Addus HomeCare Corp (ADUS) Q1 2021 Earnings Call Transcript

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Addus HomeCare Corp (ADUS -3.81%)
Q1 2021 Earnings Call
May 4, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Dru L. Anderson -- Analyst

Good morning, and welcome to the Addus HomeCare Corporation First Quarter 2021 Earnings Conference Call. Today's call is being recorded. To the extent that 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 2021 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 and 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 first quarter 2021 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.

At this time, I would like to turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir.

Dirk Allison -- Chief Executive Officer & Chairman of the Board

Thank you, Dru. Good morning, and welcome to our 2021 first quarter earnings call. With me today are Brian Poff, our Executive Vice President, Chief Financial Officer; and Brad Bickham, our President and Chief Operating Officer. Today, I will begin with some overall comments, and then Brian will discuss the first quarter results in more detail. Following our comments, we would be happy to respond to any questions.

While the pandemic continues to create challenges, we begin -- we have begun to see positive momentum in a number of our markets starting in mid-February. While I expect the environment to continue to have some difficulties over the next several months, we are encouraged by the progress being made with the COVID vaccine rollout and the steady reduction in COVID cases since the peak in late December. We look forward to the time in the near future when this pandemic is no longer a disruption to both the country and our operations.

One of the important takeaways from this pandemic has been the increased understanding of the importance of home and community-based care. Addus caregivers have been an important part of the healthcare system as we work to keep our elderly citizens safe from the virus and made sure that these consumers have the daily help they need. I'm extremely proud of our dedicated team that has demonstrated their ability to meet our mission and execute upon our strategy even during this unprecedented pandemic.

Yesterday, we announced our financial results for the first quarter of 2021. We continued our solid operating performance, even with the challenges from COVID that we are all facing. Our revenue for the first quarter was $205.3 million as compared to $190.2 million for the first quarter of 2020. Adjusted earnings per diluted share for the first quarter of 2021 was $0.74 as compared to $0.77 for the first quarter of 2020, despite both last year's first quarter being a record quarter prior to the full onset of the COVID-19 as well as the effect of the Chicago minimum wage increase, which occurred on July 1, 2020. As we had discussed on our last earnings call, the Illinois state rate increase to cover this minimum wage adjustment became effective on April 1, 2021, and will be reflected beginning with our 2021 second quarter results.

Also last year, our earnings per share, our adjusted EBITDA for the first quarter of 2021 was $19.3 million as compared to $17.7 million for the first quarter of 2020, an increase of approximately 9%. As expected, our first quarter same-store revenues continued to be impacted by the COVID-19 virus. As was the case in our last few quarters, this reduction occurred to varying degrees in all three segments of our business, which I will discuss in just a few minutes.

As I'm sure you are aware, the changes in the leadership of our federal government is bringing about a number of potentially positive changes to our company, especially around Medicaid reimbursement. The COVID relief legislation that was signed into law by the President will provide general financial relief to states, suffering revenue losses from the pandemic, which will help to strengthen the budgets of these states and their Medicaid reimbursement. We expect to see the funds from the $350 billion state benefit in this bill to be dispersed starting in May.

In addition, the additional 10% federal Medicaid match, which is specifically for Medicaid home and community-based services, should be a positive for Addus. We believe the federal government will clarify the rules around this match soon, which should allow states to start to use these additional monies to support home and community-based services. On the state level, we face one last scheduled minimum wage increase for the Chicago. This $1 wage increase will be effective on July 1, 2021.

The governor of Illinois did include funding in his fiscal 2022 budget for an additional rate increase to offset the upcoming wage increase. However, this state reimbursement rate increase is currently scheduled to be delayed six months similar to the past few years and is scheduled to become effective on January 1, 2022. We continue to have discussions with state leaders about the delayed timing of the reimbursement increase and potential to accelerate as a result of the additional Medicaid funding from the federal government.

As we have discussed on our last earnings call, we continued to assess the New York City path statewide change. While we have approximately $52 million of revenue in this particular service line in New York, it has not been a very profitable program and will be less so with the recently published reimbursement rates. Let me remind you that we are only a fiscal intermediary in CDPAP with a caregiver working directly for the consumer. This is not our normal form of personal care services. We have filed a protest concerning our omission from the provider selection process and understand from the recent finalization of the fiscal 2022 New York state budget that a few additional awards may be granted.

We will keep you updated as we receive additional information and explore other potential options to remain in this particular program. As to timing of these changes, we believe it will be at least nine to 12 months before the state fully implements the new program if no other structural changes are made. As I previously mentioned, our same-store revenue has been affected by the COVID-19 virus. However, we are starting to see a positive trend in all three segments in which we operate. For the first quarter of 2021, our personal care same-store revenue growth was 2.4% when compared to the first quarter of 2020, a last quarter without the full impact from the pandemic.

As we discussed on our last call, during November and December, we saw a significant increase in the number of our caregivers who had to enter into quarantine. We also saw client call-offs increase again starting in November, lasting until the first week of February. In addition to the impact on growth through the COVID, we were affected by the February winter storm that spread across several states where we provide personal care services and we estimate had a negative impact on our first quarter personal care revenues of approximately $1 million as a result.

With the fourth quarter COVID surge we discussed, we experienced a large increase in our employees who were in quarantine and unable to serve their consumer. We went from 187 employees per week in quarantine in the third quarter of 2020, to 448 employees per week quarantine in our fourth quarter of 2020, which affected our hours of care through January. For April, this number is now down to 149 employees per week, which should help our growth rate return to a more normal level in our second quarter of 2021.

We also saw a similar dynamic as it relates to our client call-offs in personal care. Our personal care caregiver hires for the August through October 2020 time frame were up approximately 9% over the same period in 2019, leading to the highest amount of hires per business day in over a year. However, during November and December of this past year, when we saw the increase in virus counts, our hiring slowed to where we were down 1.3% versus the same two months in 2019. Our hiring numbers did improve in the first quarter of 2021 with hires per business day increasing 4.2% on a sequential basis and 1.2% over the first quarter of 2020.

We are encouraged with the trend in our ability to hire as we continue to see positive numbers so far in April. With the positive trends we are seeing in personal care, along with the April one reimbursement rate increase from Illinois, we expect our personal care same-store revenue to be at or above our expectation of 3% to 5% for the next few quarters. For the first quarter of 2021, our hospice same-store revenue decreased 8.4%, which is still a 2220 basis point improvement over our fourth quarter of last year.

While ADC remains under pressure, we did see our highest quarter of hospice admissions since the first quarter of 2020, with a sequential increase of approximately 4.6% from the fourth quarter of 2020. While our admissions have been strong, we have seen a reduction in our same-store median length of stay over the past few quarters. This median length of stay decreased from 26 days early in 2020 to just 15 days in January, which contributed to our lower ADC. Our median length of stay continued to trend upwards in March, increasing to 17.5 days. January is when we started to see our ADC bottom out with slightly increasing ADC through the middle of April.

With New Mexico being our second largest hospice market, it continues to have an overall negative effect on growth, even while other hospice markets are showing improving census. As for our Queens City acquisition, which closed December 1, 2020, our hospice census has grown from 890 when we closed this transaction to over 940 in April of this year, despite the business going through the normal stages of integration, including converting to Homecare Homebase and ADP. I am very proud of this team for being able to continue to grow while transitioning to the Addus system.

As for our New Mexico hospice locations, we believe we will continue to see both assisted living facility and independent living facilities, losing their rules around personal personnel access as the percentage of New Mexico residents who are vaccinated continues to grow and should help this market return to a more normal ADC. We are excited to see our home health same-store revenue is back to the level which we experienced in the first quarter of 2020 prior to the effect of the pandemic. This compares to a fourth quarter of 2020 decrease of 8.2% in our home health same store revenues.

Since the beginning of 2021, our home health admissions have increased steadily with this favorable trend continuing into April. While January same-store revenues for home health were down 11.5%, February marked the turning point with March being up 11.9% versus the same period in 2020. We are seeing our April home health numbers continue this growth trend. Turning to our efforts concerning acquisitions. Our pipeline continues to be strong with the current slant toward home health. Our primary focus on acquisitions remain on opportunities, which add clinical services to our existing personal care markets with the goal of having additional markets with all three levels of care that we provide.

With our strong liquidity position, we continue to believe that we have the ability to close additional acquisitions during the next few months. While purchase multiples for clinical services remain high, we will continue to pursue transactions which are accretive while bringing both revenue and operating synergies to Addus.

As I look back over the past year, I am proud of the team as they've continued to do a tremendous job of living our mission during these extraordinary times. Our caregivers have been able to positively affect the trajectory and impact of the COVID-19 pandemic by continuing to serve the needs of our consumers and patients in their homes. All caregivers in all segments of healthcare deserve our appreciation for this commitment to patient care.

I especially want to thank the Addus team for continuing putting our patients first. Before I turn the call over to Brian, I wanted to remind our team of the value of our services. While the COVID virus is still a challenge for our country as well as the world, we need to continue to deliver our mission and values while serving our consumers and patients. Each of these individuals need to be in their homes, where we can help to keep them safe from the virus while providing much needed care.

With that, let me turn the call over to Brian.

Brian Poff -- Chief Financial Officer, Executive Vice President, Secretary & Treasurer

Thank you, Dirk, and good morning, everyone. Addus had solid financial performance at the start of the year with consistent profitable growth and improving volume trends comparable to our pre-pandemic levels. With two of our three segments at or above our first quarter 2020 same-store revenues and our hospice ADC beginning to trend positively, we look forward to a continued return to a more normalized growth profile as the COVID environment improves. We will also benefit from the most recent rate increase from Illinois, our largest market, which became effective on April 1, 2021.

Looking at the comps over the prior year period. Last year's first quarter was our strongest quarter before we really felt the full impact of COVID-19. So we were very pleased with the results for the current year quarter. Our volumes continue to improve in personal care and home health, and we are optimistic about hospice care volumes returning to pre-pandemic levels as more people are vaccinated, and we see greater facility access. We have a strong business model in place and believe we are well positioned to meet expected demand as consumers become more confident in a less restricted environment.

Included in our results are the incremental benefits of the four acquisitions we completed in the second half of 2020; three in personal care and one in hospice, which totaled approximately $84 million in annualized revenue. Together, acquisitions completed over the past two years have combined total annualized revenue of approximately $214 million. We continue to have a robust pipeline of potential transactions that are in line with our strategy of adding clinical services in markets where we have personal care operations and continuing to enhance our existing personal care markets.

Based on current market conditions, we remain confident that we will have opportunities to achieve or exceed our stated goal of adding a minimum of $100 million in annualized revenue through acquisition this year. As Dirk noted, total net service revenues for the first quarter were $205.3 million. The revenue breakdown is as follows: personal care revenues were $164.8 million or 80.3% of revenue. Hospice care revenues were $36.1 million or 17.5% of revenue. These results include the first full quarter of our Queen City Hospice acquisition, which closed near the end of 2020. Home health revenues were $4.3 million or 2.1% of revenue.

Other financial results for the first quarter of 2021 includes following. Our gross margin percentage was 29.8%, an increase from 29.4% for the first quarter last year, largely attributable to a higher mix of clinical services, which are now approximately 20% of our revenue, up from 16% in the first quarter last year. This increase was partially offset by the normal reset of payroll taxes in the new year, which impacted our margin by approximately 80 basis points sequentially.

While we still experienced a negative impact this quarter from the additional minimum wage increase in Chicago, on July 1, 2020, the statewide reimbursement increase in Illinois that became effective on April 1, will offset beginning in the second quarter. G&A expense was 22.1% of revenue for the quarter, a slight decrease from 22.2% last year. Adjusted G&A expense was 20.4% of revenue, up slightly from 20% in the first quarter of 2020 and primarily as a result of the higher mix of skilled business with a higher G&A profile. The company's adjusted EBITDA increased to $19.3 million for the first quarter of 2021 compared to $17.7 million in the first quarter of 2020. Adjusted EBITDA margin was 9.4%, an increase from 9.3% for the first quarter of 2020. Adjusted net income per diluted share was $0.74.

The adjusted per share results for the first quarter of 2021 exclude the following: COVID-19 expense benefit net of $0.03, which includes the impact of temporary rate increases, partially offset by COVID-19 direct expenses. Acquisition and de novo expenses of $0.08, restructuring and other costs of $0.02 and noncash stock-based compensation of $0.12. Our adjusted per share results for the first quarter of 2020 exclude COVID-19 expenses net of $0.01, acquisition of de novo expenses of $0.09, restructuring and other costs of $0.05 and noncash stock-based compensation of $0.08.

Our tax rate for the first quarter of 2021 was 19.5% as a result of an excess tax benefit generated by our stock compensation. For the full year 2021, we continue to expect our tax rate to be in the low to mid-20% range. DSOs were 60.8 days at the end of the first quarter of 2021, consistent with the fourth quarter. However, DSOs for the Illinois Department of Aging were 72 days at the end of the first quarter of 2021 as we saw slower payments primarily as a result of the timing of tax revenues in the state. With the increase in tax revenues and the stimulus assistance coming from the federal government in the second quarter, we have seen an acceleration in payments from Illinois and have received over $24 million since the beginning of April.

Our first quarter net cash used by operations totaled $18.4 million, inclusive of the return of $10.8 million in Spares act funding received as part of the Queen City acquisition. Additionally, the timing of normal payroll payments negatively impacted cash flows by approximately $15.5 million in the quarter. At March 31, 2021, the company had cash of $145.1 million, $196.3 million of bank debt and $112.8 million in availability under our revolver. With continued low net leverage and well-positioned balance sheet, we continue to be able to execute our acquisition strategy. This concludes our prepared remarks this morning, and thank you for being with us.

I'll now ask the operator to please open the line for your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Frank Morgan with RBC Capital Markets.

Frank Morgan -- RBC Capital Markets -- Analyst

I appreciate the color around labor and the issues and the improvement in the worker quarantine. I'm just curious, quarantine aside, labor has always been sort of the thing I think you worry about the host Dirk so. So just how do you feel about the labor market today as we sort of make our way into this post-COVID world, do you feel better or worse? Or are there any new strategies that you're considering or thinking about as the economy reopens?

Bradley Bickham -- President & Chief Operating Officer

Yes. This is Bradley. When you look at the labor, as I tell the team in the field, I mean, it's a challenging recruitment environment all the time. We unfortunately, have a turnover in the industry, it's a little higher than we would like it to be. We're actually doing a little better than the industry statistics. That being said, we've got the unique problem since I've been here, where we have, frankly, more business than workers. And I would rather have that than the other. But with respect to recruitment, our numbers have improved. When you look at the trends, April is looking pretty good. I think there's still some headwinds with the additional unemployment out there. Economies are reopening.

But again, I think we've done a pretty good job of keeping those numbers trending in the right direction. I know we are working on kind of strategies, both utilizing the national job boards, being creative are constantly refreshing and updating our ads to make them kind of more enticing to these potential employees to click on them. And then also doing a lot of work in the communities and really stressing that we can't forget about what the local community recruitment efforts can look like.

Dirk Allison -- Chief Executive Officer & Chairman of the Board

And Frank, overall, as you know, we've talked about it for the last couple of years. Recruitment has been one of our bigger challenges. I think if you go back to last year, where we were looking at what was going on and then the larger unemployment benefit from the federal government, certainly a very challenging environment. And while it's still a little bit today, as Brad mentioned, with the $300, we really are optimistic that over the next few months, we will start to see our ability to recruit and to hire, continue to improve as we've seen in the last month or two. So we're in a much better position in our mind today than we were maybe a few months ago.

Frank Morgan -- RBC Capital Markets -- Analyst

Got you. And then I guess, switching gears on M&A, your comments about maybe more of a slant toward the home healthcare market. Just curious what you're seeing there. I know there was a recent home healthcare hospice relatively good size announced. But what do you see this driving the shift toward home healthcare? Is it valuations? Or is it just kind of you want to change your clinical mix?

Brian Poff -- Chief Financial Officer, Executive Vice President, Secretary & Treasurer

Yes, Frank, this is Brian. I think what we're seeing in our pipeline, I think we expected to see that coming into this year is just more potential assets coming to market out there. I think last year, I think a lot of us had expectations that we would see a lot of activity and really didn't see that. So I think, we had kind of a bonus of potential targets that are actually coming to market now. So I think we've seen a little plan of that in our pipeline. I think our focus is still largely in clinical services and enhanced personal care. And they all three legs of that stool in each of our markets. I think we just got a little more, I would say, skilled home health in our pipeline today in the other two segments currently.

Frank Morgan -- RBC Capital Markets -- Analyst

Got you. And then I guess, finally, on the margin picture, I think you called out, at least at the G&A line, the change in your clinical mix is not being able to give as much leverage. But do you still see an opportunity to really get some leverage off your G&A expense as your top line grows and I'll hop? Thanks.

Brian Poff -- Chief Financial Officer, Executive Vice President, Secretary & Treasurer

Yes, Rick, I think we definitely continue to see us leverage, especially in our corporate G&A, but even our field G&A as we add some of these services in, in markets where we have personal care other operations, we should get some additional synergies there as well. So that's our expectation is continued leverage as we continue to grow.

Frank Morgan -- RBC Capital Markets -- Analyst

Thank you.

Operator

[Operator Instructions] Our next question comes from the line of Matt Borsch with BMO Capital Markets.

Matt Borsch -- BMO Capital Markets -- Analyst

Yes. Thank you. Maybe you could just talk a little bit more on the M&A pipeline in terms of what you're seeing in personal care, in particular, that may or may not be coming out as a result of the pandemic impacts. How has that influenced the willingness to sell in the number of opportunities that are out there.

Dirk Allison -- Chief Executive Officer & Chairman of the Board

Yes. Yes, the problem with a lot of the personal care, the bigger ones that have come out that we could look at. There have been reasons why it would be difficult for us to look at either it was a concentration in a market where we already operated, and it would have been a difficult combination or, quite honestly, some of them are revolving around the New York marketplace. And at this point in time, New York is not a focus of our company. We need to see that particular market really stabilize and see the direction that the governor and the leaders of the state are going to take that program.

So for us, while we're always interested in personal care. That is our 8% of our business, we want to strengthen the states in which we operate, continue to look at that. It just seems like lately, the acquisitions of any size have been more on the clinical side, and for us, honestly, hospice has been very expensive. We've reached out in some strategic opportunities with HPA with Queen City to acquire those. At this point in time, though, we also feel it's very important to add the home health service to our lines of care. As we continue to look to grow, not only with our relationships with MCOs, but as we start looking at the the type of payment situations we may look for down the road with MCO partners.

Bradley Bickham -- President & Chief Operating Officer

And Matt, just real quick, just one thing to add to that. I think we're not really seeing, I would say, influx of personal care assets for sale as a result of the pandemic. I think, as you know, with us, particularly in others, all the states we operate and have done a really good job of being supportive with temporary rate increases and the like for home and community-based services across the board. And I think with that, we haven't seen an influx in potential opportunities, but kind of a normal flow.

Matt Borsch -- BMO Capital Markets -- Analyst

Got it. That all makes sense. And actually, Dirk, you sort of anticipated my follow-up question, which was on New York specifically in the reimbursement environment. And I know you're not alone in facing challenges there. I guess, maybe there's not much to be said here. It's just that, it is what it is for right now, and correct me if I'm wrong, but there isn't really a catalyst we can see for a more partnership environment emerging in the near-term may or it should, in theory, because the funding has improved in this fiscal situation apparently as well. But sorry, I just sort of was the question here, you put answers to it. But if you have anything more to say on that? I'm interested.

Dirk Allison -- Chief Executive Officer & Chairman of the Board

Yes. Honestly, the thing I would say is it is disappointing. From our standpoint, the state is getting federal money, and there's not been more support from the state as it revolves around home and community-based care. The state has put funding in their budget, but they don't always get that to the provider. It's a very difficult market. There's also changes in the way things are reimbursed there as it relates to benefits to the caregivers, which we're very excited about when minimum wage goes up as long as it's reimbursed, but New York is not, at this point in time, it's not been as forthcoming in some of the other states in supporting those increases. So right now, again, we'd love to be able to be stronger in New York, but it's not a market that at this point in time, we're going to put a lot of additional growth dollars into.

Matt Borsch -- BMO Capital Markets -- Analyst

Okay, that makes sense. Thank you.

Operator

[Operator Instructions] Our next question comes from the line of Scott Fidel with Stephens.

Scott Fidel -- Stephens -- Analyst

Hi, thanks and good morning. First question, just actually wanted to piggyback on Matt's question just around growth opportunities in personal care and sort of separate from, I guess, M&A opportunities. Interested in what you're seeing potentially on the geographic expansion front? And in particular, as you're evaluating some of the potential enhanced funding that's coming through for Medicaid HCBS services. Are you seeing any states where it does seem like that the states are committing to actually delivering that funding more to the providers and you think could open up new geographic opportunities for you?

Dirk Allison -- Chief Executive Officer & Chairman of the Board

Well, Scott, I think that is something we will be looking at and hope that as rules are clarified, there'll be some opportunities to do that. The problem that I think we have so far is that some of these additional monies that are coming to the federal government are still to arrive and the rules around those funds have not been finalized or at least shared with the states and the providers as much as we would like. So as more clarification of those rules come out, we do believe there's some opportunities, we talked about the 10% additional Matcher Medicaid funds that's out there for a year. Yes, it is temporary. But it is monies that potentially states can use to expand their offerings in home and community case care potentially can use for rate increases they've already talked about. We would hope that maybe that could be utilized to make rate increases happen sooner rather than later. So these are all the things with the various states that we are discussing around the federal money.

Scott Fidel -- Stephens -- Analyst

Got it. And yes, I realize that we're sort of in that feeling our way through the darkness a little bit here with getting visibility on how these new fundings are going to be translating down into the rates. I guess in a similar vein here, but I would be interested in what you're hearing, if anything, in terms of any additional details on the federal side in terms of buying this $400 billion proposed boost to Medicaid HCBS spending? And any type of visibility you're getting into thoughts on how that funding would actually be deployed in terms of what types of initiatives it will be allowed to be used on. And then your thoughts on what you're hearing politically in terms of general support for actually getting this actually included in one of these packages that are being worked on. I would assume that it's obviously part of that first infrastructure bill, would seem like something that would maybe be more appropriate in buying and second families bill. But just interested politically and what you guys are hearing as well around support for that.

Dirk Allison -- Chief Executive Officer & Chairman of the Board

Yes. Well, what we're hearing politically is certainly, there's a lot of support for the $400 billion from the democratic side of both the House and the Senate. It does seem to be, at least at this point, the Republicans are not quite as on board as maybe the President and the Democrats, the rest of the Democrats are. So whether or not this is going to end up being part of any bill that may or may not occur, we do believe it's an important part. We're certainly letting folks know that we think it's needed. But we will see. But as it relates to what, we believe it will be used for. And again, remember, there's very little out there, very little detail that we can grasp hold of today. But we do believe that what it's probably going to be focused on is both expanding access to home and computer-based consumers. A lot of those, there's a lot of talk about the waiting list that are out there for this care. So we believe the funds will be directed toward trying to handle some of that waiting list and giving more access to care. And then also, there seems to be initiatives around increased wages for caregivers. To make sure that the caregivers who are, in fact, providing that care have a living wage. So that's kind of what we're thinking that will be useful.

Scott Fidel -- Stephens -- Analyst

Got it. And then just one last one for me. Interested, no was a generally difficult backdrop for the hospice space around some of the pandemic headwinds in the first quarter. But it sounds like Queen City was able to deliver pretty solid results month-on-month throughout the quarter. Just interested in terms of operationally, you were able to glean anything into some of the trends that they were able to deliver around that performance and whether that would impute to you think that they were likely taking some market share in the market as well. Thanks. That's it for mine.

Bradley Bickham -- President & Chief Operating Officer

Yes, Scott, this is Brad. On the Queen City, I mean, we're very impressed with the ability that they showed to grow the business, particularly during the integration process. And I think one thing that really demonstrated to me was the fact that having density in the ALS and ILS that they service was very important. It allowed them to keep access in those facilities. I think during the pandemic, we haven't really tracked the market share numbers, but I suspect we have probably done a pretty good job of taking some market share in those markets. But I think it really goes to show that having density in facilities, if there's any type of shutdown, we're going to pair the list of providers, you're more apt to be the ones that stay in the facilities in Mexico.

Operator

[Operator Instructions] Our next question comes from the line of Brian Tanquilit with Jefferies.

Brian Gil Tanquilut -- Jefferies -- Analyst

Thanks for all the color that you've got so far. I guess, Dirk, my question for you. I mean, having been in the hospice space for a long time. We're seeing, obviously, a broad-based challenge or headwind in the hospice business. How are you seeing this kind of recovery out of that happened? And what do you as a provider need to do to turn that business around? Or is this merely a waiting game of just waiting for the recovery post-COVID?

Dirk Allison -- Chief Executive Officer & Chairman of the Board

Well, part of the issue around medium length of stay, it has to do with the fact that a lot of times, a lot of the median length of stay, a lot of the longer length of stay patients come from assisted living facilities, SNFs. And not only have we seen the sense in those facilities go down, but we've also seen, as we've got the access. So what's happened is it's now skewed more of the admissions we're getting to acute care facilities, those that have a shorter length of stay. We do believe that as we see this pandemic, the vaccination roll through and the pandemic become less of an issue, we're hoping to see that a couple of things happen.

One, there is a census in the nursing homes that return more to a normal level and that the families that we believe maybe during the pandemic, have delayed the discussion around hospice might be because they're working from home, and they're able to take care of their family member longer. We believe that would return to something that's more normal.

So for us, we're not just stopping there and saying, ADC is going to return through length of medium length of state growth over the next few months. We're working with our sales team, we're looking at places that we can try to drive additional length of stay. But I do believe as an industry itself, we should start seeing over the remainder of the year, some improvement in that and leading more back toward the normal level of medium length of stay around the mid-20s.

Brian Gil Tanquilut -- Jefferies -- Analyst

Got it. And then, Brian, when you think about the different moving parts on the different reimbursement rates or state reimbursements that are changing. So between Illinois, the sequester delay and also the increase in wages in July. If you don't mind just walking us through kind of like your estimates of the numbers, like sequential changes from Q1.

Brian Poff -- Chief Financial Officer, Executive Vice President, Secretary & Treasurer

Yes. I mean, let's look at where sequentially. So, during the Q2, to your point, Brian, you'll see the benefit from the Illinois rate increase, which is going to be offset partially by the increase in wages in our non-Chicago workers, so there will be some margin there. It'll be helpful. So it will move our gross margin up slightly from what you see in Q1. You won't have any other real impact in Q2 and Q3, you'll see kind of an offset in Chicago minimum wage increase that Dirk referenced in his comments, so we'll see kind of that normal 40 basis points or so reduction there as we don't have reimbursement offset until July unless something changes and Illinois is able to pull that forward, and we're in conversations to see if that's possible. And then you get through the end of the year.

And sequester, I think as long as that's out there, we are benefiting like a lot of folks from that as well.

Brian Gil Tanquilut -- Jefferies -- Analyst

Alright, copy that. Thank you.

Operator

[Operator Instructions] Our next question from the line of Mitra Ramgopal with Sidoti.

Mitra Ramgopal -- Sidoti & Company -- Analyst

Yes, good morning. Thanks for taking the question. First, I know you talked about federal funding, increased eroding for the industry and also the heightened focus of healthcare being done more in a home setting. I was wondering just from an M&A perspective, if that's resulting in maybe driving up valuations, as you look up opportunities.

Dirk Allison -- Chief Executive Officer & Chairman of the Board

Mitra, I think there's definitely a lot of appreciation for home care services, especially through the pandemic, even more so. I think prior to COVID obviously, there was a value proposition there. I think recover, you also see a lot of choice and reaction to a pandemic type environment and people's preference to be in their homes. So I think there's definitely an appreciation in the space, and that's driving more of the clinical services we've seen, I think, more of those multiples climb out, particularly in hospice through last year. I think personal care multiples that we've seen, the ones that we typically would target have been pretty consistent. We haven't seen a lot of movement in those multiples at this point.

Mitra Ramgopal -- Sidoti & Company -- Analyst

Okay. That's great. And then on Medicare Advantage, I was wondering if you have an update there. I know that was seen as a nice potential growth opportunity for you and things got delayed as a result of the pandemic in terms of maybe implementing some programs,etc.. Just wondering if you're seeing any pickup in the environment here.

Bradley Bickham -- President & Chief Operating Officer

Mitra, this is Brad. With respect to Medicare Advantage and other value-based arrangements possibilities, we're certainly seeing increased discussion around it, and we're actively engaged in those discussions. We've got several projects out there that are implemented or at various stages of implementation. So I think long term, it's a nice tailwind for the industry. There's a lot more discussion on the federal level about a long-term benefit just recently. So I think there's lots of opportunities. I think the MA piece is still, as we said, a couple of years away from seeing any real meaningful numbers there. But I think in the near term, we're starting to see some pretty interesting projects that we're participating in that I think will further demonstrate the savings that our services can provide

Mitra Ramgopal -- Sidoti & Company -- Analyst

Thanks. And then finally, just on the vaccines and the rollout, etc.. Just wondering from internally as it relates to your caregivers, employees, etc., if we've got cases of number of individuals that wanted the vaccine, especially in the healthcare arena. Curious if that has been an issue for you in terms of your employees and caregivers, etc.?

Dirk Allison -- Chief Executive Officer & Chairman of the Board

Yes. On the vaccine front, we've made good progress. I think we're not as far along as we'd like to be overall. But part of that is just some regional differences in the pace of the availability of the vaccine. When you look at our skilled segment, our Home health division is probably about just under 50% fully vaccinated. Hospice is not quite to that level. It's not probably more in the 40% level. There's more geographic dispersion there. personal care is lagging a little bit behind the skill sectors, but mainly because just access was as not lightly available at the time. I think now what's encouraging is that you don't have to schedule the appointments. You can just show up and get vaccinated. And I suspect that we'll start seeing some pretty good traction there because I think just the ease of obtaining the vaccine, the improvement there is going to be a big driver.

Mitra Ramgopal -- Sidoti & Company -- Analyst

Okay, thanks again for taking the questions.

Operator

[Operator Instructions] Next question comes from the line of Matt Larew with William Blair.

Matt Larew -- William Blair & Company -- Analyst

Hey, good morning. I was just wondering if there's a way that you could try to quantify the impact in New Mexico on assisted living, independent living facility restrictions in terms of your access and then maybe give us a sense for how vaccinations have improved your access has approved?

Dirk Allison -- Chief Executive Officer & Chairman of the Board

Yes. Certainly, when we look at just our admission trends, where we really were impacted was a pretty significant reduction in those ALS and the ILS and the SNFs. What we have seen in the near-term is SNF admissions actually have improved incrementally. So we're starting to see some traction there. Overall, admission volume even in New Mexico was very robust. So we weren't disappointed in admission volume. It's just a lot of it was late stage. That being said, when you look at where we were last year from the perspective of ALS and ILS, certainly, we're not where we want to be, on those admission volumes in New Mexico. But I think there's some optimism that since facilities are starting to open up more in New Mexico. And keep in mind, it was probably one of the more locked down states through half of pandemic. I mean, they started kind of early on locking facilities that is down and locking to stay down. And they've just now really got started to reopen.

Bradley Bickham -- President & Chief Operating Officer

And I think also, if you look at all of our markets related to hospice, the majority of our markets did grow. So New Mexico, having this difficulty with being a little bit more locked down than others and being our second largest market, did have a little bit more of an effect that you would like to see.

Matt Larew -- William Blair & Company -- Analyst

Okay. And then I just wanted to go back to announcement you made intra-quarter about Homecare Homebase and integration with the CellTrak EPV function. Just curious what you think that product will look like. Ultimately, that be exclusive to Addus? What are you contributing to the project? We'll kind of be curious what the plans are for that? I know you said it would roll out in early 2022. It sounds like an interesting tool potentially.

Dirk Allison -- Chief Executive Officer & Chairman of the Board

Yes. Well, first off, it is a true partnership with Homecare Homebase and CellTrak. We are not investing dollars into the software creation. What we are investing is time and expertise. One of the things that we were able to do with Homecare Homebase is we probably are one of the top personal care providers in the country, and we understand what we, as a company, at least, need to run our business properly, the type data we need input and output from systems to allow us to have some of the access that we have today on the clinical side. So our partnership there, while it will not be exclusive, we will be the company to really decide how that software system operates. And our goal, as you would expect, because we're going to have personal care all the way through hospice services, we would like to be able to have that record and be able to see that patient regardless of what level of care they are in our company and get the same data out of that. So that's really the aspect we have with Homecare Homebases today.

Matt Larew -- William Blair & Company -- Analyst

Okay. And then, Dirk, just going back to a comment you made about, let's dig an impact the mid-20s. Obviously a lot of moving parts there, but would that be kind of a two or three quarter time period? Just how long do you think it will take to get back to sort of normalized length of stay?

Dirk Allison -- Chief Executive Officer & Chairman of the Board

Well, we've gone from 15 days up now to 18 in April. So we've grown three days, which while it doesn't sound like a lot as a percentage, it's a nice move. To get back to the mid-20s, you're probably going to see the third and fourth quarter of this year, it takes us to get there. So we believe by the end of 2021, you should see our medium length of stay closer to where we would expect it to be, which is that mid-20 number.

Matt Larew -- William Blair & Company -- Analyst

Okay. Thanks.

Operator

[Operator Instructions] There are no further questions. I will now turn the call over to Mr. Dirk Allison for any closing remarks.

Dirk Allison -- Chief Executive Officer & Chairman of the Board

Thank you, operator. I want to thank everyone for their interest in Addus today and for being part of our earnings call. We hope you have a great week. Thank you.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Dirk Allison -- Chief Executive Officer & Chairman of the Board

Brian Poff -- Chief Financial Officer, Executive Vice President, Secretary & Treasurer

Bradley Bickham -- President & Chief Operating Officer

Dru L. Anderson -- Corporate Communications -- Analyst

Frank Morgan -- RBC Capital Markets -- Analyst

Matt Borsch -- BMO Capital Markets -- Analyst

Scott Fidel -- Stephens -- Analyst

Brian Gil Tanquilut -- Jefferies -- Analyst

Mitra Ramgopal -- Sidoti & Company -- Analyst

Matt Larew -- William Blair & Company -- Analyst

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