ADUS Addus HomeCare Corporation

▼ Selling Case6 pts

• −A total of 78.4% of Q2 FY2026 revenue depends on the personal care segment, making results highly sensitive to Addus's ability to recruit and retain caregivers and secure adequate reimbursement rates from states and managed care organizations. Management explained that caregiver availability is the primary constraint on organic growth in most markets, while the Texas census remained stable instead of achieving acceleration similar to Illinois and New Mexico.
• −The home health care business remains in contraction, with same-store revenue declining 2.8% in Q2 FY2026 despite improving from a 6.6% decline in the previous quarter. This unit represents only 4.6% of revenue, but its importance to the Bridge program and value-based care relationships means that continued contraction could limit integration across the three levels of care.
• −Gross margin declined to 32.2% in Q2 FY2026 from 32.6% a year earlier, and management expects the adjusted earnings before interest, taxes, depreciation, and amortization margin to remain within a range of 12% to 13% for FY2026. In hospice care, management expects wage increases of approximately 3% versus an expected effective reimbursement increase slightly below the national average of 2.3% for FY2027, making margin stability more likely than clear expansion.
• −Addus recorded an expense of slightly more than $3 million related to the Medicare cap in Q2 FY2026, concentrated primarily in Ohio. Although management expects no additional expense during the remainder of FY2026, mitigating the impact depends on the success of plans to balance patients with long and short stays and manage referral sources.
• −Reimbursement rates remain exposed to regulatory decisions and state budgets; the proposed 2027 home health care payment rule included a negative temporary adjustment of 3%, while Illinois did not receive a new increase in its next budget cycle and the amount of the increase that managed care organizations in New Mexico will pass through has not yet been determined. The Work Opportunity Tax Credit also expired at the end of 2025, and the company expects a tax rate in the upper-20% range if it is not extended.
• −Operating cash flow is expected to moderate in the second half of FY2026 compared with the first half, because approximately $20 million of the earlier improvement came from favorable working capital changes that management does not expect to continue at the same pace. Management also indicated that Illinois days sales outstanding would likely increase from the low level of 26.8 days recorded at the end of Q2 FY2026.