarter of 2024, we received an additional $2 million, bringing our total -to-date to approximately $40 million, of which we have over $13 million remaining to utilize. These funds are helpful with both our personal caregiver recruitment and retention efforts. In our personal care segment, our services continue to receive favorable reimbursement support from many of the states in which we operate, and we believe that our states remain in stable financial condition. We feel confident that the personal care services continue to deliver real value to state Medicaid programs, as well as our managed care partners, through reduction in overall cost of care. As for our clinical services, effective October 1, 2023, Medicare hospice reimbursement was increased by approximately 3.1 percent. Earlier this year, CMS announced a preliminary fiscal 2025 hospice rate increase of 2.7 percent. Which will be effective on October 1, 2024. On July 30, the hospice rate increase was finalized at 2.9 percent. Consistent with recent years, we were pleased to see an incremental positive adjustment in the final hospice rate as compared to the original proposal, which may bode well for the pending finalization of the proposed home health rule due later this year. On January 1 of this year, home health Medicaid reimbursement was increased by approximately 0.8 percent. In late June of this year, CMS announced the preliminary rate for home health that would be effective on January 1, 2025, resulting in a reduction of approximately 1.7 percent, if finalized as proposed. We believe that the final rate for home health may improve slightly based on the increase of the hospice rate between the proposed and final hospice rate rule and consistent with what we have seen over the past few years. It is disappointing that CMS continues to pursue reimbursement reductions for home health providers, which we believe limits patient access to this valuable and much needed service. Although the current Medicare home rate environment remains challenging, we continue to believe that additional Medicare home health reimbursement pressures are likely to moderate over the next few years. Now let me discuss our same store revenue growth for the second quarter of 2024. For our personal care segment, our same store revenue growth was 8.8 percent when compared to the second quarter of 2023. During the second quarter of 2024, we saw personal care same store hours increase by 1.7 percent as compared to the same period in 2023 and 2.1 percent as compared to the first quarter of this year. Helping us with this growth is our record 86 hires per business day, which I mentioned previously. We also saw continued improvement in our percentage of hours served compared to authorized hours, which also has helped our growth. While we are pleased to see continued positive momentum in our personal care volume trends, at the same time, we have seen a slight slowdown in the speed at which new consumers are authorized for care. In a few of our person care markets, the Medicaid redetermination process appears to have diverted some state resources from the initial enrollment process, leading to this temporary slowness in qualifying new consumers. We anticipate a return to more normal processes as redeterminations are completed in each state. Turning to our clinical operations, our hospice same store revenue increased 6.3 percent when compared to the same quarter in 2023. Our same store average daily census increased 1.7 percent when compared to the same quarter last year and was up 3.6 percent sequentially. At the end of the second quarter of 2024, our hospice medium length of stay, exclusive of our journey care and recently acquired Tennessee quality care operations, was 29 days as compared to 27 days for the first quarter in 2024. As we have done previously, we exclude our journey care operation as it is a higher proportion of shorter length of stay patients due to our inpatient units in the Chicago area. We are pleased by the steady improvement in our hospice segment this year and anticipate those favorable trends continuing into the second half of 2024. Our home health segment saw a same store revenue increase of 1.6 percent when compared to the same quarter of 2023 and we saw a same store total volume increase of 2.1 percent on a sequential quarterly basis. As most home health providers have experienced, we continue to be affected by the movement of Medicare beneficiaries from Medicare piece per service to Medicare Advantage. However, we have seen steady volume improvement sequentially over the past four quarters and our episodic to nonepisodic mix seems to have stabilized over the past several quarters. We are continuing to work with our Medicare Advantage partners on near term per-bidget rate increases as we discuss moving to longer term episodic reimbursement methodologies. As we have demonstrated by our recent announcement in TIVA trends action, acquisitions continue to be an important part of our growth strategy at ADDIS. Our targeted minimum annual revenue growth of 10 percent remains our goal even with the added size of our revenue base. For us to meet or exceed this goal, we will continue to be focused on using our capital to find additional acquisition targets that meet our strategic criteria. While we await the closing of the TIVA transaction, we will be looking for potential acquisitions for both our personal care and skilled segments, particularly home health. Over the past couple of years, the acquisition opportunities that meet our strategic opportunities have been somewhat limited due to some unfavorable general market conditions. Our team continues to review opportunities which would strengthen all three of our segments and we currently operate. However, the flow of potential deals continues to be slower than we saw three or four years ago. Even with the slower flow of potential deals, we still believe we will be able to complete strategic acquisitions in our markets that will allow us to meet our growth objectives and we continue to maintain a capital structure that will allow us to take advantage of acquisition opportunities that arise similar to the TIVA acquisition. As for our value-based care efforts, I noted last quarter that we continue to gather data which demonstrates material reductions in both emergency room visits as well as the percentage of patients readmitted to the hospital at various post-diskarge intervals. We continue to believe our excess is due to our ability to provide both non-clinical personal care services to identify changes in condition and clinical resources as needed for specific skilled patient care interventions. We are now using this information as part of our conversations with various Medicare Advantage and commercial payers to demonstrate how HADIS can be an integral part of providing quality, cost-effective care to plan members that can reduce the overall medical loss ratio while simultaneously improving overall quality of care. With our recently announced acquisition of TIVA personal care operations, we will now have the opportunity to enter into Texas with value-based care. This is an important market for our growth in value-based care as we have strong relationships with the managed care payers in the Texas Medicaid program. We expect to be able to work with certain of these payers in a value-based approach once the transaction closes. Before I close my remarks, I want to thank our team for the care they are providing to our elderly and disabled consumers and patients. These last few years have shown that the vast majority of our cases to clients and patients want to receive care at home, which remains one of the safest and most cost-effective places to receive this care. We believe the heightened awareness of the value of home-based care is favorable for our industry and will continue to be a growth opportunity for our company. We understand and appreciate that our operations and growth are dependent on both our dedicated caregivers and other employees who work so incredibly hard providing outstanding care and support to our clients, patients, and their families. With that, let me turn the call over to Brian.
Brian
Thank you, Dirk, and good morning, everyone. Addison had another solid financial and operating performance for the second quarter as we saw positive momentum across all three segments of our business. Our results were driven by favorable demand trends for our services with positive year over year and sequential revenue growth in all business lines. For the second quarter of 2024, our personal care organic growth was 8.8%, continuing to be well above our normal expected range of 3 to 5%. This impressive growth reflects continued favorable rate support for personal care services and some of our larger markets, as well as a higher volume of hours. Billable hours per business day were higher by .7% over the same quarter last year, and we saw sequential growth in the first quarter of 1.9%. While we expect our overall growth from reimbursement increases to moderate as we move through the second half of 2024, we were pleased to see Illinois include another reimbursement increase for our services in their final 2025 state budget. Affected January 1st, our reimbursement rate in the state will increase by approximately .5% and will support a minimum wage for our caregivers of $18 per hour. This will translate into approximately $23 million in annualized revenue with a margin in the low 20s consistent with the 77% rule in the state. We saw further steady improvement in our hospice business in the second quarter with .3% year over organic revenue growth and higher admissions, average daily census, patient days, and revenue per patient day compared with the second quarter last year, including the results of the acquired operations of Tennessee Quality Care, a provider of home health, hospice, and private duty nursing services as of August 1st, 2023. Our same store average daily census grew .7% over the second quarter of 2023 and our total average daily census grew by .5% sequentially from the first quarter of 2024. We were also pleased to see the announcement of the 2025 final hospice reimbursement rate increase of .9% up from the proposed 2.6%. Based on the geographic and level of care mix in our hospice business, we expect the impact for our hospice operations to be an overall increase of approximately .2% or $6.8 million in annual revenue effective October 1st, 2024. Same store revenue for our home health services, which is our smallest segment, returned to positive growth trends with .6% organic revenue growth and higher admissions and volumes compared to the second quarter last year. We also experienced an increase of .9% in total volume sequentially from the first quarter of 2024 and maintained a generally consistent sequential mix of episodic service business, which includes both traditional Medicare and episodic Medicare Advantage volume. As Dirk noted, total net service revenues for the second quarter were $286.9 million. The revenue breakdown is as follows. Personal care revenues were $212.8 million or .2% of revenue. Hospice care revenues were $56 million or .5% of revenue. And home health revenues were $18.1 million or .3% of revenue. With acquisitions an important part of our growth strategy, we continue to focus on markets where we can leverage our strong personal care presence and add clinical services so we can offer all three levels of home-based care. As Dirk noted, we are excited about our acquisition of the Geneva Personal Care Operations with coverage in seven states, including Texas and Missouri, two new states for Addis. With our size and scale and the support of a strong balance sheet, we are well positioned to continue executing our acquisition strategy. Other financial results for the second quarter of 2024 include the following. Our gross margin percentage was .5% compared with .7% for the second quarter of 2023. This increase is primarily due to a higher mix of clinical services as well as a favorable experience in our implicit price concession requirement as we have continued to see strong cash collections from a majority of our payers. Looking ahead to the second half of 2024, we expect to see our implicit price concession return closer to historical levels with a related slight compression impact to our gross margin percentage on a sequential basis in the third quarter. However, with the recently announced final hospice reimbursement update, we will see the benefit in the fourth quarter from this increase and anticipate some margin expansion in the fourth quarter as a result. GNA expenses were .2% of revenue, fairly consistent with .1% of revenue for the second quarter a year ago and up slightly from .8% from the first quarter of 2024. Adjusted GNA expense for the second quarter of 2024 was 20.2%, a decrease from .4% in the comparable prior year quarter. As a result of the agreement to divest our New York operations, we will bear certain costs in order to effectuate the transfer of the net economic benefit to the buyer under the terms of the agreement. As these costs are recorded in our GNA expenses, we saw an increase of 30 basis points in the second quarter of 2024. Under the purchase agreement structure, the transfer is staged while we await full regulatory approval with any final transfer to occur at closing following such approval. We anticipate the transaction may qualify for sale treatment under gap prior to closing. As such, we expect to see a total negative impact approximately 60 basis points in each full quarter going forward until either the transaction qualifies for sale treatment or closing occurs following full regulatory approval. The company's adjusted EBITDA increased .7% to $35.3 million compared with $28.3 million a year ago. Adjusted EBITDA margin was .3% compared with .9% for the second quarter of 2023. It was up sequentially from .6% in the first quarter of 2024. While we anticipate some slight sequential margin compression primarily in the third quarter, as I discussed, we continue to expect our full year 2024 adjusted EBITDA margin percentage to remain in the high 11 to 12% range. Adjusted net income per diluted share was $1.35 compared with $1.07 for the second quarter of 2023, an increase of 26.2%. The adjusted per share results for the second quarter of 2024 exclude the following. Acquisition expenses of 13 cents and non-cash stock-based compensation expense of 12 cents. The adjusted per share results for the second quarter of 2023 exclude the following. The impact of the retroactive New York rate increase of 5 cents, acquisition expenses of 8 cents, and non-cash stock-based compensation expense of 13 cents. Our tax rate for the second quarter of 2024 was .3% within our expectation. For calendar 2024, we continue to expect our tax rate to remain in the mid 20% range. DSOs were 36 days at the end of the second quarter of 2024 compared with 34.6 days at the end of the first quarter of 2024 as we have continued to experience consistent cash collections from the majority of our payers. Our DSOs for the Illinois Department of Aging returned to a more historical level for the second quarter at 37.3 days compared with 30.2 days at the end of the first quarter. As we anticipated, we saw the timing differences in our receivable payments reflect in our working capital resulting in net cash flow from operations of $18.8 million for the second quarter with $57.5 million for the six months ended June 30th, 2024. We received approximately $2 million in ARPA funding during the quarter, partially offset by $2.4 million in ARPA funds utilized, and as of the end of the second quarter, we still have approximately $13.1 million in ARPA funds outstanding to be utilized. On June 28, 2024, we completed a public offering of ,725,000 shares of common stock at an offering price of $108 per share. The net proceeds from the offering to Addis after deducting underwriting discounts, commissions, and estimated offering expenses were $176.1 million. We used approximately $81.4 million of the net proceeds for the repayment of all indebtedness outstanding under our credit facility, and the remainder will be used for general corporate purposes, including funding the Gentiva acquisition and any future acquisitions or investments. As of June 30, 2024, the company had cash of $173.3 million with capacity and availability under our revolver of $504.4 million and $496.4 million, respectively. We have a solid foundation and the financial flexibility to continue to invest in our business and pursue our strategic growth initiatives, including acquisitions. As mentioned, we will continue to selectively pursue acquisitions that align with our strategy, while at the same time being disciplined with our capital spending and managing our net leverage ratio. We look forward to the opportunities ahead for Addis and for our shareholders. This concludes our prepared comments this morning, and I would like to thank you for being with us. I'll now ask the operator to please open the line for your questions.
Operator
We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. Please do not use a speakerphone, but 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 comes from Dao Kui with Macquarie. Please go ahead.
Dao Kui
Hey, good morning. Congrats on a strong quarter. I just want to clarify on two comments earlier. I think, Dirk, I heard you mention there's some slowdown in new consumer growth in personal care services in certain states where Medicaid determination is having an effect. Could you quantify the volume of implications for the second half? And Brian, I think you mentioned the return of price concession leading to margin compression in the third quarter and possibly expansion in fourth quarter. How do you think your overall margin profile compared to the first half? Yes,
Dirk Allison
I'll talk about what we're seeing with the determinations and slowdown. It's not all over our business. It's in specific markets. Some states seem to have difficulty with the resources that have been allocated and the amount of process going on. It appears that a lot of those states are near the end or at the end of that particular process. What we have seen during that timeframe, and you'll notice it in our hours, growth being a little smaller than maybe we would
Brian Tankwilat
expect at
Dirk Allison
times, and that is that some of the same individuals that would normally look at new consumers and qualify them with authorizations for care, they're being delayed a little bit because those individuals that would do that are still working on finalizing the redetermination process going on. So while it's been immaterial, we have noticed it in a couple of markets, but we do believe, as I said, that it will return very quickly to a more normalized state.
Brian
Just the second part of your question on implicit price concession, I think the gap that we would see going back to more normal historical levels is probably going to be the 40 to 50 basis points range. So we would expect to see that impact Q2 into Q3 to get back into that kind of normal historical pattern.
Dao Kui
Great. And then on the labor trend, we saw a favorable payroll report last Friday in terms of weakening the broader economy, but stronger hiring in healthcare, particularly home health. Are you seeing any further hiring retention improvement in the third quarter? And are there any meaningful differences between clinical labor and attendant care? Thanks.
Scott
Yes. From a hiring standpoint, I mean, Q3 seems to be consistent with what we saw in Q2, which was record hiring for us. Certainly on the PCS side we've had, on the personal care side, we've had strong hiring numbers for the past year plus. The clinical service line has really consistently
Q3
improved since probably mid-year last year. Great. Thanks for the time.
Operator
The next question is from Scott Fidel with Stevens. Please go ahead.
Scott Fidel
Hi. Thanks. Good morning. First question just would be interested on the home health side. If you wanted to walk us through, you know, what percentage of your contracts would you estimate at this point had been repriced onto the preferred contracts? And just thinking about, you know, sort of looking at the overall business, sort of how much do you think is sort of baseline now on rates where you can look to grow volumes in that business? And then how much of it is still in that bucket where you're effectively, you know, not allocating as much resources due to not getting sufficient rates from your payer partners?
Scott
Yeah. I mean, we've actually had some pretty nice wins late where we've at least moved some payers to kind of closer to Lupa rates, maybe not necessarily episodic, but that's nice wins in a couple of markets. One, and particularly actually involved a Medicaid managed provider in the market that that's a fairly significant payer for us. So we're continuing to work that, I would say, as far as contracts that, you know, we're not able to service because of a rate. I mean, that's, you know, they're still, you know, in a couple of markets. We have a handful of those, but it has certainly improved over
Q3
the past couple of quarters.
Scott Fidel
Okay. And, you know, I know it's something we haven't talked as much about since there really hasn't been a lot of change. It feels like the last several quarters or frankly, a couple of years, I guess, but just, you know, interested just if you wanted to give us an update on the Medicare Advantage side, just as it relates to personal care and, you know, separate from value-based contracting, but just thinking more about the benefits that Medicare Advantage providers are authorizing and the trends there. I know that it's been pretty slow, you know, to ramp, particularly around authorized hours. And just interested in sort of what type of feedback you're seeing for 25. Clearly, you know, it's been a pretty challenged environment in Medicare Advantage in terms of utilization and then reimbursement for MA plans. So just interested, you know, how much of a gating factor you think that's going to be on the 25 trends as it relates to, you know, trying to get more, frankly, reasonable sort of levels of hours authorized for personal care services.
Scott
Yeah, I mean, when you look at the supplemental benefit, you know, it came in, you know, several years ago when that came into being. And what we noted back then was that, you know, the number of hours authorized, very low compared to what our main book of business is on the personal care side. They tend to be more challenging to staff, you know, infrequent low hours, even low hours per shift, which makes it challenging to find staff for that. We really don't do much of that. I think outside of maybe about one state that we really had, you know, any kind of, and I wouldn't call it, it's certainly not material, you know, from the supplemental benefit. But I wouldn't, you know, 2025 is such a small piece of our business. You know, you do see some plans cutting back on that. But we really don't have enough business for that to really make a difference for us.
Dirk Allison
Yes, Scott, I think, you know, we've been hoping that Medicare Advantage, we'd be able to move from this respite type care to a more traditional personal care. We believe that it has a lot of advantages and the data we're gathering can lead that direction. But it hasn't gathered a lot of momentum at this point in time. So it's still some time away. I think the one thing that our numbers do show is that it really solidifies the partnership we have with the Medicaid payers that we have today. They see the benefit of our ability to lower medical loss ratio. So we hope over time, this will move over to the Medicare Advantage. But to date, it's not done much.
Scott
Yeah, I mean, as Dirk mentioned, I mean, we really kind of focusing on the value-based side of it, rather than looking at the supplemental benefit portion, because as we said, that's not a big opportunity
Scott Fidel
there. Got it. So bottom line on the soft benefits, clearly not much tailwind for 25, but not much headwind either, since there's just limited amount of revenues from that in the base. Yeah, that's a great way to
Q3
summarize
Scott Fidel
it.
Q3
Okay, got it. Thanks.
Operator
The next question is from Brian Tankwilat with Jeffries. Please go ahead.
Brian Tankwilat
Hey, good morning, guys, and congrats on the quarter. Hey, Dirk, as you see the recruiting success that you're experiencing right now and the increase in the number of hives per day, are you seeing any signs that this is the countercyclical impact of the economy? And then maybe if we could dig deeper into how you're thinking about the defensiveness of your business if that has changed post-COVID?
John Ransom
You know, and by the way,
Dirk Allison
thanks, we appreciate it, Brian. You know, as it relates to any kind of recessionary environment we operate in, historically over the last 34 years, when that has occurred, Addis has done very well. If you think in terms of our caregivers, it's a minimum wage type caregivers, part-time hours. And so what that allows us to do is in those times when maybe people are struggling a bit and they're looking for additional hours of work, maybe you have folks that want to come into the work environment, they have not been in it for a while, we have the ability to operate them, to offer them employment or extended hours because in our business, our demand is pretty recessionary proof. People still need the care. Our reimbursement comes from Medicaid or Medicare in some aspects. And so really from that standpoint, it's really somewhat defensive in the recessionary environment. It doesn't affect us and in times it really helps our ability to hire caregivers, which should drive continued growth in a personal care business particularly.
Brian Tankwilat
Okay, that makes sense. And then maybe Brian, as I think about just the dynamics on interest expense or interest income for Q3, Q4, I know a lot of that depends on when the Geneva deal closes. Just curious how you're thinking about that.
Brian
Yeah, I mean, obviously we paid off all of our revolvers. So we've invested a large portion of our cash on hand in just money market interest bearing accounts. So I think you'll see a pretty nice return on interest income over the next couple of quarters until we get to the Geneva closing and we'll use those proceeds. So I would say today we have probably $130, $135 million of our cash on hand is invested in money market interest accounts.
Brian Tankwilat
Any rate you could share with us, Brian? I'm just curious.
Brian
Yeah, I think our weighted average is probably close to 5%. All right, got it.
Q3
Awesome. Thank you.
Operator
The next question is from Jared Hosse with William Blair. Please go ahead.
William Blair
Morning and thanks for taking all the questions. Maybe just two clarifications on the determinations in fact. And I guess this is fairly immaterial to the overall volume transfer. I'm just curious, just with the delays in care authorization, is there a risk that you end up missing out on those individuals or is it truly just a sort of delay in terms of when they get approved and you can start providing services? And then from a bigger picture perspective, is there anything in your control in terms of working with the states to kind of get through that approval process a little more efficiently?
Scott
Yeah, with respect to, I mean, you're not going to miss out on the clients. It's really just more of a delay in the startup care. And with respect to new clients coming on board, there's just kind of limited what we can do other than kind of get those individuals in touch with the appropriate individuals who are the case managers and who are doing the qualification work on those cases. It's really kind of a staffing challenge on the state side or whoever they're utilizing. It's a third party case managers as they have to kind of work through the determinations, but then also they have this new client workload and they have kind of a due date to get through the redetermination process. So that is taking up some of their time. But again, as Burt pointed out, we've seen it just in a couple of markets. And I'll tell you, I mean, frankly, it seems like that's in those markets is starting to get better. We're starting to see volume, a new client volume actually get back towards kind of normalized levels.
William Blair
Okay, that's great. And then I guess a somewhat similar question here, but I also wanted to follow up on the improvement in the sort of conversion of our served versus authorized hours. How much of that is related to things that you've done operationally over the last few years? Obviously a lot on the staffing and retention side that I'm sure drives that. And then how much more opportunity for improvement do you see there? And how much of that is also just a function of external factors like weather?
Scott
Yeah, I mean, if you look at, I think it's, you know, you look at our hiring initiatives, the things that we've done on the front end to make the hiring process smoother, cut down on the delays and getting somebody hired in their first start of care, our billable hours, I think that certainly has helped. We've done some things from a scheduling and kind of IT standpoint to make it easier for service coordinators to the schedule and identify where they have open shifts and where they have caregivers that have availability. You know, I think there's still some opportunity to make some incremental improvements there. But you know, we've made some pretty significant advances over the past year or so. You know, I think the improvements going forward will be more incremental.
William Blair
Okay, that's great. Thank you.
Operator
The next question is from Joanna Gajuk with Bank of America. Please go ahead.
Joanna Gajuk
Hi, thank you so much. This is Joanna Gajuk here. So I guess, first clarification question, to some degree, I guess, so the EBADA margins this quarter, where it was better in your flow code for higher margins compared to the prior comments, because you kind of talk about about 11, but now you're talking about high 11 to 12. So I guess, could you, really I missed it, but could you frame for us, you know, what drove that, what's driving this better EBADA margin? Because sounds like embedded in this is some headwinds you've seen from the New York market, so you know, transitioning still. So like, what's driving that better EBADA margin?
Brian
Yeah, and I think just sequentially, I think, you know, we obviously get relief this move through the year from payroll taxes, which were usually low for us. So there's some impact there. I think we expected, you know, implicit price concession, as we talked about, to kind of come back to more historical and it stayed pretty low still in Q2, but we expect that to come back up. But I think, you know, our comments around our bottom line, EBADA, you know, right now include the operations of New York, but with no EBADA contribution from them. So keep in mind, you know, under that terms of that agreement, we're still recording all the revenue and normal costs on the gross margin line, all normal SG&A, New York is still in our numbers. You know, at some point, if we were to receive sale consideration, or we get the regulatory approvals, and we close that transaction, you know, that should have a positive impact on our bottom line EBADA margins at that time, with that business being, you know, low margin to begin with. But like I mentioned in my comments, you know, we have a mechanism where essentially we have zero EBADA from that business affected with the signing of that agreement, which was kind of mid-May. So we'll see the first full quarter of that in Q3, which we think will, again, impact us slightly, because you'll have a little bit of that, you know, further EBADA aggression in that quarter. But when it comes out to your point, yes, it will have a positive impact on EBADA margin percentages bottom line.
Joanna Gajuk
All right, so yeah, so that's in the future. So you're not, the comment about, you know, full year margins being close to 12%, that does not reflect the New York exits. That's what is getting at. Like, it sounds like maybe these press concessions were better in this quarter. Was there anything else? I mean, it sounds like volumes are in personal care services, actually doing pretty well based on the hiring commentary. And that's despite some, I guess, issues around, you know, getting people authorized for care. So was there anything else about, you know, what would drive the better margin in the quarter?
Brian
No, those are the two kind of primary drivers. I mean, always, you know, a mix of our business is going to be impactful. So, you know, hospice is performing well, you know, up over year over year, over 6%. So that's a bigger piece. And we talked about in Q4, you know, with the rate increase, that's going to be, you know, impactful in a positive manner in our EBADA margin as well. Home health has started to perform a little better. We do have some fixed, it's a small segment for us, but we do have some fixed costs in home health. So as volumes improve there, we should get some leverage off of those fixed costs as well. But nothing else that I would say is really material or Warren's mentioning.
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And so what was your personal care segment margin in the quarter, sorry? Our personal care margin in the
Brian
quarter?
Joanna Gajuk
Yes, EBADA margin, yes, our authority margin, yes. The segment margin.
Brian
EBADA margin in personal care, I think was close to 20%.
Joanna Gajuk
Okay, great. So that's up in ice case.
Brian
Keep in mind that's before any kind of corporate allocation, that's just personal care.
Joanna Gajuk
Right. Yeah, exactly. And it was nice, nice to have versus last year. So that's helping here. All right. And then on hospice, so yes, you mentioned hospice also did better in the quarter and census, you know, same for census and positive. So that's good. So I guess would you actually put, you know, your improvement there and I guess is that sustainable, you know, how should we think about the rest of the year for hospice when it comes to census and margins? Thank you.
Scott
Yeah, I think with respect to census and growth, I mean, you know, we've had a nice, some favorable trends there. I think, you know, you should continue to look at, you know, census growing in that 2 to 3% year over year. When you look at throwing the rate increase
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on top of that, you're kind of in that 5 to 7. Great. Thank you so much. Thanks for taking the question.
Operator
The
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next
Operator
question is from John Ransom with Raymond James. Please go ahead.
John Ransom
Hey, good morning. Maybe this one's for Derek. When you look at the landscape now, personal care, home health and hospice, how do you see sort of the supply demand of transactions and how we're trading multiples have gone? And when you look at a personal care deal, how are you thinking about, you know, the 20% rule either staying or going away and how you factor that into what you see in these businesses? Thanks.
Dirk Allison
You know, as we look at it on the market, in all three levels of care, as I mentioned in my comments, things have been a little slower the last three or four years. We have been able to see opportunities like Gentiva, which is a great opportunity for us, and that's why we kept our balance sheet as we did so we can take advantage of that. We continue to look for those type opportunities that may come along over the next little bit. I would say probably right now what we're seeing are smaller deals than Gentiva. The multiples, again, smaller deals, obviously we see less cost associated on our EBITDA multiple than the bigger deals. But for us, realistically, the only thing that's really changed over the last couple years, valuations have been somewhat steady, is the fact that we're just not seeing as many of the smaller deals that maybe we saw before. And we're hopeful that that comes back as the market kind of solidifies over the next, you know, six to 12 months. As it relates to, what was the... 80-20. I'm sorry. 80-20. Oh yeah, the 80-20. I'm sorry. As it relates to 80-20, you know, we're thinking of it. It really doesn't matter to us. We have decided that because of our size and our strategy that we'll be able to operate in markets and be extremely well taken care of from the standpoint of profitability and taking care of our consumers in those markets regardless whether 80-20 remains or not. I think if you think of the overall rule itself, you know, it's still six years away. We have a very interesting election coming up right now. It could go either way. For us, as we look at what it means for the 80-20 rule, we still think long-term there's going to be states that are not going to want to participate in this and will be looking from a legal aspect of how they can make changes. So we really don't see any real change today with that. We're going to understand that regardless whether 80-20 stays or goes, we'll be able to be very successful. And as long as it's strategic as for our company, then we will look at those deals and we'll make the appropriate decision on valuation based on those thoughts.
John Ransom
And just as a follow-up, do you think things will shake loose a little bit from private equity, especially if rates start to down? And are there some opportunities there? Or is this going to be more... And the second thing is like, who are the strategic buyers now that you compete with? Are the Medicare or the managed care plans, you know, are they aggressive or is it private equity? Is it other strategic, private backed companies? I'm just, I'm curious who's buying and selling now.
Dirk Allison
You know, realistically, over the last 12 to 18 months, we've not seen a lot of competition out there. You know, there's been the occasional smaller strategic player that's bought a few deals on a localized basis. From a P.E. standpoint, it's really been very slow as far as competition for the last bit. Now, obviously, if rates come down in September as everybody's expecting, there'll be a point where P.E. will come back in and that's fine. It's been a market in which up until the last year or so, we've always operated with competition from those folks. So we believe that long term, as long as we stay with our strategy and as long as we focus in the markets where we have strong personal care coverage or in markets where we can enter like we have with, we'll do with Texas, with strong presence that will be fine regardless to our competitors.
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Okay. Thank you very much.
Operator
The next question comes from Andrew Mock with Barclays. Please go ahead.
Andrew Mock
Hi. Good morning. Just wanted to follow up on the Gentiva deal. I think that would be your largest acquisition to date. So just hoping you could provide a little bit more details around the diligence process for that deal. How did it come about? What gets you comfortable with an acquisition that large? And where do you see the greatest opportunity for synergies? Thanks.
Dirk Allison
Yeah. You know, the way the deal came around is obviously strategically we looked out as a company at folks that might have a larger person care presence that maybe would be interested in talking to us. It came about that Gentiva was willing to visit with us. We went through a substantial due diligence process with them. We certainly appreciate all the efforts they put involved with that along with our team members. Everybody spent a lot of time. It took many months to look through and make sure that this worked for both sides. And it's fortunate that it did. And so from our standpoint, the process of the Gentiva, even though it was larger than what we've done in the past, the process really didn't change. For us, it was make sure that strategically it fit, make sure our team felt from a due diligence standpoint, we could handle bringing it on in a manner and stage it in such that made sense for us as far as when we take over certain aspects of the care. That is currently underway right now. Our team meets weekly. We're having conversations with the other side. We're preparing for whenever this closes. Right now, while we don't have a definitive timeframe, we're hoping that it will be in the fourth quarter as we get through the state regulatory approvals that are we're not concerned that we won't be able to handle it. Our team has done a great job in planning. And I have all the confidence in the world that we'll be able to bring it on board as we have others over the last few years.
Andrew Mock
Great. And if I could just follow up on the slowing M&A pipeline comment that you made over the last few years, we're just curious, is that comment specific to personal care? And as you look to deploy capital from here, how would you prioritize the different segments? Are you looking to diversify exposure or lean into your expertise on the personal care side?
Brian
Thanks. Yeah, Andrew, this is Brent. I think we've seen kind of across all three segments the last couple years has been a little tougher. I think the last two years specifically, there's been a lot of folks that have expected more consolidation in the home health market, especially with some of the pressures, some of the market conditions. And some of that pressure, honestly, has kind of prohibited certain of those assets from coming to market. But I think it's kind of across all segments. But I think we continue to be creative in the ways that we source in the apps of the normal kind of broken processes. I think Jatiba is a good example of that because that was not a broken process. So we'll continue to pursue similar type transactions as we move forward, even with the market hopefully starting to lighten up a little bit. But I think as far as just priorities and kind of what we're looking for across all three, I think we've been pretty consistent. I think personal care is our largest business, and we continue to be focused on building density and markets where we have personal care operations today, maybe select new markets. Texas was a great one for us to add in Missouri out of this most recent deal. We'll continue to look for things like that. I think secondary to that is just adding clinical services where we have personal care, probably a little more slanted toward more skilled home health. I think that typically probably helps us a little more when we think about the value-based type arrangements that we do. But I think if there are hospice opportunities, that tends to be the more expensive of the three segments we operate in from an acquisition perspective. But if there are good opportunities that are nice fits, those are things that we would also look at.
Andrew Mock
Great, thanks for all the call out.
Operator
The next question is from Ben Hendricks with RBC Capital Markets. Please go ahead.
Ben Hendricks
Thank you very much. Just a quick question on follow-up on the Gentiva acquisition with some of the newer markets and expansion into Texas. I was wondering if you could have any comments on or offer any comments on the minimum wage trends in those states and those markets, and also overall receptivity of state legislatures to rate adjustments. Thanks.
Dirk Allison
Yeah, well, you know, let me start first with the rate adjustment question. Over the last three or four years, we've had great support from our states with rate adjustments. And that has continued into this year. I think the question you might have is, you know, as we go forward towards any kind of potential 80-20 environment, will states be willing to discuss that? I think it's a little early to be able to say yes or no, but our belief is this. These programs are very valuable to the states. As we've indicated before and we've talked with states, our business allows these individuals to stay at home as opposed to going to, say, a SNF where the costs are much higher for the state. So I think the states see the benefit of the plan. The question is how will they respond if we get nearer to an 80-20? Again, because that's six years away, there's a lot of lawsuits that will probably happen between then. It is our belief that the states will continue to believe in the plan and hopefully will support that. We believe they will over that period of time. I think the real question is with the minimum wage, like Texas last year gave a nice price increase, effective October 1. In that increase, they set some guidelines as to the minimum wage that you would pay to caregivers. And we think this is exactly the way it should work. We believe the state should be the driver of setting minimum wage rates for their healthcare workers. And by the way, we support that. We've been a big supporter of minimum wage rate increases. Illinois is a perfect example. We'll be up to $18 this coming January. The state has been very supportive along with the providers as we've been able to raise both rates on the reimbursement side as well as rates we're able to pay caregivers, which helps with our being able to attract caregivers overall. So I think as the federal government has wanted, what CMS' goal is is to increase the ability to provide this service across the states. We disagree with the way they did it by setting a minimum 80%. We believe the way to do it is encourage the states to set higher minimum wages and in doing so, give rate reimbursements to keep the providers whole. And so we're very excited about the states that seem to be operating that way. We believe all states will eventually realize that whether or not there's a minimum wage a rate we need to pay caregivers, which needs to be supported by appropriate reimbursement rates. So we're very excited about the long-term potential of the person care market.
Ben Hendricks
Great. Thank you. Just finally, any early thoughts on the implications to the regulatory backdrop from the Chevron ruling, whether it be to the 80-20 or maybe in home health with regard to the rate-setting methodology from CMS?
Scott
Thanks. Well, I think there's certainly a lot of eyes are on that decision. I think it does raise some opportunities and you're starting to see it in other administrative actions where courts have, I think, felt that the administrative departments have gotten kind of taken advantage of kind of a blank check to do what they need to do without having congressional action support it. So I think that does raise some opportunities, new ones for the associations
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to push back on the home health rules.
Operator
Thank
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you.
Operator
Again, if you have a question, please press star then one. The next question is from Ryan Langston with Cowan. Please go ahead.
Ryan Langston
Hey, good morning. Thanks for squeezing me in. Ryan, I think I heard in the prepared remarks you said we'd see some gross margin expansion in the fourth quarter. Just want to make sure that's compared to the third quarter or are we talking about to the second quarter? And then just on the New York State sale, it sounds like this could drag on for a couple of quarters, maybe potentially longer if I heard it right. I guess why does this deal in particular take so long to finalize? Is that just a state issue or something else going on there?
Brian
Thanks. Yeah, Ryan, just to clarify on the barge expansion fourth quarter, yes, my comments were sequential from the third quarter. So just thinking about it, Q2,
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Q3,
Brian
we would expect to see a little bit of compression and then sequentially Q3 and Q4 some expansion from the hospice rate increase. And then keep in mind, traditionally in the fourth quarter is typically our lowest quarter for impacts from payroll taxes. We usually get a little step up there as well. So that should benefit the fourth quarter. And then just on the New York front, so a little unique transaction, I would say in general, yes, New York regulatory approval has historically been a long process. So nothing that's going to be different as far as the deal that we have in place today. So that kind of drives some of our commentary. It might take a little bit of time for us to get either self-consideration or actually get the full regulatory approval for all the assets that we're divesting.
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All right, thanks.
Operator
This concludes the question and answer session. I would like to turn the conference back over to Mr. Dirk Allison for any closing remarks.
Dirk Allison
Thank you, operator. I again want to thank everybody for your interest today and for being with us as part of our call. We hope we all have a great week. Thank you.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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