Executive Summary / Key Takeaways

• Addus HomeCare (ADUS) is strategically expanding its integrated home-based care model, leveraging a robust acquisition pipeline and organic growth in its core Personal Care segment, which saw a 28% revenue increase in Q3 2025.
• Technological advancements, including a proprietary caregiver application and a long-term EMR integration strategy, are enhancing operational efficiency, caregiver retention, and facilitating seamless patient transitions across service lines.
• Strong financial performance in Q3 2025, with a 25% revenue increase and 31.6% adjusted EBITDA growth, underscores the company's ability to integrate acquisitions and drive profitability, maintaining a conservative net leverage position.
• Favorable reimbursement trends in key Personal Care states like Illinois and Texas, coupled with solid organic growth in Hospice (19% in Q3 2025), provide significant tailwinds, although the Home Health segment faces near-term regulatory uncertainty.
• ADUS is well-positioned as a low-cost provider in the evolving healthcare landscape, advocating for the value of home-based care amidst potential federal and state Medicaid program changes, which could further accelerate the shift towards efficient, in-home services.

The Foundation of Home-Based Care: Addus HomeCare's Strategic Imperative

Addus HomeCare Corporation, established in 1979, has grown into a multi-state provider of essential in-home services, encompassing personal care, hospice, and home health. The company's core mission revolves around delivering care to elderly, chronically ill, and disabled individuals, aiming to reduce their risk of hospitalization or institutionalization. This focus positions ADUS squarely within a powerful industry trend: the increasing preference for and cost-effectiveness of home-based care. As healthcare systems grapple with rising costs and an aging demographic, the value proposition of in-home services, particularly those that prevent more expensive institutionalization, becomes increasingly compelling.

ADUS's overarching strategy is built on expanding its geographic footprint and service density, striving to offer a comprehensive continuum of care across all three segments in its markets. This approach is underpinned by a disciplined acquisition strategy, which has been a significant driver of growth and market penetration. The company's history reflects a continuous evolution, marked by strategic acquisitions that bolster its presence and capabilities, alongside judicious divestitures of operations that no longer align with its long-term vision, such as the New York operations in 2024 due to regulatory uncertainties.

In the competitive landscape, Addus HomeCare operates alongside prominent players like Amedisys (AMED), Chemed (CHE), and Encompass Health (EHC), as well as the historically significant LHC Group (LHCG) (now part of Optum Health). ADUS distinguishes itself through its extensive geographic network and strong relationships with federal, state, and local governmental agencies, as well as managed care organizations. While some larger competitors like Amedisys may possess more integrated technology solutions for higher-acuity care, ADUS's strength lies in its personalized, community-focused approach to non-medical assistance, which often serves as a crucial entry point for clients into the broader home care ecosystem. This focus on preventive, daily living support differentiates ADUS, potentially fostering deeper customer loyalty and broader accessibility in local communities.

Technological Edge and Operational Efficiency

Addus HomeCare is actively investing in technology to enhance its operational efficiency and strengthen its competitive moat. A key differentiator is its proprietary caregiver application, which has been fully rolled out in Illinois, its largest market, achieving an impressive 90% caregiver registration rate. This application provides tangible benefits by offering caregivers greater visibility into their schedules and the flexibility to reschedule visits directly within the app without requiring office intervention. This capability is crucial for maximizing billable hours and improving service fill rates. Management believes this technology will significantly improve caregiver retention, as the ability to secure desired hours is a primary factor in caregiver satisfaction and longevity. The company plans to extend this rollout to New Mexico and Texas, where there is perceived greater opportunity for improving fill rates.

Beyond the caregiver app, ADUS is pursuing a long-term strategic initiative to integrate its Personal Care segment into a single Electronic Medical Record (EMR) system with its Home Health and Hospice operations, leveraging its partnership with Homecare Homebase. Currently, Personal Care operates on a separate system, making patient transitions and care coordination more manual. The goal of this EMR integration is to create a seamless "bridge program" across all service lines, allowing for more efficient identification and referral of patients to the appropriate level of care. This strategy is already demonstrating success between Home Health and Hospice, where over 25% of hospice admissions in New Mexico and Tennessee originate from Addus's co-located home health operations. While still in the early development and pilot phase with five small states currently utilizing the integrated system, this technological roadmap is critical for future operational synergies, improved patient outcomes, and a more robust competitive advantage in delivering comprehensive, coordinated home-based care.

Robust Financial Performance and Strategic Expansion

Addus HomeCare's recent financial results underscore its effective execution of this growth strategy. For the three months ended September 30, 2025, the company reported total net service revenues of $362.3 million, a substantial 25% increase compared to the same period in 2024. This growth translated into adjusted earnings per share of $1.56, up 20% year-over-year, and adjusted EBITDA of $45.1 million, a 31.6% increase. For the nine months ended September 30, 2025, net service revenues reached $1.05 billion, up 22.4% from the prior year.

The Personal Care segment was a primary driver of this performance, with revenues increasing by 28% for the three months ended September 30, 2025, largely due to the strategic acquisitions of Gentiva Personal Care (December 2024) and Helping Hands Home Care Service (August 2025). Despite a slight 8.2% decrease in revenues per billable hour in personal care due to lower reimbursement rates from these acquisitions and the New York divestiture, the segment's gross profit percentage remained strong at 27.4% for Q3 2025. Operational metrics were also positive, with personal care same-store revenue growing 6.6% and same-store hours increasing 2.4% in Q3 2025, indicating healthy organic volume expansion. The company also reported strong caregiver hiring, with 113 hires per business day in Q3 2025, a 6.6% increase over Q2 2025.

The Hospice segment demonstrated exceptional organic growth, with same-store revenue increasing 19% in Q3 2025 and average daily census rising 9.5% to 3,889. This strong performance, coupled with a high gross profit percentage of 49.4% in Q3 2025, significantly contributed to overall profitability. The company also reported an improvement in its Medicare cap cushion, accruing no additional cap liability during the quarter. The Home Health segment, while smaller, saw its gross profit percentage rise to 39.8% in Q3 2025, primarily due to decreased direct care wages and benefit costs as a percentage of net service revenues.

Addus maintains a robust liquidity position, with $101.9 million in cash as of September 30, 2025, and $487.7 million available under its $650 million revolving credit facility. Net cash provided by operating activities was $92.7 million for the nine months ended September 30, 2025. The company's Days Sales Outstanding (DSOs) improved to 35 days at the end of Q3 2025, down from 39 days at year-end 2024, reflecting efficient cash collections. This strong financial health, with net leverage under 1x adjusted EBITDA, provides substantial flexibility for continued strategic acquisitions.

Outlook, Guidance, and Strategic Initiatives

Addus HomeCare's management has provided a clear outlook, projecting a minimum annual revenue growth of 10%. This target is supported by anticipated organic growth and a continued focus on strategic acquisitions. For the Personal Care segment, the company expects same-store hours growth to consistently be at least 2% year-over-year, driven by the completion of Medicaid redeterminations in Illinois and the ongoing rollout of its caregiver application. The Illinois fiscal year 2026 budget includes a 3.9% rate increase, effective January 1, 2026, which is expected to add approximately $17.5 million in annualized revenue. Similarly, Texas's fiscal year 2026 budget includes a 9.9% rate increase for in-home care services, effective September 1, 2025, projected to generate an additional $17.7 million in annualized revenue. These rate increases are expected to maintain margins consistent with existing business in these states.

In the Hospice segment, management anticipates continued volume improvements, targeting mid-to-upper single-digit revenue growth. This outlook incorporates a 3.1% Medicare hospice reimbursement rate increase effective October 1, 2025. The Home Health segment is expected to return to positive same-store revenue growth in 2025, although the proposed 6.4% aggregate reduction in Medicare payments for 2026, including a potential clawback, introduces significant uncertainty and is expected to moderate the pace of larger home health acquisitions. Despite this, ADUS will continue to pursue smaller, strategic clinical transactions that align with its goal of offering comprehensive services in its existing Personal Care markets.

From a profitability standpoint, Addus expects its adjusted EBITDA margin percentage for the full year 2025 to remain above 12%, with Q4 2025 projected to be over 13%, typically the highest margin quarter. This is supported by normal seasonality, including payroll tax caps and the hospice rate increase. Management also anticipates achieving additional leverage on general and administrative (G&A) costs from top-line growth in 2026, further benefiting overall margins. The company continues to utilize American Rescue Plan Act (ARPA) funds, with $5.8 million remaining as of September 30, 2025, primarily for caregiver recruitment and retention efforts.

Risks and Competitive Dynamics

Despite a strong outlook, Addus HomeCare faces several pertinent risks. The labor market remains tight, particularly for skilled clinical staff, posing a challenge to meeting demand. While the caregiver application and ARPA funding help mitigate personal care staffing issues, clinical hiring remains "more challenging and geographically variable" in larger urban markets.

Regulatory uncertainty, especially concerning federal Medicaid programs, is a significant factor. Proposed changes, such as per capita caps, lowering of the FMAP floor, and the One Big Beautiful Bill Act (OBBBA), could shift costs to states or limit Medicaid eligibility. However, ADUS believes its position as a low-cost provider to the elderly and disabled, offering services that reduce overall healthcare expenditures, will help minimize adverse impacts. The potential 6.4% reduction in Medicare payments for home health in 2026, including a "clawback" component, is a major concern for the industry and could significantly impact the availability of home health care. This uncertainty is expected to keep the home health M&A market moderated.

In the competitive arena, ADUS's extensive geographic network and strong payor relationships are key advantages, enabling broader customer reach and stable revenue streams. The company's personal care turnover rate, at 50-55%, is "a little better than the industry average," further bolstered by its caregiver app. However, ADUS's reliance on government payors exposes it to regulatory shifts, a vulnerability that diversified competitors like Chemed or Amedisys may be better positioned to absorb. While ADUS is a leader in the Texas personal care market, it still holds only about 5% market share, indicating significant room for growth but also intense competition. The M&A market for personal care remains attractive with lower multiples (4x-8x EBITDA), while large hospice transactions command higher valuations (mid-teen multiples), and home health remains somewhat inexpensive but uncertain due to regulatory overhang. ADUS's disciplined approach to valuation, even for larger opportunities, is a strategic response to these dynamics.

Conclusion

Addus HomeCare stands as a compelling investment thesis, driven by its focused strategy on integrated home-based care, robust organic growth, and a disciplined acquisition approach. The company's commitment to technological innovation, exemplified by its caregiver application and EMR integration roadmap, is enhancing operational efficiency and caregiver satisfaction, which are critical competitive differentiators in a labor-intensive industry. Despite facing regulatory headwinds in the Home Health segment and ongoing labor market challenges, ADUS's strong financial performance, conservative balance sheet, and proven ability to integrate acquisitions position it for continued expansion. As a low-cost provider of essential services to a vulnerable population, Addus HomeCare is strategically aligned with the long-term shift towards value-based, in-home care, making it a catalyst for growth in the evolving healthcare landscape. Investors should monitor the finalization of home health reimbursement rates and the continued execution of its technology-driven operational improvements as key indicators of its sustained success.