NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Significant Events
Organization
LHC Group, Inc. (the “Company”) is a health care provider specializing in the post-acute continuum of care. The Company provides services through five segments: home health, hospice, home and community-based services, facility-based services, the latter primarily through long-term acute care hospitals (“LTACHs”), and healthcare innovations services ("HCI").
As of September 30, 2020, the Company, through its wholly- and majority-owned subsidiaries, equity joint ventures, controlled affiliates, and management agreements operated 823 service locations in 35 states within the continental United States and the District of Columbia.
COVID-19
The effects of the worldwide pandemic caused by the outbreak of SARS-CoV-2 (“COVID-19”) have materially impacted our business.
In response to the COVID-19 outbreak, we promptly convened a cross-functional COVID-19 task force comprised of the Company's leaders that continually communicates with our clinicians and other employees concerning best practices and changes in Company policies and procedures. We also implemented contingency planning policies, whereby most employees in our home offices located in Louisiana and Kentucky are continuing to work remotely in compliance with CDC recommendations. We continue to invest in technology and equipment that allows our remote work force to provide continued and seamless functionality to our clinicians who continue to care for patients on service.
We have undertaken numerous measures to promote the safety of our clinicians and other employees. For example, we have prepared and distributed to our clinicians across the country special kits of personal protective equipment and other supplies needed to properly treat our patients during the COVID-19 outbreak, adopted social distancing guidelines for our agencies and our home offices located in Louisiana and Kentucky and posted reminder signs and markers throughout our work spaces, adopted additional cleaning procedures at all locations, installed plexiglass shields at work spaces that require a physical protective barrier, and instituted temperature check points in our agencies and home office campuses. These and other measures have altered numerous clinical, operational and business processes and significantly increases our supplies and services costs.
In addition, we have implemented a number of programs to support our employees, including a pandemic grant program that supports employees experiencing financial hardships, retirement plan amendments, special cash-in opportunities for accumulated paid time off, expanded offerings in our employee assistance program, a wage supplement program designed to restore lost wages for front line patient care employees that qualified, and a paid time off replenishment program designed to restore certain hours of paid time off for front line patient care employees that qualified and for any employees who previously donated their paid time off hours to these front line patient care employees.
CARES Act
In response to COVID-19, the U.S. Government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") on March 27, 2020. The CARES Act was passed to provide $100 billion of Provider Relief Funds for distribution to eligible providers who provided diagnoses, testing, or care for individuals with a possible or actual case of COVID-19, specifically to reimburse providers for health care related expenses related to the prevention of the spread of COVID-19, preparations for treating cases of COVID-19 positive patients, and for lost revenues attributable to COVID-19. The CARES Act also provided financial hardship relief to Medicare providers impacted by the COVID-19 pandemic in order to provide necessary funds when there is a disruption in Medicare claims submission and/or Medicare claims processing by distributing funds through the Accelerated and Advanced Payments Program ("AAPP").
In addition, the CARES Act suspended the 2% sequestration payment adjustments on Medicare patient claims with dates of service from May 1 through December 31, 2020, suspended the application of site-neutral payment for LTACH admissions that were admitted during the Public Health Emergency ("PHE"), and delayed payment of the employer portion of social security tax.
Provider Relief Fund
During the three and nine months ended September 30, 2020, the Company received $4.6 million and $93.3 million, respectively, in payments from the Provider Relief Fund. During the three months ended June 30, 2020, the Company recognized $44.4 million related to these funds in government stimulus income in our condensed consolidated statements of income. This was recorded in accordance with IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. During the three months ended September 30, 2020, the Company reversed $44.4 million, such that the Company has recognized no funds from the Provider Relief Fund as of the nine months ended September 30, 2020. Based on the Company's improved and projected financial results, the Company intends to return these funds to the government and has recorded a short-term liability of $93.3 million in government stimulus advance in our condensed consolidated balance sheet.
AAPP
During the nine months ended September 30, 2020, the Company received $317.9 million of accelerated payments under the AAPP, which was recorded in contract liabilities - deferred revenue in our condensed consolidated balance sheet in accordance with Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("Topic 606"). When we received these AAPP funds in April 2020, the Centers for Medicare and Medicaid Services ("CMS") issued guidance that any AAPP funds that were not then repaid to CMS would be automatically recouped from Medicare amounts otherwise payable to us by CMS beginning 120 days after our receipt of such funds, until all AAPP funds have been completely repaid to or recouped by CMS. As of September 30, 2020, CMS had not recouped any of the advanced payments provided to the Company under AAPP.
On October 1, 2020, the repayment and recoupment terms for AAPP funds were amended by the Continuing Appropriations Act, 2021 and Other Extensions Act, which provides that recoupment will begin one year from the date the AAPP funds were received. Under these revised terms, recoupment of AAPP will occur under a tiered approach. Beginning in the second quarter of 2021 and continuing for 11 months, CMS will recoup 25% of Medicare payments otherwise owed to the Company. If any amount of AAPP funds that we received from CMS remain unpaid after the initial 11 month period, CMS will recoup 50% of Medicare payments otherwise owed to the Company during the following six months. Interest will begin accruing on any amount of the AAPP funds that we received from CMS that remain unpaid following those recoupment periods. CMS will issue a repayment letter to the Company for any such outstanding amounts, which must be paid in full within 30 days from the date of the letter. The Company intends to repay the full amount before any interest accrues.
Other
During the three and nine months ended September 30, 2020, the Company recognized $6.5 million and $11.5 million of net service revenue due to the suspension of the 2% sequestration payment adjustment. During the three and nine months ended September 30, 2020, the Company recognized $6.4 million and $11.1 million of net service revenue due to the suspension of LTACH site-neutral payments. As of September 30, 2020, the Company deferred $33.6 million of employer social security taxes, which was recorded in other long term liabilities on our condensed consolidated balance sheet.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, the related unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2020 and 2019, the unaudited condensed consolidated statements of changes in equity for the three and nine months ended September 30, 2020 and 2019, the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019, and related notes (collectively, these financial statements are referred to as the "interim financial statements" and together with the related notes are referred to herein as the “interim financial information”) have been prepared by the Company. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been included. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from the interim financial information presented. This report should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 Form 10-K"). The 2019 Form 10-K was filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2020, and includes information and disclosures not included herein.
Immaterial Correction of an Error
During the three and nine months ended September 30, 2019, the Company increased the reported number of common shares issued by 9,058 and 56,738, respectively, decreased the reported number of treasury shares by 368, and reclassified the reported number of treasury shares by 4,307 and 30,217 for the three and nine months ended September 30, 2019 due to the exclusion of reporting the number of common shares issued as a result of the exercise of certain outstanding stock options and the number of treasury shares redeemed to pay income tax associated with such stock option exercises. For further details of this noted item, see Note 2 of the Notes to Consolidated Financial Statements in the 2019 10K filed with the SEC on February 27, 2020.
The Company has evaluated the effects both qualitatively and quantitatively, and concluded that they did not have a material impact on previously issued financial statements for the three and nine months ended September 30, 2019.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported revenue and expenses during the reporting period. Actual results could differ from those estimates.
Critical Accounting Policies
The Company’s most critical accounting policies relate to revenue recognition.
Net Service Revenue
Net service revenue from contracts with customers is recognized in the period the performance obligations are satisfied under the Company's contracts by transferring the requested services to patients in amounts that reflect the consideration to which is expected to be received in exchange for providing patient care, which is the transaction price allocated to the services provided in accordance with Topic 606 and ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (collectively, "ASC 606").
Net service revenue is recognized as performance obligations are satisfied, which can vary depending on the type of services provided. The performance obligation is the delivery of patient care in accordance with the requested services outlined in physicians' orders, which are based on specific goals for each patient.
The performance obligations are associated with contracts in duration of less than one year; therefore, the optional exemption provided by ASC 606 was elected resulting in the Company not being required to disclose the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. The Company's unsatisfied or partially unsatisfied performance obligations are primarily completed when the patients are discharged and typically occur within days or weeks of the end of the period.
The Company determines the transaction price based on gross charges for services provided, reduced by estimates for explicit and implicit price concessions. Explicit price concessions include contractual adjustments provided to patients and third-party payors. Implicit price concessions include discounts provided to self-pay, uninsured patients or other payors, adjustments resulting from regulatory reviews, audits, billing reviews and other matters. Subsequent changes to the estimate of the transaction price are recorded as adjustments to net service revenue in the period of change. Subsequent changes that are determined to be the result of an adverse change in the patient's ability to pay (i.e. change in credit risk) are recorded as a provision for doubtful accounts within general and administrative expenses.
Explicit price concessions are recorded for the difference between our standard rates and the contracted rates to be realized from patients, third-party payors and others for services provided.
Implicit price concessions are recorded for self-pay, uninsured patients and other payors by major payor class based on historical collection experience and current economic conditions, representing the difference between amounts billed and amounts expected to be collected. The Company assesses the ability to collect for the healthcare services provided at the time of patient admission based on the verification of the patient's insurance coverage under Medicare, Medicaid, and other commercial or managed care insurance programs.
Amounts due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid), include variable consideration for retroactive revenue adjustments due to settlements of audits and reviews. The
Company has determined estimates for price concessions related to regulatory reviews based on historical experience and success rates in the claim appeals and adjudication process. Revenue is recorded at amounts estimated to be realizable for services provided.
The following table sets forth the percentage of net service revenue earned by category of payor for the three and nine months ended September 30, 2020 and 2019:
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2020
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2019
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2020
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2019
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Home health:
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Medicare
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66.4
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%
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69.7
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%
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67.0
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%
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70.6
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%
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Managed Care, Commercial, and Other
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33.6
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30.3
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33.0
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29.4
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|
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100.0
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%
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100.0
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%
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100.0
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%
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100.0
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%
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Hospice:
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Medicare
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93.8
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%
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89.8
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%
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92.9
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%
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91.6
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%
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Managed Care, Commercial, and Other
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6.2
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10.2
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7.1
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8.4
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100.0
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%
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100.0
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%
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100.0
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%
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100.0
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%
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Home and Community-Based Services:
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Medicaid
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21.5
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%
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21.8
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%
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21.0
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%
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23.7
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%
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Managed Care, Commercial, and Other
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78.5
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78.2
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79.0
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76.3
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|
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100.0
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%
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100.0
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%
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100.0
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%
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100.0
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%
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Facility-Based Services:
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Medicare
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54.2
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%
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59.3
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%
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55.2
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%
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56.6
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%
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Managed Care, Commercial, and Other
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45.8
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40.7
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44.8
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43.4
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100.0
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%
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100.0
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%
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100.0
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%
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100.0
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%
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HCI:
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Medicare
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11.1
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%
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17.1
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%
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17.9
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%
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20.7
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%
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Managed Care, Commercial, and Other
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88.9
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82.9
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82.1
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79.3
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100.0
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%
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100.0
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%
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100.0
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%
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100.0
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%
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Medicare
The following describes the payment models in effect during the nine months ended September 30, 2020. Such payment models have been subject to temporary adjustments made by CMS in response to COVID-19 pandemic as described elsewhere in this Quarterly Report on Form 10-Q.
Home Health Services
Effective January 1, 2020, the Patient Driven Groupings Model ("PDGM") became the new payment model for services provided to Medicare patients with dates of service on or after the effective date, including certain Medicare Advantage patients. PDGM was implemented by CMS. Under PDGM, the initial certification of Medicare patient eligibility, plan of care, and comprehensive assessment is for a 60-day episode of care; however, unlike the former Medicare prospective payment system ("PPS"), where each 60-day episode of care could not be final billed until the episode was completed, PDGM provides for each 30-day period within the episode of care to be final billed upon completion.
As a result of PDGM, the Company now completes its final billing after each 30-day period instead of the former 60-day period under PPS. For each 30-day period, the patient is classified into one of 432 home health resource groups prior to receiving services. Each 30-day period is placed into a subgroup falling under the following categories: (i) timing being early or late, (ii) admission source being community or institutional, (iii) one of 12 clinical groupings based on the patient's principal diagnosis, (iv) functional impairment level of low, medium, or high, and (v) a co-morbidity adjustment of none, low, or high based on the patient's secondary diagnoses.
Each 30-day period payment from Medicare reflects base payment adjustments for case-mix and geographic wage differences. All Medicare patient claims with dates of service from January 1, 2020 through April 30, 2020 reflected a 2% sequestration reduction. The 2% sequestration reduction adjustment was suspended for patient claims with dates of service that began May 1, 2020 through December 31, 2020. In addition, payments may reflect one of three retroactive adjustments to the total reimbursement: (a) an outlier payment if the patient’s care was unusually costly; (b) a low utilization adjustment whereby the
number of visits is dependent on the clinical grouping; and/or (c) a partial payment if the patient transferred to another provider or from another provider before completing the episode. The retroactive adjustments outlined above are recognized in net service revenue when the event causing the adjustment occurs and during the period in which the services are provided to the patient. The Company reviews these adjustments to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustments is subsequently resolved. Net service revenue and related patient accounts receivable are recorded at amounts estimated to be realized from Medicare for services rendered.
Hospice
The Company records revenue based upon the date of service at amounts equal to the estimated payment rates. The Company receives one of four predetermined daily rates based upon the level of care provided by the Company, which can be routine care, general inpatient care, continuous home care, and respite care. There are two separate payment rates for routine care: payment for the first 60 days of care and care beyond 60 days. In addition to the two routine rates, the Company may also receive a service intensity add-on ("SIA"). The SIA is based on visits made in the last seven days of life by a registered nurse or medical social worker for patients in a routine level of care.
The performance obligation is the delivery of hospice services to the patient, as determined by a physician, each day the patient is on hospice care.
Adjustments to Medicare revenue are made from regulatory reviews, audits, billing reviews and other matters. The Company estimates the impact of these adjustments based on our historical experience.
Hospice payments are subject to variable consideration through an inpatient cap and an overall Medicare payment cap. The inpatient cap relates to individual programs receiving more than 20% of their total Medicare reimbursement from inpatient care services, and the overall Medicare payment cap relates to individual programs receiving reimbursements in excess of a “cap amount,” determined by Medicare to be payment equal to 12 months of hospice care for the aggregate base of hospice patients, indexed for inflation. The determination for each cap is made annually based on the 12-month period ending on October 31 of each year. The Company monitors its limits on a provider-by-provider basis and records an estimate of its liability for reimbursements received in excess of the cap amount, if any, in the reporting period.
Facility-Based Services
Gross revenue is recorded as services are provided under the LTACH prospective payment system. Each patient is assigned a long-term care diagnosis-related group. The Company is paid a predetermined fixed amount intended to reflect the average cost of treating a Medicare LTACH patient classified in that particular long-term care diagnosis-related group. For selected LTACH patients, the amount may be further adjusted based on length-of-stay and facility-specific costs, as well as in instances where a patient is discharged and subsequently re-admitted, among other factors. The Company calculates the adjustment based on a historical average of these types of adjustments for LTACH claims paid. Similar to other Medicare prospective payment systems, the rate is also adjusted for geographic wage differences. Net service revenue adjustments resulting from reviews and audits of Medicare cost report settlements are considered implicit price concessions for LTACHs and are measured at expected value.
Non-Medicare Revenues
Other sources of net service revenue for all segments fall into Medicaid, managed care or other payors of the Company's services. Medicaid reimbursement is based on a predetermined fee schedule applied to each service provided. Therefore, revenue is recognized for Medicaid services as services are provided based on this fee schedule. The Company's managed care and other payors reimburse the Company based upon a predetermined fee schedule or an episodic basis, depending on the terms of the applicable contract. Accordingly, the Company recognizes revenue from managed care and other payors as services are provided, such costs are incurred, and estimates of expected payments are known for each different payor, thus the Company's revenue is recorded at the estimated transaction price.
Contingent Service Revenues
The HCI segment provides strategic health management services to Accountable Care Organizations ("ACOs") that have been approved to participate in the Medicare Shared Savings Program ("MSSP"). The HCI segment has service agreements with ACOs that provide for sharing of MSSP payments received by the ACO, if any. ACOs are legal entities that contract with CMS to provide services to the Medicare fee-for-service population for a specified annual period with the goal of providing better care for the individual, improving health for populations and lowering costs. ACOs share savings with CMS to the extent that the actual costs of serving assigned beneficiaries are below certain trended benchmarks of such beneficiaries and certain quality
performance measures are achieved. The generation of shared savings is the performance obligation of each ACO, which only become certain upon the final issuance of unembargoed calculations by CMS, generally in the third quarter of each year.
Patient Accounts Receivable
The Company reports patient accounts receivable from services rendered at their estimated transaction price, which includes price concessions based on the amounts expected to be due from payors. The Company's patient accounts receivable is uncollateralized and primarily consist of amounts due from Medicare, Medicaid, other third-party payors, and to a lesser degree patients. The credit risk from other payors is limited due to the significance of Medicare as the primary payor. The Company believes the credit risk associated with its Medicare accounts is limited due to (i) the historical collection rate from Medicare and (ii) the fact that Medicare is a U.S. government payor. The Company does not believe that there are any other significant concentrations from any particular payor that would subject it to any significant credit risk in the collection of patient accounts receivable.
A portion of the estimated Medicare PDGM system reimbursement from each submitted home nursing episode is received in the form of a request for anticipated payment (“RAP”). For a standard 60-day episode of care, the Company will submit two RAPs, one for the first 30-day period and a second for the next 30-day period. The Company submits a RAP for 20% of the estimated reimbursement for each of the 30-day periods at the start of care. A final bill is submitted at the end of each 30-day period. If a final bill is not submitted within the greater of 120 days from the start of the 30-day period, or 60 days from the date the RAP was paid, any RAP received for that 30-day period will be recouped by Medicare from any other Medicare claims in process for that particular provider. The RAP and final claim must then be resubmitted.
Earnings Per Share
Basic per share information is computed by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding during the period, under the treasury stock method. Diluted per share information is also computed using the treasury stock method, by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding plus potentially dilutive shares.
The following table sets forth shares used in the computation of basic and diluted per share information and, with respect to the data provided for the three and nine months ended September 30, 2020 and 2019 (amounts in thousands):
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Three Months Ended
September 30,
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|
Nine Months Ended
September 30,
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|
2020
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|
2019
|
|
2020
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|
2019
|
|
Weighted average number of shares outstanding for basic per share calculation
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31,121
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|
30,971
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|
31,080
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|
|
30,919
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Effect of dilutive potential shares:
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Nonvested stock
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290
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|
276
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|
254
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|
284
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Adjusted weighted average shares for diluted per share calculation
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31,411
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|
|
31,247
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|
|
31,334
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|
|
31,203
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|
Anti-dilutive shares
|
—
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|
|
4
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|
5
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|
|
141
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Assets Held for Sale
As of September 30, 2020, the Company's assets held for sale consisted of property and fixed assets of one hospice facility in Knoxville, Tennessee. The Company has accepted a purchase offer from a buyer that indicated the fair market value of the property was $1.9 million. The Company performed an impairment analysis and recorded an impairment charge of $0.6 million during the nine months ended September 30, 2020, which was recorded in impairment of intangibles and other on our condensed consolidated statements of income.
Recently Adopted Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. This ASU was effective for annual and interim periods in fiscal years beginning after December 15, 2019, and did not have a significant impact to the Company.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments which amends Financial Instruments - Credit Losses ("Topic 326"). ASU 2016-13 provides guidance for measuring credit losses on financial instruments. Early adoption is permitted. The amendments in this ASU should be applied retrospectively. This ASU was effective for annual and interim periods in fiscal years beginning after December 15, 2019, and did not have a significant impact to the Company.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Simplifications to accounting for income taxes, which removes certain exceptions to the general principles of Topic 740 and adds guidance to reduce complexity in accounting for income taxes. The ASU is effective for annual and interim periods in fiscal years beginning December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on the Company's condensed consolidated financial statements.
3. Acquisitions and Joint Venture Activities
Acquisitions
The Company acquired the majority-ownership of eight home health agencies, three hospice agencies, and five home and community-based agencies during the nine months ended September 30, 2020. The total aggregate purchase price for these transactions was $14.9 million. The purchase prices were determined based on the Company’s analysis of comparable acquisitions and the target market’s potential future cash flows.
The Company funded three of these acquisitions in 2019 by paying cash consideration of $16.4 million. During the nine months ended September 30, 2020, the Company received $3.1 million from an equity joint venture partnership for the partner's noncontrolling interest for one of the Company's acquired home health and hospice agencies. In addition, the Company received $1.3 million for consideration of an equity joint venture partnership, whereby the Company acquired home health and home and community-based agencies for $0.9 million and sold membership interests in three home health agencies for $2.1 million. The transaction for the sale of the membership interests was accounted for as an equity transaction. The total cash consideration includes adjustments for assets acquired and liabilities assumed.
Goodwill generated from the acquisitions was recognized based on the expected contributions of each acquisition to the overall corporate strategy. The Company expects its portion of goodwill to be fully tax deductible. The acquisitions were accounted for under the acquisition method of accounting. Accordingly, the accompanying interim financial information includes the results of operations of the acquired entities from the date of acquisition.
The following table summarizes the amounts of the assets acquired and liabilities assumed at the acquisition dates, as well as their fair value at the acquisition dates and the noncontrolling interest acquired during the nine months ended September 30, 2020:
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Fair value of total consideration transferred
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Recognized amounts of identifiable assets acquired and liabilities assumed:
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Trade names
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|
$
|
2,243
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Certificates of need/licenses
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|
3,824
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Other assets and (liabilities), net
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(508)
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Total identifiable assets
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$
|
5,559
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Noncontrolling interest
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$
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6,996
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Goodwill, including noncontrolling interest of $5,047
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|
$
|
15,583
|
|
Trade names, certificates of need and licenses are indefinite-lived assets and, therefore, not subject to amortization. Acquired trade names that are not being used actively are amortized over the estimated useful life on the straight line basis. Trade names are valued using the relief from royalty method, a form of the income approach. Certificates of need are valued using the replacement cost approach based on registration fees and opportunity costs. Licenses are valued based on the estimated direct costs associated with recreating the asset, including opportunity costs based on an income approach. In the case of states with a moratorium in place, the licenses are valued using the multi-period excess earnings method. Noncontrolling interest is recorded at fair value.
Joint Venture Activities
During the nine months ended September 30, 2020, the Company purchased a portion of the noncontrolling membership interest in one of our equity joint venture partnerships, which prior to the purchase was classified as a nonredeemable noncontrolling interest in permanent equity. As a result of the purchase, the Company retained its controlling financial interests in the joint venture partnership and the noncontrolling interest of our partner will continue to be classified as a nonredeemable noncontrolling interest in permanent equity. Total consideration for this noncontrolling interest purchase was $23.6 million.
4. Goodwill and Intangibles
The changes in recorded goodwill and intangible assets by reporting unit for the nine months ended September 30, 2020 were as follows (amounts in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home health reporting unit
|
|
Hospice
reporting
unit
|
|
Home and community-based services
reporting
unit
|
|
Facility-based
reporting
unit
|
|
HCI reporting unit
|
|
Total
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019
|
$
|
867,924
|
|
|
$
|
128,875
|
|
|
$
|
166,629
|
|
|
$
|
15,682
|
|
|
$
|
40,862
|
|
|
$
|
1,219,972
|
|
|
Acquisitions
|
7,725
|
|
|
2,677
|
|
|
134
|
|
|
—
|
|
|
—
|
|
|
10,536
|
|
|
Noncontrolling interests
|
3,259
|
|
|
1,778
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
5,047
|
|
|
Adjustments and disposals
|
(105)
|
|
|
(327)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(432)
|
|
|
Balance as of September 30, 2020
|
$
|
878,803
|
|
|
$
|
133,003
|
|
|
$
|
166,773
|
|
|
$
|
15,682
|
|
|
$
|
40,862
|
|
|
$
|
1,235,123
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019
|
$
|
219,872
|
|
|
$
|
40,590
|
|
|
$
|
24,096
|
|
|
$
|
5,317
|
|
|
$
|
15,681
|
|
|
$
|
305,556
|
|
|
Acquisitions
|
5,112
|
|
|
930
|
|
|
127
|
|
|
—
|
|
|
—
|
|
|
6,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
(427)
|
|
|
(60)
|
|
|
(13)
|
|
|
(4)
|
|
|
(436)
|
|
|
(940)
|
|
|
Adjustments and disposals
|
182
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
182
|
|
|
Balance as of September 30, 2020
|
$
|
224,739
|
|
|
$
|
41,460
|
|
|
$
|
24,210
|
|
|
$
|
5,313
|
|
|
$
|
15,245
|
|
|
$
|
310,967
|
|
The allocation of goodwill from acquisitions purchased during the nine months ended September 30, 2020 for each reporting unit is preliminary and subject to change once the valuation analysis required by ASC 805, Business Combinations is finalized.
The following tables summarize the changes in intangible assets during the nine months ended September 30, 2020 and December 31, 2019 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
Trade names
|
$
|
165,920
|
|
|
$
|
163,499
|
|
|
Certificates of Need/Licenses
|
133,491
|
|
|
129,689
|
|
|
Net total
|
$
|
299,411
|
|
|
$
|
293,188
|
|
|
|
|
|
|
|
Definite-lived intangible assets:
|
|
|
|
|
Trade names
|
|
|
|
|
Gross carrying amount
|
$
|
10,209
|
|
|
$
|
10,182
|
|
|
Accumulated amortization
|
(9,437)
|
|
|
(9,229)
|
|
|
Net total
|
$
|
772
|
|
|
$
|
953
|
|
|
Non-compete agreements
|
|
|
|
|
Gross carrying amount
|
$
|
6,897
|
|
|
$
|
6,795
|
|
|
Accumulated amortization
|
(6,288)
|
|
|
(5,991)
|
|
|
Net total
|
$
|
609
|
|
|
$
|
804
|
|
|
Customer relationships
|
|
|
|
|
Gross carrying amount
|
$
|
11,822
|
|
|
$
|
11,822
|
|
|
Accumulated amortization
|
(1,647)
|
|
|
(1,211)
|
|
|
Net total
|
$
|
10,175
|
|
|
$
|
10,611
|
|
|
Total definite-lived intangible assets
|
|
|
|
|
Gross carrying amount
|
$
|
28,928
|
|
|
$
|
28,799
|
|
|
Accumulated amortization
|
(17,372)
|
|
|
(16,431)
|
|
|
Net total
|
$
|
11,556
|
|
|
$
|
12,368
|
|
|
|
|
|
|
|
Total intangible assets:
|
|
|
|
|
Gross carrying amount
|
$
|
328,339
|
|
|
$
|
321,987
|
|
|
Accumulated amortization
|
(17,372)
|
|
|
(16,431)
|
|
|
Net total
|
$
|
310,967
|
|
|
$
|
305,556
|
|
Remaining useful lives for trade names, customer relationships, and non-compete agreements were 9.0, 17.5, and 2.2 years, respectively, at September 30, 2020. Similar periods at December 31, 2019 were 9.8, 18.2, and 2.8 years for trade names, customer relationships, and non-compete agreements, respectively. Amortization expense was $0.9 million and $1.0 million during the nine months ended September 30, 2020 and 2019, respectively. Amortization expense was recorded in general and administrative expenses.
5. Debt
Credit Facility
On March 30, 2018, the Company entered into a Credit Agreement with JPMorgan Chase Bank, N.A., which was effective on April 2, 2018 (the "Credit Agreement"). The Credit Agreement provides a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $500.0 million, which includes an additional $200.0 million accordion expansion feature, and a letter of credit sub-limit equal to $50.0 million. The expiration date of the Credit Agreement is March 30, 2023. The Company’s obligations under the Credit Agreement are secured by substantially all of the assets of the Company and its wholly-owned subsidiaries (subject to customary exclusions), which assets include the Company’s equity ownership of its wholly-owned subsidiaries and its equity ownership in joint venture entities. The Company’s wholly-owned subsidiaries also guarantee the obligations of the Company under the Credit Agreement.
Revolving loans under the Credit Agreement bear interest at, as selected by the Company, either a (a) Base Rate, which is defined as a fluctuating rate per annum equal to the highest of (1) the Federal Funds Rate in effect on such day plus 0.5% (2) the Prime Rate in effect on such day and (3) the Eurodollar Rate for a one month interest period on such day plus 1.5%, plus
a margin ranging from 0.50% to 1.25% per annum or (b) Eurodollar rate plus a margin ranging from 1.50% to 2.25% per annum, with pricing varying based on the Company's quarterly consolidated Leverage Ratio. Swing line loans bear interest at the Base Rate. The Company is limited to 15 Eurodollar borrowings outstanding at any time. The Company is required to pay a commitment fee for the unused commitments at rates ranging from 0.20% to 0.35% per annum depending upon the Company’s quarterly consolidated Leverage Ratio. The Base Rate as of September 30, 2020 was 4.00% and the LIBOR rate was 1.94%. As of September 30, 2020, the effective interest rate on outstanding borrowings under the Credit Agreement was 1.94%.
As of September 30, 2020, the Company had $20.0 million drawn, letters of credit issued in the amount of $24.8 million, and $455.2 million of remaining borrowing capacity available under the Credit Agreement. At December 31, 2019, the Company had $253.0 million drawn and letters of credit issued in the amount of $28.4 million under the Credit Facility.
Under the terms of the Credit Agreement, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Credit Agreement permits the Company to make certain restricted payments, such as purchasing shares of its stock, within certain parameters, provided the Company maintains compliance with those financial ratios and covenants after giving effect to such restricted payments. The Company was in compliance with its debt covenants under the Credit Agreement at September 30, 2020.
6. Stockholder’s Equity
Equity Based Awards
The 2018 Incentive Plan is administered by the Compensation Committee of the Company’s Board of Directors. The total number of shares of the Company's common stock originally reserved were 2,210,544 shares and a total of 1,874,354 shares are currently available for issuance. A variety of discretionary awards for employees, officers, directors, and consultants are authorized under the 2018 Incentive Plan, including incentive or non-qualified stock options and restricted stock, restricted stock units and performance-based awards. All awards must be evidenced by a written award certificate which will include the provisions specified by the Compensation Committee of the Board of Directors. The Compensation Committee determines the exercise price for stock options, which cannot be less than the fair market value of the Company’s common stock as of the date of grant.
Share Based Compensation
Nonvested Stock
During the nine months ended September 30, 2020, the Company granted 9,900 nonvested shares of common stock to independent directors under the Second Amended and Restated 2005 Non-Employee Directors Compensation Plan. The shares vest 100% on the one year anniversary date. During the nine months ended September 30, 2020, one retired director was granted 775 nonvested shares of common stock under the Second Amended and Restated 2005 Non-Employee Directors Compensation Plan, which shares vest 100% at the grant date.
During the nine months ended September 30, 2020, employees and a consultant were granted 113,525 and 10,890 shares, respectively, of nonvested shares of common stock pursuant to the 2018 Incentive Plan. The shares vest over a period of five years, conditioned on continued employment and in accordance with the consulting agreement. The fair value of nonvested shares of common stock is determined based on the closing trading price of the Company’s common stock on the grant date.
The following table represents the share grants activity for the nine months ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
Options
|
|
|
Number of
shares
|
|
Weighted
average grant
date fair value
|
|
Number of shares
|
|
Weighted
average grant
date fair value
|
|
Share grants outstanding as of December 31, 2019
|
534,331
|
|
|
$
|
71.01
|
|
|
98,756
|
|
|
$
|
40.71
|
|
|
Granted
|
135,090
|
|
|
123.10
|
|
|
—
|
|
|
—
|
|
|
Vested or exercised
|
(199,330)
|
|
|
62.31
|
|
|
(16,286)
|
|
|
32.93
|
|
|
Share grants outstanding as of September 30, 2020
|
470,091
|
|
|
$
|
89.32
|
|
|
82,470
|
|
|
$
|
42.25
|
|
As of September 30, 2020, there was $33.7 million of total unrecognized compensation cost related to nonvested shares of common stock granted. That cost is expected to be recognized over the weighted average period of 3.04 years. The Company records compensation expense related to nonvested stock awards at the grant date for shares of common stock that are awarded fully vested, and over the vesting term on a straight-line basis for shares of common stock that vest over time. The Company estimates forfeitures at the time of grant and revises the estimate in subsequent periods if actual forfeitures differ to ensure that
total compensation expense recognized is at least equal to the value of vested awards. The Company recorded $11.1 million and $6.4 million of compensation expense related to nonvested stock grants for the nine months ended September 30, 2020 and 2019, respectively.
Employee Stock Purchase Plan
In 2006, the Company adopted the Employee Stock Purchase Plan whereby eligible employees may purchase the Company’s common stock at 95% of the market price on the last day of the calendar quarter. There were 250,000 shares of common stock initially reserved for the plan. In 2013, the Company adopted the Amended and Restated Employee Stock Purchase Plan, which reserved an additional 250,000 shares of common stock to the plan.
The table below details the shares of common stock issued during 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
shares
|
|
Per share
price
|
|
Shares available as of December 31, 2019
|
132,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued during the three months ended March 31, 2020
|
4,663
|
|
|
$
|
130.87
|
|
|
Shares issued during the three months ended June 30, 2020
|
3,730
|
|
|
$
|
133.19
|
|
|
|
|
|
|
|
Shares issued during the three months ended September 30, 2020
|
3,454
|
|
|
$165.60
|
|
Shares available as of September 30, 2020
|
120,602
|
|
|
|
Treasury Stock
In conjunction with the vesting of the nonvested shares of common stock or the exercise of stock options, recipients incur personal income tax obligations. The Company allows the recipients to turn in shares of common stock to satisfy minimum tax obligations. During the nine months ended September 30, 2020, the Company redeemed 70,676 shares of common stock valued at $9.0 million, related to share vesting tax obligations. Such shares are held as treasury stock and are available for reissuance by the Company.
In addition, the Company redeemed 7,328 shares of common stock valued at $0.8 million, related to the exercise of options. During the nine months ended September 30, 2020, the Company reclassified $0.9 million between treasury and additional paid in capital for the exercise of options.
7. Commitments and Contingencies
Contingencies
The Company provides services in a highly regulated industry and is a party to various proceedings and regulatory and other governmental and internal audits and investigations in the ordinary course of business (including audits by Zone Program Integrity Contractors ("ZPICs") and Recovery Audit Contractors ("RACs") and investigations resulting from the Company's obligation to self-report suspected violations of law). Management cannot predict the ultimate outcome of any regulatory and other governmental and internal audits and investigations. While such audits and investigations are the subject of administrative appeals, the appeals process, even if successful, may take several years to resolve. The Department of Justice, CMS, or other federal and state enforcement and regulatory agencies may conduct additional investigations related to the Company's businesses. These audits and investigations have caused and could potentially continue to cause delays in collections, recoupments from governmental payors. Currently, the Company has recorded $16.9 million in other assets, which are due from government payors related to the disputed finding of pending appeals of ZPIC audits. Additionally, these audits may subject the Company to sanctions, damages, extrapolation of damage findings, additional recoupments, fines, and other penalties (some of which may not be covered by insurance), which may, either individually or in the aggregate, have a material adverse effect on the Company's business and financial condition.
We are involved in various legal proceedings arising in the ordinary course of business. Although the results of litigation cannot be predicted with certainty, we believe the outcome of pending litigation will not have a material adverse effect, after considering the effect of our insurance coverage, on our consolidated financial information.
Legal fees related to all legal matters are expensed as incurred.
Joint Venture Buy/Sell Provisions
Most of the Company’s joint ventures include a buy/sell option that grants to the Company and its joint venture partners the right to require the other joint venture party to either purchase all of the exercising member’s membership interests or sell to the
exercising member all of the non-exercising member’s membership interest, at the non-exercising member’s option, within 30 days of the receipt of notice of the exercise of the buy/sell option. In some instances, the purchase price is based on a multiple of the historical or future earnings before income taxes and depreciation and amortization of the equity joint venture at the time the buy/sell option is exercised. In other instances, the buy/sell purchase price will be negotiated by the partners and subject to a fair market valuation process. The Company has not received notice from any joint venture partners of their intent to exercise the terms of the buy/sell agreement nor has the Company notified any joint venture partners of its intent to exercise the terms of the buy/sell agreement.
Compliance
The laws and regulations governing the Company’s operations, along with the terms of participation in various government programs, regulate how the Company does business, the services offered and its interactions with patients and the public. These laws and regulations, and their interpretations, are subject to frequent change. Changes in existing laws or regulations, or their interpretations, or the enactment of new laws or regulations could materially and adversely affect the Company’s operations and financial condition.
The Company is subject to various routine and non-routine governmental reviews, audits and investigations. In recent years, federal and state civil and criminal enforcement agencies have heightened and coordinated their oversight efforts related to the health care industry, including referral practices, cost reporting, billing practices, joint ventures and other financial relationships among health care providers. Violation of the laws governing the Company’s operations, or changes in the interpretation of those laws, could result in the imposition of fines, civil or criminal penalties and/or termination of the Company’s rights to participate in federal and state-sponsored programs and suspension or revocation of the Company’s licenses. The Company believes that it is in material compliance with all applicable laws and regulations.
8. Noncontrolling interests
The Company classifies noncontrolling interests of its joint venture parties based upon a review of the legal provisions governing the redemption of such interests. In each of the Company’s joint ventures, those provisions are embodied within the joint venture’s operating agreement. For joint ventures with operating agreement provisions that establish an obligation for the Company to purchase the third-party partners’ noncontrolling interests other than as a result of events that lead to a liquidation of the joint venture, such noncontrolling interests are classified as redeemable noncontrolling interests in temporary equity. For joint ventures with operating agreement provisions that establish an obligation that the Company purchase the third party partners’ noncontrolling interests, but which obligation is triggered by events that lead to a liquidation of the joint venture, such noncontrolling interests are classified as nonredeemable noncontrolling interests in permanent equity. Additionally, for joint ventures with operating agreement provisions that do not establish an obligation for the Company to purchase the third-party partners’ noncontrolling interests (e.g., where the Company has the option, but not the obligation, to purchase the third-party partners’ noncontrolling interests), such noncontrolling interests are classified as nonredeemable noncontrolling interests in permanent equity.
The Company’s equity joint ventures that are classified as redeemable noncontrolling interests are subject to operating agreement provisions that require the Company to purchase the noncontrolling partner’s interest upon the occurrence of certain triggering events, which are defined as the bankruptcy of the partner or the partner’s exclusion from the Medicare or Medicaid programs. These triggering events and the related repurchase provisions are specific to each redeemable equity joint venture, since the triggering of a repurchase obligation for any one redeemable noncontrolling interest in an equity joint venture does not necessarily impact any of the other redeemable noncontrolling interests in other equity joint ventures. Upon the occurrence of a triggering event requiring the purchase of a redeemable noncontrolling interest, the Company would be required to purchase the noncontrolling partner’s interest based upon a valuation methodology set forth in the applicable joint venture agreement.
Redeemable noncontrolling interests and nonredeemable noncontrolling interests are initially recorded at their fair value as of the closing date of the transaction establishing the joint venture. Such fair values are determined using various accepted valuation methods, including the income approach, the market approach, the cost approach, and a combination of one or more of these approaches. A number of facts and circumstances concerning the operation of the joint venture are evaluated for each transaction, including (but not limited to) the ability to choose management, control over acquiring or liquidating assets, and controlling the joint venture’s strategy and direction, in order to determine the fair value of the noncontrolling interest.
Based upon the Company’s evaluation of the redemption provisions concerning redeemable noncontrolling interests as of September 30, 2020, the Company determined in accordance with authoritative accounting guidance that it was not probable that an event otherwise requiring redemption of any redeemable noncontrolling interest would occur (i.e., the date for such event was not set or such event is not certain to occur). Therefore, none of the redeemable noncontrolling interests were identified as mandatorily redeemable interests at such times, and the Company did not record any values in respect of any mandatorily redeemable interests.
Subsequent to the closing date of the transaction establishing the joint venture, the Company records adjustments to the carrying amounts of noncontrolling interests during each reporting period to reflect (a) comprehensive income (loss) attributed to each noncontrolling interest, which is calculated by multiplying the noncontrolling interest percentage by the comprehensive income (loss) of the joint venture’s operations, (b) dividends paid to the noncontrolling interest partner, and (c) any other transactions that increase or decrease the Company’s ownership interest in each joint venture, as a result of which the Company retains its controlling interest. If the Company determines that, based upon its analysis as of the end of each reporting period in accordance with authoritative accounting guidance, that it is not probable that an event would occur to otherwise require the redemption of a redeemable noncontrolling interest (i.e., the date for such event is not set or such event is not certain to occur), then the Company does not adjust the recorded amount of such redeemable noncontrolling interest.
The carrying amount of each redeemable equity instrument presented in temporary equity for the nine months ended September 30, 2020 is not less than the initial amount reported for each instrument.
The following table summarizes the activity of noncontrolling interest-redeemable for the nine months ended September 30, 2020 (amounts in thousands):
|
|
|
|
|
|
|
|
Balance as of December 31, 2019
|
$
|
15,151
|
|
|
Net income attributable to noncontrolling interest-redeemable
|
10,366
|
|
|
Noncontrolling interest-redeemable distributions
|
(12,128)
|
|
|
Acquired noncontrolling interest-redeemable
|
3,508
|
|
|
Balance as of September 30, 2020
|
$
|
16,897
|
|
9. Leases
The Company determines if a contract contains a lease at inception date. The Company's leases are operating leases, primarily for office and office equipment, that expire at various dates over the next nine years. The office leases have renewal options for periods ranging from one to five years. As it is not reasonably certain these renewal options will be exercised, the options were not considered in the lease term, and payments associated with the option years are excluded from lease payments.
Payments due under operating leases include fixed and variable payments. These variable payments for the Company's office leases can include operating expenses, utilities, property taxes, insurance, common area maintenance, and other facility-related expense. Additionally, any leases with terms less than one year were not recognized as operating lease right of use assets or payables for short term leases in accordance with the election of ‘package of practical expedient’ under ASU 2016-02.
The Company recognizes operating lease right of use assets and operating lease payable based on the present value of the future minimum lease payments at the lease commencement date. The Company's leases do not provide implicit rates. Therefore, the Company used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. As of September 30, 2020, the weighted-average remaining lease term was 4.22 and weighted-average discount rate was 4.63%.
Information related to the Company's operating lease right of use assets and related lease liabilities for office and equipment leases were as follows: (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Operating lease right of use asset
|
|
99,066
|
|
|
95,452
|
|
|
Current operating lease payable
|
|
32,018
|
|
|
28,701
|
|
|
Long-term operating lease payable
|
|
69,977
|
|
|
69,556
|
|
The Company incurred operating lease costs of (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Operating lease cost
|
|
$
|
12,716
|
|
|
$
|
11,825
|
|
|
$
|
37,153
|
|
|
$
|
37,895
|
|
Maturities of operating lease liabilities as of September 30, 2020 were as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Month ending September 30,
|
|
|
|
2020
|
|
$
|
9,466
|
|
|
2021
|
|
34,247
|
|
|
2022
|
|
25,448
|
|
|
2023
|
|
16,943
|
|
|
2024
|
|
10,493
|
|
|
Thereafter
|
|
15,522
|
|
|
Total future minimum lease payments
|
|
112,119
|
|
|
Less: Imputed interest
|
|
(10,124)
|
|
|
Total
|
|
$
|
101,995
|
|
10. Fair Value of Financial Instruments
The carrying amounts of the Company’s cash, receivables, accounts payable and accrued liabilities approximate their fair values because of their short maturity. The estimated fair value of intangible assets acquired was calculated using level 3 inputs based on the present value of anticipated future benefits. For the nine months ended September 30, 2020, the carrying value of the Company’s long-term debt approximates fair value, as the interest rates approximate current rates.
11. Segment Information
The Company's reporting segments include (1) home health services, (2) hospice services, (3) home and community-based services, (4) facility-based services, and (5) HCI. The accounting policies of the segments are the same as those described in the summary of significant accounting policies, as described in Note 2 of the Notes to Condensed Consolidated Financial Statements.
Reportable segments have been identified based upon how management has organized the business by services provided to customers and how the chief operating decision maker manages the business and allocates resources, consistent with the criteria in ASC 280, Segment Reporting.
The following tables summarize the Company’s segment information for the three and nine months ended September 30, 2020 and 2019 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
|
Home health services
|
|
Hospice services
|
|
Home and community-based services
|
|
Facility-based services
|
|
HCI
|
|
Total
|
|
Net service revenue
|
$
|
373,450
|
|
|
$
|
59,801
|
|
|
$
|
48,387
|
|
|
$
|
33,344
|
|
|
$
|
15,702
|
|
|
$
|
530,684
|
|
|
Cost of service revenue (excluding depreciation and amortization)
|
205,523
|
|
|
37,180
|
|
|
36,664
|
|
|
22,213
|
|
|
3,666
|
|
|
305,246
|
|
|
General and administrative expenses
|
118,792
|
|
|
16,668
|
|
|
10,937
|
|
|
11,439
|
|
|
3,627
|
|
|
161,463
|
|
|
Impairment of intangibles and other
|
22
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22
|
|
|
Government stimulus (income) expense
|
35,019
|
|
|
4,731
|
|
|
2,865
|
|
|
1,656
|
|
|
164
|
|
|
44,435
|
|
|
Operating income (loss)
|
14,094
|
|
|
1,222
|
|
|
(2,079)
|
|
|
(1,964)
|
|
|
8,245
|
|
|
19,518
|
|
|
Interest expense
|
(310)
|
|
|
(51)
|
|
|
(37)
|
|
|
(22)
|
|
|
(11)
|
|
|
(431)
|
|
|
Income (loss) before income taxes and noncontrolling interest
|
13,784
|
|
|
1,171
|
|
|
(2,116)
|
|
|
(1,986)
|
|
|
8,234
|
|
|
19,087
|
|
|
Income tax expense (benefit)
|
3,403
|
|
|
247
|
|
|
(440)
|
|
|
(435)
|
|
|
1,820
|
|
|
4,595
|
|
|
Net income (loss)
|
10,381
|
|
|
924
|
|
|
(1,676)
|
|
|
(1,551)
|
|
|
6,414
|
|
|
14,492
|
|
|
Less net income (loss) attributable to non controlling interests
|
(157)
|
|
|
321
|
|
|
(153)
|
|
|
(12)
|
|
|
(7)
|
|
|
(8)
|
|
|
Net income (loss) attributable to LHC Group, Inc.'s common stockholder
|
$
|
10,538
|
|
|
$
|
603
|
|
|
$
|
(1,523)
|
|
|
$
|
(1,539)
|
|
|
$
|
6,421
|
|
|
$
|
14,500
|
|
|
Total assets
|
$
|
1,721,278
|
|
|
$
|
277,358
|
|
|
$
|
263,414
|
|
|
$
|
108,118
|
|
|
$
|
86,168
|
|
|
$
|
2,456,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
|
Home health services
|
|
Hospice services
|
|
Home and community-based services
|
|
Facility-based services
|
|
HCI
|
|
Total
|
|
Net service revenue
|
$
|
375,599
|
|
|
$
|
62,028
|
|
|
$
|
53,411
|
|
|
$
|
28,715
|
|
|
$
|
8,746
|
|
|
$
|
528,499
|
|
|
Cost of service revenue (excluding depreciation and amortization)
|
237,414
|
|
|
35,819
|
|
|
39,694
|
|
|
18,508
|
|
|
3,333
|
|
|
334,768
|
|
|
General and administrative expenses
|
108,318
|
|
|
15,218
|
|
|
10,809
|
|
|
9,498
|
|
|
2,986
|
|
|
146,829
|
|
|
Impairment of intangibles and other
|
197
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
197
|
|
|
Operating income
|
29,670
|
|
|
10,991
|
|
|
2,908
|
|
|
709
|
|
|
2,427
|
|
|
46,705
|
|
|
Interest expense
|
(1,758)
|
|
|
(310)
|
|
|
(272)
|
|
|
(174)
|
|
|
(82)
|
|
|
(2,596)
|
|
|
Income before income taxes and noncontrolling interest
|
27,912
|
|
|
10,681
|
|
|
2,636
|
|
|
535
|
|
|
2,345
|
|
|
44,109
|
|
|
Income tax expense
|
5,900
|
|
|
1,689
|
|
|
1,299
|
|
|
144
|
|
|
476
|
|
|
9,508
|
|
|
Net income
|
22,012
|
|
|
8,992
|
|
|
1,337
|
|
|
391
|
|
|
1,869
|
|
|
34,601
|
|
|
Less net income (loss) attributable to noncontrolling interests
|
3,577
|
|
|
1,213
|
|
|
(180)
|
|
|
(67)
|
|
|
(9)
|
|
|
4,534
|
|
|
Net income attributable to LHC Group, Inc.'s common stockholders
|
$
|
18,435
|
|
|
$
|
7,779
|
|
|
$
|
1,517
|
|
|
$
|
458
|
|
|
$
|
1,878
|
|
|
$
|
30,067
|
|
|
Total assets
|
$
|
1,458,991
|
|
|
$
|
235,865
|
|
|
$
|
243,779
|
|
|
$
|
88,905
|
|
|
$
|
70,324
|
|
|
$
|
2,097,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
|
Home health services
|
|
Hospice services
|
|
Home and community-based services
|
|
Facility-based services
|
|
HCI
|
|
Total
|
|
Net service revenue
|
$
|
1,081,143
|
|
|
$
|
181,387
|
|
|
$
|
144,526
|
|
|
$
|
96,664
|
|
|
$
|
27,155
|
|
|
$
|
1,530,875
|
|
|
Cost of service revenue (excluding depreciation and amortization)
|
631,109
|
|
|
112,485
|
|
|
113,864
|
|
|
64,340
|
|
|
11,362
|
|
|
933,160
|
|
|
General and administrative expenses
|
345,024
|
|
|
49,560
|
|
|
33,520
|
|
|
31,984
|
|
|
9,815
|
|
|
469,903
|
|
|
Impairment of intangibles and other
|
22
|
|
|
600
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
622
|
|
|
Government stimulus (income) expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Operating income (loss)
|
104,988
|
|
|
18,742
|
|
|
(2,858)
|
|
|
340
|
|
|
5,978
|
|
|
127,190
|
|
|
Interest expense
|
(2,804)
|
|
|
(451)
|
|
|
(382)
|
|
|
(288)
|
|
|
(115)
|
|
|
(4,040)
|
|
|
Income (loss) before income taxes and noncontrolling interest
|
102,184
|
|
|
18,291
|
|
|
(3,240)
|
|
|
52
|
|
|
5,863
|
|
|
123,150
|
|
|
Income tax expense (benefit)
|
19,499
|
|
|
3,294
|
|
|
(658)
|
|
|
(261)
|
|
|
1,307
|
|
|
23,181
|
|
|
Net income (loss)
|
82,685
|
|
|
14,997
|
|
|
(2,582)
|
|
|
313
|
|
|
4,556
|
|
|
99,969
|
|
|
Less net income (loss) attributable to non controlling interests
|
14,371
|
|
|
3,452
|
|
|
(275)
|
|
|
1,228
|
|
|
(23)
|
|
|
18,753
|
|
|
Net income (loss) attributable to LHC Group, Inc.'s common stockholder
|
$
|
68,314
|
|
|
$
|
11,545
|
|
|
$
|
(2,307)
|
|
|
$
|
(915)
|
|
|
$
|
4,579
|
|
|
$
|
81,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
Home health services
|
|
Hospice services
|
|
Home and community-based services
|
|
Facility-based services
|
|
HCI
|
|
Total
|
|
Net service revenue
|
$
|
1,113,887
|
|
|
$
|
168,821
|
|
|
$
|
157,610
|
|
|
$
|
84,391
|
|
|
$
|
24,217
|
|
|
$
|
1,548,926
|
|
|
Cost of service revenue (excluding depreciation and amortization)
|
694,082
|
|
|
103,853
|
|
|
119,054
|
|
|
53,812
|
|
|
10,819
|
|
|
981,620
|
|
|
General and administrative expenses
|
322,115
|
|
|
45,167
|
|
|
33,004
|
|
|
28,010
|
|
|
12,338
|
|
|
440,634
|
|
|
Impairment of intangibles and other
|
7,263
|
|
|
271
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,534
|
|
|
Operating income
|
90,427
|
|
|
19,530
|
|
|
5,552
|
|
|
2,569
|
|
|
1,060
|
|
|
119,138
|
|
|
Interest expense
|
(5,919)
|
|
|
(976)
|
|
|
(857)
|
|
|
(524)
|
|
|
(257)
|
|
|
(8,533)
|
|
|
Income before income taxes and noncontrolling interest
|
84,508
|
|
|
18,554
|
|
|
4,695
|
|
|
2,045
|
|
|
803
|
|
|
110,605
|
|
|
Income tax expense
|
17,178
|
|
|
3,716
|
|
|
1,279
|
|
|
297
|
|
|
195
|
|
|
22,665
|
|
|
Net income
|
67,330
|
|
|
14,838
|
|
|
3,416
|
|
|
1,748
|
|
|
608
|
|
|
87,940
|
|
|
Less net income (loss) attributable to noncontrolling interests
|
11,305
|
|
|
2,712
|
|
|
(757)
|
|
|
779
|
|
|
(22)
|
|
|
14,017
|
|
|
Net income attributable to LHC Group, Inc.'s common stockholders
|
$
|
56,025
|
|
|
$
|
12,126
|
|
|
$
|
4,173
|
|
|
$
|
969
|
|
|
$
|
630
|
|
|
$
|
73,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. Income Taxes
The effective tax rate for the nine months ended September 30, 2020 benefited from $2.4 million of excess tax benefits associated with stock-based compensation arrangements and $2.2 million ($4.3 million and $2.1 million, as further described below) associated with increased tax benefits associated with the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). For the nine months ended September 30, 2019, the effective tax rate benefited from $3.0 million of excess tax benefits associated with stock-based compensation arrangements.
In response to the COVID-19 pandemic, the CARES Act was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act"). Corporate taxpayers may carryback net operating losses ("NOLs") originating during 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019, or 2020. Taxpayers may generally deduct
interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act. In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The effective tax rate for the nine months ended September 30, 2020 benefited from a $4.3 million impact from the enactment of the CARES Act. There was no material impact to our net deferred tax assets as of September 30, 2020.
U.S. GAAP prescribes a recognition threshold and measurement attribute for the accounting and financial statement disclosure of tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step requires the Company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step requires the Company to recognize in the financial statements each tax position that meets the more likely than not criteria, measured at the amount of benefit that has a greater than 50% likelihood of being realized. The Company’s unrecognized tax benefits would affect the tax rate, if recognized. The Company includes the full amount of unrecognized tax benefits in other noncurrent liabilities in the Company's Condensed Consolidated Balance Sheets. The Company anticipates it is reasonably possible an increase or decrease in the amount of unrecognized tax benefits could be made in the next twelve months. However, the Company does not presently anticipate that any increase or decrease in unrecognized tax benefits will be material to the consolidated financial statements. The impact of the CARES Act increased unrecognized tax benefits by $2.1 million, which also had an impact on the Company's effective tax rate for the nine months ended September 30, 2020. As of September 30, 2020 and December 31, 2019, the Company recognized $6.6 million and $3.9 million, respectively, in unrecognized tax benefits.