Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-34504
ADDUS HOMECARE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
20-5340172
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
6303 Cowboys Way, Suite 600
Frisco, TX
75034
(Address of principal executive offices)
(Zip Code)
(469) 535-8200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value
ADUS
The Nasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 25, 2023, Addus HomeCare Corporation had 16,204,341 shares of Common Stock outstanding.
INDEX
PART I. FINANCIAL INFORMATION
3
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022
Condensed Consolidated Statements of Income For the Three Months Ended March 31, 2023 and 2022
4
Condensed Consolidated Statement of Stockholders’ Equity For the Three Months Ended March 31, 2023 and 2022
5
Condensed Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2023 and 2022
6
Notes to Condensed Consolidated Financial Statements
7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
Item 3. Quantitative and Qualitative Disclosures About Market Risk
31
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
32
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
33
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2023 and December 31, 2022
(Amounts and Shares in Thousands, Except Per Share Data)
(Unaudited)
March 31, 2023
December 31, 2022
Assets
Current assets
Cash
$
73,543
79,961
Accounts receivable, net of allowances
125,441
125,501
Prepaid expenses and other current assets
10,226
17,345
Total current assets
209,210
222,807
Property and equipment, net of accumulated depreciation and amortization
20,248
21,182
Other assets
Goodwill
583,972
582,837
Intangibles, net of accumulated amortization
70,604
72,188
Operating lease assets, net
47,049
38,980
Total other assets
701,625
694,005
Total assets
931,083
937,994
Liabilities and stockholders' equity
Current liabilities
Accounts payable
21,758
22,092
Accrued payroll
34,105
44,937
Accrued expenses
34,018
27,507
Operating lease liabilities, current portion
11,099
10,801
Government stimulus advances
10,996
12,912
Accrued workers' compensation insurance
12,683
12,897
Total current liabilities
124,659
131,146
Long-term liabilities
Long-term debt, less current portion, net of debt issuance costs
108,487
131,772
Long-term operating lease liabilities
42,994
35,479
Other long-term liabilities
6,057
Total long-term liabilities
157,538
173,308
Total liabilities
282,197
304,454
Stockholders' equity
Common stock—$.001 par value; 40,000 authorized and 16,204 and 16,128 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively
16
Additional paid-in capital
395,879
393,208
Retained earnings
252,991
240,316
Total stockholders' equity
648,886
633,540
Total liabilities and stockholders' equity
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2023 and 2022
For the Three MonthsEnded March 31,
2023
2022
Net service revenues
251,599
226,634
Cost of service revenues
173,184
156,448
Gross profit
78,415
70,186
General and administrative expenses
56,360
53,152
Depreciation and amortization
3,447
3,521
Total operating expenses
59,807
56,673
Operating income
18,608
13,513
Interest income
(106
)
(58
Interest expense
2,461
1,820
Total interest expense, net
2,355
1,762
Income before income taxes
16,253
11,751
Income tax expense
3,578
3,281
Net income
12,675
8,470
Net income per common share
Basic income per share
0.79
0.54
Diluted income per share
0.78
0.53
Weighted average number of common shares and potential common shares outstanding:
Basic
15,949
15,811
Diluted
16,297
16,079
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts and Shares in Thousands)
For the Three Months Ended March 31, 2023
Common Stock
AdditionalPaid-in
Retained
TotalStockholders'
Shares
Amount
Capital
Earnings
Equity
Balance at January 1, 2023
16,128
Issuance of shares of common stock under restricted stock award agreements
76
—
Stock-based compensation
2,646
Shares issued for exercise of stock options
25
Balance at March 31, 2023
16,204
For the Three Months Ended March 31, 2022
Balance at January 1, 2022
15,940
380,037
194,291
574,344
115
2,485
13
479
Balance at March 31, 2022
16,068
383,001
202,761
585,778
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
For the Three Months
Ended March 31,
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities, net of acquisitions:
Deferred income taxes
(72
126
Amortization of debt issuance costs under the credit facility
215
Provision for credit losses
144
158
Impairment of operating lease assets
1,174
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
85
7,121
7,030
4,161
(2,345
(494
1,386
(10,901
(17,443
Accrued expenses and other long-term liabilities
6,369
(5,391
Net cash provided by operating activities
18,799
5,983
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired
(965
(84,490
Purchases of property and equipment
(777
(1,104
Net cash used in investing activities
(1,742
(85,594
Cash flows from financing activities:
Payments on term loan — credit facility
(23,500
Borrowings on revolver — credit facility
35,000
Cash received from exercise of stock options
Net cash (used in) provided by financing activities
(23,475
Net change in cash
(6,418
(44,132
Cash, at beginning of period
168,895
Cash, at end of period
124,763
Supplemental disclosures of cash flow information:
Cash paid for interest
2,310
1,619
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, 2022 has been derived from the Company’s audited financial statements for the year ended December 31, 2022 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, 2022 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 the following areas: revenue recognition, goodwill and intangibles in business combinations and when required, the quantitative assessment of goodwill. Actual results could differ from those estimates.
Computation of Weighted Average Shares
The following table sets forth the computation of basic and diluted common shares:
For the Three Months Ended March 31,
(Amounts in thousands)
Weighted average number of shares outstanding for basic per share calculation
Effect of dilutive potential shares:
Stock options
251
235
Restricted stock awards
97
Adjusted weighted average shares for diluted per share calculation
Anti-dilutive shares:
61
92
77
Recently Adopted Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU was adopted prospectively on January 1, 2023. The additional disclosures required did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, and other transactions subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. Therefore, it was in effect for a limited time through December 31, 2022. The ASU could be adopted no later than December 1, 2022 with early adoption permitted. As discussed further in Note 7 and pursuant to the Second Amendment to Amended and Restated Credit Agreement dated as of July 30, 2021, the Credit Agreement contains hardwired fallback language that contemplates a transition from LIBOR, specifically identifies the secured overnight financing rate (“SOFR”) as the replacement reference rate and details the mechanism for transition at LIBOR cessation, which is anticipated to occur on June 30, 2023. The transition to SOFR is not expected to have a material impact on the Company’s results of operations or liquidity.
3. Leases
Amounts reported on the Company’s Unaudited Condensed Consolidated Balance Sheets for operating leases were as follows:
Short-term operating lease liabilities (in accrued expenses)
Total operating lease liabilities
54,093
46,280
8
Lease Costs
Components of lease costs were reported in general and administrative expenses in the Company’s Unaudited Condensed Consolidated Statements of Income as follows:
For the Three Months Ended March 31, (Amounts in Thousands)
Operating lease costs
3,042
2,801
Short-term lease costs
416
751
Total lease costs
3,458
3,552
Less: sublease income
(700
(177
Total lease costs, net
2,758
3,375
Lease Term and Discount Rate
Weighted average remaining lease terms and discount rates were as follows:
Operating leases:
Weighted average remaining lease term
6.68
5.82
Weighted average discount rate
5.04
%
3.98
Maturity of Lease Liabilities
Remaining operating lease payments as of March 31, 2023 were as follows:
Operating Leases
Due in the 12-month period ended March 31,
2024
13,454
2025
11,420
2026
8,226
2027
6,471
2028
5,262
Thereafter
20,218
Total future minimum rental commitments
65,051
Less: Imputed interest
(10,958
Total lease liabilities
Supplemental cash flows information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
3,374
3,194
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
10,836
9,199
9
4. Goodwill and Intangible Assets
A summary of the goodwill and related adjustments is provided below:
Hospice
Personal Care
HomeHealth
Total
Goodwill as of December 31, 2022
397,728
152,688
32,421
Additions for acquisition
599
Adjustments to previously recorded goodwill
536
Goodwill as of March 31, 2023
153,287
32,957
On January 1, 2023, the Company completed its acquisition of Coastal Nursecare of Florida, Inc. (“CareStaff”) for approximately $1.0 million. With the purchase of CareStaff, the Company expanded its personal care services segment in Florida. In connection with the CareStaff acquisition, the Company recognized goodwill in its personal care segment of $0.6 million during the three months ended March 31, 2023.
The Company’s identifiable intangible assets consist of customer and referral relationships, trade names and trademarks, non-competition agreements and state licenses. Amortization is computed using straight-line and accelerated methods based upon the estimated useful lives of the respective assets, which range from one to twenty-five years. Customer and referral relationships are amortized systematically over the periods of expected economic benefit, which range from five to ten years.
The carrying amount and accumulated amortization of each identifiable intangible asset category consisted of the following as of March 31, 2023:
Customerand referralrelationships
Tradenames andtrademarks
Non-competitionagreements
StateLicenses
Intangible assets with indefinite lives
27,108
Intangible assets subject to amortization:
Gross carrying amount
44,672
52,046
6,785
12,671
116,174
Accumulated amortization
(38,471
(21,712
(4,989
(7,506
(72,678
Intangible assets subject to amortization, net
6,201
30,334
1,796
5,165
43,496
Total intangible assets at March 31, 2023
32,273
Amortization expense related to the intangible assets was $1.7 million and $1.8 million for the three months ended March 31, 2023 and 2022, respectively. The weighted average remaining useful lives of identifiable intangible assets as of March 31, 2023 was 9.7 years.
5. Details of Certain Balance Sheet Accounts
Prepaid expenses and other current assets consisted of the following:
Prepaid payroll
7,566
Prepaid workers' compensation and liability insurance
2,138
3,399
Prepaid Licensing fees
4,657
3,722
Workers' compensation insurance receivable
606
666
Other
2,825
1,992
Total prepaid expenses and other current assets
10
Accrued expenses consisted of the following:
Accrued health insurance
8,524
5,152
Payor advances (1)
2,893
4,473
Accrued professional fees
4,253
3,576
Accrued payroll and other taxes
9,893
6,175
8,455
8,131
Total accrued expenses
6. Government Actions to Mitigate COVID-19’s Impact
In March 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) outbreak a global pandemic. The COVID-19 pandemic continues to cause disruption in the economy, in terms of increased costs and disruptions in the labor market. Although vaccines and booster shots for the COVID-19 virus have become widely available in the United States, COVID-19 has continued to result in a significant number of hospitalizations, and the future course of the pandemic remains uncertain, particularly due to the spread of COVID-19 variants. We will continue to closely monitor the impact of COVID-19 on all aspects of our business, including the impacts to our employees, patients and suppliers.
In recognition of the significant threat to the liquidity of financial markets posed by the COVID-19 pandemic, the Federal Reserve and Congress have taken dramatic actions to provide liquidity to businesses and the banking system in the United States. One of the primary sources of relief for healthcare providers is the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was expanded by the Paycheck Protection Program and Health Care Enhancement (“PPPHCE”) Act, and the Consolidated Appropriations Act (“CAA”). Another relief package with numerous provisions that affect healthcare providers is the American Rescue Plan Act of 2021 (“ARPA”).
ARPA Spending Plans
ARPA provides for $350 billion in relief funding for eligible state, local, territorial, and Tribal governments to mitigate the fiscal effects
of the COVID-19 public health emergency. Additionally, the law provides for a 10-percentage point increase in federal matching funds for Medicaid home and community-based services (“HCBS”) from April 1, 2021, through March 31, 2022, provided the state satisfied certain conditions. States are permitted to use the state funds equivalent to the additional federal funds through March 31, 2025. States must use the monies attributable to this matching fund increase to supplement, not supplant, their level of state spending for the implementation of activities enhanced under the Medicaid HCBS in effect as of April 1, 2021.
HCBS spending plans for the additional matching funds vary by state, but common initiatives in which the Company is participating
include those aimed at strengthening the provider workforce (e.g., efforts to recruit, retain, and train direct service providers). The Company is required to properly and fully document the use of such funds in reports to the state in which the funds originated. Funds may be subject to recoupment if not expended or if they are expended on non-approved uses. During the three months ended March 31, 2023, the Company received state funding provided by the ARPA in an aggregate amount of $0.4 million. The Company did not record revenue and related costs of service revenue during the three months ended March 31, 2023, because revenue recognition criteria were not met. The Company deferred the remaining $11.0 million, which was received from states with specific spending plans and reporting requirements. The Company utilized $2.4 million of these funds during the three months ended March 31, 2023, primarily for caregivers and adding support to recruiting and retention efforts, included as a reduction of cost of service revenues in the Company’s Unaudited Condensed Consolidated Statements of Income. As of March 31, 2023, the deferred portion of ARPA funding of $11.0 million is included within Government stimulus advances on the Company’s Unaudited Condensed Consolidated Balance Sheets.
Medicare sequester
The CARES Act and related laws temporarily lifted the Medicare sequester which would have otherwise reduced payments to Medicare providers by 2%, as required by the Budget Control Act of 2011, from May 1, 2020, through March 31, 2022. The sequestration payment
11
adjustment was phased back in with a 1% reduction beginning April 1, 2022, and returned to 2% on July 1, 2022. These sequestration cuts have been extended through 2032.
The ARPA increases the federal budget deficit in a manner that triggers an additional statutorily mandated sequestration under the Pay-
As-You-Go Act of 2010 (“PAYGO Act”). As a result, an additional Medicare payment reduction of up to 4% was required to take effect in January 2022. However, Congress delayed implementation of this payment reduction until 2025.
In the hospice segment, Medicare sequester relief resulted in an increase in net service revenues of $0.0 million and $0.9 million for the three months ended March 31, 2023 and 2022, respectively. In the home health segment, Medicare sequester relief resulted in an increase in net service revenues of $0.0 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively.
7. Long-Term Debt
Long-term debt consisted of the following:
Revolving loan under the credit facility
111,353
134,853
Less unamortized issuance costs
(2,866
(3,081
Long-term debt
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 First Amendment to Amended and Restated Credit Agreement, dated as of September 12, 2019, and as further amended by the Second Amendment to Amended and Restated Credit Agreement, dated as of July 30, 2021 (as amended, the “Credit Agreement”; as used throughout this Quarterly Report on Form 10-Q, “credit facility” shall mean the credit facility evidenced by the Credit Agreement). The credit facility consists of a $600.0 million revolving credit facility and a $125.0 million incremental loan facility, which incremental loan facility may be for term loans or an increase to the revolving loan commitments. The maturity of this credit facility is July 30, 2026. Interest on the 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 Credit Agreement contains hardwired fallback language that contemplates a transition from LIBOR, specifically identifies the Secured Overnight Financing Rate (“SOFR”) as the replacement reference rate and details the mechanism for transition at LIBOR cessation, which is anticipated to occur on June 30, 2023. The transition to SOFR is not expected to have a material impact on the Company’s results of operations or liquidity.
12
Addus HealthCare, Inc. (“Addus HealthCare”) is the borrower, and its parent, Holdings, and substantially all of Holdings’ subsidiaries are guarantors under this credit facility, and it is collateralized by a first priority security interest in all of the Company’s and the other credit parties’ current and future tangible and intangible assets, including the shares of stock of the borrower and subsidiaries. The Credit Agreement contains affirmative and negative covenants customary for credit facilities of this type, including limitations on the Company with respect to liens, indebtedness, guaranties, investments, distributions, mergers and acquisitions and dispositions of assets. The 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.
The Company pays a fee ranging from 0.20% to 0.35% based on the applicable senior net leverage ratio times the unused portion of the revolving loan portion of the credit facility.
The Credit Agreement contains customary affirmative covenants regarding, among other things, the maintenance of records, compliance with laws, maintenance of permits, maintenance of insurance and property and payment of taxes. The Credit Agreement also contains certain customary financial covenants and negative covenants that, among other things, include a requirement to maintain a minimum Interest Coverage Ratio (as defined in the Credit Agreement), a requirement to stay below a maximum Total Net Leverage Ratio (as defined in the Credit Agreement) and a requirement to stay below a maximum permitted amount of capital expenditures. The Credit Agreement also contains restrictions on guarantees, indebtedness, liens, investments and loans, subject to customary carve outs, a restriction on dividends (provided that Addus HealthCare may make distributions to the Company in an amount that does not exceed $7.5 million in any year absent of an event of default, plus limited exceptions for tax and administrative distributions), a restriction on the ability to consummate acquisitions (without the consent of the lenders) under its credit facility subject to compliance with the Total Net Leverage Ratio (as defined in the Credit Agreement) thresholds, restrictions on mergers, dispositions of assets, and affiliate transactions, and restrictions on fundamental changes and lines of business.
During the three months ended March 31, 2023, the Company did not draw on its credit facility and repaid $23.5 million under the revolving credit facility.
At March 31, 2023, the Company had a total of $111.4 million of revolving loans, with an interest rate of 6.59%, outstanding on its credit facility. After giving effect to the amount drawn on its credit facility, approximately $8.0 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 $395.1 of capacity and $275.7 million available for borrowing under its credit facility. As of December 31, 2022, the Company had a total of $134.9 million of revolving loans, with an interest rate of 6.13%, outstanding on its credit facility.
As of March 31, 2023, the Company was in compliance with all financial covenants under the Credit Agreement.
8. Income Taxes
The effective income tax rates were 22.0% and 27.9% for the three months ended March 31, 2023 and 2022, respectively.
For the three months ended March 31, 2023, the difference between our federal statutory and effective income tax rates was principally due to the inclusion of state taxes and non-deductible compensation, partially offset by the use of federal employment tax credits and excess tax benefit. For the three months ended March 31, 2023 and 2022, the effective tax rates were inclusive of an excess tax benefit of 1.2% and an excess tax expense of 2.7%, respectively. The excess tax expense or benefit is a discrete item, related to the vesting of equity shares, which requires the Company to recognize the expense or benefit fully in the period. An excess tax expense results if the Company’s cumulative costs of the award recognized exceed the income tax deduction on the Unaudited Condensed Consolidated Statements of Income, whereas an excess tax benefit results if the Company’s cumulative costs of the award recognized are less than the income tax deduction on the Unaudited Condensed Consolidated Statements of Income.
9. Commitments and Contingencies
Legal Proceedings
From time to time, the Company is subject to legal and/or administrative proceedings incidental to its business.
On June 2, 2021, the Company received a $6.5 million Request for Repayment from Palmetto, GBA, LLC (“Palmetto”), a Medicare administrative contractor, regarding Ambercare Hospice Inc. (“Ambercare”), our subsidiary that provides hospice services in New Mexico. In 2018, the Office of Audit Services (“OAS”), under the HHS Office of Inspector General, initiated a clinical review of certain hospice claims
billed during a timeframe from January 1, 2016 to December 31, 2017. The OAS review concluded that certain payments to Ambercare for hospice services during the review period were made in error. The Company acquired Ambercare in May 2018 and has a contractual right to full indemnification from any potential losses from the OAS review through the terms of the Ambercare purchase agreement. The Company disputes the results of the OAS review and related asserted billing errors and is in the process of filing administrative appeals. At this stage, the Company cannot predict the ultimate outcome of the appeal process.
It is the opinion of management that the outcome of pending legal and/or administrative proceedings will not have a material effect on the Company’s Unaudited Condensed Consolidated Balance Sheets and Unaudited Condensed Consolidated Statements of Income.
10. Segment Information
Operating segments are defined as components of a company that engage in business activities from which it may earn revenues and incur expenses, and for which separate financial information is available and is regularly reviewed by the Company’s chief operating decision makers, to assess the performance of the individual segments and make decisions about resources to be allocated to the segments. The Company operates as a multi-state provider of 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, along with the items necessary to reconcile the segment information to the totals reported in the accompanying Unaudited Condensed Consolidated Financial Statements. Segment assets are not reviewed by the Company’s chief operating decision maker function and therefore are not disclosed below.
Segment operating income consists of revenue generated by a segment, less the direct costs of service revenues and general and administrative expenses that are incurred directly by the segment. Unallocated general and administrative costs are those costs for functions performed in a centralized manner and therefore not attributable to a particular segment. These costs include accounting, finance, human resources, legal, information technology, corporate office support and facility costs and overall corporate management.
Home Health
190,032
49,082
12,485
Cost of services revenues
138,383
27,267
7,534
51,649
21,815
4,951
15,935
13,015
2,879
31,829
Segment operating income
35,714
8,800
2,072
46,586
169,632
47,727
9,275
126,291
23,441
6,716
43,341
24,286
2,559
15,004
11,712
2,359
29,075
28,337
12,574
200
41,111
14
Segment reconciliation:
Total segment operating income
Items not allocated at segment level:
Other general and administrative expenses
24,531
24,077
11. Significant Payors
The Company’s revenue by payor type was as follows:
Personal Care Segment
Amount(in Thousands)
% of SegmentNet ServiceRevenues
State, local and other governmental programs
$95,320
50.1
$83,908
49.5
Managed care organizations
87,901
46.3
77,390
45.6
Private pay
4,226
2.2
4,626
2.7
Commercial insurance
1,669
0.9
2,024
1.2
916
0.5
1,684
1.0
Total personal care segment net service revenues
$190,032
100.0
$169,632
Hospice Segment
Amount (in Thousands)
Medicare
$44,556
90.7
$43,485
91.1
2,547
5.2
2,244
4.7
1,647
3.4
1,715
3.6
332
0.7
283
0.6
Total hospice segment net service revenues
$49,082
$47,727
Home Health Segment
$9,270
74.2
$6,812
73.5
2,539
20.3
1,904
20.5
676
5.5
559
6.0
Total home health segment net service revenues
$12,485
$9,275
15
The Company derives a significant amount of its revenue from its operations in Illinois, New Mexico and New York. The percentages of segment revenue for each of these significant states were as follows:
Illinois
$98,414
51.8
$84,693
49.9
New Mexico
28,474
15.0
25,440
New York (1)
21,885
11.5
21,385
12.6
All other states
41,259
21.7
38,114
22.5
Ohio
$18,451
37.6
$16,328
34.2
11,480
23.4
9,541
20.0
6,486
13.2
8,233
17.3
12,665
25.8
13,625
28.5
$9,116
73.0
$7,509
81.0
3,369
27.0
1,766
19
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 39.1% and 37.4% of our net service revenues for the three months ended March 31, 2023 and 2022, respectively. The Illinois Department on Aging, the largest payor program for the Company’s Illinois personal care operations, accounted for 21.5% and 20.7% of the Company’s net service revenues for the three months ended March 31, 2023 and 2022, respectively.
The related receivables due from the Illinois Department on Aging represented 20.7% and 18.0% of the Company’s net accounts receivable at March 31, 2023 and December 31, 2022, respectively.
12. Subsequent Events
On April 26, 2023, the Company entered into a Third Amendment to Amended and Restated Credit Agreement (the “Third
Amendment”), by and among Addus HealthCare, Inc., as the borrower, the Company, certain subsidiaries of the Company party thereto, the lenders party thereto and Capital One, National Association, as a lender and as administrative agent for all lenders, which amended the Company’s existing Credit Agreement. The Third Amendment (i) replaces LIBOR with a forward-looking term SOFR-based rate as the applicable benchmark reference rate for loans under the credit facility and (ii) adds a 10-basis point credit spread adjustment for loans bearing interest based on SOFR. The Third Amendment does not change the interest rate margins applicable to the credit facility.
17
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements about our business and operations. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words like “believes,” “belief,” “expects,” “plans,” “anticipates,” “intends,” “projects,” “estimates,” “may,” “might,” “would,” “should” and similar expressions are intended to be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to: the impact of macroeconomic conditions, rising global inflation and interest rates, legislative developments, trade disruptions and supply chain disruptions on our business and our customers’ businesses; financial market instability and disruptions to the banking system due to bank failures, particularly in light of the closures of Silicon Valley Bank and Signature Bank in March 2023; business disruptions due to natural disasters, acts of terrorism, pandemics (including the ongoing COVID-19 pandemic), riots, civil insurrection or social unrest, looting, protests, strikes or street demonstrations; changes in operational and reimbursement processes and payment structures at the state or federal levels; changes in Medicaid, Medicare, other government program and managed care organizations policies and payment rates, and the timeliness of reimbursements received under government programs; changes in, or our failure to comply with, existing, federal and state laws or regulations, or our failure to comply with new government laws or regulations on a timely basis; competition in the healthcare industry; the geographical concentration of our operations; changes in the case mix of consumers and payment methodologies; operational changes resulting from the assumption by managed care organizations of responsibility for managing and paying for our services to consumers; the nature and success of future financial and/or delivery system reforms; changes in estimates and judgments associated with critical accounting policies; our ability to maintain or establish new referral sources; our ability to renew significant agreements or groups of agreements; our ability to attract and retain qualified personnel; federal, state and city minimum wage pressure, including any failure of any governmental entity to enact a minimum wage offset and/or the timing of any such enactment; changes in payments and covered services due to the overall economic conditions and deficit reduction measures by federal and state governments, and our expectations regarding these changes; cost containment initiatives undertaken by federal and state governmental and other third-party payors; our ability to access financing through the capital and credit markets; our ability to meet debt service requirements and comply with covenants in debt agreements; our ability to integrate and manage our information systems; any security breaches, cyber-attacks, loss of data, or cybersecurity threats or incidents, and any actual or perceived failures to comply with legal requirements related to the privacy of confidential consumer data and other sensitive information; the size and growth of the markets for our services, including our expectations regarding the markets for our services; the acceptance of privatized social services; eligibility standards and limits on services imposed by state governmental agencies; the potential for litigation, audits and investigations; discretionary determinations by government officials; our ability to successfully implement our business model to grow our business; our ability to continue identifying, pursuing, consummating and integrating acquisition opportunities and expand into new geographic markets; the impact of acquisitions and dispositions on our business, including the potential inability to realize the benefits of potential acquisitions; the potential impact of the discontinuation or modification of LIBOR; the effectiveness, quality and cost of our services; our ability to successfully execute our growth strategy; changes in tax rates; the impact of inclement weather or natural disasters; and various other matters, many of which are beyond our control. In addition, these forward-looking statements are subject to the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the period ended December 31, 2022, filed with the SEC on February 28, 2023. You should carefully review all of these factors. Moreover, our business may be materially adversely affected by factors that are not currently known to us, by factors that we currently consider immaterial or by factors that are not specific to us, such as general economic conditions. These forward-looking statements were based on information, plans and estimates at the date of this report, and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes, except as may be required by law.
Overview
We are a home care services provider operating three segments: personal care, hospice and home health. Our services are principally provided in-home under agreements with federal, state and local government agencies, managed care organizations, commercial insurers and private individuals. Our consumers are predominantly “dual eligible,” meaning they are eligible to receive both Medicare and Medicaid benefits. Managed care revenues accounted for 36.6% and 35.7% of our net service revenues during the three months ended March 31, 2023 and 2022, respectively.
A summary of certain consolidated financial results is provided in the table below.
Net service revenues by segment:
Personal care
Home health
Total net service revenue
As of March 31, 2023, we provided our services in 22 states through 203 offices. We served approximately 55,000 and 53,000 discrete individuals, respectively, during the three months ended March 31, 2023 and 2022. Our personal care segment also includes staffing services, with clients including assisted living facilities, nursing homes and hospice facilities.
Acquisitions
In addition to our organic growth, we have grown through acquisitions that have expanded our presence in current markets, with the goal of having all three levels of in-home care in our markets or facilitating our entry into new markets where in-home care has been moving to managed care organizations or that present other strategic opportunities.
On February 1, 2022, we completed the acquisition of the operations of JourneyCare Inc. (“JourneyCare”). The purchase price was approximately $86.6 million, including the amount of acquired excess cash held by JourneyCare at the closing of the acquisition (approximately $0.4 million). The JourneyCare acquisition was funded with a combination of a $35.0 million draw on the Company’s revolving credit facility and available cash. With the JourneyCare acquisition, the Company expanded its hospice services in Illinois.
On October 1, 2022, we completed the acquisition of Apple Home HealthCare, LTD (“Apple Home”) for $12.7 million, with funding provided by drawing on the Company’s revolving credit facility. With the purchase of Apple Home, the Company expanded clinical services for its home health segment in Illinois.
On January 1, 2023, we completed the acquisition of CareStaff for approximately $1.0 million, with funding provided by available cash. With the purchase of CareStaff, the Company expanded its personal care services in Florida.
COVID-19 Pandemic Update
Compared to earlier periods, the United States has generally experienced a moderation of COVID-19 infections and related hospitalizations. However, given the longer-term uncertainties associated with the COVID-19 pandemic, it is difficult to predict the effect and ultimate impact of the COVID-19 pandemic on the Company as conditions related to the COVID-19 pandemic continue to evolve.
For the three months ended March 31, 2023 and 2022, COVID-19-related expenses in our personal care segment were approximately $0.7 million and $1.7 million, respectively, and are included in cost of service revenues on the Consolidated Statements of Income. Additionally, we recognized revenue of $0.9 million and $1.4 million attributable to temporary rate increases from certain payors in our personal care segment for the three months ended March 31, 2023 and 2022, respectively.
As of March 31, 2023, the Company deferred the recognition of $2.9 million of payments received from payors for COVID-19 reimbursement, included within accrued expenses, which will be recognized as we incur specific expenses related to the pandemic, such as expenses related to acquiring additional PPE and COVID-19 related paid time off, or will be returned to the extent COVID-19-related expenses are not incurred. We are not able to reasonably predict the total costs we will incur related to the COVID-19 pandemic, and such costs could be substantial.
As the COVID-19 public health situation continues to evolve, federal and state governments have shifted to reducing or terminating certain temporary measures that were implemented to ease delivery of care earlier in the COVID-19 public health emergency. In addition, the current federal public health emergency declaration expires May 11, 2023, and the Biden administration has indicated it will not be extended. We will continue to assess the impact and consequences of the COVID-19 pandemic and government responses to the pandemic, including the implementation of the CARES Act, the PPPHCE Act, the CAA, the ARPA, other stimulus and relief legislation, the President’s National COVID-19 Preparedness Plan, and existing and potential additional federal, state and local vaccine mandates, on our business, results of operations, financial condition and cash flows. Given the dynamic nature of these circumstances, we cannot currently predict with certainty the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted by the pandemic but is not
expected to have a material adverse impact. See Part I, Item 1A—Risk Factors — “The COVID-19 pandemic could negatively affect our operations, business and financial condition, and our liquidity could also be negatively impacted, particularly if the U.S. economic and/or public health conditions deteriorate in connection with the pandemic” of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023.
See “Liquidity and Capital Resources” below for additional information regarding funds received related to COVID-19 pandemic relief.
Recruiting
As the labor market has tightened and unemployment has declined in comparison to earlier levels, the competition for new caregivers, including skilled healthcare staff, and support staff has increased. In addition, the United States economy continues to experience significant inflationary pressures and a competitive labor market. To the extent that we continue to experience a shortage of caregivers, it may hinder our ability to fully meet the continuing demand for both our non-clinical and clinical services.
Revenue by Payor and Significant States
Our payors are principally federal, state and local governmental agencies and managed care organizations. The federal, state and local programs under which the agencies operate are subject to legislative and budgetary changes and other risks that can influence reimbursement rates. We are experiencing a transition of business from government payors to managed care organizations, which we believe aligns with our emphasis on coordinated care and the reduction of the need for acute care.
Our revenue by payor and significant states by segment were as follows:
90.8
20
73.4
6.1
19.0
We derive a significant amount of our net service revenues in Illinois, which represented 39.1% and 37.4% of our net service revenues for the three months ended March 31, 2023 and 2022, respectively.
A significant amount of our net service revenues are derived from one payor, the Illinois Department on Aging, the largest payor program for our Illinois personal care operations, which accounted for 21.5% and 20.7% of our net service revenues for the three months ended March 31, 2023 and 2022, respectively.
Changes in Reimbursement Rates
On November 26, 2019, the City of Chicago voted to approve additional increases in the Chicago minimum wage to $14 per hour beginning July 1, 2020 and to $15 per hour beginning July 1, 2021. In each subsequent year, the City is required to raise the wage based on increases in the Consumer Price Index (“CPI”) subject to a cap and other requirements. On July 1, 2022, the rate was adjusted to $15.40 based on the increase in the CPI.
The Illinois fiscal year 2022 budget included an increase of hourly rates for in-home care services to $24.96, to be effective January 1, 2022. On July 12, 2021, in connection with the temporary increase in federal funding for Medicaid home and community-based services authorized by the ARPA, the State of Illinois submitted its Initial Spending Plan and Narrative to CMS for approval. That plan included the acceleration by two months of the rate increase to $24.96 from January 1, 2022, to November 1, 2021. The Company recognized $3.6 million related to the rate increase for the year ended December 31, 2021.
The Illinois fiscal year 2023 budget included an increase of hourly rates for in-home care services to $25.66, to be effective January 1, 2023. This increase offsets the $0.40 increase in Chicago minimum wage that occurred on July 1, 2022. In March 2023, the Illinois Department of Healthcare and Family Services submitted a waiver amendment proposal to CMS to further increase in-home care rates to $26.92, effective as of April 1,2023, which CMS approved.
Our business will benefit from the rate increases noted above as planned for 2023, but there is no assurance that there will be additional offsetting rate increases in Illinois for fiscal years beyond fiscal year 2023, and our financial performance will be adversely impacted for any periods in which an additional offsetting reimbursement rate increase is not in effect.
21
Impact of Changes in Medicare and Medicaid Reimbursement
Home health services provided to Medicare beneficiaries are paid under the Medicare Home Health Prospective Payment System (“HHPPS”), which uses national, standardized 30-day period payment rates for periods of care that meet a certain threshold of home health visits (periods of care that do not meet the visit threshold are paid a per-visit payment rate for providing care). Although payment is made for each 30-day period, the HHPPS permits continuous 60-day certification periods through which beneficiaries are verified as eligible for the home health benefit. The daily home health payment rate is adjusted for case-mix and area wage levels. CMS uses the Patient-Driven Groupings Model (“PDGM”) as the case-mix classification model to place periods of care into payment categories, classifying patients based on clinical characteristics and their resource needs. An outlier adjustment may be paid for periods of care where costs exceed a specific threshold amount.
CMS updates the HHPPS payment rates each calendar year. For calendar year 2023, CMS estimates that Medicare payments to home health agencies will increase by 0.7%. This is based on a home health payment update percentage of 4.0, which reflects a 4.1% market basket update reduced by a productivity adjustment of negative 0.1 percentage points, and an estimated 3.5% decrease associated with the transition to the PDGM that is intended to help achieve budget-neutrality on a prospective basis, among other changes. Home health providers that do not comply with quality data reporting requirements are subject to a 2-percentage point reduction to their market basket update. In addition, beginning January 1, 2022, Medicare requires home health agencies to submit a one-time Notice of Admission (“NOA”) for each patient that establishes that the beneficiary is under a Medicare home health period of care. Failure to submit the NOA within five calendar days from the start of care will result in a reduction to the 30-day period payment amount for each day from the start of care date until the date the NOA is submitted.
CMS began implementing a nationwide expansion of the Home Health Value-Based Purchasing (“HHVBP”) Model in January 2022. Under the model, home health agencies will receive increases or decreases to their Medicare fee-for-service payments of up to 5%, based on performance against specific quality measures relative to the performance of other home health providers. Data collected in each performance year will impact Medicare payments two years later. Calendar year 2023 is the first performance year under the expanded HHVBP Model, which will affect payments in calendar year 2025.
In certain states, payment of claims may be impacted by the Review Choice Demonstration for Home Health Services, a program intended to identify and prevent fraud, reduce the number of Medicare appeals and improve provider compliance with Medicare program requirements. The program applies to home health agencies in Illinois, Ohio, North Carolina, Florida and Texas and may expand, in the future, into additional states. Providers in states subject to the Review Choice Demonstration may initially select from the following claims review and approval processes: pre-claim review, post-payment review or a minimal post-payment review with a 25% payment reduction. Home health agencies that maintain high compliance levels will be eligible for additional options that may be less burdensome. We are currently unable to predict what impact, if any, this program may have on our result of operations or financial position.
The IMPACT Act requires HHS, together with the Medicare Payment Advisory Commission, to work toward a unified payment system for post-acute care services provided by home health agencies, inpatient rehabilitation facilities, skilled nursing facilities, and long-term care hospitals. A unified post-acute care payment system would pay post-acute care providers under a single framework according to a patient’s characteristics, rather than based on the post-acute care setting where the patient receives treatment. As required under the statute, CMS and the HHS Office of the Assistant Secretary for Planning and Evaluation issued a report presenting a prototype for a unified post-acute care payment model in July 2022. CMS noted in its report the need for additional analyses and acknowledged that the universal implementation of a unified post-acute care payment system would require congressional action. The Medicare Payment Advisory Commission is required to submit a report to Congress by June 2023.
Hospice services provided to Medicare beneficiaries are paid under the Medicare Hospice Prospective Payment System, under which CMS sets a daily rate for each day a patient is enrolled in the hospice benefit. CMS updates these rates each federal fiscal year. Effective October 1, 2022, CMS increased hospice payment rates by 3.8%. This reflects a 4.1% market basket increase and a negative 0.3 percentage point productivity adjustment. Hospices that do not satisfy quality reporting requirements are subject to a 2-percentage point reduction to the market basket update. Beginning in 2024, the reduction to the market basket update for failure to report quality data will increase to 4 percentage points.
22
Overall payments made by Medicare to each hospice provider number are subject to an inpatient cap and an aggregate cap, which is set each federal fiscal year. The inpatient cap limits the number of days of inpatient care to no more than 20% of total patient care days. The aggregate cap, which limits the total Medicare reimbursement that a hospice may receive based on an annual per-beneficiary cap amount and the number of Medicare patients served, was updated to $32,486.92 for federal fiscal year 2023. If a hospice’s Medicare payments exceed its inpatient or aggregate caps, it must repay Medicare the excess amount.
New York Consumer Directed Personal Assistance Program (“CDPAP”)
The CDPAP is a self-directed care alternative program that allows eligible individuals who need help with activities of daily living or skilled nursing services to choose their caregivers. We provide support services as a CDPAP fiscal intermediary.
In April 2022, the New York legislature passed the fiscal year 2023 state budget, which amended the Fiscal Intermediary Request For Offer (“RFO”) process to authorize all fiscal intermediaries that submitted an RFO application and served at least 200 clients in New York City or 50 clients in other counties between January 1, 2020, and March 31, 2020, but that were not initially awarded a contract, to contract with the New York State Department of Health. These fiscal intermediaries are permitted to continue operating in all counties contained in their RFO application, provided they submitted an attestation and supporting information to the NYSDOH no later than November 29, 2022. The Company submitted an attestation on November 22, 2022. For the fiscal intermediaries whose attestation and supporting information meet all requirements, the NYSDOH will issue award letters on the contract award date, which was anticipated to be April 1, 2023. However, the New York State Department of Health has not yet awarded these contracts. Any fiscal intermediary that does not receive an award letter must cease fiscal intermediary operations. The Company continues to assess the future of its participation in this program. Given the current profitability of the program, the Company has suspended materially all of its new fee-for-service patient admissions through County Social Service Departments in the CDPAP program.
HHS Proposed Rule: “Assuring Access to Medicaid Services”
On April 27, 2023, HHS introduced a proposed rule titled “Assuring Access to Medicaid Services.” The proposed rule has a stated goal
of improving access to services for Medicaid beneficiaries. As part of this proposed rule, HHS is proposing that state Medicaid agencies provide assurances that a minimum of 80% of Medicaid payments for personal care and similar services be spent on compensation to direct care workers. The proposed rule would allow states four years to implement changes required by a final rule, with extended time specified for managed care delivery systems. The proposed rule is subject to comment and specifically requests comments on the 80% threshold, related definitions and the implementation period. The ultimate impact of any final rule, which could be adverse for periods after implementation, but could also benefit our business by improving access to services, depends on the requirements set forth in any final rule.
Components of our Statements of Income
Net Service Revenues
We generate net service revenues by providing our services directly to consumers and primarily on an hourly basis in our personal care segment, on a daily basis in our hospice segment and on an episodic basis in our home health segment. We receive payment for providing such services from our private consumers and payors, including federal, state and local governmental agencies, managed care organizations and commercial insurers.
In our personal care segment, net service revenues are principally provided based on authorized hours, determined by the relevant agency, at an hourly rate, which is either contractual or fixed by legislation, and are recognized at the time services are rendered. In our hospice segment, net service revenues are provided based on daily rates for each of the levels of care and are recognized as services are provided. In our home health segment, net service revenues are based on an episodic basis at a stated rate and recognized based on the number of days elapsed during a period of care within the reporting period. We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record revenues.
Cost of Service Revenues
We incur direct care wages, payroll taxes and benefit-related costs in connection with providing our services. We also provide workers’ compensation and general liability coverage for our employees. Employees are also reimbursed for their travel time and related travel costs in certain instances.
23
General and Administrative Expenses
Our general and administrative expenses include our costs for operating our network of local agencies and our administrative offices. Our agency expenses consist of costs for supervisory personnel, our community care supervisors and office administrative costs. Personnel costs include wages, payroll taxes and employee benefits. Facility costs include rents, utilities, and postage, telephone and office expenses. Our corporate and support center expenses include costs for accounting, information systems, human resources, billing and collections, contracting, marketing and executive leadership. These expenses consist of compensation, including stock-based compensation, payroll taxes, employee benefits, legal, accounting and other professional fees, travel, general insurance, rents, provision for doubtful accounts and related facility costs. Expenses related to streamlining our operations such as costs related to terminated employees, termination of professional services relationships, other contract termination costs and asset write-offs are also included in general and administrative expenses.
Depreciation and Amortization Expenses
Depreciable assets consist principally of furniture and equipment, network administration and telephone equipment and operating system software. Depreciable and leasehold assets are depreciated or amortized on a straight-line method over their useful lives or, if less and if applicable, their lease terms. We amortize our intangible assets with finite lives, consisting of customer and referral relationships, trade names, trademarks and non-competition agreements, using straight line or accelerated methods based upon their estimated useful lives.
Interest Expense
Interest expense is reported when incurred and principally consists of interest and unused credit line fees on the credit facility.
Income Tax Expense
All of our income is from domestic sources. We incur state and local taxes in states in which we operate. The effective income tax rate was 22.0% and 27.9% for the three months ended March 31, 2023 and 2022, respectively, compared to our federal statutory rate of 21%. The difference between our federal statutory and effective income tax rates was principally due to the inclusion of state taxes, non-deductible compensation, excess tax expense/benefit and the use of federal employment tax credits.
Results of Operations — Consolidated
Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
The following table sets forth our unaudited condensed consolidated results of operations.
Change
% Of
Net Service
Revenues
(Amounts in Thousands, Except Percentages)
24,965
11.0
68.8
69.0
16,736
10.7
31.2
31.0
8,229
11.7
22.4
23.5
3,208
1.4
1.5
(74
(2.1
23.8
25.0
3,134
7.4
5,095
37.7
(48
82.8
0.8
641
35.2
593
33.7
6.5
4,502
38.3
297
9.1
5.0
3.7
4,205
49.6
Net service revenues increased by 11.0% to $251.6 million for the three months ended March 31, 2023 compared to $226.6 million for the three months ended March 31, 2022. Revenue increased by $1.4 million in our hospice segment and by $3.2 million in our home health segment during the three months ended March 31, 2023, compared to the same period in 2022. The increase in our hospice segment revenue was due to organic growth and the acquisition of the operations of JourneyCare on February 1, 2022.
24
Gross profit, expressed as a percentage of net service revenues, increased to 31.2% for the three months ended March 31, 2023, compared to 31.0% for the same period in 2022 due to growth in our higher margin hospice segment.
General and administrative expenses increased to $56.4 million for the three months ended March 31, 2023, as compared to $53.2 million for the three months ended March 31, 2022. The increase in general and administrative expenses was primarily due to an increase in administrative employee wage, bonus, tax and benefit costs of $4.4 million, offset by a decrease in acquisition related expense of $1.5 million. General and administrative expenses, expressed as a percentage of net service revenues decreased to 22.4% for the three months ended March 31, 2023, from 23.5% for the three months ended March 31, 2022.
Interest expense increased to $2.5 million for the three months ended March 31, 2023 from $1.8 million for the three months ended March 31, 2022. The increase in interest expense was primarily due to increased interest rates under our credit facility for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The weighted average interest rate was 6.28% and 2.15% for the three months ended March 31, 2023 and 2022, respectively.
All of our income is from domestic sources. We incur state and local taxes in states in which we operate. The effective income tax rate was 22.0% and 27.9% for the three months ended March 31, 2023 and 2022, respectively. The difference between the federal statutory and our effective income tax rates was principally due to the inclusion of state taxes, non-deductible compensation, excess tax expense/benefit and the use of federal employment tax credits.
Results of Operations – Segments
The following tables and related analysis summarize our operating results and business metrics by segment:
% ofSegmentNet ServiceRevenues
Operating Results
$20,400
12.0
72.8
74.4
12,092
9.6
27.2
25.6
8,308
19.2
8.4
8.9
931
6.2
$35,714
18.8
$28,337
16.7
$7,377
26.0
Business Metrics (Actual Numbers,Except Billable Hours in Thousands)
Locations at period end
157
162
Average billable census * (1)
38,363
36,582
1,781
4.9
Billable hours * (2)
7,592
7,101
491
6.9
Average billable hours per census per month * (2)
65.8
64.4
Billable hours per business day * (2)
116,805
110,951
5,854
5.3
Revenues per billable hour * (2)
$24.98
$23.64
$1.34
5.7
Same store growth revenue % * (3)
11.4
* Management deems these metrics to be key performance indicators. Management uses these metrics to monitor our performance, both in our existing operations and acquisitions. Many of these metrics serve as the basis of reported revenues and assessment of these provide direct correlation to the results of operations from period to period and facilitate comparison with the results of our peers. Historical trends established in these metrics can be used to evaluate
current operating results, identify trends affecting our business, determine the allocation of resources and assess the quality and potential variability of our cash flows and earnings. We believe they are useful to investors in evaluating and understanding our business but should not be used solely in assessing the Company’s performance. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein to fully evaluate and understand the business as a whole. These measures may not be comparable to similarly titled performance indicators used by other companies.
The personal care segment derives a significant amount of its net service revenues from operations in Illinois, which represented 39.1% and 37.4% of our net service revenues for the three months ended March 31, 2023 and 2022, respectively. One payor, the Illinois Department on Aging, accounted for 21.5% and 20.7% of net service revenues for the three months ended March 31, 2023 and 2022, respectively.
Net service revenues from state, local and other governmental programs accounted for 50.1% and 49.5% of net service revenues for the three months ended March 31, 2023 and 2022, respectively. Managed care organizations accounted for 46.3% and 45.6% of net service revenues for the three months ended March 31, 2023 and 2022, respectively, with commercial insurance, private pay and other payors accounting for the remainder of net service revenues.
Net service revenues increased by 12.0% for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. Net service revenues included a 5.7% increase in revenues per billable hour for the three months ended March 31, 2023, mainly attributed to rate increases discussed above, as compared to the three months ended March 31, 2022. The Company experienced an increase in New York net service revenues of $0.5 million for the three months ended March 31, 2023, primarily driven by an increase in participation in the New York CDPAP program as discussed above, compared to 2022. Gross profit, expressed as a percentage of net service revenues, increased to 27.2% for the three months ended March 31, 2023 from 25.6% for the three months ended March 31, 2022. This increase was primarily due to decreases in direct payroll and benefits expenses as a percentage of net service revenues of 1.0% for the three months ended March 31, 2023.
The personal care segment’s general and administrative expenses primarily consist of administrative employee wages, taxes and benefit costs, rent, information technology and office expenses. General and administrative expenses, expressed as a percentage of net service revenues, was 8.4% and 8.9% for the three months ended March 31, 2023 and 2022, respectively.
$1,355
2.8
55.6
49.1
3,826
16.3
44.4
50.9
(2,471)
(10.2)
26.5
24.6
1,303
11.1
$8,800
17.9
$12,574
26.3
$(3,774)
(30.0)
Business Metrics (Actual Numbers)
Admissions * (1)
3,324
3,315
0.3
Average daily census * (2)
3,195
3,320
(125)
(3.8)
Average discharge length of stay * (3)
88
84
4.8
Patient days * (4)
287,551
275,488
12,063
4.4
Revenue per patient day * (5)
$176.22
$173.24
$2.98
1.7
Organic growth
- Revenue * (6)
2.6
- Average daily census * (6)
7.0
26
* Management deems these metrics to be key performance indicators. Management uses these metrics to monitor our performance, both in our existing operations and acquisitions. Many of these metrics serve as the basis of reported revenues and assessment of these provide direct correlation to the results of operations from period to period and facilitate comparison with the results of our peers. Historical trends established in these metrics can be used to evaluate current operating results, identify trends affecting our business, determine the allocation of resources and assess the quality and potential variability of our cash flows and earnings. We believe they are useful to investors in evaluating and understanding our business but should not be used solely in assessing the Company’s performance. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein to fully evaluate and understand the business as a whole. These measures may not be comparable to similarly titled performance indicators used by other companies.
The hospice segment generates net service revenues by providing care to patients with a life expectancy of six months or less, as well as related services for their families. Hospice offers four levels of care, as defined by Medicare, to meet the varying needs of patients and their families. The four levels of hospice include routine home care, continuous home care, general inpatient care and respite care. Our hospice segment principally provides routine home care and continuous home care services, and with the JourneyCare acquisition, expanded into providing general inpatient care services. In our hospice segment, net service revenues from Medicare accounted for 90.7% and 91.1% for the three months ended March 31, 2023 and 2022, respectively. Net service revenues from managed care organizations accounted for 3.4% and 3.6% for the three months ended March 31, 2023 and 2022, respectively.
Net service revenues increased by $1.4 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily attributed to organic growth and the acquisition of the operations of JourneyCare on February 1, 2022.
Gross profit, expressed as a percentage of net service revenues was 44.4% and 50.9% for the three months ended March 31, 2023 and 2022, respectively. For the three months ended March 31, 2023, the decrease was mainly attributed to increases in direct employee wage, tax and benefit costs.
The hospice segment’s general and administrative expenses primarily consist of administrative employee wage, tax and benefit costs, rent, information technology and office expenses. General and administrative expenses, expressed as a percentage of net service revenues was 26.5% and 24.6% for the three months ended March 31, 2023 and 2022, respectively. The increase in general and administrative expenses was primarily due to a $1.2 million increase in administrative employee wage, tax and benefit costs for the three months ended March 31, 2023.
$3,210
34.6
60.3
72.4
818
12.2
39.7
27.6
2,392
93.5
23.1
25.4
520
22.1
$2,072
16.6
$200
$1,872
936.0
New admissions * (1)
3,893
3,336
557
Recertifications * (2)
1,549
1,316
233
17.7
Total volume * (3)
5,442
4,652
790
17.0
Visits * (4)
77,828
65,213
12,615
19.3
- Revenue * (5)
13.8
(0.5)
- Admissions * (5)
(3.6)
2.4
27
The home health segment generates net service revenues by providing home health services on a short-term, intermittent or episodic basis to individuals, generally to treat an illness or injury. Net service revenues from Medicare accounted for 74.2% and 73.4%, managed care organizations accounted for 20.3% and 20.5% and other accounted for 5.5% and 6.1% for the three months ended March 31, 2023 and 2022, respectively. Home health services provided to Medicare beneficiaries are paid under the Medicare Home Health Prospective Payment System, which uses national, standardized 30-day period payment rates for periods of care. CMS uses the PDGM as the case-mix classification model to place periods of care into payment categories, classifying patients based on clinical characteristics. An outlier adjustment may be paid for periods of care in which costs exceed a specific threshold amount.
Net service revenues increased by $3.2 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. Total visits increased for the three months ended March 31, 2023, mainly attributed to the acquisition of Apple Home HealthCare on October 1, 2022.
Gross profit, expressed as a percentage of net service revenues was 39.7% and 27.6% for the three months ended March 31, 2023 and 2022, respectively. For the three months ended March 31, 2023, the increase was primarily due to an increase in net service revenues compared to the three months ended March 31, 2022. Cost of services revenues for the three months ended March 31, 2023 increased compared to the corresponding period in 2022, due to an increase in direct employee wage, tax and benefit costs.
The home health segment’s general and administrative expenses primarily consist of administrative employee wage, tax and benefit costs, rent, information technology and office expenses. General and administrative expenses, expressed as a percentage of net service revenues was 23.1% and 25.4% for the three months ended March 31, 2023 and 2022, respectively. General and administrative expenses for the three months ended March 31, 2023 increased compared to the corresponding period in 2022, primarily due to an increase in administrative employee wage, tax and benefit costs of $ 0.4 million for the three months ended March 31, 2023.
Liquidity and Capital Resources
Our primary sources of liquidity are cash on hand and cash from operations and borrowings under our credit facility. At March 31, 2023 and December 31, 2022, we had cash balances of $73.5 million and $80.0 million, respectively. At March 31, 2023, we had a $600.0 million revolving credit facility and a $125.0 million incremental loan facility, which may be for term loans or an increase to the revolving loan commitments. The maturity of this credit facility is July 30, 2026.
During the three months ended March 31, 2023, we used approximately $1.0 million in cash to fund the CareStaff acquisition and repaid $23.5 million under our revolving credit facility. As of March 31, 2023, we had a total of $111.4 million in revolving loans, with an interest rate of 6.59% outstanding on our credit facility and after giving effect to the amount drawn on our credit facility, approximately $8.0 million of outstanding letters of credit and borrowing limits based on an advance multiple of adjusted EBITDA (as defined in the Credit Agreement), we had $395.1 million of capacity and $275.7 million available for borrowing under our credit facility. At December 31, 2022, we had a total of $134.9 million revolving credit loans, with an interest rate of 6.13%, outstanding on our credit facility.
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Our credit facility requires us to maintain a total net leverage ratio not exceeding 3.75:1.00. At March 31, 2023, we were in compliance with our financial covenants under the Credit Agreement. Although we believe our liquidity position remains strong, we can provide no assurance that we will remain in compliance with the covenants in our Credit Agreement, and in the future, it may prove necessary to seek an amendment with the bank lending group under our credit facility. Additionally, there can be no assurance that we will be able to raise additional funds on terms acceptable to us, if at all.
See Note 7 to the Notes to Condensed Consolidated Financial Statements, Long-Term Debt, for additional details of our long-term debt.
COVID-19 Pandemic
As a result of the COVID-19 pandemic, federal and state governments have passed legislation, promulgated regulations, and taken other administrative actions intended to assist healthcare providers in providing care to COVID-19 patients and other patients during the public health emergency. These temporary measures include relief from Medicare conditions of participation requirements for healthcare providers, relaxation of licensure requirements for healthcare professionals, relaxation of privacy restrictions for telehealth remote communications, promoting use of telehealth by expanding the scope of services for which Medicare reimbursement is available, and limited waivers of fraud and abuse laws for activities related to COVID-19 during the emergency period. The current federal public health emergency declaration expires May 11, 2023, and the Biden administration has indicated that it will not be extended.
The ARPA, which became law on March 11, 2021, provided for $350 billion in relief funding for eligible state, local, territorial and tribal governments to mitigate the fiscal effects of the COVID-19 public health emergency. Additionally, the law provided for a 10 percentage point increase in federal matching funds for Medicaid HCBS from April 1, 2021, through March 31, 2022, provided the state satisfied certain conditions. States are permitted to use the state funds equivalent to the additional federal funds through March 31, 2025. States must use the monies attributable to this matching fund increase to supplement, not supplant, their level of state spending for the implementation of activities enhanced under the Medicaid HCBS in effect as of April 1, 2021.
HCBS spending plans for the additional matching funds vary by state, but common initiatives in which the Company is participating include those aimed at strengthening the provider workforce (e.g., efforts to recruit, retain, and train direct service providers). The Company is required to properly and fully document the use of such funds in reports to the state in which the funds originated. Funds may be subject to recoupment if not expended or if they are expended on non-approved uses. During the three months ended March 31, 2023, the Company received state funding provided by the ARPA in an aggregate amount of $0.4 million. The Company did not record revenue and related costs of service revenue during the three months ended March 31, 2023, because revenue recognition criteria were not met. The Company deferred the remaining $11.0 million, which was received from states with specific spending plans and reporting requirements. The Company utilized $2.4 million of these funds during the three months ended March 31, 2023, primarily for caregivers and adding support to recruiting and retention efforts, included as a reduction of cost of service revenues in the Company’s Consolidated Statements of Income. As of March 31, 2023, the deferred portion of ARPA funding of $11.0 million is included within Government stimulus advances on the Company’s Unaudited Condensed Consolidated Balance Sheets.
The CARES Act and related legislation temporarily lifted the Medicare sequester that would have otherwise reduced payments to Medicare providers by 2% as required by the Budget Control Act of 2011, from May 1, 2020 through March 31, 2022. The sequestration payment adjustment was phased back in, returning to a 2% reduction on July 1, 2022. These sequestration cuts have been extended through the first six months of 2032.
In our hospice segment, Medicare sequester relief resulted in an increase in net service revenues of $0.0 million and $0.9 million for the three months ended March 31, 2023 and 2022, respectively. In our home health segment, Medicare sequester relief resulted in an increase in net service revenues of $0.0 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively.
The ARPA increases the federal budget deficit in a manner that triggers an additional statutorily mandated sequestration under the PAYGO Act. As a result, an additional Medicare payment reduction of up to 4% was required to take effect in January 2022. However, Congress has delayed implementation of this payment reduction until 2025. We cannot currently determine if, or to what extent, our business, results of operations, financial condition or liquidity will ultimately be impacted by mandated sequestration triggers under the PAYGO Act, or if or when the mandated sequestration will occur.
See Note 6 to the Notes to Condensed Consolidated Financial Statements, COVID-19 Pandemic, for additional details of the COVID-19 pandemic.
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Cash Flows
The following table summarizes changes in our cash flows:
Cash flows from operating activities represent the inflow of cash from our payors and the outflow of cash for payroll and payroll taxes, operating expenses, interest and taxes. Net cash provided by operating activities was $18.8 million for the three months ended March 31, 2023, compared to net cash used in operating activities of $5.9 million for the same period in 2022. The increase in cash provided by operations was primarily due to the timing of receipts on accounts receivable and the timing of government stimulus funds. The changes in accounts receivable were primarily related to the growth in revenue offset by a decrease in days sales outstanding (“DSO”) during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The related receivables due from the Illinois Department on Aging represented 21.5% and 16.1% of the Company’s net accounts receivable at March 31, 2023 and March 31, 2022, respectively.
Net cash used in investing activities for the three months ended March 31, 2023, primarily consisted of $1.0 million of net cash used for the Carestaff acquisition and $0.7 million of cash used for property and equipment purchases, primarily related to our ongoing investments in technology infrastructure fixed assets. Net cash used in investing activities for the three months ended March 31, 2022 primarily consisted of $84.5 million of net cash used for the JourneyCare acquisition and $1.1 million of cash used for property and equipment purchases.
Net cash used in financing activities for the three months ended March 31, 2023, primarily consisted of a $23.5 million payment on the revolver portion of our credit facility. Net cash provided by financing activities for the three months ended March 31, 2022 primarily consisted of $35.0 million of borrowings under our credit facility to partially fund the JourneyCare acquisition.
Outstanding Accounts Receivable
Gross accounts receivable as of March 31, 2023 and December 31, 2022 were approximately $126.7 million and $127.1 million, respectively. Outstanding accounts receivable, net of allowance for credit losses, decreased by $0.1 million as of March 31, 2023 as compared to December 31, 2022. Accounts receivable for the Illinois Department on Aging increased approximately $0.1 million during the quarter ended March 31, 2023. Our collection procedures include review of account aging and direct contact with our payors. We have historically not used collection agencies. An uncollectible amount is written off to the allowance account after reasonable collection efforts have been exhausted.
We calculate our DSO by taking the trade accounts receivable outstanding, net of allowance for credit losses for doubtful accounts, divided by the net service revenues for the last quarter, multiplied by the number of days in that quarter. Our DSOs were 44 days and 45 days at March 31, 2023 and December 31, 2022, respectively. The DSOs for our largest payor, the Illinois Department on Aging, were 44 days and 42 days at March 31, 2023 and December 31, 2022, respectively.
Off-Balance Sheet Arrangements
As of March 31, 2023, we did not have any off-balance sheet guarantees or arrangements with unconsolidated entities.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates previously disclosed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” set forth in Part II, Item 7 of our Annual Report on Form 10-K for the period ended December 31, 2022, filed on February 28, 2023.
Refer to Note 2 to the Notes to Condensed Consolidated Financial Statements (Unaudited) for further discussion.
30
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk associated with changes in interest rates on our variable rate long-term debt. As of March 31, 2023, we had available borrowing capacity of approximately $275.7 million on our credit facility, all of such borrowings were subject to variable interest rates.
ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2023.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1.Legal Proceedings
From time to time, we are subject to legal and/or administrative proceedings incidental to our business. It is the opinion of management that the outcome of pending legal and/or administrative proceedings will not have a material effect on our financial position and results of operations.
Investing in our common stock involves a high degree of risk. You should carefully consider the risk factors discussed under the caption “Risk Factors” set forth in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2022, filed on February 28, 2022. There have been no material changes to the risk factors previously disclosed under the caption “Risk Factors” in our Annual Report on Form 10-K. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
On April 26, 2023, the Company entered into a Third Amendment to Amended and Restated Credit Agreement (the “Third Amendment”), by and among Addus HealthCare, Inc., as the borrower, the Company, certain subsidiaries of the Company party thereto, the lenders party thereto and Capital One, National Association, as a lender and as administrative agent for all lenders, which amended the Company’s existing Credit Agreement. The Third Amendment (i) replaces LIBOR with a forward-looking term SOFR-based rate as the applicable benchmark reference rate for loans under the credit facility and (ii) adds a 10-basis point credit spread adjustment for loans bearing interest based on SOFR. The Third Amendment does not change the interest rate margins applicable to the credit facility. The foregoing summary of the Third Amendment does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Third Amendment, which is filed as Exhibit 10.1 to this Form 10-Q, and, in its entirety, is incorporated by reference herein.
Item 6.Exhibits
EXHIBIT INDEX
Incorporated by Reference
Exhibit
Number
Description of Document
Form
File No.
Date Filing
3.1
Amended and Restated Certificate of Incorporation of the Company dated as of October 27, 2009.
10-Q
001-34504
11/20/2009
3.2
Amended and Restated Bylaws of the Company, as amended by the First Amendment to the Amended and Restated Bylaws.
05/9/2013
4.1
Form of Common Stock Certificate.
S-1
333-160634
10/2/2009
10.1
Third Amendment to Amended and Restated Credit Agreement, dated as of April 26, 2023, by and among Addus HealthCare, Inc., as the Borrower, Addus HomeCare Corporation, the other Credit Parties party thereto, Capital One, National Association, as administrative agent and as a Lender, and the other Lenders party thereto.
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
101.CAL
Inline XBRL Taxonomy Calculation Linkbase Document.
101.LAB
Inline XBRL Taxonomy Label Linkbase Document.
101.PRE
Inline XBRL Presentation Linkbase Document.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
104
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).
* Management compensatory plan or arrangement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 2, 2023
By:
/s/ R. DIRK ALLISON
R. Dirk Allison
Chairman and Chief Executive Officer
(As Principal Executive Officer)
/s/ BRIAN POFF
Brian Poff
Chief Financial Officer
(As Principal Financial Officer)
34