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 September 30, ~~2021~~2022


☐			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.

(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, LA 70508

(Address of principal executive offices including zip code)

(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.

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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 November ~~2, 2021:~~ ~~31,671,200~~1, 2022: 31,033,002 shares.

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LHC GROUP, INC.

INDEX


Part I. Financial Information		Page
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets — September 30, ~~2021~~2022 and December 31, ~~2020~~2021		4
Condensed Consolidated Statements of Income — Three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021		5
Condensed Consolidated Statements of ~~Changes in~~Stockholders' Equity — Three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021		6
Condensed Consolidated Statements of Cash Flows — Nine months ended September 30, ~~2021~~2022 and ~~2020~~2021		8
Notes to Condensed Consolidated Financial Statements		10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2625
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3936
Item 4.	Controls and Procedures	4036
Part II. Other Information
Item 1.	Legal Proceedings	4138
Item 1A.	Risk Factors	4138
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4138
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	4239
Signatures		4340

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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)


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash	Cash	$	29,516	$	286,569	Cash	$	10,522	$	9,809
Receivables:	Receivables:					Receivables:
Patient accounts receivable	Patient accounts receivable	333,088		301,209		Patient accounts receivable	331,524		348,820
Other receivables	Other receivables	21,543		11,522		Other receivables	30,217		13,780

Total receivables	Total receivables	354,631		312,731		Total receivables	361,741		362,600
Prepaid taxes		12,509		—

Prepaid income taxes	Prepaid income taxes	11,575		—		Prepaid income taxes	19,303		7,531
Prepaid expenses	Prepaid expenses	22,048		22,058		Prepaid expenses	23,128		28,401
Other current assets	Other current assets	21,320		25,664		Other current assets	25,687		24,801
Total current assets	Total current assets	451,599		647,022		Total current assets	440,381		433,142
Property, building and equipment, net of accumulated depreciation of $94,344 and $82,721, respectively		150,909		138,366
Property, building and equipment, net of accumulated depreciation of $110,600 and $98,394, respectively						Property, building and equipment, net of accumulated depreciation of $110,600 and $98,394, respectively	153,806		153,959
Goodwill	Goodwill	1,603,360		1,259,147		Goodwill	1,750,420		1,748,426
Intangible assets, net of accumulated amortization of $18,701 and $17,659, respectively		350,528		315,355
Assets held for sale		—		1,900
Intangible assets, net of accumulated amortization of $22,865 and $19,152, respectively						Intangible assets, net of accumulated amortization of $22,865 and $19,152, respectively	395,309		400,002
Operating lease right of use asset	Operating lease right of use asset	111,550		100,046		Operating lease right of use asset	108,975		113,399
Other assets	Other assets	44,740		21,518		Other assets	65,263		46,693
Total assets	Total assets	$	2,712,686	$	2,483,354	Total assets	$	2,914,154	$	2,895,621
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable and other accrued liabilities	Accounts payable and other accrued liabilities	$	83,159	$	64,864	Accounts payable and other accrued liabilities	$	108,748	$	98,118
Salaries, wages, and benefits payable	Salaries, wages, and benefits payable	82,994		88,666		Salaries, wages, and benefits payable	84,412		100,532
Self-insurance reserves	Self-insurance reserves	35,094		35,103		Self-insurance reserves	38,734		33,784
Income tax payable		—		21,464
Government stimulus advance		—		93,257

Contract liabilities - deferred revenue	Contract liabilities - deferred revenue	176,333		317,962		Contract liabilities - deferred revenue	4,840		106,489
Current operating lease liabilities		35,964		32,676
Current operating lease payable						Current operating lease payable	36,998		37,630
Amounts due to governmental entities	Amounts due to governmental entities	785		1,516		Amounts due to governmental entities	2,499		5,447
Current liabilities - deferred employer payroll tax	Current liabilities - deferred employer payroll tax	26,774		25,928		Current liabilities - deferred employer payroll tax	26,790		26,790
Total current liabilities	Total current liabilities	441,103		681,436		Total current liabilities	303,021		408,790
Deferred income taxes	Deferred income taxes	70,593		47,237		Deferred income taxes	87,661		70,026
Income taxes payable	Income taxes payable	6,848		6,203		Income taxes payable	7,988		7,320
Revolving credit facility	Revolving credit facility	355,000		20,000		Revolving credit facility	738,000		661,197
Other long term liabilities		26,774		25,928
Long-term operating lease liabilities	Long-term operating lease liabilities	78,445		70,275		Long-term operating lease liabilities	74,992		78,688
Total liabilities	Total liabilities	978,763		851,079		Total liabilities	1,211,662		1,226,021
Noncontrolling interest — redeemable	Noncontrolling interest — redeemable	17,730		18,921		Noncontrolling interest — redeemable	16,978		17,501
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
LHC Group, Inc. 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	Preferred stock – $0.01 par value; 5,000,000 shares authorized; none issued or outstanding	—		—		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; 36,540,219 and 36,355,497 shares issued, and 31,263,385 and 31,139,840 shares outstanding, respectively		365		364
Treasury stock — 5,276,834 and 5,215,657 shares at cost, respectively		(80,605)		(69,011)
Common stock — $0.01 par value; 60,000,000 shares authorized; 36,733,790 and 36,549,524 shares issued, and 30,587,735 and 30,634,414 shares outstanding, respectively						Common stock — $0.01 par value; 60,000,000 shares authorized; 36,733,790 and 36,549,524 shares issued, and 30,587,735 and 30,634,414 shares outstanding, respectively	367		365
Treasury stock — 6,146,055 and 5,915,110 shares at cost, respectively						Treasury stock — 6,146,055 and 5,915,110 shares at cost, respectively	(195,447)		(164,790)
Additional paid-in capital	Additional paid-in capital	974,680		962,120		Additional paid-in capital	997,115		979,642
Retained earnings	Retained earnings	735,333		635,297		Retained earnings	798,372		751,025
Total LHC Group, Inc. stockholders’ equity	Total LHC Group, Inc. stockholders’ equity	1,629,773		1,528,770		Total LHC Group, Inc. stockholders’ equity	1,600,407		1,566,242
Noncontrolling interest — non-redeemable	Noncontrolling interest — non-redeemable	86,420		84,584		Noncontrolling interest — non-redeemable	85,107		85,857
Total stockholders' equity	Total stockholders' equity	1,716,193		1,613,354		Total stockholders' equity	1,685,514		1,652,099
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	2,712,686	$	2,483,354	Total liabilities and stockholders' equity	$	2,914,154	$	2,895,621

See accompanying Notes to Condensed Consolidated Financial Statements.

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LHC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

(Unaudited)


		Three Months Ended September 30, 2021				Nine Months Ended September 30,					Three months ended September 30,				Nine months ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Net service revenue	Net service revenue	$	565,451	$	530,684	$	1,636,193	$	1,530,875	Net service revenue	$	576,913	$	565,451	$	1,724,601	$	1,636,193
Cost of service revenue (excluding depreciation and amortization)	Cost of service revenue (excluding depreciation and amortization)	343,862		305,246		972,006		933,160		Cost of service revenue (excluding depreciation and amortization)	347,772		343,862		1,052,093		972,006
Gross margin	Gross margin	221,589		225,438		664,187		597,715		Gross margin	229,141		221,589		672,508		664,187
General and administrative expenses	General and administrative expenses	176,444		161,463		506,754		469,903		General and administrative expenses	189,051		176,444		569,800		506,754
Impairment of intangibles and other	Impairment of intangibles and other	—		22		937		622		Impairment of intangibles and other	2,059		—		4,130		937
Government stimulus (income) expense		—		44,435		—		—
Operating income	Operating income	45,145		19,518		156,496		127,190		Operating income	38,031		45,145		98,578		156,496
Interest expense	Interest expense	(1,135)		(431)		(1,541)		(4,040)		Interest expense	(9,053)		(1,135)		(19,631)		(1,541)

Income before income taxes and noncontrolling interest	Income before income taxes and noncontrolling interest	44,010		19,087		154,955		123,150		Income before income taxes and noncontrolling interest	28,978		44,010		78,947		154,955
Income tax expense	Income tax expense	10,150		4,595		32,909		23,181		Income tax expense	6,966		10,150		17,014		32,909
Net income	Net income	33,860		14,492		122,046		99,969		Net income	22,012		33,860		61,933		122,046
Less net income (loss) attributable to noncontrolling interests		6,126		(8)		22,010		18,753
Less net income attributable to noncontrolling interests										Less net income attributable to noncontrolling interests	4,703		6,126		14,586		22,010
Net income attributable to LHC Group, Inc.’s common stockholders	Net income attributable to LHC Group, Inc.’s common stockholders	$	27,734	$	14,500	$	100,036	$	81,216	Net income attributable to LHC Group, Inc.’s common stockholders	$	17,309	$	27,734	$	47,347	$	100,036

Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	0.89	$	0.47	$	3.21	$	2.61	Basic	$	0.57	$	0.89	$	1.55	$	3.21
Diluted	Diluted	$	0.88	$	0.46	$	3.18	$	2.59	Diluted	$	0.56	$	0.88	$	1.55	$	3.18
Weighted average shares outstanding:	Weighted average shares outstanding:									Weighted average shares outstanding:
Basic	Basic	31,238		31,121		31,205		31,080		Basic	30,565		31,238		30,527		31,205
Diluted	Diluted	31,434		31,411		31,422		31,334		Diluted	30,706		31,434		30,639		31,422

See accompanying Notes to the Condensed Consolidated Financial Statements.

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LHC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CHANGES IN~~STOCKHOLDERS' EQUITY

(Amounts in thousands, except share data)

(Unaudited)


		Nine Months Ended September 30, 2021															Nine months ended September 30, 2022
		Common Stock						Additional Paid-In Capital		Retained Earnings		Noncontrolling Interest Non Redeemable		Total Equity			Common Stock						Additional Paid-In Capital		Retained Earnings		Noncontrolling Interest Non Redeemable		Total Equity
		Issued			Treasury												Issued			Treasury
		Amount		Shares	Amount		Shares										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
Balance as of December 31, 2021																Balance as of December 31, 2021	$	365	36,549,524	$	(164,790)	5,915,110	$	979,642	$	751,025	$	85,857	$	1,652,099
Net income (1)	Net income (1)	—		—	—		—	—		34,659		4,469		39,128		Net income (1)	—		—	—		—	—		19,454		2,760		22,214
Noncontrolling interest distributions	Noncontrolling interest distributions	—		—	—		—	—		—		(2,417)		(2,417)		Noncontrolling interest distributions	—		—	—		—	—		—		(2,970)		(2,970)
Purchase of additional controlling interest		—		—	—		—	(81)		—		(61)		(142)
Sale of noncontrolling interest		—		—	—		—	—		—		138		138
Nonvested stock compensation	Nonvested stock compensation	—		—	—		—	3,513		—		—		3,513		Nonvested stock compensation	—		—	—		—	4,376		—		—		4,376
Issuance of vested stock	Issuance of vested stock	1		148,447	—		—	—		—		—		1		Issuance of vested stock	2		132,651	—		—	—		—		—		2
Treasury shares redeemed to pay income tax	Treasury shares redeemed to pay income tax	—		—	(9,541)		51,221	—		—		—		(9,541)		Treasury shares redeemed to pay income tax	—		—	(3,208)		23,022	68		—		—		(3,140)
Repurchase of common stock																Repurchase of common stock	—		—	(25,472)		190,622	—		—		—		(25,472)
Issuance of common stock under Employee Stock Purchase Plan	Issuance of common stock under Employee Stock Purchase Plan	—		3,204	—		—	649		—		—		649		Issuance of common stock under Employee Stock Purchase Plan	—		5,353	—		—	698		—		—		698
Balance as of March 31, 2021		$	365	36,507,148	$	(78,552)	5,266,878	$	966,201	$	669,956	$	86,713	$	1,644,683
Balance as of March 31, 2022																Balance as of March 31, 2022	$	367	36,687,528	$	(193,470)	6,128,754	$	984,784	$	770,479	$	85,647	$	1,647,807
Net income (1)																Net income (1)	—		—	—		—	—		10,584		2,124		12,708
Acquired noncontrolling interest																Acquired noncontrolling interest	—		—	—		—	—		—		707		707
Noncontrolling interest distributions																Noncontrolling interest distributions	—		—	—		—	—		—		(3,281)		(3,281)
Purchase of additional controlling interest																Purchase of additional controlling interest	—		—	—		—	(209)		—		(167)		(376)
Nonvested stock compensation																Nonvested stock compensation	—		—	—		—	4,943		—		—		4,943
Issuance of vested stock																Issuance of vested stock	—		7,556	—		—	—		—		—		—
Treasury shares redeemed to pay income tax																Treasury shares redeemed to pay income tax	—		—	(852)		5,144	344		—		—		(508)
Exercise of options																Exercise of options	—		5,124	(68)		2,319	(150)		—		—		(218)
Issuance of common stock under Employee Stock Purchase Plan																Issuance of common stock under Employee Stock Purchase Plan	—		3,342	—		—	535		—		—		535
Balance as of June 30, 2022																Balance as of June 30, 2022	$	367	36,703,550	$	(194,390)	6,136,217	$	990,247	$	781,063	$	85,030	$	1,662,317
Net income (1)	Net income (1)	—		—	—		—	—		37,643		5,232		42,875		Net income (1)	—		—	—		—	—		17,309		2,711		20,020

Noncontrolling interest distributions	Noncontrolling interest distributions	—		—	—		—	—		—		(4,660)		(4,660)		Noncontrolling interest distributions	—		—	—		—	—		—		(2,581)		(2,581)
Purchase of additional controlling interest	Purchase of additional controlling interest	—		—	—		—	(870)		—		(728)		(1,598)		Purchase of additional controlling interest	—		—	—		—	(4)		—		(53)		(57)
Nonvested stock compensation	Nonvested stock compensation	—		—	—		—	3,993		—		—		3,993		Nonvested stock compensation	—		—	—		—	5,971		—		—		5,971
Issuance of vested stock	Issuance of vested stock	—		15,531	—		—	—		—		—		—		Issuance of vested stock	—		17,274	—		—	—		—		—		—
Treasury shares redeemed to pay income tax	Treasury shares redeemed to pay income tax	—		—	(1,213)		6,024	—		—		—		(1,213)		Treasury shares redeemed to pay income tax	—		—	(927)		5,908	512		—		—		(415)
Exercise of options																Exercise of options	—		8,862	(130)		3,930	(218)		—		—		(348)

Issuance of common stock under Employee Stock Purchase Plan	Issuance of common stock under Employee Stock Purchase Plan	—		3,152	—		—	573		—		—		573		Issuance of common stock under Employee Stock Purchase Plan	—		4,104	—		—	607		—		—		607
Balance as of June 30, 2021		$	365	36,525,831	$	(79,765)	5,272,902	$	969,897	$	707,599	$	86,557	$	1,684,653
Net income (1)		—		—	—		—	—		27,734		3,182		30,916

Noncontrolling interest distributions		—		—	—		—	—		—		(5,052)		(5,052)

Sale of noncontrolling interest		—		—	—		—	(83)		—		1,733		1,650
Nonvested stock compensation		—		—	—		—	4,211		—		—		4,211
Issuance of vested stock		—		10,943	—		—	—		—		—		—
Treasury shares redeemed to pay income tax		—		—	(840)		3,932	—		—		—		(840)

Issuance of common stock under Employee Stock Purchase Plan		—		3,445	—		—	655		—		—		655
Balance as of September 30, 2021		$	365	36,540,219	$	(80,605)	5,276,834	$	974,680	$	735,333	$	86,420	$	1,716,193
Balance as of September 30, 2022																Balance as of September 30, 2022	$	367	36,733,790	$	(195,447)	6,146,055	$	997,115	$	798,372	$	85,107	$	1,685,514

(1) Net income excludes net income attributable to noncontrolling interest-redeemable of $2.0 million and $7.0 million during the three and nine months ended September 30, 2022. 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.

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	Nine months ended September 30, 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
Net income (1)	—		—	—		—	—		37,643		5,232		42,875

Noncontrolling interest distributions	—		—	—		—	—		—		(4,660)		(4,660)
Purchase of additional controlling interest	—		—	—		—	(870)		—		(728)		(1,598)
Nonvested stock compensation	—		—	—		—	3,993		—		—		3,993
Issuance of vested stock	—		15,531	—		—	—		—		—		—
Treasury shares redeemed to pay income tax	—		—	(1,213)		6,024	—		—		—		(1,213)

Issuance of common stock under Employee Stock Purchase Plan	—		3,152	—		—	573		—		—		573
Balance as of June 30, 2021	$	365	36,525,831	$	(79,765)	5,272,902	$	969,897	$	707,599	$	86,557	$	1,684,653
Net income (1)	—		—	—		—	—		27,734		3,182		30,916

Noncontrolling interest distributions	—		—	—		—	—		—		(5,052)		(5,052)

Sale of noncontrolling interest	—		—	—		—	(83)		—		1,733		1,650
Nonvested stock compensation	—		—	—		—	4,211		—		—		4,211
Issuance of vested stock	—		10,943	—		—	—		—		—		—
Treasury shares redeemed to pay income tax	—		—	(840)		3,932	—		—		—		(840)

Issuance of common stock under Employee Stock Purchase Plan	—		3,445	—		—	655		—		—		655
Balance as of September 30, 2021	$	365	36,540,219	$	(80,605)	5,276,834	$	974,680	$	735,333	$	86,420	$	1,716,193

(1) Net income excludes net income attributable to noncontrolling interest-redeemable of $2.9 million and $9.1 million during the three and nine months ended September 30, 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.

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Nine Months Ended September 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
Net income (1) — — — — — 14,500 (770) 13,730
Acquired noncontrolling interest — — — — — — 608 608
Noncontrolling interest distributions — — — — — — (6,375) (6,375)
Sale of noncontrolling interest — — — — (293) — 2,617 2,324
Nonvested stock compensation — — — — 4,190 — — 4,190
Issuance of vested stock 1 10,994 — — — — — 1
Treasury shares redeemed to pay income tax — — (966) 5,030 — — — (966)
Exercise of options — 9,149 775 4,013 (1,376) — — (601)
Issuance of common stock under Employee Stock Purchase Plan — 3,454 — — 572 — — 572
Balance as of September 30, 2020 $ 364 36,351,416 $ (68,845) 5,214,894 $ 958,212 $ 604,917 $ 76,938 $ 1,571,586

(1) Net income excludes net income attributable to noncontrolling interest-redeemable of $0.7 million and $10.4 million during the three and nine months ended September 30, 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)

Nine Months Ended
September 30,
2021 2020
Operating activities:
Net income $ 122,046 $ 99,969
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 14,899 15,601
Amortization of operating lease right of use asset 27,526 25,799
Stock-based compensation expense 11,717 11,133
Deferred income taxes 23,356 15,038
(Gain) loss on disposal of assets (1,190) 291
Impairment of intangibles and other 937 622
Changes in operating assets and liabilities, net of acquisitions:
Receivables (27,038) (36,194)
Prepaid expenses 397 (1,487)
Other assets (6,368) (3,183)
Prepaid income taxes (11,575) (10,035)
Prepaid taxes (12,509) —
Accounts payable and accrued expenses 6,626 (17,085)
Salaries, wages, and benefits payable (9,687) 25,913
Contract liabilities - deferred revenue (141,629) 317,938
Other long term liabilities — 33,632
Operating lease liabilities (27,472) (25,485)
Income taxes payable (20,819) 2,721
Net amounts due to/from governmental entities (833) 555
Net cash (used in) provided by operating activities (51,616) 455,743
Investing activities:
Purchases of property, building and equipment (23,548) (51,241)
Proceeds from sale of property, building and equipment 3,350 7,142
Cash received (paid) for acquisitions, net of cash acquired (383,475) 2,326
Proceeds from sale of an entity 1,531 —
Minority interest investments (10,100) —
Net cash used in investing activities (412,242) (41,773)
Financing activities:
Proceeds from line of credit 544,056 276,229
Payments on line of credit (209,056) (509,229)
Government stimulus advance (93,257) 93,257
Proceeds from employee stock purchase plan 1,877 1,679
Payments on deferred financing fees (2,855) —
Noncontrolling interest distributions (22,187) (22,505)
Withholding taxes paid on stock-based compensation (11,594) (9,854)
Purchase of additional controlling interest (2,113) (23,575)
Sale of noncontrolling interest 1,934 2,120
Net cash provided by (used in) financing activities 206,805 (191,878)
Change in cash (257,053) 222,092
Cash at beginning of period 286,569 31,672
Cash at end of period $ 29,516 $ 253,764


	Nine months ended September 30,
	2022		2021
Operating activities:
Net income	$	61,933	$	122,046
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	17,483		14,899
Amortization of operating lease right of use asset	30,769		27,526
Stock-based compensation expense	15,290		11,717
Deferred income taxes	17,635		23,356
Loss (gain) on disposal of assets	484		(1,190)
Impairment of intangibles and other	4,130		937
Changes in operating assets and liabilities, net of acquisitions:
Receivables	(684)		(27,038)
Prepaid expenses	5,273		397
Other assets	(4,208)		(6,368)
Prepaid income taxes	(11,772)		(11,575)

Prepaid taxes	—		(12,509)
Accounts payable and accrued expenses	16,282		6,626
Salaries, wages, and benefits payable	(11,251)		(9,687)

Contract liabilities - deferred revenue	(101,649)		(141,629)

Operating lease liabilities	(30,568)		(27,472)
Income taxes payable	668		(20,819)
Net amounts due to/from governmental entities	223		(833)
Net cash provided by (used in) operating activities	10,038		(51,616)
Investing activities:
Purchases of property, building and equipment	(14,074)		(23,548)
Proceeds from sale of property, building and equipment	—		3,350
Cash paid for acquisitions, net of cash acquired	(2,570)		(383,475)
Purchase of intangible assets	(100)		—
Proceeds from sale of an entity	—		1,531
Minority interest investments	(15,250)		(10,100)
Net cash used in investing activities	(31,994)		(412,242)
Financing activities:
Proceeds from line of credit	815,155		544,056
Payments on line of credit	(738,352)		(209,056)
Government stimulus advance	—		(93,257)
Proceeds from employee stock purchase plan	1,840		1,877
Payments on deferred financing fees	—		(2,855)
Payments on repurchasing common stock	(34,565)		—

Noncontrolling interest distributions	(16,346)		(22,187)
Withholding taxes paid on stock-based compensation	(4,630)		(11,594)
Purchase of additional controlling interest	(433)		(2,113)

Sale of noncontrolling interest	—		1,934
Net cash provided by financing activities	22,669		206,805
Change in cash	713		(257,053)
Cash at beginning of period	9,809		286,569
Cash at end of period	$	10,522	$	29,516

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Supplemental disclosures of cash flow information:
Interest paid $ 1,532 $ 4,556
Income taxes paid $ 42,036 $ 15,583
Non-Cash Operating Activity:
Operating right of use assets in exchange for lease obligations $ 41,776 $ 25,633
Reduction to right of use assets and liabilities $ 2,746 $ —
Non-Cash Investing Activity:
Accrued capital expenditures $ 1,807 $ 5,851




Supplemental disclosures of cash flow information:
Interest paid	$	18,049	$	1,532
Income taxes paid	$	10,701	$	42,036
Non-Cash Operating Activity:
Operating right of use assets in exchange for lease obligations	$	28,435	$	41,776
Reduction to right of use assets and liabilities	$	2,089	$	2,746
Non-Cash Investing Activity:
Net working capital adjustment	$	1,440	$	—
Accrued capital expenditures	$	126	$	1,807

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 5five 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 September 30, ~~2021,~~2022, the Company, through its wholly- and majority-owned subsidiaries, equity joint ventures, controlled affiliates, and management agreements operated ~~868~~942 service locations in 3537 states within the continental United States and the District of Columbia.

LHC Group, Inc. and UnitedHealth Group Incorporated Merger

On March 28, 2022, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with UnitedHealth Group Incorporated ("Parent") and Lightning Merger Sub Inc., a wholly owned subsidiary of Parent ("Merger Sub"), pursuant to which Merger Sub will be merged with and into the Company (the "Merger"), with the Company surviving the Merger as a wholly owned subsidiary of Parent. At a Special Meeting of Stockholders held on June 21, 2022, the stockholders of the Company approved the Merger. The parties to the Merger continue to work toward the expected consummation of the Merger prior to the end of 2022; however, such consummation remains subject to the satisfaction of the remaining closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

COVID-19 Update

SARS-CoV-2 ("COVID-19") continues to ~~spread~~cause disruption in the economy, in terms of increased costs and ~~various responses related to stay-at-home restrictions, travel restrictions, and other public health and safety measures~~disruptions in the labor market. The impact of COVID-19 is lessened as vaccines have become available in the United States; however, we continue to ~~evolve. We communicate with our clinicians and other employees all updated policies and procedures as we monitor changes related~~see periodic increases in the number of cases due to the ~~pandemic. Policies and procedures related to social distancing and cleaning procedures remain in place as the safety~~spread of ~~our patients and employees are vital.~~COVID-19 variants. The effects of COVID-19 continue to materially impact our business. As a result, operating results for the three and nine months ended September 30, ~~2021~~2022 may not be indicative of the results that may be expected for the year ending December 31, ~~2021,~~2022, and operating results for the three and nine months ended September 30, ~~2021~~2022 may not be directly comparable to operating results for the three and nine months ended September 30, ~~2020.~~2021.

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 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 ("CAAP").

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 the 2% sequestration payment adjustments on Medicare patient claims with dates of service through December 31, 2021. On December 10, 2021, the Protecting Medicare and American Farmers from Sequester Cut Act legislation passed, which continued the suspension of the sequestration payment adjustments for Medicare patient claims with dates of service through March 31, 2022. Medicare patient claims with dates of service between April 1 through June 30, 2022 had a 1% sequestration adjustment and Medicare patient claims with dates of service that began on July 1, 2022 had a 2% sequestration adjustment. On October ~~18, 2021,~~13, 2022, the U.S. Department of Health and Human Services extended the PHE until January ~~16, 2022.~~

~~Provider Relief Fund~~

During the twelve months ended December 31, 2020, the Company received $93.3 million in payments from the Provider Relief Fund, which was recorded as a short-term liability in government stimulus advance in our condensed consolidated balance sheets. The Company recognized $44.4 million of these funds during the six months ended June 30, 2020, which was recorded in government stimulus income in our condensed consolidated statements of income. The amount recognized of $44.4 million was subsequently reversed during the third quarter of 2020, such that the Company recognized no income from the Provider Relief Fund. The Company returned all Provider Relief Funds received of $93.3 million to the government during the nine months ended September 30, 2021.11, 2023.

CAAP

As of December 31, ~~2020,~~2021, the Company had ~~$318.0~~$106.5 million of accelerated payments under the CAAP, which was recorded in contract liabilities - deferred revenue in our condensed consolidated balance sheets in accordance with Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("Topic 606"). On October 1, 2020, the repayment and

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recoupment terms for CAAP funds were amended by the Continuing Appropriations Act, 2021 and Other Extensions Act, which provides that recoupment will begin one year from the date the CAAP funds were received. Under these revised terms,

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recoupment of CAAP will occur under a tiered approach. The repayment terms ~~begin~~began one year starting from the date the CAAP funds were issued and ~~continues~~continued for 11 months, with CMS recouping the initial 25% of Medicare payments otherwise owed to the Company. During the nine months ended September 30, 2021, $141.6 million was recouped by CMS and $176.3 million of contract liabilities - deferred revenue remains on our condensed consolidated balance sheets as of September 30, 2021.

If any amount of CAAP funds that we received from CMS ~~remain~~remains unpaid after the initial 11 month period, CMS ~~will recoup~~recoups 50% of Medicare payments otherwise owed to the Company during the following six months. Interest will begin accruing on any amount of the CAAP funds that we received from CMS that remain unpaid following those recoupment periods. CMS will issue a repayment letter to the Company for any such outstanding amounts, which must be paid in full within 30 days from the date of the letter. The Company intends to repay the full amount before any interest accrues.

~~Other~~

During the ~~three~~nine months ended September 30, ~~2021~~2022, $101.6 million was recouped by CMS and ~~2020, the~~$4.8 million of contract liabilities - deferred revenue remains on our condensed consolidated balance sheets as of September 30, 2022.

Other

The Company recognized ~~$6.8 million and $6.5 million~~the following amounts of net service revenue ~~respectively,~~ due to the suspension of the 2% sequestration payment ~~adjustment.During the nine months ended September 30, 2021~~adjustment and ~~2020, the Company recognized $19.7 million and $11.5 million of net service revenue, respectively, due to the suspension of the 2% sequestration payment adjustment.During the three months ended September 30, 2021, the Company recognized $5.7 million and $6.4 million of net service revenue, respectively, due to the~~ suspension of LTACH site-neutral payments. During the nine months ended September 30, 2021 and 2020, the Company recognized $18.2 million and $11.1 million of net service revenue, respectively, due to the suspension of LTACH site-neutral payments.payments (amounts in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Suspension of 2% sequestration payment adjustment	$	—	$	6,811	$	9,952	$	19,665
Suspension of LTACH site-neutral payment	4,918		5,749		17,070		18,230

As of September 30, ~~2021,~~ 2022, the Company deferred ~~$51.8~~$26.8 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 September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the related unaudited condensed consolidated statements of income for the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the unaudited condensed consolidated statements of ~~changes in~~stockholders' equity for the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, 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 nine months ended September 30, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021.~~2022.

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, ~~2020~~2021 (the ~~"2020~~"2021 Form 10-K")~~. The 2020 Form 10-K~~, which was filed with the Securities and Exchange Commission (the “SEC”) on February ~~26,~~24, 2022, as amended by Amendment No. 1 filed on Form 10-K/A filed by the Company on April 27, 2022 (the "Form 10-K Amendment"). The 2021 Form 10-K and ~~includes~~Form 10-K Amendment include information and disclosures not included herein.

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

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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.

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 nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:

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		Three Months Ended September 30,				Nine Months Ended September 30,					Three months ended September 30,				Nine months ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Home health:	Home health:									Home health:
Medicare	Medicare	62.1	%	66.4	%	62.8	%	67.0	%	Medicare	59.7	%	62.1	%	59.4	%	62.8	%
Managed Care, Commercial, and Other	Managed Care, Commercial, and Other	37.9		33.6		37.2		33.0		Managed Care, Commercial, and Other	40.3		37.9		40.6		37.2
		100.0	%	100.0	%	100.0	%	100.0	%		100.0	%	100.0	%	100.0	%	100.0	%
Hospice:	Hospice:									Hospice:
Medicare	Medicare	94.6	%	93.8	%	94.3	%	92.9	%	Medicare	92.7	%	94.6	%	92.8	%	94.3	%
Managed Care, Commercial, and Other	Managed Care, Commercial, and Other	5.4		6.2		5.7		7.1		Managed Care, Commercial, and Other	7.3		5.4		7.2		5.7
		100.0	%	100.0	%	100.0	%	100.0	%		100.0	%	100.0	%	100.0	%	100.0	%
Home and community-based services:	Home and community-based services:									Home and community-based services:
Medicaid	Medicaid	32.1	%	21.5	%	31.1	%	21.0	%	Medicaid	38.3	%	32.1	%	36.8	%	31.1	%
Managed Care, Commercial, and Other	Managed Care, Commercial, and Other	67.9		78.5		68.9		79.0		Managed Care, Commercial, and Other	61.7		67.9		63.2		68.9
		100.0	%	100.0	%	100.0	%	100.0	%		100.0	%	100.0	%	100.0	%	100.0	%
Facility-based services:	Facility-based services:									Facility-based services:
Medicare	Medicare	45.8	%	54.2	%	49.5	%	55.2	%	Medicare	53.0	%	45.8	%	53.0	%	49.5	%
Managed Care, Commercial, and Other	Managed Care, Commercial, and Other	54.2		45.8		50.5		44.8		Managed Care, Commercial, and Other	47.0		54.2		47.0		50.5
		100.0	%	100.0	%	100.0	%	100.0	%		100.0	%	100.0	%	100.0	%	100.0	%
HCI:	HCI:									HCI:
Medicare	Medicare	6.0	%	11.1	%	11.4	%	17.9	%	Medicare	2.8	%	6.0	%	5.4	%	11.4	%
Managed Care, Commercial, and Other	Managed Care, Commercial, and Other	94.0		88.9		88.6		82.1		Managed Care, Commercial, and Other	97.2		94.0		94.6		88.6
		100.0	%	100.0	%	100.0	%	100.0	%		100.0	%	100.0	%	100.0	%	100.0	%

Medicare

The following describes the payment models in effect during the nine months ended September 30, ~~2021.~~2022. Such payment models ~~have been~~were subject to temporary adjustments made by CMS in response to COVID-19 pandemic as described elsewhere in this Quarterly Report on Form 10-Q. The 2% sequestration reduction adjustment was suspended for patient claims with dates of service ~~that began May~~through March 31, 2022. Medicare patient claims with dates of service between April 1 ~~2020~~ through ~~December 31, 2021.~~June 30, 2022 had a 1% sequestration payment adjustment. Medicare patient claims with dates of service beginning July 1, 2022 had the full 2% sequestration payment adjustment.

Home Health Services

The Company records revenue as services are provided under the Patient Driven Groupings Model ("PDGM"). 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. 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 1one of 4four 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

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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.

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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 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.

Contingent Service Revenues

The HCI segment provides strategic health management services to 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. During the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the Company recorded in its HCI segment ~~$12.1~~$15.6 million and ~~$9.6~~$12.1 million, respectively, related to ~~2020~~2021 and ~~2019~~2020 ACO respective service periods, as certain ACOs served by the HCI segment received a MSSP payment from CMS confirming the performance obligation has been met.

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 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

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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.

Earnings Per Share

~~Table of Contents~~

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 nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 (amounts in thousands):

Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Weighted average number of shares outstanding for basic per share calculation 31,238 31,121 31,205 31,080
Effect of dilutive potential shares:
Nonvested stock 196 290 217 254
Adjusted weighted average shares for diluted per share calculation 31,434 31,411 31,422 31,334
Anti-dilutive shares 6 — 118 5

~~Assets Held for Sale~~

As of December 31, 2020, the Company's assets held for sale was $1.9 million, which consisted of 1 hospice facility in Knoxville, Tennessee. The Company sold the property during the third quarter of 2021 for $3.2 million. The gain on the sale of the property of $1.2 million was recorded in general and administrative expenses in our condensed consolidated statements of income.


	Three months ended September 30,		Nine months ended September 30,
	2022	2021	2022	2021
Weighted average number of shares outstanding for basic per share calculation	30,565	31,238	30,527	31,205
Effect of dilutive potential shares:
Nonvested stock	141	196	112	217
Adjusted weighted average shares for diluted per share calculation	30,706	31,434	30,639	31,422
Anti-dilutive shares	87	6	264	118

Investments

During the nine months ended September 30, 2022, the Company invested $15.0 million and became a minority owner in a post-acute management services company, invested $0.1 million in Jumpstart Nova Fund, LP, and invested $0.2 million in LHCC Aging Innovations Fund I, LP. During the nine months ended September 30, 2021, the Company invested $10.0 million and became a minority owner in a healthcare analytics company and invested $0.1 million in ~~an investment fund focused on minority-owned businesses, which were~~Jumpstart Nova Fund, LP. These investments are recorded in other assets in our condensed consolidated balance sheets. These investments were accounted for under the cost method of accounting as the Company does not have the ability to exercise significant influence in connection with its minority ownership positions.

~~Recently Adopted 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.

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 immediately and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. The adoption of the new guidance did not have an effect on the Company's condensed consolidated financial statements.

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

~~Acquisitions~~

On July 1, 2021, the Company purchased Heart n' Home Hospice for $50.1 million, which included 7 wholly-owned hospice locations in Idaho and 2 wholly-owned hospice locations in Oregon. In addition, the Company purchased Casa de la Luz on July 1, 2021 for $48.0 million, which included 2 wholly-owned hospice and palliative care locations in Arizona.

On September 1, 2021, the Company purchased Heart of ~~Hospice for $277.1 million, which included 24 wholly-owned hospice locations in Arkansas, Louisiana, Mississippi, Oklahoma, and South Carolina. In separate acquisitions,~~Hospice. During the nine months ended September 30, 2022, the Company ~~acquired~~recorded a decrease in patient accounts receivable of $1.5 million due to information obtained that related to facts and circumstances that existed at the ~~majority-ownership~~time of 2acquisition; therefore, it was an adjustment to the provisional amounts previously recognized.

On November 1, 2021, the Company purchased Brookdale Health Care Services' agencies from the recently formed home health, ~~agencies~~hospice, and ~~1 hospice agency~~outpatient therapy venture between HCA Healthcare and Brookdale Senior Living. The Company's net working capital adjustment was finalized during the nine months ended September 30, ~~2021~~2022 for $3.1 million and recorded in accordance with ASC Topic 805, Business Combinations, as an increase to the consideration transferred. In addition, amounts due to government entities was reduced by $3.2 million to reflect payments made for prior years' hospice cap liability.

~~Table~~On May 1, 2022, the Company purchased the majority ownership of ~~Contents~~

a home health agency from Archbold Medical Center, which included two locations in Georgia. Total consideration for ~~an aggregate purchase price $10.3~~the acquisition was $3.7 million. The purchase ~~prices were~~price was determined based on the Company's analysis of comparable acquisitions and the target market's potential future cash flows.

Goodwill generated from the acquisitions was recognized based on the expected contributions 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.

Transaction costs associated with acquisitions are expensed as incurred. During the nine months ended September 30, 2021, the Company incurred $6.1 million in acquisition-related transaction costs, which was recorded in the consolidated statements of income as general and administrative expenses.

The Company's preliminary valuation analysis of identifiable assets and liabilities assumed for Heart n' Home Hospice and Heart of Hospice is in accordance with the requirements of ASC Topic 805, Business Combinations. The final determination of the fair value of assets acquired and liabilities assumed will be completed in accordance with the applicable accounting guidance. The following table summarizes the preliminary amounts of the assets acquired and liabilities assumed at their acquisition ~~dates,~~date, as well as their fair value at the acquisition ~~dates~~date and the noncontrolling interest acquired during the nine months ended September 30, ~~2021~~2022 (amounts in thousands):

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Consideration
Cash	$	~~384,827~~2,570
Fair value of total consideration transferred
Recognized amounts of identifiable assets acquired and liabilities assumed:
~~Cash~~Trade name	$	~~1,352~~
~~Patient accounts receivable~~	~~14,657~~
~~Other receivables~~	~~205~~
~~Prepaid expenses~~	~~387~~
~~Other current assets~~	~~155~~
~~Property and equipment~~	~~1,976~~
~~Trade names~~	~~22,070~~453
Certificates of need/licenses	~~13,604~~ 357
~~Non-compete agreements~~	~~1,821~~
~~Operating lease right of use asset~~	~~7,933~~
Other ~~assets~~	84
~~Accounts payable and other accrued~~ liabilities	~~(9,764)~~
~~Salaries, wages, and benefits payable~~	~~(4,045)~~
~~Current operating lease liabilities~~	~~(2,527)~~
~~Amounts due to government entities~~	~~(102)~~
~~Deferred employer payroll tax~~	~~(1,692)~~
~~Long-term operating lease liabilities~~	~~(5,407)~~(227)
Total identifiable assets and liabilities	$	~~40,707~~583

Noncontrolling interest	$	~~113~~707
Goodwill, including noncontrolling interest of ~~$78~~$504	$	~~344,233~~2,694

Trade names and certificates of need/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.

~~Divestiture~~

~~Table of Contents~~

During the nine months ended September 30, 2021, the Company sold its controlling membership interests in a home health agency previously operated as an equity joint venture and sold its pharmacy location which was wholly-owned. The total consideration for these controlling interest sales was $1.5 million and resulted in a loss of $0.1 million, which was accounted for as a loss on the sale of entities and recorded in general and administrative expenses.

~~Joint Venture Activities~~

During the nine months ended September 30, 2021, the Company purchased additional controlling membership interest in 4 of our equity joint venture partnerships, whereby the agencies became wholly-owned subsidiaries of the Company. The total consideration for these additional controlling interest purchases was $2.1 million. The transactions were accounted for as equity transactions.

~~During the nine months ended September 30, 2021, the Company sold noncontrolling membership interest in 2 home health agencies. The total consideration of the sales of noncontrolling membership interest was $1.9 million. The transactions were accounted for as equity transactions.~~

4. Goodwill and Intangibles

The changes in recorded goodwill and intangible assets by reporting unit for the nine months ended September 30, ~~2021~~2022 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			Home health reporting unit		Hospice reporting unit		Home and community-based services reporting unit		Facility-based reporting unit		HCI reporting unit		Total
Goodwill:	Goodwill:													Goodwill:
Balance as of December 31, 2020		$	884,000	$	151,742	$	166,773	$	15,770	$	40,862	$	1,259,147
Balance as of December 31, 2021														Balance as of December 31, 2021	$	968,435	$	556,332	$	167,027	$	15,770	$	40,862	$	1,748,426
Net working capital adjustments														Net working capital adjustments	—		1,440		—		—		—		1,440
Acquisitions	Acquisitions	7,057		336,844		254		—		—		344,155		Acquisitions	2,190		—		—		—		—		2,190
Noncontrolling interests	Noncontrolling interests	78		—		—		—		—		78		Noncontrolling interests	504		—		—		—		—		504
Disposals	Disposals	(20)		—		—		—		—		(20)		Disposals	(440)		(1,460)		(240)		—		—		(2,140)
Balance as of September 30, 2021		$	891,115	$	488,586	$	167,027	$	15,770	$	40,862	$	1,603,360
Balance as of September 30, 2022														Balance as of September 30, 2022	$	970,689	$	556,312	$	166,787	$	15,770	$	40,862	$	1,750,420
Intangible assets:	Intangible assets:													Intangible assets:
Balance as of December 31, 2020		$	226,004	$	44,732	$	24,208	$	5,311	$	15,100	$	315,355
Balance as of December 31, 2021														Balance as of December 31, 2021	$	237,979	$	117,340	$	24,245	$	5,919	$	14,519	$	400,002
Acquisitions	Acquisitions	1,478		35,971		46		—		—		37,495		Acquisitions	1,010		—		—		—		—		1,010
Amortization	Amortization	(354)		(242)		(7)		(4)		(436)		(1,043)		Amortization	(1,589)		(1,346)		(8)		(334)		(436)		(3,713)
Disposals	Disposals	(1,279)		—		—		—		—		(1,279)		Disposals	(491)		(1,217)		(282)		—		—		(1,990)
Balance as of September 30, 2021		$	225,849	$	80,461	$	24,247	$	5,307	$	14,664	$	350,528
Balance as of September 30, 2022														Balance as of September 30, 2022	$	236,909	$	114,777	$	23,955	$	5,585	$	14,083	$	395,309

The Company did record impairments of goodwill and intangible assets related to the closure of underperforming locations. Goodwill impairment of $2.1 million and Medicare licenses/Certificate of need impairment of $2.0 million were recorded during the nine months ended September 30, 2022. Goodwill impairment of $0.02 million and Medicare licenses impairment of $0.9 million ~~was~~were recorded during the nine months ended September 30, 2021. This was recorded in impairment of intangibles and other on the Company's condensed consolidated statements of income. The amount of disposal of goodwill was determined using prices of comparable businesses in the market. The amount of disposal of the Medicare ~~licenses~~licenses/Certificate of need was its carrying value at the time of closure. ~~In addition, the Company divested a certificate~~

Table of ~~need of $0.4 million, which was accounted for as a loss on the sale of an entity and recorded in general and administrative expenses.~~Contents

The following tables summarize the changes in intangible assets during the nine months ended September 30, ~~2021~~2022 and December 31, ~~2020~~2021 (amounts in thousands):

~~Table of Contents~~


		2021		2020			2022		2021
Indefinite-lived intangible assets:	Indefinite-lived intangible assets:					Indefinite-lived intangible assets:
Trade names	Trade names	$	190,743	$	168,700	Trade names	$	208,160	$	207,780
Certificates of Need/Licenses		147,338		135,013
Certificates of need/licenses						Certificates of need/licenses	172,395		173,955
Net total	Net total	$	338,081	$	303,713	Net total	$	380,555	$	381,735

Definite-lived intangible assets:	Definite-lived intangible assets:					Definite-lived intangible assets:
Trade names	Trade names					Trade names
Gross carrying amount	Gross carrying amount	$	10,238	$	10,212	Gross carrying amount	$	11,273	$	11,073
Accumulated amortization	Accumulated amortization	(9,575)		(9,480)		Accumulated amortization	(10,559)		(9,606)
Net total	Net total	$	663	$	732	Net total	$	714	$	1,467
Non-compete agreements	Non-compete agreements					Non-compete agreements
Gross carrying amount	Gross carrying amount	$	9,088	$	7,267	Gross carrying amount	$	14,524	$	14,524
Accumulated amortization	Accumulated amortization	(6,899)		(6,387)		Accumulated amortization	(9,495)		(7,172)
Net total	Net total	$	2,189	$	880	Net total	$	5,029	$	7,352
Customer relationships	Customer relationships					Customer relationships
Gross carrying amount	Gross carrying amount	$	11,822	$	11,822	Gross carrying amount	$	11,822	$	11,822
Accumulated amortization	Accumulated amortization	(2,227)		(1,792)		Accumulated amortization	(2,811)		(2,374)
Net total	Net total	$	9,595	$	10,030	Net total	$	9,011	$	9,448
Total definite-lived intangible assets	Total definite-lived intangible assets					Total definite-lived intangible assets
Gross carrying amount	Gross carrying amount	$	31,148	$	29,301	Gross carrying amount	$	37,619	$	37,419
Accumulated amortization	Accumulated amortization	(18,701)		(17,659)		Accumulated amortization	(22,865)		(19,152)
Net total	Net total	$	12,447	$	11,642	Net total	$	14,754	$	18,267

Total intangible assets:	Total intangible assets:					Total intangible assets:
Gross carrying amount	Gross carrying amount	$	369,229	$	333,014	Gross carrying amount	$	418,174	$	419,154
Accumulated amortization	Accumulated amortization	(18,701)		(17,659)		Accumulated amortization	(22,865)		(19,152)
Net total	Net total	$	350,528	$	315,355	Net total	$	395,309	$	400,002

Remaining useful lives for trade names, customer relationships, and non-compete agreements ~~were 8.1, 16.5,~~were 7.0, 15.5, and ~~2.8~~4.2 years, respectively, at September 30, ~~2021.~~2022. Similar periods at December 31, ~~2020~~2021 were ~~8.8, 17.3,~~7.8, 16.3, and ~~2.9~~4.9 years for trade names, customer relationships, and non-compete agreements, respectively. Amortization expense was ~~$0.4~~$1.0 million and ~~$0.3~~$0.4 million for the three months ended September 30, 2022 and 2021 and ~~2020, respectively,~~$3.7 million and $1.0 million ~~and $0.9 million during~~for the nine months ended September 30, ~~2021~~2022 and ~~2020, respectively.~~2021. 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 provided a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $500.0 million, which included 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 was March 30, 2023. On August 3, 2021, the Company entered into an Amended and Restated Senior Credit Facility (the "2021 Amended Credit Agreement"), which ~~amends and restates in its entirety the Credit Agreement. The 2021 Amended Credit Agreement provides~~provided a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $800.0 million, which ~~includes~~included an additional $500.0 million accordion expansion, and a letter of credit sub-limit equal to $75.0 million. On December 31, 2021, the aggregate commitment was increased to a maximum borrowing limit of $1.0 billion, with an additional $300.0 million accordion expansion. The expiration date of the 2021 Amended Credit Agreement is August 3, 2026.

The Company’s obligations under the 2021 Amended 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

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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 2021 Amended Credit Agreement.

Revolving loans under the 2021 Amended Credit Agreement bear interest, ~~at,~~ as selected by the Company, at either (i) the prevailing London Interbank Offered Rate ("LIBOR") (with interest periods of one, three or six months at the Company's option) plus a spread of 1.25% to 2.0% based on the Company's quarterly consolidated Leverage Ratio or (ii) the prevailing prime or base rate plus a spread of 0.25% to 1.00% 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 0.15% to 0.30% per annum depending upon the Company’s quarterly consolidated Leverage Ratio. The Base Rate as of September 30, ~~2021~~2022 was ~~3.75%~~7.25% and the LIBOR rate was ~~1.63%~~5.13%. As of September 30, ~~2021,~~2022, the effective interest rate on outstanding borrowings under the 2021 Amended Credit Agreement was ~~1.63%~~4.98%.

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. ~~Effective October 25, 2021,~~ JPMorgan Chase Bank, N.A ~~transitioned~~will transition our 2021 Amended Credit Agreement to an alternate rate to CME Term SOFR Reference Rate ("SOFR"), which is administered by CME Group Benchmark Administration Ltd ("CME"). Due to the differences observed between LIBOR rates and SOFR published rates, JPMorgan Chase Bank, N.A. will use a credit spread adjustment ("CSA") in order to minimize value transfer and leave the existing margin applicable to our 2021 Amended Credit Agreement. The CSA used by JPMorgan Chase Bank, N.A. is based on the average of the differences between LIBOR and SOFR over a 12-month period and will be added to SOFR.

As of September 30, ~~2021,~~2022, the Company had ~~$355.0~~$738.0 million drawn, letters of credit issued in the amount of ~~$25.4~~$24.3 million, and ~~$419.6~~$237.7 million of remaining borrowing capacity available under the 2021 Amended Credit Agreement. At December 31, ~~2020,~~2021, the Company had ~~$20.0~~$661.2 million drawn and letters of credit issued in the amount of ~~$25.4~~$24.3 million under the 2021 Amended Credit ~~Facility.~~Agreement.

Under the terms of the 2021 Amended Credit Agreement, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The 2021 Amended 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 2021 Amended Credit Agreement at September 30, ~~2021.~~2022.

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 ~~1,747,099 shares~~1,544,734 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

Independent directors are granted shares of common stock under the Second Amended and Restated 2005 Non-Employee Directors Compensation Plan. During the nine months ended September 30, ~~2021,~~2022, the ~~Company~~Company granted ~~7,200~~8,800 nonvested shares of common stock to independent directors, which shares will vest 100% on the one year anniversary date. In addition, the Company granted 3,500 nonvested shares of common stock to the Company's Lead Director, which shares will vest one-third on the date of grant and one-third on each of the first two anniversaries of the grant date.

During the nine months ended September 30, ~~2021,~~2022, employees and a consultant were granted ~~109,665~~182,310 and ~~5,735~~10,935 shares, respectively, of nonvested shares of common stock pursuant to the 2018 Incentive Plan. The shares vest over a ~~period~~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 nine months ended September 30, ~~2021:~~2022:

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		Restricted stock			Options				Restricted stock			Options
		Number of shares	Weighted average grant date fair value		Number of shares	Weighted average grant date fair value			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
Share grants outstanding as of December 31, 2021								Share grants outstanding as of December 31, 2021	415,816	$	122.40	74,235	$	42.07
Granted	Granted	126,100	186.15		—	—		Granted	202,045	139.64		—	—
Vested or exercised	Vested or exercised	(174,921)	188.48		—	—		Vested or exercised	(162,749)	143.35		(13,986)	31.27
Share grants outstanding as of September 30, 2021		420,810	$	122.25	74,235	$	42.07
Share grants outstanding as of September 30, 2022								Share grants outstanding as of September 30, 2022	455,112	$	134.44	60,249	$	43.05

As of September 30, ~~2021,~~2022, there was ~~$41.4~~ $49.6 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 ~~3.03~~3.25 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~~recorded $15.3 million and $11.7 ~~million and $11.1~~ million of compensation expense related to nonvested stock grants for the nine months ended September 30, 2022 and 2021, ~~and 2020,~~ 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 ~~2021:~~2022:

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 issued during the three months ended June 30, 2021 3,152 $ 181.65
Shares issued during the three months ended September 30, 2021 3,445 $ 190.25
Shares available as of September 30, 2021 108,335


	Number of shares	Per share price
Shares available as of December 31, 2021	104,344
Shares issued during the three months ended March 31, 2022	5,353	$	130.37
Shares issued during the three months ended June 30, 2022	3,342	$	160.17
Shares issued during the three months ended September 30, 2022	4,104	$	147.95

Shares available as of September 30, 2022	91,545

Treasury Stock

In conjunction with the vesting of the nonvested shares of common stock or the exercise of stock options, recipients incur ~~personal~~personal income tax obligations. The Company allows the recipients to turn in shares of common stock to satisfy minimum tax obligations. During the nine months ended September 30, ~~2021,~~2022, the Company redeemed ~~61,177~~28,802 shares of common stock valued at ~~$11.6~~$5.0 million, related to share vesting tax obligations. Such shares are held as treasury stock and are available for reissuance by the Company. Additionally, 5,268 shares were forfeited for terminated employees. Such shares are held in treasury stock and are available for reissuance by the Company.

In addition, the Company redeemed 6,249 shares of common stock valued at $0.2 million, related to the exercise of options.

Stock Repurchase

On December 6, 2021, the Company's Board of Directors approved a share repurchase program authorizing purchases up to $250.0 million of the Company's common stock. The Company may purchase common stock in open market transactions, block or privately negotiated transactions, and may from time to time purchase shares pursuant to a trading plan in accordance with Rule 10b5-1 and Rule 10b-18 under the Exchange Act or by any combination of such methods, in each case subject to compliance with all SEC rules and other legal requirements. The number of shares to be purchased and the timing of the purchases are based on a variety of factors, including, but not limited to, the level of cash balances, credit availability, debt covenant restrictions, general business conditions, the market price of our stock and the availability of alternative investment opportunities. No time limit was set for completion of repurchases under the new authorization, and the program may be suspended or discontinued at any time.

The Company uses the cost method to account for the repurchase of common stock. During the nine months ended September 30, 2022, the Company repurchased 190,622 shares from the open market under its Stock Repurchase plan at an aggregate cost of $25.5 million.

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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"), Unified Program Integrity Contractors ("UPICs"), 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~~The Company ~~has~~ recorded $12.0 million and $16.9 million in its condensed consolidated balance sheets in other assets as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, 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,

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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.

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.

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

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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.

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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 September 30, ~~2021,~~2022, 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 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 nine months ended September 30, ~~2021~~2022 is not less than the initial amount reported for each instrument.

The following table summarizes the activity of noncontrolling interest-redeemable for the nine months ended September 30, ~~2021~~2022 (amounts in thousands):


Balance as of December 31, ~~2020~~2021	$	~~18,921~~17,501
Net income attributable to noncontrolling interest-redeemable	~~9,127~~6,991
Noncontrolling interest-redeemable distributions	~~(10,058)~~(7,514)
~~Acquired noncontrolling interest-redeemable~~	~~113~~
~~Purchase of controlling interest~~	~~(373)~~
Balance as of September 30, ~~2021~~2022	$	~~17,730~~16,978

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 five years. The facility-based leases have renewal options for periods ranging from one to 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.

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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 September 30, ~~2021,~~2022, the weighted-average remaining lease term was ~~3.97~~3.63 years and weighted-average discount rate was ~~4.24%~~4.11%.

The following table summarizes the operating lease right of use assets and related lease payables in our condensed consolidated balance sheets as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021 (amounts in thousands):

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		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
Operating lease right of use asset	Operating lease right of use asset	$	111,550	$	100,046	Operating lease right of use asset	$	108,975	$	113,399
Current operating lease liabilities	Current operating lease liabilities	35,964		32,676		Current operating lease liabilities	36,998		37,630
Long-term operating lease liabilities	Long-term operating lease liabilities	78,445		70,275		Long-term operating lease liabilities	74,992		78,688

The components of lease costs for operating leases for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 were as follows (amounts in thousands):


		Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
		2021		2020		2021		2020				2022		2021		2022		2021
Operating lease cost	Operating lease cost	$	12,791	$	11,973	$	37,096	$	34,921		Operating lease cost	$	14,033	$	12,791	$	42,800	$	37,096
Short-term lease cost	Short-term lease cost	927		743		2,697		2,232			Short-term lease cost	908		927		2,712		2,697
Variable lease cost	Variable lease cost	997		999		3,058		2,851			Variable lease cost	1,246		997		3,350		3,058
Total lease costs	Total lease costs	$	14,715	$	13,715	$	42,851	$	40,004		Total lease costs	$	16,187	$	14,715	$	48,862	$	42,851

Maturities of operating lease liabilities as of September 30, ~~2021~~2022 were as follows (amounts in thousands):


Month ending September 30,	Month ending September 30,			Month ending September 30,
2021		$	10,650
2022	2022	37,918		2022	$	11,073
2023	2023	28,922		2023	38,472
2024	2024	20,080		2024	29,629
2025				2025	21,006
Thereafter	Thereafter	26,578		Thereafter	20,224
Total future minimum lease payments	Total future minimum lease payments	124,148		Total future minimum lease payments	120,404
Less: Imputed interest	Less: Imputed interest	(9,739)		Less: Imputed interest	(8,414)
Total	Total	$	114,409	Total	$	111,990

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.

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~~

Table 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.~~Contents

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 nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 (amounts in thousands):


	Three months ended September 30, 2022
	Home health services		Hospice services		Home and community-based services		Facility-based services		HCI		Total
Net service revenue	$	373,335	$	103,799	$	47,978	$	31,441	$	20,360	$	576,913
Cost of service revenue (excluding depreciation and amortization)	217,790		68,951		35,727		22,549		2,755		347,772
General and administrative expenses	126,052		32,384		11,893		12,098		6,624		189,051
Impairment of intangibles and other	—		1,590		469		—		—		2,059
Operating income (loss)	29,493		874		(111)		(3,206)		10,981		38,031
Interest expense	(6,347)		(1,356)		(808)		(362)		(180)		(9,053)
Income (loss) before income taxes and noncontrolling interest	23,146		(482)		(919)		(3,568)		10,801		28,978
Income tax expense (benefit)	5,723		(439)		(165)		(927)		2,774		6,966
Net income (loss)	17,423		(43)		(754)		(2,641)		8,027		22,012
Less net income (loss) attributable to non controlling interests	3,838		1,269		(125)		(439)		160		4,703
Net income (loss) attributable to LHC Group, Inc.'s common stockholder	$	13,585	$	(1,312)	$	(629)	$	(2,202)	$	7,867	$	17,309
Total assets	$	1,717,209	$	798,668	$	238,082	$	80,223	$	79,972	$	2,914,154


	Three months ended September 30, 2021
	Home health services		Hospice services		Home and community-based services		Facility-based services		HCI		Total
Net service revenue	$	386,699	$	82,653	$	45,800	$	32,415	$	17,884	$	565,451
Cost of service revenue (excluding depreciation and amortization)	230,839		51,631		34,386		23,725		3,281		343,862
General and administrative expenses	126,695		22,548		11,764		11,050		4,387		176,444


Operating income (loss)	29,165		8,474		(350)		(2,360)		10,216		45,145
Interest expense	(811)		(139)		(109)		(54)		(22)		(1,135)
Income (loss) before income taxes and noncontrolling interest	28,354		8,335		(459)		(2,414)		10,194		44,010
Income tax expense (benefit)	6,407		1,874		(99)		(554)		2,522		10,150
Net income (loss)	21,947		6,461		(360)		(1,860)		7,672		33,860
Less net income (loss) attributable to noncontrolling interests	5,157		1,085		77		(187)		(6)		6,126
Net income (loss) attributable to LHC Group, Inc.'s common stockholders	$	16,790	$	5,376	$	(437)	$	(1,673)	$	7,678	$	27,734
Total assets	$	1,632,670	$	681,954	$	239,452	$	83,276	$	75,334	$	2,712,686

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		Three Months Ended September 30, 2021													Nine months ended September 30, 2022
		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	Net service revenue	$	386,699	$	82,653	$	45,800	$	32,415	$	17,884	$	565,451	Net service revenue	$	1,154,009	$	308,322	$	137,036	$	94,289	$	30,945	$	1,724,601
Cost of service revenue (excluding depreciation and amortization)	Cost of service revenue (excluding depreciation and amortization)	230,839		51,631		34,386		23,725		3,281		343,862		Cost of service revenue (excluding depreciation and amortization)	674,508		202,864		96,470		69,584		8,667		1,052,093
General and administrative expenses	General and administrative expenses	126,695		22,548		11,764		11,050		4,387		176,444		General and administrative expenses	387,482		97,152		35,755		35,737		13,674		569,800

Impairment of intangibles and other														Impairment of intangibles and other	930		2,677		523		—		—		4,130
Operating income (loss)	Operating income (loss)	29,165		8,474		(350)		(2,360)		10,216		45,145		Operating income (loss)	91,089		5,629		4,288		(11,032)		8,604		98,578
Interest expense	Interest expense	(811)		(139)		(109)		(54)		(22)		(1,135)		Interest expense	(13,805)		(2,803)		(1,785)		(851)		(387)		(19,631)
Income (loss) before income taxes and noncontrolling interest	Income (loss) before income taxes and noncontrolling interest	28,354		8,335		(459)		(2,414)		10,194		44,010		Income (loss) before income taxes and noncontrolling interest	77,284		2,826		2,503		(11,883)		8,217		78,947
Income tax expense (benefit)	Income tax expense (benefit)	6,407		1,874		(99)		(554)		2,522		10,150		Income tax expense (benefit)	17,057		(3)		680		(2,849)		2,129		17,014
Net income (loss)	Net income (loss)	21,947		6,461		(360)		(1,860)		7,672		33,860		Net income (loss)	60,227		2,829		1,823		(9,034)		6,088		61,933
Less net income (loss) attributable to non controlling interests	Less net income (loss) attributable to non controlling interests	5,157		1,085		77		(187)		(6)		6,126		Less net income (loss) attributable to non controlling interests	12,758		2,837		(74)		(1,085)		150		14,586
Net income (loss) attributable to LHC Group, Inc.'s common stockholder	Net income (loss) attributable to LHC Group, Inc.'s common stockholder	$	16,790	$	5,376	$	(437)	$	(1,673)	$	7,678	$	27,734	Net income (loss) attributable to LHC Group, Inc.'s common stockholder	$	47,469	$	(8)	$	1,897	$	(7,949)	$	5,938	$	47,347
Total assets		$	1,632,670	$	681,954	$	239,452	$	83,276	$	75,334	$	2,712,686

Three Months Ended September 30, 2020
Home health services Hospice services Home and community-based services Facility-based services HCI Total
Net service revenue $ 373,450 $ 59,801 $ 48,387 $ 33,344 $ 15,702 $ 530,684
Cost of service revenue (excluding depreciation and amortization) 205,523 37,180 36,664 22,213 3,666 305,246
General and administrative expenses 118,792 16,668 10,937 11,439 3,627 161,463
Impairment of intangibles and other 22 — — — — 22
Government stimulus (income) expense 35,019 4,731 2,865 1,656 164 44,435
Operating income (loss) 14,094 1,222 (2,079) (1,964) 8,245 19,518
Interest expense (310) (51) (37) (22) (11) (431)
Income (loss) before income taxes and noncontrolling interest 13,784 1,171 (2,116) (1,986) 8,234 19,087
Income tax expense (benefit) 3,403 247 (440) (435) 1,820 4,595
Net income (loss) 10,381 924 (1,676) (1,551) 6,414 14,492
Less net income (loss) attributable to noncontrolling interests (157) 321 (153) (12) (7) (8)
Net income (loss) attributable to LHC Group, Inc.'s common stockholders $ 10,538 $ 603 $ (1,523) $ (1,539) $ 6,421 $ 14,500
Total assets $ 1,721,278 $ 277,358 $ 263,414 $ 108,118 $ 86,168 $ 2,456,336

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Nine Months Ended September 30, 2021
Home health services Hospice services Home and community-based services Facility-based services HCI Total
Net service revenue $ 1,157,061 $ 209,191 $ 143,332 $ 96,814 $ 29,795 $ 1,636,193
Cost of service revenue (excluding depreciation and amortization) 663,137 129,848 103,941 65,360 9,720 972,006
General and administrative expenses 369,337 58,789 35,216 33,213 10,199 506,754
Impairment of intangibles and other 937 — — — — 937
Operating income (loss) 123,650 20,554 4,175 (1,759) 9,876 156,496
Interest expense (1,099) (195) (143) (73) (31) (1,541)
Income (loss) before income taxes and noncontrolling interest 122,551 20,359 4,032 (1,832) 9,845 154,955
Income tax expense (benefit) 26,003 4,221 889 (649) 2,445 32,909
Net income (loss) 96,548 16,138 3,143 (1,183) 7,400 122,046
Less net income (loss) attributable to non controlling interests 17,506 3,308 441 792 (37) 22,010
Net income (loss) attributable to LHC Group, Inc.'s common stockholder $ 79,042 $ 12,830 $ 2,702 $ (1,975) $ 7,437 $ 100,036


		Nine Months Ended September 30, 2020													Nine months ended September 30, 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	Net service revenue	$	1,081,143	$	181,387	$	144,526	$	96,664	$	27,155	$	1,530,875	Net service revenue	$	1,157,061	$	209,191	$	143,332	$	96,814	$	29,795	$	1,636,193
Cost of service revenue (excluding depreciation and amortization)	Cost of service revenue (excluding depreciation and amortization)	631,109		112,485		113,864		64,340		11,362		933,160		Cost of service revenue (excluding depreciation and amortization)	663,137		129,848		103,941		65,360		9,720		972,006
General and administrative expenses	General and administrative expenses	345,024		49,560		33,520		31,984		9,815		469,903		General and administrative expenses	369,337		58,789		35,216		33,213		10,199		506,754
Impairment of intangibles and other	Impairment of intangibles and other	22		600		—		—		—		622		Impairment of intangibles and other	937		—		—		—		—		937
Government stimulus (income) expense		—		—		—		—		—		—
Operating income (loss)	Operating income (loss)	104,988		18,742		(2,858)		340		5,978		127,190		Operating income (loss)	123,650		20,554		4,175		(1,759)		9,876		156,496
Interest expense	Interest expense	(2,804)		(451)		(382)		(288)		(115)		(4,040)		Interest expense	(1,099)		(195)		(143)		(73)		(31)		(1,541)
Income (loss) before income taxes and noncontrolling interest	Income (loss) before income taxes and noncontrolling interest	102,184		18,291		(3,240)		52		5,863		123,150		Income (loss) before income taxes and noncontrolling interest	122,551		20,359		4,032		(1,832)		9,845		154,955
Income tax expense (benefit)	Income tax expense (benefit)	19,499		3,294		(658)		(261)		1,307		23,181		Income tax expense (benefit)	26,003		4,221		889		(649)		2,445		32,909
Net income (loss)	Net income (loss)	82,685		14,997		(2,582)		313		4,556		99,969		Net income (loss)	96,548		16,138		3,143		(1,183)		7,400		122,046
Less net income (loss) attributable to noncontrolling interests		14,371		3,452		(275)		1,228		(23)		18,753
Net income (loss) attributable to LHC Group, Inc.'s common stockholders		$	68,314	$	11,545	$	(2,307)	$	(915)	$	4,579	$	81,216

Less net income (loss) attributable to non controlling interests														Less net income (loss) attributable to non controlling interests	17,506		3,308		441		792		(37)		22,010
Net income (loss) attributable to LHC Group, Inc.'s common stockholder														Net income (loss) attributable to LHC Group, Inc.'s common stockholder	$	79,042	$	12,830	$	2,702	$	(1,975)	$	7,437	$	100,036

12. Income Taxes

The effective tax rate for ~~each of~~ the nine months ended September 30, 2022 and 2021 ~~and 2020~~ benefited ~~from~~from $0.9 million and $2.4 million, respectively, of excess tax benefits associated with stock-based compensation arrangements.

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

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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

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includes the full amount of unrecognized tax benefits in income taxes payable in noncurrent liabilities in the 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. As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company ~~recognized $6.8~~recognized $8.0 million and ~~$6.2~~$7.3 million, respectively, in unrecognized tax benefits.

13. Subsequent ~~Events~~Event

On October 1, ~~2021,~~2022, the Company purchased ~~1 wholly- owned~~three wholly-owned home health ~~agency and 3 wholly-owned hospice agencies for total consideration of $7.5 million.~~

On November 1, 2021, the Company purchased Brookdale Health Care Services' agencies from the recently formed home health, hospice, and outpatient therapy venture between HCA Healthcare and Brookdale Senior Living, Inc. The wholly-owned purchased agencies included 23 home health locations, 11 hospice locations, and 13 therapy agencies across 22 states.agencies. Total consideration for ~~this~~the acquisition was ~~$197.0 million, which was funded on November 1, 2021.~~$18.5 million.

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~~Quarterly Report on Form 10-Q contains certain statements, including the anticipated timing of the consummation of the Merger, 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,” “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:

•the anticipated timing of the consummation of the Merger and our ability to satisfy the closing condition to the Merger, including receipt of the required regulatory approvals thereto;

•our expectations regarding financial condition or results of operations for periods after September 30, ~~2021;~~2022;

•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;

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•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 ~~2020~~2021 Form 10-K, as updated by our subsequent filings with the SEC. This report should be read in conjunction with the ~~2020~~2021 Form 10-K and Form 10-K Amendment, 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.

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 September 30, ~~2021,~~2022, we have ~~868~~ 942 service ~~providers~~providers in ~~35 states~~37 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 September 30, ~~2021,~~2022, we operated ~~532~~543 home health services locations, of which ~~320~~333 are wholly-owned, ~~208~~206 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.

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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 September 30, ~~2021,~~2022, we ~~operated 155~~operated 163 hospice locations, of which 9297 are wholly-owned, 6164 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 September 30, ~~2021,~~2022, we ~~operated 130~~operated 133 home and community-based services locations, of which ~~117~~120 are wholly-owned and 13 are majority-owned through equity joint ventures.

We provide facility-based services principally through our LTACHs. As of September 30, ~~2021,~~2022, we operated 11 LTACHs with 12 locations, all but three of which are located within host hospitals. We also operate two skilled nursing facilities, atwo family health ~~center, a~~centers, two rural health ~~clinic, two physician practices,~~clinics, and 1976 therapy clinics. Of these 3794 facility-based services locations, 2683 are wholly-owned, and 11 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 149 HCI locations, of ~~which 13 are wholly-owned and one is majority-owned through an equity joint venture.~~which all are wholly-owned.

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 September 30, ~~2021,~~2022, the Joint Commission had ~~accredited 522~~accredited 521 of our ~~532 home~~543 home health services locations and 110 of our ~~155~~163 hospice agencies. Those not yet accredited are 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 nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 was as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three months ended September 30,				Nine months ended September 30,
Reporting segment	Reporting segment	2021		2020		2021		2020		Reporting segment	2022		2021		2022		2021
Home health services	Home health services	68.4	%	70.4	%	70.7	%	70.6	%	Home health services	64.7	%	68.4	%	66.9	%	70.7	%
Hospice services	Hospice services	14.6		11.2		12.8		11.8		Hospice services	18.0		14.6		17.9		12.8
Home and community-based services	Home and community-based services	8.1		9.1		8.8		9.5		Home and community-based services	8.3		8.1		7.9		8.8
Facility-based services	Facility-based services	5.7		6.3		5.9		6.3		Facility-based services	5.5		5.7		5.5		5.9
Healthcare innovations services		3.2		3.0		1.8		1.8
HCI										HCI	3.5		3.2		1.8		1.8
		100.0	%	100.0	%	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 2020 Form 10-K.

Coronavirus and Coronavirus Aid, Relief, and Economic Security Act

The following portions of the CARES Act impacted us during the nine months ended September 30, ~~2021:~~

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•~~Provider Relief Fund: During 2020, we received $93.3 million in payments from the Provider Relief Fund. We returned all funds to the government during the nine months ended September 30, 2021.~~2022:

•CAAP: ~~During 2020, we received $318.0~~CMS recouped $101.6 million of ~~accelerated payments under the CAAP,~~CAAP. As of ~~which $141.6 million was recouped by CMS during the nine months ended~~ September 30, ~~2021 and $176.3~~2022, $4.8 million of contract liabilities - deferred revenue remains on our condensed consolidated balance sheets.

•Suspension of the 2% sequestration payment adjustment: CMS suspended the 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~~nine months ended September 30, ~~2021 and 2020,~~2022, we recognized ~~$6.8 million and $6.5~~$10.0 million of net service revenue, respectively, due to the suspension of the 2% sequestration payment

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adjustment. ~~During the nine months ended September 30, 2021 and 2020, we~~We recognized ~~$19.7~~$6.8 million and ~~$11.5~~$19.7 million of net service revenue, respectively, ~~due to~~during the ~~suspension of the 2% sequestration payment adjustment.~~three and nine months ended September 30, 2021.

•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 pay all LTACH cases admitted during the COVID-19 PHE period at the ~~LTACH PPS~~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 three and nine months ended September 30, ~~2021,~~2022, we recognized ~~$5.7~~$4.9 million and ~~$6.4~~$17.1 million of net service revenue, respectively, due to the suspension of LTACH site-neutral payments. ~~During the nine months ended September 30, 2021 and 2020, we~~We recognized ~~$18.2~~$5.7 million and ~~$11.1~~$18.2 million of net service revenue, respectively, ~~due to~~during the ~~suspension of LTACH site-neutral payments.~~

~~During the~~three and nine months ended September 30, ~~2021,~~2021.

During the three and nine months ended September 30, 2022, we did experience higher costs related to higher contract labor utilization due to an increase in our clinicians being on quarantine from COVID-19 exposure or potential exposure. There is no guarantee that we won’t experience similar impacts in the future or experience 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

On ~~November 2, 2021, CMS released the final rule for the calendar year~~October 31, 2022, to update base payment rates by 3.2%, which is based on a payment update of 2.6%, a 0.7% increase due to the reduction of the fixed-dollar loss ratio for outliers, and a 0.1% reduction due to the rural add-on percentages mandated by the Bipartisan Budget Act of 2018. The base 30 day payment rate is increased from $1,901.12 to $2,031.64. The final rule expanded the Home Health Value-Based Purchasing ("HHVBP") model nationally, with the first performance year beginning January 1, 2023. Starting in 2025, fee-for-service payments to home health agencies will be adjusted based on the quality of care provided to beneficiaries during the calendar year 2023 performance year.

~~Hospice~~

~~On July 29, 2021,~~ CMS released the final rule for fiscal year 2023. The final rule states the Medicare base payments will increase by 0.7%. The increase reflects the effects of the 4.0% home health payment update, a 3.5% decrease from the effects of the prospective permanent behavioral assumption adjustment of -3.925% that is being phased-in, and 0.2% increase from the effects of an update to the fixed-dollar ratio used in determining outlier payments. The impact of the -3.925% permanent behavioral assumption adjustment is -3.5%, as the permanent adjustment is only made to the 30-day payment rate and not the Low Utilization Payment Adjustment per visit payment rates. CMS also finalized a permanent 5% cap on negative wage index changes regardless of the underlying reason for the decrease.

Hospice

On July 27, 2022, CMS released the final rule for fiscal year 2023 to update payment rates and the wage index. The final ~~hospice~~rule states the following:

•A payment ~~update is~~rate increase of 3.8%, which applies a ~~2.0% increase to the payment rates. The final rule will apply a 2.7%~~4.1% market basket update and a ~~0.7~~0.3 percentage point ~~cut~~reduction for productivity. ~~In addition,~~

•Hospice agencies that fail to meet quality reporting requirements will receive a two percentage point reduction to the ~~final rule increases~~annual market basket update.

•An increase of the aggregate cap value of $32,486.92, as compared to $31,297.61 for fiscal year ~~2022, as compared to $30,683.93~~2022.

•A permanent cap on negative wage index changes greater than a 5% decrease from the prior year, regardless of the underlying reason for ~~fiscal year 2021.~~the decrease.

The following are the final fiscal year 2023 base payment rates for various levels of care, which began on October 1, 2022 and will end September 30, 2023 and the final fiscal year 2022 base payment rates for various levels of care, which began on October 1, 2021 and ~~will end~~ended September 30, 2022 ~~and final fiscal year 2021 base payment rates for various levels of care, which began on October 1, 2020 and ended September 30, 2021~~ (payment rates for hospice providers not complying with the hospice quality reporting requirements will be 2% lower than the values referenced below):

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Description	Description	Final Fiscal Year 2022 Rate per patient day		Fiscal Year 2021 Rate per patient day		Description	Final Fiscal Year 2023 Rate per patient day		Fiscal Year 2022 Rate per patient day
Routine Home Care days 1-60	Routine Home Care days 1-60	$	203.40	$	199.25	Routine Home Care days 1-60	$	211.34	$	203.40
Routine Home Care days 60+	Routine Home Care days 60+	$	160.74	$	157.49	Routine Home Care days 60+	$	167.00	$	160.74
Continuous Home Care	Continuous Home Care	$	1,462.52	$	1,432.41	Continuous Home Care	$	1,522.04	$	1,462.52
Full rate = 24 hours of care	Full rate = 24 hours of care					Full rate = 24 hours of care
$59.68 = hourly rate for 2021 $60.94 = hourly rate for 2022
$60.94 = hourly rate for 2022 $63.42 = hourly rate for 2023						$60.94 = hourly rate for 2022 $63.42 = hourly rate for 2023
Inpatient Respite Care	Inpatient Respite Care	$	473.75	$	461.09	Inpatient Respite Care	$	492.10	$	473.75
General Inpatient Care	General Inpatient Care	$	1,068.28	$	1,045.66	General Inpatient Care	$	1,110.76	$	1,068.28

Facility-based

On August ~~2, 2021,~~1, 2022, CMS issued athe final rule for the fiscal year ~~2022~~2023 Long-Term Care Hospital Prospective Payment System ("~~LTACH-PPS"~~LTCH PPS")~~, which described that LTACH-PPS~~. LTCH PPS payments ~~for fiscal year 2022~~ will increase ~~by 1.1%. LTACH-PPS payments for fiscal year 2022 for discharges paid using the standard LTACH payment rate will increase by 0.9%~~2.3% due primarily to the annual standard ~~Federal~~federal rate update ~~for fiscal year 2022~~(the productivity-adjusted market basket increase) of ~~1.9%~~3.8% and ~~0.8%~~a decrease in high cost outlier payments. ~~LTACH-PPS payments for fiscal year 2022 for discharges paid using the site neutral payment rate will increase by 3%.~~

RESULTS OF OPERATIONS

Three months ended September 30, ~~2021~~2022 compared to three months ended September 30, ~~2020~~2021

Summary consolidated financial information

The following table summarizes our consolidated results of operations for the three months ended September 30, ~~2021~~2022 and ~~2020~~2021 (amounts in thousands, except percentages, which are percentages of consolidated net service revenue, unless indicated otherwise):


		2021					2020					Increase (Decrease)			2022					2021					Increase (Decrease)
Net service revenue	Net service revenue	$	565,451				$	530,684				$	34,767	Net service revenue	$	576,913				$	565,451				$	11,462
Cost of service revenue (excluding depreciation and amortization)	Cost of service revenue (excluding depreciation and amortization)	343,862		60.8	%		305,246		57.5	%		38,616		Cost of service revenue (excluding depreciation and amortization)	347,772		60.3	%		343,862		60.8	%		3,910
General and administrative expenses	General and administrative expenses	176,444		31.2			161,463		30.4			14,981		General and administrative expenses	189,051		32.8			176,444		31.2			12,607
Impairment of intangibles and other	Impairment of intangibles and other	—					22					(22)		Impairment of intangibles and other	2,059		0.4			—		—			2,059
Government stimulus (income) expense		—					44,435					44,435
Interest expense	Interest expense	(1,135)					(431)					704		Interest expense	(9,053)		(1.6)			(1,135)		(0.2)			7,918

Income tax expense	Income tax expense	10,150		27.5		(1)	4,595		27.7		(1)	5,555		Income tax expense	6,966		30.1		(1)	10,150		27.5		(1)	(3,184)
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	6,126					(8)					6,134		Net income attributable to noncontrolling interests	4,703		0.8			6,126		1.1			(1,423)
Net income attributable to LHC Group, Inc.’s common stockholders	Net income attributable to LHC Group, Inc.’s common stockholders	$	27,734				$	14,500				$	13,234	Net income attributable to LHC Group, Inc.’s common stockholders	$	17,309				$	27,734				$	(10,425)

(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 million ~~and $0.7 million during~~during each of the three months ended September 30, ~~2021~~2022 and ~~2020,~~ 2021.

~~respectively.~~

~~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 September 30, 2021 and the related change from the same period in 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):

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The below data for the three months ended September 30, 2021 was impacted by the COVID-19 pandemic.
Organic (1)
Organic
Growth
(Loss) %
Acquired (2)
Total Total
Growth
(Loss) %
Home health services
Revenue $ 389,670 4.5 % $ 3,014 $ 392,684 4.7 %
Revenue Medicare $ 238,603 (2.6) $ 2,351 $ 240,954 (2.2)
Admissions 107,442 3.6 1,050 108,492 4.0
Medicare Admissions 52,341 (5.7) 186 52,527 (6.0)
Average Census 83,777 2.5 481 84,258 2.4
Average Medicare Census 43,359 (7.4) 316 43,675 (7.3)
Home Health Episodes 83,635 (4.0) 915 84,550 (5.0)
Hospice services
Revenue $ 63,902 0.9 $ 20,744 $ 84,646 34.4
Revenue Medicare $ 59,326 2.4 $ 19,146 $ 78,472 36.2
Admissions 5,140 0.1 1,326 6,466 27.4
Medicare Admissions 4,606 0.1 1,146 5,752 25.9
Average Census 4,293 (2.5) 1,404 5,697 29.7
Average Medicare Census 4,057 (1.0) 1,277 5,334 30.4
Patient days 395,917 (2.2) 128,182 524,099 29.7
Home and community-based services
Revenue $ 46,278 (8.9) $ 79 $ 46,357 (9.3)
Billable hours 1,813,284 (6.0) 4,427 1,817,711 (6.4)
Facility-based services
LTACHs
Revenue $ 31,241 (4.3) $ 245 $ 31,486 (3.7)
Patient days 22,187 (8.4) 535 22,722 (6.4)
Other facility-based services
Revenue $ 1,303 (37.4) $ — $ 1,303 (37.4)
HCI
Revenue $ 18,213 12.6 $ — $ 18,213 12.6
Consolidated
Revenue $ 550,607 2.7 $ 24,082 $ 574,689 6.4

(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.~~

Our home health and hospice segment received the benefit of 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.

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):

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		Three Months Ended September 30,									Three months ended September 30,
		2021				2020					2022				2021
Home health services
Home health services:										Home health services:
Salaries, wages and benefits	Salaries, wages and benefits	$	209,972	54.3	%	$	184,644	49.4	%	Salaries, wages and benefits	$	196,715	52.7	%	$	209,972	54.3	%
Transportation	Transportation	9,358		2.4		9,019		2.4		Transportation	10,044		2.7		9,358		2.4
Supplies and services	Supplies and services	11,509		3.0		11,860		3.2		Supplies and services	11,031		3.0		11,509		3.0
Total	Total	$	230,839	59.7	%	$	205,523	55.0	%	Total	$	217,790	58.3	%	$	230,839	59.7	%
Hospice services
Hospice services:										Hospice services:
Salaries, wages and benefits	Salaries, wages and benefits	$	37,485	45.4	%	$	26,535	44.4	%	Salaries, wages and benefits	$	50,051	48.2	%	$	37,485	45.4	%
Transportation	Transportation	2,354		2.8		1,865		3.1		Transportation	3,400		3.3		2,354		2.8
Supplies and services	Supplies and services	11,792		14.3		8,780		14.7		Supplies and services	15,500		14.9		11,792		14.3
Total	Total	$	51,631	62.5	%	$	37,180	62.2	%	Total	$	68,951	66.4	%	$	51,631	62.5	%
Home and community-based services
Home and community-based services:										Home and community-based services:
Salaries, wages and benefits	Salaries, wages and benefits	$	33,632	73.4	%	$	36,020	74.4	%	Salaries, wages and benefits	$	34,894	72.7	%	$	33,632	73.4	%
Transportation	Transportation	429		1.0		457		0.9		Transportation	455		0.9		429		0.9
Supplies and services	Supplies and services	325		0.7		187		0.4		Supplies and services	378		0.8		325		0.7
Total	Total	$	34,386	75.1	%	$	36,664	75.7	%	Total	$	35,727	74.5	%	$	34,386	75.0	%
Facility-based services
Facility-based services:										Facility-based services:
Salaries, wages and benefits	Salaries, wages and benefits	$	17,499	54.0	%	$	16,271	48.8	%	Salaries, wages and benefits	$	18,111	57.6	%	$	17,499	54.0	%
Transportation	Transportation	12		—		21		0.1		Transportation	66		0.2		12		—
Supplies and services	Supplies and services	6,214		19.2		5,921		17.8		Supplies and services	4,372		13.9		6,214		19.2
Total	Total	$	23,725	73.2	%	$	22,213	66.7	%	Total	$	22,549	71.7	%	$	23,725	73.2	%
HCI
HCI:										HCI:
Salaries, wages and benefits	Salaries, wages and benefits	$	3,214	18.0	%	$	3,496	22.3	%	Salaries, wages and benefits	$	2,694	13.2	%	$	3,214	18.0	%
Transportation	Transportation	50		0.3		57		0.4		Transportation	49		0.2		50		0.3
Supplies and services	Supplies and services	17		0.1		113		0.7		Supplies and services	12		0.1		17		0.1
Total	Total	$	3,281	18.4	%	$	3,666	23.4	%	Total	$	2,755	13.5	%	$	3,281	18.4	%
Consolidated
Consolidated:										Consolidated:
Salaries, wages and benefits	Salaries, wages and benefits	$	301,802	53.4	%	$	266,966	50.3	%	Salaries, wages and benefits	$	302,465	52.4	%	$	301,802	53.4	%
Transportation	Transportation	12,203		2.1		11,419		2.2		Transportation	14,014		2.4		12,203		2.1
Supplies and services	Supplies and services	29,857		5.3		26,861		5.0		Supplies and services	31,293		5.4		29,857		5.3
Total	Total	$	343,862	60.8	%	$	305,246	57.5	%	Total	$	347,772	60.3	%	$	343,862	60.8	%

During ~~2021,~~2022, cost of service revenue decreased as a percentage of net service revenue from 60.8% to 60.3%. Our cost of service revenue was impacted by decreased employee medical insurance claim costs as we experienced decreased COVID-19 claims, decreased pharmaceutical costs, and less catastrophic claims as compared to the three months ended September 30, 2021.

Cost of service revenue in our ~~home health~~hospice segment ~~was impacted by the use of nursing contract labor~~increased due to acquisitions purchased during the ~~high number~~latter half of ~~our clinicians in quarantine for COVID-19.~~ 2021.

Cost of service revenue in our home and community-based segment ~~declined due~~received the benefit of $2.7 million from various state Medicaid programs in response to ~~the lower patient volumes resulting in a decrease in billable hours and a decrease in total~~COVID-19 relief funds to offset higher labor costs. Supplies associated with COVID-19 decreased in all same-store locations in 2021 as compared to 2020 as we incurred substantial costs in 2020 to acquire needed personal protective equipment to protect our clinicians during the start of the global pandemic. We continue to purchase additional personal protective equipment; however, we are observing an overall decline in utilization and an overall price per unit decline for these supplies.

Table of Contents

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 September 30,									Three months ended September 30,
		2021				2020					2022				2021
Home health services
Home health services:										Home health services:
General and administrative	General and administrative	$	123,656	32.0	%	$	115,749	31.0	%	General and administrative	$	122,857	32.9	%	$	123,656	32.0	%
Depreciation and amortization	Depreciation and amortization	3,039		0.8		3,043		0.8		Depreciation and amortization	3,195		0.9		3,039		0.8
Total	Total	$	126,695	32.8	%	$	118,792	31.8	%	Total	$	126,052	33.8	%	$	126,695	32.8	%
Hospice services
Hospice services:										Hospice services:
General and administrative	General and administrative	$	21,710	26.3	%	$	16,159	27.0	%	General and administrative	$	31,196	30.1	%	$	21,710	26.3	%
Depreciation and amortization	Depreciation and amortization	838		1.0		509		0.9		Depreciation and amortization	1,188		1.1		838		1.0
Total	Total	$	22,548	27.3	%	$	16,668	27.9	%	Total	$	32,384	31.2	%	$	22,548	27.3	%
Home and community-based services
Home and community-based services:										Home and community-based services:
General and administrative	General and administrative	$	11,335	24.7	%	$	10,519	21.7	%	General and administrative	$	11,561	24.1	%	$	11,335	24.7	%
Depreciation and amortization	Depreciation and amortization	429		0.9		418		0.9		Depreciation and amortization	332		0.7		429		0.9
Total	Total	$	11,764	25.6	%	$	10,937	22.6	%	Total	$	11,893	24.8	%	$	11,764	25.6	%
Facility-based services
Facility-based services:										Facility-based services:
General and administrative	General and administrative	$	10,230	31.6	%	$	10,494	31.5	%	General and administrative	$	11,296	35.9	%	$	10,230	31.6	%
Depreciation and amortization	Depreciation and amortization	820		2.5		945		2.8		Depreciation and amortization	802		2.6		820		2.5
Total	Total	$	11,050	34.1	%	$	11,439	34.3	%	Total	$	12,098	38.5	%	$	11,050	34.1	%
HCI
HCI:										HCI:
General and administrative	General and administrative	$	4,155	23.2	%	$	3,325	21.2	%	General and administrative	$	6,381	31.3	%	$	4,155	23.2	%
Depreciation and amortization	Depreciation and amortization	232		1.3		302		1.9		Depreciation and amortization	243		1.2		232		1.3
Total	Total	$	4,387	24.5	%	$	3,627	23.1	%	Total	$	6,624	32.5	%	$	4,387	24.5	%
Consolidated
Consolidated:										Consolidated:
General and administrative	General and administrative	$	171,086	30.3	%	$	156,246	29.4	%	General and administrative	$	183,291	31.8	%	$	171,086	30.3	%
Depreciation and amortization	Depreciation and amortization	5,358		0.9		5,217		1.0		Depreciation and amortization	5,760		1.0		5,358		0.9
Total	Total	$	176,444	31.2	%	$	161,463	30.4	%	Total	$	189,051	32.8	%	$	176,444	31.2	%

During ~~2021,~~2022, consolidated general and administrative expenses increased as a percentage of net service revenue from ~~30.4%~~31.2% to ~~31.2%. We~~32.8% as we incurred ~~$5.2 million of acquisition transaction expenses~~higher administrative costs related to acquisitions purchased during the ~~third quarter~~latter half of 2021. ~~Our consolidated general and administrative expenses, excluding the acquisition transaction expenses, remained flat comparing third quarter~~

Table of ~~2021 to third quarter of 2020.~~Contents

Nine months ended September 30, ~~2021~~2022 compared to nine months ended September 30, ~~2020~~2021

Summary consolidated financial information

The following table summarizes our consolidated results of operations for the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 (amounts in thousands, except percentages, which are percentages of consolidated net service revenue, unless indicated otherwise):

~~Table of Contents~~

2021 2020 Increase
(Decrease)
Net service revenue $ 1,636,193 $ 1,530,875 $ 105,318
Cost of service revenue (excluding depreciation and amortization) 972,006 59.4 % 933,160 61.0 % 38,846
General and administrative expenses 506,754 31.0 469,903 30.7 36,851
Impairment of intangibles and other 937 622 315
Government stimulus (income) expense — — —
Interest expense (1,541) (4,040) (2,499)
Income tax expense 32,909 26.6 (1) 23,181 26.5 (1) 9,728
Net income attributable to noncontrolling interests 22,010 18,753 3,257
Net income attributable to LHC Group, Inc.’s common stockholders $ 100,036 $ 81,216 $ 18,820


	2022					2021					Increase (Decrease)
Net service revenue	$	1,724,601				$	1,636,193				$	88,408
Cost of service revenue (excluding depreciation and amortization)	1,052,093		61.0	%		972,006		59.4	%		80,087
General and administrative expenses	569,800		33.0			506,754		31.0			63,046
Impairment of intangibles and other	4,130		0.2			937		0.1			3,193
Interest expense	(19,631)		(1.1)			(1,541)		(0.1)			18,090
Income tax expense	17,014		27.8		(1)	32,909		26.6		(1)	(15,895)
Net income attributable to noncontrolling interests	14,586		0.8			22,010		1.3			(7,424)
Net income attributable to LHC Group, Inc.’s common stockholders	$	47,347				$	100,036				$	(52,689)

(1) Effective tax rate as a percentage of income from continuing operations attributable to our common stockholders, excluding the excess tax benefits realized of $0.9 million and $2.4 million during ~~each of~~ the nine months ended September 30, 2022 and 2021, ~~and 2020. The effective tax rate for the nine months ended September 30, 2020 also benefited from a $2.2 million impact from the enactment of the CARES Act.~~respectively.

~~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 nine months ended September 30, 2021 and the related change from the same period in 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):

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The below data for the nine months ended September 30, 2021 was impacted by the COVID-19 pandemic.
Organic (1)
Organic
Growth
(Loss) %
Acquired (2)
Total Total
Growth
(Loss) %
Home health services
Revenue $ 1,168,752 8.0 % $ 7,194 $ 1,175,946 7.7 %
Revenue Medicare $ 725,516 1.2 $ 5,915 $ 731,431 1.0
Admissions 321,812 6.1 3,684 325,496 6.4
Medicare Admissions 160,598 (2.5) 1,332 161,930 (2.6)
Average Census 84,183 7.7 400 84,583 7.2
Average Medicare Census 44,381 (2.6) 301 44,682 (2.9)
Home Health Episodes 251,987 (0.5) 2,836 254,823 (2.1)
Hospice services
Revenue $ 187,073 1.5 $ 26,098 $ 213,171 15.6
Revenue Medicare $ 173,416 2.3 $ 24,439 $ 197,855 16.7
Admissions 15,411 2.9 1,599 17,010 13.4
Medicare Admissions 13,771 3.4 1,366 15,137 13.3
Average Census 4,270 (1.9) 600 4,870 11.9
Average Medicare Census 4,003 (1.2) 554 4,557 12.5
Patient days 1,166,618 (2.2) 163,939 1,330,557 11.5
Home and community-based services
Revenue $ 143,510 (3.4) $ 950 $ 144,460 (4.5)
Billable hours 5,550,772 (3.1) 46,357 5,597,129 (4.3)
Facility-based services
LTACHs
Revenue $ 93,394 2.9 $ 1,758 $ 95,152 2.6
Patient days 60,849 (9.6) 3,232 64,081 (7.0)
Other facility-based services
Revenue $ 3,895 (44.8) $ — $ 3,895 (44.8)
HCI
Revenue $ 30,436 6.1 $ — $ 30,436 6.1
Consolidated
Revenue $ 1,627,060 5.8 $ 36,000 $ 1,663,060 6.8

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

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):


	Nine months ended September 30,
	2022				2021
Home health services:
Salaries, wages and benefits	$	613,745	53.2	%	$	601,998	52.0	%
Transportation	29,509		2.6		27,408		2.4
Supplies and services	31,254		2.7		33,731		2.9
Total	$	674,508	58.4	%	$	663,137	57.3	%
Hospice services:
Salaries, wages and benefits	$	149,340	48.4	%	$	93,950	44.9	%
Transportation	9,490		3.1		6,151		2.9
Supplies and services	44,034		14.3		29,747		14.2
Total	$	202,864	65.8	%	$	129,848	62.0	%
Home and community-based services:
Salaries, wages and benefits	$	94,650	69.1	%	$	101,711	71.0	%
Transportation	1,300		0.9		1,259		0.9
Supplies and services	520		0.4		971		0.7
Total	$	96,470	70.4	%	$	103,941	72.6	%
Facility-based services:
Salaries, wages and benefits	$	54,755	58.1	%	$	48,420	50.0	%
Transportation	180		0.2		29		—
Supplies and services	14,649		15.5		16,911		17.5
Total	$	69,584	73.8	%	$	65,360	67.5	%
HCI:
Salaries, wages and benefits	$	8,502	27.5	%	$	9,527	32.0	%
Transportation	140		0.5		166		0.6
Supplies and services	25		0.1		27		0.1
Total	$	8,667	28.0	%	$	9,720	32.7	%
Consolidated:
Salaries, wages and benefits	$	920,992	53.4	%	$	855,606	52.3	%
Transportation	40,619		2.4		35,013		2.1
Supplies and services	90,482		5.2		81,387		5.0
Total	$	1,052,093	61.0	%	$	972,006	59.4	%

During 2022, cost of service revenue in our home health, hospice, and facility-based segments were impacted by the continued labor market challenges. These challenges are, but not limited to, consistent utilization of nursing contract labor at a higher cost-per-visit rate, payments of sign-on and retention bonuses, increased clinician wages, and labor costs associated with acquisitions purchased during the latter half of 2021.

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Nine months ended September 30,
2021 2020
Home health services
Salaries, wages and benefits $ 601,998 52.0 % $ 561,783 52.0 %
Transportation 27,408 2.4 27,554 2.5
Supplies and services 33,731 2.9 41,772 3.9
Total $ 663,137 57.3 % $ 631,109 58.4 %
Hospice services
Salaries, wages and benefits $ 93,950 44.9 % $ 80,297 44.3 %
Transportation 6,151 2.9 5,604 3.1
Supplies and services 29,747 14.2 26,584 14.7
Total $ 129,848 62.0 % $ 112,485 62.1 %
Home and community-based services
Salaries, wages and benefits $ 101,711 71.0 % $ 109,594 75.8 %
Transportation 1,259 0.9 1,398 1.0
Supplies and services 971 0.7 2,872 2.0
Total $ 103,941 72.6 % $ 113,864 78.8 %
Facility-based services
Salaries, wages and benefits $ 48,420 50.0 % $ 46,575 48.2 %
Transportation 29 — 101 0.1
Supplies and services 16,911 17.5 17,664 18.3
Total $ 65,360 67.5 % $ 64,340 66.6 %
HCI
Salaries, wages and benefits $ 9,527 32.0 % $ 10,905 40.2 %
Transportation 166 0.6 205 0.8
Supplies and services 27 0.1 252 0.9
Total $ 9,720 32.7 % $ 11,362 41.9 %
Consolidated
Salaries, wages and benefits $ 855,606 52.3 % 809,154 52.9 %
Transportation 35,013 2.1 34,862 2.3
Supplies and services 81,387 5.0 89,144 5.8
Total $ 972,006 59.4 % $ 933,160 61.0 %

During 2021, cost of service revenue in our home health segment was impacted by the effective cost mitigation strategies associated with the implementation of PDGM. Cost of service revenue in our home and community-based segment declined due to the lower patient volumes resulting in a decrease in billable hours and a decrease in total costs. Supplies associated with COVID-19 decreased in all same-store locations in 2021 as compared to 2020 as we incurred substantial costs in 2020 to acquire needed personal protective equipment to protect our clinicians during the start of the global pandemic. We continue to purchase additional personal protective equipment; however, we are observing an overall decline in utilization and an overall price per unit decline for these supplies.

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~~


		Nine months ended September 30,									Nine months ended September 30,
		2021				2020					2022				2021
Home health services
Home health services:										Home health services:
General and administrative	General and administrative	$	360,727	31.2	%	$	335,892	31.1	%	General and administrative	$	377,970	32.8	%	$	360,727	31.2	%
Depreciation and amortization	Depreciation and amortization	8,610		0.7		9,132		0.8		Depreciation and amortization	9,512		0.8		8,610		0.7
Total	Total	$	369,337	31.9	%	$	345,024	31.9	%	Total	$	387,482	33.6	%	$	369,337	31.9	%
Hospice services
Hospice services:										Hospice services:
General and administrative	General and administrative	$	56,874	27.2	%	$	48,015	26.5	%	General and administrative	$	93,457	30.3	%	$	56,874	27.2	%
Depreciation and amortization	Depreciation and amortization	1,915		0.9		1,545		0.9		Depreciation and amortization	3,695		1.2		1,915		0.9
Total	Total	$	58,789	28.1	%	$	49,560	27.4	%	Total	$	97,152	31.5	%	$	58,789	28.1	%
Home and community-based services
Home and community-based services:										Home and community-based services:
General and administrative	General and administrative	$	34,016	23.7	%	$	32,303	22.4	%	General and administrative	$	34,806	25.4	%	$	34,016	23.7	%
Depreciation and amortization	Depreciation and amortization	1,200		0.8		1,217		0.8		Depreciation and amortization	949		0.7		1,200		0.8
Total	Total	$	35,216	24.5	%	$	33,520	23.2	%	Total	$	35,755	26.1	%	$	35,216	24.5	%
Facility-based services
Facility-based services:										Facility-based services:
General and administrative	General and administrative	$	30,765	31.8	%	$	29,174	30.2	%	General and administrative	$	33,121	35.1	%	$	30,765	31.8	%
Depreciation and amortization	Depreciation and amortization	2,448		2.5		2,810		2.9		Depreciation and amortization	2,616		2.8		2,448		2.5
Total	Total	$	33,213	34.3	%	$	31,984	33.1	%	Total	$	35,737	37.9	%	$	33,213	34.3	%
HCI
HCI:										HCI:
General and administrative	General and administrative	$	9,473	31.8	%	$	8,918	32.8	%	General and administrative	$	12,963	41.9	%	$	9,473	31.8	%
Depreciation and amortization	Depreciation and amortization	726		2.4		897		3.3		Depreciation and amortization	711		2.3		726		2.4
Total	Total	$	10,199	34.2	%	$	9,815	36.1	%	Total	$	13,674	44.2	%	$	10,199	34.2	%
Consolidated
Consolidated:										Consolidated:
General and administrative	General and administrative	$	491,855	30.1	%	$	454,302	29.7	%	General and administrative	$	552,317	32.0	%	$	491,855	30.1	%
Depreciation and amortization	Depreciation and amortization	14,899		0.9		15,601		1.0		Depreciation and amortization	17,483		1.0		14,899		0.9
Total	Total	$	506,754	31.0	%	$	469,903	30.7	%	Total	$	569,800	33.0	%	$	506,754	31.0	%

During ~~2021,~~2022, consolidated general and administrative expenses increased as a percentage of revenue from ~~30.7%~~31.0% to ~~31.0%~~33.0%. We incurred ~~$6.1 million of acquisition transaction expenses~~higher administrative costs related to acquisitions purchased during the ~~nine months ended September 30,~~latter half of 2021. ~~Our consolidated general and administrative expenses, excluding acquisition transaction expenses, remained flat comparing 2021 to 2020.~~

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our cash balance at September 30, ~~2021~~2022 was ~~$29.5~~$10.5 million and we have ~~$243.3~~$243.4 million of available liquidity from cash and our revolving credit facility, net of ~~$176.3~~$4.8 million liabilities associated with the CAAP. We have additional capacity in our revolving credit facility of ~~$500.0~~$300.0 million per our accordion expansion. Based on our current plan of operations, including acquisitions, we believe this amount, when combined with expected cash flows from operations, 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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		Nine months ended September 30,					Nine months ended September 30,
		2021		2020			2022		2021
Net cash provided by (used in):	Net cash provided by (used in):					Net cash provided by (used in):
Operating activities	Operating activities	$	(51,616)	$	455,743	Operating activities	$	10,038	$	(51,616)
Investing activities	Investing activities	(412,242)		(41,773)		Investing activities	(31,994)		(412,242)
Financing activities	Financing activities	206,805		(191,878)		Financing activities	22,669		206,805
Change in cash	Change in cash	$	(257,053)	$	222,092	Change in cash	$	713	$	(257,053)
Cash at beginning of period	Cash at beginning of period	286,569		31,672		Cash at beginning of period	9,809		286,569
Cash at end of period	Cash at end of period	$	29,516	$	253,764	Cash at end of period	$	10,522	$	29,516

~~The CARES Act provided additional cash~~We experienced a decline in net income during the nine months ended September 30, ~~2020~~2022 as compared to the nine months ended September 30, 2021. The decline was related to decreased census, increased labor costs, and increased ~~our net cash provided by operating activities by $317.9 million of Accelerated~~general and ~~Advance Payments and $33.6 million payment deferral of our portion of social security payroll tax. The initial impact of COVID-19 in 2020 also increased our prepaid medical supplies due~~administrative costs related to the ~~need~~Merger and acquisitions purchased during the latter part of ~~obtaining personal protective equipment to our clinicians~~2021. Our accounts payables and accrued expenses increased ~~our salaries, wages~~as we implemented a new enterprise system and ~~benefits associated with~~utilized payment management strategies incorporated within the ~~increased staffing demands associated with our response to COVID-19.~~

~~In 2021,~~new system. During the nine months ended September 30, 2022, CMS recouped ~~$141.6~~$101.6 million of the ~~Accelerated~~CAAP, as compared to $141.6 million during the nine months ended September 30, 2021.

We acquired $2.6 million in business combinations during the nine months ended September 30, 2022 as compared to $383.5 million of business combinations during the nine months ended September 30, 2021.

In addition, we utilized our credit agreement for funding of the share repurchase plan and ~~Advance Payments and we~~recoupments of the CAAP during the months ended September 30, 2022. We returned $93.3 million of Provider Relief Funds back to the ~~government. We paid $42.0 million in income taxes, of which $17.3 million related to~~government during the CARES Act legislation. In addition, we acquired businesses of $383.5 million and utilized our credit agreement for funding of these acquisitions. These cash outflows were offset by a reduction in our days sales outstanding and stabilized costs for needed personal protective equipment.nine months ended September 30, 2021.

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 provided a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $500.0 million, which included 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 was March 30, 2023.

On August 3, 2021, we entered into an Amended and Restated Senior Credit Facility (the "2021 Amended Credit Agreement"), which ~~amends and restates in its entirety the Credit Agreement. The 2021 Amended Credit Agreement provides~~provided a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $800.0 million, which ~~includes~~included an additional $500.0 million accordion expansion, and a letter of credit sub-limit equal to $75.0 million. On December 31, 2021, the aggregate commitment was increased to a maximum borrowing limit of $1.0 billion, with an additional $300.0 million accordion expansion. The expiration date of the 2021 Amended Credit Agreement is August 3, 2026.

Our obligations under the 2021 Amended Credit Agreement are secured by substantially all of our assets and our wholly-owned subsidiaries (subject to customary exclusions), which assets include our equity ownership of our wholly-owned subsidiaries and our equity ownership in joint venture entities. Our wholly-owned subsidiaries also guarantee the obligations of the Company under the 2021 Amended Credit Agreement.

Revolving loans under the 2021 Amended Credit Agreement bear interest, ~~at,~~ as selected us, at either (i) the prevailing London Interbank Offered Rate ("LIBOR") (with interest periods of one, three or six months at our option) plus a spread of 1.25% to 2.0% based on our quarterly consolidated Leverage Ratio or (ii) the prevailing prime or base rate plus a spread of 0.25% to 1.00% based on our quarterly consolidated Leverage Ratio. Swing line loans bear interest at the Base Rate. We are limited to 15 Eurodollar borrowings outstanding at any time. We are required to pay a commitment fee for the unused commitments at rates ranging from 0.15% to 0.30% per annum depending upon our quarterly consolidated Leverage Ratio. The Base Rate as of September 30, ~~2021~~2022 was ~~3.75%~~7.25% and the LIBOR rate was ~~1.63%~~5.13%. As of September 30, ~~2021,~~2022, the effective interest rate on outstanding borrowings under the 2021 Amended Credit Agreement was ~~1.63%~~4.98%.

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As of September 30, ~~2021,~~2022, we had ~~$355.0~~$738.0 million drawn, letters of credit issued in the amount of ~~$25.4~~$24.3 million, and ~~$419.6~~$237.7 million of remaining borrowing capacity available under the 2021 Amended Credit Agreement. At December 31, ~~2020,~~2021, we had ~~$20.0~~$661.2 million drawn and letters of credit issued in the amount of ~~$25.4~~$24.3 million under the 2021 Amended Credit Facility.

Under the 2021 Amended 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 2021 Amended Credit Agreement at either the Base Rate or the Eurodollar rate, and are subject to the applicable margins set forth below:


Leverage Ratio	Eurodollar Margin		Base Rate Margin		Commitment Fee Rate
≤1.00:1.00	1.25	%	0.25	%	0.15	%
>1.00:1.00 ≤ 2.00:1.00	1.50	%	0.50	%	0.20	%
>2.00:1.00 ≤ 3.00:1.00	1.75	%	0.75	%	0.25	%
>3.00:1.00	2.00	%	1.00	%	0.30	%

Our 2021 Amended 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 2021 Amended 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 September 30, ~~2021,~~2022, 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~~Part II. Item 7 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 2020our 2021 Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET ~~RISK.~~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 have increased our interest expense by ~~$1.2~~$5.8 million for the nine months ended September 30, ~~2021.~~

2022.

~~Table of Contents~~

ITEM 4. CONTROLS AND ~~PROCEDURES.~~PROCEDURES

Evaluation of Disclosure Controls and Procedures

Table of Contents

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 September 30, ~~2021,~~2022, 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.

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 September 30, ~~2021,~~2022, 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 September 30, ~~2021,~~2022, the end of the period covered by this Quarterly Report.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL ~~PROCEEDINGS.~~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.~~FACTORS

There have been no material changes in the Company’s risk factors from those in Part I, Item 1A, “Risk Factors” of our ~~2020~~2021 Form 10-K.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. ~~EXHIBITS.~~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 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
104			Cover Page Interactive Date File (embedded within the Inline XBRL 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: November ~~4, 2021~~3, 2022						/s/ Dale G. Mackel
						Dale G. Mackel
						Chief Financial Officer (Principal financial officer)

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	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 issued during the three months ended June 30, 2021	3,152	$	181.65
Shares issued during the three months ended September 30, 2021	3,445	$	190.25

Shares available as of September 30, 2021	108,335


	Three Months Ended September 30, 2020
	Home health services		Hospice services		Home and community-based services		Facility-based services		HCI		Total
Net service revenue	$	373,450	$	59,801	$	48,387	$	33,344	$	15,702	$	530,684
Cost of service revenue (excluding depreciation and amortization)	205,523		37,180		36,664		22,213		3,666		305,246
General and administrative expenses	118,792		16,668		10,937		11,439		3,627		161,463
Impairment of intangibles and other	22		—		—		—		—		22
Government stimulus (income) expense	35,019		4,731		2,865		1,656		164		44,435
Operating income (loss)	14,094		1,222		(2,079)		(1,964)		8,245		19,518
Interest expense	(310)		(51)		(37)		(22)		(11)		(431)
Income (loss) before income taxes and noncontrolling interest	13,784		1,171		(2,116)		(1,986)		8,234		19,087
Income tax expense (benefit)	3,403		247		(440)		(435)		1,820		4,595
Net income (loss)	10,381		924		(1,676)		(1,551)		6,414		14,492
Less net income (loss) attributable to noncontrolling interests	(157)		321		(153)		(12)		(7)		(8)
Net income (loss) attributable to LHC Group, Inc.'s common stockholders	$	10,538	$	603	$	(1,523)	$	(1,539)	$	6,421	$	14,500
Total assets	$	1,721,278	$	277,358	$	263,414	$	108,118	$	86,168	$	2,456,336


The below data for the three months ended September 30, 2021 was impacted by the COVID-19 pandemic.
	Organic (1)		Organic Growth (Loss) %		Acquired (2)		Total		Total Growth (Loss) %
Home health services
Revenue	$	389,670	4.5	%	$	3,014	$	392,684	4.7	%
Revenue Medicare	$	238,603	(2.6)		$	2,351	$	240,954	(2.2)
Admissions	107,442		3.6		1,050		108,492		4.0
Medicare Admissions	52,341		(5.7)		186		52,527		(6.0)
Average Census	83,777		2.5		481		84,258		2.4
Average Medicare Census	43,359		(7.4)		316		43,675		(7.3)
Home Health Episodes	83,635		(4.0)		915		84,550		(5.0)
Hospice services
Revenue	$	63,902	0.9		$	20,744	$	84,646	34.4
Revenue Medicare	$	59,326	2.4		$	19,146	$	78,472	36.2
Admissions	5,140		0.1		1,326		6,466		27.4
Medicare Admissions	4,606		0.1		1,146		5,752		25.9
Average Census	4,293		(2.5)		1,404		5,697		29.7
Average Medicare Census	4,057		(1.0)		1,277		5,334		30.4
Patient days	395,917		(2.2)		128,182		524,099		29.7
Home and community-based services
Revenue	$	46,278	(8.9)		$	79	$	46,357	(9.3)
Billable hours	1,813,284		(6.0)		4,427		1,817,711		(6.4)
Facility-based services
LTACHs
Revenue	$	31,241	(4.3)		$	245	$	31,486	(3.7)
Patient days	22,187		(8.4)		535		22,722		(6.4)
Other facility-based services
Revenue	$	1,303	(37.4)		$	—	$	1,303	(37.4)
HCI
Revenue	$	18,213	12.6		$	—	$	18,213	12.6
Consolidated
Revenue	$	550,607	2.7		$	24,082	$	574,689	6.4