See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
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 three 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, 2019 has been derived from the Company’s audited financial statements for the year ended December 31, 2019 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, 2019 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 GAAP and include estimated amounts and certain disclosures based on assumptions about future events. The Company’s critical accounting estimates include revenue recognition, accounts receivable and allowances and goodwill and 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 September 30, 2020 and 2019, dilutive stock options outstanding were approximately 523,000 and 650,000, respectively, and dilutive restricted stock awards outstanding were approximately 149,000 and 147,000, respectively.
Included in the Company’s calculation of diluted earnings per share for the three and nine months ended September 30, 2020, dilutive stock options outstanding were approximately 301,000 and 303,000, respectively. In addition, dilutive restricted stock awards outstanding were approximately 38,000 and 58,000 for the three and nine months ended September 30, 2020, respectively.
Included in the Company’s calculation of diluted earnings per share for the three and nine months ended September 30, 2019, were approximately 359,000 and 335,000 dilutive stock options outstanding, respectively. In addition, dilutive restricted stock awards outstanding were approximately 78,000 and 81,000 for the three and nine months ended September 30, 2019, respectively.
8
Table of Contents
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. Under the new standard, entities holding financial assets and net investment in leases that are not accounted for at fair value through net income are to be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. We have reviewed our provision for doubtful accounts process as required by ASU 2016-13. Management estimates allowances on accounts receivable based upon historical experience and other factors, including an aging of accounts receivable, evaluation of expected adjustments, past adjustments and collection experience in relation to amounts billed, current contract and reimbursement terms, shifts in payors and other current relevant information. The Company recorded a provision for doubtful accounts of $0.2 million and $0.7 million for the three and nine months ended September 30, 2020, respectively. Allowance for doubtful accounts was $0.8 million and $1.0 million as of September 30, 2020 and December 31, 2019, respectively. Adoption of the new standard did not have a significant impact on our results of operations or liquidity.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new guidance eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on the current Step 1). Adoption of the new standard did not have a significant impact on our results of operations or liquidity.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. ASU 2018-15 requires customers in a hosting arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification (“ASC”) 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Adoption of the new standard did not have a significant impact on our results of operations or liquidity.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 intends to simplify 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 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. Adoption of the new standard is not expected to have an impact on our results of operations or liquidity.
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. Revision of Previously Issued Financial Statements
In connection with management finalizing their financial reporting close process for the year ended December 31, 2019, management identified certain immaterial errors impacting the current period and previous periods dating back to periods prior to 2017, including interim periods within those years. Specifically, management determined there were certain errors in the information utilized to accurately estimate the implicit price concessions necessary to reduce net service revenues to the amount expected to be collected. Accordingly, management determined that our accounts receivable allowance was understated. The correction reflects the impact on the Company’s income tax provision and related accounts as a result of correcting for the error as discussed above. Additionally, the Company identified and corrected other immaterial unrelated income tax items impacting deferred tax assets and other immaterial items.
Management evaluated the impact of the errors on all previously issued financial statements and concluded such previously issued financial statements were not materially misstated; however, to reflect such corrections in the quarter ended December 31, 2019 financial statements would materially misstate the 2019 fiscal year. Accordingly, management revised previously issued financial statements to correct for the impact of the errors. The Company’s consolidated financial statements have been revised from the amounts previously reported to correct these immaterial errors as shown in the tables below and are reflected throughout the financial statements and related notes, as applicable.
9
Table of Contents
The Consolidated Statements of Income has been revised to reflect the correction for the three and nine months ended September 30, 2019 as follows (amounts in thousands, except per share data):
|
|
For the Three Months Ended September 30,
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2019
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
|
As
|
|
|
Previously
|
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Revision
|
|
|
Revised
|
|
|
Reported
|
|
|
Revision
|
|
|
Revised
|
|
Net service revenues
|
|
$
|
169,803
|
|
|
$
|
(810
|
)
|
|
$
|
168,993
|
|
|
$
|
458,749
|
|
|
$
|
(2,334
|
)
|
|
$
|
456,415
|
|
Gross profit
|
|
|
45,986
|
|
|
|
(810
|
)
|
|
|
45,176
|
|
|
|
124,030
|
|
|
|
(2,334
|
)
|
|
|
121,696
|
|
General and administrative expenses
|
|
|
35,950
|
|
|
|
(865
|
)
|
|
|
35,085
|
|
|
|
95,429
|
|
|
|
(1,320
|
)
|
|
|
94,109
|
|
Total operating expenses
|
|
|
38,706
|
|
|
|
(865
|
)
|
|
|
37,841
|
|
|
|
102,794
|
|
|
|
(1,320
|
)
|
|
|
101,474
|
|
Operating income from continuing operations
|
|
|
7,280
|
|
|
|
55
|
|
|
|
7,335
|
|
|
|
21,236
|
|
|
|
(1,014
|
)
|
|
|
20,222
|
|
Income from continuing operations before income taxes
|
|
|
7,200
|
|
|
|
55
|
|
|
|
7,255
|
|
|
|
20,168
|
|
|
|
(1,014
|
)
|
|
|
19,154
|
|
Income tax expense
|
|
|
1,759
|
|
|
|
10
|
|
|
|
1,769
|
|
|
|
4,347
|
|
|
|
(267
|
)
|
|
|
4,080
|
|
Net income from continuing operations
|
|
|
5,441
|
|
|
|
45
|
|
|
|
5,486
|
|
|
|
15,821
|
|
|
|
(747
|
)
|
|
|
15,074
|
|
Net income
|
|
$
|
4,867
|
|
|
$
|
45
|
|
|
$
|
4,912
|
|
|
$
|
15,247
|
|
|
$
|
(747
|
)
|
|
$
|
14,500
|
|
Basic income per share
|
|
$
|
0.36
|
|
|
$
|
—
|
|
|
$
|
0.36
|
|
|
$
|
1.15
|
|
|
$
|
(0.05
|
)
|
|
$
|
1.10
|
|
Diluted income per share
|
|
$
|
0.34
|
|
|
$
|
0.01
|
|
|
$
|
0.35
|
|
|
$
|
1.12
|
|
|
$
|
(0.06
|
)
|
|
$
|
1.06
|
|
Additionally, the Consolidated Statement of Cash Flows has been revised to reflect the correction for the nine months ended September 30, 2019 as follows:
|
|
For the Nine Months Ended September 30,
(Amounts in Thousands)
|
|
|
|
2019
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Revision
|
|
|
Revised
|
|
Net income
|
|
$
|
15,247
|
|
|
$
|
(747
|
)
|
|
$
|
14,500
|
|
Deferred income taxes
|
|
|
372
|
|
|
|
(267
|
)
|
|
|
105
|
|
Accounts receivable
|
|
|
(22,291
|
)
|
|
|
2,334
|
|
|
|
(19,957
|
)
|
Accrued expenses and other long-term liabilities
|
|
|
(2,084
|
)
|
|
|
(1,320
|
)
|
|
|
(3,404
|
)
|
Net cash provided by operating activities
|
|
$
|
8,084
|
|
|
$
|
—
|
|
|
$
|
8,084
|
|
4. Leases
We have historically entered into operating leases for local branches, our corporate headquarters and certain equipment. The Company’s current leases have expiration dates through 2031. Certain of our arrangements have free rent periods and/or escalating rent payment provisions. We recognize rent expense on a straight-line basis over the lease term. Certain of the Company’s leases include termination options and renewal options for periods ranging from one to five years. Because we are not reasonably certain to exercise these renewal options, the options generally are not considered in determining the lease term, and payments associated with the option years are excluded from lease payments.
When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.
Amounts reported in the Company’s Unaudited Condensed Consolidated Balance Sheets as of September 30, 2020 and Audited Consolidated Balance Sheets as of December 31, 2019 for our operating leases were as follows:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
(Amounts in Thousands)
|
|
Operating lease assets, net
|
|
$
|
35,842
|
|
|
$
|
21,111
|
|
|
|
|
|
|
|
|
|
|
Short-term operating lease liabilities (in accrued expenses)
|
|
|
8,057
|
|
|
|
7,234
|
|
Long-term operating lease liabilities
|
|
|
33,977
|
|
|
|
14,301
|
|
Total operating lease liabilities
|
|
$
|
42,034
|
|
|
$
|
21,535
|
|
10
Table of Contents
The Company signed an eleven-year lease agreement to expand its Frisco corporate headquarters from 31,000 square feet to approximately 75,000 square feet which resulted in an increase in the operating lease asset, net, and operating lease liability by approximately $17.3 million and $22.2 million, respectively, during the three and nine months ended September 30, 2020.
Lease Costs
Components of lease cost were reported in general and administrative expenses in the Company’s Unaudited Condensed Consolidated Statements of Income as follows:
|
|
For the Three Months Ended September 30,
(Amounts in Thousands)
|
|
|
For the Nine Months Ended September 30,
(Amounts in Thousands)
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Operating lease costs
|
|
$
|
2,285
|
|
|
$
|
1,897
|
|
|
$
|
6,524
|
|
|
$
|
5,101
|
|
Short-term lease costs
|
|
|
147
|
|
|
|
222
|
|
|
|
575
|
|
|
|
382
|
|
Total lease cost
|
|
$
|
2,432
|
|
|
$
|
2,119
|
|
|
$
|
7,099
|
|
|
$
|
5,483
|
|
Lease Term and Discount Rate
Weighted average remaining lease terms and discount rates were as follows:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Operating leases:
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
|
7.24
|
|
|
|
3.42
|
|
Weighted average discount rate
|
|
|
4.33
|
%
|
|
|
5.14
|
%
|
Maturity of Lease Liabilities
A summary of our remaining operating lease payments as of September 30, 2020 were as follows:
|
|
Operating Leases
|
|
|
|
(Amounts in Thousands)
|
|
Due in the 12-month period ended September 30,
|
|
|
|
|
2021
|
|
$
|
9,176
|
|
2022
|
|
|
8,704
|
|
2023
|
|
|
6,366
|
|
2024
|
|
|
4,704
|
|
2025
|
|
|
3,549
|
|
Thereafter
|
|
|
16,783
|
|
Total future minimum rental commitments
|
|
|
49,282
|
|
Less: Imputed interest
|
|
|
(7,248
|
)
|
Total lease liabilities
|
|
$
|
42,034
|
|
Supplemental cash flows information
|
|
For the Nine Months Ended September 30,
(Amounts in Thousands)
|
|
|
|
2020
|
|
|
2019
|
|
Supplemental Cash Flows Information
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
6,472
|
|
|
$
|
5,393
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets, net obtained in exchange for lease obligations:
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
21,399
|
|
|
|
5,536
|
|
5. 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.
11
Table of Contents
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.
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 $12.2 million plus the amount of excess cash held by A Plus at closing (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 Montana. The related acquisition costs were $0.3 million for the three and nine months ended September 30, 2020. 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 are as follows:
|
|
Total
(Amounts in
Thousands)
|
|
Goodwill
|
|
$
|
11,252
|
|
Identifiable intangible assets
|
|
|
1,523
|
|
Cash
|
|
|
2,819
|
|
Accounts receivable
|
|
|
1,075
|
|
Operating lease assets, net
|
|
|
180
|
|
Other assets
|
|
|
23
|
|
Accounts payable
|
|
|
(18
|
)
|
Accrued expenses
|
|
|
(202
|
)
|
Accrued payroll
|
|
|
(303
|
)
|
Current portion of long-term debt
|
|
|
(577
|
)
|
Long-term debt
|
|
|
(1,145
|
)
|
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 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.
The A Plus acquisition accounted for $2.6 million of net service revenues and $0.5 million of operating income for the three and nine months ended September 30, 2020, respectively.
Hospice Partners
On October 1, 2019, the Company completed the acquisition of the assets of Hospice Partners of America, LLC (“Hospice Partners”). The purchase price was approximately $135.6 million. The purchase of Hospice Partners was funded through a portion of the net proceeds of our public offering of an aggregate 2,300,000 shares of common stock, par value $0.001 per share, including 300,000 shares of common stock sold pursuant to the exercise in full by the underwriters of their option to purchase additional shares at a public offering price of $79.50 per share, which the Company completed on September 9, 2019 (the “Public Offering”). With the purchase of Hospice Partners, we expanded our hospice operations through 21 locations in Idaho, Kansas, Missouri, Oregon, Texas and Virginia. The related integration costs were $1.5 million for the nine months ended September 30, 2020. These costs were included in general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income and were expensed as incurred.
12
Table of Contents
Based upon management’s final valuations, the fair values of the assets and liabilities are as follows:
|
|
Total
(Amounts in
Thousands)
|
|
Goodwill
|
|
$
|
111,674
|
|
Identifiable intangible assets
|
|
|
18,090
|
|
Cash
|
|
|
5,489
|
|
Property and equipment
|
|
|
164
|
|
Accounts receivable
|
|
|
6,411
|
|
Operating lease assets, net
|
|
|
2,425
|
|
Other assets
|
|
|
702
|
|
Accounts payable
|
|
|
(1,737
|
)
|
Accrued expenses
|
|
|
(3,503
|
)
|
Accrued payroll
|
|
|
(1,110
|
)
|
Deferred tax liability
|
|
|
(1,422
|
)
|
Long-term operating lease liabilities
|
|
|
(1,615
|
)
|
Total purchase price
|
|
$
|
135,568
|
|
Identifiable intangible assets acquired consist of $9.5 million in trade names with estimated useful lives of fifteen years, $2.5 million in non-competition agreements with estimated useful lives of three to five years and $6.1 million of indefinite lived state licenses. 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.
The Hospice Partners acquisition accounted for $13.0 million and $40.3 million of net service revenues and $3.5 million and $9.5 million of operating income for the three and nine months ended September 30, 2020, respectively.
Alliance Home Health Care
On August 1, 2019, the Company completed the acquisition of all of the assets of Alliance Home Health Care (“Alliance”). The purchase price was approximately $23.5 million. The purchase of Alliance was funded through the Company’s revolving credit facility and available cash. With the purchase of Alliance, the Company expanded its personal care, home health and hospice operations in the state of New Mexico. The related acquisition costs were $0.3 million for the three and nine months ended September 30, 2019. The related integration costs were $0.2 million for the nine months ended September 30, 2020. 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 are as follows:
|
|
Total
(Amounts in
Thousands)
|
|
Goodwill
|
|
$
|
17,062
|
|
Identifiable intangible assets
|
|
|
5,422
|
|
Cash
|
|
|
177
|
|
Accounts receivable
|
|
|
1,754
|
|
Accounts payable
|
|
|
(316
|
)
|
Other liabilities
|
|
|
(641
|
)
|
Total purchase price
|
|
$
|
23,458
|
|
Identifiable intangible assets acquired consist of $1.1 million in state licenses, subject to amortization, with an estimated useful life of ten years and $4.3 million of indefinite lived state licenses. 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.
The Alliance acquisition accounted for $3.3 million and $3.4 million of net service revenues for the three months ended September 30, 2020 and 2019, respectively, and $12.0 million and $3.4 million for the nine months ended September 30, 2020 and 2019, respectively. Operating income accounted for $0.7 million and $0.8 million for the three months ended September 30, 2020 and 2019, respectively, and $2.7 million and $0.8 million for the nine months ended September 30, 2020 and 2019, respectively.
13
Table of Contents
VIP Health Care Services
On June 1, 2019, the Company completed the acquisition of all of the assets of VIP Health Care Services (“VIP”). The purchase price was approximately $29.9 million. The purchase of VIP was funded through a combination of the Company’s delayed draw term loan portion of its credit facility and available cash. With the purchase of VIP, the Company expanded its personal care operations in the state of New York and into the New York City metropolitan area. The related acquisition costs were $0.3 million for the nine months ended September 30, 2019. The related integration costs were $0.2 million for the nine months ended September 30, 2020, and $0.2 million and $0.3 million for the three and nine months ended September 30, 2019, respectively. 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, the fair values of the assets and liabilities are as follows:
|
|
Total
(Amounts in
Thousands)
|
|
Goodwill
|
|
$
|
11,936
|
|
Identifiable intangible assets
|
|
|
15,370
|
|
Cash
|
|
|
130
|
|
Accounts receivable
|
|
|
4,730
|
|
Operating lease assets, net
|
|
|
2,278
|
|
Other assets
|
|
|
30
|
|
Property and equipment
|
|
|
27
|
|
Accounts payable
|
|
|
(540
|
)
|
Accrued expenses
|
|
|
(770
|
)
|
Accrued payroll
|
|
|
(1,742
|
)
|
Long-term operating lease liabilities
|
|
|
(1,531
|
)
|
Total purchase price
|
|
$
|
29,918
|
|
Identifiable intangible assets acquired consist of $10.7 million in state licenses, subject to amortization, and $4.7 million in customer relationships, with estimated useful lives of six and eight years, respectively. 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.
The VIP acquisition accounted for $9.7 million and $13.2 million of net service revenues for the three months ended September 30, 2020 and 2019, respectively, and $30.5 million and $17.6 million for the nine months ended September 30, 2020 and 2019, respectively, and $0.4 million of operating loss for each of the three months ended September 30, 2020 and 2019, and $1.1 million and $0.1 million of operating loss for the nine months ended September 30, 2020 and 2019, respectively.
The following table contains unaudited pro forma condensed consolidated income statement information of the Company for the three and nine months ended September 30, 2020 and 2019 as if each of the acquisitions of Hospice Partners, Alliance, VIP and A Plus closed on January 1, 2019.
|
|
For the Three Months Ended September 30,
(Amounts in Thousands)
|
|
|
For the Nine Months Ended September 30,
(Amounts in Thousands)
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net service revenues
|
|
$
|
193,987
|
|
|
$
|
187,846
|
|
|
$
|
573,917
|
|
|
$
|
541,646
|
|
Operating income from continuing operations
|
|
|
12,269
|
|
|
|
9,291
|
|
|
|
32,136
|
|
|
|
26,328
|
|
Net income from continuing operations
|
|
|
9,458
|
|
|
|
6,922
|
|
|
|
25,663
|
|
|
|
20,518
|
|
Net income per common share from continuing
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
0.61
|
|
|
$
|
0.50
|
|
|
$
|
1.65
|
|
|
$
|
1.55
|
|
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 Hospice Partners, Alliance, VIP and A Plus had been acquired effective January 1, 2019. 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.
14
Table of Contents
6. Goodwill and Intangible Assets
A summary of the goodwill activity for the nine months ended September 30, 2020 is provided below:
|
|
Goodwill
|
|
|
|
Personal
Care
|
|
|
Hospice
|
|
|
Home
Health
|
|
|
Total
|
|
|
|
(Amounts in Thousands)
|
|
Goodwill as of December 31, 2019
|
|
$
|
126,577
|
|
|
$
|
146,983
|
|
|
$
|
1,808
|
|
|
$
|
275,368
|
|
Additions for acquisition
|
|
|
11,252
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,252
|
|
Divestiture
|
|
|
—
|
|
|
|
(1,167
|
)
|
|
|
—
|
|
|
|
(1,167
|
)
|
Adjustments to previously recorded goodwill
|
|
|
1,438
|
|
|
|
(322
|
)
|
|
|
(17
|
)
|
|
|
1,099
|
|
Goodwill as of September 30, 2020
|
|
$
|
139,267
|
|
|
$
|
145,494
|
|
|
$
|
1,791
|
|
|
$
|
286,552
|
|
The Company’s identifiable intangible assets consist of customer and referral relationships, trade names, trademarks and non-competition agreements. Amortization is computed using straight-line and accelerated methods based upon the estimated useful lives of the respective assets, which range from three 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. Goodwill and certain state licenses are not amortized pursuant to ASC Topic 350.
The Company recognized goodwill in the personal care segment of $11.3 million related to the acquisition of A Plus during the nine months ended September 30, 2020. For the three and nine months ended September 30, 2020, adjustments to previously recorded goodwill are primarily adjustments to accounts receivable based on the final valuations for the acquisitions of Hospice Partners, Alliance and VIP. During the nine months ended September 30, 2020, the Company divested certain branches and their related net assets including $1.2 million of related goodwill. The Company recognized $0.3 million loss on the disposition, reflected as a reduction in general and administrative expense for the nine months ended September 30, 2020.
The carrying amount and accumulated amortization of each identifiable intangible asset category consisted of the following as of September 30, 2020:
|
|
Customer
and referral
relationships
|
|
|
Trade
names and
trademarks
|
|
|
Non-
competition
agreements
|
|
|
State
Licenses
|
|
|
Total
|
|
|
|
(Amounts in Thousands)
|
|
Intangible assets with indefinite lives
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,296
|
|
|
|
13,296
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
48,028
|
|
|
|
31,946
|
|
|
|
4,655
|
|
|
|
12,164
|
|
|
|
96,793
|
|
Accumulated amortization
|
|
|
(37,263
|
)
|
|
|
(14,671
|
)
|
|
|
(2,716
|
)
|
|
|
(2,566
|
)
|
|
|
(57,216
|
)
|
Intangible assets subject to amortization, net
|
|
|
10,765
|
|
|
|
17,275
|
|
|
|
1,939
|
|
|
|
9,598
|
|
|
|
39,577
|
|
Total intangible assets at September 30, 2020
|
|
$
|
10,765
|
|
|
$
|
17,275
|
|
|
$
|
1,939
|
|
|
$
|
22,894
|
|
|
$
|
52,873
|
|
During the nine months ended September 30, 2020, the Company acquired a trade name of $1.4 million related to the acquisition of A Plus. Amortization expense related to identifiable intangible assets amounted to $1.7 million and $5.3 million for the three and nine months ended September 30, 2020, respectively, and $1.8 million and $4.4 million for the three and nine months ended September 30, 2019, respectively. The weighted average remaining lives of identifiable intangible assets as of September 30, 2020 is 8.7 years.
7. Details of Certain Balance Sheet Accounts
Prepaid expenses and other current assets consisted of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(Amounts in Thousands)
|
|
Income tax receivable
|
|
$
|
2,533
|
|
|
$
|
—
|
|
Workers’ compensation insurance receivable
|
|
|
2,186
|
|
|
|
1,989
|
|
Prepaid workers' compensation and liability insurance
|
|
|
1,792
|
|
|
|
2,040
|
|
Health insurance receivable
|
|
|
426
|
|
|
|
1,567
|
|
Other
|
|
|
3,489
|
|
|
|
2,397
|
|
Total prepaid expenses and other current assets
|
|
$
|
10,426
|
|
|
$
|
7,993
|
|
15
Table of Contents
Accrued expenses consisted of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(Amounts in Thousands)
|
|
Accrued payroll taxes (1)
|
|
$
|
8,448
|
|
|
$
|
1,843
|
|
Current portion of operating lease liabilities
|
|
|
8,057
|
|
|
|
7,234
|
|
Accrued health insurance
|
|
|
4,413
|
|
|
|
4,140
|
|
Accrued professional fees
|
|
|
3,135
|
|
|
|
2,517
|
|
Other
|
|
|
9,342
|
|
|
|
6,695
|
|
Total accrued expenses
|
|
$
|
33,395
|
|
|
$
|
22,429
|
|
(1)
|
The Company deferred $7.1 million of payroll taxes in connection to a provision included in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), see Note 10 to the Notes to Consolidated Financial Statements for additional information.
|
8. Long-Term Debt
Long-term debt consisted of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(Amounts in Thousands)
|
|
Revolving loan under the credit facility
|
|
$
|
43,458
|
|
|
$
|
43,458
|
|
Term loan under the credit facility
|
|
|
18,375
|
|
|
|
18,865
|
|
Other debt
|
|
|
1,722
|
|
|
|
—
|
|
Financing leases
|
|
|
—
|
|
|
|
21
|
|
Less unamortized issuance costs
|
|
|
(1,899
|
)
|
|
|
(2,452
|
)
|
Total
|
|
$
|
61,656
|
|
|
$
|
59,892
|
|
Less current maturities
|
|
|
(2,095
|
)
|
|
|
(728
|
)
|
Long-term debt
|
|
$
|
59,561
|
|
|
$
|
59,164
|
|
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”), which amended and restated the Company’s existing 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. In connection with this amended and restated credit facility, the Company incurred approximately $0.9 million of debt issuance costs.
Addus HealthCare, Inc. (“Addus HealthCare”) is the borrower, and its parent, Holdings, and substantially all of Holdings’ subsidiaries are guarantors under this amended and restated 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.
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 the incremental revolving loan commitments may be used for, among other things, general corporate purposes. In connection with the modification of this Amendment, the Company incurred approximately $0.4 million of debt issuance costs.
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 amended and restated credit facility.
16
Table of Contents
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 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 September 30, 2020, the Company was in compliance with all financial covenants under the Credit Agreement.
During the nine months ended September 30, 2020, the Company had no draws under its credit facility.
As of September 30, 2020, the Company had a total of $43.4 million of revolving loans, with an interest rate of 1.89% and $18.4 million of term loans, with an interest rate of 1.89%, outstanding on its credit facility. After giving effect to the amount drawn on its credit facility, approximately $9.3 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 $219.0 million available for borrowing under its credit facility.
As of December 31, 2019, the Company had a total of $43.4 million of revolving loans, with an interest rate of 3.44%, and $18.9 million of term loans, with an interest rate of 3.45%, outstanding on its credit facility. After giving effect to the amount drawn on its credit facility, approximately $10.0 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 $191.4 million available for borrowing under its credit facility.
9. Income Taxes
The effective income tax rates are 23.6% and 24.4% for the three months ended September 30, 2020 and 2019, respectively. For the three months ended September 30, 2020 and 2019, 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 an excess tax benefit and the use of federal employment tax credits.
The effective income tax rates are 20.5% and 21.3% for the nine months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, 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. 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.
10. Commitments and Contingencies
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 the Company’s Unaudited Condensed Consolidated Balance Sheets and Unaudited Condensed Consolidated Statements of Income.
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 has spread throughout the United States and other parts of the world, and COVID-19 cases have recently been increasing in the United States and Europe. It is impossible to predict the effect and ultimate impact of the COVID-19 pandemic as the situation continues to rapidly evolve.
17
Table of Contents
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 President signed into law the CARES Act, a sweeping stimulus bill intended to bolster the U.S. economy. On April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act (“PPPHCE Act”) was enacted, an expansion of the CARES Act. Together, the CARES Act and the PPPHCE Act authorize $175 billion in funding to be distributed to health care providers through the Relief Fund. This funding is intended to support healthcare providers by reimbursing them for healthcare-related expenses or lost revenues attributable to COVID-19. In addition to relief funding, the CARES Act includes temporary changes to Medicare and Medicaid payment rules and relief from certain accounting provisions.
In April 2020, the Company received grants in an aggregate principal amount of $6.9 million, for which it did not apply, from the Relief Fund as part of the automatic general distributions by HHS. The Company returned these funds in June 2020. The CARES Act includes provisions relating to refundable payroll tax credits, deferral of the employer portion of certain payroll taxes, net operating loss carrybacks, and other areas. The payroll tax deferral requires that the deferred payroll taxes be paid over two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022. The Company elected to defer payroll taxes during the quarter ended June 30, 2020 and ceased the deferral election effective June 30, 2020. The Company deferred $7.1 million of payroll taxes, which are included in accrued expenses in the Company’s Unaudited Condensed Consolidated Balance Sheets at September 30, 2020.
11. 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 three 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 nine months ended September 30, 2020 and 2019 along with the items necessary to reconcile the segment information to the totals reported in the accompanying 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 September 30, 2020
|
|
|
|
(Amounts in Thousands)
|
|
|
|
Personal Care
|
|
|
Hospice
|
|
|
Home Health
|
|
|
Total
|
|
Net service revenues
|
|
$
|
165,916
|
|
|
$
|
23,986
|
|
|
$
|
4,085
|
|
|
$
|
193,987
|
|
Cost of services revenues
|
|
|
124,493
|
|
|
|
10,508
|
|
|
|
2,685
|
|
|
|
137,686
|
|
Gross profit
|
|
|
41,423
|
|
|
|
13,478
|
|
|
|
1,400
|
|
|
|
56,301
|
|
General and administrative expenses
|
|
|
14,837
|
|
|
|
5,904
|
|
|
|
925
|
|
|
|
21,666
|
|
Segment operating income
|
|
$
|
26,586
|
|
|
$
|
7,574
|
|
|
$
|
475
|
|
|
$
|
34,635
|
|
|
|
For the Three Months Ended September 30, 2019
|
|
|
|
(Amounts in Thousands)
|
|
|
|
Personal Care
|
|
|
Hospice
|
|
|
Home Health
|
|
|
Total
|
|
Net service revenues
|
|
$
|
153,753
|
|
|
$
|
10,874
|
|
|
$
|
4,366
|
|
|
$
|
168,993
|
|
Cost of services revenues
|
|
|
115,504
|
|
|
|
5,495
|
|
|
|
2,818
|
|
|
|
123,817
|
|
Gross profit
|
|
|
38,249
|
|
|
|
5,379
|
|
|
|
1,548
|
|
|
|
45,176
|
|
General and administrative expenses
|
|
|
14,737
|
|
|
|
1,824
|
|
|
|
844
|
|
|
|
17,405
|
|
Segment operating income
|
|
$
|
23,512
|
|
|
$
|
3,555
|
|
|
$
|
704
|
|
|
$
|
27,771
|
|
18
Table of Contents
|
|
For the Three Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Amounts in Thousands)
|
|
Segment reconciliation:
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
$
|
34,635
|
|
|
$
|
27,771
|
|
|
|
|
|
|
|
|
|
|
Items not allocated at segment level:
|
|
|
|
|
|
|
|
|
Other general and administrative expenses
|
|
|
19,067
|
|
|
|
17,680
|
|
Depreciation and amortization
|
|
|
3,045
|
|
|
|
2,756
|
|
Interest income
|
|
|
(87
|
)
|
|
|
(786
|
)
|
Interest expense
|
|
|
680
|
|
|
|
866
|
|
Income before income taxes
|
|
$
|
11,930
|
|
|
$
|
7,255
|
|
|
|
For the Nine Months Ended September 30, 2020
|
|
|
|
(Amounts in Thousands)
|
|
|
|
Personal Care
|
|
|
Hospice
|
|
|
Home Health
|
|
|
Total
|
|
Net service revenues
|
|
$
|
482,849
|
|
|
$
|
73,723
|
|
|
$
|
12,207
|
|
|
$
|
568,779
|
|
Cost of services revenues
|
|
|
359,344
|
|
|
|
33,749
|
|
|
|
8,553
|
|
|
|
401,646
|
|
Gross profit
|
|
|
123,505
|
|
|
|
39,974
|
|
|
|
3,654
|
|
|
|
167,133
|
|
General and administrative expenses
|
|
|
45,042
|
|
|
|
18,658
|
|
|
|
2,831
|
|
|
|
66,531
|
|
Segment operating income
|
|
$
|
78,463
|
|
|
$
|
21,316
|
|
|
$
|
823
|
|
|
$
|
100,602
|
|
|
|
For the Nine Months Ended September 30, 2019
|
|
|
|
(Amounts in Thousands)
|
|
|
|
Personal Care
|
|
|
Hospice
|
|
|
Home Health
|
|
|
Total
|
|
Net service revenues
|
|
$
|
419,124
|
|
|
$
|
27,228
|
|
|
$
|
10,063
|
|
|
$
|
456,415
|
|
Cost of services revenues
|
|
|
314,329
|
|
|
|
13,587
|
|
|
|
6,803
|
|
|
|
334,719
|
|
Gross profit
|
|
|
104,795
|
|
|
|
13,641
|
|
|
|
3,260
|
|
|
|
121,696
|
|
General and administrative expenses
|
|
|
40,053
|
|
|
|
4,962
|
|
|
|
2,187
|
|
|
|
47,202
|
|
Segment operating income
|
|
$
|
64,742
|
|
|
$
|
8,679
|
|
|
$
|
1,073
|
|
|
$
|
74,494
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Amounts in Thousands)
|
|
Segment reconciliation:
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
$
|
100,602
|
|
|
$
|
74,494
|
|
|
|
|
|
|
|
|
|
|
Items not allocated at segment level:
|
|
|
|
|
|
|
|
|
Other general and administrative expenses
|
|
|
58,939
|
|
|
|
46,907
|
|
Depreciation and amortization
|
|
|
8,872
|
|
|
|
7,365
|
|
Interest income
|
|
|
(576
|
)
|
|
|
(1,096
|
)
|
Interest expense
|
|
|
2,309
|
|
|
|
2,164
|
|
Income before income taxes
|
|
$
|
31,058
|
|
|
$
|
19,154
|
|
19
Table of Contents
12. Significant Payors
For the three and nine months ended September 30, 2020 and 2019, the Company’s revenue by payor type was as follows:
|
|
Personal Care
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
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
|
|
$
|
85,344
|
|
|
|
51.5
|
|
%
|
|
$
|
75,176
|
|
|
|
48.9
|
|
%
|
|
$
|
242,751
|
|
|
|
50.3
|
|
%
|
|
$
|
221,450
|
|
|
|
52.8
|
|
%
|
Managed care organizations
|
|
|
71,700
|
|
|
|
43.2
|
|
|
|
|
68,438
|
|
|
|
44.5
|
|
|
|
|
213,087
|
|
|
|
44.1
|
|
|
|
|
170,004
|
|
|
|
40.6
|
|
|
Private pay
|
|
|
5,193
|
|
|
|
3.1
|
|
|
|
|
5,720
|
|
|
|
3.7
|
|
|
|
|
15,449
|
|
|
|
3.2
|
|
|
|
|
15,912
|
|
|
|
3.8
|
|
|
Commercial insurance
|
|
|
2,498
|
|
|
|
1.5
|
|
|
|
|
2,683
|
|
|
|
1.8
|
|
|
|
|
7,468
|
|
|
|
1.5
|
|
|
|
|
6,569
|
|
|
|
1.6
|
|
|
Other
|
|
|
1,181
|
|
|
|
0.7
|
|
|
|
|
1,736
|
|
|
|
1.1
|
|
|
|
|
4,094
|
|
|
|
0.9
|
|
|
|
|
5,189
|
|
|
|
1.2
|
|
%
|
Total personal care segment
net service revenues
|
|
$
|
165,916
|
|
|
|
100.0
|
|
%
|
|
$
|
153,753
|
|
|
|
100.0
|
|
%
|
|
$
|
482,849
|
|
|
|
100.0
|
|
%
|
|
$
|
419,124
|
|
|
|
100.0
|
|
|
|
|
Hospice
|
|
|
For the Three Months Ended September 30,
|
|
|
For the Nine Months Ended September 30,
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
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
|
|
$
|
22,404
|
|
|
|
93.4
|
|
%
|
$
|
10,045
|
|
|
|
92.4
|
|
%
|
$
|
68,372
|
|
|
|
92.8
|
|
%
|
$
|
25,243
|
|
|
|
92.7
|
|
%
|
Managed care organizations
|
|
|
1,130
|
|
|
|
4.7
|
|
|
|
584
|
|
|
|
5.4
|
|
|
|
3,710
|
|
|
|
5.0
|
|
|
|
1,419
|
|
|
|
5.2
|
|
|
Other
|
|
|
452
|
|
|
|
1.9
|
|
|
|
245
|
|
|
|
2.2
|
|
|
|
1,641
|
|
|
|
2.2
|
|
|
|
566
|
|
|
|
2.1
|
|
|
Total hospice segment net service revenues
|
|
$
|
23,986
|
|
|
|
100.0
|
|
%
|
$
|
10,874
|
|
|
|
100.0
|
|
%
|
$
|
73,723
|
|
|
|
100.0
|
|
%
|
$
|
27,228
|
|
|
|
100.0
|
|
%
|
|
|
Home Health
|
|
|
For the Three Months Ended September 30,
|
|
|
For the Nine Months Ended September 30,
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
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
|
|
$
|
3,188
|
|
|
|
78.0
|
|
%
|
$
|
3,338
|
|
|
|
76.5
|
|
%
|
$
|
9,667
|
|
|
|
79.2
|
|
%
|
$
|
7,948
|
|
|
|
79.0
|
|
%
|
Managed care organizations
|
|
|
829
|
|
|
|
20.3
|
|
|
|
959
|
|
|
|
22.0
|
|
|
|
2,325
|
|
|
|
19.0
|
|
|
|
1,872
|
|
|
|
18.6
|
|
|
Other
|
|
|
68
|
|
|
|
1.7
|
|
|
|
69
|
|
|
|
1.5
|
|
|
|
215
|
|
|
|
1.8
|
|
|
|
243
|
|
|
|
2.4
|
|
|
Total home health segment net service revenues
|
|
$
|
4,085
|
|
|
|
100.0
|
|
%
|
$
|
4,366
|
|
|
|
100.0
|
|
%
|
$
|
12,207
|
|
|
|
100.0
|
|
%
|
$
|
10,063
|
|
|
|
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 nine months ended September 30, 2020 and 2019 were as follows:
|
|
Personal Care
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
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
|
|
$
|
74,448
|
|
|
|
44.9
|
|
%
|
|
$
|
61,633
|
|
|
|
40.1
|
|
%
|
|
$
|
215,047
|
|
|
|
44.6
|
|
%
|
|
$
|
178,449
|
|
|
|
42.5
|
|
%
|
New York
|
|
|
28,381
|
|
|
|
17.1
|
|
|
|
|
34,730
|
|
|
|
22.6
|
|
|
|
|
87,463
|
|
|
|
18.1
|
|
|
|
|
75,330
|
|
|
|
18.0
|
|
|
New Mexico
|
|
|
21,878
|
|
|
|
13.2
|
|
|
|
|
19,559
|
|
|
|
12.7
|
|
|
|
|
64,402
|
|
|
|
13.3
|
|
|
|
|
54,701
|
|
|
|
13.1
|
|
|
All other states
|
|
|
41,209
|
|
|
|
24.8
|
|
|
|
|
37,831
|
|
|
|
24.6
|
|
|
|
|
115,937
|
|
|
|
24.0
|
|
|
|
|
110,644
|
|
|
|
26.4
|
|
|
Total personal care segment
net service revenues
|
|
$
|
165,916
|
|
|
|
100.0
|
|
%
|
|
$
|
153,753
|
|
|
|
100.0
|
|
%
|
|
$
|
482,849
|
|
|
|
100.0
|
|
%
|
|
$
|
419,124
|
|
|
|
100.0
|
|
%
|
20
Table of Contents
|
|
Hospice
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
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
|
|
$
|
10,979
|
|
|
|
45.8
|
|
%
|
|
$
|
10,874
|
|
|
|
100.0
|
|
%
|
|
$
|
33,431
|
|
|
|
45.3
|
|
%
|
|
$
|
27,228
|
|
|
|
100.0
|
|
%
|
All other states
|
|
|
13,007
|
|
|
|
54.2
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
40,292
|
|
|
|
54.7
|
|
|
|
|
—
|
|
|
|
—
|
|
|
Total hospice segment net service revenues
|
|
$
|
23,986
|
|
|
|
100.0
|
|
%
|
|
$
|
10,874
|
|
|
|
100.0
|
|
%
|
|
$
|
73,723
|
|
|
|
100.0
|
|
%
|
|
$
|
27,228
|
|
|
|
100.0
|
|
%
|
|
|
Home Health
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
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
|
|
$
|
4,085
|
|
|
|
100.0
|
|
%
|
|
$
|
4,366
|
|
|
|
100.0
|
|
%
|
|
$
|
12,207
|
|
|
|
100.0
|
|
%
|
|
$
|
10,063
|
|
|
|
100.0
|
|
%
|
Total home health segment net service revenues
|
|
$
|
4,085
|
|
|
|
100.0
|
|
%
|
|
$
|
4,366
|
|
|
|
100.0
|
|
%
|
|
$
|
12,207
|
|
|
|
100.0
|
|
%
|
|
$
|
10,063
|
|
|
|
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 38.5%, and 36.4% of our net service revenues for the three months ended September 30, 2020, and 2019, respectively and accounted for 37.8% and 39.1% of our net service revenues for the nine months ended September 30, 2020 and 2019, respectively. The Illinois Department on Aging, the largest payor program for the Company’s Illinois personal care operations, accounted for 22.9% and 22.1% of the Company’s net service revenues for the three months ended September 30, 2020 and 2019, respectively, and accounted for 23.1% and 26.0% of the Company’s net service revenues for the nine months ended September 30, 2020 and 2019, respectively.
The related receivables due from the Illinois Department on Aging represented 18.5% and 25.1% of the Company’s net accounts receivable at September 30, 2020 and December 31, 2019, respectively.
13. Subsequent Events
On November 1, 2020, we completed the acquisition of County Homemakers Incorporated (“County Homemakers”) for approximately $14.6 million, with funding provided by cash on hand. With the purchase of County Homemakers, we expanded our personal care services in the state of Pennsylvania. The Company is currently assessing the fair value of identifiable net assets acquired.
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