UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2020~~March 31, 2021



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-33989

LHC Group, ~~Inc~~.Inc.

(Exact name of registrant as specified in its charter)



Delaware						71-0918189
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

901 Hugh Wallis Road South

Lafayette,, LA70508

(Address of principal executive offices including zip code)

(~~337~~) (337) 233-1307

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value of $0.01

LHCG

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Table of Contents

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

Number of shares of common stock, par value $0.01, outstanding as of ~~August 3, 2020: 31,590,210~~May 4, 2021: 31,666,163 shares.

Table of Contents

LHC GROUP, INC.

INDEX



Part I. Financial Information		Page
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets — ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020		4
Condensed Consolidated Statements of Income — Three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~		5
Condensed Consolidated Statements of Changes in Equity — Three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~		6
Condensed Consolidated Statements of Cash Flows — ~~Six~~Three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~		87
Notes to Condensed Consolidated Financial Statements		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2521
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3930
Item 4.	Controls and Procedures	3930
Part II. Other Information
Item 1.	Legal Proceedings	4132
Item 1A.	Risk Factors	4132
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4232
Item 6.	Exhibits	4333
Signatures		4434

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

LHC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data) (Unaudited)


	June 30, 2020			December 31, 2019				March 31, 2021		December 31, 2020
ASSETS							ASSETS
Current assets:							Current assets:
Cash	$	172,752		$	31,672		Cash	$	292,317	$	286,569
Receivables:							Receivables:
Patient accounts receivable	324,587			284,962			Patient accounts receivable	331,715		301,209
Other receivables	10,674			10,832			Other receivables	9,821		11,522
Amounts due from governmental entities							Amounts due from governmental entities	223		0
Total receivables	335,261			295,794			Total receivables	341,759		312,731
Prepaid income taxes	6,330			9,652

Prepaid expenses	23,740			21,304			Prepaid expenses	26,038		22,058
Other current assets	26,698			21,852			Other current assets	23,561		25,664
Total current assets	564,781			380,274			Total current assets	683,675		647,022
Property, building and equipment, net of accumulated depreciation of $74,486 and $69,441, respectively	123,408			97,908
Property, building and equipment, net of accumulated depreciation of $86,521 and $82,721, respectively							Property, building and equipment, net of accumulated depreciation of $86,521 and $82,721, respectively	139,663		138,366
Goodwill	1,234,145			1,219,972			Goodwill	1,259,127		1,259,147
Intangible assets, net of accumulated amortization of $17,070 and $16,431, respectively	310,548			305,556
Intangible assets, net of accumulated amortization of $17,963 and $17,659, respectively							Intangible assets, net of accumulated amortization of $17,963 and $17,659, respectively	314,532		315,355
Assets held for sale	1,900			2,500			Assets held for sale	3,137		1,900
Operating lease right of use asset	100,834			95,452			Operating lease right of use asset	101,193		100,046
Other assets	21,483			38,633			Other assets	21,527		21,518
Total assets	$	2,357,099		$	2,140,295		Total assets	$	2,522,854	$	2,483,354
LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:							Current liabilities:
Accounts payable and other accrued liabilities	$	70,138		$	83,572		Accounts payable and other accrued liabilities	$	63,975	$	64,864
Salaries, wages, and benefits payable	86,405			85,631			Salaries, wages, and benefits payable	110,327		88,666
Self-insurance reserves	34,438			31,188			Self-insurance reserves	33,893		35,103
Income tax payable							Income tax payable	22,382		21,464
Government stimulus advance	44,273			—			Government stimulus advance	93,257		93,257
Contract liabilities - deferred revenue	310,712			—			Contract liabilities - deferred revenue	317,962		317,962
Current operating lease liabilities	34,838			28,701			Current operating lease liabilities	32,627		32,676
Amounts due to governmental entities	2,186			1,880			Amounts due to governmental entities	1,164		1,516
Current liabilities - deferred employer payroll tax							Current liabilities - deferred employer payroll tax	25,928		25,928
Total current liabilities	582,990			230,972			Total current liabilities	701,515		681,436
Deferred income taxes	70,959			60,498			Deferred income taxes	54,954		47,237
Income taxes payable	6,373			3,867			Income taxes payable	6,404		6,203
Revolving credit facility	30,000			253,000			Revolving credit facility	0		20,000
Other long term liabilities	17,818			—			Other long term liabilities	25,928		25,928
Operating lease payable	68,858			69,556
Long-term operating lease liabilities							Long-term operating lease liabilities	71,431		70,275
Total liabilities	776,998			617,893			Total liabilities	860,232		851,079
Noncontrolling interest — redeemable	21,998			15,151			Noncontrolling interest — redeemable	17,939		18,921
Commitments and contingencies							Commitments and contingencies	0		0
Stockholders’ equity:							Stockholders’ equity:
LHC Group, Inc. stockholders’ equity:							LHC Group, Inc. stockholders’ equity:
Preferred stock – $0.01 par value; 5,000,000 shares authorized; none issued or outstanding	—			—
Common stock — $0.01 par value; 60,000,000 shares authorized; 36,327,819 and 36,129,280 shares issued, and 31,121,968 and 30,992,390 shares outstanding, respectively	363			361
Treasury stock — 5,205,851 and 5,136,890 shares at cost, respectively	(68,654		)	(60,060		)
Preferred stock – $0.01 par value; 5,000,000 shares authorized; NaN issued or outstanding							Preferred stock – $0.01 par value; 5,000,000 shares authorized; NaN issued or outstanding	0		0
Common stock — $0.01 par value; 60,000,000 shares authorized; 36,507,148 and 36,355,497 shares issued, and 31,240,270 and 31,139,840 shares outstanding, respectively							Common stock — $0.01 par value; 60,000,000 shares authorized; 36,507,148 and 36,355,497 shares issued, and 31,240,270 and 31,139,840 shares outstanding, respectively	365		364
Treasury stock — 5,266,878 and 5,215,657 shares at cost, respectively							Treasury stock — 5,266,878 and 5,215,657 shares at cost, respectively	(78,552)		(69,011)
Additional paid-in capital	955,119			949,321			Additional paid-in capital	966,201		962,120
Retained earnings	590,417			523,701			Retained earnings	669,956		635,297
Total LHC Group, Inc. stockholders’ equity	1,477,245			1,413,323			Total LHC Group, Inc. stockholders’ equity	1,557,970		1,528,770
Noncontrolling interest — non-redeemable	80,858			93,928			Noncontrolling interest — non-redeemable	86,713		84,584
Total stockholders' equity	1,558,103			1,507,251			Total stockholders' equity	1,644,683		1,613,354
Total liabilities and stockholders' equity	$	2,357,099		$	2,140,295		Total liabilities and stockholders' equity	$	2,522,854	$	2,483,354

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

LHC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
	2020			2019			2020			2019				2021		2020
Net service revenue	$	487,320		$	517,842		$	1,000,191		$	1,020,427		Net service revenue	$	524,835	$	512,871
Cost of service revenue (excluding depreciation and amortization)	306,712			325,860			627,914			646,852			Cost of service revenue (excluding depreciation and amortization)	310,272		321,202
Gross margin	180,608			191,982			372,277			373,575			Gross margin	214,563		191,669
General and administrative expenses	150,574			148,584			308,440			293,805			General and administrative expenses	163,249		157,866
Impairment of intangibles and other	600			1,018			600			7,337			Impairment of intangibles and other	177		0
Government stimulus income	(44,435		)	—			(44,435		)	—

Operating income	73,869			42,380			107,672			72,433			Operating income	51,137		33,803
Interest expense	(841		)	(2,885		)	(3,609		)	(5,937		)	Interest expense	(263)		(2,768)

Income before income taxes and noncontrolling interest	73,028			39,495			104,063			66,496			Income before income taxes and noncontrolling interest	50,874		31,035
Income tax expense	15,227			9,557			18,586			13,157			Income tax expense	9,441		3,359
Net income	57,801			29,938			85,477			53,339			Net income	41,433		27,676
Less net income attributable to noncontrolling interests	13,109			4,938			18,761			9,483			Less net income attributable to noncontrolling interests	6,774		5,652
Net income attributable to LHC Group, Inc.’s common stockholders	$	44,692		$	25,000		$	66,716		$	43,856		Net income attributable to LHC Group, Inc.’s common stockholders	$	34,659	$	22,024

Earnings per share:													Earnings per share:
Basic	$	1.44		$	0.81		$	2.15		$	1.42		Basic	$	1.11	$	0.71
Diluted	$	1.43		$	0.80		$	2.13		$	1.41		Diluted	$	1.10	$	0.70
Weighted average shares outstanding:													Weighted average shares outstanding:
Basic	31,104			30,960			31,060			30,899			Basic	31,165		31,020
Diluted	31,324			31,201			31,301			31,188			Diluted	31,432		31,303

See accompanying Notes to the Condensed Consolidated Financial Statements.

Table of Contents

LHC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands, except share data)

(Unaudited)


	For the Three Months Ended March 31, 2021
	Common Stock						Additional Paid-In Capital		Retained Earnings		Noncontrolling Interest Non Redeemable		Total Equity
	Issued			Treasury
	Amount		Shares	Amount		Shares
Balance as of December 31, 2020	$	364	36,355,497	$	(69,011)	5,215,657	$	962,120	$	635,297	$	84,584	$	1,613,354



















Net income (1)	—		—	—		—	—		34,659		4,469		39,128

Noncontrolling interest distributions	—		—	—		—	—		—		(2,417)		(2,417)
Purchase of additional controlling interest	—		—	—		—	(81)		—		(61)		(142)
Sale of noncontrolling interest	—		—	—		—	—		—		138		138
Nonvested stock compensation	—		—	—		—	3,513		—		—		3,513
Issuance of vested stock	1		148,447	—		—	—		—		—		1
Treasury shares redeemed to pay income tax	—		—	(9,541)		51,221	—		—		—		(9,541)

Issuance of common stock under Employee Stock Purchase Plan	—		3,204	—		—	649		—		—		649
Balance as of March 31, 2021	$	365	36,507,148	$	(78,552)	5,266,878	$	966,201	$	669,956	$	86,713	$	1,644,683

For the Six Months Ended June 30, 2020
Common Stock Additional
Paid-In
Capital Retained
Earnings Noncontrolling
Interest Non
Redeemable Total
Equity
Issued Treasury
Amount Shares Amount Shares
Balance as of December 31, 2019 $ 361
36,129,280
$ (60,060 ) 5,136,890
$ 949,321
$ 523,701
$ 93,928
$ 1,507,251
Net income (1) —
—
—
—
—
22,024
2,099
24,123
Acquired noncontrolling interest —
—
—
—
—
—
2,880
2,880
Noncontrolling interest distributions —
—
—
—
—
—
(2,093 ) (2,093 )
Purchase of additional controlling interest —
—
—
—
(2,470 ) —
(21,105 ) (23,575 )
Nonvested stock compensation —
—
—
—
3,680
—
—
3,680
Issuance of vested stock 2
163,163
—
—
—
—
—
2
Treasury shares redeemed to pay income tax —
—
(7,122 ) 59,390
189
—
—
(6,933 )
Issuance of common stock under Employee Stock Purchase Plan —
4,663
—
—
610
—
—
610
Balance as of March 31, 2020 $ 363
36,297,106
$ (67,182 ) 5,196,280
$ 951,330
$ 545,725
$ 75,709
$ 1,505,945
Net income (1) —
—
—
—
—
44,692
7,058
51,750
Noncontrolling interest distributions —
—
—
—
—
—
(1,909 ) (1,909 )
Nonvested stock compensation —
—
—
—
3,263
—
—
3,263
Issuance of vested stock —
19,846
—
—
—
—
—
—
Treasury shares redeemed to pay income tax —
—
(950 ) 6,256
(189 ) —
—
(1,139 )
Exercise of options —
7,137
(522 ) 3,315
218
—
—
(304 )
Issuance of common stock under Employee Stock Purchase Plan —
3,730
—
—
497
—
—
497
Balance as of June 30, 2020 $ 363
36,327,819
$ (68,654 ) 5,205,851
$ 955,119
$ 590,417
$ 80,858
$ 1,558,103

(1) Net income excludes net income attributable to noncontrolling interest-redeemable of ~~$3.5 million and $9.6~~$2.3 million during the three ~~and six~~ months ended ~~June 30, 2020, respectively.~~March 31, 2021. Noncontrolling interest-redeemable is reflected outside of permanent equity on the condensed consolidated balance sheets. See Note 8 of the Notes to Condensed Consolidated Financial Statements.

For the Six Months Ended June 30, 2019
Common Stock Additional
Paid-In
Capital Retained
Earnings Noncontrolling
Interest Non
Redeemable Total
Equity
Issued Treasury
Amount Shares Amount Shares
Balance as of December 31, 2018 $ 358
35,835,348
$ (49,373 ) 5,029,429
$ 937,965
$ 427,975
$ 107,549
$ 1,424,474
Net income (1) —
—
—
—
—
18,856
1,686
20,542
Acquired noncontrolling interest —
—
—
—
—
—
820
820
Noncontrolling interest distributions —
—
—
—
—
—
(6,799 ) (6,799 )
Purchase of additional controlling interest —
—
—
—
—
—
(18,000 ) (18,000 )
Nonvested stock compensation —
—
—
—
1,804
—
—
1,804
Issuance of vested stock 2
174,562
—
—
—
—
—
2
Treasury shares redeemed to pay income tax —
—
(6,726 ) 61,465
(115 ) —
—
(6,841 )
Exercise of options 1
44,387
(851 ) 24,044
—
—
—
(850 )
Issuance of common stock under Employee Stock Purchase Plan —
5,357
—
—
478
—
—
478
Balance as of March 31, 2019 $ 361
36,059,654
$ (56,950 ) 5,114,938
$ 940,132
$ 446,831
$ 85,256
$ 1,415,630
Net income (1) —
—
—
—
—
25,000
1,897
26,897
Acquired noncontrolling interest —
—
—
—
—
—
6,170
6,170
Noncontrolling interest distributions —
—
—
—
—
—
(2,026 ) (2,026 )
Purchase of additional controlling interest —
—
—
—
(1,283 ) —
531
(752 )
Nonvested stock compensation —
—
—
—
2,588
—
—
2,588
Issuance of vested stock —
17,145
—
—
—
—
—
—
Treasury shares redeemed to pay income tax —
—
(730 ) 7,199
30
—
—
(700 )
Exercise of options —
3,293
(212 ) 1,866
—
—
—
(212 )
Issuance of common stock under Employee Stock Purchase Plan —
4,301
—
—
453
—
—
453
Balance as of June 30, 2019 $ 361
36,084,393
$ (57,892 ) 5,124,003
$ 941,920
$ 471,831
$ 91,828
$ 1,448,048


	For the Three Months Ended March 31, 2020
	Common Stock						Additional Paid-In Capital		Retained Earnings		Noncontrolling Interest Non Redeemable		Total Equity
	Issued			Treasury
	Amount		Shares	Amount		Shares
Balance as of December 31, 2019	$	361	36,129,280	$	(60,060)	5,136,890	$	949,321	$	523,701	$	93,928	$	1,507,251
Net income (1)	—		—	—		—	—		22,024		2,099		24,123
Acquired noncontrolling interest	—		—	—		—	—		—		2,880		2,880
Noncontrolling interest distributions	—		—	—		—	—		—		(2,093)		(2,093)
Purchase of additional controlling interest	—		—	—		—	(2,470)		—		(21,105)		(23,575)

Nonvested stock compensation	—		—	—		—	3,680		—		—		3,680
Issuance of vested stock	2		163,163	—		—	—		—		—		2
Treasury shares redeemed to pay income tax	—		—	(7,122)		59,390	189		—		—		(6,933)

Issuance of common stock under Employee Stock Purchase Plan	—		4,663	—		—	610		—		—		610
Balance as of March 31, 2020	$	363	36,297,106	$	(67,182)	5,196,280	$	951,330	$	545,725	$	75,709	$	1,505,945

(1) Net income excludes net income attributable to noncontrolling interest-redeemable of ~~$3.0 million and $5.9~~$3.6 million during the three ~~and six~~ months ended ~~June 30, 2019, respectively.~~March 31, 2020. Noncontrolling interest-redeemable is reflected outside of permanent equity on the condensed consolidated balance sheets. See Note 8 of the Notes to Condensed Consolidated Financial Statements.

See accompanying Notes to Condensed Consolidated Financial Statements.

LHC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands) (Unaudited)


	Six Months Ended June 30,							Three Months Ended March 31,
	2020			2019				2021		2020
Operating activities:							Operating activities:
Net income	$	85,477		$	53,339		Net income	$	41,433	$	27,676
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	10,385			8,400			Depreciation and amortization expense	4,999		5,133
Amortization of operating lease right of use asset	17,090			15,528			Amortization of operating lease right of use asset	8,918		8,512
Stock-based compensation expense	6,943			4,392			Stock-based compensation expense	3,513		3,680
Deferred income taxes	10,461			4,821			Deferred income taxes	7,717		4,367
Amortization of operating leases							Amortization of operating leases	0		(13)
Loss on disposal of assets	154			312			Loss on disposal of assets	31		47
Impairment of intangibles and other	600			7,337			Impairment of intangibles and other	177		0
Changes in operating assets and liabilities, net of acquisitions:							Changes in operating assets and liabilities, net of acquisitions:
Receivables	(38,186		)	(22,704		)	Receivables	(28,805)		(67,470)
Prepaid expenses	(2,436		)	(332		)	Prepaid expenses	(3,980)		(11,728)
Other assets	(4,169		)	8			Other assets	1,627		2,268
Prepaid income taxes	3,322			5,063			Prepaid income taxes	0		(4,537)
Accounts payable and accrued expenses	(16,354		)	(935		)	Accounts payable and accrued expenses	(2,894)		(11,159)
Salaries, wages, and benefits payable	3,850			(4,547		)	Salaries, wages, and benefits payable	20,451		24,826
Government stimulus advance	44,273			—
Contract liabilities - deferred revenue	310,712			—
Other long term liabilities	17,818			—

Operating lease liabilities	(16,876		)	(13,253		)	Operating lease liabilities	(8,925)		(8,415)
Income taxes payable	2,506			374			Income taxes payable	1,119		2,298
Net amounts due to/from governmental entities	306			528			Net amounts due to/from governmental entities	(575)		51
Net cash provided by operating activities	435,876			58,331
Net cash provided by (used in) operating activities							Net cash provided by (used in) operating activities	44,806		(24,464)
Investing activities:							Investing activities:
Purchases of property, building and equipment	(40,944		)	(7,599		)	Purchases of property, building and equipment	(4,849)		(13,502)
Proceeds from sale of property, building and equipment	7,142			—			Proceeds from sale of property, building and equipment	45		1,149
Cash received (paid) for acquisitions	3,125			(20,431		)	Cash received (paid) for acquisitions	0		3,125
Proceeds from sale of an entity							Proceeds from sale of an entity	200		0
Net cash used in investing activities	(30,677		)	(28,030		)	Net cash used in investing activities	(4,604)		(9,228)
Financing activities:							Financing activities:
Proceeds from line of credit	256,230			25,000			Proceeds from line of credit	0		188,728
Payments on line of credit	(479,230		)	(30,000		)	Payments on line of credit	(20,000)		(143,657)

Proceeds from employee stock purchase plan	1,107			931			Proceeds from employee stock purchase plan	649		610
Payments on debt	—			(7,650		)

Noncontrolling interest distributions	(10,267		)	(13,857		)	Noncontrolling interest distributions	(5,704)		(4,874)
Withholding taxes paid on stock-based compensation	(8,602		)	(8,519		)	Withholding taxes paid on stock-based compensation	(9,541)		(7,064)
Purchase of additional controlling interest	(23,575		)	(18,748		)	Purchase of additional controlling interest	(142)		(23,575)
Exercise of vested awards and stock options	218			(84		)	Exercise of vested awards and stock options	0		160
Net cash used in financing activities	(264,119		)	(52,927		)
Sale of noncontrolling interest							Sale of noncontrolling interest	284		0
Net cash (used in) provided by financing activities							Net cash (used in) provided by financing activities	(34,454)		10,328
Change in cash	141,080			(22,626		)	Change in cash	5,748		(23,364)
Cash at beginning of period	31,672			49,363			Cash at beginning of period	286,569		31,672
Cash at end of period	$	172,752		$	26,737		Cash at end of period	$	292,317	$	8,308
Supplemental disclosures of cash flow information:							Supplemental disclosures of cash flow information:
Interest paid	$	4,083		$	4,038		Interest paid	$	495	$	2,830
Income taxes paid	$	2,375		$	4,042		Income taxes paid	$	621	$	1,269
Non-Cash Operating Activity:							Non-Cash Operating Activity:
Operating right of use assets in exchange for lease obligations	$	18,690		$	98,070		Operating right of use assets in exchange for lease obligations	$	11,748	$	9,041
Non-Cash Investing Activity:							Non-Cash Investing Activity:
Accrued capital expenditures	$	2,348		$	953		Accrued capital expenditures	$	1,973	$	2,226

See accompanying Notes to Condensed Consolidated Financial Statements.

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LHC GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Significant Events

Organization

LHC Group, Inc. (the “Company”) is a health care provider specializing in the post-acute continuum of care. The Company provides services through ~~five~~5 segments: home health, hospice, home and community-based services, facility-based services, the latter primarily through long-term acute care hospitals (“LTACHs”), and healthcare innovations services ("HCI").

As of ~~June 30, 2020,~~March 31, 2021, the Company, through its wholly- and majority-owned subsidiaries, equity joint ventures, controlled affiliates, and management agreements operated ~~816~~829 service locations in 35 states within the continental United States and the District of Columbia.

COVID-19 Update

~~The effects of the worldwide pandemic caused by the outbreak of~~ SARS-CoV-2 ~~(“COVID-19”~~("COVID-19") ~~have materially impacted our business.~~

~~In response~~continues to ~~the COVID-19 outbreak, we promptly convened a cross-functional COVID-19 task force comprised of the Company's leaders that continually communicates~~spread and various responses related to stay-at-home restrictions, travel restrictions, and other public health and safety measures continue to evolve. We communicate with our clinicians and other employees ~~concerning best practices and changes in Company~~all updated policies and ~~procedures. We also implemented contingency planning policies, whereby most employees~~procedures as we monitor changes related to the pandemic. Policies and procedures related to social distancing and cleaning procedures remain in our home offices located in Louisiana and Kentucky are continuing to work remotely in compliance with CDC recommendations. We continue to invest in technology and equipment that allows our remote work force to provide continued and seamless functionality to our clinicians who continue to care for patients on service.

~~We have undertaken numerous measures to promote~~place as the safety of our ~~clinicians~~patients and ~~other employees. For example, we have prepared~~employees are vital. The effects of COVID-19 continue to materially impact our business. As a result, operating results for the three months ended March 31, 2021 may not be indicative of the results that may be expected for the year ending December 31, 2021, and ~~distributed~~operating results for the three months ended March 31, 2021 may not be directly comparable to ~~our clinicians across~~operating results for the country special kits of personal protective equipment and other supplies needed to properly treat our patients during the COVID-19 outbreak, adopted social distancing guidelines for our agencies and our home offices located in Louisiana and Kentucky and posted reminder signs and markers throughout our work spaces, adopted additional cleaning procedures at all locations, installed plexiglass shields at work spaces that require a physical protective barrier, and instituted temperature check points in our agencies and home office campuses. These and other measures have altered numerous clinical, operational and business processes and significantly increases our supplies and services costs.

In addition, we have implemented a number of programs to support our employees, including a pandemic grant program that supports employees experiencing financial hardships, retirement plan amendments, special cash-in opportunities for accumulated paid time off, expanded offerings in our employee assistance program, a wage supplement program designed to restore lost wages for front line patient care employees that qualified, and a paid time off replenishment program designed to restore certain hours of paid time off for front line patient care employees that qualified and for any employees who previously donated their paid time off hours to these front line patient care employees.three months ended March 31, 2020.

CARES Act

In response to COVID-19, the U.S. Government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") on March 27, 2020. The CARES Act was passed to provide $100 billion of Provider Relief Funds for distribution to eligible providers who provided diagnoses, testing, or care for individuals with a possible or actual case of COVID-19, specifically to reimburse providers for health care related ~~expense~~expenses related to the prevention of the spread of COVID-19, preparations for treating cases of COVID-19 positive patients, and for lost revenues attributable to COVID-19. The CARES Act also provided financial hardship relief to Medicare providers impacted by the COVID-19 pandemic in order to provide necessary funds when there is a disruption in Medicare claims submission and/or Medicare claims processing by distributing funds through the Accelerated and Advanced Payments Program ("AAPP").

In addition, the CARES Act suspended the 2% sequestration payment adjustments on Medicare patient claims with dates of service from May 1 through December 31, 2020, suspended the application of site-neutral payment for LTACH admissions that were admitted during the Public Health Emergency ("PHE"), and delayed payment of the employer portion of social security tax.

On April 14, 2021, Congress passed legislation to continue the suspension of sequestration payment adjustments of Medicare patient claims through December 31, 2021.

Provider Relief Fund

~~During the three months ended June 30, 2020,~~As of March 31, 2021, the Company ~~received $88.7~~had $93.3 million in payments from the Provider Relief Fund. ~~The payments received under the Provider Relief Fund are subject~~The Company intends to ~~certain terms and conditions, including~~ ~~being subject to potential repayment if those funds are not utilized to address the lost revenue and/or increased costs associated with our efforts associated with COVID-19.~~

~~During the three months ended June 30, 2020, the Company recognized $44.4 million related to~~return these funds ~~which was~~to the government and has recorded ~~in government stimulus income in our condensed consolidated statements~~a short-term liability of ~~income. The unrecognized amount of $44.3~~$93.3 million ~~was recorded~~ in government stimulus advance in our condensed consolidated balance sheet. Such unrecognized amounts may be recognized as government stimulus income in future periods if conditions of recognition are met. The Company will continue to monitor compliance with the terms and conditions of the Provider Relief Fund and the impact of covered expenses and lost revenues. Any portion of the unrecognized $44.3 million that does not meet the terms and conditions of the grant will be returned to the government following the end of the PHE.sheets.

AAPP

~~During the three months ended June 30, 2020,~~As of March 31, 2021, the Company ~~received $310.7~~had $318.0 million of accelerated payments under the AAPP, which was recorded in contract liabilities - deferred revenue in our condensed consolidated balance ~~sheet~~sheets in accordance with Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("Topic 606"). ~~We are required to~~On October 1, 2020, the repayment and recoupment terms for AAPP funds were amended by the Continuing Appropriations Act, 2021 and Other Extensions Act, which provides that recoupment will begin ~~repaying~~one year from the date the AAPP funds were received. Under these revised terms, recoupment of AAPP will occur under a tiered approach. Beginning in the second quarter of 2021 and continuing for 11 months, CMS will recoup 25% of Medicare payments otherwise owed to the ~~government~~ Company. If any amount of AAPP funds that we received ~~within 120 days~~from CMS remain unpaid after ~~our receipt~~the initial 11 month period, CMS will recoup 50% of ~~such funds. After~~Medicare payments otherwise

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owed to the ~~120-day period,~~Company during the following six months. Interest will begin accruing on any amount of the AAPP funds that we received from CMS that remain unpaid following those recoupment periods. CMS will ~~be automatically recouped from Medicare~~issue a repayment letter to the Company for any such outstanding amounts, ~~otherwise payable to us by Centers for Medicare and Medicaid Services ("CMS"), until all AAPP funds have been completely repaid. Any unapplied advance payment amounts~~which must be paid in full within ~~210~~30 days from ~~receipt~~the date of the ~~advance payments.~~letter. The Company intends to repay the full amount before any interest accrues.

Other

During the three months ended ~~June 30, 2020,~~March 31, 2021, the Company recognized ~~$5.0 million and $2.9~~$6.4 million of net service revenue due to the suspension of the 2% sequestration payment ~~adjustment and~~adjustment. During the three months ended March 31, 2021, the Company recognized $8.9 million of net service revenue due to the suspension of LTACH site-neutral ~~payments, respectively. As~~payments. As of ~~June 30, 2020,~~March 31, 2021, the Company deferred ~~$17.8~~$51.8 million of employer social security taxes, $25.9 million of which was recorded in current liabilities - deferred employer payroll tax and $25.9 million of which was recorded in other long term liabilities on our condensed consolidated balance sheets.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated balance sheets as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019, and~~2020, the related unaudited condensed consolidated statements of income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~the unaudited condensed consolidated statements of changes in equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~the unaudited condensed consolidated statements of cash flows for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ and related notes (collectively, these financial statements are referred to as the "interim financial statements" and together with the related notes are referred to herein as the “interim financial information”) have been prepared by the Company. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been included. Operating results for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~2021.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from the interim financial information presented. This report should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (the ~~"2019~~"2020 Form 10-K"). The ~~2019~~2020 Form 10-K was filed with the Securities and Exchange Commission (the “SEC”) on February ~~27, 2020,~~26, 2021, and includes information and disclosures not included herein.

~~Immaterial Correction of an Error~~

During the six months ended June 30, 2019, the Company increased the reported number of common shares issued by 47,680, decreased the reported number of treasury shares by 368, and reclassified the reported number of treasury shares by 25,542 for the six months ended June 30, 2019 due to the exclusion of reporting the number of common shares issued as a result of the exercise of certain outstanding stock options and the number of treasury shares redeemed to pay income tax associated with such stock option exercises. For further details of this noted item, see Note 2 of the Notes to Consolidated Financial Statements in the 2019 10K filed with the SEC on February 27, 2020.

The Company has evaluated the effects both qualitatively and quantitatively, and concluded that they did not have a material impact on previously issued financial statements for the six months ended June 30, 2019.

2. Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of

the financial statements, and the reported revenue and expenses during the reporting period. Actual results could differ from those estimates.

Critical Accounting Policies

The Company’s most critical accounting policies relate to revenue recognition.

Net Service Revenue

Net service revenue from contracts with customers is recognized in the period the performance obligations are satisfied under the Company's contracts by transferring the requested services to patients in amounts that reflect the consideration to which is expected to be received in exchange for providing patient care, which is the transaction price allocated to the services provided in accordance with Topic 606 and ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (collectively, "ASC 606").

Net service revenue is recognized as performance obligations are satisfied, which can vary depending on the type of services provided. The performance obligation is the delivery of patient care in accordance with the requested services outlined in physicians' orders, which are based on specific goals for each patient.

The performance obligations are associated with contracts in duration of less than one year; therefore, the optional exemption provided by ASC 606 was elected resulting in the Company not being required to disclose the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. The Company's unsatisfied or partially unsatisfied performance obligations are primarily completed when the patients are discharged and typically occur within days or weeks of the end of the period.

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The Company determines the transaction price based on gross charges for services provided, reduced by estimates for explicit and implicit price concessions. Explicit price concessions include contractual adjustments provided to patients and third-party payors. Implicit price concessions include discounts provided to self-pay, uninsured patients or other payors, adjustments resulting from regulatory reviews, audits, billing reviews and other matters. Subsequent changes to the estimate of the transaction price are recorded as adjustments to net service revenue in the period of change. Subsequent changes that are determined to be the result of an adverse change in the patient's ability to pay (i.e. change in credit risk) are recorded as a provision for doubtful accounts within general and administrative expenses.

Explicit price concessions are recorded for the difference between our standard rates and the contracted rates to be realized from patients, third-party payors and others for services provided.

Implicit price concessions are recorded for self-pay, uninsured patients and other payors by major payor class based on historical collection experience and current economic conditions, representing the difference between amounts billed and amounts expected to be collected. The Company assesses the ability to collect for the healthcare services provided at the time of patient admission based on the verification of the patient's insurance coverage under Medicare, Medicaid, and other commercial or managed care insurance programs.

Amounts due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid), include variable consideration for retroactive revenue adjustments due to settlements of audits and reviews. The Company has determined estimates for price concessions related to regulatory reviews based on historical experience and success rates in the claim appeals and adjudication process. Revenue is recorded at amounts estimated to be realizable for services provided.

The following table sets forth the percentage of net service revenue earned by category of payor for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
Home health:
Medicare 66.4 % 70.8 % 67.3 % 71.1 %
Managed Care, Commercial, and Other 33.6
29.2
32.7
28.9
100.0 % 100.0 % 100.0 % 100.0 %
Hospice:
Medicare 92.9 % 92.9 % 92.4 % 92.7 %
Managed Care, Commercial, and Other 7.1
7.1
7.6
7.3
100.0 % 100.0 % 100.0 % 100.0 %
Home and Community-Based Services:
Medicaid 20.9 % 24.3 % 20.7 % 24.7 %
Managed Care, Commercial, and Other 79.1
75.7
79.3
75.3
100.0 % 100.0 % 100.0 % 100.0 %
Facility-Based Services:
Medicare 56.6 % 53.0 % 55.8 % 55.2 %
Managed Care, Commercial, and Other 43.4
47.0
44.2
44.8
100.0 % 100.0 % 100.0 % 100.0 %
HCI:
Medicare 30.7 % 23.5 % 27.3 % 22.8 %
Managed Care, Commercial, and Other 69.3
76.5
72.7
77.2
100.0 % 100.0 % 100.0 % 100.0 %


	Three Months Ended March 31,
	2021		2020
Home health:
Medicare	64.1	%	68.2	%
Managed Care, Commercial, and Other	35.9		31.8
	100.0	%	100.0	%
Hospice:
Medicare	94.1	%	92.0	%
Managed Care, Commercial, and Other	5.9		8.0
	100.0	%	100.0	%
Home and community-based services:
Medicaid	29.2	%	20.6	%
Managed Care, Commercial, and Other	70.8		79.4
	100.0	%	100.0	%
Facility-based services:
Medicare	52.7	%	54.8	%
Managed Care, Commercial, and Other	47.3		45.2
	100.0	%	100.0	%
HCI:
Medicare	21.3	%	24.6	%
Managed Care, Commercial, and Other	78.7		75.4
	100.0	%	100.0	%

Medicare

The following describes the payment models in effect during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. Such payment models have been subject to temporary adjustments made by CMS in response to COVID-19 pandemic as described elsewhere byin this Quarterly Report on Form 10-Q. The 2% sequestration reduction adjustment was suspended for patient claims with dates of service that began May 1, 2020 through December 31, 2021.

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Home Health Services

~~Effective January 1, 2020,~~The Company records revenue as services are provided under the Patient Driven Groupings Model ("PDGM") became the new payment model for services provided to Medicare patients with dates of service on or after the effective date, including certain Medicare Advantage patients. PDGM was implemented by CMS. Under PDGM, the initial certification of Medicare patient eligibility, plan of care, and comprehensive assessment is for a 60-day episode of care; however, unlike the former Medicare prospective payment system ("PPS"), where each 60-day episode of care could not be final billed until the episode was completed, PDGM provides for each 30-day period within the episode of care to be final billed upon completion.

~~As a result of PDGM, the Company now completes its final billing after each 30-day period instead of the former 60-day period under PPS.~~. For each 30-day period, the patient is classified into one of 432 home health resource groups prior to receiving services. Each 30-day period is placed into a subgroup falling under the following categories: (i) timing being early or late, (ii) admission source being community or institutional, (iii) one of 12 clinical groupings based on the patient's principal diagnosis, (iv) functional impairment level of low, medium, or high, and (v) a co-morbidity adjustment of none, low, or high based on the patient's secondary diagnoses.

Each 30-day period payment from Medicare reflects base payment adjustments for case-mix and geographic wage differences. All Medicare patient claims with dates of service from January 1, 2020 through April 30, 2020 reflected a 2% sequestration reduction. The 2% sequestration reduction adjustment was suspended for patient claims with dates of service that began May 1, 2020 through December 31, 2020. In addition, payments may reflect one of three retroactive adjustments to the total reimbursement: (a) an outlier payment if the patient’s care was unusually costly; (b) a low utilization adjustment whereby the number of visits is dependent on the clinical grouping; and/or (c) a partial payment if the patient transferred to another provider or from another provider before completing the episode. The retroactive adjustments outlined above are recognized in net service revenue when the event causing the adjustment occurs and during the period in which the services are provided to the patient. The Company reviews these adjustments to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustments is subsequently

resolved. Net service revenue and related patient accounts receivable are recorded at amounts estimated to be realized from Medicare for services rendered.

Hospice

The Company records revenue based upon the date of service at amounts equal to the estimated payment rates. The Company receives 1 of 4 predetermined daily rates based upon the level of care provided by the Company, which can be routine care, general inpatient care, continuous home care, and respite care. There are two separate payment rates for routine care: payment for the first 60 days of care and care beyond 60 days. In addition to the two routine rates, the Company may also receive a service intensity add-on ("SIA"). The SIA is based on visits made in the last seven days of life by a registered nurse or medical social worker for patients in a routine level of care.

The performance obligation is the delivery of hospice services to the patient, as determined by a physician, each day the patient is on hospice care.

Adjustments to Medicare revenue are made from regulatory reviews, audits, billing reviews and other matters. The Company estimates the impact of these adjustments based on our historical experience.

Hospice payments are subject to variable consideration through an inpatient cap and an overall Medicare payment cap. The inpatient cap relates to individual programs receiving more than 20% of their total Medicare reimbursement from inpatient care services, and the overall Medicare payment cap relates to individual programs receiving reimbursements in excess of a “cap amount,” determined by Medicare to be payment equal to 12 months of hospice care for the aggregate base of hospice patients, indexed for inflation. The determination for each cap is made annually based on the 12-month period ending on ~~October 31~~September 30 of each year. The Company monitors its limits on a provider-by-provider basis and records an estimate of its liability for reimbursements received in excess of the cap amount, if any, in the reporting period.

Facility-Based Services

Gross revenue is recorded as services are provided under the LTACH prospective payment system. Each patient is assigned a long-term care diagnosis-related group. The Company is paid a predetermined fixed amount intended to reflect the average cost of treating a Medicare LTACH patient classified in that particular long-term care diagnosis-related group. For selected LTACH patients, the amount may be further adjusted based on length-of-stay and facility-specific costs, as well as in instances where a patient is discharged and subsequently re-admitted, among other factors. The Company calculates the adjustment based on a historical average of these types of adjustments for LTACH claims paid. Similar to other Medicare prospective payment systems, the rate is also adjusted for geographic wage differences. Net service revenue adjustments resulting from reviews and audits of Medicare cost report settlements are considered implicit price concessions for LTACHs and are measured at expected value.

Non-Medicare Revenues

Other sources of net service revenue for all segments fall into Medicaid, managed care or other payors of the Company's services. Medicaid reimbursement is based on a predetermined fee schedule applied to each service provided. Therefore, revenue is recognized for Medicaid services as services are provided based on this fee schedule. The Company's managed care and other payors reimburse the Company based upon a predetermined fee schedule or an episodic basis, depending on the terms of the applicable contract. Accordingly, the Company recognizes revenue from managed care and other payors as services are provided, such costs are incurred, and estimates of expected payments are known for each different payor, thus the Company's revenue is recorded at the estimated transaction price.

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Contingent Service Revenues

The HCI segment provides strategic health management services to ~~Affordable~~Accountable Care Organizations ("ACOs") that have been approved to participate in the Medicare Shared Savings Program ("MSSP"). The HCI segment has service agreements with ACOs that provide for sharing of MSSP payments received by the ACO, if any. ACOs are legal entities that contract with CMS to provide services to the Medicare fee-for-service population for a specified annual period with the goal of providing better care for the individual, improving health for populations and lowering costs. ACOs share savings with CMS to the extent that the actual costs of serving assigned beneficiaries are below certain trended benchmarks of such beneficiaries and certain quality performance measures are achieved. The generation of shared savings is the performance obligation of each ACO, which only become certain upon the final issuance of unembargoed calculations by CMS, generally in the third quarter of each year.

~~Government Grants~~

~~The Company accounted for these funds as government grants, in accordance with IAS 20,~~ ~~Accounting for Government Grants and Disclosure of Government Assistance~~. Under IAS 20, government grants are recognized on a systematic basis over the periods in which the Company recognizes expenses and lost revenue for the related costs for which the grants are intended to compensate. The Company will recognize the grant when there is reasonable assurance that (a) the Company will comply with any conditions attached to the grant and (b) the grant will be received.

Patient Accounts Receivable

The Company reports patient accounts receivable from services rendered at their estimated transaction price, which includes price concessions based on the amounts expected to be due from payors. The Company's patient accounts receivable is uncollateralized and primarily consist of amounts due from Medicare, Medicaid, other third-party payors, and to a lesser degree patients. The credit risk from other payors is limited due to the significance of Medicare as the primary payor. The Company believes the credit risk associated with its Medicare accounts is limited due to (i) the historical collection rate from Medicare and (ii) the fact that Medicare is a U.S. government payor. The Company does not believe that there are any other significant concentrations from any particular payor that would subject it to any significant credit risk in the collection of patient accounts receivable.

A portion of the estimated Medicare PDGM system reimbursement from each submitted home nursing episode is received in the form of a request for anticipated payment (“RAP”). For a standard 60-day episode of care, the Company will submit two RAPs, one for the first 30-day period and a second for the next 30-day period. The Company submits a RAP for 20% of the estimated reimbursement for each of the 30-day periods at the start of care. A final bill is submitted at the end of each 30-day period. If a final bill is not submitted within the greater of 120 days from the start of the 30-day period, or 60 days from the date the RAP was paid, any RAP received for that 30-day period will be recouped by Medicare from any other Medicare claims in process for that particular provider. The RAP and final claim must then be resubmitted.

Earnings Per Share

Basic per share information is computed by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding during the period, under the treasury stock method. Diluted per share information is also computed using the treasury stock method, by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding plus potentially dilutive shares.

The following table sets forth shares used in the computation of basic and diluted per share information and, with respect to the data provided for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (amounts in thousands):


	Three Months Ended March 31,
	2021	2020
Weighted average number of shares outstanding for basic per share calculation	31,165	31,020
Effect of dilutive potential shares:
Nonvested stock	267	283
Adjusted weighted average shares for diluted per share calculation	31,432	31,303
Anti-dilutive shares	120	120

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
Weighted average number of shares outstanding for basic per share calculation 31,104
30,960
31,060
30,899
Effect of dilutive potential shares:
Nonvested stock 220
241
241
289
Adjusted weighted average shares for diluted per share calculation 31,324
31,201
31,301
31,188
Anti-dilutive shares 5
13
122
153

Assets Held for Sale

As of ~~June 30, 2020,~~March 31, 2021, the Company's assets held for sale was $3.1 million, which consisted of property and fixed assets of 1 hospice facility in Knoxville, ~~Tennessee. The Company has accepted a purchase offer from a buyer that indicated the fair market value of the property was $1.9 million. The Company performed an impairment analysis~~Tennessee and ~~recorded an impairment charge of $0.6 million during~~1 pharmacy operation in Lafayette, Louisiana.

During the three months ended ~~June 30, 2020, which was recorded~~March 31, 2021, the Company entered into an Asset Purchase Agreement with a buyer concerning the sale of one pharmacy operation located in ~~impairment~~Lafayette, Louisiana. The sale occurred during the second quarter of ~~intangibles and other on our condensed consolidated statements~~2021 for a purchase price of ~~income.~~$1.2 million.

Recently Adopted Accounting Pronouncements

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment~~, which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. This ASU was effective for annual and interim periods in fiscal years beginning after December 15, 2019, and did not have a significant impact to the Company.

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Measurement of Credit Losses on Financial Instruments~~ ~~which amends~~ ~~Financial Instruments - Credit Losses~~ ("Topic 326"). ASU 2016-13 provides guidance for measuring credit losses on financial instruments. Early adoption is permitted. The amendments in this ASU should be applied retrospectively. This ASU was effective for annual and interim periods in fiscal years beginning after December 15, 2019, and did not have a significant impact to the Company.

~~Recently Issued Accounting Pronouncements~~

In December 2019, the FASB issued ASU 2019-12, Simplifications to accounting for income taxes, which removes certain exceptions to the general principles of Topic 740 and adds guidance to reduce complexity in accounting for income taxes. The Company adopted the new guidance effective January 1, 2021. The adoption of the new guidance did not have a material impact to the Company.

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Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the transition away from reference rates expected to be discontinued to alternative reference rates. The pronouncement is effective ~~for annual~~immediately and ~~interim periods in fiscal years beginning~~may be applied prospectively to contract modifications made and hedging relationships entered into on or before December ~~15, 2020. Early adoption is permitted.~~31, 2022. The Company is currently evaluating the impact of ~~the adoption of~~ this standard on the Company's ~~condensed~~ consolidated financial statements.

3. ~~Acquisitions~~Divestiture and Joint Venture Activities

~~Acquisitions~~Divestiture

~~The~~During the three months ended March 31, 2021, the Company ~~acquired the majority-ownership of 6~~sold its controlling membership interests in a home health agencies, 3 hospice agencies, and 4 home and community-based agencies during the six months ended June 30, 2020. The total aggregate purchase price for these transactions was $13.9 million. The purchase prices were determined based on the Company’s analysis of comparable acquisitions and the target market’s potential future cash flows.

~~The Company funded these acquisitions in 2019 by paying cash consideration of $16.4 million. During the six months ended June 30, 2020, the Company received $3.1 million from~~agency previously operated as an equity joint ~~venture partnership for the partner's noncontrolling interest for one of the Company's acquired home health and hospice agencies.~~venture. The total ~~cash~~ consideration ~~includes adjustments~~ for ~~assets acquired and liabilities assumed.~~

~~Goodwill generated from the acquisitions~~this controlling interest sale was ~~recognized based~~$0.2 million. The transaction was accounted for as a loss on the ~~expected contributions~~sale of each acquisition to the overall corporate strategy. The Company expects its portion of goodwill to be fully tax deductible. The acquisitions were accounted for under the acquisition method of accounting. Accordingly, the accompanying interim financial information includes the results of operations of the acquired entities from the date of acquisition.

~~The following table summarizes the amounts of the assets acquired~~an entity and ~~liabilities assumed at the acquisition dates, as well as their fair value at the acquisition dates~~recorded in general and ~~the noncontrolling interest acquired during the six months ended June 30, 2020:~~

Fair value of total consideration transferred
Recognized amounts of identifiable assets acquired and liabilities assumed:
Trade name $ 1,944
Certificates of need/licenses 3,584
Other assets and (liabilities), net (410 )
Total identifiable assets $ 5,118

Noncontrolling interest $ 6,388
Goodwill, including noncontrolling interest of $4,661 $ 14,617

Trade names, certificates of need and licenses are indefinite-lived assets and, therefore, not subject to amortization. Acquired trade names that are not being used actively are amortized over the estimated useful life on the straight line basis. Trade names are valued using the relief from royalty method, a form of the income approach. Certificates of need are valued using the replacement cost approach based on registration fees and opportunity costs. Licenses are valued based on the estimated direct costs associated with recreating the asset, including opportunity costs based on an income approach. In the case of states with a

~~moratorium in place, the licenses are valued using the multi-period excess earnings method. Noncontrolling interest is recorded at fair value.~~

administrative expenses.

Joint Venture Activities

During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, the Company purchased ~~a portion of~~ the noncontrolling membership interest in one of our equity joint venture partnerships, ~~which prior to~~whereby the ~~purchase was classified as~~agency became a ~~nonredeemable noncontrolling interest in permanent equity. As a result~~wholly-owned subsidiary of the purchase, the Company retained its controlling financial interests in the joint venture partnership and the noncontrolling interest of our partner will continue to be classified as a nonredeemable noncontrolling interest in permanent equity. TotalCompany. The total consideration for this noncontrolling interest purchase was ~~$23.6~~$0.1 million. The transaction was accounted for as an equity transaction.

During the three months ended March 31, 2021, the Company sold a noncontrolling membership interest in a home health agency previously operated as an equity joint venture. The total consideration for this noncontrolling interest sale was $0.3 million. The transaction was accounted for as an equity transaction.

4. Goodwill and Intangibles

The changes in recorded goodwill and intangible assets by reporting unit for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 were as follows (amounts in thousands):

Home health reporting unit
Hospice
reporting
unit

Home and community-based services
reporting
unit

Facility-based
reporting
unit
HCI reporting unit Total
Goodwill:
Balance as of December 31, 2019 $ 867,924
$ 128,875
$ 166,629
$ 15,682
$ 40,862
$ 1,219,972
Acquisitions 7,278
2,678
—
—
—
9,956
Noncontrolling interests 2,882
1,779
—
—
—
4,661
Adjustments and disposals (108 ) (336 ) —
—
—
(444 )
Balance as of June 30, 2020 $ 877,976
$ 132,996
$ 166,629
$ 15,682
$ 40,862
$ 1,234,145
Intangible assets:
Balance as of December 31, 2019 $ 219,872
$ 40,590
$ 24,096
$ 5,317
$ 15,681
$ 305,556
Acquisitions 4,700
930
—
—
—
5,630
Amortization (288 ) (46 ) (11 ) (3 ) (290 ) (638 )
Balance as of June 30, 2020 $ 224,284
$ 41,474
$ 24,085
$ 5,314
$ 15,391
$ 310,548


	Home health reporting unit		Hospice reporting unit		Home and community-based services reporting unit		Facility-based reporting unit		HCI reporting unit		Total
Goodwill:
Balance as of December 31, 2020	$	884,000	$	151,742	$	166,773	$	15,770	$	40,862	$	1,259,147


Disposals	(20)		0		0		0		0		(20)
Balance as of March 31, 2021	$	883,980	$	151,742	$	166,773	$	15,770	$	40,862	$	1,259,127
Intangible assets:
Balance as of December 31, 2020	$	226,004	$	44,732	$	24,208	$	5,311	$	15,100	$	315,355


Amortization	(117)		(38)		(2)		(2)		(145)		(304)
Disposals	(519)		0		0		0		0		(519)
Balance as of March 31, 2021	$	225,368	$	44,694	$	24,206	$	5,309	$	14,955	$	314,532

The ~~allocation~~Company did record an impairment of $0.2 million related to the closure of underperforming locations. The amount of disposal of goodwill ~~from acquisitions purchased during~~was determined using prices of comparable business in the ~~six months ended June 30, 2020~~market and the amount of disposal of the Medicare license was its carrying value at the time of closure. This was recorded in impairment of intangibles and other on the company's consolidated statements of income. In addition, the Company divested a Certificate of Need of $0.4 million, which was accounted for ~~each reporting unit is preliminary~~as a loss on the sale of an entity and ~~subject to change once the valuation analysis required by ASC 805, Business Combinations is finalized.~~recorded in general and administrative expenses.

The following tables summarize the changes in intangible assets during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 (amounts in thousands):

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	2020			2019				2021		2020
Indefinite-lived intangible assets:							Indefinite-lived intangible assets:
Trade Names	$	165,417		$	163,499
Trade names							Trade names	$	168,699	$	168,700
Certificates of Need/Licenses	133,273			129,689			Certificates of Need/Licenses	134,494		135,013
Net Total	$	298,690		$	293,188
Net total							Net total	$	303,193	$	303,713

Definite-lived intangible assets:							Definite-lived intangible assets:
Trade Names
Trade names							Trade names
Gross carrying amount	$	10,209		$	10,182		Gross carrying amount	$	10,212	$	10,212
Accumulated amortization	(9,378		)	(9,229		)	Accumulated amortization	(9,514)		(9,480)
Net total	$	831		$	953		Net total	$	698	$	732
Non-compete agreements							Non-compete agreements
Gross carrying amount	$	6,897		$	6,795		Gross carrying amount	$	7,267	$	7,267
Accumulated amortization	(6,191		)	(5,991		)	Accumulated amortization	(6,512)		(6,387)
Net total	$	706		$	804		Net total	$	755	$	880
Customer relationships							Customer relationships
Gross carrying amount	$	11,822		$	11,822		Gross carrying amount	$	11,823	$	11,822
Accumulated amortization	(1,501		)	(1,211		)	Accumulated amortization	(1,937)		(1,792)
Net total	$	10,321		$	10,611		Net total	$	9,886	$	10,030
Total definite-lived intangible assets							Total definite-lived intangible assets
Gross carrying amount	$	28,928		$	28,799		Gross carrying amount	$	29,302	$	29,301
Accumulated amortization	(17,070		)	(16,431		)	Accumulated amortization	(17,963)		(17,659)
Net total	$	11,858		$	12,368		Net total	$	11,339	$	11,642

Total intangible assets:							Total intangible assets:
Gross carrying amount	$	327,618		$	321,987		Gross carrying amount	$	332,495	$	333,014
Accumulated amortization	(17,070		)	(16,431		)	Accumulated amortization	(17,963)		(17,659)
Net total	$	310,548		$	305,556		Net total	$	314,532	$	315,355

Remaining useful lives for trade names, customer relationships, and non-compete agreements were ~~9.3, 17.7,~~8.5, 17.0, and ~~2.4~~2.9 years, respectively, at ~~June 30, 2020.~~March 31, 2021. Similar periods at December 31, ~~2019~~2020 were ~~9.8, 18.2,~~8.8, 17.3, and ~~2.8~~2.9 years for trade names, customer relationships, and non-compete agreements, respectively. Amortization expense was ~~$0.6~~$0.3 million ~~and $0.7 million during~~for each of the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. Amortization expense was recorded in general and administrative expenses.

5. Debt

Credit Facility

On March 30, 2018, the Company entered into a Credit Agreement with JPMorgan Chase Bank, N.A., which was effective on April 2, 2018 (the "Credit Agreement"). The Credit Agreement provides a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $500.0 million, which includes an additional $200.0 million accordion expansion feature, and a letter of credit sub-limit equal to $50.0 million. The expiration date of the Credit Agreement is March 30, 2023. The Company’s obligations under the Credit Agreement are secured by substantially all of the assets of the Company and its wholly-owned subsidiaries (subject to customary exclusions), which assets include the Company’s equity ownership of its wholly-owned subsidiaries and its equity ownership in joint venture entities. The Company’s wholly-owned subsidiaries also guarantee the obligations of the Company under the Credit Agreement.

Revolving loans under the Credit Agreement bear interest at, as selected by the Company, either a (a) Base Rate, which is defined as a fluctuating rate per annum equal to the highest of (1) the Federal Funds Rate in effect on such day plus 0.5% (2) the Prime Rate in effect on such day and (3) the Eurodollar Rate for a one month interest period on such day plus 1.5%, plus

a margin ranging from 0.50% to 1.25% per annum or (b) Eurodollar rate plus a margin ranging from 1.50% to 2.25% per

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annum, with pricing varying based on the Company's quarterly consolidated Leverage Ratio. Swing line loans bear interest at the Base Rate. The Company is limited to 15 Eurodollar borrowings outstanding at any time. The Company is required to pay a commitment fee for the unused commitments at rates ranging from 0.20% to 0.35% per annum depending upon the Company’s quarterly consolidated Leverage Ratio. The Base Rate as of ~~June 30, 2020~~March 31, 2021 was 4.00% and the LIBOR rate was ~~2.00%~~1.88%. As

On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, announced its intention to cease the publication of LIBOR settings for 1-month, 3-month, 6-month, and 12-month LIBOR borrowings immediately on June 30, ~~2020, the effective interest rate on outstanding borrowings under the Credit Agreement was 2.00%.~~2023. The announcement did not identify any successor administrator.

As of ~~June 30, 2020,~~March 31, 2021, the Company had ~~$30.0 million drawn,~~ letters of credit issued in the amount of ~~$24.8~~$25.4 million, and ~~$445.2~~$474.6 million of remaining borrowing capacity available under the Credit Agreement. At December 31, ~~2019,~~2020, the Company had ~~$253.0~~$20.0 million drawn and letters of credit issued in the amount of ~~$28.4~~$25.4 million under the Credit Facility.

Under the terms of the Credit Agreement, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Credit Agreement permits the Company to make certain restricted payments, such as purchasing shares of its stock, within certain parameters, provided the Company maintains compliance with those financial ratios and covenants after giving effect to such restricted payments. The Company was in compliance with its debt covenants under the Credit Agreement at ~~June 30, 2020.~~March 31, 2021.

6. Stockholder’s Equity

Equity Based Awards

The 2018 Incentive Plan is administered by the Compensation Committee of the Company’s Board of Directors. The total number of shares of the Company's common stock originally reserved were 2,210,544 shares and a total of ~~1,874,354~~1,754,704 shares are currently available for issuance. A variety of discretionary awards for employees, officers, directors, and consultants are authorized under the 2018 Incentive Plan, including incentive or non-qualified stock options and restricted stock, restricted stock units and performance-based awards. All awards must be evidenced by a written award certificate which will include the provisions specified by the Compensation Committee of the Board of Directors. The Compensation Committee determines the exercise price for stock options, which cannot be less than the fair market value of the Company’s common stock as of the date of grant.

Share Based Compensation

Nonvested Stock

During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, the Company granted ~~9,900~~7,200 nonvested shares of common stock to independent directors under the Second Amended and Restated 2005 Non-Employee Directors Compensation Plan. The shares vest 100% on the one year anniversary date. During the six months ended June 30, 2020, one retired director was granted 775 nonvested shares of common stock under the Second Amended and Restated 2005 Non-Employee Directors Compensation Plan, which shares vest 100% at the grant date.

During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, employees and a consultant were granted ~~113,525~~105,560 and ~~10,890~~5,735 shares, respectively, of nonvested shares of common stock pursuant to the 2018 Incentive Plan. The shares vest over a period of five years, conditioned on continued employment and in accordance with the consulting agreement. The fair value of nonvested shares of common stock is determined based on the closing trading price of the Company’s common stock on the grant date.

The following table represents the share grants activity for the ~~six~~three months ended ~~June 30, 2020:~~March 31, 2021:

Restricted stock Options

Number of
shares

Weighted
average grant
date fair value
Number of shares
Weighted
average grant
date fair value
Share grants outstanding as of December 31, 2019 534,331
$ 71.01
98,756
$ 40.71
Granted 135,090
123.10
—
—
Vested or exercised (185,910 ) 61.79
(7,137 ) 30.62
Share grants outstanding as of June 30, 2020 483,511
$ 88.90
91,619
$ 39.97


	Restricted stock			Options
	Number of shares	Weighted average grant date fair value		Number of shares	Weighted average grant date fair value
Share grants outstanding as of December 31, 2020	469,631	$	89.69	74,235	$	42.07
Granted	118,495	185.00		0	0
Vested or exercised	(146,645)	185.61		0	0
Share grants outstanding as of March 31, 2021	441,481	$	119.64	74,235	$	42.07

As of ~~June 30, 2020,~~March 31, 2021, there was ~~$37.2~~$48.4 million of total unrecognized compensation cost related to nonvested shares of common stock granted. That cost is expected to be recognized over the weighted average period of ~~3.20~~3.33 years. The Company records compensation expense related to nonvested stock awards at the grant date for shares of common stock that are awarded fully vested, and over the vesting term on a straight-line basis for shares of common stock that vest over time. The Company estimates forfeitures at the time of grant and revises the estimate in subsequent periods if actual forfeitures differ to ensure that total compensation expense recognized is at least equal to the value of vested awards. The Company recorded ~~$6.9~~$3.5 million and

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$~~4.4~~3.7 million of compensation expense related to nonvested stock grants for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

Employee Stock Purchase Plan

In 2006, the Company adopted the Employee Stock Purchase Plan whereby eligible employees may purchase the Company’s common stock at 95% of the market price on the last day of the calendar quarter. There were 250,000 shares of common stock initially reserved for the plan. In 2013, the Company adopted the Amended and Restated Employee Stock Purchase Plan, which reserved an additional 250,000 shares of common stock to the plan.

The table below details the shares of common stock issued during ~~2020:~~2021:

Number of
shares

Per share
price
Shares available as of December 31, 2019 132,449

Shares issued during the three months ended March 31, 2020 4,663
$ 130.87
Shares issued during the three months ended June 30, 2020 3,730
$ 133.19
Shares available as of June 30, 2020 124,056


	Number of shares	Per share price
Shares available as of December 31, 2020	118,136


Shares issued during the three months ended March 31, 2021	3,204	$	202.66



Shares available as of March 31, 2021	114,932

Treasury Stock

In conjunction with the vesting of the nonvested shares of common stock or the exercise of stock options, recipients incur personal income tax obligations. The Company allows the recipients to turn in shares of common stock to satisfy minimum tax obligations. During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, the Company redeemed ~~65,646~~51,221 shares of common stock valued at ~~$8.1~~$9.5 million, related to share vesting tax obligations. Such shares are held as treasury stock and are available for reissuance by the Company. ~~In addition, the Company redeemed 3,315 shares of common stock valued at $0.5 million, related to the exercise of options.~~

7. Commitments and Contingencies

Contingencies

The Company provides services in a highly regulated industry and is a party to various proceedings and regulatory and other governmental and internal audits and investigations in the ordinary course of business (including audits by Zone Program Integrity Contractors ("ZPICs") and Recovery Audit Contractors ("RACs") and investigations resulting from the Company's obligation to self-report suspected violations of law). Management cannot predict the ultimate outcome of any regulatory and other governmental and internal audits and investigations. While such audits and investigations are the subject of administrative appeals, the appeals process, even if successful, may take several years to resolve. The Department of Justice, CMS, or other federal and state enforcement and regulatory agencies may conduct additional investigations related to the Company's businesses. These audits and investigations have caused and could potentially continue to cause delays in collections, recoupments from governmental payors. Currently, the Company has recorded $16.9 million in other assets, which are due from government payors related to the disputed finding of pending appeals of ZPIC audits. Additionally, these audits may subject the Company to sanctions, damages, extrapolation of damage findings, additional recoupments, fines, and other penalties (some of which may not be covered by insurance), which may, either individually or in the aggregate, have a material adverse effect on the Company's business and financial condition.

On January 18, 2018, Jordan Rosenblatt, a purported shareholder of Almost Family filed a complaint for violations of the Securities Exchange Act of 1934 in the United States District Court for the Western District of Kentucky, styled ~~Rosenblatt v. Almost Family, Inc., et al.~~, Case No. 3:18-cv-40-TBR (the “Rosenblatt Action”). The Rosenblatt Action was filed against the Company, Almost Family, Almost Family’s board of directors, and Merger Sub. The complaint in the Rosenblatt Action (“Rosenblatt Complaint”) asserted, among other things, that the Form S-4 Registration Statement (“Registration Statement”) filed on December 21, 2017 in connection with the Merger contained false and misleading statements with respect to the Merger.

In addition to the Rosenblatt Action, two additional complaints were filed against Almost Family in the United States District Court for the District of Delaware (the "Delaware Actions") alleging similar violations as the Rosenblatt Action.

On February 22, 2018, plaintiffs in the Delaware Actions moved for a preliminary injunction to enjoin the merger of Almost Family and Merger Sub. On March 22, 2018, the court denied plaintiffs’ motion for preliminary injunction.

The next day, on March 23, 2018, one of the plaintiffs in the Delaware Actions moved to consolidate the Delaware Actions with the Rosenblatt Action and for the appointment of a lead plaintiff. On December 19, 2018, the Court granted the motion to consolidate, appointed Leonard Stein, a purported Almost Family shareholder, as the Lead Plaintiff, and approved Stein's selection of Lead Counsel.

On February 1, 2019, Lead Plaintiff filed his Consolidated Amended Class Action Complaint (the "Consolidated Complaint"). The Consolidated Complaint asserted claims against Almost Family, the Company and Almost Family's board of directors for violations of Section 14(a) of the 1934 Act in connection with the dissemination of the Company's and Almost Family's Proxy Statement concerning the Merger, and asserted breach of fiduciary duty claims and claims for violations of Section 20(a) of the 1934 Act against Almost Family's former board of directors. On February 11, 2020, the court granted the Company's motion to dismiss and the Company's motion to strike and dismissed Lead Plaintiff's federal claims with prejudice and state law claims without prejudice.

On March 12, 2020, Lead Plaintiff appealed the court's decision to the United States Court of Appeals for the Sixth Circuit. On April 17, 2020, Lead Plaintiff moved to voluntarily dismiss his appeal, and on April 23, 2020, the United States Court of Appeals for the Sixth Circuit granted Lead Plaintiff's motion and dismissed the appeal, and thus the case is now terminated.

We are involved in various legal proceedings arising in the ordinary course of business. Although the results of litigation cannot be predicted with certainty, we believe the outcome of pending litigation will not have a material adverse effect, after considering the effect of our insurance coverage, on our consolidated financial information.

Legal fees related to all legal matters are expensed as incurred.

Joint Venture Buy/Sell Provisions

Most of the Company’s joint ventures include a buy/sell option that grants to the Company and its joint venture partners the right to require the other joint venture party to either purchase all of the exercising member’s membership interests or sell to the exercising member all of the non-exercising member’s membership interest, at the non-exercising member’s option, within 30 days of the receipt of notice of the exercise of the buy/sell option. In some instances, the purchase price is based on a multiple of the historical or future earnings before income taxes and depreciation and amortization of the equity joint venture at the time the buy/sell option is exercised. In other instances, the buy/sell purchase price will be negotiated by the partners and subject to a fair market valuation process. The Company has not received notice from any joint venture partners of their intent to exercise the terms of the buy/sell agreement nor has the Company notified any joint venture partners of its intent to exercise the terms of the buy/sell agreement.

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Compliance

The laws and regulations governing the Company’s operations, along with the terms of participation in various government programs, regulate how the Company does business, the services offered and its interactions with patients and the public. These laws and regulations, and their interpretations, are subject to frequent change. Changes in existing laws or regulations, or their interpretations, or the enactment of new laws or regulations could materially and adversely affect the Company’s operations and financial condition.

The Company is subject to various routine and non-routine governmental reviews, audits and investigations. In recent years, federal and state civil and criminal enforcement agencies have heightened and coordinated their oversight efforts related to the health care industry, including referral practices, cost reporting, billing practices, joint ventures and other financial relationships among health care providers. Violation of the laws governing the Company’s operations, or changes in the interpretation of those laws, could result in the imposition of fines, civil or criminal penalties and/or termination of the Company’s rights to participate in federal and state-sponsored programs and suspension or revocation of the Company’s licenses. The Company believes that it is in material compliance with all applicable laws and regulations.

8. Noncontrolling interests

The Company classifies noncontrolling interests of its joint venture parties based upon a review of the legal provisions governing the redemption of such interests. In each of the Company’s joint ventures, those provisions are embodied within the joint venture’s operating agreement. For joint ventures with operating agreement provisions that establish an obligation for the Company to purchase the third-party partners’ noncontrolling interests other than as a result of events that lead to a liquidation of the joint venture, such noncontrolling interests are classified as redeemable noncontrolling interests in temporary equity.

For joint ventures with operating agreement provisions that establish an obligation that the Company purchase the third party partners’ noncontrolling interests, but which obligation is triggered by events that lead to a liquidation of the joint venture, such noncontrolling interests are classified as nonredeemable noncontrolling interests in permanent equity. Additionally, for joint ventures with operating agreement provisions that do not establish an obligation for the Company to purchase the third-party partners’ noncontrolling interests (e.g., where the Company has the option, but not the obligation, to purchase the third-party partners’ noncontrolling interests), such noncontrolling interests are classified as nonredeemable noncontrolling interests in permanent equity.

The Company’s equity joint ventures that are classified as redeemable noncontrolling interests are subject to operating agreement provisions that require the Company to purchase the noncontrolling partner’s interest upon the occurrence of certain triggering events, which are defined as the bankruptcy of the partner or the partner’s exclusion from the Medicare or Medicaid programs. These triggering events and the related repurchase provisions are specific to each redeemable equity joint venture, since the triggering of a repurchase obligation for any one redeemable noncontrolling interest in an equity joint venture does not necessarily impact any of the other redeemable noncontrolling interests in other equity joint ventures. Upon the occurrence of a triggering event requiring the purchase of a redeemable noncontrolling interest, the Company would be required to purchase the noncontrolling partner’s interest based upon a valuation methodology set forth in the applicable joint venture agreement.

Redeemable noncontrolling interests and nonredeemable noncontrolling interests are initially recorded at their fair value as of the closing date of the transaction establishing the joint venture. Such fair values are determined using various accepted valuation methods, including the income approach, the market approach, the cost approach, and a combination of one or more of these approaches. A number of facts and circumstances concerning the operation of the joint venture are evaluated for each transaction, including (but not limited to) the ability to choose management, control over acquiring or liquidating assets, and controlling the joint venture’s strategy and direction, in order to determine the fair value of the noncontrolling interest.

Based upon the Company’s evaluation of the redemption provisions concerning redeemable noncontrolling interests as of ~~June 30, 2020,~~March 31, 2021, the Company determined in accordance with authoritative accounting guidance that it was not probable that an event otherwise requiring redemption of any redeemable noncontrolling interest would occur (i.e., the date for such event was not set or such event is not certain to occur). Therefore, none of the redeemable noncontrolling interests were identified as mandatorily redeemable interests at such times, and the Company did not record any values in respect of any mandatorily redeemable interests.

Subsequent to the closing date of the transaction establishing the joint venture, the Company records adjustments to the carrying amounts of noncontrolling interests during each reporting period to reflect (a) comprehensive income (loss) attributed to each noncontrolling interest, which is calculated by multiplying the noncontrolling interest percentage by the comprehensive income (loss) of the joint venture’s operations, (b) dividends paid to the noncontrolling interest partner, and (c) any other transactions that increase or decrease the Company’s ownership interest in each joint venture, as a result of which the Company retains its controlling interest. If the Company determines that, based upon its analysis as of the end of each reporting period in accordance with authoritative accounting guidance, that it is not probable that an event would occur to otherwise require the

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redemption of a redeemable noncontrolling interest (i.e., the date for such event is not set or such event is not certain to occur), then the Company does not adjust the recorded amount of such redeemable noncontrolling interest.

The carrying amount of each redeemable equity instrument presented in temporary equity for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 is not less than the initial amount reported for each instrument.

The following table summarizes the activity of noncontrolling interest-redeemable for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 (amounts in thousands):


Balance as of December 31, 2020	$	18,921
Net income attributable to noncontrolling interest-redeemable	2,305
Noncontrolling interest-redeemable distributions	(3,287)

Balance as of March 31, 2021	$	17,939

Balance as of December 31, 2019 $ 15,151
Net income attributable to noncontrolling interest-redeemable 9,604
Noncontrolling interest-redeemable distributions (6,265 )
Acquired noncontrolling interest-redeemable 3,508
Balance as of June 30, 2020 $ 21,998

9. Leases

The Company determines if a contract contains a lease at inception date. The Company's leases are operating leases, primarily for office and office equipment, that expire at various dates over the next ~~nine~~five years. The ~~office~~facility based leases have renewal options for periods ranging from one to ~~five~~nine years. As it is not reasonably certain these renewal options will be exercised, the options were not considered in the lease term, and payments associated with the option years are excluded from lease payments.

Payments due under operating leases include fixed and variable payments. These variable payments for the Company's office leases can include operating expenses, utilities, property taxes, insurance, common area maintenance, and other facility-related expense. Additionally, any leases with terms less than one year were not recognized as operating lease right of use assets or payables for short term leases in accordance with the election of ‘package of practical expedient’ under ASU 2016-02.

The Company recognizes operating lease right of use assets and operating lease payable based on the present value of the future minimum lease payments at the lease commencement date. The Company's leases do not provide implicit rates. Therefore, the Company used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. As of ~~June 30, 2020,~~March 31, 2021, the weighted-average remaining lease term was ~~4.33~~4.10 and weighted-average discount rate was ~~4.57%~~4.42%.

~~Information related to~~The following table summarizes the ~~Company's~~ operating lease right of use assets and related lease ~~liabilities for office~~payables in our condensed consolidated balance sheets at March 31, 2021 and ~~equipment leases were as follows:~~December 31, 2020 (amounts in thousands):


	March 31, 2021	December 31, 2020
Operating lease right of use asset	101,193	100,046
Current operating lease liabilities	32,627	32,676
Long-term operating lease liabilities	71,431	70,275

June 30, 2020 December 31, 2019
Operating lease right of use asset 100,834
95,452
Current operating lease payable 34,838
28,701
Long-term operating lease payable 68,858
69,556

The ~~Company incurred operating~~components of lease costs offor operating leases for the three months ended March 31, 2021 and 2020 were as follows (amounts in thousands):


	Three months ended March 31,
	2021		2020
Operating lease cost	$	12,190	$	11,348
Short-term lease cost	855		760
Variable lease cost	1,013		982
Total lease costs	$	14,058	$	13,090

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Operating lease cost $ 12,328
$ 13,546
$ 24,437
$ 26,070

Maturities of operating lease liabilities as of ~~June 30, 2020~~March 31, 2021 were as follows (amounts in thousands):

Month ending June 30,
2020 $ 18,406
2021 32,335
2022 23,532
2023 15,513
2024 9,404
Thereafter 14,800
Total future minimum lease payments 113,990
Less: Imputed interest (10,294 )
Total $ 103,696

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Month ending March 31,
2021	$	28,148
2022	30,115
2023	21,877
2024	14,296
Thereafter	19,168
Total future minimum lease payments	113,604
Less: Imputed interest	(9,546)
Total	$	104,058

10. Fair Value of Financial Instruments

The carrying amounts of the Company’s cash, receivables, accounts payable and accrued liabilities approximate their fair values because of their short maturity. The estimated fair value of intangible assets acquired was calculated using level 3 inputs based on the present value of anticipated future benefits. For the six months ended June 30, 2020, the carrying value of the Company’s long-term debt approximates fair value, as the interest rates approximate current rates.

11. Segment Information

The Company's reporting segments include (1) home health services, (2) hospice services, (3) home and community-based services, (4) facility-based services, and (5) HCI. The accounting policies of the segments are the same as those described in the summary of significant accounting policies, as described in Note 2 of the Notes to Condensed Consolidated Financial Statements.

Reportable segments have been identified based upon how management has organized the business by services provided to customers and how the chief operating decision maker manages the business and allocates resources, consistent with the criteria in ASC 280, Segment Reporting.

The following tables summarize the Company’s segment information for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (amounts in thousands):


	Three Months Ended June 30, 2020																			Three Months Ended March 31, 2021
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI			Total				Home health services		Hospice services		Home and community-based services		Facility-based services		HCI		Total
Net service revenue	$	339,872		$	61,055		$	47,675		$	33,639		$	5,079		$	487,320		Net service revenue	$	373,828	$	62,734	$	49,125	$	33,369	$	5,779	$	524,835
Cost of service revenue (excluding depreciation and amortization)	205,146			37,271			38,747			21,785			3,763			306,712			Cost of service revenue (excluding depreciation and amortization)	212,373		38,570		34,872		21,175		3,282		310,272
General and administrative expenses	110,209			16,266			11,124			10,165			2,810			150,574			General and administrative expenses	119,397		18,127		11,529		11,257		2,939		163,249
Impairment of intangibles and other	—			600			—			—			—			600			Impairment of intangibles and other	177		0		0		0		0		177
Government stimulus income	(35,019		)	(4,731		)	(2,865		)	(1,656		)	(164		)	(44,435		)

Operating income (loss)	59,536			11,649			669			3,345			(1,330		)	73,869			Operating income (loss)	41,881		6,037		2,724		937		(442)		51,137
Interest expense	(594		)	(97		)	(79		)	(47		)	(24		)	(841		)	Interest expense	(182)		(36)		(24)		(14)		(7)		(263)
Income (loss) before income taxes and noncontrolling interest	58,942			11,552			590			3,298			(1,354		)	73,028			Income (loss) before income taxes and noncontrolling interest	41,699		6,001		2,700		923		(449)		50,874
Income tax expense (benefit)	12,807			2,439			(12		)	373			(380		)	15,227			Income tax expense (benefit)	7,890		1,067		518		57		(91)		9,441
Net income (loss)	46,135			9,113			602			2,925			(974		)	57,801			Net income (loss)	33,809		4,934		2,182		866		(358)		41,433
Less net income (loss) attributable to non controlling interests	9,922			2,164			33			997			(7		)	13,109			Less net income (loss) attributable to non controlling interests	4,849		1,015		279		657		(26)		6,774
Net income (loss) attributable to LHC Group, Inc.'s common stockholder	$	36,213		$	6,949		$	569		$	1,928		$	(967	)	$	44,692		Net income (loss) attributable to LHC Group, Inc.'s common stockholder	$	28,960	$	3,919	$	1,903	$	209	$	(332)	$	34,659
Total assets	$	1,656,022		$	268,771		$	259,742		$	101,258		$	71,306		$	2,357,099		Total assets	$	1,785,486	$	308,009	$	262,538	$	97,692	$	69,129	$	2,522,854

Three Months Ended June 30, 2019
Home health services
Hospice services
Home and community-based services
Facility-based services
HCI
Total
Net service revenue $ 375,253
$ 55,057
$ 52,414
$ 27,975
$ 7,143
$ 517,842
Cost of service revenue (excluding depreciation and amortization) 230,545
34,858
39,505
17,572
3,380
325,860
General and administrative expenses 108,958
15,096
11,213
9,335
3,982
148,584
Impairment of intangibles and other 748
270
—
—
—
1,018
Operating income (loss) 35,002
4,833
1,696
1,068
(219 ) 42,380
Interest expense (2,023 ) (323 ) (284 ) (170 ) (85 ) (2,885 )
Income (loss) before income taxes and noncontrolling interest 32,979
4,510
1,412
898
(304 ) 39,495
Income tax expense (benefit) 8,070
1,581
(171 ) 148
(71 ) 9,557
Net income (loss) 24,909
2,929
1,583
750
(233 ) 29,938
Less net income (loss) attributable to noncontrolling interests 3,948
898
(267 ) 365
(6 ) 4,938
Net income (loss) attributable to LHC Group, Inc.'s common stockholders $ 20,961
$ 2,031
$ 1,850
$ 385
$ (227 ) $ 25,000
Total assets $ 1,407,221
$ 234,789
$ 240,746
$ 77,686
$ 69,413
$ 2,029,855

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	Six Months Ended June 30, 2020																			Three Months Ended March 31, 2020
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI			Total				Home health services		Hospice services		Home and community-based services		Facility-based services		HCI		Total
Net service revenue	$	707,693		$	121,586		$	96,139		$	63,320		$	11,453		$	1,000,191		Net service revenue	$	367,821	$	60,531	$	48,464	$	29,681	$	6,374	$	512,871
Cost of service revenue (excluding depreciation and amortization)	425,586			75,305			77,200			42,127			7,696			627,914			Cost of service revenue (excluding depreciation and amortization)	220,440		38,034		38,453		20,342		3,933		321,202
General and administrative expenses	226,232			32,892			22,583			20,545			6,188			308,440			General and administrative expenses	116,023		16,626		11,459		10,380		3,378		157,866
Impairment of intangibles and other	—			600			—			—			—			600
Government stimulus income	(35,019		)	(4,731		)	(2,865		)	(1,656		)	(164		)	(44,435		)

Operating income (loss)	90,894			17,520			(779		)	2,304			(2,267		)	107,672			Operating income (loss)	31,358		5,871		(1,448)		(1,041)		(937)		33,803
Interest expense	(2,494		)	(400		)	(345		)	(266		)	(104		)	(3,609		)	Interest expense	(1,900)		(303)		(266)		(219)		(80)		(2,768)
Income (loss) before income taxes and noncontrolling interest	88,400			17,120			(1,124		)	2,038			(2,371		)	104,063			Income (loss) before income taxes and noncontrolling interest	29,458		5,568		(1,714)		(1,260)		(1,017)		31,035
Income tax expense (benefit)	16,096			3,047			(218		)	174			(513		)	18,586			Income tax expense (benefit)	3,289		608		(206)		(199)		(133)		3,359
Net income (loss)	72,304			14,073			(906		)	1,864			(1,858		)	85,477			Net income (loss)	26,169		4,960		(1,508)		(1,061)		(884)		27,676
Less net income (loss) attributable to non controlling interests	14,528			3,131			(122		)	1,240			(16		)	18,761
Net income (loss) attributable to LHC Group, Inc.'s common stockholder	$	57,776		$	10,942		$	(784	)	$	624		$	(1,842	)	$	66,716
Less net income (loss) attributable to noncontrolling interests																			Less net income (loss) attributable to noncontrolling interests	4,606		967		(155)		243		(9)		5,652
Net income (loss) attributable to LHC Group, Inc.'s common stockholders																			Net income (loss) attributable to LHC Group, Inc.'s common stockholders	$	21,563	$	3,993	$	(1,353)	$	(1,304)	$	(875)	$	22,024
Total assets																			Total assets	$	1,548,224	$	251,354	$	252,846	$	90,791	$	69,067	$	2,212,282

Six Months Ended June 30, 2019
Home health services
Hospice services
Home and community-based services
Facility-based services
HCI
Total
Net service revenue $ 738,288

$ 106,793

$ 104,199

$ 55,676

$ 15,471

$ 1,020,427
Cost of service revenue (excluding depreciation and amortization) 456,668

68,034

79,360

35,304

7,486

646,852
General and administrative expenses 213,797

29,949

22,195

18,512

9,352

293,805
Impairment of intangibles and other 7,066
271
—
—
—
7,337
Operating income (loss) 60,757

8,539

2,644

1,860

(1,367 )
72,433
Interest expense (4,161 ) (666 ) (585 ) (350 ) (175 ) (5,937 )
Income (loss) before income taxes and noncontrolling interest 56,596
7,873
2,059
1,510
(1,542 ) 66,496
Income tax expense (benefit) 11,278
2,027
(20 ) 153
(281 ) 13,157
Net income (loss) 45,318
5,846
2,079
1,357
(1,261 ) 53,339
Less net income (loss) attributable to noncontrolling interests 7,728
1,499
(577 ) 846
(13 ) 9,483
Net income (loss) attributable to LHC Group, Inc.'s common stockholders $ 37,590
$ 4,347
$ 2,656
$ 511
$ (1,248 ) $ 43,856

12. Income Taxes

The effective tax rate for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 benefited from ~~$1.6 million of excess tax benefits associated with stock-based compensation arrangements and $2.2 million ($4.3~~$2.1 million and ~~$2.1~~$1.2 million, as further described below) associated with increased tax benefits associated with the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). For the six months ended June 30, 2019, the effective tax rate benefited from $2.6 millionrespectively, of excess tax benefits associated with stock-based compensation arrangements.

In response to the COVID-19 pandemic, the CARES Act was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act"). Corporate taxpayers may carryback net operating losses ("NOLs") originating during 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019, or 2020. Taxpayers may generally deduct

interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act. In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The effective tax rate for the six months ended June 30, 2020 benefited from a $4.3 million impact from the enactment of the CARES Act. There was no material impact to our net deferred tax assets as of June 30, 2020.

U.S. GAAP prescribes a recognition threshold and measurement attribute for the accounting and financial statement disclosure of tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step requires the Company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step requires the Company to recognize in the financial statements each tax position that meets the more likely than not criteria, measured at the amount of benefit that has a greater than 50% likelihood of being realized. The Company’s unrecognized tax benefits would affect the tax rate, if recognized. The Company includes the full amount of unrecognized tax benefits in ~~other~~income taxes payable in noncurrent liabilities in the ~~Company's Condensed Consolidated Balance Sheets.~~company's condensed consolidated balance sheets. The Company anticipates it is reasonably possible an increase or decrease in the amount of unrecognized tax benefits could be made in the next twelve months. However, the Company does not presently anticipate that any increase or decrease in unrecognized tax benefits will be material to the consolidated financial statements. ~~The impact of the CARES Act increased unrecognized tax benefits by $2.1 million, which also had an impact on the Company's effective tax rate for the six months ended June 30, 2020.~~ As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company recognized $6.4 million and ~~$3.9~~$6.2 million, respectively, in unrecognized tax benefits.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain statements, including the potential future impact of COVID-19 on our results of operations and liquidity, the potential impact of actions we have taken to mitigate the impact of COVID-19, the potential impact on supply chain disruptions and increased costs associated with obtaining personal protective equipment, the expected benefit of the CARES Act on our liquidity, and information that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to future plans and strategies, anticipated events or trends, future financial performance, and expectations and beliefs concerning matters that are not historical facts or that necessarily depend upon future events. The words “may,” “should,” “could,” ~~“would,~~

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“would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions are intended to identify forward-looking statements. Specifically, this report contains, among others, forward-looking statements about:

•our expectations regarding financial condition or results of operations for periods after ~~June 30, 2020;~~March 31, 2021;

•our critical accounting policies;

•our business strategies and our ability to grow our business;

•our participation in the Medicare and Medicaid programs;

•the reimbursement levels of Medicare and other third-party payors, including changes in reimbursement resulting from regulatory changes;

•the prompt receipt of payments from Medicare and other third-party payors;

•our future sources of and needs for liquidity and capital resources;

•the effect of any regulatory changes or anticipated regulatory changes;

•the effect of any changes in market rates on our operations and cash flows;

•our ability to obtain financing;

•our ability to make payments as they become due;

•the outcomes of various routine and non-routine governmental reviews, audits and investigations;

•our expansion strategy, the successful integration of recent acquisitions and, if necessary, the ability to relocate or restructure our current facilities;

•the value of our proprietary technology;

•the impact of legal proceedings;

•our insurance coverage;

•our competitors and our competitive advantages;

•our ability to attract and retain valuable employees;

•the price of our stock;

•our compliance with environmental, health and safety laws and regulations;

•our compliance with health care laws and regulations;

•our compliance with Securities and Exchange Commission laws and regulations and Sarbanes-Oxley requirements;

•the impact of federal and state government regulation on our business; and

•the impact of changes in future interpretations of fraud, anti-kickback, or other laws.

The forward-looking statements included in this report reflect our current views about future events, are based on assumptions, and are subject to known and unknown risks and uncertainties. Many important factors could cause actual results or achievements to differ materially from any future results or achievements expressed in or implied by our forward-looking statements. Many of the factors that will determine future events or achievements are beyond our ability to control or predict. Important factors that could cause actual results or achievements to differ materially from the results or achievements reflected in our forward-looking statements include, among other things, the factors discussed in the Part II, Item 1A. “Risk Factors,” included in this report and in our other filings with the SEC, including our ~~2019~~2020 Form 10-K, ~~and our quarterly report on Form 10-Q for the quarter ended March 31, 2020,~~ as updated by our subsequent filings with the SEC. This report should be read in conjunction with the ~~2019~~2020 Form 10-K, and all of our other filings made with the SEC through the date of this report, including quarterly reports on Form 10-Q and current reports on Form 8-K.

The forward-looking statements contained in this report reflect our views and assumptions only as of the date this report is filed with the SEC. Except as required by law, we assume no responsibility for updating any forward-looking statements.

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We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

You should read this report, the information incorporated by reference into this report, and the documents filed as exhibits to this report completely and with the understanding that our actual future results or achievements may differ materially from what we expect or anticipate.

Unless the context otherwise requires, “we,” “us,” “our,” and the “Company” refer to LHC Group, Inc. and its consolidated subsidiaries.

OVERVIEW

General

We provide quality, cost-effective post-acute health care services to our patients. As of ~~June 30, 2020,~~March 31, 2021, we have ~~816~~829 service providers in 35 states within the continental United States and the District of Columbia. Our services are classified into five segments: (1) home health services, (2) hospice services, (3) home and community-based services, (4) facility-based services primarily offered through our long-term acute care hospitals (“LTACHs”), and (5) healthcare innovations services ("HCI"). We intend to increase the number of service providers within each of our segments that we operate through continued acquisitions, joint ventures, and organic development.

Our home health service locations offer a wide range of services, including skilled nursing, medically-oriented social services, and physical, occupational, and speech therapy. As of ~~June 30, 2020,~~March 31, 2021, we operated ~~553~~531 home health services locations, of which ~~346~~318 are wholly-owned, ~~203~~209 are majority-owned through equity joint ventures, two are under license lease arrangements, and the operations of the remaining two locations are only managed by us.

Our hospices provide end-of-life care to patients with terminal illnesses through interdisciplinary teams of physicians, nurses, home health aides, counselors, and volunteers. We offer a wide range of services, including pain and symptom management, emotional and spiritual support, inpatient and respite care, homemaker services, and counseling. As of ~~June 30, 2020,~~March 31, 2021, we operated ~~112~~120 hospice locations, of which 5456 are wholly-owned, 5662 are majority-owned through equity joint ventures, and two are under license lease arrangements.

Through our home and community-based services segment, services are performed by skilled nursing and paraprofessional personnel, and include assistance with activities of daily living to the elderly, chronically ill, and disabled patients. As of ~~June 30, 2020,~~March 31, 2021, we operated ~~111~~129 home and community-based services locations, of which 97117 are wholly-owned and 1412 are majority-owned through equity joint ventures.

We provide facility-based services principally through our LTACHs. As of ~~June 30, 2020,~~March 31, 2021, we operated 11 LTACHs with 1312 locations, all but three of which are located within host hospitals. We also operate ~~one~~two skilled nursing ~~facility, two pharmacies,~~facilities, one pharmacy, a family health center, a rural health clinic, one physician practice, and 1118 therapy clinics. Of these 2936 facility-based services locations, 1826 are wholly-owned, and 1110 are majority-owned through equity joint ventures.

Our HCI segment reports on our developmental activities outside its other business segments. The HCI segment includes (a) Imperium Health Management, LLC, an ACO enablement company, (b) Long Term Solutions, Inc., an in-home assessment company serving the long-term care insurance industry, and (c) certain assets operated by Advanced Care House Calls, which provides primary medical care for patients with chronic and acute illnesses who have difficulty traveling to a doctor’s office. These activities are intended ultimately, whether directly or indirectly, to benefit our patients and/or payors through the enhanced provision of services in our other segments. The activities all share a common goal of improving patient experiences and quality outcomes, while lowering costs. They include, but are not limited to, items such as: technology, information, population health management, risk-sharing, care-coordination and transitions, clinical advancements, enhanced patient engagement and informed clinical decision and technology enabled in-home clinical assessments. We have 1113 HCI locations, of which 1012 are wholly-owned and one is majority-owned through an equity joint venture.

The Joint Commission is a nationwide commission that establishes standards relating to the physical plant, administration, quality of patient care, and operation of medical staffs of health care organizations. Currently, Joint Commission accreditation of home nursing and hospice agencies is voluntary. However, some managed care organizations use Joint Commission accreditation as a credentialing standard for regional and state contracts. As of ~~June 30, 2020,~~March 31, 2021, the Joint Commission had accredited ~~476~~500 of our ~~553~~531 home health services locations and 8798 of our ~~112~~120 hospice agencies. Those not yet accredited are

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working towards achieving this accreditation. As we acquire companies, we apply for accreditation 12 to 18 months after completing the acquisition.

The percentage of net service revenue contributed from each reporting segment for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
Reporting segment	2020		2019		2020		2019		Reporting segment	2021		2020
Home health services	69.8	%	72.5	%	70.8	%	72.4	%	Home health services	71.2	%	71.7	%
Hospice services	12.5		10.6		12.2		10.4		Hospice services	11.9		11.8
Home and community-based services	9.8		10.1		9.6		10.2		Home and community-based services	9.4		9.5
Facility-based services	6.9		5.4		6.3		5.5		Facility-based services	6.4		5.8
Healthcare innovations services	1.0		1.4		1.1		1.5		Healthcare innovations services	1.1		1.2
	100.0	%	100.0	%	100.0	%	100.0	%		100.0	%	100.0	%

Recent Developments

The reader is encouraged to review our detailed discussion of health care legislation and Medicare regulations in the similarly titled section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” along with the discussions in Part I, Item 1, “Business; Government Regulation” and in Part I, Item 1A, “Risk Factors” in our ~~2019~~2020 Form 10-K.

Coronavirus and Coronavirus Aid, Relief, and Economic Security Act

The COVID-19 outbreak has adversely impacted economic activity and conditions worldwide, including workforces, liquidity, capital markets, consumer behavior, supply chains, and macroeconomic conditions. After the declaration of a national emergency in the United States on March 13, 2020, in compliance with stay-at-home and physical distancing orders and other restrictions on movement and economic activity intended to reduce the spread of COVID-19, we have altered numerous clinical, operational, and business processes. While each of the states deemed healthcare services an essential business, allowing us to continue to deliver healthcare services to our patients, the effects of the pandemic have been wide-reaching. We have implemented contingency planning policies; whereby most employees in our home offices located in Louisiana and Kentucky are working remotely in compliance with CDC recommendations and federal and state governmental orders. We have invested in technology and equipment that allows our remote workforce to provide continued and seamless functionality to our clinicians who continue to care for our patients on service.

We are taking precautions to protect the safety and well-being of our employees by purchasing and delivering additional supplies of personal protection equipment to our clinicians across the country. In response to the COVID-19 outbreak, we promptly convened a cross-functional COVID-19 task force comprised of our company's leaders that continually communicates with our clinicians and other employees concerning best practices and Company changes in policies and procedures.

We continually review and adjust to changes to adapt to the current environment associated with COVID-19. We remain fully functional and continue to provide our patients with critical services during the pandemic. In addition, we currently plan to continue to execute on our strategic business plans.

~~In response to COVID-19, the U.S. Government enacted the CARES Act on March 27, 2020.~~ The following portions of the CARES Act impacted us during the three months ended ~~June 30, 2020:~~March 31, 2021:

•

~~Provider Relief Fund:~~ Funds were distributed to health care providers who provide or provided diagnoses, testing, or care for individuals with possible or actual cases of COVID-19. The payments received under the Provider Relief Fund are subject to certain terms and conditions. Payments are to be used to prevent, prepare for, and respond to COVID-19, and shall reimburse us for health care related expense or lost revenues attributable to COVID-19. As of June 30, 2020, we have received $88.7 million of the Provider Relief Fund. During the three months ended June 30, 2020, we recognized $44.4 million related to these funds as government stimulus income in our condensed consolidated statements of income. The unrecognized amount of $44.3 million was recorded in government stimulus advance in our condensed consolidated balance sheet. Additionally, the funds we received by the Provider Relief Fund could be potentially subject to repayment if those funds are not utilized to address the lost revenue and/or increased costs associated with our efforts associated with COVID-19.

~~The rules and regulations associated with the implementation~~•Suspension of the ~~CARES Act, including~~2% sequestration payment adjustment: CMS suspended the ~~Terms and Conditions~~2% sequestration payment adjustment for patient claims with dates of services from May 1, 2020 through December 31, 2020, which was subsequently amended to continue through December 31, 2021. During the three months ended March 31, 2021, we recognized $6.4 million of net service revenue due to the suspension of the ~~Provider Relief Fund, have not been finalized and remain subject~~2% sequestration payment adjustment.

•Waiver of the application of site-neutral payment: Under Section 1886(m)(6)(A)(i) of the Act, the claims processing systems was updated to ~~publication and change. While CMS has issued interim and informal guidance in~~pay all LTACH cases admitted during the ~~form~~COVID-19 PHE period at the LTACH PPS standard federal rate, effective for claims with an admission date occurring on or after January 27, 2020 through the end of ~~‘Fact Sheets’ and ‘FAQs’,~~ the ~~final rules and regulations may be materially different from our current understanding. Such changes in~~PHE period. During the ~~final rules and regulations may materially affect our ability to utilize and retain the various stimulus payments and may change our accounting for the use of such funds.~~

•

~~Accelerated and Advance Payments Program (AAPP):~~ AAPP extended financial hardship relief to Medicare providers impacted by the COVID-19 pandemic in order to provide necessary funds when there is a disruption in claims submission and/or claims processing. As of June 30, 2020, we received $310.7 million of accelerated and advance payments. We anticipate that all AAPP funds received by us will begin to become due 120 days after our receipt of such funds. Thereafter, the AAPP funds that we received will be automatically recouped from amounts otherwise payable to us. Any unapplied advance payment amounts must be paid in full within 210 days from receipt of the advance payments.


•	~~Suspension of the 2% sequestration payment adjustment~~: CMS suspended the 2% sequestration payment adjustment for patient claims with dates of services from May 1 through December 31, 2020. As of June 30, 2020, we recognized $5.0 million of net service revenue due to the suspension of the 2% sequestration payment adjustment.

•

~~Waiver of the application of site-neutral payment:~~ Under Section 1886(m)(6)(A)(i) of the Act, the claims processing systems will be updated to pay all LTACH cases admitted during the COVID-19 PHE period at the LTACH PPS standard federal rate, effective for claims with an admission date occurring on or after January 27, 2020 through the end of the PHE period. During the six months ended June 30, 2020, we recognized $2.9three months ended March 31, 2021, we recognized $8.9 million of net service revenue due to the suspension of site-neutral payments.


•	~~Delaying payment of the employer portion of social security tax:~~ The Company can defer payments of the employer portion of social security tax for 2020, which will be due in 50% increments, with the first due by December 31, 2021 and the second 50% due by December 31, 2022. As of June 30, 2020, we deferred $17.8 million of social security tax payments.

While during the three months ended ~~June 30, 2020,~~March 31, 2021, we did not experience a material disruption in our ability to continue to provide services to our patients, there is no guarantee that we won’t experience such service disruption in the future or a decrease in demand for our services as a result of COVID-19. The rapid development and fluidity of this situation makes it difficult to predict the ultimate impact of COVID-19 on our business and operations. Nevertheless, COVID-19 presents a material uncertainty which could materially impact our business and results of operations in the future.

~~Home Health~~ Hospice

On ~~June 25, 2020,~~April 8, 2021, CMS released ~~the~~a proposed rule for fiscal year 2021 to update base payment rates by a net market basket index of 2.7%, which is an annual inflation update of 3.1% reduced by a 0.4% productivity adjustment. The base 30 day payment rate is increased from $1,864.03 to $1,911.87. The following lists additional fiscal year 2021 reimbursement proposals:

~~a reduction of payment (including LUPA) rates by 2% for home health agencies that do not submit required quality data~~

~~a cap of 5% of wage index decreases and no cap on wage index increases~~

~~continued phase-out of the rural add-on~~

~~continued 2020 levels of PDGM case mix weights and LUPA thresholds~~

~~finalization of plan of care requirements regarding telehealth visits.~~

~~Hospice~~

~~On July 31, 2020, CMS released the final rule for fiscal year 2021~~2022 to update payment rates and the wage index. The proposed hospice payment update is a ~~2.4%~~2.3% increase to the payment rates. The ~~final~~proposed rule will apply a ~~5% cap on any decrease in~~2.5% market basket update and a ~~geographic area’s wage index value from fiscal year 2020. No such cap will be applied in fiscal year 2022.~~0.2 percentage point cut for productivity. In addition, the ~~final~~proposed rule increases the aggregate cap value of $31,389.66 for fiscal year 2022, as compared to $30,683.93 for fiscal year ~~2021, compared to $29,964.78 for fiscal year 2020.~~2021.

Based on these estimates, the following are the ~~final~~proposed fiscal year ~~2021~~2022 base payment rates for various levels of care, which will begin on October 1, 2021 and will end September 30, 2022 and final fiscal year 2021 base payment rates for various levels of care, which began on October 1, 2020 and will end September 30, ~~2021(payment~~2021 (payment rates for hospice providers not complying with the hospice quality reporting requirements will be 2% lower than the values referenced below):

Table of Contents


Description	Rate per patient day		Description	Proposed Fiscal Year 2022 Rate per patient day		Fiscal Year 2021 Rate per patient day
Routine Home Care days 1-60	$	199.25	Routine Home Care days 1-60	$	203.81	$	199.25
Routine Home Care days 60+	$	157.49	Routine Home Care days 60+	$	161.02	$	157.49
Continuous Home Care	$	1,432.41	Continuous Home Care	$	1,465.79	$	1,432.41
Full rate = 24 hours of care			Full rate = 24 hours of care
$58.15 = hourly rate
$59.68 = hourly rate for 2021 $61.07 = hourly rate for 2022			$59.68 = hourly rate for 2021 $61.07 = hourly rate for 2022
Inpatient Respite Care	$	461.09	Inpatient Respite Care	$	474.43	$	461.09
General Inpatient Care	$	1,045.66	General Inpatient Care	$	1,070.35	$	1,045.66

Facility-based

On April 27, 2021, CMS issued a proposed rule for the fiscal year 2022 Long-Term Care Hospital Prospective Payment System ("LTACH-PPS"), which described that CMS expects LTACH-PPS payments for fiscal year 2022 to increase by 1.4%. LTACH-PPS payments for fiscal year 2022 for discharges paid using the standard LTACH payment rate are expected to increase by 1.2% due primarily to the annual standard Federal rate update for fiscal year 2022 of 2.2% and a projected 0.8% decrease in high cost outlier payments. LTACH-PPS payments for fiscal year 2022 for discharges paid using the site neutral payment rate are expected to increase by 3%.

RESULTS OF OPERATIONS

Three months ended ~~June 30, 2020~~March 31, 2021 compared to three months ended ~~June 30, 2019~~March 31, 2020

Summary consolidated financial information

The following table summarizes our consolidated results of operations for the three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (amounts in thousands, except percentages, which are percentages of consolidated net service revenue, unless indicated otherwise):


	2021					2020					Increase (Decrease)
Net service revenue	$	524,835				$	512,871				$	11,964
Cost of service revenue (excluding depreciation and amortization)	310,272		59.1	%		321,202		62.6	%		(10,930)
General and administrative expenses	163,249		31.1			157,866		30.8			5,383
Impairment of intangibles and other	177					—					177

Interest expense	(263)					(2,768)					(2,505)

Income tax expense	9,441		26.2		(1)	3,359		26.8		(1)	6,082
Net income attributable to noncontrolling interests	6,774					5,652					1,122
Net income attributable to LHC Group, Inc.’s common stockholders	$	34,659				$	22,024				$	12,635

2020 2019
Increase
(Decrease)
Net service revenue $ 487,320
$ 517,842
$ (30,522 )
Cost of service revenue 306,712
62.9 % 325,860
62.9 % (19,148 )
General and administrative expenses 150,574
30.9
148,584
28.7
1,990
Impairment of intangibles and other 600
1,018
(418 )
Government stimulus income (44,435 ) —
44,435
Interest expense (841 ) (2,885 ) (2,044 )
Income tax expense 15,227
26.0
(1 ) 9,557
28.2
(1) 5,670
Net income attributable to noncontrolling interests 13,109
4,938
8,171
Net income attributable to LHC Group, Inc.’s common stockholders $ 44,692
$ 25,000
$ 19,692

(1) Effective tax rate as a percentage of income from continuing operations attributable to our common stockholders, excluding the excess tax benefits realized of ~~$0.3~~$2.1 million and ~~$0.2~~$1.2 million during the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. The effective tax rate for the three months ended March 31, 2020 also benefited from a $2.2 million impact from the enactment of the CARES Act.

~~Consolidated net service revenue was negatively impacted due to COVID-19, which affected all percentages of revenue disclosed below.~~

Net service revenue

The following table sets forth each of our segment’s revenue growth or loss, admissions, census, episodes, patient days, and billable hours for the three months ended ~~June 30, 2020~~March 31, 2021 and the related change from the same period in ~~2019~~2020 (amounts in thousands, except admissions, census, episode data, patient days and billable hours, which are actual amounts; net service revenue excludes implicit price concessions):

Table of Contents


The below data for the three months ended March 31, 2021 was impacted by the COVID-19 pandemic.
	Organic (1)		Organic Growth (Loss) %		Acquired (2)		Total		Total Growth (Loss) %
Home health services
Revenue	$	377,744	3.1	%	$	3,981	$	381,725	2.2	%
Revenue Medicare	$	239,405	(3.1)		$	2,761	$	242,166	(4.1)
Admissions	107,142		(0.4)		780		107,922		(0.2)
Medicare Admissions	53,979		(9.0)		434		54,413		(9.1)
Average Census	83,136		10.1		802		83,938		9.0
Average Medicare Census	44,769		(0.8)		468		45,237		(1.9)
Home Health Episodes	83,695		(4.7)		915		84,610		(6.2)
Hospice services					—
Revenue	$	60,431	2.7		$	3,833	$	64,264	6.8
Revenue Medicare	$	55,677	2.9		$	3,747	$	59,424	7.3
Admissions	5,323		7.6		254		5,577		10.2
Medicare Admissions	4,734		7.6		176		4,910		8.4
Average Census	4,183		(0.9)		274		4,457		3.9
Average Medicare Census	3,898		(0.8)		265		4,163		4.2
Patient days	376,419		(1.9)		24,700		401,119		2.8
Home and community-based services
Revenue	$	48,960	(1.2)		$	541	$	49,501	(1.6)
Billable hours	1,872,841		(4.0)		28,440		1,901,281		(4.2)
Facility-based services
LTACHs
Revenue	$	32,127	17.6		$	—	$	32,127	17.6
Patient days	21,160		5.0		—		21,160		5.0
Other facility-based services
Revenue	$	1,901	(35.9)		$	—	$	1,901	(35.9)
HCI
Revenue	$	5,939	(10.8)		$	—	$	5,939	(10.8)
Consolidated
Revenue	$	527,102	3.2		$	8,355	$	535,457	2.8

The below data for the three months ended June 30, 2020 was impacted by the COVID-19 pandemic.

Organic (1)

Organic
Growth
(Loss) %

Acquired (2)
Total
Total
Growth
(Loss) %
Home health services
Revenue $ 328,511
(12.7 )% $ 15,268
$ 343,779
(9.4 )%
Revenue Medicare $ 215,481
(18.6 ) $ 9,585
$ 225,066
(15.6 )
Admissions 89,870
(4.7 ) 3,612
93,482
(1.8 )
Medicare Admissions 48,809
(14.3 ) 1,736
50,545
(11.9 )
Average Census 74,430
(2.4 ) 3,100
77,530
0.5
Average Medicare Census 43,193
(12.3 ) 1,618
44,811
(10.1 )
Home Health Episodes 77,749
(16.9 ) 3,469
81,218
(13.4 )
Hospice services
—

Revenue $ 57,112
2.7
$ 4,170
$ 61,282
9.2
Revenue Medicare $ 52,680
2.3
$ 3,847
$ 56,527
8.8
Admissions 4,620
1.8
249
4,869
5.0
Medicare Admissions 4,068
0.8
201
4,269
3.3
Average Census 4,045
0.2
284
4,329
6.4
Average Medicare Census 3,757
0.7
265
4,022
7.0
Patient days 372,556
1.4
25,727
398,283
7.5
Home and community-based services
Revenue $ 49,220
(8.1 ) $ 663
$ 49,883
(7.3 )
Billable hours 1,908,520
(15.3 ) 20,340
1,928,860
(14.9 )
Facility-based services
LTACHs
Revenue $ 32,762
29.2
$ —
$ 32,762
29.2
Patient days 23,658
18.5
—
23,658
18.5
Other facility-based services
Revenue $ 2,003
(33.1 ) $ —
$ 2,003
(33.1 )
HCI
Revenue $ 5,851
(19.2 ) $ —
$ 5,851
(19.2 )
Consolidated
Revenue $ 475,459
(8.4 ) $ 20,101
$ 495,560
(5.6 )

(1) Organic - combination of same store, a location that has been in service with us for greater than 12 months, and de novo, an internally developed location that has been in service for 12 months or less.

(2) Acquired - purchased location that has been in service with us 12 months or less.

We had a decrease in our home health revenue per episode during 2020. COVID-19 caused our Medicare reimbursement to decline due to a decrease in patient acuity and a decrease in institutional admissions. Patient volumes declined in ~~all~~our home and community-based segment due to the continued impact of ~~our segments, with the exception of our~~COVID-19.

Our home health and hospice segment ~~and LTACH services, during~~received the ~~first half~~benefit of ~~the second quarter due to COVID-19. This decline was offset by~~ the suspension of the 2% sequestration payment adjustment for Medicare claims and the LTACHs received the benefit of the suspension of the 2% sequestration payment adjustment and the waiver of site-neutral payments for LTACH Medicare claims.

~~We had a decrease in our home health revenue per episode due to the implementation~~

Table of PDGM during 2020. In addition, COVID-19 caused our Medicare reimbursement decline due to several factors, such as increase in LUPAs and a decrease in institutional admissions, which was a result of the temporary suspension of elective procedures.Contents

~~HCI revenue declined due to the sale of Ingenious Health business during the first quarter of 2019.~~

The following table sets forth the reconciliation of total revenue disclosed above, which excludes implicit price concession, to net service revenue recognized for the three months ended June 30, 2020 and 2019 (amounts in thousands, except percentages,

~~which are percentages of consolidated revenue):~~

Three Months Ended June 30,
2020 % of Net Service Revenue 2019 % of Net Service Revenue
Revenue $ 495,560
$ 525,120

Less: Implicit price concession 8,240
1.7 % 7,278
1.4 %
Net service revenue $ 487,320
$ 517,842

Cost of service revenue

The following table summarizes cost of service revenue (amounts in thousands, except percentages, which are percentages of the segment’s respective net service revenue):


	Three Months Ended March 31,
	2021				2020
Home health services
Salaries, wages and benefits	$	192,237	51.4	%	$	199,606	54.3	%
Transportation	8,820		2.4		9,805		2.7
Supplies and services	11,316		3.0		11,029		3.0
Total	$	212,373	56.8	%	$	220,440	60.0	%
Hospice services
Salaries, wages and benefits	$	28,012	44.7	%	$	27,013	44.6	%
Transportation	1,830		2.9		1,940		3.2
Supplies and services	8,728		13.9		9,081		15.0
Total	$	38,570	61.5	%	$	38,034	62.8	%
Home and community-based services
Salaries, wages and benefits	$	34,154	69.5	%	$	37,493	77.4	%
Transportation	416		0.8		490		1.0
Supplies and services	302		0.6		470		1.0
Total	$	34,872	70.9	%	$	38,453	79.4	%
Facility-based services
Salaries, wages and benefits	$	16,034	48.1	%	$	14,378	48.4	%
Transportation	10		—		36		0.1
Supplies and services	5,131		15.4		5,928		20.0
Total	$	21,175	63.5	%	$	20,342	68.5	%
HCI
Salaries, wages and benefits	$	3,205	55.5	%	$	3,743	58.7	%
Transportation	51		0.9		92		1.4
Supplies and services	26		0.4		98		1.5
Total	$	3,282	56.8	%	$	3,933	61.6	%
Consolidated
Total	$	310,272	59.1	%	$	321,202	62.6	%

Three Months Ended June 30,
2020 2019
Home health services
Salaries, wages and benefits $ 177,533
52.2 % $ 211,297
56.3 %
Transportation 8,730
2.6
10,991
2.9
Supplies and services 18,883
5.6
8,257
2.2
Total $ 205,146
60.4 % $ 230,545
61.4 %
Hospice services
Salaries, wages and benefits $ 26,749
43.8 % $ 25,109
45.6 %
Transportation 1,799
2.9
1,906
3.5
Supplies and services 8,723
14.3
7,843
14.2
Total $ 37,271
61.0 % $ 34,858
63.3 %
Home and community-based services
Salaries, wages and benefits $ 36,081
75.7 % $ 38,637
73.7 %
Transportation 451
0.9
566
1.1
Supplies and services 2,215
4.6
302
0.6
Total $ 38,747
81.2 % $ 39,505
75.4 %
Facility-based services
Salaries, wages and benefits $ 15,926
47.3 % $ 12,214
43.7 %
Transportation 44
0.1
80
0.3
Supplies and services 5,815
17.3
5,278
18.9
Total $ 21,785
64.7 % $ 17,572
62.9 %
HCI
Salaries, wages and benefits $ 3,666

72.2 % $ 3,275
45.8 %
Transportation 56

1.1
97
1.4
Supplies and services 41

0.8
8
0.1
Total $ 3,763
74.1 % $ 3,380
47.3 %
Consolidated
Total $ 306,712
63.0 % $ 325,860
62.9 %

During ~~2020,~~2021, our cost of service revenue was impacted ~~by:~~

~~cost containment efforts within our home health and hospice segments due to streamlining of leadership within each respective segment as we completed the integration of Almost Family~~

by effective cost mitigation ~~efforts~~strategies associated with the implementation of PDGM within the home health segment. Cost of service revenue in our home and community-based segment ~~during 2020~~

declined due to the lower patient volumes resulting in a decrease in billable hours and a decline of in-person visits at the beginning of the quarter due to COVID-19 policies implemented by public health and governmental authorities, which patient volumes and in-person visits began to stabilize during the end of the quarterdecrease in total costs.

~~increased costs within each of our segments associated with significantly increased supplies and services costs related to COVID-19, including additional PPE purchases~~

~~the sale of Ingenious Health at the beginning of 2019, which resulted in lower net service revenue during 2020 in our HCI segment.~~

General and administrative expenses

The following table summarizes general and administrative expenses (amounts in thousands, except percentages, which are percentages of the segment’s respective net service revenue):

Table of Contents


	Three Months Ended June 30,									Three Months Ended March 31,
	2020				2019					2021				2020
Home health services									Home health services
General and administrative	$	107,121	31.5	%	$	106,549	28.4	%	General and administrative	$	116,461	31.2	%	$	113,022	30.7	%
Depreciation and amortization	3,088		0.9		2,409		0.6		Depreciation and amortization	2,936		0.8		3,001		0.8
Total	$	110,209	32.4	%	$	108,958	29.0	%	Total	$	119,397	32.0	%	$	116,023	31.5	%
Hospice services									Hospice services
General and administrative	$	15,745	25.8	%	$	14,666	26.6	%	General and administrative	$	17,575	28.0	%	$	16,111	26.6	%
Depreciation and amortization	521		0.9		430		0.8		Depreciation and amortization	552		0.9		515		0.9
Total	$	16,266	26.7	%	$	15,096	27.4	%	Total	$	18,127	28.9	%	$	16,626	27.5	%
Home and community-based services									Home and community-based services
General and administrative	$	10,716	22.5	%	$	10,895	20.8	%	General and administrative	$	11,133	22.7	%	$	11,068	22.8	%
Depreciation and amortization	408		0.9		318		0.6		Depreciation and amortization	396		0.8		391		0.8
Total	$	11,124	23.4	%	$	11,213	21.4	%	Total	$	11,529	23.5	%	$	11,459	23.6	%
Facility-based services									Facility-based services
General and administrative	$	9,230	27.4	%	$	8,566	30.6	%	General and administrative	$	10,416	31.2	%	$	9,449	31.8	%
Depreciation and amortization	935		2.8		769		2.7		Depreciation and amortization	841		2.5		931		3.1
Total	$	10,165	30.2	%	$	9,335	33.3	%	Total	$	11,257	33.7	%	$	10,380	34.9	%
HCI									HCI
General and administrative	$	2,510	49.4	%	$	3,710	51.9	%	General and administrative	$	2,665	46.1	%	$	3,083	48.4	%
Depreciation and amortization	300		5.9		272		3.8		Depreciation and amortization	274		4.7		295		4.6
Total	$	2,810	55.3	%	$	3,982	55.7	%	Total	$	2,939	50.8	%	$	3,378	53.0	%
Consolidated									Consolidated
Total	$	150,574	30.9	%	$	148,584	28.7	%	Total	$	163,249	31.1	%	$	157,866	30.8	%

Consolidated general and administrative expenses increased as a percentage of net service revenue from ~~28.7%~~30.8% in ~~2019~~2020 to ~~30.9%~~31.1% in ~~2020.~~ 2021. The increase in general and administrative expenses as a percentage of net service revenue was a result of ~~a decrease in our home health revenue per episode stemming from PDGM and COVID-19. In addition,~~ heightened costs and the additional administrative costs of COVID-19 and increased investments in our ~~expenses during this quarter.~~technology infrastructure. Finally, the increase from ~~2019~~2021 to 2020 related to costs associated with the completion of certain acquisitions during latter part of ~~2019 and six months ended~~ 2020.

~~Six months ended June 30, 2020 compared to six months ended June 30, 2019~~

~~Summary consolidated financial information~~

The following table summarizes our consolidated results of operations for the six months ended June 30, 2020 and 2019 (amounts in thousands, except percentages, which are percentages of consolidated net service revenue, unless indicated otherwise):

2020 2019
Increase
(Decrease)
Net service revenue $ 1,000,191
$ 1,020,427
$ (20,236 )
Cost of service revenue (excluding depreciation and amortization) 627,914
62.8 % 646,852
63.4 % (18,938 )
General and administrative expenses 308,440
30.8
293,805
28.8
14,635
Impairment of intangibles and other 600
7,337
(6,737 )
Government stimulus income (44,435 ) —
44,435
Interest expense (3,609 ) (5,937 ) (2,328 )
Income tax expense 18,586
26.4
(1 ) 13,157
28.2
(1) 5,429
Net income attributable to noncontrolling interests 18,761
9,483
9,278
Net income attributable to LHC Group, Inc.’s common stockholders $ 66,716
$ 43,856
$ 22,860

~~(1)~~ Effective tax rate as a percentage of income from continuing operations attributable to our common stockholders, excluding the excess tax benefits realized of $1.6 million and $2.6 million during the six months ended June 30, 2020 and 2019, respectively. The effective tax rate for the six months ended June 30, 2020 also benefited from a $2.2 million impact from the enactment of the CARES Act.

~~Consolidated net service revenue was negatively impacted due to COVID-19, which affected all percentages of revenue disclosed below.~~

~~Net service revenue~~

The following table sets forth each of our segment’s revenue growth or loss, admissions, census, episodes, patient days, and billable hours for the six months ended June 30, 2020 and the related change from the same period in 2019 (amounts in thousands, except admissions, census, episode data, patient days and billable hours, which are actual amounts; net service revenue excludes implicit price concessions):

The below data for the six months ended June 30, 2020 was impacted by the COVID-19 pandemic.

Organic (1)

Organic
Growth
(Loss) %

Acquired (2)
Total
Total
Growth
(Loss) %
Home health services
Revenue $ 681,596
(7.7 )% $ 35,666
$ 717,262
(4.0 )%
Revenue Medicare $ 454,154
(12.6 ) $ 23,319
$ 477,473
(9.2 )
Admissions 188,686
1.1
12,978
201,664
6.8
Medicare Admissions 103,996
(8.3 ) 6,429
110,425
(3.9 )
Average Census 73,819
(2.0 ) 3,435
77,254
1.1
Average Medicare Census 43,535
(10.9 ) 1,918
45,453
(8.4 )
Home Health Episodes 163,606
(10.3 ) 7,839
171,445
(7.2 )
Hospice services
—

Revenue $ 113,489
5.0
$ 7,961
$ 121,450
11.5
Revenue Medicare $ 104,447
5.0
$ 7,437
$ 111,884
11.6
Admissions 9,187
0.9
742
9,929
7.6
Medicare Admissions 8,144
0.4
653
8,797
6.9
Average Census 4,034
4.1
275
4,309
10.2
Average Medicare Census 3,752
5.0
258
4,010
11.2
Patient days 738,552
5.3
50,100
788,652
11.4
Home and community-based services
Revenue $ 98,865
(7.2 ) $ 1,342
$ 100,207
(6.4 )
Billable hours 3,882,235
(14.0 ) 40,368
3,922,603
(13.5 )
Facility-based services
LTACHs
Revenue $ 60,082
18.7
$ —
$ 60,082
18.7
Patient days 43,819
10.6
—
43,819
10.6
Other facility-based services
Revenue $ 4,970
(18.0 ) $ —
$ 4,970
(18.0 )
HCI
Revenue $ 12,512
(20.1 ) $ —
$ 12,512
(20.1 )
Consolidated
Revenue $ 971,514
(4.8 ) $ 44,969
$ 1,016,483
(1.9 )

~~(2) Acquired - purchased location that has been in service with us 12 months or less.~~

Patient volumes declined in all of our segments, with the exception of our hospice segment and LTACH services, during the first half of the second quarter due to COVID-19. This decline was offset by the suspension of the 2% sequestration payment adjustment for Medicare claims and the waiver of site-neutral payments for LTACH Medicare claims.

We had a decrease in our home health revenue per episode due to the implementation of PDGM during 2020. In addition, COVID-19 caused our Medicare reimbursement decline due to several factors, such as increase in LUPAs and a decrease in institutional admissions, which was a result of the temporary suspension of elective procedures.

~~HCI revenue declined due to the sale of Ingenious Health business during the first quarter of 2019.~~

The following table sets forth the reconciliation of total revenue disclosed above, which excludes implicit price concession, to net service revenue recognized for the six months ended June 30, 2020 and 2019 (amounts in thousands, except percentages, which are percentages of consolidated revenue):

Six Months Ended
June 30,
2020 % of Net Service Revenue 2019 % of Net Service Revenue
Revenue $ 1,016,483
$ 1,036,057

Less: Implicit price concession 16,292
1.6 % 15,630
1.5 %
Net service revenue $ 1,000,191
$ 1,020,427

~~Cost of service revenue~~

~~The following table summarizes cost of service revenue (amounts in thousands, except percentages, which are percentages of the segment’s respective net service revenue):~~

Six Months Ended
June 30,
2020 2019
Home health services
Salaries, wages and benefits $ 377,139
53.3 % $ 418,456
56.7 %
Transportation 18,535
2.6
21,594
2.9
Supplies and services 29,912
4.2
16,618
2.3
Total $ 425,586
60.1 % $ 456,668
61.9 %
Hospice services
Salaries, wages and benefits $ 53,762
44.2 % $ 49,107
46.0 %
Transportation 3,739
3.1
3,668
3.4
Supplies and services 17,804
14.6
15,259
14.3
Total $ 75,305
61.9 % $ 68,034
63.7 %
Home and community-based services
Salaries, wages and benefits $ 73,574
76.5 % $ 77,731
74.6 %
Transportation 941
1.0
1,102
1.1
Supplies and services 2,685
2.8
527
0.5
Total $ 77,200
80.3 % $ 79,360
76.2 %
Facility-based services
Salaries, wages and benefits $ 30,304
47.9 % $ 24,394
43.8 %
Transportation 80
0.1
143
0.3
Supplies and services 11,743
18.5
10,767
19.3
Total $ 42,127
66.5 % $ 35,304
63.4 %
HCI
Salaries, wages and benefits $ 7,409
64.7 % $ 7,019
45.4 %
Transportation 148
1.3
231
1.5
Supplies and services 139
1.2
236
1.5
Total $ 7,696
67.2 % $ 7,486
48.4 %
Consolidated
Total $ 627,914
62.8 % $ 646,852
63.4 %

~~Consolidated cost of service revenue improved as a percentage of net service revenue by 0.6% from 63.4% in 2019 to 62.8% in 2020. During 2020, our cost of service revenue was impacted by:~~

~~cost containment efforts within our home health and hospice segments due to streamlining of leadership within each respective segment as we completed the integration of Almost Family~~

~~cost mitigation efforts associated with PDGM within the home health segment during 2020~~

lower patient volumes and a decline of in-person visits at the beginning of the quarter due to COVID-19 policies implemented by public health and governmental authorities, which patient volumes and in-person visits began to stabilize during the end of the quarter

~~increased costs within each of our segments associated with significantly increased supplies and services costs related to COVID-19, including additional PPE purchases~~

~~the sale of Ingenious Health at the beginning of 2019, which resulted in lower net service revenue during 2020 in our HCI segment.~~

~~General and administrative expenses~~

~~The following table summarizes general and administrative expenses (amounts in thousands, except percentages, which are percentages of the segment’s respective net service revenue):~~

Six Months Ended
June 30,
2020 2019
Home health services
General and administrative $ 220,143
31.1 % $ 208,985
28.3 %
Depreciation and amortization 6,089
0.9
4,812
0.7
Total $ 226,232
32.0 % $ 213,797
28.9 %
Hospice services
General and administrative $ 31,856
26.2 % $ 29,093
27.2 %
Depreciation and amortization 1,036
0.9
856
0.8
Total $ 32,892
27.0 % $ 29,949
28.0 %
Home and community-based services
General and administrative $ 21,784
22.7 % $ 21,567
20.7 %
Depreciation and amortization 799
0.8
628
0.6
Total $ 22,583
23.5 % $ 22,195
21.3 %
Facility-based services
General and administrative $ 18,679
29.5 % $ 16,987
30.5 %
Depreciation and amortization 1,866
2.9
1,525
2.7
Total $ 20,545
32.4 % $ 18,512
33.2 %
HCI
General and administrative $ 5,593
48.8 % $ 8,773
56.7 %
Depreciation and amortization 595
5.2
579
3.7
Total $ 6,188
54.0 % $ 9,352
60.4 %
Consolidated
Total $ 308,440
30.8 % $ 293,805
28.8 %

Consolidated general and administrative expenses increased as a percentage of net service revenue from 28.8% in 2019 to 30.8% in 2020. The increase in general and administrative expenses as a percentage of net service revenue was a result of a decrease in our home health revenue per episode stemming from PDGM and COVID-19. In addition, heightened costs and the additional administrative costs of COVID-19 increased our expenses during this year. Finally, the increase from 2019 to 2020 related to costs associated with the completion of certain acquisitions during latter part of 2019 and six months ended 2020.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

~~Liquidity~~Our cash balance at March 31, 2021 was $292.3 million and we have $555.7 million of available liquidity from cash and our revolving credit facility, net of $411.2 million liabilities associated with the AAPP and Provider Relief Fund. Based on our current plan of operations, including acquisitions, we believe this amount, when combined with expected cash flows from operations and amounts available under our revolving credit facility will be sufficient to fund our growth strategy and to meet our anticipated operating expenses, capital expenditures, and debt service obligations for at least the next 12 months.

Our principal source of liquidity for operating activities is the collection of patient accounts receivable, most of which are collected from governmental and third-party commercial payors. We also have the ability to obtain additional liquidity, if necessary, through our credit facility, which provides for aggregate borrowings, including outstanding letters of credit.

The following table summarizes changes in cash (amounts in thousands):

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	Six months ended June 30,							Three months ended March 31,
	2020			2019				2021		2020
Net cash provided by (used in):							Net cash provided by (used in):
Operating activities	$	435,876		$	58,331		Operating activities	$	44,806	$	(24,464)
Investing activities	(30,677		)	(28,030		)	Investing activities	(4,604)		(9,228)
Financing activities	(264,119		)	(52,927		)	Financing activities	(34,454)		10,328
Change in cash	$	141,080		$	(22,626	)	Change in cash	$	5,748	$	(23,364)
Cash at beginning of period	31,672			49,363			Cash at beginning of period	286,569		31,672
Cash at end of period	$	172,752		$	26,737		Cash at end of period	$	292,317	$	8,308

~~The CARES Act provided additional cash during the three months ended June 30, 2020~~A reduction in our days sales outstanding and increased our net cash provided by operating activities by $44.4 million of Provider Relief Funds, $310.7 million of Accelerated and Advance Payments, and $17.8 million payment deferral of our portion of social security payroll tax. The impact of COVID-19 increased our prepaid medical supplies due to the need of obtainingstabilized costs for needed personal protective equipment improved our operating cash flows in 2021. We did not utilize any proceeds in our credit agreement during 2021 as compared to the first quarter of 2020, which caused the decrease of cash used in our ~~clinicians and increased our salaries, wages and benefits associated with the increased staffing demands associated with our response to COVID-19.~~financing activities.

Indebtedness

On March 30, 2018, we entered into a Credit Agreement with JPMorgan Chase Bank, N.A., which was effective on April 2, 2018 (the "Credit Agreement"). The Credit Agreement provides a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $500.0 million, which includes an additional $200.0 million accordion expansion feature, and a letter of credit sub-limit equal to $50.0 million. The expiration date of the Credit Agreement is March 30, 2023. Our obligations under the Credit Agreement are secured by substantially all of the assets of the Company and its wholly-owned subsidiaries, which assets include the Company’s equity ownership of its wholly-owned subsidiaries and its equity ownership in joint venture entities. Our wholly-owned subsidiaries also guarantee the obligations of the Company under the Credit Agreement.

Revolving loans under the Credit Agreement bear interest at, as selected by us, either a (a) Base Rate, which is defined as a fluctuating rate per annum equal to the highest of (1) the Federal Funds Rate in effect on such day plus 0.5%, (2) the Prime Rate in effect on such day, and (3) the Eurodollar Rate for a one month interest period on such day plus 1.5%, plus a margin ranging from 0.50% to 1.25% per annum or (b) Eurodollar rate plus a margin ranging from 1.50% to 2.25% per annum. Swing line loans bear interest at the Base Rate. We are limited to 15 Eurodollar borrowings outstanding at the same time. We are required to pay a commitment fee for the unused commitments at rates ranging from 0.20% to 0.35% per annum depending upon our consolidated Leverage Ratio, as defined in the Credit Agreement. The Base Rate as of ~~June 30, 2020~~March 31, 2021 was 4.00% and the LIBOR rate was ~~2.0%~~1.88%.

On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, announced its intention to cease the publication of LIBOR settings for 1-month, 3-month, 6-month, and 12-month LIBOR borrowings immediately on June 30, 2023. The announcement did not identify any successor administrator.

As of ~~June 30, 2020,~~March 31, 2021, we had letters of credit outstanding in the ~~effective interest rates on our borrowings~~amount of $25.4 million under the Credit Agreement, ~~was 2.0%.~~

Asand had approximately $474.6 million of ~~June 30,~~remaining borrowing capacity available under the Credit Agreement. At December 31, 2020, we had ~~$30.0~~$20.0 million drawn and letters of credit outstanding in the amount of $24.8 million under the Credit Agreement, and had approximately $445.2 million of remaining borrowing capacity available under the Credit Agreement. We were able to utilize cash on hand to pay $479.2 million on the Credit Agreement during the six months ended June 30, 2020. At December 31, 2019, we had $253.0 million drawn and letters of credit outstanding in the amount of $28.4$25.4 million under the Credit Facility.

Under the Credit Agreement with JPMorgan Chase Bank, N.A., a letter of credit fee shall be equal to the applicable Eurodollar rate on the average daily amount of the letter of credit exposure. The agent’s standard up-front fee and other customary administrative charges will also be due upon issuance of the letter of credit along with a renewal fee on each anniversary date of such issuance while the letter of credit is outstanding. Borrowings accrue interest under the Credit Agreement at either the Base Rate or the Eurodollar rate, and are subject to the applicable margins set forth below:

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Leverage Ratio	Eurodollar Margin		Base Rate Margin		Commitment Fee Rate
≤1.00:1.00	1.50	%	0.50	%	0.200	%
>1.00:1.00 ≤ 2.00:1.00	1.75	%	0.75	%	0.250	%
>2.00:1.00 ≤ 3.00:1.00	2.00	%	1.00	%	0.300	%
>3.00:1.00	2.25	%	1.25	%	0.350	%

Our Credit Agreement contains customary affirmative, negative and financial covenants, which are subject to customary carve-outs, thresholds, and materiality qualifiers. The Credit Facility allows us to make certain restricted payments within certain parameters provided we maintain compliance with those financial ratios and covenants after giving effect to such restricted payments or, in the case of repurchasing shares of its stock, so long as such repurchases are within certain specified baskets.

Our Credit Agreement also contains customary events of default, which are subject to customary carve-outs, thresholds, and materiality qualifiers. These include bankruptcy and other insolvency events, cross-defaults to other debt agreements, a change in control involving us or any subsidiary guarantor, and the failure to comply with certain covenants.

At ~~June 30, 2020,~~March 31, 2021, we were in compliance with all debt covenants.

Contingencies

For a discussion of contingencies, see Note 7 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.

Off-Balance Sheet Arrangements

We do not currently have any off-balance sheet arrangements with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in these relationships.

Critical Accounting Policies

For a discussion of critical accounting policies, see Note 2 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference. For a full description of the Company's other critical accounting policies, see Note 2 of the Notes to Consolidated Financial Statements in the ~~2019~~2020 Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our exposure to market risk relates to changes in interest rates for borrowings under our credit facility. Our letter of credit fees and interest accrued on our debt borrowings are subject to the applicable Eurodollar or Base Rate. A hypothetical basis point increase in interest rates on the average daily amounts outstanding under the credit facility would not have increased our interest expense ~~by $0.9 million~~ for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We established disclosure controls and procedures which are designed to provide reasonable assurance of achieving their objectives and to ensure that information required to be disclosed in its reports filed under the Securities Exchange Act of 1934 as amended (the “Exchange Act”) is recorded, processed, summarized, disclosed and reported within the time periods specified in the SEC’s rules and forms. This information is also accumulated and communicated to our management and Board of Directors to allow timely decisions regarding required disclosure.

In connection with the preparation of this Quarterly Report on Form 10-Q, as of ~~June 30, 2020,~~March 31, 2021, under the supervision and with the participation of management, including the principal executive officer and principal financial officer, management conducted an evaluation of the effectiveness of the disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act.

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Based on this evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of ~~June 30, 2020,~~March 31, 2021, the end of the period covered by this Quarterly Report.

Changes in Internal Controls Over Financial Reporting

We, including the principal executive officer and principal financial officer, do not expect that our disclosure controls or our internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls’ effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and, based on an evaluation of the controls and procedures, the principal executive officer and principal financial officer concluded the disclosure controls and procedures were effective at a reasonable assurance level as of ~~June 30, 2020,~~March 31, 2021, the end of the period covered by this Quarterly Report.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

For a discussion of legal proceedings, see Note 7 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.

ITEM 1A. RISK FACTORS.

Important risk factors that could materially affect the Company’s business, financial condition or results of operations in future periods are described in Part I, Item 1A, “Risk Factors” of our 2019 Form 10-K and also in Part II, Item 1A, "Risk Factors" of our quarterly report on Form 10-Q for the three months ended March 31, 2020 (the "Q1 2020 Form 10-Q"). Those risk factors are supplemented by those discussed under “Management’s Discussion and Analysis Of Financial Condition And Results Of Operations” in Part I, Item 2 of this Quarterly Report. Please be aware that these risks may change over time and other risks may prove to be important in the future. In addition, these risks may be heightened by the disruption and uncertainty resulting from COVID-19.

There have been no material changes in the Company’s risk factors from those in Part I, Item 1A, “Risk Factors” of our ~~2019 Form 10-K, as updated in Part II, Item A, "Risk Factors" of our Q1~~ 2020 Form ~~10-Q.~~10-K.

~~Our business, financial condition and results of operations may be materially adversely affected by the COVID-19 pandemic.~~

The COVID-19 pandemic has adversely impacted economic activity and conditions worldwide, including workforces, liquidity, capital markets, consumer behavior, supply chains, and macroeconomic conditions. The full extent to which the COVID-19 outbreak will impact our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact. We may face decreased demand for our services, interruption in the provision of our services, and increased costs of services, all of which could have a material and adverse impact on our business, results of operations and financial condition.

The majority of the Company’s revenues are derived from the provision of home health and hospice services. Demand for home health services could be significantly diminished due to heightened anxiety among our patients regarding the risk of exposure to COVID-19 as a result of home health visits. Additionally, many of our patients are prescribed home health services after discharge from the hospital or after other surgeries and medical procedures. Most local and state governments imposed limits on the provision of certain healthcare, and many members of the communities we serve could avoid or delay health care visits and procedures. These additional factors could reduce demand for our home health services.

Our ability to provide services to our patients depends first and foremost on the health and safety of our skilled nurses, home health aides, and therapists. While we continue to take significant precautions to enable our health care providers to continue to safely provide our important services to our patients during the pandemic, we could experience interruptions in our ability to continue to provide these services. For example, if we are unable to obtain the necessary personal protective equipment to ensure the safety of our employees due to a shortage of supplies or otherwise, if there is a reduction in our available healthcare providers due to concerns around COVID-19 related risks or if our healthcare providers were to contract COVID-19, our ability to provide services to our patients may be significantly interrupted or suspended.

In addition to a number of factors that could adversely impact demand for our services and our ability to provide services to our patients, we may experience increased cost of care and reduced reimbursements as a result of COVID-19. In particular, we have experienced higher costs due to the higher utilization and cost of personal protective equipment as well as increased purchasing of other medical supplies, cleaning, and sanitization materials. If our patients suffer from increased incidence of and complications from illnesses, including COVID-19, our costs of providing care for our patients would increase. We may also face reduced reimbursement for our services through Medicare and commercial health care plans in the event that such plans do not adjust patient and other qualifications to address changes related to COVID-19.

In compliance with state and local stay-at-home orders issued in connection with COVID-19, a number of our employees have transitioned to working from home. While we have implemented and maintain a cybersecurity program designed to protect our IT and data systems from attacks, more of our employees are working from locations where our cybersecurity program may be less effective and IT security may be less robust. The risk of a disruption or breach of our operational systems, or the

compromise of the data processed in connection with our operations, has increased as attempted attacks have advanced in sophistication and number around the world. If any of our systems are damaged, fail to function properly, or otherwise become unavailable, we may incur substantial costs to repair or replace them and may experience loss or corruption of critical data and interruptions or delays in our ability to perform critical functions, which could adversely affect our business and results of operations. A significant failure, compromise, breach, or interruption in our systems, which may result from problems such as malware, computer viruses, hacking attempts, or other third-party malfeasance, could result in a disruption of our operations, patient dissatisfaction, damage to our reputation, and a loss of patients or revenues. Efforts by us and our vendors to develop, implement, and maintain security measures, including malware and anti-virus software and controls, may not be successful in preventing these events from occurring, and any network and information systems-related events could require us to expend significant resources to remedy such event. In the future, we may be required to expend additional resources to continue to enhance our information security measures and/or to investigate and remediate information security vulnerabilities.

The extent to which the COVID-19 pandemic impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity, and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures. The COVID-19 pandemic also may have the effect of heightening other risks disclosed in the Risk Factors section included in our Annual Report on Form 10-K for the year ended December 31, 2019, such as, but not limited to, those related to competition, supply chain interruptions, and labor availability and cost.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

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ITEM 6. EXHIBITS.



3.1			Amended and Restated Certificate of Incorporation of LHC Group, Inc. (previously filed as an Exhibit 3.1 to LHC Group’s Form 8-K filed on April 2, 2018).

3.2			Bylaws of LHC Group, Inc. as amended on December 31, 2007 (previously filed as Exhibit 3.2 to LHC Group’s Form 10-Q filed on May 9, 2008).

4.1			Specimen Stock Certificate of LHC Group’s Common Stock, par value $0.01 per share (previously filed as Exhibit 4.1 to LHC Group’s Form S-1/ A (File No. 333-120792) filed on February 14, 2005).

31.1			Certification of Keith G. Myers, Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of ~~Joshua L. Proffitt,~~Dale G. Mackel, Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*			Certification of Chief Executive Officer and Chief Financial Officer of LHC Group, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS			XBRL Instance - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH			XBRL Schema Document

101.CAL			XBRL Calculation Linkbase Document

101.DEF			XBRL Definition Linkbase Document

101.LAB			XBRL Label Linkbase Document

101.PRE			XBRL Presentation Linkbase Document

Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). Users of this data are advised pursuant to Rule 406T of Regulation S-T that the interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise not subject to liability under these sections. The financial information contained in the XBRL-related documents is “unaudited” or “unreviewed.”

*This exhibit is furnished to the SEC as an accompanying document and is not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, and the document will not be deemed incorporated by reference into any filing under the Securities Act of 1933.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



						LHC GROUP, INC.
						(Registrant)

Date: ~~August~~May 6, ~~2020~~2021						/s/ ~~Joshua L. Proffitt~~Dale G. Mackel
						~~Joshua L. Proffitt~~Dale G. Mackel
						~~President and~~ Chief Financial Officer (Principal financial officer)



	For the Six Months Ended June 30, 2020
	Common Stock							Additional Paid-In Capital			Retained Earnings		Noncontrolling Interest Non Redeemable			Total Equity
	Issued			Treasury
	Amount		Shares	Amount			Shares
Balance as of December 31, 2019	$	361	36,129,280	$	(60,060	)	5,136,890	$	949,321		$	523,701	$	93,928		$	1,507,251
Net income (1)	—		—	—			—	—			22,024		2,099			24,123
Acquired noncontrolling interest	—		—	—			—	—			—		2,880			2,880
Noncontrolling interest distributions	—		—	—			—	—			—		(2,093		)	(2,093		)
Purchase of additional controlling interest	—		—	—			—	(2,470		)	—		(21,105		)	(23,575		)
Nonvested stock compensation	—		—	—			—	3,680			—		—			3,680
Issuance of vested stock	2		163,163	—			—	—			—		—			2
Treasury shares redeemed to pay income tax	—		—	(7,122		)	59,390	189			—		—			(6,933		)
Issuance of common stock under Employee Stock Purchase Plan	—		4,663	—			—	610			—		—			610
Balance as of March 31, 2020	$	363	36,297,106	$	(67,182	)	5,196,280	$	951,330		$	545,725	$	75,709		$	1,505,945
Net income (1)	—		—	—			—	—			44,692		7,058			51,750
Noncontrolling interest distributions	—		—	—			—	—			—		(1,909		)	(1,909		)
Nonvested stock compensation	—		—	—			—	3,263			—		—			3,263
Issuance of vested stock	—		19,846	—			—	—			—		—			—
Treasury shares redeemed to pay income tax	—		—	(950		)	6,256	(189		)	—		—			(1,139		)
Exercise of options	—		7,137	(522		)	3,315	218			—		—			(304		)
Issuance of common stock under Employee Stock Purchase Plan	—		3,730	—			—	497			—		—			497
Balance as of June 30, 2020	$	363	36,327,819	$	(68,654	)	5,205,851	$	955,119		$	590,417	$	80,858		$	1,558,103



	For the Six Months Ended June 30, 2019
	Common Stock							Additional Paid-In Capital			Retained Earnings		Noncontrolling Interest Non Redeemable			Total Equity
	Issued			Treasury
	Amount		Shares	Amount			Shares
Balance as of December 31, 2018	$	358	35,835,348	$	(49,373	)	5,029,429	$	937,965		$	427,975	$	107,549		$	1,424,474
Net income (1)	—		—	—			—	—			18,856		1,686			20,542
Acquired noncontrolling interest	—		—	—			—	—			—		820			820
Noncontrolling interest distributions	—		—	—			—	—			—		(6,799		)	(6,799		)
Purchase of additional controlling interest	—		—	—			—	—			—		(18,000		)	(18,000		)
Nonvested stock compensation	—		—	—			—	1,804			—		—			1,804
Issuance of vested stock	2		174,562	—			—	—			—		—			2
Treasury shares redeemed to pay income tax	—		—	(6,726		)	61,465	(115		)	—		—			(6,841		)
Exercise of options	1		44,387	(851		)	24,044	—			—		—			(850		)
Issuance of common stock under Employee Stock Purchase Plan	—		5,357	—			—	478			—		—			478
Balance as of March 31, 2019	$	361	36,059,654	$	(56,950	)	5,114,938	$	940,132		$	446,831	$	85,256		$	1,415,630
Net income (1)	—		—	—			—	—			25,000		1,897			26,897
Acquired noncontrolling interest	—		—	—			—	—			—		6,170			6,170
Noncontrolling interest distributions	—		—	—			—	—			—		(2,026		)	(2,026		)
Purchase of additional controlling interest	—		—	—			—	(1,283		)	—		531			(752		)
Nonvested stock compensation	—		—	—			—	2,588			—		—			2,588
Issuance of vested stock	—		17,145	—			—	—			—		—			—
Treasury shares redeemed to pay income tax	—		—	(730		)	7,199	30			—		—			(700		)
Exercise of options	—		3,293	(212		)	1,866	—			—		—			(212		)
Issuance of common stock under Employee Stock Purchase Plan	—		4,301	—			—	453			—		—			453
Balance as of June 30, 2019	$	361	36,084,393	$	(57,892	)	5,124,003	$	941,920		$	471,831	$	91,828		$	1,448,048



Fair value of total consideration transferred
Recognized amounts of identifiable assets acquired and liabilities assumed:
Trade name	$	1,944
Certificates of need/licenses	3,584
Other assets and (liabilities), net	(410		)
Total identifiable assets	$	5,118

Noncontrolling interest	$	6,388
Goodwill, including noncontrolling interest of $4,661	$	14,617



	Number of shares	Per share price
Shares available as of December 31, 2019	132,449
Shares issued during the three months ended March 31, 2020	4,663	$	130.87
Shares issued during the three months ended June 30, 2020	3,730	$	133.19
Shares available as of June 30, 2020	124,056



Month ending June 30,
2020	$	18,406
2021	32,335
2022	23,532
2023	15,513
2024	9,404
Thereafter	14,800
Total future minimum lease payments	113,990
Less: Imputed interest	(10,294		)
Total	$	103,696



	Three Months Ended June 30, 2019
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI			Total
Net service revenue	$	375,253		$	55,057		$	52,414		$	27,975		$	7,143		$	517,842
Cost of service revenue (excluding depreciation and amortization)	230,545			34,858			39,505			17,572			3,380			325,860
General and administrative expenses	108,958			15,096			11,213			9,335			3,982			148,584
Impairment of intangibles and other	748			270			—			—			—			1,018
Operating income (loss)	35,002			4,833			1,696			1,068			(219		)	42,380
Interest expense	(2,023		)	(323		)	(284		)	(170		)	(85		)	(2,885		)
Income (loss) before income taxes and noncontrolling interest	32,979			4,510			1,412			898			(304		)	39,495
Income tax expense (benefit)	8,070			1,581			(171		)	148			(71		)	9,557
Net income (loss)	24,909			2,929			1,583			750			(233		)	29,938
Less net income (loss) attributable to noncontrolling interests	3,948			898			(267		)	365			(6		)	4,938
Net income (loss) attributable to LHC Group, Inc.'s common stockholders	$	20,961		$	2,031		$	1,850		$	385		$	(227	)	$	25,000
Total assets	$	1,407,221		$	234,789		$	240,746		$	77,686		$	69,413		$	2,029,855



	Six Months Ended June 30, 2019
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI			Total
Net service revenue	$	738,288		$	106,793		$	104,199		$	55,676		$	15,471		$	1,020,427
Cost of service revenue (excluding depreciation and amortization)	456,668			68,034			79,360			35,304			7,486			646,852
General and administrative expenses	213,797			29,949			22,195			18,512			9,352			293,805
Impairment of intangibles and other	7,066			271			—			—			—			7,337
Operating income (loss)	60,757			8,539			2,644			1,860			(1,367		)	72,433
Interest expense	(4,161		)	(666		)	(585		)	(350		)	(175		)	(5,937		)
Income (loss) before income taxes and noncontrolling interest	56,596			7,873			2,059			1,510			(1,542		)	66,496
Income tax expense (benefit)	11,278			2,027			(20		)	153			(281		)	13,157
Net income (loss)	45,318			5,846			2,079			1,357			(1,261		)	53,339
Less net income (loss) attributable to noncontrolling interests	7,728			1,499			(577		)	846			(13		)	9,483
Net income (loss) attributable to LHC Group, Inc.'s common stockholders	$	37,590		$	4,347		$	2,656		$	511		$	(1,248	)	$	43,856



	Three Months Ended June 30,
	2020		% of Net Service Revenue		2019		% of Net Service Revenue
Revenue	$	495,560			$	525,120
Less: Implicit price concession	8,240		1.7	%	7,278		1.4	%
Net service revenue	$	487,320			$	517,842

June 30, 2020

December 31, 2019

Operating lease right of use asset

Current operating lease payable

Long-term operating lease payable