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ADUS Addus HomeCare

Filed: 4 Aug 21, 4:01pm

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

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

 

For the quarterly period ended June 30, 2021

OR

 

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 001-34504

 

ADDUS HOMECARE CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

20-5340172

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

6303 Cowboys Way, Suite 600

Frisco, TX

 

75034

(Address of principal executive offices)

 

(Zip Code)

(469) 535-8200

(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, $0.001 par value

ADUS

The Nasdaq Global 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     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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     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.

 

 

 

 

 

 

 

 

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 

As of July 30, 2021, Addus HomeCare Corporation had 15,916,799 shares of Common Stock outstanding.

 

 

 

 


Table of Contents

 

 

 

ADDUS HOMECARE CORPORATION

FORM 10-Q

INDEX

 

PART I. FINANCIAL INFORMATION

3

 

 

Item 1. Financial Statements (Unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

3

 

 

Condensed Consolidated Statements of Income For the Three and Six Months Ended June 30, 2021 and 2020

4

 

 

Condensed Consolidated Statement of Stockholders’ Equity For the Three and Six Months Ended June 30, 2021 and 2020

5

 

 

Condensed Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2021 and 2020

6

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

35

 

 

Item 4. Controls and Procedures

35

 

 

PART II. OTHER INFORMATION

36

 

 

Item 1. Legal Proceedings

36

 

 

Item 1A. Risk Factors

36

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

36

 

 

Item 3. Defaults Upon Senior Securities

36

 

 

Item 4. Mine Safety Disclosures

36

 

 

Item 5. Other Information

36

 

 

Item 6. Exhibits

37

 

2


Table of Contents

 

 

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

 

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of June 30, 2021 and December 31, 2020

(Amounts and Shares in Thousands, Except Per Share Data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash

 

$

139,400

 

 

$

145,078

 

Accounts receivable, net

 

 

138,270

 

 

 

132,650

 

Prepaid expenses and other current assets

 

 

12,740

 

 

 

9,969

 

Total current assets

 

 

290,410

 

 

 

287,697

 

Property and equipment, net of accumulated depreciation and amortization

 

 

18,708

 

 

 

19,749

 

Other assets

 

 

 

 

 

 

 

 

Goodwill

 

 

469,476

 

 

 

469,072

 

Intangibles, net of accumulated amortization

 

 

67,247

 

 

 

71,549

 

Deferred tax assets, net

 

 

6,128

 

 

 

6,524

 

Operating lease assets, net

 

 

37,191

 

 

 

37,991

 

Total other assets

 

 

580,042

 

 

 

585,136

 

Total assets

 

$

889,160

 

 

$

892,582

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

23,942

 

 

$

23,705

 

Accrued payroll

 

 

33,836

 

 

 

35,815

 

Accrued expenses

 

 

35,717

 

 

 

37,564

 

Government stimulus advances

 

 

8,094

 

 

 

32,087

 

Accrued workers' compensation insurance

 

 

14,382

 

 

 

13,759

 

Current portion of long-term debt

 

 

973

 

 

 

971

 

Total current liabilities

 

 

116,944

 

 

 

143,901

 

Long-term liabilities

 

 

 

 

 

 

 

 

Long-term debt, less current portion, net of debt issuance costs

 

 

193,714

 

 

 

193,901

 

Long-term operating lease liabilities

 

 

34,339

 

 

 

35,516

 

Other long-term liabilities

 

 

108

 

 

 

588

 

Total long-term liabilities

 

 

228,161

 

 

 

230,005

 

Total liabilities

 

$

345,105

 

 

$

373,906

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock—$.001 par value; 40,000 authorized and 15,917 and 15,826 shares

   issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

$

16

 

 

$

16

 

Additional paid-in capital

 

 

374,383

 

 

 

369,495

 

Retained earnings

 

 

169,656

 

 

 

149,165

 

Total stockholders' equity

 

 

544,055

 

 

 

518,676

 

Total liabilities and stockholders' equity

 

$

889,160

 

 

$

892,582

 

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

3


Table of Contents

 

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the Three and Six Months Ended June 30, 2021 and 2020

(Amounts and Shares in Thousands, Except Per Share Data)

(Unaudited)

 

 

 

For the Three Months

Ended June 30,

 

 

For the Six Months

Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net service revenues

 

$

217,893

 

 

$

184,576

 

 

$

423,195

 

 

$

374,792

 

Cost of service revenues

 

 

149,083

 

 

 

129,579

 

 

 

293,188

 

 

 

263,960

 

Gross profit

 

 

68,810

 

 

 

54,997

 

 

 

130,007

 

 

 

110,832

 

General and administrative expenses

 

 

48,175

 

 

 

42,450

 

 

 

93,601

 

 

 

84,737

 

Depreciation and amortization

 

 

3,587

 

 

 

2,940

 

 

 

7,188

 

 

 

5,827

 

Total operating expenses

 

 

51,762

 

 

 

45,390

 

 

 

100,789

 

 

 

90,564

 

Operating income

 

 

17,048

 

 

 

9,607

 

 

 

29,218

 

 

 

20,268

 

Interest income

 

 

(31

)

 

 

(155

)

 

 

(53

)

 

 

(489

)

Interest expense

 

 

1,262

 

 

 

721

 

 

 

2,478

 

 

 

1,629

 

Total interest expense, net

 

 

1,231

 

 

 

566

 

 

 

2,425

 

 

 

1,140

 

Income before income taxes

 

 

15,817

 

 

 

9,041

 

 

 

26,793

 

 

 

19,128

 

Income tax expense

 

 

4,220

 

 

 

2,134

 

 

 

6,302

 

 

 

3,563

 

Net income

 

$

11,597

 

 

$

6,907

 

 

$

20,491

 

 

$

15,565

 

Net income per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income per share

 

$

0.74

 

 

$

0.44

 

 

$

1.30

 

 

$

1.00

 

Diluted income per share

 

$

0.72

 

 

$

0.43

 

 

$

1.28

 

 

$

0.98

 

Weighted average number of common shares and potential common

   shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

15,738

 

 

 

15,582

 

 

 

15,716

 

 

 

15,551

 

Diluted

 

 

16,043

 

 

 

15,916

 

 

 

16,063

 

 

 

15,917

 

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

4


Table of Contents

 

 

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three and Six Months Ended June 30, 2021 and 2020

(Amounts and Shares in Thousands)

(Unaudited)

 

 

For the Three Months Ended June 30, 2021

 

 

 

Common Stock

 

 

Additional

Paid-in

Capital

 

 

Retained

Earnings

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 1, 2021

 

 

15,903

 

 

$

16

 

 

$

371,835

 

 

$

158,059

 

 

$

529,910

 

Issuance of shares of common stock under

   restricted stock award agreements

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,525

 

 

 

 

 

 

2,525

 

Shares issued for exercise of stock options

 

 

1

 

 

 

 

 

 

23

 

 

 

 

 

 

23

 

Net income

 

 

 

 

 

 

 

 

 

 

 

11,597

 

 

 

11,597

 

Balance at June 30, 2021

 

 

15,917

 

 

$

16

 

 

$

374,383

 

 

$

169,656

 

 

$

544,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2021

 

 

 

Common Stock

 

 

Additional

Paid-in

Capital

 

 

Retained

Earnings

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2021

 

 

15,826

 

 

$

16

 

 

$

369,495

 

 

$

149,165

 

 

$

518,676

 

Issuance of shares of common stock under

   restricted stock award agreements

 

 

88

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,764

 

 

 

 

 

 

4,764

 

Shares issued for exercise of stock options

 

 

3

 

 

 

 

 

 

124

 

 

 

 

 

 

124

 

Net income

 

 

 

 

 

 

 

 

 

 

 

20,491

 

 

 

20,491

 

Balance at June 30, 2021

 

 

15,917

 

 

$

16

 

 

$

374,383

 

 

$

169,656

 

 

$

544,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30, 2020

 

 

 

Common Stock

 

 

Additional

Paid-in

Capital

 

 

Retained

Earnings

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 1, 2020

 

 

15,660

 

 

$

16

 

 

$

362,102

 

 

$

124,690

 

 

$

486,808

 

Forfeiture of shares of common stock under

   restricted stock award agreements

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,118

 

 

 

 

 

 

1,118

 

Shares issued for exercise of stock options

 

 

6

 

 

 

 

 

 

28

 

 

 

 

 

 

28

 

Net income

 

 

 

 

 

 

 

 

 

 

 

6,907

 

 

 

6,907

 

Balance at June 30, 2020

 

 

15,665

 

 

$

16

 

 

$

363,248

 

 

$

131,597

 

 

$

494,861

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2020

 

 

 

Common Stock

 

 

Additional

Paid-in

Capital

 

 

Retained

Earnings

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2020

 

 

15,617

 

 

$

15

 

 

$

359,545

 

 

$

116,032

 

 

$

475,592

 

Forfeiture of shares of common stock under

   restricted stock award agreements

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,525

 

 

 

 

 

 

2,525

 

Shares issued for exercise of stock options

 

 

54

 

 

 

1

 

 

 

1,178

 

 

 

 

 

 

1,179

 

Net income

 

 

 

 

 

 

 

 

 

 

 

15,565

 

 

 

15,565

 

Balance at June 30, 2020

 

 

15,665

 

 

$

16

 

 

$

363,248

 

 

$

131,597

 

 

$

494,861

 

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

5


Table of Contents

 

 

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2021 and 2020

(Amounts in Thousands)

(Unaudited)

 

 

 

For the Six Months

 

 

 

Ended June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

20,491

 

 

$

15,565

 

Adjustments to reconcile net income to net cash (used in) provided by operating

   activities, net of acquisitions:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,188

 

 

 

5,827

 

Deferred income taxes

 

 

396

 

 

 

100

 

Stock-based compensation

 

 

4,764

 

 

 

2,525

 

Amortization of debt issuance costs under the credit facility

 

 

368

 

 

 

370

 

Provision for doubtful accounts

 

 

529

 

 

 

436

 

Loss (gain) of disposal of assets

 

 

 

 

 

352

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(6,232

)

 

 

23,342

 

Prepaid expenses and other current assets

 

 

(3,004

)

 

 

(3,608

)

Government stimulus advances

 

 

(23,993

)

 

 

 

Accounts payable

 

 

111

 

 

 

(2,700

)

Accrued payroll

 

 

(1,900

)

 

 

(1,800

)

Accrued expenses and other long-term liabilities

 

 

(2,039

)

 

 

10,478

 

Net cash (used in) provided by operating activities

 

 

(3,321

)

 

 

50,887

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,847

)

 

 

(4,842

)

Acquisitions of businesses, net of cash acquired

 

 

(81

)

 

 

(295

)

Proceeds from disposal of assets

 

 

 

 

 

172

 

Net cash used in investing activities

 

 

(1,928

)

 

 

(4,965

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payments on term loan — credit facility

 

 

(490

)

 

 

(245

)

Cash received from exercise of stock options

 

 

124

 

 

 

1,179

 

Other

 

 

(63

)

 

 

(21

)

Net cash (used in) provided by financing activities

 

 

(429

)

 

 

913

 

Net change in cash

 

 

(5,678

)

 

 

46,835

 

Cash, at beginning of period

 

 

145,078

 

 

 

111,714

 

Cash, at end of period

 

$

139,400

 

 

$

158,549

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

2,136

 

 

$

992

 

Cash paid for income taxes

 

 

10,950

 

 

 

6,414

 

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

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Table of Contents

 

 

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Nature of Operations, Consolidation, and Presentation of Financial Statements

Addus HomeCare Corporation (“Holdings”) and its subsidiaries (together with Holdings, the “Company”, “we”, “us” or “our”) operate as a multi-state provider of 3 distinct but related business segments providing in-home services. In its personal care services segment, the Company provides non-medical assistance with activities of daily living, primarily to persons who are at increased risk of hospitalization or institutionalization, such as the elderly, chronically ill or disabled. In its hospice segment, the Company provides physical, emotional and spiritual care for people who are terminally ill as well as related services for their families. In its home health segment, the Company provides services that are primarily medical in nature to individuals who may require assistance during an illness or after hospitalization and include skilled nursing and physical, occupational and speech therapy. The Company’s payors include federal, state and local governmental agencies, managed care organizations, commercial insurers and private individuals.

Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements and related notes have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for Quarterly Reports on Form 10-Q. The accompanying balance sheet as of December 31, 2020 has been derived from the Company’s audited financial statements for the year ended December 31, 2020 previously filed with the SEC. Accordingly, these financial statements do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements and should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2020 included in our Annual Report on Form 10-K, which includes information and disclosures not included herein.

In the opinion of management, these financial statements reflect all adjustments of a normal, recurring nature necessary for the fair statement of our financial position, results of operations, and cash flows for the interim periods presented in conformity with GAAP. Our results for any interim period are not necessarily indicative of results for a full year or any other interim period.

Principles of Consolidation

These Unaudited Condensed Consolidated Financial Statements include the accounts of Addus HomeCare Corporation, and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Estimates

The financial statements are prepared by management in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) and include estimated amounts and certain disclosures based on assumptions about future events. The Company’s critical accounting estimates include the following areas: revenue recognition, allowance for doubtful accounts, intangible assets acquired in business combinations and, when required, the quantitative impairment assessment of goodwill and indefinite lived intangible assets. Actual results could differ from those estimates.

Diluted Net Income Per Common Share

Diluted net income per common share, calculated on the treasury stock method, is based on the weighted average number of shares outstanding during the period. The Company’s outstanding securities that may potentially dilute the common stock are stock options and restricted stock awards.

As of June 30, 2021 and 2020, dilutive stock options outstanding were approximately 526,000 and 579,000, respectively, and dilutive restricted stock awards outstanding were approximately 172,000 and 72,000, respectively.

Included in the Company’s calculation of diluted earnings per share for the three and six months ended June 30, 2021, dilutive stock options outstanding were approximately 286,000 and 298,000, respectively. In addition, dilutive restricted stock awards outstanding were approximately 20,000 and 49,000 for the three and six months ended June 30, 2021, respectively.

Included in the Company’s calculation of diluted earnings per share for the three and six months ended June 30, 2020, dilutive stock options outstanding were approximately 296,000 and 304,000, respectively. In addition, dilutive restricted stock awards outstanding were approximately 37,000 and 63,000 for the three and six months ended June 30, 2020, respectively.

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Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies various aspects related to accounting for income taxes and removes certain exceptions to the general guidance in ASC 740. In addition, the ASU clarifies and amends existing guidance to improve consistent application of its requirements. The ASU was adopted as of January 1, 2021 and did not have an impact on the Company’s results of operations or liquidity.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, and other transactions subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. Therefore, it will be in effect for a limited time through December 31, 2022. The ASU can be adopted no later than December 1, 2022 with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance.

3. Leases

Amounts reported in the Company’s Unaudited Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 for our operating leases were as follows:

 

 

 

June 30, 2021

 

 

December 31, 2020

 

 

 

(Amounts in Thousands)

 

Operating lease assets, net

 

$

37,191

 

 

$

37,991

 

 

 

 

 

 

 

 

 

 

Short-term operating lease liabilities (in accrued expenses)

 

 

9,621

 

 

 

9,283

 

Long-term operating lease liabilities

 

 

34,339

 

 

 

35,516

 

Total operating lease liabilities

 

$

43,960

 

 

$

44,799

 

 

Lease Costs

Components of lease costs were reported in general and administrative expenses in the Company’s Unaudited Condensed Consolidated Statements of Income as follows:

 

 

 

For the Three Months Ended June 30,

(Amounts in Thousands)

 

 

For the Six Months Ended June 30,

(Amounts in Thousands)

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating lease costs

 

$

2,775

 

 

$

2,120

 

 

$

5,552

 

 

$

4,238

 

Short-term lease costs

 

 

194

 

 

 

161

 

 

 

375

 

 

 

428

 

Less: sublease income

 

 

(152

)

 

 

(74

)

 

 

(303

)

 

 

(149

)

Total lease costs, net

 

$

2,817

 

 

$

2,207

 

 

$

5,624

 

 

$

4,517

 

 

Lease Term and Discount Rate

Weighted average remaining lease terms and discount rates were as follows:

 

 

 

June 30, 2021

 

 

December 31, 2020

 

Operating leases:

 

 

 

 

 

 

 

 

Weighted average remaining lease term

 

 

6.72

 

 

 

6.97

 

Weighted average discount rate

 

 

4.03

%

 

 

4.18

%

 

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Maturity of Lease Liabilities

A summary of our remaining operating lease payments as of June 30, 2021 were as follows:

 

 

 

Operating Leases

 

 

 

(Amounts in Thousands)

 

Due in the 12-month period ended June 30,

 

 

 

 

2022

 

$

10,967

 

2023

 

 

9,012

 

2024

 

 

7,109

 

2025

 

 

4,960

 

2026

 

 

3,289

 

Thereafter

 

 

15,095

 

Total future minimum rental commitments

 

 

50,432

 

Less: Imputed interest

 

 

(6,472

)

Total lease liabilities

 

$

43,960

 

 

Supplemental cash flows information

 

 

 

For the Six Months Ended June 30,

(Amounts in Thousands)

 

 

 

2021

 

 

2020

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

5,313

 

 

$

4,321

 

 

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease obligations:

 

 

 

 

 

 

 

 

Operating leases

 

 

3,919

 

 

 

2,441

 

 

4. Acquisitions

The Company’s acquisitions have been accounted for in accordance with ASC Topic 805, Business Combinations, and the resulting goodwill and other intangible assets were accounted for under ASC Topic 350, Goodwill and Other Intangible Assets. Under business combination accounting, the assets and liabilities are generally recognized at their fair values and the difference between the consideration transferred, excluding transaction costs, and the fair values of the assets and liabilities is recognized as goodwill. The results of each business acquisition are included on the Unaudited Condensed Consolidated Statements of Income from the date of the acquisition.

Management’s assessment of qualitative factors affecting goodwill for each acquisition includes estimates of market share at the date of purchase, ability to grow in the market, synergy with existing Company operations and the payor profile in the markets.

Queen City Hospice

On December 4, 2020, we completed the acquisition of Queen City Hospice, LLC and its affiliate Miracle City Hospice, LLC (together “Queen City Hospice”). The purchase price was approximately $194.8 million, including the amount of acquired excess cash held by Queen City Hospice at the closing of the acquisition (approximately $15.4 million). The purchase of Queen City Hospice was funded with the Company’s revolving credit facility and available cash. With the purchase of Queen City Hospice, the Company expanded its hospice services in the state of Ohio. The related integration costs were $0.8 million and $1.7 million for the three and six months ended June 30, 2021, respectively. These costs were included in general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income and were expensed as incurred.

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Based upon management’s valuations, which are preliminary and subject to completion of working capital adjustments, the fair values of the assets and liabilities acquired are as follows:

 

 

 

Total

(Amounts in Thousands)

 

Goodwill

 

$

169,356

 

Identifiable intangible assets

 

 

20,015

 

Cash

 

 

15,444

 

Property and equipment

 

 

759

 

Accounts receivable

 

 

5,835

 

Operating lease assets, net

 

 

3,028

 

Other assets

 

 

94

 

Accounts payable

 

 

(2,257

)

Accrued expenses

 

 

(503

)

Accrued payroll

 

 

(1,555

)

Long-term operating lease liabilities

 

 

(2,765

)

Government stimulus advances

 

 

(12,694

)

Total purchase price

 

$

194,757

 

 

Identifiable intangible assets acquired included $11.0 million in trade names and $1.5 million of non-competition agreements with estimated useful lives of fifteen years and five years, respectively, and $7.5 million of indefinite lived state licenses. The preliminary estimated fair value of identifiable intangible assets was determined with the assistance of a valuation specialist, using Level 3 inputs as defined under ASC Topic 820. The fair value analysis and related valuations reflect the conclusions of management. All estimates, key assumptions, and forecasts were either provided by or reviewed by the Company. The goodwill and intangible assets acquired are deductible for tax purposes.

County Homemakers

On November 1, 2020, we completed the acquisition of County Homemakers. The purchase price was approximately $15.8 million, including the amount of acquired excess cash held by County Homemakers at the closing of the acquisition (approximately $1.1 million). The purchase of County Homemakers was funded with the Company’s available cash. With the purchase of County Homemakers, the Company expanded its personal care services in the state of Pennsylvania. The related integration costs were $0.2 million for the six months ended June 30, 2021. These costs were included in general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income and were expensed as incurred.

Based upon management’s valuations, which are preliminary and subject to completion of working capital adjustments, the fair values of the assets and liabilities acquired are as follows:

 

 

 

Total

(Amounts in Thousands)

 

Goodwill

 

$

13,457

 

Identifiable intangible assets

 

 

474

 

Cash

 

 

1,104

 

Property and equipment

 

 

52

 

Accounts receivable

 

 

1,396

 

Operating lease assets, net

 

 

485

 

Other assets

 

 

40

 

Accounts payable

 

 

(122

)

Accrued expenses

 

 

(37

)

Accrued payroll

 

 

(543

)

Long-term operating lease liabilities

 

 

(485

)

Total purchase price

 

$

15,821

 

 

Identifiable intangible assets acquired included approximately $0.3 million in state licenses and $0.1 million in trade names with estimated useful lives of eight years and one year, respectively. The preliminary estimated fair value of identifiable intangible assets was determined with the assistance of a valuation specialist, using Level 3 inputs as defined under ASC Topic 820. The fair value analysis and related valuations reflect the conclusions of management. All estimates, key assumptions, and forecasts were either provided by or reviewed by the Company. The goodwill and intangible assets acquired are deductible for tax purposes.

A Plus Health Care

On July 1, 2020, we completed the acquisition of A Plus Health Care, Inc. (“A Plus”). The purchase price was approximately $14.5 million, including the amount of acquired excess cash held by A Plus at the closing of the acquisition (approximately $2.8 million). The purchase of A Plus was funded with the Company’s available cash. With the purchase of A Plus, the Company expanded its personal care services in the state of

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Montana. The related integration costs were $0.1 million for the six months ended June 30, 2021. These costs were included in general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income and were expensed as incurred.

Based upon management’s final valuations, the fair values of the assets and liabilities acquired are as follows:

 

 

 

Total

(Amounts in Thousands)

 

Goodwill

 

$

9,732

 

Identifiable intangible assets

 

 

1,523

 

Cash

 

 

2,819

 

Accounts receivable

 

 

1,009

 

Operating lease assets, net

 

 

180

 

Other assets

 

 

26

 

Accounts payable

 

 

(34

)

Accrued expenses

 

 

(353

)

Accrued payroll

 

 

(275

)

Long-term operating lease liabilities

 

 

(100

)

Total purchase price

 

$

14,527

 

 

Identifiable intangible assets acquired included $1.4 million in trade names with an estimated useful life of fifteen years. The estimated fair value of identifiable intangible assets was determined with the assistance of a valuation specialist, using Level 3 inputs as defined under ASC Topic 820. The fair value analysis and related valuations reflect the conclusions of management. All estimates, key assumptions, and forecasts were either provided by or reviewed by the Company. The goodwill and intangible assets acquired are deductible for tax purposes.

SunLife Home Care

On December 1, 2020, we completed the acquisition of SunLife Home Care (“SunLife”) for approximately $1.7 million and recorded goodwill of $1.6 million. With the purchase of SunLife, we expanded our personal care services in the state of Arizona. Goodwill generated from the acquisition is primarily attributable to expected synergies with existing Company operations and the goodwill acquired is deductible for tax purposes.

The following table contains unaudited pro forma condensed consolidated income statement information of the Company for the three and six months ended June 30, 2020 as if each of the acquisitions of Queen City Hospice, County Homemakers and A Plus closed on January 1, 2020.

 

 

 

For the Three Months Ended June 30, 2020

(Amounts in Thousands)

 

 

For the Six Months Ended June 30, 2020

(Amounts in Thousands)

 

Net service revenues

 

$

203,465

 

 

$

412,434

 

Operating income

 

 

11,344

 

 

 

23,941

 

Net income

 

 

8,354

 

 

 

18,661

 

Net income per common share

 

 

 

 

 

 

 

 

Basic income per share

 

$

0.54

 

 

$

1.20

 

Diluted income per share

 

$

0.52

 

 

$

1.17

 

 

The pro forma disclosures in the table above include adjustments for amortization of intangible assets, tax expense and acquisition costs to reflect results that are more representative of the combined results of the transactions as if Queen City Hospice, County Homemakers and A Plus had been acquired effective January 1, 2020. This pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have actually occurred. In addition, future results may vary significantly from the results reflected in the pro forma information. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, such as anticipated cost savings from operating synergies.

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5. Goodwill and Intangible Assets

The goodwill for the Company was $469.5 million and $469.1 million as of June 30, 2021 and December 31, 2020, respectively.

A summary of the goodwill activity for the six months ended June 30, 2021 is provided below:

 

 

 

Goodwill

 

 

 

Hospice

 

 

Personal Care

 

 

Home Health

 

 

Total

 

 

 

(Amounts in Thousands)

 

Goodwill as of December 31, 2020

 

$

314,833

 

 

$

152,448

 

 

$

1,791

 

 

$

469,072

 

Additions for acquisitions

 

 

 

 

 

115

 

 

 

 

 

 

115

 

Adjustments to previously recorded goodwill

 

 

149

 

 

 

140

 

 

 

 

 

 

289

 

Goodwill as of June 30, 2021

 

$

314,982

 

 

$

152,703

 

 

$

1,791

 

 

$

469,476

 

 

The Company’s identifiable intangible assets consist of customer and referral relationships, trade names and trademarks, non-competition agreements and state licenses. Amortization is computed using straight-line and accelerated methods based upon the estimated useful lives of the respective assets, which range from one to twenty-five years. Customer and referral relationships are amortized systematically over the periods of expected economic benefit, which range from five to ten years.

The carrying amount and accumulated amortization of each identifiable intangible asset category consisted of the following as of June 30, 2021:

 

 

 

Customer

and referral

relationships

 

 

Trade

names and

trademarks

 

 

Non-

competition

agreements

 

 

State

Licenses

 

 

Total

 

 

 

(Amounts in Thousands)

 

Intangible assets with indefinite lives

 

$

 

 

$

 

 

$

 

 

$

20,791

 

 

$

20,791

 

Intangible assets subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross carrying amount

 

 

44,672

 

 

 

42,926

 

 

 

6,225

 

 

 

12,507

 

 

 

106,330

 

Accumulated amortization

 

 

(35,391

)

 

 

(17,106

)

 

 

(3,336

)

 

 

(4,041

)

 

 

(59,874

)

Intangible assets subject to amortization, net

 

 

9,281

 

 

 

25,820

 

 

 

2,889

 

 

 

8,466

 

 

 

46,456

 

Total intangible assets at June 30, 2021

 

$

9,281

 

 

$

25,820

 

 

$

2,889

 

 

$

29,257

 

 

$

67,247

 

 

Amortization expense related to the identifiable intangible assets amounted to $2.1 million and $4.3 million for the three and six months ended June 30, 2021, respectively, and $1.8 million and $3.5 million for the three and six months ended June 30, 2020, respectively. The weighted average remaining useful lives of identifiable intangible assets as of June 30, 2021 is 9.5 years.

6. Details of Certain Balance Sheet Accounts

Prepaid expenses and other current assets consisted of the following:

 

 

June 30, 2021

 

 

December 31, 2020

 

 

 

(Amounts in Thousands)

 

Prepaid workers’ compensation and liability insurance

 

$

2,782

 

 

$

2,838

 

Workers' compensation insurance receivable

 

 

1,860

 

 

 

1,860

 

Health insurance receivable

 

 

1,108

 

 

 

528

 

Other

 

 

6,990

 

 

 

4,743

 

Total prepaid expenses and other current assets

 

$

12,740

 

 

$

9,969

 

 

 

Accrued expenses consisted of the following:

 

 

 

June 30, 2021

 

 

December 31, 2020

 

 

 

(Amounts in Thousands)

 

Current portion of operating lease liabilities

 

$

9,621

 

 

$

9,283

 

Payor advances (1)

 

 

6,375

 

 

 

4,206

 

Accrued health insurance

 

 

5,010

 

 

 

5,607

 

Accrued professional fees

 

 

3,729

 

 

 

4,220

 

Accrued payroll taxes

 

 

1,812

 

 

 

4,543

 

Other

 

 

9,170

 

 

 

9,705

 

Total accrued expenses

 

$

35,717

 

 

$

37,564

 

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(1)

Represents the deferred portion of payments received from payors for COVID-19 reimbursements which will be recognized as we incur specific COVID-19 related expenses (including expenses related to securing and maintaining adequate personnel) or will be returned to the extent such related expenses are not incurred.

Government stimulus advances consisted of the following:

 

 

 

June 30, 2021

 

 

December 31, 2020

 

 

 

(Amounts in Thousands)

 

Payroll tax deferral

 

$

7,141

 

 

$

7,141

 

Provider Relief Fund

 

 

953

 

 

 

12,252

 

CMS advanced payment program — Queen City Hospice

 

 

 

 

 

10,801

 

Provider Relief Fund — Queen City Hospice

 

 

 

 

 

1,893

 

Total government stimulus advances

 

$

8,094

 

 

$

32,087

 

In recognition of the significant threat to the liquidity of financial markets posed by the COVID-19 pandemic, the Federal Reserve and Congress have taken dramatic actions to provide liquidity to businesses and the banking system in the United States. One of the primary sources of relief for healthcare providers is the CARES Act, which was expanded by the PPPHCE Act, and the CAA. The American Rescue Plan Act of 2021 (“ARPA”), another relief package with numerous provisions that affect healthcare providers, was signed into law in March 2021. See Note 9 for additional information regarding government actions to mitigate COVID-19’s impact.

Provider Relief Fund

In total, the CARES Act and other relief legislation include over $178 billion in funding to be distributed through the Provider Relief Fund to eligible providers, including public entities and Medicare- and/or Medicaid-enrolled providers. In November 2020, the Company received grants in an aggregate principal amount of $13.7 million from the Provider Relief Fund, for which we had previously applied. The Company utilized $10.4 million and $11.3 million of these funds for the three and six months ended June 30, 2021, respectively, for healthcare related expenses, including retention payments, attributable to COVID-19 that were unreimbursed by other sources. In accordance with the current guidance issued by HHS, the Company expects to utilize additional funds through December 31, 2021, at which point we anticipate any unused funds will be returned. We are required to properly and fully document the use of such funds in reports to HHS, which must be submitted no later than March 31, 2022. The Company’s ability to utilize and retain some or all of such funds will depend on the magnitude, timing and nature of the impact of the COVID-19 pandemic, as well as the terms and conditions of the funds received. Queen City Hospice administered retention payments totaling $1.9 million to caregivers for the three and six months ended June 30, 2021, which we believe to be necessary to secure and maintain adequate personnel. Commercial organizations that receive and expend annual total awards of $750,000 or more in federal funding, including payments received through the Provider Relief Fund, are subject to federal audit requirements.

Medicare Accelerated and Advance Payment Program – Queen City Hospice

The CARES Act expanded the Medicare Accelerated and Advance Payment Program to increase cash flow to providers impacted by the COVID-19 pandemic. Hospice and home health providers were able to request an advance or accelerated payment of up to 100% of the Medicare payment amount for a three-month period (not including Medicare Advantage payments). The Medicare Accelerated and Advance Payment Program payments are a loan that providers must repay. In April 2020, Queen City Hospice received an amount equal to $10.8 million pursuant to the Medicare Accelerated and Advance Payment Program. Queen City Hospice did 0t repay the funds prior to the completion of our acquisition of Queen City Hospice. However, Queen City Hospice repaid such funds following its acquisition in March 2021, prior to any CMS recoupment and before any interest accrual.

Payroll tax deferral

The CARES Act also provides for certain federal income and other tax changes, including allowing for the deferral of the employer portion of Social Security payroll taxes through December 31, 2020. The Company received a cash benefit of approximately $7.1 million related to the deferral of employer payroll taxes for 2020 under the CARES Act, for the period April 2, 2020 through June 30, 2020. Effective July 1, 2020, the Company began paying its deferred portion of employer Social Security payroll taxes and expects to repay the $7.1 million in the fourth quarter of 2021.

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7. Long-Term Debt

Long-term debt consisted of the following:

 

 

 

June 30, 2021

 

 

December 31, 2020

 

 

 

(Amounts in Thousands)

 

Revolving loan under the credit facility

 

$

178,458

 

 

$

178,458

 

Term loan under the credit facility

 

 

17,640

 

 

 

18,130

 

Less unamortized issuance costs

 

 

(1,411

)

 

 

(1,716

)

Total

 

$

194,687

 

 

$

194,872

 

Less current maturities

 

 

(973

)

 

 

(971

)

Long-term debt

 

$

193,714

 

 

$

193,901

 

Amended and Restated Senior Secured Credit Facility

On October 31, 2018, the Company entered into the Amended and Restated Credit Agreement, dated as of October 31, 2018, with certain lenders and Capital One, National Association, as a lender and as agent for all lenders (as amended by the Amendment (as hereinafter defined), the “Credit Agreement”). This credit facility totaled $269.6 million, inclusive of a $250.0 million revolving loan and a $19.6 million delayed draw term loan, and is evidenced by the Credit Agreement. This credit facility amended and restated the Company’s existing senior secured credit facility totaling $250.0 million. As used throughout this Quarterly Report on Form 10-Q, “credit facility” shall mean the credit facility evidenced by the Credit Agreement. The maturity of this credit facility is May 8, 2023. Interest on the Company’s credit facility may be payable at (x) the sum of (i) an applicable margin ranging from 0.75% to 1.50% based on the applicable senior net leverage ratio plus (ii) a base rate equal to the greatest of (a) the rate of interest last quoted by The Wall Street Journal as the “prime rate,” (b) the sum of the federal funds rate plus a margin of 0.50% and (c) the sum of the adjusted LIBOR that would be applicable to a loan with an interest period of one month advanced on the applicable day (not to be less than 0.00%) plus a margin of 1.00% or (y) the sum of (i) an applicable margin ranging from 1.75% to 2.50% based on the applicable senior net leverage ratio plus (ii) the offered rate per annum for similar dollar deposits for the applicable interest period that appears on Reuters Screen LIBOR01 Page (not to be less than zero). Swing loans may not be LIBOR loans. The availability of additional draws under this credit facility is conditioned, among other things, upon (after giving effect to such draws) the Total Net Leverage Ratio (as defined in the Credit Agreement) not exceeding 3.75:1.00. In certain circumstances, in connection with a Material Acquisition (as defined in the Credit Agreement), the Company can elect to increase its Total Net Leverage Ratio compliance covenant to 4.25:1.00 for the then current fiscal quarter and the three succeeding fiscal quarters.

Addus HealthCare, Inc. (“Addus HealthCare”) is the borrower, and its parent, Holdings, and substantially all of Holdings’ subsidiaries are guarantors under this credit facility, and it is collateralized by a first priority security interest in all of the Company’s and the other credit parties’ current and future tangible and intangible assets, including the shares of stock of the borrower and subsidiaries. The Credit Agreement contains affirmative and negative covenants customary for credit facilities of this type, including limitations on the Company with respect to liens, indebtedness, guaranties, investments, distributions, mergers and acquisitions and dispositions of assets.

The Company pays a fee ranging from 0.20% to 0.35% based on the applicable senior net leverage ratio times the unused portion of the revolving loan portion of the credit facility.

The Credit Agreement contains customary affirmative covenants regarding, among other things, the maintenance of records, compliance with laws, maintenance of permits, maintenance of insurance and property and payment of taxes. The Credit Agreement also contains certain customary financial covenants and negative covenants that, among other things, include a requirement to maintain a minimum Interest Coverage Ratio (as defined in the Credit Agreement), a requirement to stay below a maximum Total Net Leverage Ratio (as defined in the Credit Agreement) and a requirement to stay below a maximum permitted amount of capital expenditures. The Credit Agreement also contains restrictions on guarantees, indebtedness, liens, investments and loans, subject to customary carve outs, a restriction on dividends (provided that Addus HealthCare may make distributions to the Company in an amount that does not exceed $7.5 million in any year absent of an event of default, plus limited exceptions for tax and administrative distributions), a restriction on the ability to consummate acquisitions (without the consent of the lenders) under its credit facility subject to compliance with the Total Net Leverage Ratio (as defined in the Credit Agreement thresholds), restrictions on mergers, dispositions of assets, and affiliate transactions, and restrictions on fundamental changes and lines of business. As of June 30, 2021, the Company was in compliance with all financial covenants under the Credit Agreement.

On September 12, 2019, the Company entered into a First Amendment (the “Amendment”) to its Credit Agreement. The Amendment increased the Company’s credit facility by $50.0 million in incremental revolving loans, for an aggregate $300.0 million in revolving loans. The Amendment provides that future incremental loans may be for term loans or an increase to the revolving loan commitments. The Amendment further provides that the proceeds of such $50.0 million incremental revolving loans may be used for, among other things, general corporate purposes.

On July 30, 2021, the Company entered into a Second Amendment (the “Second Amendment”) to its Credit Agreement, see Note 12 for additional information.

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During the six months ended June 30, 2021 and 2020, the Company had 0 draws under its credit facility.

As of June 30, 2021, the Company had a total of $178.5 million of revolving loans, with an interest rate of 2.08%, and $17.6 million of term loans, with an interest rate of 2.09%, outstanding on its credit facility. After giving effect to the amount drawn on its credit facility, approximately $8.7 million of outstanding letters of credit and borrowing limits based on an advance multiple of adjusted EBITDA (as defined in the Credit Agreement), the Company had $112.8 million available for borrowing under its credit facility. As of December 31, 2020, the Company had a total of $178.5 million of revolving loans, with an interest rate of 1.90%, and $18.1 million of term loans, with an interest rate of 1.90%, outstanding on its credit facility.

8. Income Taxes

The effective income tax rates were 26.7% and 23.6% for the three months ended June 30, 2021 and 2020, respectively. The difference between our federal statutory and effective income tax rates is principally due to the inclusion of state taxes and non-deductible compensation partially offset by the use of federal employment tax credits.

The effective income tax rates were 23.5% and 18.6% for the six months ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021, the difference between our federal statutory and effective income tax rates was principally due to the inclusion of state taxes and non-deductible compensation partially offset by the use of federal employment tax credits and excess tax benefit. For the six months ended June 30, 2020, the difference between our federal statutory and effective income tax rates was principally due to the inclusion of an excess tax benefit and the use of federal employment tax credits partially offset by state taxes and non-deductible compensation. For the six months ended June 30, 2021 and 2020, the effective tax rates were inclusive of an excess tax benefit of 3.0% and 7.5%, respectively. The excess tax benefit is a discrete item, related to the vesting of equity shares, which requires the Company to recognize the benefit fully in the period. An excess tax benefit results if the Company’s income tax deduction exceeds the cumulative costs of the award recognized on the Unaudited Condensed Consolidated Statements of Income.

9. Commitments and Contingencies

Government Actions to Mitigate COVID-19’s Impact

On January 31, 2020, the Secretary of the U.S. Department of Health and Human Services (“HHS”) declared a national public health emergency due to a novel coronavirus. In March 2020, the World Health Organization declared the outbreak of COVID-19, a disease caused by this novel coronavirus, a pandemic. This disease continues to impact the United States and other parts of the world.

In recognition of the significant threat to the liquidity of financial markets posed by the COVID-19 pandemic, the Federal Reserve and Congress have taken dramatic actions to provide liquidity to businesses and the banking system in the United States. For example, on March 27, 2020, the CARES Act, a sweeping stimulus bill intended to bolster the U.S. economy, was enacted. The PPPHCE Act and the CAA both expansions of the CARES Act, were signed into law on April 24, 2020 and December 27, 2020, respectively. In total, the CARES Act, the PPPHCE Act and CAA authorize $178 billion in funding to be distributed to health care providers through the Provider Relief Fund. This funding is intended to support healthcare providers by reimbursing them for healthcare-related expenses or lost revenues attributable to COVID-19. On March 11, 2021, the ARPA was signed into law, another COVID-19 relief package with numerous provisions that affect healthcare providers, including additional funding targeted to specified healthcare providers and to improve coronavirus testing and vaccine-related activities.

In addition to the Provider Relief Fund, the CARES Act and related laws include temporary changes to Medicare and Medicaid payment rules and relief from certain accounting provisions. For example, the laws temporarily lift the Medicare sequester, which would have otherwise reduced payments to Medicare providers by 2% as required by the Budget Control Act of 2011, from May 1, 2020, through December 31, 2021 (but also extend sequestration through 2030). This Medicare sequester relief resulted in an increase of $0.1 million and $0.2 million to home health net service revenues, and $0.7 million and $1.4 million, to hospice net service revenues for the three and six months ended June 30, 2021, respectively. For the three months ended June 30, 2020, the Medicare sequester relief resulted in an increase of $0.3 million and $0.1 million, respectively, to hospice and home health net service revenues. However, the ARPA increases the federal budget deficit in a manner that triggers an additional statutorily mandated sequestration under the Pay-As-You-Go Act of 2010 (“PAYGO Act”). As a result, absent congressional action, Medicare spending will be reduced by up to 4% in fiscal year 2022, in addition to the existing sequestration requirements of the Budget Control Act of 2011. We cannot currently determine if, or to what extent, our business, results of operations, financial condition or liquidity will ultimately be impacted by mandated sequestration triggers under the PAYGO Act, or if the mandated sequestration will occur.

While conditions related to the COVID-19 pandemic have improved in recent months in the United States as vaccinations have become more widely available, it is impossible to predict the effect and ultimate impact of the COVID-19 pandemic on the Company as the situation continues to evolve. See Note 6 for additional information regarding government stimulus advances the Company has received.

Legal Proceedings

From time to time, the Company is subject to legal and/or administrative proceedings incidental to its business.

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On June 2, 2021, the Company received a $6.5 million Request for Repayment from Palmetto, GBA, LLC (“Palmetto”), a Medicare administrative contractor, regarding Ambercare Hospice Inc. (“Ambercare”), our subsidiary that provides hospice services in New Mexico. The Centers for Medicare and Medicaid Services Office of Inspector General’s Office of Audit Services (“OAS”) had in 2018 initiated a clinical review of certain hospice claims billed during a timeframe from January 1, 2016 to December 31, 2017. The OAS review concluded that certain payments to Ambercare for hospice services during the review period were made in error. The Company acquired Ambercare in May 2018 and has a contractual right to full indemnification from any potential losses from the OAS review through the terms of the Ambercare purchase agreement. The Company disputes the results of the OAS review and related asserted billing errors and is in the process of filing administrative appeals. At this stage, the Company cannot predict the ultimate outcome of the appeal process. 

It is the opinion of management that the outcome of pending legal and/or administrative proceedings will not have a material effect on the Company’s Unaudited Condensed Consolidated Balance Sheets and Unaudited Condensed Consolidated Statements of Income.

10. Segment Information

Operating segments are defined as components of a company that engage in business activities from which it may earn revenues and incur expenses, and for which separate financial information is available and is regularly reviewed by the Company’s chief operating decision makers, to assess the performance of the individual segments and make decisions about resources to be allocated to the segments. The Company operates as a multi-state provider of 3 distinct but related business segments providing in-home services.

In its personal care segment, the Company provides non-medical assistance with activities of daily living, primarily to persons who are at increased risk of hospitalization or institutionalization, such as the elderly, chronically ill or disabled. In its hospice segment, the Company provides physical, emotional and spiritual care for people who are terminally ill as well as related services for their families. In its home health segment, the Company provides services that are primarily medical in nature to individuals who may require assistance during an illness or after hospitalization and include skilled nursing and physical, occupational and speech therapy.

The tables below set forth information about the Company’s reportable segments for the three and six months ended June 30, 2021 and 2020, along with the items necessary to reconcile the segment information to the totals reported in the accompanying Unaudited Condensed Consolidated Financial Statements. Segment assets are not reviewed by the Company’s chief operating decision maker function and therefore are not disclosed below.

Segment operating income consists of revenue generated by a segment, less the direct costs of service revenues and general and administrative expenses that are incurred directly by the segment. Unallocated general and administrative costs are those costs for functions performed in a centralized manner and therefore not attributable to a particular segment. These costs include accounting, finance, human resources, legal, information technology, corporate office support and facility costs and overall corporate management.

 

 

 

For the Three Months Ended June 30, 2021

 

 

 

(Amounts in Thousands)

 

 

 

Personal Care

 

 

Hospice

 

 

Home Health

 

 

Total

 

Net service revenues

 

$

176,267

 

 

$

36,909

 

 

$

4,717

 

 

$

217,893

 

Cost of services revenues

 

 

127,258

 

 

 

18,912

 

 

 

2,913

 

 

 

149,083

 

Gross profit

 

 

49,009

 

 

 

17,997

 

 

 

1,804

 

 

 

68,810

 

General and administrative expenses

 

 

16,358

 

 

 

8,673

 

 

 

968

 

 

 

25,999

 

Segment operating income

 

$

32,651

 

 

$

9,324

 

 

$

836

 

 

$

42,811

 

 

 

 

For the Three Months Ended June 30, 2020

 

 

 

(Amounts in Thousands)

 

 

 

Personal Care

 

 

Hospice

 

 

Home Health

 

 

Total

 

Net service revenues

 

$

156,268

 

 

$

24,525

 

 

$

3,783

 

 

$

184,576

 

Cost of services revenues

 

 

115,822

 

 

 

10,924

 

 

 

2,833

 

 

 

129,579

 

Gross profit

 

 

40,446

 

 

 

13,601

 

 

 

950

 

 

 

54,997

 

General and administrative expenses

 

 

14,603

 

 

 

6,297

 

 

 

883

 

 

 

21,783

 

Segment operating income

 

$

25,843

 

 

$

7,304

 

 

$

67

 

 

$

33,214

 

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For the Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

 

(Amounts in Thousands)

 

Segment reconciliation:

 

 

 

 

 

 

 

 

Total segment operating income

 

$

42,811

 

 

$

33,214

 

 

 

 

 

 

 

 

 

 

Items not allocated at segment level:

 

 

 

 

 

 

 

 

Other general and administrative expenses

 

 

22,176

 

 

 

20,667

 

Depreciation and amortization

 

 

3,587

 

 

 

2,940

 

Interest income

 

 

(31

)

 

 

(155

)

Interest expense

 

 

1,262

 

 

 

721

 

Income before income taxes

 

$

15,817

 

 

$

9,041

 

 

 

 

 

 

For the Six Months Ended June 30, 2021

 

 

 

(Amounts in Thousands)

 

 

 

Personal Care

 

 

Hospice

 

 

Home Health

 

 

Total

 

Net service revenues

 

$

341,135

 

 

$

73,003

 

 

$

9,057

 

 

$

423,195

 

Cost of services revenues

 

 

250,097

 

 

 

37,508

 

 

 

5,583

 

 

 

293,188

 

Gross profit

 

 

91,038

 

 

 

35,495

 

 

 

3,474

 

 

 

130,007

 

General and administrative expenses

 

 

31,641

 

 

 

17,136

 

 

 

1,933

 

 

 

50,710

 

Segment operating income

 

$

59,397

 

 

$

18,359

 

 

$

1,541

 

 

$

79,297

 

 

 

 

 

 

For the Six Months Ended June 30, 2020

 

 

 

(Amounts in Thousands)

 

 

 

Personal Care

 

 

Hospice

 

 

Home Health

 

 

Total

 

Net service revenues

 

$

316,933

 

 

$

49,737

 

 

$

8,122

 

 

$

374,792

 

Cost of services revenues

 

 

234,850

 

 

 

23,242

 

 

 

5,868

 

 

 

263,960

 

Gross profit

 

 

82,083

 

 

 

26,495

 

 

 

2,254

 

 

 

110,832

 

General and administrative expenses

 

 

30,205

 

 

 

12,754

 

 

 

1,905

 

 

 

44,864

 

Segment operating income

 

$

51,878

 

 

$

13,741

 

 

$

349

 

 

$

65,968

 

 

 

 

 

 

For the Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

 

(Amounts in Thousands)

 

Segment reconciliation:

 

 

 

 

 

 

 

 

Total segment operating income

 

$

79,297

 

 

$

65,968

 

 

 

 

 

 

 

 

 

 

Items not allocated at segment level:

 

 

 

 

 

 

 

 

Other general and administrative expenses

 

 

42,891

 

 

 

39,873

 

Depreciation and amortization

 

 

7,188

 

 

 

5,827

 

Interest income

 

 

(53

)

 

 

(489

)

Interest expense

 

 

2,478

 

 

 

1,629

 

Income before income taxes

 

$

26,793

 

 

$

19,128

 

 

 

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11. Significant Payors

For the three and six months ended June 30, 2021 and 2020, the Company’s revenue by payor type was as follows:

 

 

 

Personal Care

 

 

 

 

For the Three Months Ended June 30,

 

 

 

For the Six Months Ended June 30,

 

 

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

State, local and other

   governmental programs

 

$

88,382

 

 

 

50.2

 

%

 

$

78,054

 

 

 

50.0

 

%

 

$

169,231

 

 

 

49.6

 

%

 

$

157,398

 

 

 

49.7

 

%

Managed care organizations

 

 

78,865

 

 

 

44.7

 

 

 

 

69,282

 

 

 

44.3

 

 

 

 

154,321

 

 

 

45.2

 

 

 

 

141,393

 

 

 

44.6

 

 

Private pay

 

 

5,046

 

 

 

2.9

 

 

 

 

4,986

 

 

 

3.2

 

 

 

 

9,949

 

 

 

2.9

 

 

 

 

10,257

 

 

 

3.2

 

 

Commercial insurance

 

 

2,676

 

 

 

1.5

 

 

 

 

2,394

 

 

 

1.5

 

 

 

 

5,022

 

 

 

1.5

 

 

 

 

4,970

 

 

 

1.6

 

 

Other

 

 

1,298

 

 

 

0.7

 

 

 

 

1,552

 

 

 

1.0

 

 

 

 

2,612

 

 

 

0.8

 

 

 

 

2,915

 

 

 

0.9

 

 

Total personal care segment

   net service revenues

 

$

176,267

 

 

 

100.0

 

%

 

$

156,268

 

 

 

100.0

 

%

 

$

341,135

 

 

 

100.0

 

%

 

$

316,933

 

 

 

100.0

 

%

 

 

 

Hospice

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

Amount (in Thousands)

 

 

% of

Segment Net Service Revenues

 

 

Amount (in Thousands)

 

 

% of

Segment Net Service Revenues

 

 

Amount (in Thousands)

 

 

% of

Segment Net Service Revenues

 

 

Amount (in Thousands)

 

 

% of

Segment Net Service Revenues

 

 

Medicare

 

$

34,452

 

 

 

93.3

 

%

$

22,753

 

 

 

92.8

 

%

$

68,437

 

 

 

93.8

 

%

$

45,971

 

 

 

92.4

 

%

Managed care organizations

 

 

1,395

 

 

 

3.8

 

 

 

1,198

 

 

 

4.9

 

 

 

2,882

 

 

 

3.9

 

 

 

2,578

 

 

 

5.2

 

 

Other

 

 

1,062

 

 

 

2.9

 

 

 

574

 

 

 

2.3

 

 

 

1,684

 

 

 

2.3

 

 

 

1,188

 

 

 

2.4

 

 

Total hospice segment net service revenues

 

$

36,909

 

 

 

100.0

 

%

$

24,525

 

 

 

100.0

 

%

$

73,003

 

 

 

100.0

 

%

$

49,737

 

 

 

100.0

 

%

 

 

 

Home Health

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

Amount (in Thousands)

 

 

% of

Segment Net Service Revenues

 

 

Amount (in Thousands)

 

 

% of

Segment Net Service Revenues

 

 

Amount (in Thousands)

 

 

% of

Segment Net Service Revenues

 

 

Amount (in Thousands)

 

 

% of

Segment Net Service Revenues

 

 

Medicare

 

$

3,825

 

 

 

81.1

 

%

$

3,010

 

 

 

79.6

 

%

$

7,327

 

 

 

80.9

 

%

$

6,480

 

 

 

79.8

 

%

Managed care organizations

 

 

822

 

 

 

17.4

 

 

 

688

 

 

 

18.2

 

 

 

1,620

 

 

 

17.9

 

 

 

1,495

 

 

 

18.4

 

 

Other

 

 

70

 

 

 

1.5

 

 

 

85

 

 

 

2.2

 

 

 

110

 

 

 

1.2

 

 

 

147

 

 

 

1.8

 

 

Total home health segment net service revenues

 

$

4,717

 

 

 

100.0

 

%

$

3,783

 

 

 

100.0

 

%

$

9,057

 

 

 

100.0

 

%

$

8,122

 

 

 

100.0

 

%

 

The Company derives a significant amount of its revenue from its operations in Illinois, New York and New Mexico. The percentages of segment revenue for each of these significant states for the three and six months ended June 30, 2021 and 2020 were as follows:

 

 

 

Personal Care

 

 

 

 

For the Three Months Ended June 30,

 

 

 

For the Six Months Ended June 30,

 

 

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

Illinois

 

$

84,788

 

 

 

48.0

 

%

 

$

69,052

 

 

 

44.2

 

%

 

$

158,172

 

 

 

46.3

 

%

 

$

140,598

 

 

 

44.4

 

%

New York

 

 

25,535

 

 

 

14.5

 

 

 

 

27,244

 

 

 

17.4

 

 

 

 

53,110

 

 

 

15.6

 

 

 

 

59,082

 

 

 

18.6

 

 

New Mexico

 

 

25,484

 

 

 

14.5

 

 

 

 

21,831

 

 

 

14.0

 

 

 

 

49,077

 

 

 

14.4

 

 

 

 

42,525

 

 

 

13.4

 

 

All other states

 

 

40,460

 

 

 

23.0

 

 

 

 

38,141

 

 

 

24.4

 

 

 

 

80,776

 

 

 

23.7

 

 

 

 

74,728

 

 

 

23.6

 

 

Total personal care segment

   net service revenues

 

$

176,267

 

 

 

100.0

 

%

 

$

156,268

 

 

 

100.0

 

%

 

$

341,135

 

 

 

100.0

 

%

 

$

316,933

 

 

 

100.0

 

%

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Hospice

 

 

 

 

For the Three Months Ended June 30,

 

 

 

For the Six Months Ended June 30,

 

 

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

 

 

 

Amount (in Thousands)

 

 

% of Segment Net Service Revenues

 

 

 

Amount (in Thousands)

 

 

% of Segment Net Service Revenues

 

 

 

Amount

(in Thousands)

 

 

% of Segment Net Service Revenues

 

 

 

Amount (in Thousands)

 

 

% of Segment Net Service Revenues

 

 

Ohio

 

$

14,694

 

 

 

39.8

 

%

 

$

 

 

 

 

%

 

$

28,808

 

 

 

39.4

 

%

 

$

 

 

 

 

%

New Mexico

 

 

8,717

 

 

 

23.6

 

 

 

 

11,443

 

 

 

46.7

 

 

 

 

17,948

 

 

 

24.6

 

 

 

 

22,452

 

 

 

45.1

 

 

All other states

 

 

13,498

 

 

 

36.6

 

 

 

 

13,082

 

 

 

53.3

 

 

 

 

26,247

 

 

 

36.0

 

 

 

 

27,285

 

 

 

54.9

 

 

Total hospice segment net service revenues

 

$

36,909

 

 

 

100.0

 

%

 

$

24,525

 

 

 

100.0

 

%

 

$

73,003

 

 

 

100.0

 

%

 

$

49,737

 

 

 

100.0

 

%

 

With the acquisition of Queen City Hospice, the Company expanded our hospice services in the state of Ohio.

 

 

 

Home Health

 

 

 

 

For the Three Months Ended June 30,

 

 

 

For the Six Months Ended June 30,

 

 

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

 

 

 

Amount (in Thousands)

 

 

% of Segment Net Service Revenues

 

 

 

Amount (in Thousands)

 

 

% of Segment Net Service Revenues

 

 

 

Amount

(in Thousands)

 

 

% of Segment Net Service Revenues

 

 

 

Amount

(in Thousands)

 

 

% of Segment Net Service Revenues

 

 

New Mexico

 

$

4,717

 

 

 

100.0

 

%

 

$

3,783

 

 

 

100.0

 

%

 

$

9,057

 

 

 

100.0

 

%

 

$

8,122

 

 

 

100.0

 

%

Total home health segment net service revenues

 

$

4,717

 

 

 

100.0

 

%

 

$

3,783

 

 

 

100.0

 

%

 

$

9,057

 

 

 

100.0

 

%

 

$

8,122

 

 

 

100.0

 

%

A substantial portion of the Company’s revenue and accounts receivable are derived from services performed for federal, state and local governmental agencies. We derive a significant amount of our net service revenues in Illinois, which represented 38.9%, and 37.4% of our net service revenues for the three months ended June 30, 2021, and 2020, respectively, and accounted for 37.4% and 37.5% of our net service revenues for the six months ended June 30, 2021 and 2020, respectively. The Illinois Department on Aging, the largest payor program for the Company’s Illinois personal care operations, accounted for 22.6% and 23.2% of the Company’s net service revenues for the three months ended June 30, 2021 and 2020, respectively, and accounted for 21.5% and 23.2% of the Company’s net service revenues for the six months ended June 30, 2021 and 2020, respectively.

The related receivables due from the Illinois Department on Aging represented 16.7% and 15.9% of the Company’s net accounts receivable at June 30, 2021 and December 31, 2020, respectively.

12. Subsequent Events

On July 30, 2021, the Company entered into the Second Amendment to its Credit Agreement. The Second Amendment, among other things, reallocated and refinanced the Company’s outstanding initial term loans as revolving loans (such that the Company has 0 outstanding initial term loans and no further initial term loans may be borrowed) and increased the Company’s revolving credit facility to an aggregate amount of $600,000,000. Moreover, the Second Amendment increased the Company’s incremental loan facility to an aggregate amount $125,000,000, which incremental loan facility may be for term loans or an increase to the revolving loan commitments. The maturity of the revolving credit facility was also extended from May 8, 2023 to July 30, 2026.

On August 1, 2021, we completed the acquisition of Armada Skilled Homecare of New Mexico LLC, Armada Hospice of New Mexico LLC and Armada Hospice of Santa Fe LLC (“Armada”) for approximately $29.1 million, with funding provided by the revolving credit facility. With the purchase of Armada, the Company expanded our home health and hospice services in the state of New Mexico. The Company is currently assessing the fair value of identifiable net assets acquired.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion together with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements about our business and operations. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words like “believes,” “belief,” “expects,” “plans,” “anticipates,” “intends,” “projects,” “estimates,” “may,” “might,” “would,” “should” and similar expressions are intended to be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the future impact to our business with respect to developments related to the COVID-19 pandemic, including, without limitation, the impact of government regulation and stimulus measures, including the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), Paycheck Protection Program and Health Care Enhancement Act (“PPPHCE Act”), the Consolidated Appropriations Act, 2021 (“CAA”), the COVID-Related Tax Relief Act of 2020, the American Rescue Plan of 2021 (“ARPA”) and other stimulus legislation, along with the related uncertainties regarding the implementation of such stimulus measures and any future stimulus measures related to COVID-19; increased expenses related to personal protective equipment (“PPE”), labor, supply chain, or other expenditures; workforce disruptions and supply shortages and disruptions; changes in operational and reimbursement processes and payment structures at the state or federal levels; changes in Medicaid, Medicare, other government program and managed care organizations policies and payment rates; changes in, or our failure to comply with, existing, federal and state laws or regulations, or our failure to comply with new government laws or regulations on a timely basis; competition in the healthcare industry; the geographical concentration of our operations; changes in the case mix of consumers and payment methodologies; operational changes resulting from the assumption by managed care organizations of responsibility for managing and paying for our services to consumers; the nature and success of future financial and/or delivery system reforms; changes in estimates and judgments associated with critical accounting policies; our ability to maintain or establish new referral sources; our ability to renew significant agreements or groups of agreements; our ability to attract and retain qualified personnel; federal, city and state minimum wage pressure, including any failure of Illinois or any other governmental entity to enact a minimum wage offset and/or the timing of any such enactment; changes in payments and covered services due to the overall economic conditions, including economic and business conditions resulting from the COVID-19 pandemic, and deficit spending by federal and state governments; cost containment initiatives undertaken by state and other third-party payors; our ability to access financing through the capital and credit markets; our ability to meet debt service requirements and comply with covenants in debt agreements; business disruptions due to natural disasters, acts of terrorism, pandemics, riots, civil insurrection or social unrest, looting, protests, strikes or street demonstrations; our ability to integrate and manage our information systems; our ability to prevent cyber-attacks or security breaches to protect our computer systems and confidential consumer data; our expectations regarding the size and growth of the market for our services; the acceptance of privatized social services; our expectations regarding changes in reimbursement rates; eligibility standards and limits on services imposed by state governmental agencies; the potential for litigation; discretionary determinations by government officials; our ability to successfully implement our business model to grow our business; our ability to continue identifying, pursuing, consummating and integrating acquisition opportunities and expand into new geographic markets; the impact of acquisitions and dispositions on our business, including the potential inability to realize the benefits of the acquisition of Queen City Hospice, LLC and its affiliate Miracle City Hospice, LLC (together “Queen City Hospice”); the potential impact of the discontinuation or modification of LIBOR; the effectiveness, quality and cost of our services; our ability to successfully execute our growth strategy; changes in tax rates; the impact of public health emergencies; the impact of inclement weather or natural disasters; and various other matters, many of which are beyond our control. In addition, these forward-looking statements are subject to the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the period ended December 31, 2020, filed with the SEC on March 1, 2021. You should carefully review all of these factors. Moreover, our business may be materially adversely affected by factors that are not currently known to us, by factors that we currently consider immaterial or by factors that are not specific to us, such as general economic conditions. These forward-looking statements were based on information, plans and estimates at the date of this report, and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes, except as may be required by law.

Overview

We are a home care services provider operating in three segments: personal care, hospice and home health. Our services are principally provided in-home under agreements with federal, state and local government agencies, managed care organizations, commercial insurers and private individuals. Our consumers are predominantly “dual eligible,” meaning they are eligible to receive both Medicare and Medicaid benefits. Managed care revenues accounted for 37.2% and 38.6% of our net service revenues during the three months ended June 30, 2021 and 2020, respectively, and 37.5% and 38.8% of our net service revenues during the six months ended June 30, 2021 and 2020, respectively.

A summary of our financial results for the three and six months ended June 30, 2021 and 2020 is provided in the table below.

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(Amounts in Thousands)

 

 

(Amounts in Thousands)

 

Net service revenues

 

$

217,893

 

 

$

184,576

 

 

$

423,195

 

 

$

374,792

 

Net income

 

$

11,597

 

 

$

6,907

 

 

$

20,491

 

 

$

15,565

 

 

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As of June 30, 2021, we provided our services in 22 states through 207 offices. For the six months ended June 30, 2021 and 2020, we served approximately 56,000 and 55,000 discrete individuals, respectively. Our personal care segment also includes staffing services, with clients including assisted living facilities, nursing homes and hospice facilities.

COVID-19 Pandemic Update

COVID-19, the disease caused by a novel coronavirus, continues to be widespread throughout the United States and other parts of the world. Governments and public health officials continue to recommend and mandate certain precautions to mitigate the spread of the virus. The number of cases of COVID-19 has decreased in the United States in recent months as vaccines have become more widely available, and a significant number of restrictions related to the COVID-19 pandemic in the United States have been eliminated or relaxed as the result of such decrease. In connection with the decrease in the number of COVID-19 cases and the change of restrictions in the United States, economic conditions in the United States have significantly improved during 2021. However in July 2021, due in part to the emergence of new variants of the novel coronavirus, as well as low vaccination rates and an increase in the number of COVID-19 cases in certain parts of the United States and other parts of the world, certain governments and public health officials in the United States and globally have begun to recommend the reinstitution of certain mitigation strategies, such as masking. As such, it is difficult to predict the future impact of the pandemic on economic conditions in the United States and our business at this time.

For the three and six months ended June 30, 2021, COVID-19-related expenses in our personal care segment were approximately $11.4 million and 13.3 million, respectively, which were offset by $10.4 million and $11.3 million, respectively, related to the utilization of a portion of the funds received from the Provider Relief Fund in November 2020 and included in cost of service revenues on the Condensed Consolidated Statements of Income. As of June 30, 2021, the Company deferred the recognition of the remaining Provider Relief Fund of approximately $1.0 million, which will be recognized as we incur specific expenses related to the pandemic, or we anticipate will be returned, to the extent COVID-19-related expenses are not incurred, by December 31, 2021. Additionally, we recognized revenue of $3.1 million and $4.8 million attributable to temporary rate increases from certain payors in our personal care segment for the three and six months ended June 30, 2021, respectively.

For the three and six months ended June 30, 2021, COVID-19-related expenses in our hospice segment were approximately $1.9 million, which were offset by $1.9 million, related to the utilization of a portion of the funds received from the Queen City Hospice Provider Relief Fund and included in cost of service revenues on the Condensed Consolidated Statements of Income.

As of June 30, 2021, the Company deferred the recognition of $6.4 million of payments received from payors for COVID-19 reimbursement, included within accrued expenses, which will be recognized as we incur specific expenses related to the pandemic, such as expenses related to acquiring additional PPE, or will be returned to the extent COVID-19-related expenses are not incurred. We are not able to reasonably predict the total costs we will incur related to the COVID-19 pandemic, and such costs could be substantial.

Due to lower COVID-19 infection rates and the widespread availability of vaccinations, various restriction that previously limited non-essential employment opportunities in most states that we operate in have been lifted. Consequently, the competition for new caregivers has increased. The continuation of enhanced unemployment benefits also continues to impact our ability to attract new caregivers. For example, the Continued Assistance for Unemployed Workers Act, signed into law on December 27, 2020, provides up to 50 weeks of unemployment benefits plus an additional $300 per week in supplemental benefits. As these enhanced unemployment benefits begin to phase-out we continue to believe that the near term hiring challenges for new caregivers will alleviate to a certain degree. However, in the event that we return to a period of low unemployment in the United States, it may hinder our ability to attract and retain sufficient caregivers.

Federal agencies continue to issue regulations and guidance related to the COVID-19 pandemic, and the public health situation continues to evolve, and, therefore, we cannot currently predict with certainty the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted. We will continue to assess the impact and consequences of COVID-19 and government responses to the pandemic, including the enactment and implementation of the CARES Act, the PPPHCE Act, the CAA, the ARPA and other stimulus legislation, on our business, results of operations, financial condition and cash flows. Given the dynamic nature of these circumstances, the related financial effect cannot be reasonably estimated at this time but is not expected to materially adversely impact our business. See Part I, Item 1A—“Risk Factors — The COVID-19 pandemic could negatively affect our operations, business and financial condition, and our liquidity could also be negatively impacted, particularly if the U.S. economy remains unstable for a significant amount of time” of our Annual Report on Form 10-K for the period ended December 31, 2020, filed with the SEC on March 1, 2021.

See “Liquidity and Capital Resources” below for additional information regarding funds received related to COVID-19 relief.

Acquisitions

In addition to our organic growth, we have grown through acquisitions that have expanded our presence in current markets or facilitated our entry into new markets where in-home care has been moving to managed care organizations.

On July 1, 2020, we completed the acquisition of A Plus for approximately $14.5 million, including the amount of excess cash held by A Plus at the closing of the acquisition (approximately $2.8 million), with funding provided by available cash. With the purchase of A Plus, we expanded our personal care services in the state of Montana.

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On November 1, 2020, we completed the acquisition of County Homemakers for approximately $15.8 million, including the amount of acquired excess cash held by County Homemakers at the closing of the acquisition (approximately $1.1 million), with funding provided by available cash. With the purchase of County Homemakers, we expanded our personal care services in the state of Pennsylvania.

On December 4, 2020, we completed the acquisition of Queen City Hospice for approximately $194.8 million, including the amount of acquired excess cash held by Queen City Hospice at the closing of the acquisition (approximately $15.4 million). With the purchase of Queen City Hospice, we expanded our hospice services in the state of Ohio. Additionally, on December 1, 2020, we completed the acquisition of SunLife Home Care for approximately $1.7 million. With the purchase of SunLife Home Care, we expanded our personal care services in the state of Arizona. We funded these acquisitions through a combination of our revolving credit facility and available cash.

On August 1, 2021, we completed the acquisition of Armada Skilled Homecare of New Mexico LLC, Armada Hospice of New Mexico LLC and Armada Hospice of Santa Fe LLC (“Armada”) for approximately $29.1 million, with funding provided by our revolving credit facility. With the purchase of Armada, we increased our clinical depth and operational strength in New Mexico and enhanced our ability to provide all three levels of home care in the state.

Revenue by Payor and Significant States

Our payor clients are principally federal, state and local governmental agencies and managed care organizations. The federal, state and local programs under which the agencies operate are subject to legislative, budgetary and other risks that can influence reimbursement rates. We are experiencing a transition of business from government payors to managed care organizations, which we believe aligns with our emphasis on coordinated care and the reduction of the need for acute care.

For the three and six months ended June 30, 2021 and 2020, our revenue by payor and significant states by segment were as follows:  

 

 

 

Personal Care

 

 

 

 

For the Three Months Ended June 30,

 

 

 

For the Six Months Ended June 30,

 

 

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

State, local and other

   government programs

 

$

88,382

 

 

 

50.2

 

%

 

$

78,054

 

 

 

50.0

 

%

 

$

169,231

 

 

 

49.6

 

%

 

$

157,398

 

 

 

49.7

 

%

Managed care organizations

 

 

78,865

 

 

 

44.7

 

 

 

 

69,282

 

 

 

44.3

 

 

 

 

154,321

 

 

 

45.2

 

 

 

 

141,393

 

 

 

44.6

 

 

Private pay

 

 

5,046

 

 

 

2.9

 

 

 

 

4,986

 

 

 

3.2

 

 

 

 

9,949

 

 

 

2.9

 

 

 

 

10,257

 

 

 

3.2

 

 

Commercial insurance

 

 

2,676

 

 

 

1.5

 

 

 

 

2,394

 

 

 

1.5

 

 

 

 

5,022

 

 

 

1.5

 

 

 

 

4,970

 

 

 

1.6

 

 

Other

 

 

1,298

 

 

 

0.7

 

 

 

 

1,552

 

 

 

1.0

 

 

 

 

2,612

 

 

 

0.8

 

 

 

 

2,915

 

 

 

0.9

 

 

Total personal care segment net

   service revenues

 

$

176,267

 

 

 

100.0

 

%

 

$

156,268

 

 

 

100.0

 

%

 

$

341,135

 

 

 

100.0

 

%

 

$

316,933

 

 

 

100.0

 

%

Illinois

 

$

84,788

 

 

 

48.0

 

%

 

$

69,052

 

 

 

44.2

 

%

 

$

158,172

 

 

 

46.3

 

%

 

$

140,598

 

 

 

44.4

 

%

New York

 

 

25,535

 

 

 

14.5

 

 

 

 

27,244

 

 

 

17.4

 

 

 

 

53,110

 

 

 

15.6

 

 

 

 

59,082

 

 

 

18.6

 

 

New Mexico

 

 

25,484

 

 

 

14.5

 

 

 

 

21,831

 

 

 

14.0

 

 

 

 

49,077

 

 

 

14.4

 

 

 

 

42,525

 

 

 

13.4

 

 

All other states

 

 

40,460

 

 

 

23.0

 

 

 

 

38,141

 

 

 

24.4

 

 

 

 

80,776

 

 

 

23.7

 

 

 

 

74,728

 

 

 

23.6

 

 

Total personal care segment net

   service revenues

 

$

176,267

 

 

 

100.0

 

%

 

$

156,268

 

 

 

100.0

 

%

 

$

341,135

 

 

 

100.0

 

%

 

$

316,933

 

 

 

100.0

 

%

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Hospice

 

 

 

 

For the Three Months Ended June 30,

 

 

 

For the Six Months Ended June 30,

 

 

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

Medicare

 

$

34,452

 

 

 

93.3

 

%

 

$

22,753

 

 

 

92.8

 

%

 

$

68,437

 

 

 

93.8

 

%

 

$

45,971

 

 

 

92.4

 

%

Managed care organizations

 

 

1,395

 

 

 

3.8

 

 

 

 

1,198

 

 

 

4.9

 

 

 

 

2,882

 

 

 

3.9

 

 

 

 

2,578

 

 

 

5.2

 

 

Other

 

 

1,062

 

 

 

2.9

 

 

 

 

574

 

 

 

2.3

 

 

 

 

1,684

 

 

 

2.3

 

 

 

 

1,188

 

 

 

2.4

 

 

Total hospice segment net

   service revenues

 

$

36,909

 

 

 

100.0

 

%

 

$

24,525

 

 

 

100.0

 

%

 

$

73,003

 

 

 

100.0

 

%

 

$

49,737

 

 

 

100.0

 

%

Ohio

 

$

14,694

 

 

 

39.8

 

%

 

$

 

 

 

 

%

 

$

28,808

 

 

 

39.4

 

%

 

$

 

 

 

 

%

New Mexico

 

 

8,717

 

 

 

23.6

 

 

 

 

11,443

 

 

 

46.7

 

 

 

 

17,948

 

 

 

24.6

 

 

 

 

22,452

 

 

 

45.1

 

 

All other states

 

 

13,498

 

 

 

36.6

 

 

 

 

13,082

 

 

 

53.3

 

 

 

 

26,247

 

 

 

36.0

 

 

 

 

27,285

 

 

 

54.9

 

 

Total hospice segment net

   service revenues

 

$

36,909

 

 

 

100.0

 

%

 

$

24,525

 

 

 

100.0

 

%

 

$

73,003

 

 

 

100.0

 

%

 

$

49,737

 

 

 

100.0

 

%

With the acquisition of Queen City Hospice, the Company expanded our hospice services in the state of Ohio.

 

 

 

Home Health

 

 

 

 

For the Three Months Ended June 30,

 

 

 

For the Six Months Ended June 30,

 

 

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

(in Thousands)

 

 

% of

Segment

Net Service

Revenues

 

 

Medicare

 

$

3,825

 

 

 

81.1

 

%

 

$

3,010

 

 

 

79.6

 

%

 

$

7,327

 

 

 

80.9

 

%

 

$

6,480

 

 

 

79.8

 

%

Managed care organizations

 

 

822

 

 

 

17.4

 

 

 

 

688

 

 

 

18.2

 

 

 

 

1,620

 

 

 

17.9

 

 

 

 

1,495

 

 

 

18.4

 

 

Other

 

 

70

 

 

 

1.5

 

 

 

 

85

 

 

 

2.2

 

 

 

 

110

 

 

 

1.2

 

 

 

 

147

 

 

 

1.8

 

 

Total home health segment

   net service revenues

 

$

4,717

 

 

 

100.0

 

%

 

$

3,783

 

 

 

100.0

 

%

 

$

9,057

 

 

 

100.0

 

%

 

$

8,122

 

 

 

100.0

 

%

New Mexico

 

$

4,717

 

 

 

100.0

 

%

 

$

3,783

 

 

 

100.0

 

%

 

$

9,057

 

 

 

100.0

 

%

 

$

8,122

 

 

 

100.0

 

%

Total home health segment

   net service revenues

 

$

4,717

 

 

 

100.0

 

%

 

$

3,783

 

 

 

100.0

 

%

 

$

9,057

 

 

 

100.0

 

%

 

$

8,122

 

 

 

100.0

 

%

 

We derive a significant amount of our net service revenues in Illinois, which represented 38.9% and 37.4% of our net service revenues for the three months ended June 30, 2021 and 2020, respectively, and accounted for 37.4% and 37.5% of our net service revenues for the six months ended June 30, 2021 and 2020, respectively.

A significant amount of our net service revenues are derived from one payor client, the Illinois Department on Aging, the largest payor program for our Illinois personal care operations, which accounted for 22.6% and 23.2% of our net service revenues for the three months ended June 30, 2021 and 2020, respectively, and accounted for 21.5% and 23.2% of the Company’s net service revenues for the six months ended June 30, 2021 and 2020, respectively.

On November 26, 2019, the City of Chicago voted to approve additional increases in the Chicago minimum wage to $14 per hour beginning July 1, 2020 and to $15 per hour beginning July 1, 2021.

Effective January 1, 2021, the state of Illinois fiscal year 2021 budget increased in-home care rates through the Community Care Program by 7.1%, to $23.40 from $21.84. However, the rate increase was delayed and did not take effect until April 1, 2021, as a result of on-going state revenue declines due to COVID-19 and the failure of the November 2020 referendum to revise the Illinois income tax code. On June 29, 2021, the Governor announced the authorization of bonus payments to providers in an amount equivalent to the rate increase for services delivered from January 1, 2021 to March 31, 2021 for state reimbursed hours of care. The bonus payment of $3.0 million was recognized as net service revenues during the three and six months ended June 30, 2021, and is expected to be received in September 2021. On June 17, 2021, the Governor of Illinois signed the fiscal year 2022 budget, which funds an increase of in-home care rates to $24.96 effective January 1, 2022.

Our business will benefit from the rate increases noted above as planned for 2022, but there is no assurance that additional offsetting rate increases will be adopted in Illinois for fiscal years beyond fiscal year 2022, and our financial performance will be adversely impacted for any periods in which an additional offsetting reimbursement rate increase is not in effect.

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Impact of Changes in Medicare and Medicaid Reimbursement

Home Health

Home health services provided to Medicare beneficiaries are paid under the Medicare Home Health Prospective Payment System (“HHPPS”). CMS updates the HHPPS payment rates each calendar year. Effective calendar year 2021, HHPPS rates increased by 2.0%, which reflects a 2.3% market basket update, reduced by a multifactor productivity adjustment of 0.3 percentage points. CMS expects Medicare payments to home health agencies in 2021 to increase in the aggregate by 1.9% after accounting for a 0.1 percentage point decrease in payments to home health agencies due to changes in the rural add-on percentages mandated by the Bipartisan Budget Act of 2018. Home health providers that do not comply with quality data reporting requirements are subject to a 2 percentage point reduction to their market basket update.

Historically, CMS paid home health providers 50% to 60% of anticipated payment at the beginning of a patient’s care episode through a request for anticipated payment (“RAP”). However, to address potential program integrity risks, CMS has phased out RAP payments. In calendar year 2021, CMS will not provide any up-front payments in response to a RAP but will continue to require home health providers to submit streamlined RAPs as notice that a beneficiary is under a home health period of care. In calendar year 2022, CMS will replace the RAP with a “Notice of Admission.”

Hospice

Hospice services provided to Medicare beneficiaries are paid under the Medicare Hospice Prospective Payment System, under which CMS sets a daily rate for each day a patient is enrolled in the hospice benefit. CMS updates these rates each federal fiscal year. Effective October 1, 2020, CMS increased hospice payment rates by 2.4%. This reflected a 2.4% market basket increase reduced by the multifactor productivity adjustment of 0.0 percentage points. Additionally, the aggregate cap, which limits the total Medicare reimbursement that a hospice may receive based on an annual per-beneficiary cap amount and the number of Medicare patients served, was updated to $30,683.93 for federal fiscal year 2021. If a hospice’s Medicare payments exceed its aggregate cap, it must repay Medicare the excess amount.

New York CDPAP

On February 11, 2021, the state of New York announced its initial selection of parties to enter into contracts as a Lead Fiscal Intermediary under its previously announced Request for Offer (“RFO”) process related to its Consumer Directed Personal Assistance Program (“CDPAP”), in which the Company currently participates as a provider. The Company was not one of the selected entities in the initial RFO process. The announcement followed an extended RFO process first begun in 2019, with responses originally due in February 2020. Management believes changes are unlikely to occur during an estimated nine to 12 month transition period and does not expect a financial impact in 2021. Based on its current run rate, the Company estimates it will receive $52 million and $4 million in revenue and operating income, respectively, from the program for the year ended December 31, 2021. The Company continues to explore its options, including appeals, other arrangements under which the Company may continue to provide these services, and expense reductions to minimize any potential final impact of the RFO process.

The New York fiscal year 2022 state budget included a provision to add one or two entities per county to those awarded the Lead Fiscal Intermediary, based on the scoring of the original RFO. As scoring of RFOs was not publicly released, it is unknown at this time if the Company’s score ranked high enough to qualify for these additional awards. The Company has submitted a response to the survey issued by Department of Health to determine the additional contract awards. Department of Health has published an anticipated contract start date for all awards to be on or after November 1, 2021. In the meantime, we continue to consider other arrangements and to pursue our protest of the award, which was filed and accepted on March 19, 2021. The Company has not yet received a response to the formal protest.

Components of our Statements of Income

Net Service Revenues

We generate net service revenues by providing our services directly to consumers and primarily on an hourly basis in our personal care segment, on a daily basis in our hospice segment and on an episodic basis in our home health segment. We receive payment for providing such services from our payor clients, including federal, state and local governmental agencies, managed care organizations, commercial insurers and private pay consumers.

In our personal care segment, net service revenues are principally provided based on authorized hours, determined by the relevant agency, at an hourly rate, which is either contractual or fixed by legislation, and are recognized at the time services are rendered. In our hospice segment, net service revenues are provided based on daily rates for each of the levels of care and are recognized as services are provided. In our home health segment, net service revenues are based on an episodic basis at a stated rate and recognized based on the number of days elapsed during a period of care within the reporting period. We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record revenues.

Cost of Service Revenues

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We incur direct care wages, payroll taxes and benefit-related costs in connection with providing our services. We also provide workers’ compensation and general liability coverage for our employees. Employees are also reimbursed for their travel time and related travel costs in certain instances.

General and Administrative Expenses

Our general and administrative expenses include our costs for operating our network of local agencies and our administrative offices. Our agency expenses consist of costs for supervisory personnel, our community care supervisors and office administrative costs. Personnel costs include wages, payroll taxes and employee benefits. Facility costs include rents, utilities, and postage, telephone and office expenses. Our corporate and support center expenses include costs for accounting, information systems, human resources, billing and collections, contracting, marketing and executive leadership. These expenses consist of compensation, including stock-based compensation, payroll taxes, employee benefits, legal, accounting and other professional fees, travel, general insurance, rents, provision for doubtful accounts and related facility costs. Expenses related to streamlining our operations such as costs related to terminated employees, termination of professional services relationships, other contract termination costs and asset write-offs are also included in general and administrative expenses.

Depreciation and Amortization Expenses

Depreciable assets consist principally of furniture and equipment, network administration and telephone equipment, and operating system software. Depreciable and leasehold assets are depreciated or amortized on a straight-line method over their useful lives or, if less and if applicable, their lease terms. We amortize our intangible assets with finite lives, consisting of customer and referral relationships, trade names, trademarks and non-competition agreements, using straight line or accelerated methods based upon their estimated useful lives.

Interest Expense

Interest expense is reported when incurred and principally consists of interest and unused credit line fees on the credit facility.

Income Tax Expense

All of our income is from domestic sources. We incur state and local taxes in states in which we operate. For the three and six months ended June 30, 2021 and 2020, the federal statutory rate was 21.0%. The effective income tax rate was 26.7% and 23.6% for the three months ended June 30, 2021 and 2020, respectively. The effective income tax rates are 23.5% and 18.6% for the six months ended June 30, 2021 and 2020, respectively. The difference between our federal statutory and effective income tax rates is due to the inclusion of state taxes, non-deductible compensation, excess tax benefit, and the use of federal employment tax credits.

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Results of Operations — Consolidated

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

The following table sets forth, for the periods indicated, our unaudited condensed consolidated results of operations.

 

 

 

For the Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

 

2020

 

 

 

Change

 

 

 

 

 

 

 

 

% Of

 

 

 

 

 

 

 

% Of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Service

 

 

 

 

 

 

 

Net Service

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

 

Revenues

 

 

 

Amount

 

 

Revenues

 

 

 

Amount

 

 

%

 

 

 

 

(Amounts in Thousands, Except Percentages)

 

 

Net service revenues

 

$

217,893

 

 

 

100.0

 

%

 

$

184,576

 

 

 

100.0

 

%

 

$

33,317

 

 

 

18.1

 

%

Cost of service revenues

 

 

149,083

 

 

 

68.4

 

 

 

 

129,579

 

 

 

70.2

 

 

 

 

19,504

 

 

 

15.1

 

 

Gross profit

 

 

68,810

 

 

 

31.6

 

 

 

 

54,997

 

 

 

29.8

 

 

 

 

13,813

 

 

 

25.1

 

 

General and administrative expenses

 

 

48,175

 

 

 

22.1

 

 

 

 

42,450

 

 

 

23.0

 

 

 

 

5,725

 

 

 

13.5

 

 

Depreciation and amortization

 

 

3,587

 

 

 

1.6

 

 

 

 

2,940

 

 

 

1.6

 

 

 

 

647

 

 

 

22.0

 

 

Total operating expenses

 

 

51,762

 

 

 

23.8

 

 

 

 

45,390

 

 

 

24.6

 

 

 

 

6,372

 

 

 

14.0

 

 

Operating income

 

 

17,048

 

 

 

7.8

 

 

 

 

9,607

 

 

 

5.2

 

 

 

 

7,441

 

 

 

77.5

 

 

Interest income

 

 

(31

)

 

 

 

 

 

 

(155

)

 

 

(0.1

)

 

 

 

124

 

 

 

(80.0

)

 

Interest expense

 

 

1,262

 

 

 

0.6

 

 

 

 

721

 

 

 

0.4

 

 

 

 

541

 

 

 

75.0

 

 

Total interest expense, net

 

 

1,231

 

 

 

0.6

 

 

 

 

566

 

 

 

0.3

 

 

 

 

665

 

 

 

117.5

 

 

Income before income taxes

 

 

15,817

 

 

 

7.3

 

 

 

 

9,041

 

 

 

4.9

 

 

 

 

6,776

 

 

 

74.9

 

 

Income tax expense

 

 

4,220

 

 

 

1.9

 

 

 

 

2,134

 

 

 

1.2

 

 

 

 

2,086

 

 

 

97.8

 

 

Net income

 

$

11,597

 

 

 

5.3

 

%

 

$

6,907

 

 

 

3.7

 

%

 

$

4,690

 

 

 

67.9

 

%

Net service revenues increased by 18.1% to $217.9 million for the three months ended June 30, 2021 compared to $184.6 million for the three months ended June 30, 2020. The increase was due to a 3.7% increase in billable hours and a 6.9% increase in revenues per billable hour for the three months ended June 30, 2021 in our personal care segment. In addition, revenue increased by $12.4 million from our hospice segment during the three months ended June 30, 2021, compared to the same period in 2020. The increase in our hospice segment revenue was primarily due to an increase in average daily census and revenue per patient day, mainly attributed to the acquisition of Queen City Hospice on December 4, 2020.

Gross profit, expressed as a percentage of net service revenues, increased to 31.6% for the three months ended June 30, 2021, compared to 29.8% for the same period in 2020. The increase was mainly attributed to the full-quarter effect in 2021 of the acquisition of a relatively higher margin hospice segment business in 2020.

General and administrative expenses increased to $48.2 million for the three months ended June 30, 2021, as compared to $42.5 million for the three months ended June 30, 2020. The increase in general and administrative expenses was primarily due to acquisitions that resulted in an increase in administrative employee wages, taxes and benefit costs of $3.3 million and an increase in rent expense of $0.6 million. In addition, stock-based compensation increased by $1.4 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. General and administrative expenses, expressed as a percentage of net service revenues decreased to 22.1% for the three months ended June 30, 2021, from 23.0% for the three months ended June 30, 2020.

Depreciation and amortization expense increased to $3.6 million from $2.9 million for the three months ended June 30, 2021 and 2020, respectively, primarily due to the intangible assets and property and equipment acquired in the fiscal year 2020 acquisitions.

Interest expense increased to $1.3 million for the three months ended June 30, 2021 from $0.7 million for the three months ended June 30, 2020. The increase in interest expense was primarily due to higher outstanding borrowings under our credit facility for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

All of our income is from domestic sources. We incur state and local taxes in states in which we operate. The effective income tax rate was 26.7% and 23.6% for the three months ended June 30, 2021 and 2020, respectively. The difference between the federal statutory and our effective income tax rates was principally due to the inclusion of state taxes and non-deductible compensation partially offset by the use of federal employment tax credits.

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Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

The following table sets forth, for the periods indicated, our consolidated results of operations.

 

 

 

For the Six Months

Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

 

2020

 

 

 

Change

 

 

 

 

 

 

 

 

% Of

 

 

 

 

 

 

 

% Of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Service

 

 

 

 

 

 

 

Net Service

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

 

Revenues

 

 

 

Amount

 

 

Revenues

 

 

 

Amount

 

 

%

 

 

 

 

(Amounts in Thousands, Except Percentages)

 

 

Net service revenues

 

$

423,195

 

 

 

100.0

 

%

 

$

374,792

 

 

 

100.0

 

%

 

$

48,403

 

 

 

12.9

 

%

Cost of service revenues

 

 

293,188

 

 

 

69.3

 

 

 

 

263,960

 

 

 

70.4

 

 

 

 

29,228

 

 

 

11.1

 

 

Gross profit

 

 

130,007

 

 

 

30.7

 

 

 

 

110,832

 

 

 

29.6

 

 

 

 

19,175

 

 

 

17.3

 

 

General and administrative expenses

 

 

93,601

 

 

 

22.1

 

 

 

 

84,737

 

 

 

22.6

 

 

 

 

8,864

 

 

 

10.5

 

 

Depreciation and amortization

 

 

7,188

 

 

 

1.7

 

 

 

 

5,827

 

 

 

1.6

 

 

 

 

1,361

 

 

 

23.4

 

 

Total operating expenses

 

 

100,789

 

 

 

23.8

 

 

 

 

90,564

 

 

 

24.2

 

 

 

 

10,225

 

 

 

11.3

 

 

Operating income

 

 

29,218

 

 

 

6.9

 

 

 

 

20,268

 

 

 

5.4

 

 

 

 

8,950

 

 

 

44.2

 

 

Interest income

 

 

(53

)

 

 

 

 

 

 

(489

)

 

 

(0.1

)

 

 

 

436

 

 

 

(89.2

)

 

Interest expense

 

 

2,478

 

 

 

0.6

 

 

 

 

1,629

 

 

 

0.4

 

 

 

 

849

 

 

 

52.1

 

 

Total interest expense, net

 

 

2,425

 

 

 

0.6

 

 

 

 

1,140

 

 

 

0.3

 

 

 

 

1,285

 

 

 

112.7

 

 

Income before income taxes

 

 

26,793

 

 

 

6.3

 

 

 

 

19,128

 

 

 

5.1

 

 

 

 

7,665

 

 

 

40.1

 

 

Income tax expense

 

 

6,302

 

 

 

1.5

 

 

 

 

3,563

 

 

 

1.0

 

 

 

 

2,739

 

 

 

76.9

 

 

Net income

 

$

20,491

 

 

 

4.8

 

%

 

$

15,565

 

 

 

4.1

 

%

 

$

4,926

 

 

 

31.6

 

%

Net service revenues increased by 12.9% to $423.2 million for the six months ended June 30, 2021 compared to $374.8 million for the six months ended June 30, 2020. The increase was due to a 0.9% increase in billable hours and a 6.7% increase in revenues per billable hour for the three months ended June 30, 2021 in our personal care segment. In addition, revenue increased by $23.3 million from our hospice segment during the six months ended June 30, 2021, compared to the same period in 2020. The increase in our hospice segment revenue was primarily due to an increase in average daily census and revenue per patient day, mainly attributed to the acquisition of Queen City Hospice on December 4, 2020.

Gross profit, expressed as a percentage of net service revenues, increased to 30.7% for the six months ended June 30, 2021, compared to 29.6% for the same period in 2020. The increase was mainly attributed to the acquisition of a relatively higher margin hospice business in 2020.

General and administrative expenses increased to $93.6 million for the six months ended June 30, 2021 as compared to $84.7 million for the six months ended June 30, 2020. The increase in general and administrative expenses was primarily due to acquisitions that resulted in an increase in administrative employee wages, taxes and benefit costs of $5.4 million and an increase in rent expense of $1.1 million. In addition, stock-based compensation increased by $2.2 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. General and administrative expenses, expressed as a percentage of net service revenues decreased to 22.1% for the six months ended June 30, 2021, from 22.6% for the six months ended June 30, 2020.

Depreciation and amortization expense increased to $7.2 million from $5.8 million for the six months ended June 30, 2021 and 2020, respectively, primarily due to the intangible assets and property and equipment acquired in the fiscal year 2020 acquisitions.

Interest expense increased to $2.5 million from $1.6 million for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020. The increase in interest expense was primarily due to higher outstanding borrowings under our credit facility for the six months ended June 30, 2021, compared to the six months ended June 30, 2020.

All of our income is from domestic sources. We incur state and local taxes in states in which we operate. The effective income tax rate was 23.5% and 18.6% for the six months ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021, the difference between our federal statutory and effective income tax rates was principally due to the inclusion of state taxes and non-deductible compensation partially offset by the use of federal employment tax credits and excess tax benefit. For the six months ended June 30, 2020, the difference between our federal statutory and effective income tax rates was principally due to the inclusion of an excess tax benefit and the use of federal employment tax credits partially offset by state taxes and non-deductible compensation. For the six months ended June 30, 2021 and 2020, the effective tax rates were inclusive of an excess tax benefit of 3.0% and 7.5%, respectively. The excess tax benefit is a discrete item, related to the vesting of equity shares, which requires the Company to recognize the benefit fully in the period.

 

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Results of Operations – Segments

The following tables and related analysis summarize our operating results and business metrics by segment:

Personal Care Segment

 

 

 

For the Three Months

Ended June 30,

 

 

 

For the Six Months

Ended June 30,

 

 

 

 

2021

 

 

 

2020

 

 

 

Change

 

 

 

2021

 

 

 

2020

 

 

 

Change

 

 

Personal Care Segment

 

Amount

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

 

 

%

 

 

 

Amount

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

 

 

%

 

 

 

 

(Amounts in Thousands, Except Percentages)

 

 

 

(Amounts in Thousands, Except Percentages)

 

 

Operating Results

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net service revenues

 

$

176,267

 

 

 

100.0

 

%

 

$

156,268

 

 

 

100.0

 

%

 

$

19,999

 

 

 

12.8

 

%

 

$

341,135

 

 

 

100.0

 

%

 

$

316,933

 

 

 

100.0

 

%

 

$

24,202

 

 

 

7.6

 

%

Cost of services revenues

 

 

127,258

 

 

 

72.2

 

 

 

 

115,822

 

 

 

74.1

 

 

 

 

11,436

 

 

 

9.9

 

 

 

 

250,097

 

 

 

73.3

 

 

 

 

234,850

 

 

 

74.1

 

 

 

 

15,247

 

 

 

6.5

 

 

Gross profit

 

 

49,009

 

 

 

27.8

 

 

 

 

40,446

 

 

 

25.9

 

 

 

 

8,563

 

 

 

21.2

 

 

 

 

91,038

 

 

 

26.7

 

 

 

 

82,083

 

 

 

25.9

 

 

 

 

8,955

 

 

 

10.9

 

 

General and administrative

   expenses

 

 

16,358

 

 

 

9.3

 

 

 

 

14,603

 

 

 

9.3

 

 

 

 

1,755

 

 

 

12.0

 

 

 

 

31,641

 

 

 

9.3

 

 

 

 

30,205

 

 

 

9.5

 

 

 

 

1,436

 

 

 

4.8

 

 

Segment operating income

 

$

32,651

 

 

 

18.5

 

%

 

$

25,843

 

 

 

16.5

 

%

 

$

6,808

 

 

 

26.3

 

%

 

$

59,397

 

 

 

17.4

 

%

 

$

51,878

 

 

 

16.4

 

%

 

$

7,519

 

 

 

14.5

 

%

Business Metrics (Actual

   Numbers, Except Billable

   Hours in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Location at period end

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

164

 

 

 

 

 

 

 

 

150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average billable census * (1)

 

 

38,493

 

 

 

 

 

 

 

 

36,197

 

 

 

 

 

 

 

 

2,296

 

 

 

6.3

 

%

 

 

38,410

 

 

 

 

 

 

 

 

37,560

 

 

 

 

 

 

 

 

850

 

 

 

2.3

 

%

Billable hours * (2)

 

 

7,650

 

 

 

 

 

 

 

 

7,374

 

 

 

 

 

 

 

 

276

 

 

 

3.7

 

 

 

 

15,187

 

 

 

 

 

 

 

 

15,048

 

 

 

 

 

 

 

 

139

 

 

 

0.9

 

 

Average billable hours per census

   per month * (2)

 

 

65.9

 

 

 

 

 

 

 

 

67.5

 

 

 

 

 

 

 

 

(1.6

)

 

 

(2.4

)

 

 

 

65.6

 

 

 

 

 

 

 

 

66.3

 

 

 

 

 

 

 

 

(0.7

)

 

 

(1.1

)

 

Billable hours per business day * (2)

 

 

117,688

 

 

 

 

 

 

 

 

113,447

 

 

 

 

 

 

 

 

4,241

 

 

 

3.7

 

 

 

 

117,729

 

 

 

 

 

 

 

 

115,750

 

 

 

 

 

 

 

 

1,979

 

 

 

1.7

 

 

Revenues per billable hour * (2)

 

$

22.60

 

 

 

 

 

 

 

$

21.14

 

 

 

 

 

 

 

$

1.46

 

 

 

6.9

 

%

 

$

22.42

 

 

 

 

 

 

 

$

21.01

 

 

 

 

 

 

 

$

1.41

 

 

 

6.7

 

%

Same store revenue growth % * (3)

 

 

7.4

 

 

 

 

 

 

 

 

9.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.9

 

 

 

 

 

 

 

11.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Average billable census is the average number of unique clients receiving a billable service during the year and is the total census divided by months in operation during the period.

(2)

Billable hours is the total number of hours served to clients during the period. Average billable hours per census per month is billable hours divided by average billable census. Billable hours per day is total billable hours divided by the number of business days in the period. Revenues per billable hour is revenue attributed to billable hours divided by billable hours.

(3)

Same store revenue growth reflects the change in year-over-year revenue for the same store base. We define the same store base to include those stores open for at least 52 full weeks. This measure highlights the performance of existing stores, while excluding the impact of acquisitions, new store openings and closures.

*

Management deems these metrics to be key performance indicators. Management uses these metrics to monitor our performance, both in our existing operations and acquisitions. Many of these metrics serve as the basis of reported revenues, and assessment of them provide direct correlation to the results of operations from period to period and we believe these metrics facilitate comparison with the results of our peers. Historical trends established in these metrics can be used to evaluate current operating results, identify trends affecting our business, determine the allocation of resources and assess the quality and potential variability of our cash flows and earnings. We believe they are useful to investors in evaluating and understanding our business but should not be used solely in assessing the Company’s performance. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein to fully evaluate and understand the business as a whole. These measures may not be comparable to similarly-titled performance indicators used by other companies.

We derive a significant amount of our net service revenues from operations in Illinois, which represented 38.9% and 37.4% of our net service revenues for the three months ended June 30, 2021 and 2020, respectively, and accounted for 37.4% and 37.5% of our net service revenues for the six months ended June 30, 2021 and 2020, respectively. One payor client, the Illinois Department on Aging, accounted for 22.6% and 23.2% of net service revenues for the three months ended June 30, 2021 and 2020, respectively, and accounted for 21.5% and 23.2% of net service revenues for the six months ended June 30, 2021 and 2020, respectively.

Net service revenues from state, local and other governmental payors accounted for 50.2% and 50.0% of net service revenues for the three months ended June 30, 2021 and 2020, respectively. Managed care organizations accounted for 44.7% and 44.3% of net service revenues for the three months ended June 30, 2021 and 2020, respectively, with commercial insurance, private pay and other payors accounting for the remainder of net service revenues. Net service revenues from state, local and other governmental payors accounted for 49.6% and 49.7% of net service revenues for the six months ended June 30, 2021 and 2020, respectively. Managed care organizations accounted for 45.2% and 44.6% of net service revenues for the six months ended June 30, 2021 and 2020, respectively with commercial insurance, private pay and other payors accounting for the remainder of net service revenues.

Net service revenues increased by 12.8% and 7.6% for the three and six months ended June 30, 2021, respectively, compared to the three and six months ended June 30, 2020. Net service revenues included a 6.9% and 6.7% increase in revenues per billable hour for the three and six months ended June 30, 2021, respectively, mainly attributed to rate increases discussed above, as compared to the three and six months ended June 30, 2020. Due to a decrease in restrictions related to COVID-19, billable hours increased by 3.7% and 0.9% for the three and six months ended June 30, 2021, respectively, compared to the three and six months ended June 30, 2020.

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Gross profit, expressed as a percentage of net service revenues, increased to 27.8% for the three months ended June 30, 2021 from 25.9% for the three months ended June 30, 2020 and from 26.7% for the six months ended June 30, 2021 to 25.9% for the six months ended June 30, 2020. This increase was primarily due to a decrease in direct payroll as a percentage of net service revenues of 1.9% for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. For the six months ended June 30, 2021, the increase was due to a decrease of direct payroll of 0.8% as a percentage of net service revenues, compared to the six months ended June 30, 2020.

For the three months ended June 30, 2021 and 2020, general and administrative expenses, expressed as a percentage of net service revenues, was 9.3% and for the six months ended June 30, 2021 and 2020 was 9.3% and 9.5%, respectively.

Hospice Segment

 

 

 

For the Three Months Ended June 30,

 

 

 

For the Six Months Ended June 30,

 

 

 

 

2021

 

 

 

2020

 

 

 

Change

 

 

 

2021

 

 

 

2020

 

 

 

Change

 

 

Hospice Segment

 

Amount

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

 

 

%

 

 

 

Amount

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

 

 

%

 

 

 

 

(Amounts in Thousands, Except Percentages)

 

 

 

(Amounts in Thousands, Except Percentages)

 

 

Operating Results

 

 

 

 

 

 

 

 

Net service revenues

 

$

36,909

 

 

 

100.0

 

%

 

$

24,525

 

 

 

100.0

 

%

 

$

12,384

 

 

 

50.5

 

%

 

$

73,003

 

 

 

100.0

 

%

 

$

49,737

 

 

 

100.0

 

%

 

$

23,266

 

 

 

46.8

 

%

Cost of services revenues

 

 

18,912

 

 

 

51.2

 

 

 

 

10,924

 

 

 

44.5

 

 

 

 

7,988

 

 

 

73.1

 

 

 

 

37,508

 

 

 

51.4

 

 

 

 

23,242

 

 

 

46.7

 

 

 

 

14,266

 

 

 

61.4

 

 

Gross profit

 

 

17,997

 

 

 

48.8

 

 

 

 

13,601

 

 

 

55.5

 

 

 

 

4,396

 

 

 

32.3

 

 

 

 

35,495

 

 

 

48.6

 

 

 

 

26,495

 

 

 

53.3

 

 

 

 

9,000

 

 

 

34.0

 

 

General and administrative

   expenses

 

 

8,673

 

 

 

23.5

 

 

 

 

6,297

 

 

 

25.7

 

 

 

 

2,376

 

 

 

37.7

 

 

 

 

17,136

 

 

 

23.5

 

 

 

 

12,754

 

 

 

25.6

 

 

 

 

4,382

 

 

 

34.4

 

 

Segment operating income

 

$

9,324

 

 

 

25.3

 

%

 

$

7,304

 

 

 

29.8

 

%

 

$

2,020

 

 

 

27.7

 

%

 

$

18,359

 

 

 

25.1

 

%

 

$

13,741

 

 

 

27.7

 

%

 

$

4,618

 

 

 

33.6

 

%

Business Metrics (Actual Numbers)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Locations at period end

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions * (1)

 

 

2,252

 

 

 

 

 

 

 

 

1,339

 

 

 

 

 

 

 

 

913

 

 

 

68.2

 

%

 

 

4,646

 

 

 

 

 

 

 

 

2,994

 

 

 

 

 

 

 

 

1,652

 

 

 

55.2

 

%

Average daily census * (2)

 

 

2,460

 

 

 

 

 

 

 

 

1,743

 

 

 

 

 

 

 

 

717

 

 

 

41.1

 

 

 

 

2,430

 

 

 

 

 

 

 

 

1,803

 

 

 

 

 

 

 

 

627

 

 

 

34.8

 

 

Average discharge length of stay * (3)

 

 

89

 

 

 

 

 

 

 

 

103

 

 

 

 

 

 

 

 

(14

)

 

 

(13.4

)

 

 

 

96

 

 

 

 

 

 

 

 

101

 

 

 

 

 

 

 

 

(5

)

 

 

(5.4

)

 

Patient days * (4)

 

 

223,901

 

 

 

 

 

 

 

 

158,644

 

 

 

 

 

 

 

 

65,257

 

 

 

41.1

 

 

 

 

439,908

 

 

 

 

 

 

 

 

328,156

 

 

 

 

 

 

 

 

111,752

 

 

 

34.1

 

 

Revenue per patient day * (5)

 

$

164.85

 

 

 

 

 

 

 

$

154.59

 

 

 

 

 

 

 

$

10.26

 

 

 

6.6

 

%

 

$

165.95

 

 

 

 

 

 

 

$

151.57

 

 

 

 

 

 

 

$

14.38

 

 

 

9.5

 

%

Same store revenue growth % * (6)

 

 

(8.4

)

 

 

 

 

 

 

 

2.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8.4

)

 

 

 

 

 

 

 

2.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Represents referral process and new patients on service during the period.

(2)

Average daily census is total patient days divided by the number of days in the period.

(3)

Average length of stay is the average number of days a patient is on service, calculated upon discharge, and is total patient days divided by total discharges in the period.

(4)

Patient days is days of service for all patients in the period.

(5)

Revenue per patient day is hospice revenue divided by the number of patient days in the period.

(6)

Same store revenue growth reflects the change in year-over-year revenue for the same store base. We define the same store base to include those stores open for at least 52 full weeks. This measure highlights the performance of existing stores, while excluding the impact of acquisitions, new store openings and closures.

*

Management deems these metrics to be key performance indicators. Management uses these metrics to monitor our performance, both in our existing operations and acquisitions. Many of these metrics serve as the basis of reported revenues, and assessment of them provide direct correlation to the results of operations from period to period and we believe that these metrics facilitate comparison with the results of our peers. Historical trends established in these metrics can be used to evaluate current operating results, identify trends affecting our business, determine the allocation of resources and assess the quality and potential variability of our cash flows and earnings. We believe they are useful to investors in evaluating and understanding our business but should not be used solely in assessing the Company’s performance. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein to fully evaluate and understand the business as a whole. These measures may not be comparable to similarly-titled performance indicators used by other companies.

Hospice generates net service revenues by providing care to patients with a life expectancy of six months or less, as well as related services for their families. Hospice offers four levels of care, as defined by Medicare, to meet the varying needs of patients and their families. The four levels of hospice include routine care, continuous care, general inpatient care and respite care. Our Hospice segment principally provides routine care, but with the acquisition of Queen City Hospice, the Company expanded continuous care services.

Net service revenues from Medicare accounted for 93.3% and 92.8% and managed care organizations accounted for 3.8% and 4.9% for the three months ended June 30, 2021 and 2020, respectively. Net service revenues from Medicare accounted for 93.8% and 92.4% and managed care organizations accounted for 3.9% and 5.2% for the six months ended June 30, 2021 and 2020, respectively.

Net service revenues increased by $12.4 million and $23.3 for the three and six months ended June 30, 2021, compared to the three and six months ended June 30, 2020. For the three and six months ended June 30, 2021, net service revenues increased primarily due to increases in average daily census and revenue per patient day mainly attributed to the acquisition of Queen City Hospice on December 4, 2020.

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Gross profit, expressed as a percentage of net service revenues was 48.8% and 55.5% for the three months ended June 30, 2021 and 2020, respectively, and 48.6% and 53.3%, for the six months ended June 30, 2021 and 2020, respectively. For the three and six months ended June 30, 2021, the decrease as a percentage of net service revenues was mainly attributed to an increase of direct employee wages, taxes and benefit costs of 5.5% and 4.9%, respectively.

The hospice segment’s general and administrative expenses primarily consist of administrative employee wages, taxes and benefit costs, rent, information technology and office expenses. General and administrative expenses, expressed as a percentage of net service revenues was 23.5% and 25.7% for the three months ended June 30, 2021 and 2020, respectively, and 23.5% and 25.6% for the six months ended June 30, 2021 and 2020, respectively. These decreases for the three and six months ended June 30, 2021 compared to corresponding periods in 2020 are primarily due to acquisitions synergies. The increase in general and administrative expenses for the three and six months ended June 30, 2021, was primarily due to acquisitions that resulted in a $1.7 million and $3.2 million increase in administrative employee wages, taxes and benefit costs.

Home Health Segment

 

 

 

For the Three Months Ended June 30,

 

 

 

For the Six Months Ended June 30,

 

 

 

 

2021

 

 

 

2020

 

 

 

Change

 

 

 

2021

 

 

 

2020

 

 

 

Change

 

 

Home Health Segment

 

Amount

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

 

 

%

 

 

 

Amount

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

 

 

% of

Segment

Net Service

Revenues

 

 

 

Amount

 

 

%

 

 

 

 

(Amounts in Thousands, Except Percentages)

 

 

 

(Amounts in Thousands, Except Percentages)

 

 

Operating Results

 

 

 

 

 

 

 

 

Net service revenues

 

$

4,717

 

 

 

100.0

 

%

 

$

3,783

 

 

 

100.0

 

%

 

$

934

 

 

 

24.7

 

%

 

$

9,057

 

 

 

100.0

 

%

 

$

8,122

 

 

 

100.0

 

%

 

$

935

 

 

 

11.5

 

%

Cost of services revenues

 

 

2,913

 

 

 

61.8

 

 

 

 

2,833

 

 

 

74.9

 

 

 

 

80

 

 

 

2.8

 

 

 

 

5,583

 

 

 

61.6

 

 

 

 

5,868

 

 

 

72.2

 

 

 

 

(285

)

 

 

(4.9

)

 

Gross profit

 

 

1,804

 

 

 

38.2

 

 

 

 

950

 

 

 

25.1

 

 

 

 

854

 

 

 

89.9

 

 

 

 

3,474

 

 

 

38.4

 

 

 

 

2,254

 

 

 

27.8

 

 

 

 

1,220

 

 

 

54.1

 

 

General and administrative expenses

 

 

968

 

 

 

20.5

 

 

 

 

883

 

 

 

23.3

 

 

 

 

85

 

 

 

9.6

 

 

 

 

1,933

 

 

 

21.3

 

 

 

 

1,905

 

 

 

23.5

 

 

 

 

28

 

 

 

1.5

 

 

Segment operating income

 

$

836

 

 

 

17.7

 

%

 

$

67

 

 

 

1.8

 

%

 

$

769

 

 

 

1,147.8

 

%

 

$

1,541

 

 

 

17.0

 

%

 

$

349

 

 

 

4.3

 

%

 

$

1,192

 

 

 

341.5

 

%

Business Metrics (Actual Numbers)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Locations at period end

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New admissions * (1)

 

 

1,186

 

 

 

 

 

 

 

 

1,068

 

 

 

 

 

 

 

 

118

 

 

 

11.0

 

%

 

 

2,354

 

 

 

 

 

 

 

 

2,090

 

 

 

 

 

 

 

 

264

 

 

 

12.6

 

%

Recertifications * (2)

 

 

738

 

 

 

 

 

 

 

 

689

 

 

 

 

 

 

 

 

49

 

 

 

7.1

 

 

 

 

1,395

 

 

 

 

 

 

 

 

1,399

 

 

 

 

 

 

 

 

(4

)

 

 

(0.3

)

 

Total volume * (3)

 

 

1,924

 

 

 

 

 

 

 

 

1,757

 

 

 

 

 

 

 

 

167

 

 

 

9.5

 

 

 

 

3,749

 

 

 

 

 

 

 

 

3,489

 

 

 

 

 

 

 

 

260

 

 

 

7.5

 

 

Visits * (4)

 

 

31,582

 

 

 

 

 

 

 

 

29,797

 

 

 

 

 

 

 

 

1,785

 

 

 

6.0

 

%

 

 

59,247

 

 

 

 

 

 

 

 

63,507

 

 

 

 

 

 

 

 

(4,260

)

 

 

(6.7

)

%

Same store revenue growth % * (5)

 

 

24.7

 

 

 

 

 

 

 

 

(4.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11.5

 

 

 

 

 

 

 

 

4.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Represents new patients during the period.

(2)

A home health certification period is an episode of care that begins with a start of care visit and continues for 60 days. If at the end of the initial episode of care, the patient continues to require home health services, a recertification is required. This represents the number of recertifications during the period.

(3)

Total volume is total admissions and total recertifications in the period.

(4)

Represents number of services to patients in the period.

(5)

Same store revenue growth reflects the change in year-over-year revenue for the same store base. We define the same store base to include those stores open for at least 52 full weeks. This measure highlights the performance of existing stores, while excluding the impact of acquisitions, new store openings and closures.

*

Management deems these metrics to be key performance indicators. Management uses these metrics to monitor our performance, both in our existing operations and acquisitions. Many of these metrics serve as the basis of reported revenues, and assessment of them provide direct correlation to the results of operations from period to period and we believe that these metrics facilitate comparison with the results of our peers. Historical trends established in these metrics can be used to evaluate current operating results, identify trends affecting our business, determine the allocation of resources and assess the quality and potential variability of our cash flows and earnings. We believe they are useful to investors in evaluating and understanding our business but should not be used solely in assessing the Company’s performance. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein to fully evaluate and understand the business as a whole. These measures may not be comparable to similarly-titled performance indicators used by other companies.

Home health generates net service revenues by providing home health services on a short-term, intermittent or episodic basis to individuals, generally to treat an illness or injury. Net service revenues from Medicare accounted for 81.1% and 79.6%, managed care organizations accounted for 17.4% and 18.2% and other accounted for 1.5% and 2.2% for the three months ended June 30, 2021 and 2020, respectively. Net service revenues from Medicare accounted for 80.9% and 79.8%, managed care organizations accounted for 17.9% and 18.4% and other accounted for 1.2% and 1.8% for the six months ended June 30, 2021 and 2020, respectively. Home health services provided to Medicare beneficiaries are paid under the Medicare Home Health Prospective Payment System (“HHPPS”). Effective January 1, 2020, CMS began using a 30-day episode of care for home health payments and implemented the Patient-Driven Groupings Model (“PDGM”) as part of the shift toward value-based care. The PDGM classifies patients based on clinical characteristics and other patient information into payment categories and eliminates the use of therapy service thresholds for determination of payments. Also effective January 1, 2020, CMS finalized a policy allowing therapy assistants to provide maintenance therapy services in the home and modified certain requirements relating to the home health plan of care.

Net service revenues increased by $0.9 million for each of the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020. Total visits increased for the three months ended June 30, 2021, as COVID-19 restrictions ease.

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Gross profit, expressed as a percentage of net service revenues was 38.2% and 25.1% for the three months ended June 30, 2021 and 2020, respectively, and 38.4% and 27.8%, for the six months ended June 30, 2021 and 2020, respectively. For the three and six months ended June 30, 2021, the increase was due to a decrease of direct employee wages, taxes and benefit costs of 11.1% and 9.0%, respectively, as a percentage of net service revenues. Cost of service for the six months ended June 30, 2021 decreased compared to the corresponding period in 2020, due to a decrease in visits in connection with PDGM case mix.

The home health segment’s general and administrative expenses consist of administrative employee wages, taxes and benefit costs, rent, information technology and office expenses. General and administrative expenses, expressed as a percentage of net service revenues was 20.5% and 23.3% for the three months ended June 30, 2021 and 2020, respectively, and 21.3% and 23.5% for the six months ended June 30, 2021 and 2020, respectively.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash on hand and cash from operations. At June 30, 2021 and December 31, 2020, we had cash balances of $139.4 million and $145.1 million, respectively.

Cash flows from operating activities represent the inflow of cash from our payor clients and the outflow of cash for payroll and payroll taxes, operating expenses, interest and taxes. The open receivable balance from the Illinois Department on Aging, the largest payor program for the Company’s Illinois personal care operation, increased by $1.7 million from $21.2 million as of December 31, 2020 to $22.9 million as of June 30, 2021. The state of Illinois fiscal year 2021 budget included an appropriation to raise in-home care rates to offset previous minimum wage increases by the City of Chicago. However the rate increase was delayed and did not take effect until April 1, 2021, as a result of on-going state revenue declines due to COVID-19 and the failure of the November 2020 referendum to revise the Illinois income tax code. On June 29, 2021, the Governor announced the authorization of bonus payments to providers in an amount equivalent to the rate increase for services delivered from January 1, 2021 to March 31, 2021 for state reimbursed hours of care. The bonus payment of $3.0 million was recognized as net service revenues during the three and six months ended June 30, 2021, and is expected to be received in September 2021.

During the three and six months ended June 30, 2021, we did not draw on the term loan. As of June 30, 2021, we had a total of $178.5 million in revolving loans, with an interest rate of 2.08% and $17.6 million of term loans, with an interest rate of 2.09%. After giving effect to the amount drawn on our credit facility, approximately $8.7 million of outstanding letters of credit and borrowing limits based on an advance multiple of adjusted EBITDA, we had $112.8 million available for borrowing under our revolving credit loan facility. At December 31, 2020, we had a total of $178.5 million revolving credit loans, with an interest rate of 1.90%, and $18.1 million term loans, with an interest rate of 1.90%.

Our credit facility requires us to maintain a total net leverage ratio not exceeding 3.75:1.00. At June 30, 2021, we were in compliance with our financial covenants under the Credit Agreement. Although we believe our liquidity position remains strong, we can provide no assurance that we will remain in compliance with the covenants in our Credit Agreement, and in the future, it may prove necessary to seek an amendment with the bank lending group under our credit facility. Additionally, there can be no assurance that we will be able to raise additional funds on terms acceptable to us, if at all.

COVID-19

The economic slowdown caused by the COVID-19 pandemic continues to pose risks to states’ budgets for the 2021 fiscal year, which began July 1 in most states. Depending on the severity and length of a downturn, sales tax collections and income tax withholdings could continue to be depressed in fiscal 2022 and, potentially, future fiscal years. States could face significant fiscal challenges and may revise their revenue forecasts and adjust their budgets for fiscal 2022 and, potentially, future fiscal years, accordingly. Illinois, New York and New Mexico, our top three markets, have revised revenue estimates downward for the 2021 fiscal year. New York, which started its fiscal year April 1, 2021, recently estimated that the state would collect at least $5 billion more than originally forecasted, due to better than expected receipts through January 2021. The New York state comptroller initially decreased its estimate for 2021 fiscal year collections by $10 billion. Although receipts are higher than this estimate, revenues are still significantly below pre-COVID estimates. The current New York fiscal plan authorizes the state of New York to issue up to $11 billion in short-term bonds to ameliorate reduced revenues during the fiscal year. Also in response to reduced revenues, the state implemented uniform reductions to Medicaid payments. Effective for dates of service on or after April 2, 2020, the uniform reduction rate is 1.5%. The reduction applies to home health services but hospice services are exempt. We cannot determine the impact that COVID-19 may have on states’ budgets for 2022 or beyond. However, such impacts could have a material adverse effect on our financial condition, results of operations and cash flows.

As a result of the COVID-19 pandemic, federal and state governments have passed legislation, promulgated regulations, and taken other administrative actions intended to assist healthcare providers in providing care to COVID-19 patients and other patients during the public health emergency. These temporary measures include relief from Medicare conditions of participation requirements for healthcare providers, relaxation of licensure requirements for healthcare professionals, relaxation of privacy restrictions for telehealth remote communications, promoting use of telehealth by expanding the scope of services for which Medicare reimbursement is available, and limited waivers of fraud and abuse laws for activities related to COVID-19 during the emergency period. The current federal public health emergency declaration

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expires October 18, 2021, but HHS has indicated it will likely extend through 2021 and that HHS will provide states with 60 days’ notice prior to termination of the declaration.

The American Rescue Plan Act of 2021, which became law on March 11, 2021, provides for $350 billion in relief funding for eligible state, local, territorial, and Tribal governments to mitigate the fiscal effects of the COVID-19 public health emergency. Additionally, the law provides for a 10 percentage point increase in federal matching funds for Medicaid home and community based services from April 1, 2021, through March 30, 2022, provided the state satisfies certain conditions. These and other federal stimulus measures may help to ease state-level budget constraints due to COVID-19.

Government Stimulus Advances

Provider Relief Fund

One of the primary sources of relief for healthcare providers is the Provider Relief Fund, which was established by the CARES Act, which was expanded by the PPPHCE Act and the CAA. Provider Relief Fund payments are intended to compensate healthcare providers for lost revenues and health care related expenses incurred in response to the COVID-19 pandemic and are not required to be repaid, provided that recipients attest to and comply with certain terms and conditions, including limitations on balance billing and not using funds received from the Provider Relief Fund to reimburse expenses or losses that other sources are obligated to reimburse.

In November 2020, the Company received grants in an aggregate principal amount of $13.7 million from the Provider Relief Fund, for which we had previously applied. The Company utilized $10.4 million and $11.3 million of these funds for the three and six months ended June 30, 2021, respectively, for healthcare related expenses, including retention payments, attributable to COVID-19 that were unreimbursed by other sources. In accordance with the current guidance issued by HHS, the Company expects to utilize additional funds through December 31, 2021, at which point we anticipate any unused funds will be returned. We are required to properly and fully document the use of such funds in reports to HHS, which must be submitted no later than March 31, 2022. The Company’s ability to utilize and retain some or all of such funds will depend on the terms and conditions of the funds received. Queen City Hospice administered retention payments totaling $1.9 million to caregivers for the three and six months ended June 30, 2021, which we believed to be necessary to secure and maintain adequate personnel. Commercial organizations that receive and expend annual total awards of $750,000 or more in federal funding, including payments received through the Provider Relief Fund, are subject to federal audit requirements.

Medicare Accelerated and Advance Payment Program – Queen City Hospice

In addition, the CARES Act expands the Medicare Accelerated and Advance Payment Program to increase cash flow to providers impacted by the COVID-19 pandemic. Hospice and home health providers were able to request an advance or accelerated payment of up to 100% of the Medicare payment amount for a three-month period (not including Medicare Advantage payments). The Medicare Accelerated and Advance Payment Program payments are a loan that providers must repay. In April 2020, Queen City Hospice received an amount equal to $10.8 million pursuant to the Medicare Accelerated and Advance Payment Program. Queen City Hospice did not repay the funds prior to the completion of our acquisition of Queen City Hospice. However, Queen City Hospice repaid such funds following its acquisition in March 2021, prior to any CMS recoupment and before any interest accrual.

Payroll tax deferral

The CARES Act also provides for certain federal income and other tax changes, including allowing for the deferral of the employer portion of Social Security payroll taxes through December 31, 2020. The Company received a cash benefit of approximately $7.1 million related to the deferral of employer payroll taxes for 2020 under the CARES Act, for the period April 2, 2020 through June 30, 2020. Effective July 1, 2020, the Company began paying its deferred portion of employer Social Security payroll taxes and expects to repay the $7.1 million in the fourth quarter of 2021.

Medicare sequester

The CARES Act and related legislation also include other provisions offering financial relief, for example temporarily lifting the Medicare sequester, which would have otherwise reduced payments to Medicare providers by 2% as required by the Budget Control Act of 2011, from May 1, 2020, through December 31, 2021 (but also extending sequestration through 2030). This Medicare sequester relief resulted in an increase of $0.1 million and $0.2 million to home health net service revenues, and $0.7 million and $1.4 million to hospice net service revenues for the three and six months ended June 30, 2021, respectively. For the three months ended June 30, 2020, the Medicare sequester relief resulted in an increase of $0.3 million and $0.1 million, respectively, to hospice and home health net service revenues. However, the ARPA increases the federal budget deficit in a manner that triggers an additional statutorily mandated sequestration under the PAYGO Act. As a result, absent congressional action, Medicare spending will be reduced by up to 4% in fiscal year 2022, in addition to the existing sequestration requirements of the Budget Control Act of 2011. We cannot currently determine if, or to what extent, our business, results of operations, financial condition or liquidity will ultimately be impacted by mandated sequestration triggers under the PAYGO Act, or if the mandated sequestration will occur.

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Amended and Restated Senior Secured Credit Facility

We entered into the Amended and Restated Credit Agreement, dated as of October 31, 2018, with certain lenders and Capital One, National Association, as a lender and as agent for all lenders (as amended by the Amendment (as hereinafter defined), the “Credit Agreement”). This credit facility totaled $269.6 million, inclusive of a $250.0 million revolving loan and a $19.6 million delayed draw term loan and is evidenced by the Credit Agreement. This credit facility amended and restated our existing senior secured credit facility totaling $250.0 million. As used throughout this Annual Report on Form 10-K, “credit facility” shall mean the credit facility evidenced by the Credit Agreement.

The maturity of this credit facility is May 8, 2023. Interest on this credit facility may be payable at (x) the sum of (i) an applicable margin ranging from 0.75% to 1.50% based on the applicable senior net leverage ratio plus (ii) a base rate equal to the greatest of (a) the rate of interest last quoted by The Wall Street Journal as the “prime rate,” (b) the sum of the federal funds rate plus a margin of 0.50% and (c) the sum of the adjusted LIBOR that would be applicable to a loan with an interest period of one month advanced on the applicable day (not to be less than 0.00%) plus a margin of 1.00% or (y) the sum of (i) an applicable margin ranging from 1.75% to 2.50% based on the applicable senior net leverage ratio plus (ii) the offered rate per annum for similar dollar deposits for the applicable interest period that appears on Reuters Screen LIBOR01 Page (not to be less than zero). Swing loans may not be LIBOR loans. The availability of additional draws under this credit facility is conditioned, among other things, upon (after giving effect to such draws) the Total Net Leverage Ratio (as defined in the Credit Agreement) not exceeding 3.75:1.00. In certain circumstances, in connection with a Material Acquisition (as defined in the Credit Agreement), we can elect to increase our Total Net Leverage Ratio compliance covenant to 4.25:1.00 for the then current fiscal quarter and the three succeeding fiscal quarters.

Addus HealthCare, Inc. (“Addus HealthCare”) is the borrower, and its parent, Holdings, and substantially all of Holdings’ subsidiaries are guarantors under this credit facility, and it is collateralized by a first priority security interest in all of our and the other credit parties’ current and future tangible and intangible assets, including the shares of stock of the borrower and subsidiaries. The Credit Agreement contains affirmative and negative covenants customary for credit facilities of this type, including limitations on us with respect to liens, indebtedness, guaranties, investments, distributions, mergers and acquisitions and dispositions of assets. We pay a fee ranging from 0.20% to 0.35% based on the applicable senior net leverage ratio times the unused portion of the revolving loan portion of the credit facility.

The Credit Agreement contains customary affirmative covenants regarding, among other things, the maintenance of records, compliance with laws, maintenance of permits, maintenance of insurance and property and payment of taxes. The Credit Agreement also contains certain customary financial covenants and negative covenants that, among other things, include a requirement to maintain a minimum Interest Coverage Ratio (as defined in the Credit Agreement), a requirement to stay below a maximum Total Net Leverage Ratio (as defined in the Credit Agreement) and a requirement to stay below a maximum permitted amount of capital expenditures, as well as restrictions on guarantees, indebtedness, liens, investments and loans, subject to customary carve outs, a restriction on dividends (provided that Addus HealthCare may make distributions to us in an amount that does not exceed $7.5 million in any year absent of an event of default, plus limited exceptions for tax and administrative distributions), a restriction on the ability to consummate acquisitions (without the consent of the lenders) under our credit facility subject to compliance with the Total Net Leverage Ratio (as defined in the Credit Agreement) thresholds, restrictions on mergers, dispositions of assets, and affiliate transactions, and restrictions on fundamental changes and lines of business.

On September 12, 2019, we entered into a First Amendment (the “Amendment”) to our Credit Agreement. The Amendment increased our credit facility by $50.0 million in incremental revolving loans, for an aggregate $300.0 million in revolving loans. The Amendment provides that future incremental loans may be for term loans or an increase to the revolving loan commitments. The Amendment further provides that the proceeds of such $50.0 million incremental revolving loan may be used for, among other things, general corporate purposes.

On July 30, 2021, the Company entered into the Second Amendment. The Second Amendment, among other things, reallocated and refinanced the Company’s outstanding initial term loans as revolving loans (such that the Company has no outstanding initial term loans and no further initial term loans may be borrowed) and increased the Company’s revolving credit facility to an aggregate amount of $600,000,000. Moreover, the Second Amendment increased the Company’s incremental loan facility to an aggregate amount $125,000,000, which incremental loan facility may be for term loans or an increase to the revolving loan commitments. The maturity of the revolving credit facility was also extended from May 8, 2023 to July 30, 2026.

At June 30, 2021, we were in compliance with our financial covenants under the Credit Agreement.

Cash Flows

The following table summarizes changes in our cash flows for the six months ended June 30, 2021 and 2020:

 

 

 

For the Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

                                            

 

(Amounts in Thousands)

 

Net cash (used in) provided by operating activities

 

$

(3,321

)

 

$

50,887

 

Net cash used in investing activities

 

 

(1,928

)

 

 

(4,965

)

Net cash (used in) provided by financing activities

 

 

(429

)

 

 

913

 

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Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Net cash used in operating activities was $3.3 million for the six months ended June 30, 2021, compared to net cash provided by operating activities of $50.9 million for the same period in 2020. The decrease in cash provided by operations was due to the timing of accounts receivable, of $29.5 million, and the repayment and the use of $24.0 million of government stimulus funds for the six months ended June 30, 2021.

Net cash used in investing activities was $1.9 million for the six months ended June 30, 2021 compared to cash used in investing activities of $5.0 million for the six months ended June 30, 2020, which mainly consisted of property and equipment purchases primarily related to our ongoing investments in our technology infrastructure.

Net cash used by financing activities related to cash payments on term loan of $0.5 and $0.3 million for the six months ended June 30, 2021 and 2020. For the six months ended June 30, 2020, the Company received cash from the exercise of stock options of $1.2 million.

Outstanding Accounts Receivable

Gross accounts receivable as of June 30, 2021 and December 31, 2020 were approximately $139.6 million and $133.4 million, respectively. Outstanding accounts receivable, net of allowance, increased by $5.6 million as of June 30, 2021 as compared to December 31, 2020. Accounts receivable for the Illinois Department on Aging increased approximately $1.7 million during the quarter ended June 30, 2021. Our collection procedures include review of account aging and direct contact with our payors. We have historically not used collection agencies. An uncollectible amount is written off to the allowance account after reasonable collection efforts have been exhausted.

We calculate our DSO by taking the trade accounts receivable outstanding, net of allowance for doubtful accounts, divided by the net service revenues for the last quarter, multiplied by the number of days in that quarter. Our DSOs were 57 days and 61 days at June 30, 2021 and December 31, 2020, respectively. The DSOs for our largest payor, the Illinois Department on Aging, at June 30, 2021 and December 31, 2020 were 43 days and 46 days, respectively. We may not receive payments on a consistent basis in the near term and our DSOs and the DSO for the Illinois Department on Aging may increase despite the state of Illinois’s enactment of state budgets for fiscal years 2021 and 2022.

The economic slowdown caused by the COVID-19 pandemic continues to pose a risk to states’ budgets for the 2021 fiscal year, which began July 1 in most states. Depending on the severity and length of a downturn, sales tax collections and income tax withholdings could continue to be depressed in fiscal 2022 and, potentially, future fiscal years. States could face significant fiscal challenges and may revise their revenue forecasts and adjust their budgets for fiscal 2022 and, potentially, future fiscal years, accordingly. Illinois, New York and New Mexico, our top three markets, have revised revenue estimates downward for the 2021 fiscal year. New York, which started its fiscal year April 1, 2021, recently estimated that the state would collect at least $5 billion more than originally forecasted, due to better than expected receipts through January 2021. The New York state comptroller initially decreased its estimate for 2021 fiscal year collections by $10 billion. Although receipts are higher than this estimate, revenues are still significantly below pre-COVID estimates. The current New York fiscal plan authorizes the state of New York to issue up to $11 billion in short-term bonds to ameliorate reduced revenues during the fiscal year. Also in response to reduced revenues, the state implemented uniform reductions to Medicaid payments. Effective for dates of service on or after April 2, 2020, the uniform reduction rate is 1.5%. The reduction applies to home health services but hospice services are exempt. We cannot determine the impact that COVID-19 may have on states’ budgets for 2022 or beyond. However, such impacts could have a material adverse effect on our financial condition, results of operations and cash flows.

The ARPA provided $350 billion dollars in emergency funding for state, local, territorial, and Tribal governments to remedy the mismatch between increasing costs and decreasing revenues. We cannot determine if Congress will provide additional relief with additional stimulus and relief legislation, including extension of unemployment benefits and relief for states. Additionally, we cannot determine the impact that the economic slowdown caused by the COVID-19 pandemic may have on states’ budgets for 2022 or beyond. However, such impacts could have a material adverse effect on our financial condition, results of operations and cash flows.

Off-Balance Sheet Arrangements

As of June 30, 2021, we did not have any off-balance sheet guarantees or arrangements with unconsolidated entities.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates previously disclosed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” set forth in Part II, Item 7 of our Annual Report on Form 10-K for the period ended December 31, 2020, filed on March 1, 2021.

Recently Issued Accounting Pronouncements

Refer to Note 2 to the Notes to Condensed Consolidated Financial Statements (Unaudited) for further discussion.

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ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk associated with changes in interest rates on our variable rate long-term debt. As of June 30, 2021, we had outstanding borrowings of approximately $196.1 million on our credit facility, all of such borrowings were subject to variable interest rates. If the variable rates on this debt were 100 basis points higher than the rate applicable to the borrowing during the three and six month periods ended June 30, 2021, our net income would have decreased by $0.4 million, or $0.02 per diluted share, and $0.7 million, or $0.05 per diluted share, respectively. We do not currently have any derivative or hedging arrangements, or other known exposures, to changes in interest rates.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

From time to time, we are subject to legal and/or administrative proceedings incidental to our business. It is the opinion of management that the outcome of pending legal and/or administrative proceedings will not have a material effect on our financial position and results of operations.

Item 1A.

Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risk factors discussed under the caption “Risk Factors” set forth in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2020, filed on March 1, 2021. There have been no material changes to the risk factors previously disclosed under the caption “Risk Factors” in our Annual Report on Form 10-K. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

Item 2.

Unregistered Sales of Equity Securities and Use of 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

 

 

 

 

  3.1

 

Amended and Restated Certificate of Incorporation of the Company dated as of October 27, 2009 (filed on November 20, 2009 as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q (File No. 001-34504) and incorporated by reference herein).

 

 

  3.2

 

Amended and Restated Bylaws of the Company, as amended by the First Amendment to the Amended and Restated Bylaws (filed on May 9, 2013 as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q (File No. 001-34504) and incorporated by reference herein).

 

 

  4.1

 

Form of Common Stock Certificate (filed on October 2, 2009 as Exhibit 4.1 to Amendment No. 4 to the Company’s Registration Statement on Form S-1 (File No. 333-160634) and incorporated by reference herein).

 

 

 

10.1

 

Transition Agreement and Release, effective June 11, 2021, by and among Addus HealthCare, Inc. and Laurie Manning. *

 

 

 

10.2

 

Employment and Non-Competition Agreement, effective June 14, 2021, by and between Addus HealthCare, Inc. and Roberton James Stevenson. *

 

 

31.1

 

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

31.2

 

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

32.1

 

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

101.INS

 

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

 

 

 

101.CAL

 

Inline XBRL Taxonomy Calculation Linkbase Document.

 

 

 

101.LAB

 

Inline XBRL Taxonomy Label Linkbase Document.

 

 

 

101.PRE

 

Inline XBRL Presentation Linkbase Document.

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).

*Management compensatory plan or arrangement

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

 

 

 

ADDUS HOMECARE CORPORATION

 

 

 

Date: August 4, 2021

 

By:

 

/s/ R. DIRK ALLISON

 

 

 

 

 

 

 

R. Dirk Allison

Chairman and Chief Executive Officer

(As Principal Executive Officer)

 

 

 

Date: August 4, 2021

 

By:

 

/s/ BRIAN POFF

 

 

 

 

 

 

 

Brian Poff

Chief Financial Officer

(As Principal Financial Officer)

 

38