Addus HomeCare
Annual Report 2017

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017OR☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For 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 ofincorporation or organization) (I.R.S. EmployerIdentification No.)6801 Gaylord Parkway, Suite 110Frisco, 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 Name of each exchange on which registeredCommon Stock, par value $0.001 The Nasdaq Stock Market LLCSecurities registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒.Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒.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 preceding12 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 90days. Yes ☒ No ☐.Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submittedand posted 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 tosubmit and post such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of theregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒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 growthcompany. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the ExchangeAct. Large accelerated filer ☐ Accelerated filer ☒Non-accelerated filer ☐ Smaller reporting company ☐(Do not check if a 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 financialaccounting 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 ☒The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based on the last sale price on The Nasdaq Global Market onJune 30, 2017 (the last business day of the registrant’s most recently completed second fiscal quarter) was $287,192,965.As of March 1, 2018, there were 11,630,888 shares of common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCECertain portions of the registrant’s Definitive Proxy Statement for its 2018 Annual Meeting of Stockholders (which is expected to be filed with the Commission within120 days after the end of the registrant’s 2017 fiscal year) are incorporated by reference into Part III of this Annual Report on Form 10-K. Table of ContentsTABLE OF CONTENTS PART I 2 Item 1. Business 2 Item 1A. Risk Factors 15 Item 1B. Unresolved Staff Comments 29 Item 2. Properties 29 Item 3. Legal Proceedings 29 Item 4. Mine Safety Disclosures 30 PART II 31 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 31 Item 6. Selected Financial Data 33 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 59 Item 8. Financial Statements and Supplementary Data 59 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 59 Item 9A. Controls and Procedures 60 Item 9B. Other Information 64 PART III 65 Item 10. Directors, Executive Officers and Corporate Governance 65 Item 11. Executive Compensation 65 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 65 Item 13. Certain Relationships and Related Transactions, and Director Independence 65 Item 14. Principal Accountant Fees and Services 65 PART IV 66 Item 15. Exhibits and Financial Statement Schedules 66 Item 16. Form 10-K Summary 71 Table of ContentsSPECIAL CAUTION CONCERNING FORWARD-LOOKING STATEMENTSWhen included in this Annual Report on Form 10-K, or in other documents that we file with the Securities and Exchange Commission (“SEC”) orin statements made by or on behalf of the Company, words like “believes,” “belief,” “expects,” “plans,” “anticipates,” “intends,” “projects,”“estimates,” “may,” “might,” “would,” “should” and similar expressions are intended to identify forward-looking statements as defined by the PrivateSecurities Litigation Reform Act of 1995. These forward-looking statements involve a variety of risks and uncertainties that could cause actual resultsto differ materially from those described therein. These risks and uncertainties include, but are not limited to the following changes in operational andreimbursement processes at the state level, changes in Medicaid, Medicare, managed care organizations and other government program payment rates,changes in or our failure to comply with existing federal and state laws or regulations or the inability to comply with new government laws orregulations on a timely basis, competition in the personal care service industry, the geographical concentration of our operations, changes in the casemix of consumers and payment methodologies, operational changes resulting from the assumption by managed care organizations of responsibility formanaging and paying for personal care services to consumers, the nature and success of future financial and/or delivery system reforms, changes inestimates and judgments associated with critical accounting policies, our ability to maintain or establish new referral sources, our ability to renewsignificant agreements or groups of agreements, our ability to attract and retain qualified personnel, city and state minimum wage pressure, changes inpayments and covered services due to the overall economic conditions and deficit spending by federal and state governments, future cost containmentinitiatives undertaken by third party payors, our ability to access financing through the capital and credit markets, our ability to meet debt servicerequirements and comply with covenants in debt agreements, business disruptions due to natural disasters or acts of terrorism, our ability to integrateand manage our information systems, our expectations regarding the size and growth of the market for our services, the acceptance of privatized socialservices, our expectations regarding changes in reimbursement rates, eligibility standards and limits on services imposed by state governmentalagencies, the potential for litigation, our ability to successfully implement our personal care model to grow our business, our ability to continueidentifying, pursuing and integrating acquisition opportunities and expand into new geographic markets, the impact of acquisitions on our business,the effectiveness, quality and cost of our services and various other matters, many of which are beyond our control.Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, youshould not rely on any forward-looking statement as a prediction of future events. We expressly disclaim any obligation or undertaking and we do notintend to release publicly any updates or changes in our expectations concerning the forward-looking statements or any changes in events, conditionsor circumstances upon which any forward-looking statement may be based, except as required by law. For a discussion of some of the factors discussedabove as well as additional factors, see Part I, Item 1A—“Risk Factors” and Part II, Item 7—“Critical Accounting Policies and Estimates” within“Management’s Discussion and Analysis of Financial Condition and Results of Operations”.Unless otherwise provided, “Addus,” “we,” “us,” “our,” and the “Company” refer to Addus HomeCare Corporation and our consolidatedsubsidiaries and “Holdings” refers to Addus HomeCare Corporation. When we refer to 2017, 2016 and 2015, we mean the twelve month period thenended December 31, unless otherwise provided.A copy of this Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the SEC, including all exhibits, is available onour internet website at http://www.addus.com on the “Investor” page link. Information contained on, or accessible through, our website is not a part of,and is not incorporated by reference into, this Annual Report on Form 10-K. 1Table of ContentsPART I ITEM 1.BUSINESSOverviewWe operate as one business segment and are a provider of comprehensive personal care services, which are principally provided in the home. Ourpersonal care services provide assistance with activities of daily living. Our consumers are primarily persons who are at risk of hospitalization orinstitutionalization, such as the elderly, chronically ill and disabled. Our payor clients include federal, state and local governmental agencies, managedcare organizations, commercial insurers and private individuals. As of December 31, 2017, we provided personal care services to over 34,000consumers in 24 states through 116 offices. For the years ended December 31, 2017, 2016 and 2015, we served approximately 51,000, 50,000 and48,000 discrete consumers, respectively.A summary of our financial results for 2017, 2016 and 2015 is provided in the table below. Total assets has been updated to reflect the correctiondescribed in Note 2 of the Notes to Consolidated Financial Statements. For the Years Ended December 31, 2017 2016 2015 (Amounts in Thousands) Net service revenues $425,715 $400,688 $336,815 Net income from continuing operations 13,461 11,927 11,353 Earnings from discontinued operations, net of tax 147 97 270 Net income $13,608 $12,024 $11,623 Total assets $267,110 $229,864 $184,631 Our services are provided predominantly in the home under federal, state and local government programs. Our consumers are predominately“dual eligible,” meaning they are eligible to receive both Medicare and Medicaid benefits. The federal government permits states to initiate dualeligible demonstration programs and other managed Medicaid initiatives designed to coordinate the services provided through Medicare andMedicaid, with the overall objective of improving care quality and reducing costs. States are increasingly implementing managed care programs todeliver care for Medicaid enrollees. Managed care organizations have an economic incentive to better manage the healthcare expenditures of theirmembership, and therefore seek to provide care in a more cost-effective setting, such as a patient’s home. Managed care revenues account for 33.1%,26.1% and 18.3% of our revenue mix for 2017, 2016 and 2015, respectively.The personal care services we provide include assistance with bathing, grooming, oral care, assistance with feeding and dressing, medicationreminders, meal planning and preparation, housekeeping and transportation services and other activities of daily living. We provide these non-medicalservices on a long-term, continuous basis, with an average duration of approximately 26 months per consumer.Our services and model play a number of crucial roles in the overall healthcare continuum. By providing non-medical services in the home to theelderly and others who require long-term service and support with the activities of daily living, we can lower the cost of chronic and acute caretreatment, in part by delaying or eliminating the need for care in more expensive settings. We also can reduce service duplication with traditionalMedicare home health. In addition, we utilize home care aides to observe and report changes in the condition of our consumers for the purpose of earlyintervention in the disease process, with the goal of reducing the cost of medical services by preventing unnecessary emergency room visits and/orhospital admissions and re-admissions. We coordinate the services provided by our team with those of other healthcare agencies as appropriate.Changes in a consumer’s conditions are evaluated by appropriately trained managers and may result in a report to the consumer’s case manager at amanaged care organization or other payor. Our model also is designed to improve consumer outcomes and satisfaction by providing care in thepreferred setting of the home and in providing opportunities to improve the consumer’s conditions and allow early intervention as indicated. 2Table of ContentsWe believe that this model makes us a valuable partner to managed care organizations by providing significant value. Our consumers arepredominately “dual eligible,” meaning they are eligible to receive both Medicare and Medicaid benefits. With permission from the federalgovernment, states are increasingly implementing managed care programs to deliver care for Medicaid enrollees, with the result that managed careorganizations are increasingly responsible for the healthcare needs and the related healthcare costs of our consumers. These managed careorganizations have an economic incentive to better manage the healthcare expenditures of their membership, including the provision of care in lowercost settings and improved outcomes. We believe that our model is very well positioned to assist in meeting those challenges while also improvingconsumer satisfaction and as a result we expect increased referrals from managed care organizations.We utilize Interactive Voice Response (“IVR”) systems and smart phone applications to communicate with the majority of our home care aides.Through these technologies, our home care aides are able to report changes in health conditions to an appropriate manager for triage and evaluation. Inaddition, we use these technologies to record basic information about each visit, record start and end times for a scheduled shift, track mileagereimbursement, send text messages to the home care aide and communicate basic payroll information.In addition to our organic growth, we have been growing through acquisitions that have expanded our presence in current markets or facilitatedour entry into new markets where the personal care business has been moving to managed care organizations. We completed six acquisitions during theyears ended December 31, 2017, 2016 and 2015.In 2013, we sold substantially all of the assets of our home health skilled nursing business (the “Home Health Business”) in Arkansas, Nevada,South Carolina and Pennsylvania, and 90% of the Home Health Business in California and Illinois. Effective October 1, 2017, we sold our remaining10% ownership interest in the Home Health Business in California and Illinois. The results of the Home Health Business sold are reflected asdiscontinued operations for all periods presented herein. Following the sale of the Home Health Business, we have managed and internally reported ourbusiness in one segment. We maintain licensure as a Medicare home health agency in Ohio and Delaware in connection with providing services inthose states.Addus HomeCare Corporation was incorporated in Delaware in 2006 under the name Addus Holding Corporation for the purpose of acquiringAddus HealthCare, Inc. (“Addus HealthCare”). Addus HealthCare was founded in 1979. Our principal executive offices are located at 6801 GaylordParkway, Suite 110, Frisco, TX 75034. Our telephone number is 469-535-8200. Our internet address is www.addus.com. Through our website, we makeavailable, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments tothose reports as soon as reasonably practicable after we electronically file such material with, or furnish such information to the SEC.Our Market and OpportunityWe provide personal care services to the elderly and other infirm adults who require long-term care and assistance with activities of daily living.Personal care services are a significant component of home and community-based services (“HCBS”), which have grown in significance and demand inrecent years. This trend is expected to continue as a result of the aging of the U.S. population, increased life expectancy, and increased opportunitiesfor individuals to receive home-based care as an alternative to institutionalization.Reported federal and state Medicaid expenditures for fee-for-service personal care services amounted to over $28.0 billion in calendar year 2015,the most recent year for which data is available, reflecting an increase of $6.2 billion from 2012.Many states use both fee-for-service and managed care delivery models for personal care services, and the number of beneficiaries served throughmanaged care continues to grow. As of July 2017, 39 states contracted with risk-based managed care organizations to serve their Medicaid enrollees,with 16 of those states enrolling at 3Table of Contentsleast 75% of all elderly beneficiaries or those with disabilities in managed care organizations. In 23 states, some or all long-term services and support iscovered through Medicaid managed care arrangements. As of federal fiscal year 2016, the Centers for Medicare & Medicaid Services (“CMS”) requiresstates to identify and estimate their institutional and HCBS expenditures within Medicaid managed care.In addition to the projected growth of government-sponsored personal care services, the private pay market for our services continues to expand.We offer our private pay consumers the same services that we provide to our government-sponsored personal care consumers.Historically, there were limited barriers to entry in the personal care services industry. As a result, the personal care services industry developed ina highly fragmented manner, with many small local providers. Few companies have a significant market share across multiple regions or states. Thelack of licensure or certification requirements in some states makes it difficult to estimate the number of personal care services agencies. However,projections published by the Centers for Disease Control and Prevention in 2016 indicate that social workers and home health and personal care aidesare among the long-term care services occupations that will grow the most by 2030.The personal care services industry has become subject to increased regulation. At the federal level, recent efforts have focused on improvedcoordination of regulation across the various types of Medicaid programs through which personal care services are offered. In several states, providersare now required to obtain state licenses or registrations and must comply with laws and regulations governing standards of practice. Providers mustdedicate substantial resources to ensure continuing compliance with all applicable regulations and significant expenditures may be necessary to offernew services or to expand into new markets. Any failure to comply with regulatory requirements could lead to the termination of rights to participate infederal and state-sponsored programs and the suspension or revocation of licenses. We believe new licensing requirements and regulations, includingElectronic Visit Verification, the increasing focus on improving health outcomes, the rising cost and complexity of operations and pressure onreimbursement rates due to constrained government resources may discourage new providers and may encourage industry consolidation.The Medicare-Medicaid Coordination Office was established within CMS to effectively improve services for consumers who are eligible for bothMedicare and Medicaid, also known as dual eligibles, and improve coordination between the federal and state governments in the delivery of itemsand services to which they are entitled. The Medicare-Medicaid Coordination Office works with state Medicaid agencies, and other federal and stateagencies, as well as physicians and others, to make available technical assistance and educational tools to improve care coordination betweenMedicare and Medicaid, to reduce costs and improve beneficiary experience while reducing administrative and regulatory barriers between theprograms. For example, the Financial Alignment Initiative is a demonstration project that tests capitated models and managed fee-for-service models ofintegrated care and payment for benefits provided to dual eligibles. Nationally, CMS approved demonstrations in 13 states, including several of thestates in which we provide services.We believe that our personal care program and our technology make us well-suited to partner with managed care organizations to address theneeds of the dual eligible population. These programs reduce service duplication between personal care programs and traditional Medicare homehealth. We believe that our ability to identify changes in our consumers’ health and condition before acute intervention is required will lower theoverall cost of care. We believe this approach to care delivery and the integration of our services into the broader healthcare continuum are particularlyattractive to managed care organizations and others who are ultimately responsible for the healthcare needs of our consumers and over time willincrease our business with them.Our Growth StrategyOur net service revenues growth is closely correlated with the number of consumers to whom we provide our services. Our continued growthdepends on our ability to provide consistently high quality care, maintain our existing payor relationships, establish relationships with new payors andincrease our referral sources. Our continued growth is also dependent upon the authorization by state agencies of new consumers to receive our 4Table of Contentsservices. We believe there are several market opportunities for growth. The U.S. population of persons aged 65 and older is growing, and the U.S.Census Bureau estimates that this population will more than double by 2050. Additionally, we believe the overwhelming majority of individuals inneed of care generally prefer to receive care in their homes. Finally, we believe the provision of personal care services is more cost-effective than theprovision of similar services in institutional settings for long-term care. The following are the key elements of our growth strategy: • Consistently provide high-quality care. We schedule our home care aides to perform their services at times determined by our consumers.The home care aides are required to perform tasks as defined within the individual plan of care. We monitor the performance of our homecare aides through regular supervisory visits in the homes of consumers. • Drive growth in existing markets. We have grown in our existing markets by enhancing the breadth of our services, increasing the numberof referral sources and leveraging and expanding our payor relationships in our markets. We have achieved this growth by educatingreferral sources about the benefits of our services. • Market the benefits of our personal care model to managed care organizations serving the dual eligible populations. Our personal caremodel provides significant opportunities to effectively market to a wide range of payor clients and referral sources, many of whom areresponsible for consumers with both social and medical service needs. We seek to partner with managed care organizations to address theneeds of the dual eligible population. We believe that our approach to the provision of care to our consumers and the integration of ourservices into the broader healthcare industry are particularly attractive to managed care organizations and others who are ultimatelyresponsible for both the healthcare needs and related costs of our consumers. • Grow through acquisitions. Our strategy is to expand within our existing markets and to enter new markets through acquisitions.Our ServicesAs of December 31, 2017, we delivered services to our consumers in 24 states through 116 individual agencies. Our services, which includenon-medical personal care services, are provided to consumers who are unable to independently perform some or all of their activities of daily living.Without our services, many of our consumers would be at risk of placement in a long-term care institution.Personal care services are primarily provided to older adults and younger disabled persons in their homes on an as-needed, hourly basis.Typically provided by home care aides, our services are needed when assistance from family or community members is insufficient or when caregiversneed respite. Personal care services include assistance with bathing, grooming, oral care, assistance with feeding and dressing, medication reminders,meal planning and preparation, housekeeping and transportation services and other activities of daily living. Many consumers need such services on along-term basis to address chronic or acute conditions. Each payor client establishes its own eligibility standards, determines the type, amount,duration and scope of services, and establishes the applicable reimbursement rate in accordance with applicable law, regulations or contracts. Weprovide personal care services for an average duration of approximately 26 months per consumer.Our payor clients include federal, state and local governmental agencies, managed care organizations, commercial insurers and privateindividuals. The federal, state and local programs under which these organizations operate are subject to legislative, budgetary and other risks that caninfluence reimbursement rates. Managed care organizations that operate as an extension of our state payors are subject to similar economic pressures.Our commercial insurance payor clients are typically for profit companies and are continuously seeking opportunities to control costs. 5Table of ContentsMost of our services are provided pursuant to agreements with state and local governmental social and aging service agencies. These agreementsgenerally have an initial term of one to two years and may be terminated with 60 days’ notice. They are typically renewed for one to five-year terms,provided that we have complied with licensing, certification and program standards, and other regulatory requirements. Reimbursement rates andmethods vary by state and service type, but are typically based on an hourly or unit-of-service basis. Managed care organizations are becoming anincreasing portion of our payor mix as states shift from the management of their programs to managed care organizations. In 2017, approximately64.2% of our net service revenues were derived from state and local government programs, with 33.1% derived from managed care organizations, whileapproximately 2.7% of net service revenues were derived from commercial insurance programs and private pay consumers.For 2017, 2016 and 2015, our revenue mix by payor type was as follows: Year Ended December 31, 2017 2016 2015 State, local and other governmental programs 64.2% 70.4% 77.7% Managed care organizations 33.1 26.1 18.3 Private pay 2.1 2.4 3.0 Commercial insurance 0.6 1.1 1.0 100.0% 100.0% 100.0% We derive a significant amount of our net service revenues from our operations in Illinois, New York and New Mexico. The percentages of totalrevenue for each of these significant states for 2017, 2016 and 2015 were as follows: % of Total Revenue for theYears Ended December, 31 State 2017 2016 2015 Illinois 52.6% 53.6% 59.5% New York 13.7 12.9 — New Mexico 8.8 7.5 8.5 A significant amount of our net service revenues are derived from one specific payor client, the Illinois Department on Aging, which accountedfor 36.6%, 42.1% and 48.8% of our total net service revenues for 2017, 2016 and 2015, respectively.We also measure the performance of our business through review of our billable hours per client, billable hours per business day, revenues perbillable hour and the number of consumers served, or census.CompetitionThe personal care services industry is highly competitive, fragmented and market specific. Each local market has its own competitive profile andno single competitor has significant market share across all of our markets. Our competition consists of personal care service providers, home healthproviders, private caregivers, larger publicly held companies, privately held companies, privately held single-site agencies, hospital-based agencies,not-for-profit organizations, community-based organizations, managed care organizations and self-directed care programs. In addition, certaingovernmental payors contract for services with independent providers such that our relationships with these payors are not exclusive. We haveexperienced, and expect to continue to experience, competition from new entrants into our markets. Increased competition may result in pricingpressures, loss of or failure to gain market share or loss of consumers or payors, any of which could harm our business. In addition, some of ourcompetitors may have greater financial, technical, political and marketing resources, and name recognition with consumers and payors. 6Table of ContentsSales and MarketingWe focus on initiating and maintaining working relationships with state and local governmental agencies responsible for the provision of theservices we offer. We target these agencies in our current markets and in geographical areas that we have identified as potential markets for expansion.We also seek to identify service needs or changes in the service delivery or reimbursement system of governmental entities and attempt to work withand provide input to the responsible government personnel, provider associations and consumer advocacy groups.We establish new referral relationships with various managed care organizations that contract with the states for the servicing of the stateMedicaid programs. We have met with many contracted managed care organizations in markets where we serve our clients and believe we are buildingthe relationships necessary to ensure continued referrals of new clients.We receive substantially all of our consumers through third-party referrals. Generally, family members of potential consumers are made aware ofavailable in-home or alternative living arrangements through a state or local case management system. These systems are operated by governmental orprivate agencies. We receive referrals from state departments on aging, rehabilitation, mental health and children’s services, county departments ofsocial services, the Veterans Health Administration and city departments on aging.We provide ongoing education and outreach in our target communities in order to inform the community about state and locally-subsidized careoptions and to communicate our role in providing quality personal care services. We also utilize consumer-directed sales, marketing and advertisingprograms designed to attract consumers.Payment for ServicesWe are compensated for substantially all of our services by federal, state and local government programs, such as Medicaid state plan andMedicaid waiver programs, other state agencies, the Veterans Health Administration, managed care organizations, commercial insurance and privatepay consumers. Depending on the type of service, coverage for services may be predicated on a case manager, physician or nurse determination that thecare is necessary or on the development of a plan for care in the home.The following table sets forth net service revenues derived from each of our major payors during the indicated periods as a percentage of total netservice revenues. Year Ended December 31, Payor 2017 2016 2015 Illinois Department on Aging 36.6% 42.1% 48.8% Other federal, state and local payors 27.6 28.3 28.9 Managed care organizations 33.1 26.1 18.3 Private pay 2.1 2.4 3.0 Commercial insurance 0.6 1.1 1.0 Total 100.0% 100.0% 100.0% Illinois Department on AgingWe provide personal care services pursuant to agreements with the Illinois Department on Aging, which coordinates programs and community-based services intended to improve quality of life and preserve the independence of older persons. The Illinois Department on Aging is funded byMedicaid and general revenue funds of the State of Illinois, and also receives funding available under the Federal Older Americans Act (“OAA”). OAAis coordinated through 13 Area Agencies on Aging, and the delivery of services is privatized 7Table of Contentsthrough senior centers and other social service agencies. The Department on Aging’s Community Care Program provides adult day services, in-homeservices, emergency home response and case management to individuals age 60 and over. Some of these services are provided through Medicaidwaivers granted by CMS. Enrollment in the Community Care Program has grown significantly over the last ten years.Consumers are identified by case managers contracted independently with the Illinois Department on Aging. Once a consumer has beenevaluated and determined to be eligible for a program, the case manager refers the consumer to a list of authorized providers, from which the consumerselects the provider. We provide our services in accordance with a care plan developed by the case manager and under administrative directives fromthe Illinois Department on Aging. We are reimbursed on an hourly fee-for-service basis.The State of Illinois’s payments for non-Medicaid consumers have been delayed in the past and may continue to be delayed in the future due tobudget disputes that began in 2015. The State of Illinois did not adopt a comprehensive budget for fiscal years 2016 or 2017. On July 6, 2017, theState of Illinois passed a state budget for fiscal year 2018, which began on July 1, 2017. This budget authorized the Illinois Department on Aging topay for services the Company rendered to non-Medicaid consumers in prior fiscal years. The Company began receiving the delayed payments in July2017.Other Federal, State and Local PayorsMedicaid Funded Programs and Medicaid Waiver ProgramsMedicaid is a state-administered program that provides certain social and medical services to qualified low-income individuals and is jointlyfunded by the federal government and individual states. Reimbursement rates and methods vary by state and service type, but are typically based on anhourly or unit-of-service basis. Rates are subject to adjustment based on statutory and regulatory changes, administrative rulings, government fundinglimitations and interpretations of policy by individual state agencies. Within guidelines established by federal statutes and regulations, and subject tofederal oversight, each state establishes its own eligibility standards, determines the type, amount, duration and scope of services, sets the rate ofpayment for services and administers its own program. States typically cover Medicaid beneficiaries for intermittent home health services as well ascontinuous services for children and young adults with complicated medical conditions, and certain states cover home and community-based servicesfor seniors and people with disabilities.Currently, personal care services and other HCBS are largely reimbursed on a fee-for-service basis. States receive permission from CMS toprovide personal care services under waivers of traditional Medicaid requirements. In an effort to control escalating Medicaid costs, states areincreasingly requiring Medicaid beneficiaries to enroll in managed care plans for better coordination of HCBS and health care services. A report issuedby the Illinois Department on Aging in 2016 indicates that over 60% of the state’s Medicaid population is enrolled in a care coordination program,many of which are provided through various managed care entities including managed care organizations. Beginning January 1, 2018, Illinois istransitioning Medicaid beneficiaries to the HealthChoice Illinois statewide managed care program, which is serviced by various managed careorganizations. The Illinois Department of Healthcare and Family Services expects that managed care will expand through the HealthChoice Illinoisprogram to reach approximately 80% of Medicaid enrollees.Veterans Health AdministrationThe Veterans Health Administration operates the nation’s largest integrated healthcare system, with more than 1,700 sites of care, and provideshealthcare benefits, including personal care services, to eligible military veterans. The Veterans Health Administration provides funding to regionaland local offices and facilities that support the in-home care needs of eligible aged and disabled veterans. Services are funded by local VeteransMedical Centers and the aid and attendance pension, which reimburses veterans for their otherwise unreimbursed health and long-term care expenses.We currently have relationships and agreements with the Veterans Health Administration to provide personal care services in several states, with themost Veterans Health Administration services being provided to eligible consumers in Illinois, Arkansas and California. 8Table of ContentsOtherOther sources of funding are available to support personal care services in different states and localities. In addition, many states appropriategeneral funds or special use funds through targeted taxes or lotteries to finance personal care services for senior citizens and individuals withdisabilities. Depending on the state, these funds may be used to supplement existing Medicaid waiver programs or for distinct programs that servenon-Medicaid eligible consumers.Managed Care OrganizationsMany states are moving the administration of their Medicaid personal care programs to managed care organizations. This transition is due to anoverall desire to better manage the costs of the Medicaid long term care programs. Reimbursement from the managed care organizations is generally onan hourly, fee-for-service basis with rates consistent with or as a percentage of the individual state funded rates.Commercial InsuranceMost long-term care insurance policies contain benefits for in-home services. Policies are generally subject to dollar limitations on the amount ofdaily, weekly or monthly coverage provided.Private PayOur private pay services are provided on an hourly or type of services basis. Our rates are established to achieve a pre-determined gross margin,and are competitive with those of other local providers. We bill our private pay consumers for services rendered weekly, bi-monthly or monthly. Otherprivate payors include workers’ compensation programs/insurance, preferred provider organizations and employers.Exposure for Payments Previously ReceivedAs described above under the caption “Business—Overview,” we sold our Home Health Business effective March 1, 2013, pursuant to an AssetPurchase Agreement, dated as of February 7, 2013 (the “Home Health Purchase Agreement”), with LHC Group, Inc. and the purchasers identifiedtherein (the “Purchasers”). We held a 10% ownership interest in the Home Health Business in California and Illinois from March 1, 2013 to October 1,2017, when we sold our interest to the Purchasers. In addition, not included in the sale were four home health agencies in Delaware, Idaho, Indiana andPennsylvania. Subsequently, Idaho, Indiana and Pennsylvania were either closed or sold to another purchaser.While we no longer receive substantial payments from Medicare for home health services, pursuant to the Home Health Purchase Agreement weare obligated to indemnify the Purchasers for, among other things, (i) penalties, fines, judgments and settlement amounts arising from a violation ofcertain specified statutes, including the False Claims Act, the Civil Monetary Penalties Law, the federal Anti-Kickback Statute, the Stark Law or anystate law equivalent in connection with the operation of the Home Health Business prior to the consummation of the sale (the “Closing”) and (ii) anyliability related to the failure of any reimbursement claim submitted to certain government programs for services rendered by the Home HealthBusiness prior to the Closing to meet the requirements of such government programs, or any violation prior to the Closing of any healthcare laws. Suchliabilities include amounts to be recouped by, or repaid to, such government programs as a result of improperly submitted claims for reimbursement orthose discovered as a result of audits by investigative agencies. All services that we have provided that have been or may be reimbursed by Medicareare subject to retroactive adjustments and/or total denial of payments received from Medicare under various review and audit provisions included inthe program regulations. The review period is generally described as six years from the date the services are provided but could be expanded to tenyears under certain circumstances if fraud is found to have existed at the time of original billing. In the event that there are adjustments relating to theperiod prior to the Closing, we may be required to reimburse the Purchasers for the amount of such adjustments. 9Table of ContentsInsurance Programs and CostsWe maintain workers’ compensation, general and professional liability, automobile, directors’ and officers’ liability, fiduciary liability andexcess liability insurance. We offer various health insurance plans to eligible full-time and part-time employees. We believe our insurance coverageand self-insurance reserves are adequate for our current operations. However, we cannot assure you that any potential losses or asserted claims will notexceed such insurance coverage and self-insurance reserves.EmployeesThe following is a breakdown of our part- and full-time employees, including the employees in our national support center, as of December 31,2017: Full-time Part-time Total Personal care services 3,203 22,673 25,876 National support centers 214 7 221 3,417 22,680 26,097 Our home care aides provide substantially all of our services and comprise approximately 97.1% of our total workforce. They undergo a criminalbackground check and are provided with pre-service training and orientation and an evaluation of their skills. In many cases, home care aides are alsorequired to attend ongoing in-services education. In certain states, our home care aides are required to complete certified training programs andmaintain a state certification. Approximately 60.4% of our total employees are represented by labor unions. We maintain strong working relationshipswith these labor unions. We have a national relationship with the Service Employees International Union (the “SEIU”), as well as numerous agreementswith local SEIU unions which are renegotiated from time to time.TechnologyWe license the Horizon Homecare software solution (“Horizon Homecare”) from McKesson Information Solutions, LLC (“McKesson”) to addressour administrative, office, clinical and operating information system needs, including assisting with the compliance of our operating systems with theHealth Insurance Portability and Accountability Act of 1996, or HIPAA, requirements. Horizon Homecare assists our staff in gathering information toimprove the quality of consumer care, optimize financial performance, adjust consumer mix, promote regulatory compliance and enhance staffefficiency. Horizon Homecare supports intake, personnel scheduling, office, clinical and reimbursement management in an integrated database.Horizon Homecare is hosted by McKesson in a secure data center, which provides multiple redundancies for storage, power, bandwidth and security.Using this technology, we are working to standardize the care delivered across our network of offices and monitor our performance and consumeroutcomes.We license the QlikView Business Intelligence software to provide historical, current, and forward-looking operational performance to identifyand create or improve our current business strategies. This software has been integrated with our Horizon platform to provide high level historical andcurrent analytical views to measure performance and better understand the factors that are driving our key metrics in a real-time manner. We are alsodisseminating detailed visit information to local management to optimize their servicing needs. 10Table of ContentsTo address our human resources and payroll processing needs, we converted our payroll system from the Ultipro system by Ultimate Software toADP on July 1, 2017. ADP provides integrated human resource and payroll software, which supports our management with the systems and reportingnecessary to manage our employees. Additionally, through ADP, we added significant electronic support systems to our recruiting, human resources,payroll and accounting support functions. ADP aids our efforts to comply with state and regulatory requirements, supplies self-service capabilities tovarious levels within the Company and easily interfaces new entities into the ADP systems. ADP is integrated with Horizon and other clinical data-management systems, and include features for tax reporting, managing wage assignments and garnishments, on-site check printing, general ledgerpopulation and direct-deposit paychecks. Secure management reports are made available centrally and through our internal reporting module.In some states, we utilize commercial vendors for electronic visit verification pursuant to which our personal care service aides record theirbeginning and ending times for services provided through either an IVR system or cell phone based system. All Company-provided mobile devices toCellTrak for all mobile and IVR traffic unless otherwise mandated by a state to utilize a specific technology.Government RegulationOverviewOur business is subject to extensive federal, state and local regulation. Changes in the laws and regulations or new interpretations of existinglaws and regulations may have a material impact on the definition of permissible activities, the relative cost of doing business, and the methods andamounts of payment for care by both governmental and other payors. In addition, differences among state laws may impede our ability to expand intocertain markets. If we fail to comply with applicable laws and regulations, we could suffer administrative civil or criminal penalties, including the lossof our licenses to operate and our ability to participate in federal or state programs. In addition the healthcare industry has experienced, and is expectedto continue to experience, extensive and dynamic change. It is difficult to predict the effect of these changes on budgetary allocations for our services.See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview.”Medicaid ParticipationTo participate in and qualify for reimbursement under Medicaid programs, we are subject to various requirements imposed by federal and stateauthorities. If we were to violate the applicable federal and state regulations, we could be excluded from participation in federal and state healthcareprograms and be subject to substantial administrative, civil and criminal penalties. Federal regulations set forth eligibility requirements for personalcare services provided under Medicaid.Health ReformThe U.S. Congress and certain state legislatures have passed many laws and regulations in recent years intended to effect major change within thenational healthcare system, the most prominent of which is the Patient Protection and Affordable Care Act, as amended by the Health Care andEducation Reconciliation Act of 2010 (collectively, “ACA”). As currently structured, the ACA affects how healthcare services are delivered andreimbursed through the expansion of public and private health insurance coverage, reduction of growth in Medicare and Medicaid program spending,and the establishment and expansion of programs that tie reimbursement to quality and integration. It includes several provisions that may affectreimbursement for our services. However, the future of the ACA is unclear. The current presidential administration and certain members of Congresshave stated their intent to repeal or make significant changes to the ACA, its implementation or interpretation, which may result in changes toMedicaid. Some of the states use or have applied to use Medicaid 11Table of Contentswaivers grated by CMS to implement expansion provisions, impose different eligibility or enrollment restrictions, or otherwise implement programsthat vary from federal standards. CMS administrators have indicated that they intend to increase state flexibility in the administration of Medicaidprograms.The Center for Medicare and Medicaid Innovation, or CMMI, tests innovative payment and service delivery systems to reduce programexpenditures while maintaining or enhancing quality. For example, the CMMI has supported testing of new models of care for dual eligibles, fundingof home health providers that offer chronic care management services, and establishment of pilot programs that bundle acute care hospital services withphysician services and post-acute care services, which may include home health services for certain patients. These systems could have a materialimpact on our business. It is difficult to predict the nature and success of future financial or delivery system reforms implemented by CMMI and otherindustry participants.Permits and LicensureOur personal care services are authorized and/or licensed under various state and county requirements. Although our home care aides aregenerally not subject to licensure requirements, certain states require them to complete training programs and maintain state certification. We arecurrently licensed appropriately as required by the laws of the states in which we operate, but additional licensing requirements may be imposed uponus in existing markets or markets that we enter in the future.Fraud and Abuse LawsAnti-Kickback Laws: The federal Anti-Kickback Statute prohibits the offering, payment, solicitation or receipt of any remuneration to inducereferrals or orders for items or services covered by federal healthcare programs such as Medicare and Medicaid. Courts have interpreted this statutebroadly and held that there is a violation if just one purpose of the remuneration is to generate referrals. Knowledge of the law or intent to violate thelaw is not required. Violations of the federal Anti-Kickback Statute may be punished by criminal fines, imprisonment, significant civil monetarypenalties and exclusion from participation in federal healthcare programs. In addition, the submission of a claim for services or items generated inviolation of the federal Anti-Kickback Statute may be subject to additional penalties under the federal False Claims Act. Many states have similar lawsproscribing kickbacks, some of which apply regardless of the source of payment for items or services.The Stark Law and other Prohibitions on Physician Self-Referral: The federal law commonly known as the “Stark Law” prohibits physiciansfrom referring Medicare and Medicaid beneficiaries to an entity that provides certain “designated health services,” including home health services, ifthey, or their family members, have a financial relationship with the entity receiving the referral, unless an exception applies. The Stark Law alsoprohibits entities that provide designated health services reimbursable by Medicare or Medicaid from billing these programs for any items or servicesthat result from a prohibited referral and requires the entities to refund amounts received for items or services provided pursuant to a prohibited referral.Violations of the Stark Law may result in denial of payment, and are punishable by civil monetary penalties and exclusion from federal healthcareprograms of both the person making the referral and the provider rendering the service. Failure to refund amounts received as a result of a prohibitedreferral on a timely basis may constitute a false or fraudulent claim, which may result in additional penalties imposed under the federal False ClaimsAct. We attempt to structure our relationships, including compensation agreements with physicians who served as medical directors in our home healthagencies, to meet an exception to the Stark Law, but we cannot provide assurance that every relationship is fully compliant. Many states have alsoenacted statutes similar in scope and purpose to the Stark Law. 12Table of ContentsThe False Claims Act: Numerous state and federal laws govern the submission of claims for reimbursement and prohibit false claims orstatements. Under the federal False Claims Act, for example, the government may fine any person, company or corporation that knowingly submits, orparticipates in submitting, claims for payment to the federal government that are false or fraudulent, or which contain false or misleading information.“Knowingly” is defined broadly, and includes submission of a claim with reckless disregard to its truth or falsity. The federal False Claims Act can beused to prosecute fraud involving issues such as coding errors and billing for services not provided. Violations of other statutes, such as the federalAnti-Kickback Statute, can also serve as a basis for liability under the federal False Claims Act. Among other potential bases for liability is theknowing and improper failure to report and return overpayments received from Medicare or Medicaid in a timely manner following identification ofthe overpayment. An overpayment is deemed to be “identified” when a person has, or should have through reasonable diligence, determined that anoverpayment was received and quantified the overpayment.A provider determined to be liable under the False Claims Act may be required to pay three times the amount of actual damages sustained by thefederal government, in addition to mandatory civil monetary penalties that may amount to over $20,000 for each false or fraudulent claim. Governmentagencies are required to update these penalties annually based on changes to the consumer price index. These penalties will be updated annually basedon changes to the consumer price index. Private parties may initiate whistleblower lawsuits alleging the defrauding of the federal government by aprovider and may receive a share of any settlement or judgment. When a private individual brings an action under the federal False Claims Act, thedefendant generally is not made aware of the lawsuit under the federal government commences its own investigation or determines whether it willintervene.Every entity that receives at least $5.0 million in Medicaid payments annually must have written policies regarding certain federal and state lawsfor all employees, contractors and agents. These polices must provide detailed information about false claims, false statements and whistleblowerprotections.Many states have similar false claims statutes that impose additional liability for the types of acts prohibited by the False Claims Act.Other Fraud and Abuse Provisions: Criminal and civil penalties may be imposed under various other federal and state statutes that prohibitvarious forms of fraud and abuse. For example, the federal Civil Monetary Penalties Law (“CMPL”) imposes substantial penalties for offeringremuneration or other inducements to influence federal healthcare beneficiaries’ decisions to seek specific governmentally reimbursable items orservices or to choose particular providers. It also imposes penalties for contracting with an individual or entity known to be excluded from a federalhealthcare program. The CMPL requires a lower burden of proof than some other fraud and abuse laws, including the federal Anti-Kickback Statute.Civil monetary penalties are updated annually based on changes to the consumer price index. In addition to the financial penalties, federalenforcement officials are able to exclude from Medicare or Medicaid any individuals or entities convicted of Medicare or Medicaid fraud or otheroffenses related to the delivery of items or services under those programs. Persons who have been excluded from the Medicare or Medicaid programmay not retain ownership in a participating entity. Participating entities that permit continued ownership by excluded individuals, that contract withexcluded individuals, and the excluded individuals themselves, may be penalized.Payment IntegrityWe are subject to routine and periodic surveys and audits by various governmental agencies and other payors. From time to time, we receive andrespond to survey reports containing statements of deficiencies. Periodic and random audits conducted or directed by these agencies could result in adelay in receipt or an adjustment to the amount of reimbursements due or received under federal or state programs. 13Table of ContentsUnder the Recovery Audit Contractor (“RAC”) program, CMS contracts with third parties to identify improper Medicare payments. RACs arepaid a contingent fee based on the improper payments identified and corrected. CMS has also instituted Zone Program Integrity Contracts (“ZPICs”)for additional audit of Medicare providers, including home health agencies. By statute, states are required to enter into contracts with RACs to auditpayments to Medicaid providers. Further, under the Medicaid Integrity Program, CMS employs private contractors, referred to as Medicaid IntegrityContractors (“MICs”), to perform post-payment audits of Medicaid claims and identify overpayments.From time to time, various federal and state agencies, such as the U.S. Department of Health and Human Services (“HHS”), issue pronouncementsthat identify practices that may be subject to heightened scrutiny, as well as practices that may violate fraud and abuse laws. For example, the Office ofthe Inspector General (the “OIG”) issued an Investigative Advisory in 2012 that identified a number of program integrity vulnerabilities in the deliveryof personal care services and recommending corrective actions by CMS. In December 2016, CMS issued a bulletin highlighting safeguards that stateMedicaid agencies can put in place around personal care services. It has also issued guidance to personal care services agencies and attendants onavoiding improper payments. We believe, but cannot assure you, that our operations comply with the principles expressed by HHS in these reports,advisories and guidance.HIPAA and Other Privacy and Security RequirementsThe HIPAA Administrative Simplification provisions and implementing regulations require the use of uniform electronic data transmissionstandards and code sets for certain healthcare claims and reimbursement payment transactions submitted or received electronically. These provisionsare intended to encourage electronic commerce in the U.S. healthcare industry.HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulationsextensively regulate the use, disclosure, confidentiality, availability and integrity of individually identifiable health information, known as “protectedhealth information,” and provide for a number of individual rights with respect to such information. These requirements apply to most healthcareproviders, which are known as “covered entities,” including our company. Vendors, known as “business associates,” that handle protected healthinformation, on behalf of covered entities must also comply with most HIPAA requirements. A covered entity may be subject to penalties as a result ofa business associate violating HIPAA, if the business associate is found to be an agent of the covered entity.Covered entities must, among other things, maintain privacy and security policies, train workforce members, maintain physical, administrative,and technical safeguards, enter into confidentiality agreements with business associates, and permit individuals to access and amend their protectedhealth information. In addition, covered entities must report breaches of unsecured (unencrypted) protected health information to affected individualswithout unreasonable delay, but not to exceed 60 calendar days from the discovery date of the breach. Notification must also be made to HHS and, incertain cases involving large breaches, to the media.HIPAA violations may result in criminal penalties and significant civil penalties. Our company is also subject to other applicable federal or statelaws that are more restrictive than HIPAA, which could result in additional penalties. For example, the Federal Trade Commission uses its consumerprotection authority to initiate enforcement actions against entities whose inadequate data security programs may expose consumers to fraud, identitytheft and privacy intrusions. Various state laws and regulations require entities that maintain individually identifiable information (even if not health-related) to report data breaches to affected individuals and, in some cases, state regulators. We expect compliance with HIPAA and other privacy andsecurity standards to continue to impose significant costs on our business lines. 14Table of ContentsEnvironmental, Health and Safety LawsWe are subject to federal, state and local regulations governing the storage, transport, use and disposal of hazardous materials and waste products.In the event of an accident involving such hazardous materials, we could be held liable for any damages that result, and any liability could exceed thelimits or fall outside the coverage of our insurance. We may not be able to maintain insurance on acceptable terms, or at all. ITEM 1A.RISK FACTORSThe risks described below, and the risks described elsewhere in this Form 10-K, could have a material adverse effect on our business andconsolidated financial condition, results of operations and cash flows, cause the trading price of our common stock to decline and cause the actualoutcome of matters to differ materially from our current expectations as reflected in forward-looking statements made in this Form 10-K. The riskfactors described below and elsewhere in this Form 10-K are not the only risks we face. Our business and consolidated financial condition, results ofoperations and cash flows may also be materially adversely affected by factors that are not currently known to us, by factors that we currentlyconsider immaterial or by factors that are not specific to us, such as general economic conditions.You should refer to the explanation of the qualifications and limitations on forward-looking statements under “Special Caution ConcerningForward-Looking Statements.” All forward-looking statements made by us are qualified by the risk factors described below.Risks Related to Our Business and IndustryReductions in reimbursement and other changes to Medicaid, Medicaid waiver, and other state and local medical and social programs couldadversely affect our client caseload, units of service, net service revenues, gross profit and profitability.For the year ended December 31, 2017, we derived approximately 64.2% of our net service revenues from state and local governmental agencies,primarily through Medicaid and Medicaid waiver programs. The Medicaid program is often a state’s largest program. Governmental agencies generallycondition their agreements upon a sufficient budgetary appropriation. Almost all of the states in which we operate have experienced periodic financialpressures and budgetary shortfalls due to challenging economic conditions and the rising costs of healthcare. Reductions to federal support for stateMedicaid or other programs could also result in budgetary shortfalls. As a result, many states have made, are considering or may consider makingchanges in their Medicaid, Medicaid waiver or other state and local medical and social programs, including enacting legislation designed to reduceMedicaid expenditures.Changes at the federal level also affect Medicaid policy and funding and the healthcare industry more broadly. The ACA, for example, madesignificant changes to Medicaid eligibility requirements. Future health reform efforts or efforts to repeal or significantly change the ACA will likelyimpact state programs. In addition, the federal government oversees various demonstration projects and Medicaid waiver programs under which statesmay apply to test new or existing approaches to payment and delivery of Medicaid benefits. CMS has indicated that it will look to states to driveinnovation and value through such waivers, and has taken steps to update program management, the waiver and state plan amendment approvalprocess, and quality reporting, but the extent and effect of these changes remains uncertain. 15Table of ContentsChanges that may occur at the federal or state level to address budget deficits or otherwise contain costs include: • limiting increases in, or decreasing, reimbursement rates; • redefining eligibility standards or coverage criteria for social and medical programs or the receipt of personal care services under thoseprograms; • increasing consumer responsibility, including through increased co-payment requirements; • decreasing benefits available under Medicaid or other programs, such as limiting the number of hours of personal care services that will becovered; • slowing payments to providers; • increasing utilization of self-directed care alternatives or “all inclusive” programs; or • shifting beneficiaries to managed care organizations.Certain of these measures have been implemented by, or are proposed in, states in which we operate. In 2017, we derived approximately 52.6% ofour total net service revenues from services provided in Illinois, 13.7% of our total net service revenues in New York and 8.8% of our total net servicerevenues in New Mexico. Because a substantial portion of our business is concentrated in these states, any significant reduction in expenditures thatpay for our services in these states and other states in which we do business may have a disproportionately negative impact on our future operatingresults. Illinois, in particular, operated without a state budget for fiscal years 2016 and 2017. However, on July 6, 2017, the Illinois legislature enacteda comprehensive state budget for fiscal year 2018. There can be no guarantee that Illinois will pass budgets in subsequent years.If changes in Medicaid or other state and local medical and social programs result in a reduction in available funds for the services we offer or areduction in the number of beneficiaries eligible for our services, our net service revenues could be negatively impacted. Our profitability dependsprincipally on the levels of government-mandated payment rates and our ability to manage the cost of providing services. In some cases, commercialinsurance companies and other private payors rely on government payment systems to determine payment rates. As a result, changes to governmenthealthcare programs that reduce Medicaid or other payments may negatively impact payments from private payors, as well. Any reduction inreimbursements or imposition of copayments that dissuade the use of our services, or any reduction in reimbursement from private payors, couldmaterially adversely affect our profitability.The implementation of alternative payment models and the transition of Medicaid beneficiaries to managed care organizations may limit ourmarket share and could adversely affect our revenues.Many government and commercial payors are transitioning providers to alternative payment models that are designed to promote cost-efficiency,quality and coordination of care. For example, accountable care organizations (“ACOs”) incentivize hospitals, physician groups, and other providers toorganize and coordinate patient care while reducing unnecessary costs. Several states have implemented, or plan to implement, accountable caremodels for their Medicaid populations. If we are not included in these programs, or if ACOs establish programs that overlap with our services, we are atrisk for losing market share and for a loss of our current business.We may be similarly impacted by state efforts to transition Medicaid beneficiaries to managed care organizations. States are increasingly relyingon managed care to deliver services within their Medicaid programs as a strategy to control costs. We cannot assure you that we will be able to securefavorable contracts with all or some of the managed care organizations, that our reimbursement under these programs will remain at current levels, thatthe authorizations for services will remain at current levels or that our profitability will remain at 16Table of Contentslevels consistent with past performance. In addition, operational processes may not be well defined as a state transitions beneficiaries to managed care.For example, communication of changes to either the managed care organization or the consumers may be unclear. Membership, new referrals and therelated authorization for services to be provided may be delayed, which may result in delays in service delivery to consumers or in payment for servicesrendered. Difficulties with operational processes may negatively affect our revenue growth rates, cash flow and profitability for services provided.Other alternative payment models may be presented by the government and commercial payors to control costs that subject our company tofinancial risk. We cannot predict at this time what effect alternative payment models may have on our company.Our revenues are concentrated in a small number of states which will make us particularly sensitive to regulatory and economic changes in thosestates.Our revenues are particularly sensitive to regulatory and economic changes in states in which we generate a significant portion of our revenuesincluding Illinois, New York and New Mexico. Accordingly, any change in the current demographic, economic, competitive or regulatory conditionsin these states could have an adverse effect on our business, financial condition or results of operations. Changes to the Medicaid programs in thesestates could also have a disproportionately adverse effect on our business, financial condition, results of operations or cash flows.Efforts to reduce the costs of the Illinois Department on Aging program could adversely affect our service revenues and profitability.In 2017 and 2016, we derived approximately 36.6% and 42.1%, respectively, of our revenue from the Illinois Department on Aging programs.The Governor of Illinois has proposed changes in recent years aimed at reducing expenditures by the Illinois Department on Aging, such as an incomecap and higher threshold of need for eligibility in the Community Care Program. The proposed budget for fiscal year 2018 recognized the rapid growthand associated costs of the Community Care Program, which provides in-home adult day services and case management, and outlined the state’sstrategy to reduce costs associated with the Illinois Department on Aging. These strategies include shifting non-Medicaid eligible seniors from theCommunity Care Program to a new Community Reinvestment Program. Although the enacted budget for 2018 did not include reforms to IllinoisDepartment on Aging programs, such proposals could be introduced in future budgets. At this time, it is difficult to ascertain how significant an impactthese initiatives will have on our business. If they impact the eligibility of our consumers, the number of hours authorized or services provided toexisting consumers, they would adversely affect our service revenues and growth.Delays in reimbursement due to state budget deficits may increase in the future, adversely affecting our liquidity.There is a delay between the time that we provide services and the time that we receive reimbursement or payment for these services. Many of thestates in which we operate are operating with budget deficits for their current fiscal year. These and other states may in the future delay reimbursement,which would adversely affect our liquidity. In addition, from time to time, procedural issues require us to resubmit claims before payment is remitted,which contributes to our aged receivables. Additionally, unanticipated delays in receiving reimbursement from state programs due to changes in theirpolicies or billing or audit procedures may adversely impact our liquidity and working capital. We fund operations primarily through the collection ofaccounts receivable.Specifically, the State of Illinois’s payments for non-Medicaid consumers have been delayed in the past and may continue to be delayed in thefuture due to budget disputes that began in 2015. The State of Illinois did not 17Table of Contentsadopt a comprehensive budget for fiscal years 2016 or 2017. On July 6, 2017, the State of Illinois passed a state budget for fiscal year 2018, whichbegan on July 1, 2017.Failure to renew a significant agreement or group of related agreements may materially impact our revenue.In 2017, we derived approximately 36.6% of our net service revenues under agreements with the Illinois Department on Aging. Each of ouragreements is generally in effect for a specific term.Even though our agreements are for a specific term, they are generally terminable with 60 days’ notice. Our ability to renew or retain ouragreements depends on our quality of service and reputation, as well as other factors over which we have little or no control, such as stateappropriations and changes in provider eligibility requirements. Additionally, failure to satisfy any of the numerous technical renewal requirements inconnection with our proposals for agreements could result in a proposal being rejected even if it contains favorable pricing terms. Failure to obtain,renew or retain agreements with major payors may negatively impact our results of operations and revenue. We can give no assurance these agreementswill be renewed on commercially reasonable terms or at all.Our industry is highly competitive, fragmented and market-specific, with limited barriers to entry.We compete with personal care service providers, home health providers, private caregivers, larger publicly held companies, privately heldcompanies, privately held single-site agencies, hospital-based agencies, not-for-profit organizations, community-based organizations and self-directedcare programs. In addition, certain governmental payors contract for services with multiple personal care service providers and other provider typessuch that our relationships with these payors are not exclusive. Some of our competitors may have greater financial, technical, political and marketingresources, name recognition or a larger number of consumers and payors than we do. In addition, some of these organizations offer more services thanwe do in the markets in which we operate. These competitive advantages may limit our ability to attract and retain referrals in local markets and toincrease our overall market share.In most states, there are limited barriers to entry in providing personal care services. The trend regarding these barriers is mixed. For example,Illinois generally allows all providers that are willing and capable to obtain state approval and provide personal care services. However, other stateshave added a licensing requirement for home care services. Economic changes such as increases in minimum wage and changes in Department of Laborrules can also impact the ease of entry into a market. These factors may affect competition in our states.Local competitors may develop strategic relationships with referral sources and payors. This could result in pricing pressures, loss of or failure togain market share or loss of consumers or payors, any of which could harm our business. In addition, existing competitors may offer new or enhancedservices that we do not provide, or be viewed by consumers as a more desirable local alternative. The introduction of new and enhanced serviceofferings, in combination with the development of strategic relationships by our competitors, could cause a decline in revenue, a loss of marketacceptance of our services and a negative impact on our results of operations.If we fail to comply with the laws and extensive regulations governing our business, we could be subject to penalties or be required to makechanges to our operations, which could negatively impact our profitability.The federal government and the states in which we operate regulate our industry extensively. The laws and regulations governing our operations,along with the terms of participation in various government programs, impose certain requirements on the way in which we do business, the services weoffer, and our interactions with providers and consumers. These requirements include matters related to: • licensure and certification and enrollment with government programs; 18Table of Contents • eligibility for services; • appropriateness and necessity of services provided; • adequacy and quality of services; • qualifications and training of personnel; • confidentiality, maintenance, data breach, identity theft and security issues associated with health-related and personal information andmedical records; • environmental protection, health and safety; • relationships with physicians, other referral sources and recipients of referrals; • operating policies and procedures; • addition of facilities and services; • adequacy and manner of documentation for services provided; • billing and coding for services; • timely and proper handling of overpayments; and • debt collection and communications with consumers.These laws include, but are not limited to, HIPAA, HITECH, the Stark Law, the federal Anti-Kickback Statute, the federal False Claims Act andsimilar state laws. Federal and state government agencies have heightened and coordinated civil and criminal enforcement efforts throughout thehealthcare industry. While we endeavor to comply with applicable laws and regulations, we cannot assure you that our practices are fully compliant orthat courts or regulatory agencies will not interpret those laws and regulations in ways that will adversely affect our practices. Also, the laws andregulations governing our business are subject to change, interpretations may evolve and enforcement focus may shift. These changes could subject usto allegations of impropriety or illegality, require restructuring of relationships with referral sources and providers or otherwise require changes to ouroperations. Failure to comply with applicable laws and regulations could lead to civil sanctions and criminal penalties, the termination of rights toparticipate in federal and state-sponsored programs, exclusion from federal healthcare programs, the suspension or revocation of licenses andnonpayment or delays in our ability to bill and collect for services provided, any of which could adversely affect our business, results of operations, orfinancial results.In addition, as a result of our participation in Medicaid, Medicaid waiver, Medicare programs, Veterans Health Administration programs andother state and local governmental programs, and pursuant to certain of our contractual relationships, we are subject to various reviews, complianceaudits and investigations by governmental authorities and other third parties to verify our compliance with these programs and agreements as well asapplicable laws, regulations and conditions of participation. If we fail to meet any of the conditions of participation or coverage with respect to statelicensure or our participation in Medicaid, Medicaid waiver, Medicare programs, Veterans Health Administration programs and other state and localgovernmental programs, we may receive a notice of deficiency from the applicable surveyor or authority. Failure to institute a plan of action to correctthe deficiency within the period provided by the surveyor or authority could result in civil or criminal penalties, the imposition of fines or othersanctions, damage to our reputation, cancellation of our agreements, suspension or revocation of our licenses or disqualification from federal and statereimbursement programs. These actions may adversely affect our ability to provide certain services, to receive payments from other payors and tocontinue to operate. Further, actions taken against one of our offices may subject our other offices to adverse consequences. We may also fail todiscover all instances of noncompliance by our acquisition targets, which could subject us to adverse remedies once those acquisitions are complete.Any termination of one or more of our offices from any federal, state or local program for failure to satisfy such program’s conditions of participationcould adversely affect our net service revenues and profitability. 19Table of ContentsWe are subject to federal and state laws that govern our employment practices, including minimum wage and local living wage ordinances.Failure to comply with these laws, or changes to these laws that increase our employment-related expenses, could adversely impact ouroperations.We are required to comply with all applicable federal and state laws and regulations relating to employment, including occupational safety andhealth requirements, wage and hour and other compensation requirements, employee benefits, providing leave and sick pay, employment insurance,proper classification of workers as employees or independent contractors, immigration and equal employment opportunity laws. These laws can varysignificantly among states and can be highly technical. Costs and expenses related to these requirements are a significant operating expense and mayincrease as a result of, among other things, changes in federal or state laws or regulations requiring employers to provide specified benefits toemployees, increases in the minimum wage and local living wage ordinances, increases in the level of existing benefits or the lengthening of periodsfor which unemployment benefits are available. We may not be able to offset any increased costs and expenses. Furthermore, any failure to complywith these laws, including even a seemingly minor infraction, can result in significant penalties which could harm our reputation and have a materialadverse effect on our business.In addition, certain individuals and entities, known as excluded persons, are prohibited from receiving payment for their services rendered toMedicaid, Medicare and other federal and state healthcare program beneficiaries. If we inadvertently hire or contract with an excluded person, or if anyof our current employees or contractors becomes an excluded person in the future without our knowledge, we may be subject to substantial civilpenalties, including up to $11,052 for each item or service furnished by the excluded individual to a federal or state healthcare program beneficiary, anassessment of up to three times the amount claimed and exclusion from the program.Under the ACA, each of our subsidiaries that employ an average of at least 50 full-time employees in a calendar year (“EIN’s”) are required tooffer a minimum level of health coverage for 95% of our full-time employees in 2017 or be subject to an annual penalty. In 2017, we provided an offerof coverage to at least 95% of our full-time employees, averaged across eleven entities.Our business may be adversely impacted by healthcare reform efforts, including repeal of or significant modifications to the ACA.In recent years, the U.S. Congress and certain state legislatures have considered and passed a large number of laws intended to result insignificant change to the healthcare industry. However, there is significant uncertainty regarding the future of the ACA, the most prominent of thesereform efforts. The current presidential administration and certain members of Congress have stated their intent to repeal or make significant changes tothe ACA, its implementation and its interpretation. In addition, the president signed an executive order that directs agencies to minimize “economicand regulatory burdens” of the ACA. There is uncertainty regarding whether, when, and how the ACA will be further changed, what alternativeprovisions, if any, will be enacted, and the impact of alternative provisions on providers and other healthcare industry participants. Government effortsto repeal or change the ACA or to implement alternative reform measures could cause our net revenues to decrease. Furthermore, we are unable topredict the nature and success of future financial or delivery system reforms that may be implemented by other, non-governmental industryparticipants.Negative publicity or changes in public perception of our services may adversely affect our ability to receive referrals, obtain new agreements andrenew existing agreements.Our success in receiving referrals, obtaining new agreements and renewing our existing agreements depends upon maintaining our reputation as aquality service provider among governmental authorities, physicians, hospitals, discharge planning departments, case managers, nursing homes,rehabilitation centers, advocacy groups, consumers and their families, other referral sources and the public. While we believe that the services that weprovide are of high quality, if studies mandated by Congress in the ACA to make public quality measures are implemented and if our quality measuresare deemed to be not of the highest value, our reputation could be 20Table of Contentsnegatively affected. Negative publicity, changes in public perceptions of our services or government investigations of our operations could damageour reputation and hinder our ability to receive referrals, retain agreements or obtain new agreements. Increased government scrutiny may alsocontribute to an increase in compliance costs and could discourage consumers from using our services. Any of these events could have a negativeeffect on our business, financial condition and operating results.In addition, in connection with the sale of our Home Health Business, we granted a license to the Purchasers that allows them to use certain of ourintellectual property, including the Addus name, for the provision of skilled nursing and related physical therapy healthcare services to individuals intheir homes and hospice services in California and Illinois. This license expires on April 1, 2018. Although the use of the intellectual property isrequired to be consistent and at least equal to the level of quality and brand perception prior to the sale, we do not have operational control over thePurchasers. As a result, home health agencies operated by the Purchasers may not be operated in a manner consistent with the standards we uphold atour agencies. If such agencies do not maintain operational standards consistent with the standards we demand of our agencies, the image and brandreputation of Addus may suffer and our business may be materially affected.Our growth strategy depends on our ability to manage growing and changing operations and we may not be successful in managing this growth.Our business plan calls for significant growth in business over the next several years through the expansion of our services in existing marketsand the establishment of a presence in new markets. This growth would place significant demands on our management team, systems, internal controlsand financial and professional resources. In addition, we will need to further develop our financial controls and reporting systems to accommodate anysuch future growth. This could require us to incur expenses for hiring additional qualified personnel, retaining professionals to assist in developing theappropriate control systems and expanding our information technology infrastructure. Our inability to effectively manage growth could have amaterial adverse effect on our financial results.Future acquisitions or growth initiatives may be unsuccessful and could expose us to unforeseen liabilities.Our growth strategy includes geographical expansion into new markets and the addition of new services in existing markets through theacquisition of local service providers. These acquisitions involve significant risks and uncertainties, including difficulties assimilating acquiredpersonnel and other corporate cultures into our business, the potential loss of key employees or consumers of acquired providers, and the assumption ofliabilities and exposure to unforeseen liabilities of acquired providers. In the past, we have made acquisitions that have not performed as expected orthat we have been unable to successfully integrate with our existing operations. In addition, our due diligence review of acquired businesses may notsuccessfully identify all potential issues. The failure to effectively integrate future acquisitions could have an adverse impact on our operations.We have grown our business through de novo offices and we may in the future selectively open new offices in existing and new states. De novooffices involve risks, including those relating to accreditation, hiring new personnel, establishing relationships with referral sources and delays ordifficulty in installing our operating and information systems. We may not be successful in establishing de novo offices in a timely manner due togenerating insufficient business activity and incurring higher than projected operating cost that could have a material adverse effect on our financialcondition, results of operations and cash flows.We may be unable to pursue acquisitions or expand into new geographic regions without obtaining additional capital or consent from ourlenders.At December 31, 2017 and December 31, 2016, we had cash balances of $53.8 million and $8.0 million, respectively. As of December 31, 2017and 2016, we had $44.4 million and $24.1 million outstanding debt on 21Table of Contentsour credit facility, respectively. After giving effect to the amount drawn on our credit facility, approximately $11.8 million and $16.7 million ofoutstanding letters of credit at December 31, 2017 and 2016 and borrowing limits based on an advanced multiple of adjusted EBITDA, we had $105.1million and $79.7 million available for borrowing under the credit facility as of December 31, 2017 and 2016, respectively. Since our credit facilityprovides for borrowings based on a multiple of an EBITDA ratio, any declines in our EBITDA would result in a decrease in our available borrowingsunder our credit facility.We cannot predict the timing, size and success of our acquisition efforts, our efforts to expand into new geographic regions or the associatedcapital commitments. If we do not have sufficient cash resources or availability under our credit facility, our growth could be limited unless we obtainadditional equity or debt financing. In the future, we may elect to issue additional equity securities in conjunction with raising capital, completing anacquisition or expanding into a new geographic region. Such issuances could be dilutive to existing shareholders. In addition, our credit facilityprohibits us from consummating any individual acquisition or a series of related acquisitions with total consideration paid or payable in excess of$60.0 million and consummating acquisitions with total consideration paid or payable in excess of $80.0 million in the aggregate in any fiscal year,without the consent of the lenders. Further, our credit facility requires, among other things, that we are in pro forma compliance with the financialcovenants set forth therein and that no event of default exists before and after giving effect to any proposed acquisition. Our ability to expand in amanner consistent with historic practices may be limited if we are unable to obtain such consent from our lenders.As a result of the indemnification provisions of the Home Health Purchase Agreement pursuant to which we sold Home Health Business, we mayincur expenses and liabilities related to periods up to the date of sale or pursuant to our other indemnification obligations thereunder.As a result of the indemnification provisions of the Home Health Purchase Agreement pursuant to which we sold the Home Health Business, wehave agreed to indemnify the Purchasers for, among other things, (i) penalties, fines, judgments and settlement amounts arising from a violation ofcertain specified statutes, including the False Claims Act, the Civil Monetary Penalties Law, the federal Anti-Kickback Statute, the Stark Law or anystate law equivalent in connection with the operation of the Home Health Business prior to the Closing, and (ii) any liability related to the failure ofany reimbursement claim submitted to certain government programs for services rendered by the Home Health Business prior to the Closing to meet therequirements of such government programs, or any violation prior to the Closing of any healthcare laws. Such liabilities include amounts to berecouped by, or repaid to, such government programs as a result of improperly submitted claims for reimbursement or those discovered as a result ofaudits by investigative agencies. All services that we have provided that have been or may be reimbursed by Medicare are subject to retroactiveadjustments and/or total denial of payments received from Medicare under various review and audit provisions included in the program regulations.The review period is generally described as six years from the date the services are provided but could be expanded to ten years under certaincircumstances if fraud is found to have existed at the time of original billing. In the event that there are adjustments relating to the period prior to theClosing, we may be required to reimburse the Purchasers for the amount of such adjustments, which could adversely affect our business and financialcondition.In addition, pursuant to the Home Health Purchase Agreement, we are obligated to indemnify the Purchasers for breaches of representations,warranties and covenants, certain taxes and liabilities related to the pre-Closing period (other than specifically identified assumed liabilities). Anyliability we have to the Purchasers under the Home Health Purchase Agreement could adversely affect our results of operations.Our business may be harmed by labor relations matters.We are subject to a risk of work stoppages and other labor relations matters because our hourly workforce is highly unionized. As ofDecember 31, 2017, approximately 60.4% of our workforce was represented by the SEIU. We have a national relationship with the SEIU, as well asnumerous agreements with local SEIU affiliates 22Table of Contentswhich are renegotiated from time to time. These negotiations are often initiated when we receive increases in our hourly rates from various stateagencies. Upon expiration of these collective bargaining agreements, we may not be able to negotiate labor agreements on satisfactory terms with theselabor unions. A strike, work stoppage or other slowdown could result in a disruption of our operations and/or higher ongoing labor costs, which couldadversely affect our business. Labor costs are the most significant component of our total expenditures and, therefore, an increase in the cost of laborcould significantly harm our business.Our operations subject us to risk of litigation.Operating in the personal care services industry exposes us to an inherent risk of wrongful death, personal injury, professional malpractice andother potential claims or litigation brought by our consumers and employees. From time to time, we are subject to claims alleging that we did notproperly treat or care for a consumer that we failed to follow internal or external procedures that resulted in death or harm to a consumer or that ouremployees mistreated our consumers, resulting in death or harm. We are also subject to claims arising out of accidents involving vehicle collisionsbrought by consumers whom we are transporting, from employees driving to or from home visits or other affected individuals.In addition, regulatory agencies may initiate administrative proceedings alleging violations of statutes and regulations arising from our servicesand seek to impose monetary penalties on us. We could be required to pay substantial amounts to respond to regulatory investigations or, if we do notprevail, damages or penalties arising from these legal proceedings. We also are subject to potential lawsuits under the federal False Claims Act or otherfederal and state whistleblower statutes designed to combat fraud and abuse in our industry including the federal False Claims Act litigation discussedin Part I, Item 3 hereof “Legal Proceedings.” This and other similar lawsuits can involve significant monetary awards or penalties which may not becovered by our insurance. If our third-party insurance coverage and self-insurance coverage reserves are not adequate to cover these claims, it couldhave a material adverse effect on our business, results of operations and financial condition. Even if we are successful in our defense, civil lawsuits orregulatory proceedings could distract us from running our business or irreparably damage our reputation.Our insurance liability coverage may not be sufficient for our business needs.Although we maintain insurance consistent with industry practice, the insurance we maintain may not be sufficient to satisfy all claims madeagainst us. We cannot assure you that claims will not be made in the future in excess of the limits of our insurance, and any such claims, if successfuland in excess of such limits, may have a material adverse effect on our business or assets. We utilize historical data to estimate our reserves for ourinsurance programs. If losses on asserted claims exceed the current insurance coverage and accrued reserves, our business, results of operations andfinancial condition could be adversely affected. Changes in our annual insurance costs and self-insured retention limits depend in large part on theinsurance market, and insurance coverage may not continue to be available to us at commercially reasonable rates, in adequate amounts or onsatisfactory terms.Inclement weather or natural disasters may impact our ability to provide services.Inclement weather or natural disasters may prevent our employees from providing authorized services. We are not paid for authorized servicesthat are not delivered due to these weather events. Furthermore, prolonged inclement weather or the occurrence of natural disasters in the markets inwhich we operate could disrupt our relationships with consumers, employees and referral sources located in affected areas and, in the case of ourcorporate office, our ability to provide administrative support services, including billing and collection services. For example, one of our supportcenters and a number of our agencies are located in the Midwestern United States, New York and California, increasing our exposure to blizzards andother major snowstorms, ice storms, 23Table of Contentstornadoes, flooding and earthquakes. The impact of disasters and similar events is inherently uncertain. Future inclement weather or natural disastersmay adversely affect our reputation, business and consolidated financial condition, results of operations and cash flows.Our business depends on our information systems. Our operations may be disrupted if we are unable to effectively integrate, manage and maintainthe security of our information systems.Our business depends on effective and secure information systems that assist us in, among other things, gathering information to improve thequality of consumer care, optimizing financial performance, adjusting consumer mix, monitoring regulatory compliance and enhancing staffefficiency. We rely on an external service provider, McKesson, to provide continual maintenance, upgrading and enhancement of our primaryinformation systems used for our operational needs. The software we license from McKesson supports intake, personnel scheduling, office clinical andcentralized billing and receivables management in an integrated database, enabling us to standardize the care delivered across our network of officesand monitor our performance and consumer outcomes. To the extent that McKesson fails to support the software or systems, or if we lose our licensewith McKesson, our operations could be negatively affected.Our business also depends on a comprehensive payroll and human resources system for basic payroll functions and reporting, payroll taxreporting, managing wage assignments and garnishments. We rely on an external service provider, ADP, to provide continual maintenance, upgradingand enhancement of our primary human resource and payroll systems. To the extent that ADP fails to support the software or systems, or any of therelated support services provided by them, our internal operations could be negatively affected.Our business also supports the use of Electronic Visit Verification (“EVV”) to collect visit submission information through our delivery of homecare services. Our solution uses a combination of IVR and GPS enabled smartphones to capture time in and time out, mileage and travel time, as well asthe completed care plan tasks. We license this software through CellTrak along with partnering with states who utilize Authenticare, SanData, andHealthStar. We rely on these providers to provide continual maintenance, enhancements, as well as security of any protected data. To the extent thatour EVV vendors fail to support these processes, our internal operations could be negatively affected.If we experience a reduction in the performance, reliability, or availability of our information systems, our operations and ability to processtransactions and produce timely and accurate reports could be adversely affected. If we experience difficulties with the transition and integration ofinformation systems or are unable to implement, maintain, or expand our systems properly, we could suffer from, among other things, operationaldisruptions, regulatory problems, and increases in administrative expenses.We have full backup of our key information systems. Should our main datacenter become inoperable because of a natural disaster or terrorist acts,our operations would failover to our geographically separate disaster recovery datacenter with a quick return to operations for all sites and systems. Allof our sites and branch offices have redundant connections to our primary and backup datacenters using data lines and cellular connections throughVPN or MPLS.The key business functions for our main sites also have redundancies with key functions geographically split between our two main facilities,should one not be available due to the above mentioned scenarios.While we believe these measures are reasonable, no system of information security is able to eliminate the risk of business disruptions.A cyber-attack or security breach could cause a loss of confidential consumer data, give rise to remediation and other expenses, expose us toliability under HIPAA, consumer protection laws, common law or other 24Table of Contentslegal theories, subject us to litigation and federal and state governmental inquiries, damage our reputation, and otherwise be disruptive to ourbusiness.We rely extensively on our computer systems to manage clinical and financial data, to communicate with our consumers, payors, vendors andother third parties, and to summarize and analyze our operating results. In spite of our policies, procedures and other security measures used to protectour computer systems and data, there can be no assurance that we will not be subject to cyber-attacks or security breaches in the future. Such attacks orbreaches could result in loss of protected patient medical data or other information subject to privacy laws or disrupt our information technologysystems or business, potentially exposing us to regulatory action, litigation and liability. We continue to prioritize cyber-security and the developmentof practices and controls to protect our systems and data. We utilize sophisticated firewalls to mitigate external threats and attacks through dailysecurity content updates and intrusion prevention policies. In addition, all email is scanned for threats and viruses as well as Domain Keys IdentifiedMail (DKIM) keys authentication and Sender Policy Framework (SPF) records are utilized to mitigate spoofing and phishing attempts. Outgoing emailis encrypted based on content and HIPAA regulations. In addition, we are required to comply with the privacy and security laws and regulations ofHIPAA as amended by HITECH. If our privacy and security practices are not in compliance with HIPAA and/or if we fail to satisfy applicable breachnotification requirements in the event of a security breach, we could be subject to significant fines and penalties. Penalties under HIPAA can be as highas $55,910 per violation (with an annual maximum of $1,677,299 per provision violated) depending on the degree of culpability.Our current principal stockholders could have significant influence over us, and they could delay, deter or prevent a change of control or otherbusiness combination or otherwise cause us to take action with which you might not agree.Eos Capital Partners III, L.P. and its affiliates (the “Eos Funds”), together beneficially own approximately 32.1% of our outstanding commonstock as of December 31, 2017. As a result, the Eos Funds have the ability to significantly influence all matters submitted to our stockholders forapproval, including: • changes to the composition of our board of directors, which has the authority to direct our business and appoint and remove our officers; • proposed mergers, consolidations or other business combinations; and • amendments to our certificate of incorporation and bylaws which govern the rights attached to our shares of common stock.In addition, Mark First, one of our directors is affiliated with the Eos Funds.This concentration of ownership of shares of our common stock could delay or prevent proxy contests, mergers, tender offers, open-marketpurchase programs or other purchases of shares of our common stock that might otherwise give you the opportunity to realize a premium over the then-prevailing market price of our common stock. The interests of the Eos Funds may not always coincide with the interests of the other holders of ourcommon stock. This concentration of ownership may also adversely affect our stock price.We may not be able to attract and retain qualified personnel or we may incur increased costs in doing so.We must attract and retain qualified non-executive personnel in the markets in which we operate in order to provide our services. We compete forpersonnel with other providers of social and medical services as well as companies in other service-based industries. Increased competition for trainedpersonnel or general inflationary pressures may require that we enhance our pay and benefits packages to compete effectively for such personnel. Wemay not be able to offset such added costs by increasing the rates we charge for our services. An increase in personnel costs could negatively impactour business. In addition, if we fail to attract and retain qualified and skilled personnel, our ability to conduct our business operations effectivelywould be harmed. 25Table of ContentsCompetition may be greater for managers, such as regional and agency directors. Our ability to attract and retain personnel depends on severalfactors, including our ability to provide employees with attractive assignments and competitive benefits and salaries. The loss of one or more of themembers of the executive management team or the inability of a new management team to successfully execute our strategies may adversely affect ourbusiness. If we are unable to attract and retain qualified personnel, we may be unable to provide our services, the quality of our services may decline,and we could lose consumers and referral sources.We may be more vulnerable to the effects of a public health catastrophe than other businesses due to the nature of our consumers.The majority of our consumers are older individuals with complex medical challenges, many of whom may be more vulnerable than the generalpublic during a pandemic or in a public health catastrophe. Our employees are also at greater risk of contracting contagious diseases due to theirincreased exposure to vulnerable consumers. For example, if a flu pandemic were to occur, we could suffer significant losses to our consumerpopulation or a reduction in the availability of our employees and, at a high cost, be required to hire replacements for affected workers. Accordingly,certain public health catastrophes could have a material adverse effect on our financial condition and results of operations.We depend on the services of our executive team members.Our success depends upon the continued employment of certain members of our executive team to manage several of our key functional areas,including operations, business development, accounting, finance, human resources, marketing, information systems, contracting and compliance. In2016 and 2017, we changed a majority of the members of senior management, beginning with our CEO. The departure of any member of our executiveteam may materially adversely affect our operations.If we were required to write down all or part of our goodwill and/or our intangible assets, our net earnings and net worth could be materiallyadversely affected.Goodwill and intangible assets with finite lives represent a significant portion of our assets. Goodwill represents the excess of cost over the fairmarket value of net assets acquired in business combinations. For example, if our market capitalization drops significantly below the amount of netequity recorded on our balance sheet, it might indicate a decline in our fair value and would require us to further evaluate whether our goodwill hasbeen impaired. If as part of our annual review of goodwill and intangibles, we were required to write down all or a significant part of our goodwilland/or intangible assets, our net earnings and net worth could be materially adversely affected, which could affect our flexibility to obtain additionalfinancing. In addition, if our assumptions used in preparing our valuations for purposes of impairment testing differ materially from actual futureresults, we may record impairment charges in the future and our financial results may be materially adversely affected. We had $90.3 million and$72.7 million of goodwill and $16.6 million and $15.3 million of intangible assets recorded on our Consolidated Balance Sheets at December 31,2017 and 2016, respectively.It is not possible at this time to determine if there will be any future impairment charge, or if there is, whether such charges would be material. Wewill continue to review our goodwill and other intangible assets for possible impairment. We cannot be certain that a downturn in our business orchanges in market conditions will not result in an impairment of goodwill or other intangible assets and the recognition of resulting expenses in futureperiods, which could adversely affect our results of operations for those periods.Compliance with changing regulations including specific program compliance, corporate governance and public disclosure will result inadditional expenses and pose challenges for our management team.The state agencies that contract for our services require our compliance with various rules and regulations affecting the services we provide. Wehave a compliance officer who monitors and reports on our efforts for 26Table of Contentsachieving the desired results. State agencies are recommending increased rules and regulations in an effort to control the growth of these programs andtheir overall costs. The implementation of these changes may require the Company to increase their efforts to remain compliant, may reduce theauthorizations for services to be provided, and may result in certain consumers no longer being eligible for our services all of which may result in lowerrevenues and increased costs, reducing our operating performance and profitability. If we continue to serve our consumers without addressing theseincreased regulations we are at risk for non-compliance with program requirements and potential penalties.Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reformand Consumer Protection Act and the rules and regulations promulgated thereunder, the Sarbanes-Oxley Act and SEC regulations, have createduncertainty for public companies and significantly increased the costs and risks associated with accessing the U.S. public markets. We are committed tomaintaining high standards of internal controls over financial reporting, corporate governance and public disclosure. As a result, we intend to continueto invest appropriate resources to comply with evolving standards, and this investment has resulted and will likely continue to result in increasedgeneral and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.Restrictive covenants in the agreements governing our indebtedness may adversely affect us.Our credit facility and the indentures governing our outstanding notes contain various covenants that limit our ability to take certain actions,including our ability to: • make, create, incur, assume or suffer to exist any lien; • sell or otherwise dispose of assets, including capital stock of subsidiaries; • merge, consolidate, sell or otherwise dispose of all or substantially all our assets; • make restricted payments, including paying dividends and making certain loans and investments; • create, incur, assume, permit to exist, or otherwise become or remain directly or indirectly liable with respect to any additionalindebtedness; • enter into transactions with affiliates; • engage in any line of additional line of business; • amend our organization documents; • make an change in accounting treatment or reporting practices, change our name or change our jurisdiction of organization or formation; • make any payment or prepayment of certain subordinated indebtedness; • enter into agreements that restrict dividends and certain other payments from subsidiaries; • engage in a sale leaseback or similar transaction; and • make certain capital expenditures.In addition, our credit facility contains restrictive covenants and requires us to maintain specified financial ratios and satisfy other financialcondition tests. Our ability to meet these restrictive covenants and financial ratios and tests may be affected by events beyond our control, and wecannot assure you that we will meet those tests.A breach of any of these covenants could result in a default under our credit facility and the indentures governing our outstanding notes. Uponthe occurrence of an event of default under our credit facility or the indentures governing our outstanding notes, all amounts outstanding under ourcredit facility and our outstanding 27Table of Contentsnotes may become immediately due and payable and all commitments under the credit facility to extend further credit may be terminated. Theacceleration of any such indebtedness will result in an event of default under all of our other long-term indebtedness.Risks Related to Our Common StockThe market price of our common stock may be volatile and this may adversely affect our stockholders.The price at which our common stock trades may be volatile. The stock market has recently experienced significant price and volumefluctuations that have affected the market prices of all securities, including securities of healthcare companies. The market price of our common stockmay be influenced by many factors, including: • our operating and financial performance; • variances in our quarterly financial results compared to expectations; • the depth and liquidity of the market for our common stock; • we have a relatively small base of registered shares of common stock that could result in significant stock price movements upward ordownward based on low levels of trading volume in our common stock; • future sales of common stock or debt or the perception that sales could occur; • investor perception of our business and our prospects; • developments relating to the occurrence of risks impacting our company, including any of the risk factors set forth herein; or • general economic and stock market conditions.In addition, the stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to theoperating performance of homecare companies. These broad market and industry factors may materially reduce the market price of our common stock,regardless of our operating performance. In the past, securities class-action litigation has often been brought against companies following periods ofvolatility in the market price of their respective securities. We have been and may become involved in this type of litigation in the future. Litigation ofthis type is often expensive to defend and may divert our management team’s attention as well as resources from the operation of our business.We do not anticipate paying dividends on our common stock in the foreseeable future and, consequently, your ability to achieve a return on yourinvestment will depend solely on appreciation in the price of our common stock.We have not paid dividends on our shares of common stock and intend to retain all future earnings to finance the continued growth anddevelopment of our business and for general corporate purposes. In addition, we do not anticipate paying cash dividends on our common stock in theforeseeable future. Any future payment of cash dividends will depend upon our financial condition, capital requirements, credit facility limitations,earnings and other factors deemed relevant by our board of directors. Our credit facility restricts our ability to declare or pay any dividend or otherdistribution to Holdings unless no default or event of default has occurred and is continuing or would arise as a result thereof and the aggregate amountof dividends and distributions paid in any fiscal year does not exceed $5.0 million per annum.If securities or industry analysts fail to publish research or reports about our business or publish negative research or reports, or our results arebelow analysts’ estimates, our stock price and trading volume could decline. 28Table of ContentsThe trading market for our common stock may depend in part on the research and reports that industry or securities analysts publish about us orour business. We do not have any control over these analysts. If analysts fail to publish reports on us regularly or at all, we could fail to gain visibilityin the financial markets, which in turn could cause our stock price or trading volume to decline. If one or more analysts do cover us and downgradetheir evaluations of our stock or our results are below analysts’ estimates, our stock price would likely decline. In addition, due to the small number ofanalysts covering us, a single comment or report from one of the analysts whether positive or negative, could result in a significant increase or decreasein our stock price.Provisions in our organizational documents and Delaware or certain other state laws could delay or prevent a change in control of our company,which could adversely affect the price of our common stock.Provisions in our amended and restated certificate of incorporation and bylaws and anti-takeover provisions of the Delaware General CorporationLaw, could discourage, delay or prevent an unsolicited change in control of our company, which could adversely affect the price of our common stock.These provisions may also have the effect of making it more difficult for third parties to replace our current management without the consent of theboard of directors. Provisions in our amended and restated certificate of incorporation and bylaws that could delay or prevent an unsolicited change incontrol include: • a staggered board of directors; • limitations on persons authorized to call a special meeting of stockholders; and • the authorization of undesignated preferred stock, the terms of which may be established and shares of which may be issued withoutstockholder approval.As a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. This section generally prohibits us fromengaging in mergers and other business combinations with stockholders that beneficially own 15% or more of our voting stock, or with their affiliates,unless our directors or stockholders approve the business combination in the prescribed manner. However, because the Eos Funds acquired their sharesprior to our IPO, Section 203 is currently inapplicable to any business combination with the Eos Funds or their affiliates. In addition, our amended andrestated bylaws require that any stockholder proposals or nominations for election to our board of directors must meet specific advance noticerequirements and procedures, which make it more difficult for our stockholders to make proposals or director nominations. Certain states in which weoperate, such as New York, may require regulatory approval of persons meeting such states’ definition of “controlling persons” or similar concepts,which could delay or deter a change of control or other business combination with us. ITEM 1B.UNRESOLVED STAFF COMMENTSNone. ITEM 2.PROPERTIESWe do not own any real property. As of December 31, 2017, we operated at 118 leased properties including our support centers. Personal careservices are operated out of 116 of these facilities. We lease approximately 59,000 and 27,000 square feet of office space in Downers Grove, Illinoisand Frisco, Texas which serve as our support centers. During the second quarter of 2016, the contact center contained within the Downers Grovesupport center closed. Effective August 1, 2017, we subleased the approximately 21,000 square feet of the unused office space in Downers Grove. ITEM 3.LEGAL PROCEEDINGSFrom time to time, we are subject to legal and/or administrative proceedings incidental to our business. It is the opinion of management that theoutcome of pending legal and/or administrative proceedings will not have a material effect on our financial position and results of operations. 29Table of ContentsOn January 20, 2016, we were served with a lawsuit filed in the United States District Court for the Northern District of Illinois against theCompany and Cigna Corporation by Stop Illinois Marketing Fraud, LLC, a qui tam relator formed for the purpose of bringing this action. In the action,the plaintiff alleges, inter alia, violations of the federal False Claims Act relating primarily to allegations of violations of the federal Anti-KickbackStatute and allegedly improper referrals of patients from our home care division to our home health business, substantially all of which was sold in2013. The plaintiff seeks to recover damages, fees and costs under the federal False Claims Act including treble damages, civil penalties and itsattorneys’ fees. The U.S. government has declined to intervene at this time. Plaintiff amended its complaint on April 4, 2016 to include additionalallegations in support of its False Claims Act claims, including alleged violations of the federal Anti-Kickback Statute. We and Cigna Corporationfiled a motion to dismiss the amended complaint on June 6, 2016. On February 3, 2017, the Court granted Cigna Corporation’s motion to dismiss infull, and granted our motion to dismiss in part allowing Plaintiff another chance to amend its complaint. Plaintiff timely filed a second amendedcomplaint on March 10, 2017, withdrawing its conspiracy claim under the Federal False Claims Act and adding an explicit claim under the IllinoisFalse Claims Act for the same underlying kickback allegations. On April 7, 2017, we filed a partial motion to dismiss the Second Amended Complaint,which has not yet been ruled on by the court. On May 24, 2017, the State of Illinois filed notice that it was declining to intervene in the plaintiff’sclaim under the Illinois False Claims Act. We intend to defend the litigation vigorously and believe the case will not have a material adverse effect onour business, financial condition or results of operations. ITEM 4.MINE SAFETY DISCLOSURESNot applicable. 30Table of ContentsPART II ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESMarket InformationOur common stock has been trading on The Nasdaq Global Market under the symbol “ADUS” since our IPO on October 27, 2009. Prior to thattime, there was no public market for our common stock. The holders of our common stock are entitled to one vote per share on any matter to be votedupon by stockholders. All shares of common stock rank equally as to voting and all other matters. The table below sets forth the high and low salesprices for our common stock, as reported by The Nasdaq Global Market, for each of the periods indicated. High Low 2017 Fourth Quarter $37.60 $30.95 Third Quarter 40.15 31.75 Second Quarter 40.75 30.70 First Quarter 37.35 29.90 2016 Fourth Quarter $36.30 $24.40 Third Quarter 27.43 17.35 Second Quarter 21.60 16.55 First Quarter 24.86 15.33 HoldersAs of December 31, 2017, 33.9% of our shares were held by Company insiders. An additional 59.4% of the stock was held by 127 institutionalinvestors. As of February 20, 2018, Addus HomeCare Corporation had approximately 2,600 shareholders, including 7 shareholders of record.DividendsWe have never paid dividends on our common stock, including in the two most recent fiscal years, and we do not intend to pay any dividends onour common stock in the foreseeable future. We currently plan to retain any earnings to support the operation, and to finance the growth, of ourbusiness rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, capital requirements,credit facility limitations, earnings, as well as other factors deemed relevant by our board of directors. Our credit facility restricts our ability to declareor pay any dividend or other distribution to Holdings unless no default or event of default has occurred and is continuing or would arise as a resultthereof and the aggregate amount of dividends and distributions paid in any fiscal year does not exceed $5.0 million per annum. 31Table of ContentsEquity Compensation PlanThe following table presents securities authorized for issuance under our equity compensation plans at December 31, 2017. Plan Category Number ofSecurities to beIssued UponExercise ofOutstandingOptions, Warrantsand Rights (1) Weighted-AverageExercise Price ofOutstandingOptions, Warrantsand Rights (2) Number of SecuritiesRemaining Available forFuture Issuance UnderEquity CompensationPlans (ExcludingSecurities Reflected inthe First Column) (3) Equity Compensation Plans Approved by Security Holders 478,570 $23.91 1,145,836 Equity Compensation Plans Not Approved by SecurityHolders — — — Total 478,570 $23.91 1,145,836 (1)Includes grants of stock options. (2)Includes weighted-average exercise price of outstanding stock options only. (3)Represents shares of common stock that may be issued pursuant to our 2017 Omnibus Incentive Plan (the “2017 Plan”). 32Table of ContentsITEM 6.SELECTED FINANCIAL DATAThe following table sets forth selected financial information derived from our Consolidated Financial Statements for the periods and at the datesindicated. The information is qualified in its entirety by and should be read in conjunction with the Consolidated Financial Statements and relatednotes included elsewhere in this Annual Report on Form 10-K.As described in Note 2 of the Notes to Consolidated Financial Statements, the following data contain certain corrections of immaterial errorsidentified in previously reported amounts. Goodwill and intangibles, total assets and stockholders’ equity as of December 31, 2016, 2015, 2014 and2013 have been updated to reflect the correction. For the years ended December 31, 2014 and 2013, income tax expense, net income from continuingoperations, net income and basic and diluted income per share for continuing operations have been updated to reflect the correction. For the yearsended December 31, 2014 and 2013, the effect of the correction on net income was a net unfavorable adjustment of $0.2 million and $0.5 million,respectively. For the Years Ended December 31, 2017 2016 2015 2014 2013 (Amounts In Thousands, Except Per Share Data) Consolidated Statements of Income Data: Net service revenues (1) $425,715 $400,688 $336,815 $312,942 $265,941 Cost of service revenues 310,119 294,593 245,492 229,207 198,202 Gross profit 115,596 106,095 91,323 83,735 67,739 General and administrative expenses 76,902 76,840 66,143 59,016 47,099 Gain on sale of assets (2,467) — — — — Revaluation of contingent consideration — — 130 — — Depreciation and amortization 6,663 6,647 4,717 3,830 2,160 Provision for doubtful accounts 8,259 7,373 4,309 2,818 3,019 Total operating expenses 89,357 90,860 75,299 65,664 52,278 Operating income from continuing operations 26,239 15,235 16,024 18,071 15,461 Interest income (2) (66) (2,812) (47) (18) (188) Interest expense 4,472 2,332 786 698 674 Total interest (income) expense, net 4,406 (480) 739 680 486 Other income 217 206 — — — Income from continuing operations before income taxes 22,050 15,921 15,285 17,391 14,975 Income tax expense 8,589 3,994 3,932 5,674(3) 4,319(3) Net income from continuing operations 13,461 11,927 11,353 11,717(3) 10,656(3) Discontinued Operations Net income (loss) from home health business 147 97 270 280 (980) Gain on sale of home health business, net of tax — — — — 8,962 Earnings from discontinued operations, net of tax 147 97 270 280 7,982 Net income $13,608 $12,024 $11,623 $11,997(3) $18,638(3) Basic income per common share: Continuing operations $1.18 $1.05 $1.03 $1.08(3) $0.98(3) Discontinued operations 0.01 0.01 0.03 0.02 0.74 Basic income per common share: $1.19 $1.06 $1.06 $1.10(3) $1.72(3) 33Table of Contents For the Years Ended December 31, 2017 2016 2015 2014 2013 (Amounts In Thousands, Except Per Share Data) Diluted income per common share: Continuing operations $1.16 $1.05 $1.02 $1.06(3) $0.96(3) Discontinued operations 0.01 0.01 0.02 0.02 0.72 Diluted income per common share: $1.17 $1.06 $1.04 $1.08(3) $1.68(3) Weighted average number of common shares and potentialcommon shares outstanding: Basic 11,470 11,292 10,986 10,900 10,826 Diluted 11,623 11,349 11,189 11,114 11,075 For the Years Ended December 31, 2017 2016 2015 2014 2013 (Actual Numbers, Except Adjusted EBITDA and BillableHours in Thousands) Key Metrics : General: Adjusted EBITDA (4) $36,768 $32,094 $23,627 $23,759 $18,796 States served at period end 24 24 22 22 21 Offices at period end 116 114 119 129 121 Employees at period end 26,097 23,070 21,395 18,054 16,585 Operational Data: Average billable census (5) 35,343 33,944 32,756 31,019 26,802 Billable hours (6) 23,833 23,088 19,556 18,335 15,621 Average billable hours per census per month 56 57 50 49 49 Billable hours per business day 91,664 88,460 75,214 71,903 59,850 Revenues per billable hour $17.86 $17.35 $17.22 $17.07 $17.02 Percentage of Revenues by Payor: State, local and other governmental programs 64% 71% 78% 87% 94% Managed care organizations 33 26 18 9 1 Private pay 2 2 3 3 4 Commercial insurance 1 1 1 1 1 As of December 31, 2017 2016 2015 2014 2013 (Amounts In Thousands) Consolidated Balance Sheet Data: Cash $53,754 $8,013 $4,104 $13,363 $15,565 Accounts receivable, net of allowances 88,952 116,999 84,959 68,333 61,354 Goodwill and intangibles 106,935 87,951(3) 77,980(3) 73,435(3) 67,738(3) Total assets 267,110 229,864(3) 184,687(3) 179,794(3) 163,014(3) Capital leases 1,002 2,433 2,991 3,663 — Term loans, net of debt issuance costs 38,858 22,580 — — — Stockholders’ equity 175,080 157,762(3) 140,560(3) 126,790(3) 112,936(3) (1)Acquisitions completed in 2017 accounted for $8.6 million of growth in net service revenues for the year ended December 31, 2017.Acquisitions completed in 2016 accounted for $58.6 million and $52.7 million of growth in net service revenues for the years endedDecember 31, 2017 and 2016, respectively. Acquisitions completed in 2015 accounted for $9.3 million, $11.6 million and $9.7 million ofgrowth in net service revenues for the years ended December 31, 2017, 2016 and 2015, respectively. Acquisitions completed in 2014 accountedfor $9.5 million, $8.8 million, $10.7 million and $7.5 million of growth in net service 34Table of Contents revenues for the years ended December 31, 2017, 2016, 2015 and 2014, respectively. Acquisitions completed in 2013 accounted for$24.7 million, $25.8 million, $24.6 million, $21.9 million and $1.7 million of growth in net service revenues for the years ended December 31,2017, 2016, 2015, 2014 and 2013, respectively. (2)Legislation enacted in Illinois entitles designated service program providers to receive a prompt payment interest penalty based on qualifyingservices approved for payment that remain unpaid after a designated period of time. As the amount and timing of the receipt of these paymentsare not certain, the interest income is recognized when received. For the year ended December 31, 2017, we did not receive any prompt paymentinterest. For the year ended December 31, 2016, we received $2.8 million in prompt payment interest. For the years ended December 31, 2015and 2014, we did not receive any prompt payment interest. For the year ended December 31, 2013, we received $0.2 million in prompt paymentinterest. (3)Reflects a revised amount for the impact of correcting certain errors as described in Note 2 of the Notes to Consolidated Financial Statements. (4)We define Adjusted EBITDA as earnings before discontinued operations, interest income, interest expense, other non-operating income, taxes,depreciation, amortization, stock-based compensation expense, M&A expense, restructuring charges, severance and other costs, IRS accrual,write down of deferred tax assets/impact of Tax Reform Act, write-off of debt issuance costs and gain on sale of assets. Adjusted EBITDA is aperformance measure used by management that is not calculated in accordance with generally accepted accounting principles in the UnitedStates (“GAAP”). It should not be considered in isolation or as a substitute for net income, operating income or any other measure of financialperformance calculated in accordance with GAAP.Management believes that Adjusted EBITDA is useful to investors, management and others in evaluating our operating performance for thefollowing reasons: • By reporting Adjusted EBITDA, we believe that we provide investors with insight and consistency in our financial reporting and present abasis for comparison of our business operations between current, past and future periods. Adjusted EBITDA allows management, investorsand others to evaluate and compare our core operating results, including return on capital and operating efficiencies, from period to period,by removing the impact of our capital structure (interest expense), asset base (amortization and depreciation), tax consequences, stock-based compensation expense, M&A expense, restructuring charges, severance and other costs, IRS accrual, write down of deferred taxassets/impact of Tax Reform Act, write-off of debt issuance costs and gain on sale of assets from our results of operations. • We believe that Adjusted EBITDA is a measure widely used by securities analysts, investors and others to evaluate the financialperformance of other public companies, and therefore may be useful as a means of comparison with those companies, when viewed inconjunction with traditional GAAP financial measures. • We recorded stock-based compensation expense of $2.6 million, $1.1 million, $1.6 million, $0.8 million and $0.5 million for the yearsended December 31, 2017, 2016, 2015, 2014, and 2013, respectively. By comparing our Adjusted EBITDA in different periods, ourinvestors can evaluate our operating results without stock-based compensation expense, which is a non-cash expense that is not a keymeasure of our operations.In addition, management has chosen to use Adjusted EBITDA as a performance measure because the amount of non-cash expenses, such asdepreciation, amortization and stock-based compensation expense, may not directly correlate to the underlying performance of our businessoperations, and because such expenses can vary significantly from period to period as a result of new acquisitions, full amortization of previouslyacquired tangible and intangible assets or the timing of new stock-based awards, as the case may be. This facilitates internal comparisons tohistorical operating results, as well as external comparisons to 35Table of Contentsthe operating results of our competitors and other companies in the personal care services industry. Because management believes AdjustedEBITDA is useful as a performance measure, management uses Adjusted EBITDA: • as one of our primary financial measures in the day-to-day oversight of our business to allocate financial and human resources across ourorganization, to assess appropriate levels of marketing and other initiatives and to generally enhance the financial performance of ourbusiness; • in the preparation of our annual operating budget, as well as for other planning purposes on a quarterly and annual basis, includingallocations in order to implement our growth strategy, to determine appropriate levels of investments in acquisitions and to endeavor toachieve strong core operating results; • to evaluate the effectiveness of business strategies, such as the allocation of resources, the mix of organic growth and acquisitive growthand adjustments to our payor mix; • as a means of evaluating the effectiveness of management in directing our core operating performance, which we consider to beperformance that can be affected by our management in any particular period through their allocation and use of resources that affect ourunderlying revenue and profit-generating operations during that period; • for the valuation of prospective acquisitions, and to evaluate the effectiveness of integration of past acquisitions into our company; and • in communications with our board of directors concerning our financial performance.Although Adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA haslimitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results of operations as reportedunder GAAP. Some of these limitations include: • Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or other contractual commitments; • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; • Adjusted EBITDA does not reflect interest expense or interest income; • Adjusted EBITDA does not reflect other non-operating income from our investments in joint ventures; • Adjusted EBITDA does not reflect cash requirements for income taxes; • although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often have to be replaced inthe future, and Adjusted EBITDA does not reflect any cash requirements for these replacements; • Adjusted EBITDA does not reflect any mergers and acquisitions expenses; • Adjusted EBITDA does not reflect any stock based compensation; • Adjusted EBITDA does not reflect any restructure charges; • Adjusted EBITDA does not reflect any severance and other costs; • Adjusted EBITDA does not reflect any gains on the sale of assets; • Adjusted EBITDA does not reflect any write down of deferred tax assets/impact of Tax Reform Act; • Adjusted EBITDA does not reflect any write off of debt issuance costs; and • other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. 36Table of ContentsManagement compensates for these limitations by using GAAP financial measures in addition to Adjusted EBITDA in managing the day-to-dayand long-term operations of our business. We believe that consideration of Adjusted EBITDA, together with a careful review of our GAAPfinancial measures, is the most informed method of analyzing our company.The following table sets forth a reconciliation of net income, the most directly comparable GAAP measure, to Adjusted EBITDA: Year Ended December 31, 2017 2016 2015 2014 2013 (Amounts In Thousands) Reconciliation of net income to Adjusted EBITDA (1): Net income $13,608 $12,024 $11,623 $11,997 $18,638 Less: (Earnings) loss from discontinued operations, net of tax (147) (97) (270) (280) (7,982) Net income from continuing operations 13,461 11,927 11,353 11,717 10,656 Interest (income) expense, net, excluding write-off of debt issuance costs 3,083 (480) 739 680 486 Other non-operating income (217) (206) — — — Income tax expense from continuing operations, excluding write down ofdeferred tax assets/impact of Tax Reform Act 7,284 3,994 3,932 5,674 4,319 Depreciation and amortization 6,663 6,647 4,717 3,830 2,160 M&A expenses 2,116 1,122 1,013 1,031 660 Stock-based compensation expense 2,552 1,072 1,573 827 515 Restructuring charges 627 4,787 — — — Severance and other costs 1,038 3,231 — — — IRS accrual — — 300 — — Write down of deferred tax assets/impact of Tax Reform Act(2) 1,305 — — — — Write-off of debt issuance costs(3) 1,323 — — — — Gain on sale of assets (2,467) — — — — Adjusted EBITDA $36,768 $32,094 $23,627 $23,759 $18,796 (1)The selected historical Consolidated Statements of Income data for the fiscal years ended December 31, 2017, 2016, 2015, 2014 and 2013,were derived from our audited Consolidated Financial Statements included in the Annual Report on Form 10-K for the applicable year. (2)Included in income tax expense on the Consolidated Statements of Income. (3)Included in interest expense on the Consolidated Statements of Income. (5)Average billable census is the number of unique clients receiving a billable service during a period. (6)Billable hours is the total number of hours provided to clients during a period. 37Table of ContentsITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSYou should read the following discussion together with our Consolidated Financial Statements and the related notes included elsewhere in thisAnnual Report on Form 10-K. This discussion contains forward-looking statements about our business and operations. Our actual results may differmaterially from those we currently anticipate as a result of the factors we describe under “Risk Factors” and elsewhere in this Annual Report onForm 10-K and other risks.OverviewWe operate as one business segment and are a provider of comprehensive personal care services, which are principally provided in the home. Ourpersonal care services provide assistance with activities of daily living. Our consumers are primarily persons who are at risk of hospitalization orinstitutionalization, such as the elderly, chronically ill and disabled. Our payor clients include federal, state and local governmental agencies, managedcare organizations, commercial insurers and private individuals. As of December 31, 2017, we provided personal care services to approximately 34,000consumers in 24 states through 116 offices. For the years ended December 31, 2017, 2016 and 2015, we served approximately 51,000, 50,000 and48,000 discrete consumers, respectively.A summary of our financial results for 2017, 2016 and 2015 is provided in the table below. Total assets has been updated to reflect the correctiondescribed in Note 2 of the Consolidated Financial Statements. For the Years Ended December 31, 2017 2016 2015 (Amounts in Thousands) Net service revenues $425,715 $400,688 $336,815 Net income from continuing operations 13,461 11,927 11,353 Earnings from discontinued operations, net of tax 147 97 270 Net income $13,608 $12,024 $11,623 Total assets $267,110 $229,864 $184,631 Our services are provided predominantly in the home under federal, state and local government programs. Our consumers are predominately“dual eligible,” meaning they are eligible to receive both Medicare and Medicaid benefits. The federal government permits states to initiate dualeligible demonstration programs and other managed Medicaid initiatives designed to coordinate the services provided through Medicare andMedicaid, with the overall objective of improving care quality and reducing costs. States are increasingly implementing managed care programs todeliver care for Medicaid enrollees. Managed care organizations have an economic incentive to better manage the healthcare expenditures of theirmembership, and therefore seek to provide care in a more cost-effective setting, such as a patient’s home. Managed care revenues account for 33.1%,26.1% and 18.3% of our revenue mix for 2017, 2016 and 2015, respectively.The personal care services we provide include assistance with bathing, grooming, oral care, assistance with feeding and dressing, medicationreminders, meal planning and preparation, housekeeping, and transportation services and other activities of daily living. We provide thesenon-medical services on a long-term, continuous basis, with an average duration of approximately 26 months per consumer.Our services and model play a number of crucial roles in the overall healthcare continuum. By providing non-medical services in the home to theelderly and others who require long-term service and support with the activities of daily living, we can lower the cost of chronic and acute caretreatment, in part by delaying or eliminating the need for care in more expensive settings. We also can reduce service duplication with traditionalMedicare home health. In addition, we utilize home care aides to observe and report changes in the condition of our consumers for the purpose of earlyintervention in the disease process, with the goal of reducing the cost of 38Table of Contentsmedical services by preventing unnecessary emergency room visits and/or hospital admissions and re-admissions. We coordinate the services providedby our team with those of other healthcare agencies as appropriate. Changes in a consumer’s conditions are evaluated by appropriately trainedmanagers and may result in a report to the consumer’s case manager at a managed care organization or other payor. Our model also is designed toimprove consumer outcomes and satisfaction by providing care in the preferred setting of the home and in providing opportunities to improve theconsumer’s conditions and allow early intervention as indicated.We believe that this model makes us a valuable partner to managed care organizations by providing significant value. Our consumers arepredominately “dual eligible,” meaning they are eligible to receive both Medicare and Medicaid benefits. With permission from the federalgovernment, states are increasingly implementing managed care programs to deliver care for Medicaid enrollees, with the result that managed careorganizations are increasingly responsible for the healthcare needs and the related healthcare costs of our consumers. These managed careorganizations have an economic incentive to better manage the healthcare expenditures of their membership, including the provision of care in lowercost settings and improved outcomes. We believe that our model is very well positioned to assist in meeting those challenges while also improvingconsumer satisfaction and as a result we expect increased referrals from managed care organizations.We utilize Interactive Voice Response (“IVR”) systems and smart phone applications to communicate with the majority of our home care aides.Through these technologies our aides are able to report changes in health conditions to an appropriate manager for triage and evaluation. In addition,we use these technologies to record basic information about each visit, record start and end times for a scheduled shift, track mileage reimbursement,send text messages to the home care aide and communicate basic payroll information.In addition to our focus on organic growth, we have been growing through acquisitions, that have expanded our presence in current markets orfacilitated our entry into new markets where the personal care business has been moving to managed care organizations.On October 1, 2017, we entered into an Asset Purchase Agreement with Community Partnered Resources, Inc. d/b/a Sun Cities CareGivers/SunCities Homecare (“Sun Cities”) pursuant to which we acquired substantially all of the assets of Sun Cities.On April 24, 2017, we entered into a definitive securities purchase agreement with HB Management Group, Inc. to purchase Options Services,Inc. d/b/a Options Home Care (“Options Home Care”). On August 1, 2017, we completed our acquisition of all the outstanding securities of OptionsHome Care for a total purchase price $22.6 million. Options Home Care is a provider of personal care services in more than 20 counties in New Mexicoand the acquisition expands the footprint of our existing operations in the state.On February 27, 2018, we entered into a purchase agreement to acquire Ambercare Corporation, Inc. (Ambercare) for approximately$40.0 million to expand in the State of New Mexico. We expect to complete the transaction in the second quarter of 2018, subject to the usual closingconditions, with funding through the delayed draw term loan portion of its credit facility.In 2013, we sold substantially all of the assets of our home health skilled nursing business (the “Home Health Business”) in Arkansas, Nevada,South Carolina and Pennsylvania, and 90% of the Home Health Business in California and Illinois. Effective October 1, 2017, we sold our remaining10% ownership interest in the Home Health Business in California and Illinois. The results of the Home Health Business sold are reflected asdiscontinued operations for all periods presented herein. Following the sale of the Home Health Business, we have managed and internally reported ourbusiness in one segment. We maintain Medicare licensure as a home health agency in Ohio and Delaware in connection with providing services inthose states. 39Table of ContentsBusinessContinuing operations include the results of operations previously included in our home and community segment and three agencies previouslyincluded in our home health segment. The results of the Home Health Business sold are reflected as discontinued operations for all periods presentedherein. Following the sale of the Home Health Business, we have managed and reported our business in one segment. As of December 31, 2017, weprovided our personal care services in 24 states through 116 offices.Our payor clients are principally federal, state and local governmental agencies and, increasingly, managed care organizations. The federal, stateand local programs under which the agencies operate are subject to legislative, budgetary and other risks that can influence reimbursement rates. Weare experiencing a transition of business from government payors to managed care organizations, which we believe aligns with our emphasis oncoordinated care and the reduction of the need for acute care.For the years ended December 31, 2017, 2016 and 2015, our payor revenue mix was: Year Ended December 31, 2017 2016 2015 State, local and other governmental programs 64.2% 70.4% 77.7% Managed care organizations 33.1 26.1 18.3 Private pay 2.1 2.4 3.0 Commercial insurance 0.6 1.1 1.0 100.0% 100.0% 100.0% We derive a significant amount of our net service revenues in Illinois, which represented 52.6% , 53.6% and 59.5% of our total net servicerevenues for the years ended December 31, 2017, 2016 and 2015, respectively.A significant amount of our net service revenues are derived from one payor client, the Illinois Department on Aging, which accounted for36.6%, 42.1% and 48.8% of our total net service revenues for the years ended December 31, 2017, 2016 and 2015, respectively.The State of Illinois’s payments for non-Medicaid consumers have been delayed in the past and may continue to be delayed in the future due tobudget disputes that began in 2015. The State of Illinois did not adopt a comprehensive budget for fiscal year 2016, which ended on June 30, 2016, ora comprehensive budget for fiscal year 2017, which ended on June 30, 2017. On July 6, 2017, the State of Illinois passed a budget for state fiscal year2018, which began on July 1, 2017. The budget authorized the Illinois Department on Aging to pay for services the Company rendered tonon-Medicaid consumers in prior fiscal years. We began receiving delayed payments in July of 2017.We measure the performance of our business using a number of different metrics, including billable hours, billable hours per business day,revenues per billable hour and the number of consumers, or census.In 2016, the increase in managed care organization revenue was mainly attributable to the South Shore acquisition. See Note 5 “Acquisitions” tothe Notes to Consolidated Financial Statements for additional information.Components of our Statements of IncomeNet Service RevenuesWe generate net service revenues by providing our services directly to consumers and primarily on an hourly basis. We receive payment forproviding such services from our payor clients, including federal, state and 40Table of Contentslocal governmental agencies, managed care organizations, commercial insurers and private consumers. Net service revenues are principally providedbased on authorized hours, determined by the relevant agency, at an hourly rate which is either contractual or fixed by legislation and are recognized atthe time services are rendered.Cost of Service RevenuesWe incur direct care wages, payroll taxes and benefit-related costs in connection with providing our services. We also provide workers’compensation and general liability coverage for our employees.Employees are also reimbursed for their travel time and related travel costs in certain instances.General and Administrative ExpensesOur general and administrative expenses from continuing operations include our costs for operating our network of local agencies and ouradministrative offices.Our agency expenses from continuing operations consist of costs for supervisory personnel, our community care supervisors and officeadministrative costs. Personnel costs include wages, payroll taxes, and employee benefits. Facility costs including rents, utilities, postage, telephoneand office expenses. Our support centers 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 and related facility costs.In 2016, we initiated steps to streamline our operations. We incurred total expenses related to these initiatives of approximately $1.7 million and$8.0 million for the years ended December 31, 2017 and 2016, respectively. We expect some additional restructuring and other costs to occur,however, the amount and timing cannot be determined at this time. The expenses recorded for the year ended December 31, 2017 included costs relatedto terminated employees and fees related to termination of professional services relationships, other contract termination costs and asset write-offs. Theexpenses recorded for the year ended December 31, 2016, included costs related to terminated employees, contract termination costs, accelerateddepreciation and asset write-offs.Depreciation and Amortization ExpensesWe amortize our intangible assets with finite lives, consisting of customer and referral relationships, trade names, trademarks and non-competeagreements, principally using accelerated methods based upon their estimated useful lives. Depreciable assets consist principally of furniture andequipment, network administration and telephone equipment, and operating system software. Depreciable and leasehold assets are depreciated oramortized on a straight-line method over their useful lives or, if less and if applicable, their lease terms.Provision for Doubtful AccountsWe establish our allowance for doubtful accounts to the extent it is probable that a portion or all of a particular account will not be collected. Weestablish our provision for doubtful accounts primarily by analyzing historical trends and the aging of receivables. In our evaluation, we consider otherfactors including: delays in payment trends in individual states due to budget or funding issues; billing conversions related to acquisitions or internalsystems; resubmission of bills with required documentation; and disputes with specific payors. An allowance for doubtful accounts is maintained at alevel that our management believes is sufficient to cover potential losses. However, actual collections could differ from our estimates.Interest IncomeIllinois law entitles designated service program providers to receive a prompt payment interest penalty based on qualifying services approved forpayment that remain unpaid after a designated period of time. As the 41Table of Contentsamount and timing of the receipt of these payments are not certain, the interest income is recognized when received. For the year ended December 31,2017, we did not receive any prompt payment interest. For the year ended December 31, 2016, we received $2.8 million in prompt payment interest.For the year ended December 31, 2015, we did not earn or receive any prompt payment interest.Interest ExpenseInterest expense is reported in the Consolidated Statements of Income when incurred and consists of (i) interest and unused credit line fees on ournew credit facility and our Terminated Senior Credit Facility (as defined under Senior Secured Credit Facility below), (ii) interest on our capital leaseobligations and (iii) amortization and write-off of debt issuance costs.Other IncomeFor the year ended December 31, 2017 and 2016, other income of $0.2 million and $0.2 million, respectively, consisted of income distributionsreceived from investments in joint ventures, which were sold on October 1, 2017. No distributions were received during the years ended December 31,2015. We accounted for this income in accordance with ASC Topic 325, “Investments—Other.” and recognized the net accumulated earnings only tothe extent distributed by the joint ventures on the date received.Income Tax ExpenseAll of our income is from domestic sources. We incur state and local taxes in states in which we operate. For the years ended December 31, 2017and 2016 our federal statutory rate was 35.0 % and 35.0%, respectively. The effective income tax rate was 39.0 % and 25.2% for the years endedDecember 31, 2017 and 2016, respectively. The difference between our federal statutory and effective income tax rates are principally due to theinclusion of state taxes, the use of federal employment tax credits and the change in tax law in 2017.On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“Tax Reform Act”). The legislationsignificantly changes U.S. tax law by, among other things, lowering corporate income tax rates. The Tax Reform Act permanently reduces the U.S.corporate income tax rate from a maximum of 35.0% to a flat 21.0% rate, effective January 1, 2018. Our effective income tax rate increased byapproximately 5.3% in 2017 due to the revaluation of our deferred tax assets and a valuation allowance as a result of the elimination of a performance-based equity exception in calculating the $1.0 million limitation for 162(m) under the Tax Reform Act. We expect the overall effect of the tax lawchanges to be favorable in future years when the lower tax rate become effective.Discontinued OperationsDiscontinued operations consists of the reduction of the indemnification reserve, net of tax for our Home Health Business that was sold effectiveMarch 1, 2013 and the results of operations for an agency in Pennsylvania that was sold on December 30, 2013. 42Table of ContentsResults of OperationsYear Ended December 31, 2017 Compared to Year Ended December 31, 2016The following table sets forth, for the periods indicated, our consolidated results of operations. 2017 2016 Change Amount Net ServiceRevenues Amount Net ServiceRevenues Amount % (Amounts In Thousands, Except Percentages) Net service revenues $425,715 100.0% $400,688 100.0% $25,027 6.2% Cost of service revenues 310,119 72.8 294,593 73.5 15,526 5.3 Gross profit 115,596 27.2 106,095 26.5 9,501 9.0 General and administrative expenses 76,902 18.1 76,840 19.2 62 0.1 Gain on sale of assets (2,467) — — (2,467) Depreciation and amortization 6,663 1.6 6,647 1.7 16 0.2 Provision for doubtful accounts 8,259 1.9 7,373 1.8 886 12.0 Total operating expenses 89,357 21.0 90,860 22.7 (1,503) (1.7) Operating income from continuing operations 26,239 6.2 15,235 3.8 11,004 72.2 Interest income (66) — (2,812) (0.7) 2,746 (97.7) Interest expense 4,472 1.1 2,332 0.6 2,140 91.8 Total interest (income) expense, net 4,406 1.0 (480) (0.1) 4,886 (1,017.9) Other income 217 0.1 206 0.1 11 5.3 Income from continuing operations before income taxes 22,050 5.2 15,921 4.0 6,129 38.5 Income tax expense 8,589 2.0 3,994 1.0 4,595 115.0 Net income from continuing operations 13,461 3.2 11,927 3.0 1,534 12.9 Earnings from discontinued operations, net of tax 147 — 97 — 50 51.2 Net income $13,608 3.2% $12,024 3.0% $1,584 13.2% Business Metrics (Actual Numbers, Except Billable Hours inThousands) Average billable census (1) 35,343 33,944 1,399 4.1% Billable hours (2) 23,833 23,088 745 3.2 Average billable hours per census per month 56 57 (1) (1.8) Billable hours per business day 91,664 88,460 3,204 3.6 Revenues per billable hour $17.86 $17.35 $0.51 2.9% (1)Average billable census is the number of unique clients receiving a billable service during a year. (2)Billable hours is the total number of hours served to clients during a year.Net service revenues from state, local and other governmental programs accounted for 64.2% and 70.4% of net service revenues for 2017 and2016, respectively. Managed care organizations accounted for 33.1% and 26.1% of net service revenues in 2017 and 2016 respectively, with privateand commercial payors accounting for the remainder of net service revenues. A significant amount of our net service revenues in 2017 and 2016 werederived from one payor client, Illinois Department on Aging, which accounted for 36.6% and 42.1% respectively, of our total net service revenues. 43Table of ContentsNet service revenues increased $25.0 million, or 6.2%, to $425.7 million for 2017 compared to $400.7 million for 2016. The increase wasprimarily due to a 4.1% increase in average billable census and a 2.9% increase in revenues per billable hour.Gross profit, expressed as a percentage of net service revenues, increased to 27.2% for 2017, from 26.5% in 2016. This increase was primarily dueto a $3.7 million reduction in direct service costs associated with benefits, travel mileage and unemployment taxes, and our exit from the lower marginadult day services centers.General and administrative expenses, expressed as a percentage of net service revenues decreased to 18.1% for 2017, from 19.2% in 2016. Thedecrease in general and administrative expenses was primarily due to a decrease in severance and restructuring costs of $6.4 million and a decrease incosts for outside consultants of $0.9 million and a decrease in telephone expenses of $0.8 million. These decreases were offset by an increase inadministrative employee wages, taxes and benefit costs of $7.4 million and an increase in acquisition expenses of $1.0 million.Depreciation and amortization increased slightly to $6.7 million from $6.6 million for the years ended December 31, 2017 and 2016,respectively. Amortization of intangibles, which are amortized using straight-line and accelerated methods, totaled $4.7 million and $4.9 million forthe years ended December 31, 2017 and 2016, respectively.Interest IncomeIllinois law entitles designated service program providers to receive a prompt payment interest penalty based on qualifying services approved forpayment that remain unpaid after a designated period of time. As the amount and timing of the receipt of these payments are not certain, the interestincome is recognized when received and reported in the income statement caption, “interest income.” For the year ended December 31, 2017, we didnot receive any prompt payment interest. For the year ended December 31, 2016, we received $2.8 million in prompt payment interest.Interest ExpenseInterest expense increased to $4.5 million from $2.3 million for the year ended December 31, 2017 as compared to December 31, 2016. Theincrease was primarily due to the write-off of the unamortized debt issuance costs in the amount of $1.3 million upon the termination of our TerminatedSenior Secured Credit Facility on May 8, 2017, as well as increased interest expense due to the higher outstanding term loan balance under our newsenior secured credit facility. See Note 9 “Long-Term Debt” to the Notes to Consolidated Financial Statements for additional information.Other IncomeFor the years ended December 31, 2017 and 2016, other income of $0.2 million and $0.2 million, respectively, consisted of income distributionsreceived from the investments in joint ventures, which were sold on October 1, 2017. We accounted for this income in accordance with ASC Topic 325,“Investments—Other.” and recognized the net accumulated earnings only to the extent distributed by the joint ventures on the date received.Income Tax ExpenseAll of our income is from domestic sources. We incur state and local taxes in states in which we operate. For the years ended December 31, 2017and 2016 our federal statutory rate was 35.0 % and 35.0%, respectively. The effective income tax rate was 39.0 % and 25.2% for the years endedDecember 31, 2017 and 2016, respectively. The difference between our federal statutory and effective income tax rates are principally due to theinclusion of state taxes, the use of federal employment tax credits and the change in tax law in 2017. 44Table of ContentsOn December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“Tax Reform Act”). The legislationsignificantly changes U.S. tax law by, among other things, lowering corporate income tax rates. The Tax Reform Act permanently reduces the U.S.corporate income tax rate from a maximum of 35.0% to a flat 21.0% rate, effective January 1, 2018. Our effective income tax rate increased byapproximately 5.3% in 2017 due to the revaluation of our deferred tax assets and a valuation allowance as a result of the elimination of a performance-based equity exception in calculating the $1.0 million limitation for 162(m) under the Tax Reform Act. We expect the overall effect of the tax lawchanges to be favorable in future years when the lower tax rate become effective.Discontinued OperationsEffective March 1, 2013, we sold substantially all of the assets used in our Home Health Business as described in Part I, Item 1. Therefore, wehave segregated the Home Health Business operating results and presented them separately as discontinued operations for all periods presented (seeNote 4—“Discontinued Operations” to the Notes to the Consolidated Financial Statements included elsewhere herein).The table below summarizes the results of discontinued operations. 2017 2016 (Amounts In Thousands) Net service revenues $— $— Cost of service revenues — — Gross profit — — General and administrative expenses (245) (163) Operating income from discontinued operations 245 163 Income tax 98 66 Earnings from discontinued operations $147 $97 No revenues were recorded for the year ended December 31, 2017 or 2016 related to the Home Health Business due to the sale of the business.For the year ended December 31, 2017 and 2016, the earnings from discontinued operations represented our reduction of the Medicare indemnificationreserve for the Home Health Business sold for periods no longer subject to audit. As of December 31, 2017, the Company has estimated a total of$0.2 million for billing adjustments for 2013 and 2012 which may be subject to Medicare audits. 45Table of ContentsResults of OperationsYear Ended December 31, 2016 Compared to Year Ended December 31, 2015The following table sets forth, for the periods indicated, our consolidated results of operations. 2016 2015 Change Amount Net ServiceRevenues Amount Net ServiceRevenues Amount % (Amounts In Thousands, Except Percentages) Net service revenues $400,688 100.0% $336,815 100.0% $63,873 19.0% Cost of service revenues 294,593 73.5 245,492 72.9 49,101 20.0 Gross profit 106,095 26.5 91,323 27.1 14,772 16.2 General and administrative expenses 76,840 19.2 66,143 19.6 10,697 16.2 Revaluation of contingent consideration — — 130 0.0 (130) (100.0) Depreciation and amortization 6,647 1.7 4,717 1.4 1,930 40.9 Provision for doubtful accounts 7,373 1.8 4,309 1.3 3,064 71.1 Total operating expenses 90,860 22.7 75,299 22.4 15,561 20.7 Operating income from continuing operations 15,235 3.8 16,024 4.8 (789) (4.9) Interest income (2,812) (0.7) (47) 0.0 (2,765) 5,883.0 Interest expense 2,332 0.6 786 0.2 1,546 196.7 Total interest (income) expense, net (480) (0.1) 739 0.2 (1,219) (165.0) Other income 206 0.1 — 0.2 206 Income from continuing operations before income taxes 15,921 4.0 15,285 4.5 636 4.2 Income tax expense 3,994 1.0 3,932 1.2 62 1.6 Net income from continuing operations 11,927 3.0 11,353 3.4 574 5.1 Discontinued operations: Earnings from Home Health Business, net of tax 97 — 270 0.1 (173) (64.1) Net income $12,024 3.0% $11,623 3.5% $401 3.5% Business Metrics (Actual Numbers, Except Billable Hours inThousands) Average billable census (1) 33,944 32,756 1,188 3.6% Billable hours (2) 23,088 19,556 3,532 18.1 Average billable hours per census per month 57 50 7 14.0 Billable hours per business day 88,460 75,214 13,246 17.6 Revenues per billable hour $17.35 $17.22 $0.13 0.8% (1)Average billable census is the number of unique clients receiving a billable service during a period. (2)Billable hours is the total number of hours served to clients during a period.Net service revenues from state, local and other governmental programs accounted for 70.4% and 77.7% of net service revenues for 2016 and2015, respectively. Managed care organizations accounted for 26.1% and 18.3% of net service revenues in 2016 and 2015 respectively, with privateand commercial payors accounting for the remainder of net service revenues. A significant amount of our net service revenues in 2016 and 2015 werederived from one payor client, Illinois Department on Aging, which accounted for 42.1% and 48.8% respectively, of our total net service revenues. 46Table of ContentsNet service revenues increased $63.9 million, or 19.0%, to $400.7 million for 2016 compared to $336.8 million for 2015. The increase wasprimarily due to the South Shore acquisition contributing net service revenues of $51.7 million in 2016 and a 3.6% increase in average billable censusand a 0.8% increase in revenues per billable hour.Gross profit, expressed as a percentage of net service revenues, decreased to 26.5% for 2016, from 27.1% in 2015. The decrease was primarily dueto the South Shore acquisition which is a lower margin business. See Note 5 “Acquisitions” to the Notes to Consolidated Financial Statements foradditional information.General and administrative expenses increased to $76.8 million in 2016 as compared to $66.1 million in 2015. The increase in general andadministrative expenses for the years ended December 31, 2016 as compared to 2015 was primarily due to the following: • $4.8 million charge for lease commitments, a write-off of unamortized leasehold improvements, an equipment write-off resulting from theclosure of three adult day services centers in Illinois during the third quarter of 2016, a write-off for unused contact center office space anda write-off related to the discontinued use of internally developed software and fees for the termination of various contracts with certainoutside vendors. • $3.2 million severance expense for terminated employees with employment and/or separation agreements and a • $4.5 million increase in administrative employee wages, taxes and benefit costs, offset by a $1.2 million decrease in temporary officepersonnel expense.Depreciation and amortization increased to $6.6 million from $4.7 million for the year ended December 31, 2016 and 2015, respectively.Amortization of intangibles, which are amortized using straight-line and accelerated methods, based upon the estimated useful lives of the respectiveassets, which range from two to twenty five years, totaled $4.9 million and $3.0 million for the years ended December 31, 2016 and 2015, respectively.Interest IncomeIllinois law entitles designated service program providers to receive a prompt payment interest penalty based on qualifying services approved forpayment that remain unpaid after a designated period of time. As the amount and timing of the receipt of these payments are not certain, the interestincome is recognized when received and reported in the income statement caption, “interest income.” For the year ended December 31, 2016 wereceived $2.8 million in prompt payment interest. For the year ended December 31, 2015, we did not earn or receive any prompt payment interest.Interest ExpenseInterest expense increased to $2.3 million from $0.8 million for the year ended December 31, 2016 as compared to December 31, 2015. Theincrease was primarily the result of draws on the senior credit facility of $52.0 million during 2016. See Note 9 “Long-Term Debt” to the Notes toConsolidated Financial Statements for additional information.Other IncomeFor the year ended December 31, 2016, other income of $0.2 million consists of income distributions received from investments in joint ventures.No distributions were received during the years ended December 31, 2015. We account for this income in accordance with ASC Topic 325,“Investments—Other” and recognize the net accumulated earnings only to the extent distributed by the joint ventures on the date received. 47Table of ContentsIncome Tax ExpenseAll of our income is from domestic sources. We incur state and local taxes in states in which we operate. For the years ended December 31, 2016and 2015 our federal statutory rate was 35.0% and 34.5%, respectively. The effective income tax rate was 25.2% and 26.1% for the years endedDecember 31, 2016 and 2015, respectively. The difference between our federal statutory and effective income tax rates are principally due to theinclusion of state taxes and the use of federal employment tax credits that lower our effective tax rate.Discontinued OperationsEffective March 1, 2013, we sold substantially all of the assets used in our Home Health Business as described in Part I, Item 1. Therefore, wehave segregated the Home Health Business operating results and presented them separately as discontinued operations for all periods presented (seeNote 4—“Discontinued Operations” to the Notes to the Consolidated Financial Statements included elsewhere herein).The table below summarizes the results of discontinued operations. 2016 2015 (Amounts In Thousands) Net service revenues $— $— Cost of service revenues — — Gross profit — — General and administrative expenses (163) (448) Depreciation and amortization — — Operating income from discontinued operations 163 448 Income tax 66 178 Earnings from discontinued operations $97 $270 No revenues were recorded for the year ended December 31, 2016 or 2015 related to the Home Health Business due to the sale of the business.For the year ended December 31, 2016 and 2015, the earnings from discontinued operations represented our reduction of the Medicare indemnificationreserve for the Home Health Business sold for periods no longer subject to audit. As of December 31, 2016, the Company has estimated a total of$0.4 million for billing adjustments for 2013, 2012 and 2011 which may be subject to Medicare audits.Liquidity and Capital ResourcesOur primary sources of liquidity are cash from operations and borrowings under our new credit facility. As described below under “SeniorSecured Credit Facility”, we entered into a new credit facility on May 8, 2017 that replaced our Terminated Senior Secured Credit Facility (see “—Terminated Senior Secured Credit Facility” below). At December 31, 2017 and 2016, we had cash balances of $53.8 million and $8.0 million,respectively.As of December 31, 2017, we had a total of $44.4 million outstanding on our new credit facility. After giving effect to the amount drawn on ournew credit facility, approximately $11.8 million of outstanding letters of credit and borrowing limits based on an advance multiple of adjustedEBITDA, we had $105.1 million available for borrowing under our new credit facility.As of December 31, 2016, we had a total of $24.1 million outstanding on our Terminated Senior Secured Credit Facility. After giving effect to theamount drawn on the Terminated Senior Secured Credit Facility, approximately $16.7 million of outstanding letters of credit and borrowing limitsbased on an advance multiple of adjusted EBITDA, we had $79.7 million available for borrowing under the Terminated Senior Secured Credit Facility. 48Table of ContentsCash flows from operating activities represent the inflow of cash from our payor clients and the outflow of cash for payroll and payroll taxes,operating expenses, interest and taxes. Due to its revenue deficiencies as well as budget and financing issues, from time to time the State of Illinois hasreimbursed us on a delayed basis with respect to our various agreements including with our largest payor, the Illinois Department on Aging. The openreceivable balance from the State of Illinois decreased by $31.4 million from $69.3 million as of December 31, 2016 to $37.9 million as ofDecember 31, 2017.The State of Illinois’s payments for non-Medicaid consumers have been delayed in the past and may continue to be delayed in the future due tobudget disputes that began in 2015. The State of Illinois did not adopt a comprehensive budget for fiscal year 2016, which ended on June 30, 2016, ora comprehensive budget for fiscal year 2017, which ended on June 30, 2017. On July 6, 2017, the State of Illinois passed a budget for state fiscal year2018, which began on July 1, 2017. The budget authorized the Illinois Department on Aging to pay for services rendered by the Company tonon-Medicaid consumers in prior fiscal years. In July 2017, we began receiving delayed payments.There remains uncertainty surrounding future year budgets. If future budgets are not enacted timely payments from the State of Illinois could bedelayed in the future. The delays could adversely impact our liquidity and result in the need to increase borrowings under our new credit facility orcause us to pursue other liquidity options.Senior Secured Credit FacilityOn May 8, 2017, we entered into a new credit facility and credit agreement (the “Credit Agreement”) with certain lenders and Capital One, N.A.,as a lender and swing lender and as agent for all lenders. This new credit facility totals $250.0 million, replaces our Terminated Senior Secured CreditFacility totaling $125.0 million with certain lenders and Fifth Third Bank as agent (“Terminated Senior Secured Credit Facility”, see description belowfor more details), and terminates our Second Amended and Restated Credit and Guaranty Agreement, dated as of November 10, 2015. The new creditfacility includes a $125.0 million revolving loan, a $45.0 million term loan and an $80.0 million delayed draw term loan. The maturity of the newcredit facility is five years, although the delayed draw term loan is only available until November 8, 2018. Under the terms of an accordion feature ofthe Credit Agreement, $100.0 million is also available for incremental term loans. Fundings under the delayed draw term loans and the incrementalterm loans are limited to financing or refinancing Permitted Acquisitions (as defined in the Credit Agreement). The availability of additional drawsunder the revolving credit portion of our new credit facility is conditioned, among other things, upon (after giving effect to such draws) the ratio ofConsolidated Total Indebtedness (as defined in the Credit Agreement), less subordinated indebtedness, to Consolidated Adjusted EBITDA (as definedin the Credit Agreement) not exceeding 4.25:1.00. In connection with the new credit facility, we incurred $2.8 million of debt issuance costs.Addus HealthCare is the borrower under the Credit Agreement, with Holdings, and substantially all of Holdings’ subsidiaries as guarantors underthe new credit facility. The new credit facility is secured by a first priority security interest in all of our and the other credit parties’ current and futuretangible and intangible assets, including the shares of stock of the borrower and subsidiaries.Interest on our new credit facility may be payable at (x) the sum of (i) an applicable margin ranging from 1.50% to 2.25% based on the applicablesenior leverage ratio (provided that the applicable margin will be 1.50% through approximately November 1, 2017) plus (ii) a base rate equal to thegreatest 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 tobe less than 0.00%) plus a margin of 1.00% or (y) the sum of (i) an applicable margin ranging from 2.50% to 3.25% based on the applicable leverageratio (provided that the applicable margin will be 2.50% through approximately November 30, 2017) plus (ii) the offered rate per annum for theapplicable interest period that appears on Reuters Screen LIBOR01 Page. Swing loans may not be LIBOR loans. 49Table of ContentsWe pay a fee ranging from 0.25% to 0.50% based on the applicable leverage ratio times the unused portion of the revolving portion of the newcredit facility (provided that the fee will be 0.25% through approximately November 30, 2017).In July 2017, we drew a total of $30.0 million on the revolving credit line under the new credit facility primarily to fund the acquisition ofOptions Home Care. We repaid the balance in August 2017. As of December 31, 2017, we had a total of $44.4 million of term loans outstanding on thenew credit facility and the total availability under the revolving credit loan facility was $105.1 million.The Credit Agreement contains customary affirmative covenants regarding, among other things, the maintenance of records, compliance withlaws, maintenance of permits, maintenance of insurance and property and payment of taxes. The Credit Agreement also contains certain customaryfinancial covenants and negative covenants that, among other things, include a requirement to maintain a minimum fixed charge coverage ratio, arequirement to stay below a maximum senior leverage ratio and a requirement to stay below a maximum permitted amount of capital expenditures, aswell as restrictions on guarantees, indebtedness, liens, investments and loans, subject to customary carve outs, a restriction on dividends (provided thatAddus HealthCare may make distributions to us in an amount that does not exceed $5.0 million in any year absent of an event of default, plus limitedexceptions for tax and administrative distributions), a restriction on the ability to consummate any individual acquisition or a series of relatedacquisitions with total consideration paid or payable in excess of $60.0 million and consummating acquisitions with total consideration paid orpayable in excess of $80.0 million in the aggregate in any fiscal year (in each case, without the consent of the lenders), restrictions on mergers,dispositions of assets, and affiliate transactions, and restrictions on fundamental changes and lines of business. As of December 31, 2017, we were incompliance with all of our Credit Agreement covenants.Terminated Senior Secured Credit FacilityPrior to May 8, 2017, we were a party to the Terminated Senior Secured Credit Facility with certain lenders and Fifth Third Bank, as agent andletters of credit issuer. The Terminated Senior Secured Credit Facility provided a $100.0 million revolving line of credit, a delayed draw term loanfacility of up to $25.0 million and an uncommitted incremental term loan facility of up to $50.0 million, which was to expire on November 10, 2020and included a $35.0 million sublimit for the issuance of letters of credit. The Terminated Senior Secured Credit Facility increased the specifiedadvance multiple from 3.25 to 3.75 to 1.00 and the maximum permitted senior leverage ratio from 3.50 to 4.00 to 1.00. Except as modified by theMay 24, 2016, amendment, the Terminated Senior Secured Credit Facility contained the same material terms as the previous agreement datedNovember 10, 2015. Substantially all of the subsidiaries of Holdings were co-borrowers, and Holdings had guaranteed the borrowers’ obligations underthe Terminated Senior Secured Credit Facility. The Terminated Senior Secured Credit Facility was secured by a first priority security interest in all ofHoldings’ and the borrowers’ then and future tangible and intangible assets, including the shares of stock of the borrowers.The availability of funds under the revolving credit portion of our Terminated Senior Secured Credit Facility was based on the lesser of (i) theproduct of adjusted EBITDA, as defined in our terminated credit agreement, for the most recent 12-month period for which financial statements hadbeen delivered under the credit agreement multiplied by the specified advance multiple, up to 3.75, less the outstanding senior indebtedness andletters of credit, and (ii) $100.0 million less the outstanding revolving loans and letters of credit. Interest on our Terminated Senior Secured CreditFacility might have been payable at (x) the sum of (i) an applicable margin ranging from 2.00% to 2.50% based on the applicable 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 fundsrate plus a margin of 0.50% and (c) the sum of the adjusted LIBOR that would have been applicable to a loan with an interest period of one monthadvanced on the applicable day plus a margin of 3.00% or (y) the sum of (i) an applicable margin ranging from 3.00% to 3.50% based on theapplicable leverage ratio plus (ii) the adjusted LIBOR that would have been applicable to a loan with an interest period of one, two or three monthsadvanced on the applicable day or (z) the sum of (i) an applicable margin ranging from 3.00% to 50Table of Contents3.50% based on the applicable leverage ratio plus (ii) the daily floating LIBOR that would have been applicable to a loan with an interest period ofone month advanced on the applicable day. We paid a fee ranging from 0.25% to 0.50% per annum based on the applicable leverage ratio times theunused portion of the revolving portion of the Terminated Senior Secured Credit Facility. Issued stand-by letters of credit were charged at a rate equalto the applicable margin for LIBOR loans payable quarterly.On May 8, 2017, we repaid the outstanding debt balance of $23.8 million together with accrued interest of $0.1 million and terminated theTerminated Senior Secured Credit Facility. In connection with the termination, we wrote off the unamortized debt issuance costs under the TerminatedSenior Secured Credit Facility in the amount of $1.3 million, which was included in interest expense on our Consolidated Statements of Income.For the period January 1, 2017 through May 7, 2017, we drew and subsequently repaid $20.0 million of our revolving credit line to fundoperations. As of December 31, 2016, we had a total of $24.1 million outstanding on the Terminated Senior Secured Credit Facility and the totalavailability under the revolving credit loan facility was $79.7 million.If we do not have sufficient cash resources or availability under our Credit Agreement, or we are otherwise prohibited from making acquisitionsunder the terms of our Credit Agreement, our growth, including our ability to grow through acquisitions, could be limited unless we obtain additionalequity or debt financing or the necessary consents from our lenders under our Credit Agreement. We believe the available borrowings under our CreditAgreement, combined with cash from operations, will be sufficient to cover our working capital needs for at least the next 12 months.Cash FlowsThe following table summarizes historical changes in our cash flows for the years ended December 31, 2017, 2016 and 2015: 2017 2016 2015 (Amounts in Thousands) Net cash provided by (used in) operating activities $52,771 $(743) $4,106 Net cash used in investing activities (24,268) (21,738) (10,724) Net cash provided by (used in) financing activities 17,238 26,390 (2,641) Year Ended December 31, 2017 Compared to Year Ended December 31, 2016Net cash provided by operating activities was $52.8 million for the year ended December 31, 2017, compared to net cash used in operatingactivities of $0.7 million for the same period in 2016. This increase in cash provided by operations was primarily due to significant receipts onaccounts receivable from the State of Illinois for our services provided through June 30, 2017 under its budget passed on July 6, 2017.Net cash used in investing activities was $24.3 million for the year ended December 31, 2017, compared to $21.7 million for the year endedDecember 31, 2016. Our investing activities for the year ended December 31, 2017 consisted of $2.6 million in proceeds from the sale of three adultday services centers, $1.1 million in proceeds from the sale of investments in joint ventures, $22.4 million for the acquisition of Options Home Care,net of cash acquired, $1.9 million for the acquisition of Sun Cities, net of cash acquired, and $3.6 million in purchases of property and equipmentprimarily related to new office space and investments in our technology infrastructure. Our investing activities for the year ended December 31, 2016were $20.0 million for the acquisition of South Shore as described in Note 5 to the Consolidated Financial Statements and $1.7 million in purchases ofproperty and equipment related to new office space and investments in our technology infrastructure. 51Table of ContentsNet cash provided by financing activities was $17.2 million for the year ended December 31, 2017 as compared to $26.4 million for the yearended December 31, 2016. Our financing activities for the year ended December 31, 2017 were borrowings of $45.0 million and subsequentrepayments of $0.6 million on the term loan portion of our new senior secured credit facility, $30.0 million in draws and subsequent repayments on therevolver portion of our new senior secured credit facility, $20.0 million in draws and subsequent repayments on the revolver portion of our TerminatedSenior Secured Credit Facility, $24.1 million of payments on the term loan portion of our Terminated Senior Secured Credit Facility, $1.2 million incash received from exercise of stock options, $2.9 million payment for debt issuance costs under our new senior secured credit facility, and$1.4 million of payments on capital lease obligations. Our financing activities for the year ended December 31, 2016 were $52.0 million in draws onour credit facility to fund on-going operations and the acquisition of South Shore, a full repayment of the revolving portion of our credit facility in theamount of $27.0 million and $0.9 million payments on the term loan portion of our credit facility. Our financing activities also included $1.2 millionof payments on capital lease obligations, $3.0 million of cash received for the exercise of employee stock options, $1.1 million of excess tax benefitfrom exercise of stock options, $0.5 million payment for debt issuance costs and a $0.1 million payment for the contingent earn-out obligation relatedto our December 1, 2013 acquisition of Coordinated Home Health Care, LLC.Year Ended December 31, 2016 Compared to Year Ended December 31, 2015Net cash used in operating activities was $0.7 million for the year ended December 31, 2016, compared to net cash provided by operatingactivities of $4.1 million for the same period in 2015. This increase in cash used in operations was primarily due to an increase in accounts receivableduring this period resulting from the delay in payments from the State of Illinois.Net cash used in investing activities was $21.7 million for the year ended December 31, 2016, compared to $10.7 million for the year endedDecember 31, 2015. Our investing activities for the year ended December 31, 2016 were $20.0 million for the acquisition of South Shore as describedin Note 5 to the Consolidated Financial Statements and $1.7 million in purchases of property and equipment related to new office space andinvestments in our technology infrastructure. Our investing activities for the year ended December 31, 2015 were $2.2 million in purchases of propertyand equipment to invest in our technology infrastructure, $4.3 million and $4.1 million for the acquisition of Priority Home Healthcare, Inc. and FivePoints Healthcare of Virginia, as described in Note 5 to the Consolidated Financial Statements and $0.1 million for the acquisition of a customer list.Net cash provided by financing activities was $26.4 million for the year ended December 31, 2016 as compared to net cash used in financingactivities of $2.6 million for the year ended December 31, 2015. Our financing activities for the year ended December 31, 2016 were $52.0 million indraws on our credit facility to fund on-going operations and the acquisition of South Shore, a full repayment of the revolving portion of our creditfacility in the amount of $27.0 million and $0.9 million payments on the term loan portion of our credit facility. Our financing activities also included$1.2 million of payments on capital lease obligations, $3.0 million of cash received for the exercise of employee stock options, $1.1 million of excesstax benefit from exercise of stock options, $0.5 million payment for debt issuance costs and a $0.1 million payment for the contingent earn-outobligation related to our December 1, 2013 acquisition of Coordinated Home Health Care, LLC (“CHHC”). Our financing activities for the year endedDecember 31, 2015 were a $1.0 million payment on the CHHC contingent earn-out obligation as described in Note 5 to the Consolidated FinancialStatements, $1.1 million of payments on capital lease obligations and $1.2 million payment for debt issuance costs, $0.3 million of cash received forthe exercise of employee stock options and $0.3 million of excess tax benefit from exercise of stock options. 52Table of ContentsOutstanding Accounts ReceivableGross accounts receivable as of December 31, 2017 and 2016 were $99.7 million and $124.4 million, respectively. Outstanding accountsreceivable, net of the allowance for doubtful accounts, decreased by $28.0 million as of December 31, 2017 as compared to December 31, 2016. Thedecrease in net accounts receivable was primarily due to significant receipts on accounts receivable from the State of Illinois for our services providedthrough June 30, 2017 under its budget passed on July 6, 2017.We establish our allowance for doubtful accounts to the extent it is probable that a portion or all of a particular account will not be collected. Weestablish our provision for doubtful accounts primarily by analyzing historical trends and the aging of receivables. In our evaluation, we consider otherfactors including: delays in payment trends in individual states due to budget or funding issues; billing conversions related to acquisitions or internalsystems; resubmission of bills with required documentation and disputes with specific payors. An allowance for doubtful accounts is maintained at alevel that our management believes is sufficient to cover potential losses. However, actual collections could differ from our estimates.Our collection procedures include review of account agings and direct contact with our payors. We have historically not used collectionagencies. An uncollectible amount is written off to the allowance account after reasonable collection efforts have been exhausted. 53Table of ContentsThe following tables detail our accounts receivable before reserves by payor category, showing Illinois governmental payors separately, and therelated allowance amount at December 31, 2017, 2016 and 2015: December 31, 2017 0-90 Days 91-180 Days 181-365 Days Over Total 365 Days (Amounts In Thousands, Except Percentages) Illinois governmental based programs $27,907 $7,440 $636 $1,924 $37,907 Other state, local and other governmental programs 15,508 3,646 2,611 3,333 25,098 Managed care organizations 20,810 4,441 3,436 5,350 34,037 Private pay and commercial insurance 1,429 550 449 19 2,477 $65,654 $16,077 $7,132 $10,626 $99,489 Aging % of total 66.0% 16.1% 7.2% 10.7% Allowance for doubtful accounts $10,537 Reserve as % of gross accounts receivable 10.6% December 31, 2016 0-90 Days 91-180 Days 181-365 Days Over365 Days Total (Amounts In Thousands, Except Percentages) Illinois governmental based programs $40,727 $25,619 $1,418 $1,585 $69,349 Other state, local and other governmental programs 20,786 3,090 2,117 3,002 28,995 Managed care organizations 14,039 3,341 2,848 2,679 22,907 Private pay and commercial insurance 2,439 399 265 8 3,111 Total $77,991 $32,449 $6,648 $7,274 $124,362 Aging % of total 62.8% 26.1% 5.3% 5.8% Allowance for doubtful accounts $7,363 Reserve as % of gross accounts receivable 5.9% December 31, 2015 0-90 Days 91-180 Days 181-365 Days Over365 Days Total (Amounts In Thousands, Except Percentages) Illinois governmental based programs $31,755 $16,315 $1,066 $1,276 $50,412 Other state, local and other governmental programs 13,218 4,473 3,507 1,308 22,506 Managed care organizations 8,867 1,711 1,969 598 13,145 Private pay and commercial insurance 3,118 454 225 (51) 3,746 Total $56,958 $22,953 $6,767 $3,131 $89,809 Aging % of total 63.4% 25.6% 7.5% 3.5% Allowance for doubtful accounts $4,850 Reserve as % of gross accounts receivable 5.4% We calculate our days sales outstanding (“DSO”) by taking the accounts receivable outstanding net of the allowance for doubtful accountsdivided by the total net service revenues for the last quarter, multiplied by the number of days in that quarter. Our DSOs were 73, 104 and 92 days atDecember 31, 2017, 2016 and 2015, respectively. The DSOs for our largest payor, the Illinois Department on Aging, at December 31, 2017, 2016 and2015 were 75, 152 and 101 days, respectively. We may not receive payments on a consistent basis in the near term and our DSOs and the DSO for theIllinois Department on Aging may increase despite the State of Illinois’s enactment of a fiscal year 2018 budget on July 6, 2017. The increase in thereserve as a percentage of gross accounts receivable to 10.6% as of December 31, 2017 from 5.9% as of December 31, 2016 is primarily attributableadditional reserves related to aged receivables from prior acquisitions. The increase in the reserve as 54Table of Contentsa percentage of gross accounts receivable to 5.9% as of December 31, 2016 from 5.4% as of December 31, 2015 is attributable to additional reservesneeded for managed care organizations and acquisition transitions.Off-Balance Sheet ArrangementsAs of December 31, 2017, we did not have any off-balance sheet guarantees or arrangements with unconsolidated entities.Critical Accounting Policies and EstimatesThe discussion and analysis of our financial condition and results of operations are based on our Consolidated Financial Statements prepared inaccordance with GAAP. The preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts ofassets and liabilities, revenues and expense and related disclosures. We base our estimates and judgments on historical experience and other sourcesand factors that we believe to be reasonable under the circumstances, however, actual results may differ from these estimates. We consider the itemsdiscussed below to be critical because of their impact on operations and their application requires our judgment and estimates.Revenue RecognitionThe majority of our revenues for 2017, 2016 and 2015 are derived from Medicaid and Medicaid waiver programs under agreements with variousstate and local authorities. These agreements provide for a service term from one year to an indefinite term. Services are provided based on authorizedhours, determined by the relevant state or local agency, at an hourly rate specified in the agreement or fixed by legislation and recognized in netservice revenues as services are provided. Services to other payors, such as private or commercial clients, are provided at negotiated hourly rates andrecognized in net service revenues as services are provided. We provide for appropriate allowances for uncollectible amounts at the time the servicesare rendered.Accounts Receivable and Allowance for Doubtful AccountsWe are paid for our services primarily by state and local agencies under Medicaid or Medicaid waiver programs, managed care organizations,commercial insurance companies and private consumers. While our accounts receivable are uncollateralized, our credit risk is somewhat limited due tothe significance of governmental payors to our results of operations. Laws and regulations governing the governmental programs in which weparticipate are complex and subject to interpretation. Amounts collected may be different than amounts billed due to client eligibility issues,insufficient or incomplete documentation, services at levels other than authorized and other reasons unrelated to credit risk.We establish our allowance for doubtful accounts to the extent it is probable that a portion or all of a particular account will not be collected. Weestablish our provision for doubtful accounts primarily by analyzing historical trends and the aging of receivables. In our evaluation, we consider otherfactors including: delays in payment trends in individual states due to budget or funding issues; billing conversions related to acquisitions or internalsystems; resubmission of bills with required documentation and disputes with specific payors. An allowance for doubtful accounts is maintained at alevel that our management believes is sufficient to cover potential losses. However, actual collections could differ from our estimates.GoodwillOur carrying value of goodwill is the residual of the purchase price over the fair value of the net assets acquired from various acquisitionsincluding the acquisition of Addus HealthCare, Inc. (“Addus HealthCare”). In accordance with ASC Topic 350, “Goodwill and Other IntangibleAssets,” goodwill and intangible assets with indefinite useful lives are not amortized. We test goodwill for impairment at the reporting unit level on anannual 55Table of Contentsbasis, as of October 1, or whenever potential impairment triggers occur, such as a significant change in business climate or regulatory changes thatwould indicate that impairment may have occurred. We may use a qualitative test, known as “Step 0,” or a two-step quantitative method to determinewhether impairment has occurred. We can elect to perform Step 0, an optional qualitative analysis, and based on the results skip the remaining twosteps. In 2017, 2016 and 2015, we elected to implement Step 0. The results of our Step 0 assessment indicated that it was more likely than not that thefair value of our reporting unit exceeded its carrying value and therefore we concluded that there were no impairments for the years endedDecember 31, 2017, 2016 or 2015.Intangible AssetsWe review our finite lived intangibles for impairment whenever changes in circumstances indicate that the carrying amount of an asset may notbe recoverable. To determine if impairment exists, we compare the estimated future undiscounted cash flows from the related long-lived assets to thenet carrying amount of such assets. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized forthe amount by which the carrying amount of the asset exceeds the estimated fair value of the asset, generally determined by discounting the estimatedfuture cash flows. No impairment charge was recorded for the years ended December 31, 2017, 2016 or 2015.Workers’ Compensation ProgramOur workers’ compensation insurance program has a $0.4 million deductible component. We recognize our obligations associated with thisprogram in the period the claim is incurred. The cost of both the claims reported and claims incurred but not reported, up to the deductible, have beenaccrued based on historical claims experience, industry statistics and an actuarial analysis performed by an independent third party. We monitor ourclaims quarterly and adjust our reserves accordingly. These costs are recorded primarily as the cost of services on the Consolidated Statements ofIncome. As of December 31, 2017 and 2016, we recorded $12.6 million and $12.8 million, respectively, in accrued workers’ compensation insurance.The accrued workers’ compensation insurance is included in accrued expenses on our Consolidated Balance Sheets. As of December 31, 2017, 2016and 2015 we recorded $0.5 million, $0.7 million and $1.3 million, respectively, in workers’ compensation insurance recovery receivables. Theworkers’ compensation insurance recovery receivable is included in prepaid expenses and other current assets on our Consolidated Balance Sheets.Interest IncomeIllinois law entitles designated service program providers to receive a prompt payment interest penalty based on qualifying services approved forpayment that remain unpaid after a designated period of time. As the amount and timing of the receipt of these payments are not certain, the interestincome is recognized when received. For the year ended December 31, 2017, we did not receive any prompt payment interest. For the year endedDecember 31, 2016, we received $2.8 million in prompt payment interest. For the year ended December 31, 2015, we did not earn or receive anyprompt payment interest.Income TaxesWe account for income taxes under the provisions of ASC Topic 740, “Income Taxes.” The objective of accounting for income taxes is torecognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of eventsthat have been recognized in our financial statements or tax returns. Deferred taxes, resulting from differences between the financial and tax basis of ourassets and liabilities, are also adjusted for changes in tax rates and tax laws when changes are enacted. ASC Topic 740 also requires that deferred taxassets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. ASC Topic740 also prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expectedto be taken in a tax return. In addition, ASC Topic 740 provides guidance on derecognition, classification, accounting in interim periods anddisclosure requirements for uncertain tax positions. 56Table of ContentsAs a result of the reduction in the U.S. corporate income tax rate from 35.0% to 21.0% under the Tax Reform Act, we revalued our ending netdeferred tax assets at December 31, 2017 and recognized a provisional $0.9 million tax expense in our Consolidated Statements of Income for the yearended December 31, 2017. Additionally, the Tax Reform Act repealed the performance-based compensation exceptions to the $1.0 million yearly limiton the deduction for compensation paid with respect to a covered employee to include the Chief Executive Officer, Chief Financial Officer and the 3highest paid employees under Section 162(m). As a result, we recognized a provisional valuation allowance of $0.3 million in our ConsolidatedStatements of Income for the year ended December 31, 2017.Stock-based CompensationWe currently have one active stock incentive plan, the 2017 Omnibus Incentive Plan (the “2017 Plan”), that provides for new grants of stock-based employee compensation. We account for stock-based compensation in accordance with ASC Topic 718, “ Stock Compensation .” Compensationexpense is recognized on a straight-line basis under the 2017 Plan over the vesting period of the equity awards based on the grant date fair value of theoptions and restricted stock awards. From October 28, 2009 to December 31, 2016, we utilized the Enhanced Hull-White Trinomial Model to value ouroptions. Beginning January 1, 2017, we began utilizing the Black-Scholes Option Pricing Model to value our options, as we believe it is a more widelyaccepted and understood valuation model. The determination of the fair value of stock-based payments utilizing the Black-Scholes Model and theEnhanced Hull-White Trinomial Model is affected by our stock price and a number of assumptions, including expected volatility, risk-free interest rate,expected term, expected dividends yield, expected forfeiture rate, expected turn-over rate and the expected exercise multiple. Stock-basedcompensation expense was $2.5 million, $1.1 million and $1.6 million for the years ended December 31, 2017, 2016 and 2015, respectively.New Accounting PronouncementsIn May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which requires an entity to recognize theamount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 replaced most existingrevenue recognition guidance in GAAP. During 2017, we completed our assessment with assistance from outside resources to prepare specific contractanalysis and document policy changes. We also reviewed our contract and revenue streams and implemented system enhancements. Under ASU 2014-09, the timing and measurement of revenue for our customers is similar to our current revenue recognition model due to the structure of payor contractswhich consists of a fixed reimbursement rate that is deemed earned upon completion of a defined service. We anticipate that for periods subsequent toadoption, the majority of what is currently classified as bad debt expense under operating expenses will be treated as an implicit price concessionfactored into net revenue, consistent with the intent of the standard. As a result, there will be a decrease in gross profit for periods subsequent to theadoption as compared to prior periods with no change to operating income or net income. The new standard also requires enhanced disclosures relatedto the disaggregation of revenue, information about contract balances, and other disclosures about contracts with customers, including revenuerecognition policies to identify performance obligations and significant judgments in measurement and recognition. We adopted the standard onJanuary 1, 2018 using the modified retrospective approach and the adoption did not result in a material cumulative adjustment.In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which replaces existing leasing rules with a comprehensive leasemeasurement and recognition standard and expanded disclosure requirements. ASU 2016-02 will require lessees to recognize most leases on theirbalance sheets as liabilities, with corresponding “right-of-use” assets and is effective for annual reporting periods beginning after December 15, 2018,subject to early adoption. For income statement recognition purposes, leases will be classified as either a finance or an operating lease. We will berequired to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Upon initialevaluation, we believe that the new standard will have a material impact on our Consolidated Balance Sheets but it will not affect our liquidity. It hasbeen determined that we will need to secure new software to account for the change in accounting for leases and are currently reviewing the softwareoptions available. 57Table of ContentsIn August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and CashPayments.” This standard amends and adjusts how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and will require adoption on aretrospective basis unless impracticable. If impracticable we would be required to apply the amendments prospectively as of the earliest date possible.We are currently evaluating the impact that ASU 2016-15 will have on our statement of cash flows but do not expect it to have a material impact.In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”The new guidance eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) tomeasure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amountover its fair value (i.e., measure the charge based on the current Step 1). ASU 2017-04 is effective for annual and any interim impairment tests forperiods beginning after December 15, 2019. We are currently evaluating the provisions of ASU 2017-04 to determine how our goodwill impairmenttesting will be impacted and whether we may elect to adopt ASU 2017-04 prior to the stated effective date.In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting.” ASU2017-19 clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance,modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as aresult of the change in terms or conditions. This pronouncement is effective for annual periods, and for interim periods within those annual periods,beginning after December 15, 2017, with early adoption permitted, and is applied prospectively to changes in terms or conditions of awards occurringon or after the adoption date. We are evaluating the impact of the adoption of this guidance on our financial statements but do not expect it to have amaterial impact.Contractual Obligations and CommitmentsWe had outstanding letters of credit of $11.8 million at December 31, 2017. These standby letters of credit benefit our third-party insurer for ourhigh deductible workers’ compensation insurance program. The amount of the letters of credit is negotiated annually in conjunction with the insurancerenewals. We anticipate our commitment could increase as we continue to grow our business.The following table summarizes our cash contractual obligations as of December 31, 2017: Contractual Obligations Total Less than 1-2 3-4 More than 1 Year Years Years 5 Years (Amounts in Thousands) Term loan under the new credit facility, 4.07% due 2022 $44,438 $2,250 $4,500 $37,688 $— Interest payable on term loan (1) 7,204 1,925 3,281 1,998 — Capital leases 1,056 1,026 30 — — Operating leases 12,300 3,155 4,513 2,395 2,237 Total Contractual Obligations $64,998 $8,356 $12,324 $42,081 $2,237 (1) As described in Note 8—“Long-Term Debt” to the Consolidated Financial Statements 8, interest on borrowings under the term loan are variable.The calculated interest payable amounts above use actual rates available through January 2018 and assumes the January rate of 4.07% for allfuture interest payable. 58Table of ContentsImpact of InflationInflation in the past several years in the United States has been modest, but recently there have been indications of inflation in the U.S. economyand elsewhere and some market forecasts indicate an expectation of increased inflation in the near to intermediate term. Future inflation would havemostly negative impacts on our business. Rising price levels might allow us to increase our fees to private pay clients, but would cause our operatingcosts, particularly the wages we pay our home care aides, to increase. Further, our ability to realize rate increases from government programs might belimited despite inflation. ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe are exposed to market risk associated with changes in interest rates on our variable rate long-term debt. As of December 31, 2017, we hadoutstanding borrowings of approximately $44.4 million on our credit facility, all of which was subject to variable interest rates. As of December 31,2016, we had outstanding borrowings of approximately $24.1 million on our credit facility, all of which was subject to variable interest rates. If thevariable rates on this debt were 100 basis points higher than the rate applicable to the borrowing during the years ended December 31, 2017 and 2016,our net income would have decreased by $0.3 million and $0.2 million, respectively, or $0.02 per diluted share and $0.01 per diluted share,respectively. We do not currently have any derivative or hedging arrangements, or other known exposures, to changes in interest rates. ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAOur Consolidated Financial Statements together with the related notes and the report of our independent registered public accounting firm, areset forth on the pages indicated in Part IV, Item 15. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREOn April 21, 2017, the Company notified BDO that it had been dismissed as the Company’s principal independent registered public accountingfirm effective upon the date of filing for the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017. The AuditCommittee approved the dismissal of BDO. On April 25, 2017 (the “Engagement Date”), we engaged Ernst & Young LLP (“EY”) as our independentauditors for the fiscal year ending December 31, 2017. The decision to engage EY as our independent registered public accounting firm was approvedby the Audit Committee.The reports of BDO on the audited consolidated financial statements of the Company for the years ended December 31, 2016 and 2015 did notcontain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.During the years ended December 31, 2016 and 2015 and through the Engagement Date, there were no disagreements with BDO on any matter ofaccounting principles or practices, financial statement disclosures, or auditing scope or procedure, which disagreement(s), if not resolved to thesatisfaction of BDO, would have caused it to make reference thereto in its reports on the audited consolidated financial statements of the Company forsuch years. During the years ended December 31, 2016 and 2015, and through the Engagement Date, there were no “reportable events” as definedunder Item 304(a)(1)(v) of Regulation S-K, except for the material weakness reported on the Company’s Annual Report on Form 10-K for the year-ended December 31, 2015 and Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, June 30, and September 30 of 2016 related to(a) the segregation of duties, user access, and monitoring and review controls related to billable and non-billable transactions, (b) validating thecompleteness and accuracy of underlying data used in the operation of monitoring controls and (c) review of new hires, terminations and payrollchanges. The material weaknesses identified in clauses (a) through (c) above were remediated during the quarter ended December 31, 2016.During the years ended December 31, 2016 and 2015, and through the Engagement Date, neither the Company, nor anyone on its behalf,consulted EY regarding (i) the application of accounting principles to a 59Table of Contentsspecified transaction, either completed or proposed, or the type of audit opinion that might be rendered with respect to the audited consolidatedfinancial statements of the Company, and no written report was provided to the Company or oral advice was provided that EY concluded was animportant factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter thatwas the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a “reportable event” (as describedin Item 304(a)(1)(v) of Regulation S-K). ITEM 9A.CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of ourdisclosure controls and procedures as of December 31, 2017. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of an issuer that aredesigned 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. Disclosurecontrols and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuerin the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principalexecutive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding requireddisclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonableassurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possiblecontrols and procedures.Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective as of December 31, 2017.Management’s Annual Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined inRules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. Under the supervision and with the participation of our management, includingour Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financialreporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of theTreadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework (2013), our management concludedour internal control over financial reporting was effective as of December 31, 2017.Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter howwell designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respectto financial statement preparation and presentation.Under guidelines established by the SEC, companies are allowed to exclude acquisitions from their first assessment of internal control overfinancial reporting following the date of the acquisition. Management’s assessment of the effectiveness of the Company’s internal control overfinancial reporting excluded Community Partnered Resources, Inc., which was acquired on October 1, 2017. Community Partnered Resources, Inc.represented 1.0% of the total assets of the Company as of December 31, 2017, 0.2% of the Company’s revenues and 0.1% of the Company’s netincome, respectively, for the year ended December 31, 2017. 60Table of ContentsErnst & Young LLP, the independent registered public accounting firm that audited our Consolidated Financial Statements included in this Form10-K, has issued an attestation report on our internal control over financial reporting, which is included herein.Changes in Internal Controls Over Financial ReportingWe continue to integrate application changes and acquisitions processes into our established internal control environment to effectively managerisk to the company and financial reporting efforts. Additionally, we implemented actions and enhanced its controls over financial reporting related toreconciliation of the deferred taxes during 2017.Except as mentioned above, there were no changes in our internal control over financial reporting identified in connection with the evaluationrequired by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal quarter ended December 31, 2017 that has materiallyaffected, or is reasonably likely to materially affect, our internal control over financial reporting. 61Table of ContentsReport of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of Addus HomeCare CorporationOpinion on Internal Control over Financial ReportingWe have audited Addus HomeCare Corporation’s internal control over financial reporting as of December 31, 2017, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (theCOSO criteria). In our opinion, Addus HomeCare Corporation and subsidiaries (the Company) maintained, in all material respects, effective internalcontrol over financial reporting as of December 31, 2017, based on the COSO criteria.As indicated in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, management’s assessment of andconclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Community Partnered Resources,Inc., which is included in the 2017 consolidated financial statements of the Company and constituted 1% of total assets as of December 31, 2017, and0.2% and 0.1%, of revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of AddusHomeCare Corporation also did not include an evaluation of the internal control over financial reporting of Community Partnered Resources, Inc.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theconsolidated balance sheet of the Company as of December 31, 2017, the related consolidated statements of income, stockholders’ equity and cashflows for the year ended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectivelyreferred to as the “financial statements”) and our report dated March 14, 2018 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectivenessof internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting.Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accountingfirm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws andthe applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating thedesign and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary inthe circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made 62Table of Contentsonly in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate./s/ Ernst & Young LLPDallas, TexasMarch 14, 2018 63Table of ContentsITEM 9B.OTHER INFORMATIONNone. 64Table of ContentsPART IIICertain information required by Part III is omitted from this Annual Report on Form 10-K as we intend to file our definitive Proxy Statement forthe 2018 Annual Meeting of Stockholders pursuant to Regulation 14A of the Exchange Act not later than 120 days after the end of the fiscal yearcovered by this Annual Report, and certain information included in the Proxy Statement is incorporated herein by reference. ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by this item is incorporated by reference to the 2018 Proxy Statement to be filed with the SEC not later than 120 daysafter the end of the fiscal year ended December 31, 2017.The Company has adopted a Code of Conduct that is applicable to all of its employees, officers and members of its Board of Directors, and itssubsidiaries. A copy of the current version of our Code of Conduct is available in the Investors—Corporate Governance section of our internet websiteat http://www.addus.com/index.htm. A copy of the Code of Conduct is also available in print, free of charge, to any stockholder who requests it bywriting to Addus HomeCare Corporation, 6801 Gaylord Parkway, Suite 110, Frisco, TX 75034. The Company intends to post amendments to orwaivers, if any, from its Code of Conduct at this location on its website, in each case to the extent such amendment or waiver would otherwise requirethe filing of a Current Report on Form 8-K pursuant to Item 5.05 thereof. ITEM 11.EXECUTIVE COMPENSATIONThe information required by this item is incorporated by reference to the 2018 Proxy Statement to be filed with the SEC not later than 120 daysafter the end of the fiscal year ended December 31, 2017. ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSThe information required by this item is incorporated by reference to the 2018 Proxy Statement to be filed with the SEC not later than 120 daysafter the end of the fiscal year ended December 31, 2017. ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by this item is incorporated by reference to the 2018 Proxy Statement to be filed with the SEC not later than 120 daysafter the end of the fiscal year ended December 31, 2017. ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by this item is incorporated by reference to the 2018 Proxy Statement to be filed with the SEC not later than 120 daysafter the end of the fiscal year ended December 31, 2017. 65Table of ContentsPART IV ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)(1), (2) The Financial Statements and Schedule II—Valuation and Qualifying Accounts listed on the index on page F-1 following areincluded herein. All other schedules are omitted, either because they are not applicable or because the required information is shown in thefinancial statements or the notes thereto. (b)ExhibitsEXHIBIT INDEX ExhibitNumber Description of Document 3.1 Amended and Restated Certificate of Incorporation of Addus HomeCare Corporation dated as of October 27, 2009 (filed onNovember 20, 2009 as Exhibit 3.1 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (File No. 001-34504) andincorporated by reference herein). 3.2 Amended and Restated Bylaws of Addus HomeCare Corporation, as amended by the First Amendment to Amended and RestatedBylaws (filed on May 9, 2013 as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q (File No. 001-34504) andincorporated by reference herein). 4.1 Form of Common Stock Certificate (filed on October 2, 2009 as Exhibit 4.1 to Amendment No. 4 to Addus HomeCare Corporation’sRegistration Statement on Form S-1 (File No. 333-160634) and incorporated by reference herein). 4.2 Registration Rights Agreement, dated September 19, 2006, by and among Addus Holding Corporation, Eos Capital Partners III, L.P.,Eos Partners SBIC III, L.P., Freeport Loan Fund LLC, W. Andrew Wright, III, Addus Term Trust, W. Andrew Wright Grantor RetainedAnnuity Trust, Mark S. Heaney, James A. Wright and Courtney E. Panzer (filed on July 17, 2009 as Exhibit 4.3 to Addus HomeCareCorporation’s Registration Statement on Form S-1 (File No. 333-160634) and incorporated by reference herein).10.1 Separation and General Release Agreement, dated as of September 20, 2009, between Addus HealthCare, Inc. and W. Andrew Wright,III (filed on September 21, 2009 as Exhibit 10.1(b) to Amendment No. 2 to Addus HomeCare Corporation’s Registration Statementon Form S-1 (File No. 333-160634) and incorporated by reference herein).*10.2 Addus HealthCare, Inc. Home Health and Home Care Division Vice President and Regional Director Bonus Plan (filed on July 17,2009 as Exhibit 10.10 to Addus HomeCare Corporation’s Registration Statement on Form S-1 (File No. 333-160634) andincorporated by reference herein).*10.3 Addus HealthCare, Inc. Support Center Vice President and Department Director Bonus Plan (filed on July 17, 2009 as Exhibit 10.11to Addus HomeCare Corporation’s Registration Statement on Form S-1 (File No. 333-160634) and incorporated by referenceherein).* 66Table of ContentsExhibitNumber Description of Document10.4 Addus Holding Corporation 2006 Stock Incentive Plan (filed on July 17, 2009 as Exhibit 10.12 to Addus HomeCare Corporation’sRegistration Statement on Form S-1 (File No. 333-160634) and incorporated by reference herein).*10.5 Director Form of Non-Qualified Stock Option Certificate under the 2006 Stock Incentive Plan (filed on July 17, 2009 as Exhibit 10.13to Addus HomeCare Corporation’s Registration Statement on Form S-1 (File No. 333-160634) and incorporated by reference herein).*10.6 Executive Form of Non-Qualified Stock Option Certificate under the 2006 Stock Incentive Plan (filed on July 17, 2009 as Exhibit10.14 to Addus HomeCare Corporation’s Registration Statement on Form S-1 (File No. 333-160634) and incorporated by referenceherein).*10.7 Form of Indemnification Agreement (filed on July 17, 2009 as Exhibit 10.16 to Addus HomeCare Corporation’s RegistrationStatement on Form S-1 (File No. 333-160634) and incorporated by reference herein).10.8 License Agreement for Horizon Homecare Software, dated March 24, 2006, between McKesson Information Solutions, LLC and AddusHealthCare, Inc. (filed on August 26, 2009 as Exhibit 10.17 to Amendment No. 1 to Addus HomeCare Corporation’s RegistrationStatement on Form S-1 (File No. 333-160634) and incorporated by reference herein).10.9 Contract Supplement to License Agreement No. C0608555, dated March 24, 2006 (filed on August 26, 2009 as Exhibit 10.17(a) toAmendment No. 1 to Addus HomeCare Corporation’s Registration Statement on Form S-1 (File No. 333-160634) and incorporated byreference herein).10.10 Contract Supplement to License Agreement No. 00608555, dated March 28, 2006 (filed on August 26, 2009 as Exhibit 10.17(b) toAmendment No. 1 to Addus HomeCare Corporation’s Registration Statement on Form S-1 (File No. 333-160634) and incorporated byreference herein).10.11 Amendment to License Agreement No. C0608555, dated March 28, 2006, between McKesson Information Solutions LLC and AddusHealthCare, Inc. (filed on August 26, 2009 as Exhibit 10.17(c) to Amendment No. 1 to Addus HomeCare Corporation’s RegistrationStatement on Form S-1 (File No. 333-160634) and incorporated by reference herein).10.12 Form of Addus HomeCare Corporation 2009 Stock Incentive Plan (filed on September 21, 2009 as Exhibit 10.20 to Amendment No. 2to Addus HomeCare Corporation’s Registration Statement on Form S-1 (File No. 333-160634) and incorporated by reference herein).*10.13 Form of Nonqualified Stock Option Award Agreement pursuant to the 2009 Stock Incentive Plan (filed on September 21, 2009 asExhibit 10.20(a) to Amendment No. 2 to Addus HomeCare Corporation’s Registration Statement on Form S-1 (File No. 333-160634)and incorporated by reference herein).*10.14 Form of Restricted Stock Award Agreement pursuant to the 2009 Stock Incentive Plan (filed on September 21, 2009 as Exhibit10.20(b) to Amendment No. 2 to Addus HomeCare Corporation’s Registration Statement on Form S-1 (File No. 333-160634) andincorporated by reference herein).*10.15 The Executive Nonqualified “Excess” Plan Adoption Agreement, by Addus HealthCare, Inc., dated April 1, 2012 (filed on April 5,2012 as Exhibit 99.1 to Addus HomeCare Corporation’s Current Report on Form 8-K (File No. 001-34504) and incorporated byreference herein).*10.16 The Executive Nonqualified Excess Plan Document (filed on April 5, 2012 as Exhibit 99.2 to Addus HomeCare Corporation’s CurrentReport on Form 8-K (File No. 001-34504) and incorporated herein by reference).*10.17 Asset Purchase Agreement, dated as of February 7, 2013, by and among Addus HealthCare, Inc., its subsidiaries identified therein, LHCGroup, Inc. and its subsidiaries identified therein (filed on March 6, 2013 as Exhibit 99.1 to Addus HomeCare Corporation’s CurrentReport on Form 8-K (File No. 001-34504) and incorporated by reference herein). 67Table of ContentsExhibitNumber Description of Document10.18 Employment and Non-Competition Agreement, effective December 15, 2014, by and between Addus HealthCare, Inc. and MaxineHochhauser (filed on December 15, 2014 as Exhibit 99.1 to Addus HomeCare Corporation’s Current Report on Form 8-K (FileNo. 001-34504) and incorporated by reference herein).*10.19 Securities Purchase Agreement, dated as of April 24, 2015, by and among Addus HealthCare, Inc., Margaret Coffey, Carol Kolar, SouthShore Home Health Service, Inc. and Acaring Home Care, LLC (filed on May 8, 2015 as Exhibit 10.1 to Addus HomeCareCorporation’s Quarterly Report on Form 10-Q (File No. 001-34504) and incorporated by reference herein).10.20 Second Amended and Restated Credit and Guaranty Agreement, dated as of November 10, 2015, among Addus HealthCare, Inc.,Addus HealthCare (Idaho), Inc., Addus HealthCare (Indiana), Inc., Addus HealthCare (Nevada), Inc., Addus HealthCare (New Jersey),Inc., Addus HealthCare (North Carolina), Inc., Benefits Assurance Co., Inc., PHC Acquisition Corporation, Professional ReliableNursing Service, Inc., Addus HealthCare (South Carolina), Inc., Addus HealthCare (Delaware), Inc., Cura Partners, LLC and PriorityHome Health Care, Inc., as borrowers, Addus HomeCare Corporation, as guarantor, the other credit parties from time to time partythereto, the various institutions from time to time party thereto, as lenders, and Fifth Third Bank, as agent and L/C issuer (filed onNovember 16, 2015 as Exhibit 99.1 to Addus HomeCare Corporation’s Current Report on Form 8-K (File No. 001-34504) andincorporated by reference herein).10.21 Consent and Amendment No. 2 to Second Amended and Restated Credit and Guaranty Agreement, effective May 24, 2016, amongAddus HealthCare, Inc., Addus HealthCare (Idaho), Inc., Addus HealthCare (Indiana), Inc., Addus HealthCare (Nevada), Inc., AddusHealthCare (New Jersey), Inc., Addus HealthCare (North Carolina), Inc., Benefits Assurance Co., Inc., PHC Acquisition Corporation,Professional Reliable Nursing Service, Inc., Addus HealthCare (South Carolina), Inc., Addus HealthCare (Delaware), Inc., Cura Partners,LLC, Priority Home Health Care, Inc. and South Shore Home Health Service Inc., as borrowers, Addus HomeCare Corporation, asguarantor, the other credit parties from time to time party thereto, the various institutions from time to time party thereto, as lenders,and Fifth Third Bank, as agent and L/C issuer (filed on May 24, 2016 as Exhibit 99.1 to Addus HomeCare Corporation’s CurrentReport on Form 8-K (File No. 001-34504) and incorporated by reference herein).10.22 Separation Agreement and General Release, dated as of March 18, 2016, by and between Addus HealthCare, Inc. and Inna Berkovich(filed on March 23, 2016 as Exhibit 10.1 to Addus HomeCare Corporation’s Current Report on Form 8-K (File No. 001-34504) andincorporated by reference herein).*10.23 Separation Agreement and General Release, effective May 25, 2016, by and between Addus HealthCare, Inc. and Donald Klink (filedon May 27, 2016 as Exhibit 99.1 to Addus HomeCare Corporation’s Current Report on Form 8-K (File No. 001-34504) andincorporated by reference herein).*10.24 Separation Agreement and General Release, dated as of March 1, 2016, by and between Addus HomeCare Corporation and Mark S.Heaney (filed on March 2, 2016 as Exhibit 99.2 to Addus HomeCare Corporation’s Current Report on Form 8-K (File No. 001-34504)and incorporated by reference herein).*10.25 Severance Agreement and General Release, dated as of February 13, 2017, by and between Addus HomeCare Corporation and MaxineHochhauser (filed on January 18, 2017 as Exhibit 10.1 to Addus HomeCare Corporation’s Current Report on Form 8-K (FileNo. 001-34504) and incorporated by reference herein).* 68Table of ContentsExhibitNumber Description of Document10.26 Credit Agreement, dated as of May 8, 2017, by and among Addus Healthcare, Inc., as the Borrower, the other parties from time to timea party thereto, and Capital One, N.A., as a Lender and Swing Lender and as Agent for all Lenders, Suntrust Bank, as DocumentationAgent, Bank of the West, Compass Bank, Fifth Third Bank and JPMorgan Chas Bank, N.A., as Co-Syndication Agents, the otherfinancial institutions party thereto, as Lenders, Capital One, National Association, Bank of the West, Compass Bank, Fifth Third Bankand JPMorgan Chas Bank, N.A. and Suntrust Robinson Humphrey as Joint Lead Arrangers and Capital One, National Association, asSole Bookrunner (filed on May 9, 2017 as Exhibit 10.3 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (FileNo. 001-34504) and incorporated by reference herein).10.27 Addus HomeCare Corporation’s 2017 Omnibus Incentive Plan, effective as of April 27, 2017 (filed on June 16, 2017 as Exhibit 10.1 toAddus HomeCare Corporation’s Current Report on Form 8-K (File No. 001-34504) and incorporated by reference herein).*10.28 Form of Nonqualified Stock Option Award Agreement pursuant to the 2017 Omnibus Incentive Plan.*10.29 Form of Restricted Stock Award Agreement pursuant to the 2017 Omnibus Incentive Plan.*10.30 Amended and Restated Employment and Non-Competition Agreement, dated April 25, 2017, by and between Addus HealthCare, Inc.and R. Dirk Allison (filed on August 8, 2017 as Exhibit 10.2 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (FileNo. 001-34504) and incorporated by reference herein).*10.31 Amended and Restated Employment and Non-Competition Agreement, dated April 25, 2017, by and between Addus HealthCare, Inc.and Brian Poff (filed on August 8, 2017 as Exhibit 10.3 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (FileNo. 001-34504) and incorporated by reference herein).*10.32 Amended and Restated Employment and Non-Competition Agreement, dated April 25, 2017, by and between Addus HealthCare, Inc.and James Zoccoli (filed on August 8, 2017 as Exhibit 10.4 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (FileNo. 001-34504) and incorporated by reference herein).*10.33 Amended and Restated Employment and Non-Competition Agreement, effective April 25, 2017, by and between Addus HealthCare,Inc. and Darby Anderson (filed on August 8, 2017 as Exhibit 10.5 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q(File No. 001-34504) and incorporated by reference herein).*10.34 Amended and Restated Employment and Non-Competition Agreement, dated April 25, 2017, by and between Addus HealthCare, Inc.and W. Bradley Bickham (filed on August 8, 2017 as Exhibit 10.6 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q(File No. 001-34504) and incorporated by reference herein).*10.35 Amended and Restated Employment and Non-Competition Agreement, dated April 25, 2017, by and between Addus HealthCare, Inc.and Brenda Belger (filed on August 8, 2017 as Exhibit 10.7 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (FileNo. 001-34504) and incorporated by reference herein).*10.36 Transition Agreement and Release, effective as of August 14, 2017, by and between Addus HealthCare, Inc. and Brenda Belger (filedon July 31, 2017 as Exhibit 10.1 to Addus HomeCare Corporation’s Current Report on Form 8-K (File No. 001-34504) andincorporated by reference herein).*10.37 Employment and Non-Competition Agreement, effective as of August 14, 2017, by and between Addus HealthCare, Inc. and LaurieManning (filed on July 31, 2017 as Exhibit 10.2 to Addus HomeCare Corporation’s Current Report on Form 8-K (File No. 001-34504)and incorporated by reference herein).* 69Table of ContentsExhibitNumber Description of Document16.1 Letter from BDO USA, LLP, dated May 10, 2017, regarding change in certifying accountant (filed on May 10, 2017 as Exhibit 16.1to Addus HomeCare Corporation’s Current Report on Form 8-K/A (File No. 001-34504) and incorporated by reference herein).21.1 Subsidiaries of Addus HomeCare Corporation23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm23.2 Consent of BDO USA, LLP, Independent Registered Public Accounting Firm31.1 Certification of Chief Executive Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934 as Adopted Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002.31.2 Certification of Chief Financial Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934 as Adopted Pursuant toSection 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 The following materials from Addus HomeCare Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017,formatted in Extensive Business Reporting Language (XBRL), (i) Consolidated Balance Sheets, (ii) Consolidated Statements ofIncome, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to theConsolidated Financial Statements. *Management compensatory plan or arrangement 70Table of ContentsITEM 16.FORM 10-K SUMMARYNone. 71Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized. Addus HomeCare CorporationBy: /s/ R. DIRK ALLISON R. Dirk Allison,President and Chief Executive OfficerDate: March 14, 2018Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the date indicated: Signature Title Date/S/ R. DIRK ALLISON R. Dirk Allison President and Chief Executive Officer (Principal ExecutiveOfficer) and Director March 14, 2018/s/ Brian Poff Brian Poff Chief Financial Officer (Principal Financial and AccountingOfficer) March 14, 2018/S/ MARK L. FIRST Mark L. First Director March 14, 2018/S/ STEVEN I. GERINGER Steven I. Geringer Director March 14, 2018/S/ MICHAEL EARLEY Michael Earley Director March 14, 2018/s/ Darin J. Gordon Darin J. Gordon Director March 14, 2018/s/ Susan T. Weaver, M.D., FACP Susan T. Weaver, M.D., FACP Director March 14, 2018 72Table of ContentsINDEX TO CONSOLIDATED FINANCIAL INFORMATION Page Reports of Independent Registered Public Accounting Firms F-2 Consolidated Balance Sheets F-4 Consolidated Statements of Income F-5 Consolidated Statements of Stockholders’ Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-8 Schedule II Valuation and Qualifying Accounts F-40 F-1Table of ContentsReport of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of Addus HomeCare CorporationOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheet of Addus HomeCare Corporation and subsidiaries (the Company) as of December 31,2017, the related consolidated statements of income, stockholders’ equity and cash flows for the year ended December 31, 2017, and the related notesand financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financialstatements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2017, and the consolidatedresults of its operations and its cash flows for the year ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sinternal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 14, 2018 expressed anunqualified opinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sfinancial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect tothe Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commissionand the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit includedperforming procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing proceduresthat respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financialstatements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating theoverall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion./s/ Ernst & Young LLPWe have served as the Company’s auditor since 2017Dallas, TexasMarch 14, 2018 F-2Table of ContentsReport of Independent Registered Public Accounting FirmBoard of Directors and StockholdersAddus HomeCare CorporationFrisco, TexasWe have audited the accompanying consolidated balance sheet of Addus HomeCare Corporation as of December 31, 2016 and the relatedconsolidated statements of income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2016. Inconnection with our audits of the financial statements, we have also audited the financial statement schedule listed in the accompanying index. Thesefinancial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements and schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule.We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AddusHomeCare Corporation at December 31, 2016 and the results of its operations and its cash flows for each of the two years in the period endedDecember 31, 2016, in conformity with accounting principles generally accepted in the United States of America.Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements take as a whole,presents fairly, in all material respects, the information set forth therein./s/ BDO USA, LLPChicago, IllinoisMarch 14, 2017 F-3Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSAs of December 31, 2017 and 2016(amounts and shares in thousands, except per share data) 2017 2016 Assets Current assets Cash $53,754 $8,013 Accounts receivable, net of allowances of $10,537 and $7,363 at December 31, 2017 and 2016, respectively 88,952 116,999 Prepaid expenses and other current assets 8,379 5,998 Total current assets 151,085 131,010 Property and equipment, net of accumulated depreciation and amortization 7,489 6,648 Other assets Goodwill 90,339 72,688 Intangible assets, net of accumulated amortization 16,596 15,263 Investments in joint ventures — 900 Deferred tax assets, net 1,601 3,355 Total other assets 108,536 92,206 Total assets $267,110 $229,864 Liabilities and stockholders’ equity Current liabilities Accounts payable $4,271 $4,486 Current portion of long-term debt, net of debt issuance costs 3,099 2,531 Accrued expenses 44,800 42,603 Total current liabilities 52,170 49,620 Long-term liabilities Long-term debt, less current portion, net of debt issuance costs 39,860 22,482 Total liabilities $92,030 $72,102 Stockholders’ equity Common stock—$.001 par value; 40,000 authorized and 11,632 and 11,527 shares issued and outstanding as ofDecember 31, 2017 and 2016, respectively $12 $12 Additional paid-in capital 95,963 92,253 Retained earnings 79,105 65,497 Total stockholders’ equity 175,080 157,762 Total liabilities and stockholders’ equity $267,110 $229,864 See accompanying Notes to Consolidated Financial Statements F-4Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOMEFor the years ended December 31, 2017, 2016 and 2015(amounts and shares in thousands, except per share data) For the Year Ended December 31, 2017 2016 2015 Net service revenues $425,715 $400,688 $336,815 Cost of service revenues 310,119 294,593 245,492 Gross profit 115,596 106,095 91,323 General and administrative expenses 76,902 76,840 66,143 Gain on sale of assets (2,467) — — Revaluation of contingent consideration — — 130 Depreciation and amortization 6,663 6,647 4,717 Provision for doubtful accounts 8,259 7,373 4,309 Total operating expenses 89,357 90,860 75,299 Operating income from continuing operations 26,239 15,235 16,024 Interest income (66) (2,812) (47) Interest expense 4,472 2,332 786 Total interest (income) expense, net 4,406 (480) 739 Other income 217 206 — Income from continuing operations before income taxes 22,050 15,921 15,285 Income tax expense 8,589 3,994 3,932 Net income from continuing operations 13,461 11,927 11,353 Earnings from discontinued operations, net of tax 147 97 270 Net income $13,608 $12,024 $11,623 Net income per common share Basic income per share Continuing operations $1.18 $1.05 $1.03 Discontinued operations 0.01 0.01 0.03 Basic income per share $1.19 $1.06 $1.06 Diluted income per share Continuing operations $1.16 $1.05 $1.02 Discontinued operations 0.01 0.01 0.02 Diluted income per share $1.17 $1.06 $1.04 Weighted average number of common shares and potential common shares outstanding: Basic 11,470 11,292 10,986 Diluted 11,623 11,349 11,189 See accompanying Notes to Consolidated Financial Statements F-5Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYFor the years ended December 31, 2017, 2016 and 2015(amounts and shares in thousands) Common Stock AdditionalPaid inCapital RetainedEarnings TotalStockholders’Equity Shares Amount Balance at December 31, 2014 11,010 $11 $84,929 $41,850 $126,790 Issuance of shares of common stock under restricted stock award agreements 57 — — — — Forfeiture of shares of common stock under restricted stock award agreements (3) — — — — Stock-based compensation — — 1,573 — 1,573 Excess tax benefit from exercise of stock options — — 269 — 269 Shares issued for exercise of stock options 44 — 305 — 305 Net income — — — 11,623 11,623 Balance at December 31, 2015 11,108 $11 $87,076 $53,473 $140,560 Issuance of shares of common stock under restricted stock award agreements 108 — — — — Forfeiture of shares of common stock under restricted stock award agreements (69) — — — — Stock-based compensation — — 1,072 — 1,072 Excess tax benefit from exercise of stock options — — 1,090 — 1,090 Shares issued for exercise of stock options 380 1 3,015 — 3,016 Net income — — — 12,024 12,024 Balance at December 31, 2016 11,527 $12 $92,253 $65,497 $157,762 Issuance of shares of common stock under restricted stock award agreements 90 — — — — Forfeiture of shares of common stock under restricted stock award agreements (36) — — — — Stock-based compensation — — 2,552 — 2,552 Shares issued for exercise of stock options 51 — 1,158 — 1,158 Net income — — — 13,608 13,608 Balance at December 31, 2017 11,632 $12 $95,963 $79,105 $175,080 See accompanying Notes to Consolidated Financial Statements F-6Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended December 31, 2017 2016 and 2015(amounts in thousands) For the Year Ended December 31, 2017 2016 2015 Cash flows from operating activities: Net income $13,608 $12,024 $11,623 Adjustments to reconcile net income to net cash provided by (used in) operating activities, net of acquisitions: Depreciation and amortization 6,663 6,647 4,717 Non-cash restructuring 383 2,550 — Deferred income taxes 1,754 (1,328) 838 Stock-based compensation 2,552 1,072 1,573 Amortization and write-off of debt issuance costs under the terminated credit facility 1,484 357 97 Amortization of debt issuance costs under the new credit facility 382 — — Provision for doubtful accounts 8,259 7,373 4,309 Revaluation of contingent consideration — — 130 Gain on sale of assets (2,467) — — Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 21,023 (32,606) (19,512) Prepaid expenses and other current assets (2,364) (282) 2,318 Accounts payable (229) (1,530) 570 Accrued expenses 1,723 4,980 (2,557) Net cash provided by (used in) operating activities 52,771 (743) 4,106 Cash flows from investing activities: Proceeds from the sale of assets 3,702 — — Acquisitions of businesses, net of cash acquired (24,354) (20,026) (8,365) Acquisition of customer list — — (146) Purchases of property and equipment (3,616) (1,712) (2,213) Net cash used in investing activities (24,268) (21,738) (10,724) Cash flows from financing activities: Borrowings on revolver- new credit facility 30,000 — — Borrowings on revolver- terminated credit facility 20,000 27,000 — Borrowings on term loan- new credit facility 45,000 — — Borrowings on term loan- terminated credit facility — 25,000 — Payments on revolver- new credit facility (30,000) — — Payments on revolver- terminated credit facility (20,000) (27,000) — Payments on term loan- new credit facility (563) — — Payments on term loan- terminated credit facility (24,063) (938) — Payments on capital lease obligations (1,432) (1,175) (1,050) Payments for debt issuance costs under the new credit facility (2,862) — — Payments for debt issuance costs under the terminated credit facility — (503) (1,165) Cash received from exercise of stock options 1,158 3,016 305 Excess tax benefit from exercise of stock options — 1,090 269 Payment on contingent earn-out obligation — (100) (1,000) Net cash provided by (used in) financing activities 17,238 26,390 (2,641) Net change in cash 45,741 3,909 (9,259) Cash, at beginning of period 8,013 4,104 13,363 Cash, at end of period $53,754 $8,013 $4,104 Supplemental disclosures of cash flow information: Cash paid for interest $2,261 $2,322 $786 Cash paid for income taxes 6,838 5,087 911 Supplemental disclosures of non-cash investing and financing activities Property and equipment acquired through capital lease obligations $— $618 $378 Tax benefit related to the amortization of tax goodwill in excess of book basis 206 203 123 See accompanying Notes to Consolidated Financial Statements F-7Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements1. Significant Accounting PoliciesBasis of Presentation and Description of BusinessThe Consolidated Financial Statements include the accounts of Addus HomeCare Corporation (“Holdings”) and its subsidiaries (together withHoldings, the “Company,” “we,” “us,” or “our”). The Company operates as one reportable business segment and is a provider of comprehensivepersonal care services, which are provided primarily in the home. The Company’s personal care services provide assistance with activities of dailyliving. The Company’s consumers are primarily persons who are at risk of hospitalization or institutionalization, such as the elderly, chronically ill anddisabled. The Company’s payor clients include federal, state and local governmental agencies, managed care organizations, commercial insurers andprivate individuals. As of December 31, 2017, the Company provided personal care services to over 34,000 consumers in 24 states through 116 offices.Principles of ConsolidationAll intercompany balances and transactions have been eliminated in consolidation.The Company used the cost method to account for its investments in joint ventures in which it owned 10% equity interests. The Company soldsuch investments on October 1, 2017 (see Note 3).Revenue RecognitionThe Company generates net service revenues by providing services directly to consumers. The Company receives payments for providingservices from federal, state and local governmental agencies, managed care organizations, commercial insurers and private consumers. The Company’soperations are principally provided based on authorized hours, determined by the relevant agency, at an hourly rate specified in agreements or fixed bylegislation and recognized as revenues at the time services are rendered. Personal care service revenues are reimbursed by state, local and othergovernmental programs which are partially funded by Medicaid or Medicaid waiver programs, with the remainder reimbursed through insuranceprograms and private pay.Allowance for Doubtful AccountsThe Company establishes its allowance for doubtful accounts to the extent it is probable that a portion or all of a particular account will not becollected. The Company establishes its provision for doubtful accounts primarily by analyzing historical trends and the aging of receivables. In itsevaluation, the Company considers other factors including: delays in payment trends in individual states due to budget or funding issues; billingconversions related to acquisitions or internal systems; resubmission of bills with required documentation and disputes with specific payors. Anallowance for doubtful accounts is maintained at a level that the Company’s management believes is sufficient to cover potential losses. However,actual collections could differ from the Company’s estimates. F-8Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) Property and EquipmentProperty and equipment are recorded at cost and depreciated over the estimated useful lives of the related assets by use of the straight-linemethod. Maintenance and repairs are charged to expense as incurred. The estimated useful lives of the property and equipment are as follows: Computer equipment 3—5 years Furniture and equipment 5—7 years Transportation equipment 5 years Computer software 5—10 years Leasehold improvements Lesser of useful life or lease term, unlessprobability of lease renewal is likely GoodwillThe Company’s carrying value of goodwill is the excess of the purchase price over the fair value of the net assets acquired from variousacquisitions including the acquisition of Addus HealthCare, Inc. (“Addus HealthCare”). In accordance with Accounting Standards Codification(“ASC”) Topic 350, “Goodwill and Other Intangible Assets ,” goodwill and intangible assets with indefinite useful lives are not amortized. TheCompany tests goodwill for impairment at the reporting unit level on an annual basis, as of October 1, or whenever potential impairment triggers occur,such as a significant change in business climate or regulatory changes that would indicate that an impairment may have occurred. The Company mayuse a qualitative test, known as “Step 0,” or a two-step quantitative method to determine whether impairment has occurred. In Step 0, the Company canelect to perform an optional qualitative analysis and based on the results skip the two-step analysis. In 2017, 2016 and 2015, the Company elected toimplement Step 0 and was not required to conduct the remaining two step analysis. The results of the Company’s Step 0 assessments indicated that itwas more likely than not that the fair value of its reporting unit exceeded its carrying value and therefore the Company concluded that there were noimpairments for the years ended December 31, 2017, 2016 or 2015.Intangible AssetsThe Company’s identifiable intangible assets consist of customer and referral relationships, trade names, trademarks, state licenses andnon-compete agreements. Amortization is computed using straight-line and accelerated methods based upon the estimated useful lives of therespective assets, which range from two to twenty-five years.Intangible assets with finite lives are amortized using the estimated economic benefit method over the useful life and assessed for impairmentwhenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company would recognize an impairmentloss when the estimated future non-discounted cash flows associated with the intangible asset is less than the carrying value. An impairment chargewould then be recorded for the excess of the carrying value over the fair value. The Company estimates the fair value of these intangible assets usingthe income approach. No impairment charge was recorded for the years ended December 31, 2017, 2016 or 2015.The income approach, which the Company uses to estimate the fair value of its intangible assets (other than goodwill), is dependent on a numberof factors including estimates of future market growth and trends, forecasted revenue and costs, expected periods over which the assets will be utilized,appropriate discount rates and other variables. The Company bases its fair value estimates on assumptions the Company believes to be F-9Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) reasonable but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates.Debt Issuance CostsThe Company amortizes debt issuance costs on a straight-line method over the term of the related debt. This method approximates the effectiveinterest method. The Company has classified the debt issuance costs as current portion of long-term debt or long-term debt, less current portion as ofDecember 31, 2017 and 2016.Workers’ Compensation ProgramThe Company’s workers’ compensation insurance program has a $0.4 million deductible component. The Company recognizes its obligationsassociated with this program in the period the claim is incurred. The cost of both the claims reported and claims incurred but not reported, up to thedeductible, have been accrued based on historical claims experience, industry statistics and an actuarial analysis performed by an independent thirdparty. The Company monitors its claims quarterly and adjusts its reserves accordingly. These costs are recorded primarily as the cost of services on theConsolidated Statements of Income. As of December 31, 2017 and 2016, the Company recorded $12.6 million and $12.8 million, respectively, inaccrued workers’ compensation insurance. The accrued workers’ compensation insurance is included in accrued expenses on the Company’sConsolidated Balance Sheets. As of December 31, 2017 and 2016, the Company recorded $0.5 million and $0.7 million, respectively, in workers’compensation insurance recovery receivables. The workers’ compensation insurance recovery receivable is included in prepaid expenses and othercurrent assets on the Company’s Consolidated Balance Sheets.Interest IncomeIllinois law entitles designated service program providers to receive a prompt payment interest penalty based on qualifying services approved forpayment that remain unpaid after a designated period of time. As the amount and timing of the receipt of these payments are not certain, the interestincome is recognized when received and reported in the Consolidated Statements of Income as interest income. For the year ended December 31, 2017,the Company did not receive any prompt payment interest. For the year ended December 31, 2016, the Company received $2.8 million in promptpayment interest. For the year ended December 31, 2015, the Company did not earn or receive any prompt payment interest. While the Company maybe owed additional prompt payment interest, the amount and timing of receipt of such payments remains uncertain and the Company has determinedthat it will continue to recognize prompt payment interest income when received.Interest ExpenseThe Company’s interest expense consists of interest and unused credit line fees on its credit facilities, interest on its capital lease obligations, andamortization and write-off of debt issuance costs, which is reported in the statement of income when incurred.Other IncomeOther income consisted of income distributions received from investments in joint ventures. The Company accounted for this income inaccordance with ASC Topic 325, “Investments—Other.” The Company recognized the net accumulated earnings only to the extent distributed by thejoint ventures on the date received. The Company subsequently sold these equity investments on October 1, 2017 (see Note 3). F-10Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) Income Tax ExpensesThe Company accounts for income taxes under the provisions of ASC Topic 740, “Income Taxes.” The objective of accounting for income taxesis to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences ofevents that have been recognized in its financial statements or tax returns. Deferred taxes, resulting from differences between the financial and tax basisof the Company’s assets and liabilities, are also adjusted for changes in tax rates and tax laws when changes are enacted. ASC Topic 740 also requiresthat deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not berealized. ASC Topic 740 also prescribes a recognition threshold and measurement process for recording in the financial statements uncertain taxpositions taken or expected to be taken in a tax return. In addition, ASC Topic 740 provides guidance on derecognition, classification, accounting ininterim periods and disclosure requirements for uncertain tax positions.As a result of the reduction in the U.S. corporate income tax rate from 35.0% to 21.0% under the Tax Reform Act, the Company revalued itsending net deferred tax assets at December 31, 2017 and recognized a provisional $0.9 million tax expense in the Company’s Consolidated Statementsof Income for the year ended December 31, 2017. Additionally, the Tax Reform Act repealed the performance-based compensation exceptions to the$1.0 million yearly limit on the deduction for compensation paid with respect to a covered employee to include the Chief Executive Officer, ChiefFinancial Officer and the 3 highest paid employees under Section 162(m). As a result, the Company recognized a provisional valuation allowance of$0.3 million in the Company’s Consolidated Statements of Income for the year ended December 31, 2017.In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-09, “Compensation-Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 allows for simplification of several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on thestatement of cash flows. Under ASU 2016-09, all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based paymentawards) should be recognized as income tax expense or benefit in the income statement. ASU 2016-09 also requires recognition of excess tax benefitsregardless of whether the benefit reduces taxes payable in the current period. ASU 2016-09 further permits the withholding of an amount up toemployees’ maximum individual tax rate in the relevant jurisdiction without resulting in a liability classification. ASU 2016-09 also requires anyexcess tax benefits be classified along with other income tax cash flows as an operating activity and cash paid by an employer when directlywithholding shares for tax-withholding purposes to be classified as a financing activity. The Company adopted this standard on January 1, 2017 on aprospective basis. As a result, for the year ended December 31, 2017, the Company recorded an excess tax benefit of $0.1 million within income taxexpense on its Consolidated Statements of Income.The Company recognizes interest and penalties accrued related to uncertain tax positions in interest expense and penalties within operatingexpenses on the Consolidated Statements of Income.Stock-based CompensationThe Company currently has one active stock incentive plan, the 2017 Omnibus Incentive Plan (the “2017 Plan”), that provides for new grants ofstock-based employee compensation. The Company accounts for stock-based compensation in accordance with ASC Topic 718, “StockCompensation.” Under the 2017 Plan, compensation expense is recognized on a straight-line basis over the vesting period of the equity awards basedon the grant date fair value of the options and restricted stock awards. From October 28, 2009 to December 31, F-11Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 2016, the Company utilized the Enhanced Hull-White Trinomial Model to value the Company’s options. Beginning January 1, 2017, the Companybegan utilizing the Black-Scholes Option Pricing Model to value the Company’s options, as the Company believes it is a more widely accepted andunderstood valuation model. The determination of the fair value of stock-based payments utilizing the Black-Scholes Model and the Enhanced Hull-White Trinomial Model is affected by the Company’s stock price and a number of assumptions, including expected volatility, risk-free interest rate,expected term, expected dividends yield, expected forfeiture rate, expected turn-over rate and the expected exercise multiple.Diluted Net Income Per Common ShareDiluted net income per common share, calculated on the treasury stock method, is based on the weighted average number of shares outstandingduring the period. The Company’s outstanding securities that may potentially dilute the common stock are stock options and restricted stock awards.Included in the Company’s calculation of diluted earnings per share for the year ended December 31, 2017 were approximately 479,000 stockoptions outstanding, of which approximately 101,000 were dilutive. In addition, there were approximately 143,000 restricted stock awardsoutstanding, of which approximately 52,000 were dilutive for the year ended December 31, 2017.Included in the Company’s calculation of diluted earnings per share for the year ended December 31, 2016 were approximately 405,000 stockoptions outstanding, of which approximately 30,000 were dilutive. In addition, there were approximately 103,000 restricted stock awards outstanding,of which approximately 27,000 were dilutive for the year ended December 31, 2016.Included in the Company’s calculation of diluted earnings per share for the year ended December 31, 2015 were approximately 650,000 stockoptions outstanding, of which approximately 40,000 were out-of-the-money. In addition, there were approximately 89,000 restricted stock awardsoutstanding, of which approximately 6,000 were dilutive for the year ended December 31, 2015.EstimatesThe financial statements are prepared by management in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) and includeestimated amounts and certain disclosures based on assumptions about future events. The Company’s critical accounting estimates include thefollowing areas: the allowance for doubtful accounts, reserve for self-insurance claims, accounting for stock-based compensation, accounting forincome taxes, business combinations and when required, the quantitative assessment of goodwill. Actual results could differ from those estimates.Fair Value MeasurementsThe Company’s financial instruments consist of cash, accounts receivable, payables and debt. The carrying amounts reported on the Company’sConsolidated Balance Sheets for cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-termnature of these instruments. The carrying value of the Company’s long-term debt with variable interest rates approximates fair value based oninstruments with similar terms using level 2 inputs as defined under ASC Topic 820 “Fair Value Measurement.”The Company applies fair value techniques on a non-recurring basis associated with valuing potential impairment losses related to goodwill, ifrequired, and indefinite-lived intangible assets and also when F-12Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) determining the fair value of contingent consideration, if applicable. To determine the fair value in these situations, the Company uses Level 3 inputs,under ASC Topic 820 and defined as unobservable inputs in which little or no market data exists; therefore requiring an entity to develop its ownassumptions, such as discounted cash flows, or if available, what a market participant would pay on the measurement date.The Company utilizes the income approach to estimate the fair value of its intangible assets derived from acquisitions.Going ConcernIn connection with the preparation of the financial statements for the years ended December 31, 2017 and 2016, the Company conducted anevaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to the entity’s ability tocontinue as a going concern within one year after the date of the issuance, or the date of availability, of the financial statements to be issued. Theevaluation concluded that there did not appear to be evidence of substantial doubt of the entity’s ability to continue as a going concern.New Accounting PronouncementsIn May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which requires an entity to recognize theamount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 replaced most existingrevenue recognition guidance in GAAP. During 2017, the Company completed its assessment with assistance from outside resources to prepare specificcontract analysis and document policy changes. The Company also reviewed its contract and revenue streams and implemented system enhancements.Under ASU 2014-09, the timing and measurement of revenue for the Company’s customers is similar to its current revenue recognition model due tothe structure of payor contracts which consists of a fixed reimbursement rate that is deemed earned upon completion of a defined service. The Companyanticipates that for periods subsequent to adoption, the majority of what is currently classified as bad debt expense under operating expenses will betreated as an implicit price concession factored into net revenue, consistent with the intent of the standard. As a result, there will be a decrease in grossprofit for periods subsequent to the adoption as compared to prior periods with no change to operating income or net income. The new standard alsorequires enhanced disclosures related to the disaggregation of revenue, information about contract balances, and other disclosures about contracts withcustomers, including revenue recognition policies to identify performance obligations and significant judgments in measurement and recognition. TheCompany adopted the standard on January 1, 2018 using the modified retrospective approach and the adoption did not result in a material cumulativeadjustment.In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which replaces existing leasing rules with a comprehensive leasemeasurement and recognition standard and expanded disclosure requirements. ASU 2016-02 will require lessees to recognize most leases on theirbalance sheets as liabilities, with corresponding “right-of-use” assets and is effective for annual reporting periods beginning after December 15, 2018,subject to early adoption. For income statement recognition purposes, leases will be classified as either a finance or an operating lease. The Companywill be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Upon initialevaluation, the Company believes that the new standard will have a material impact on its Consolidated Balance Sheets but it will not affect itsliquidity. It has been determined that the Company will need to secure new software to account for the change in accounting for leases and is currentlyreviewing the software options available. F-13Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and CashPayments.” This standard amends and adjusts how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and will require adoption on aretrospective basis unless impracticable. If impracticable the Company would be required to apply the amendments prospectively as of the earliest datepossible. The Company is currently evaluating the impact that ASU 2016-15 will have on its statement of cash flows but does not expect it to have amaterial impact.In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”The new guidance eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) tomeasure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amountover its fair value (i.e., measure the charge based on the current Step 1). ASU 2017-04 is effective for annual and any interim impairment tests forperiods beginning after December 15, 2019. The Company is currently evaluating the provisions of ASU 2017-04 to determine how its goodwillimpairment testing will be impacted and whether it may elect to adopt ASU 2017-04 prior to the stated effective date.In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting.” ASU2017-09 clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance,modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as aresult of the change in terms or conditions. This pronouncement is effective for annual periods, and for interim periods within those annual periods,beginning after December 15, 2017, with early adoption permitted, and is applied prospectively to changes in terms or conditions of awards occurringon or after the adoption date. The Company is evaluating the impact of the adoption of this guidance on its financial statements but does not expect itto have a material impact.Reclassification of Prior Period BalancesCertain reclassifications have been made to prior period amounts to conform to the current-year presentation including the reporting of provisionfor doubtful accounts as a separate line item on the Consolidated Statements of Income. These reclassifications have no effect on the reported netincome for the years ended December 31, 2017, 2016 and 2015.2. Correction to Prior Period Financial StatementsManagement noted errors in the Company’s previously issued Consolidated Financial Statements. The first error, in the amount of approximately$0.6 million, relates to the calculation of tax benefits that should have been applied to reduce goodwill. The second error in the amount of $0.7 millionrelates to the fact that the Company did not reduce goodwill for the tax benefits resulting from the allocation of goodwill to a disposition at the timethe Company disposed of the home health business in 2013. The third error relates to the disposal of a state license in the amount of $0.2 million thatwas not derecognized at the time of sale in 2013. The fourth error in the amount of $0.2 million relates to errors made in the calculation of deferredtaxes associated with the Company’s stock-based compensation since 2010. This error partially offsets the errors previously described.As such, the Company’s consolidated financial statements for fiscal year 2006 and periods thereafter included misstatements associated with theerrors noted above. The cumulative reduction in net income resulting from correcting these errors beginning in the year 2006 totaled $1.2 million. F-14Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) In evaluating whether the previously issued Consolidated Financial Statements were materially misstated, the Company applied the guidance ofASC 250, Accounting Changes and Error Corrections, SEC Staff Accounting Bulletin (”SAB”) Topic 1.M, Assessing Materiality and SAB Topic 1.N,Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements and concluded that theeffect of the errors on prior period financial statements was immaterial. However, the guidance states that prior-year misstatements which, if corrected inthe current year would materially misstate the current year’s financial statements, must be corrected by adjusting prior year financial statements, eventhough such correction previously was and continues to be immaterial to the prior-year financial statements. Correcting prior-year financial statementsfor such “immaterial misstatements” does not require previously filed reports to be amended. The Company concluded that the error was not material tothe affected prior periods; however, the cumulative effect of correcting all of the prior period misstatements in the current year would be material to thecurrent year consolidated financial statements.The cumulative effect of adjustments required to correct the misstatements in the financial statements years prior to 2015 are reflected in therevised opening retained earnings balance as of January 1, 2015. The cumulative effect of those adjustments on all periods reduced previously reportedretained earnings by $1.2 million.As a result, certain amounts presented in the Company’s Consolidated Balance Sheets have been revised from the amounts previously reported tocorrect this error as shown in the table below.Consolidated Balance Sheet as of December 31, 2016 (in thousands): AsPreviouslyReported Corrections AsRevised Deferred tax asset, net $3,153 $202 $3,355 Goodwill 73,906 (1,218) 72,688 Intangible assets, net of accumulated amortization 15,413 (150) 15,263 Total assets $231,030 $(1,166) $229,864 Total liabilities 72,102 — 72,102 Total stockholders’ equity 158,928 (1,166) 157,762 Total liabilities and stockholders’ equity $231,030 $(1,166) $229,864 3. Gain on Sale of AssetsOn October 1, 2017, the Company sold its 10% membership interests in two joint ventures with LHC Group, Inc. (“LHCG”), which werepreviously reported as Investments in joint ventures on the Company’s Consolidated Balance Sheets at December 31, 2016. The Company receivedproceeds of approximately $1.3 million and recorded a pre-tax gain of $0.4 million on the sale of its membership interest.In order to focus on providing services to consumers in their homes, effective March 1, 2017, the Company ceased the adult day services businessand completed its sale of substantially all of the assets used in three adult day services centers in Illinois. The Company received proceeds ofapproximately $2.4 million and recorded a pre-tax gain of $2.1 million on the sale of the three adult day services centers. F-15Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 4. Discontinued OperationsEffective March 1, 2013, the Company sold substantially all of the assets used in its home health business (the “Home Health Business”) inArkansas, Nevada and South Carolina, and 90% of the Home Health Business in California and Illinois, to subsidiaries of LHC Group, Inc. (the“Purchasers”) for a cash consideration of $20.0 million. The Company held a 10% ownership interest in the Home Health Business in California andIllinois from March 1, 2013 to October 1, 2017, when it sold its interest. The assets sold included 19 home health agencies and two hospice agencies infive states. On December 30, 2013, the Company sold one home health agency in Pennsylvania for approximately $0.2 million. The results of theHome Health Business and the Pennsylvania home health agency sold are reflected as discontinued operations for all periods presented herein.As a condition of the sale of the Home Health Business to subsidiaries of LHCG, the Company is responsible for any adjustments to Medicareand Medicaid billings prior to the closing of the sale. In connection with an internal evaluation of the Company’s billing processes, it discovereddocumentation errors in a number of claims that it had submitted to Medicare. Consistent with applicable law, the Company voluntarily remitted$1.8 million to the government in March 2014. As of December 31, 2017, the Company, using its best judgment, has estimated a total of $0.2 millionfor billing adjustments for 2013 and 2012 which may be subject to Medicare audits. For the years ended December 31, 2017, 2016 and 2015, theCompany reduced the indemnification reserve accrual by the amounts accrued for periods no longer subject to Medicare audits of $0.2 million,$0.2 million and $0.4 million, respectively. This amount is reflected as a reduction in general and administrative expense of discontinued operationsand reflected in the table below.The following table presents the net service revenues and earnings attributable to discontinued operations, which include the financial results forthe years ended December 31, 2017, 2016 and 2015: 2017 2016 2015 (Amounts in Thousands) Net service revenues $— $— $— Income before income taxes 245 163 448 Income tax expense 98 66 178 Net income from discontinued operations $147 $97 $270 5. AcquisitionsEffective October 1, 2017, the Company acquired certain assets of Community Partnered Resources, Inc. d/b/a Sun Cities Caregivers and d/b/aSun Cities Homecare (‘Sun Cities”), in the State of Arizona, to enhance operations in an advantageous market. The total consideration for thetransaction was comprised of $2.3 million in cash. The related acquisition costs, included in general and administrative expenses on the ConsolidatedStatements of Income, were $0.1 million and were expensed as incurred. The results of operations from this acquired entity are included in theCompany’s Consolidated Statements of Income from the date of the acquisition. F-16Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) The Company’s acquisition of Sun Cities has been accounted for in accordance with ASC Topic 805, “Business Combinations,” and the resultinggoodwill and other intangible assets was accounted for under ASC Topic 350, “ Goodwill and Other Intangible Assets.” The acquisition was recordedat its fair value as of October 1, 2017. Under business combination accounting, the Sun Cities Purchase Price was $2.3 million and was allocated to SunCities’s net tangible and identifiable intangible assets based on their estimated fair values. Based upon management’s valuation, the total purchaseprice has been allocated as follows: Total(Amounts inThousands) Goodwill $1,103 Identifiable intangible assets 682 Accounts receivable 240 Cash 321 Other assets 10 Accrued liabilities (86) Accounts payable (14) Total purchase price allocation $2,256 Management’s assessment of qualitative factors affecting goodwill for Sun Cities includes: estimates of market share at the date of purchase;ability to grow in the market; synergy with existing Company operations; and the presence of managed care payors in the market.Identifiable intangible assets acquired consist of trade name and customer relationships (see Note 1 for estimated useful lives of the Company’sidentifiable intangible assets). The estimated fair value of identifiable intangible assets was determined, using Level 3 inputs as defined under ASCTopic 820, with the assistance of a valuation specialist. The goodwill and intangible assets acquired are deductible for tax purposes.The Sun Cities acquisition accounted for $0.7 million of net service revenues and $14.8 thousand of net income for the year ended December 31,2017.On April 24, 2017, the Company entered into a definitive securities purchase agreement with HB Management Group, Inc. to purchase OptionsServices, Inc. d/b/a Options Home Care (“Options Home Care”). On August 1, 2017, the Company completed its acquisition of all the outstandingsecurities of Options Home Care for a total purchase price of $22.6 million (the “Options Purchase Price”). Options Home Care is a provider of personalcare services in more than 20 counties in New Mexico and the acquisition expands the footprint of the Company’s existing operations in the state. Therelated acquisition costs, included in general and administrative expenses on the Company’s Consolidated Statements of Income, were $0.7 millionand were expensed as incurred. The results of Options Home Care are included on the Company’s Consolidated Statements of Income from the date ofthe acquisition.The Company’s acquisition of Options Home Care has been accounted for in accordance with ASC Topic 805, “Business Combinations,” and theresulting goodwill and other intangible assets was accounted for under ASC Topic 350, “ Goodwill and Other Intangible Assets.” The acquisition wasrecorded at its fair value as of August 1, 2017. Under business combination accounting, the Options Purchase Price was $22.6 million and F-17Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) was allocated to Options Home Care’s net tangible and identifiable intangible assets based on their estimated fair values. Based upon management’svaluation, the total purchase price has been allocated as follows: Total(Amounts inThousands) Goodwill $16,754 Identifiable intangible assets 5,324 Accounts receivable 995 Cash 205 Other assets 41 Accrued liabilities (695) Total purchase price allocation $22,624 Management’s assessment of qualitative factors affecting goodwill for Options Home Care includes: estimates of market share at the date ofpurchase; ability to grow in the market; synergy with existing Company operations; and the presence of managed care payors in the market.Identifiable intangible assets acquired consist of trade name and customer relationships (see Note 1 for estimated useful lives of the Company’sidentifiable intangible assets). The estimated fair value of identifiable intangible assets was determined, using Level 3 inputs as defined under ASCTopic 820, with the assistance of a valuation specialist. The goodwill and intangible assets acquired are deductible for tax purposes.The Options Home Care acquisition accounted for $8.0 million of net service revenues and $0.5 million of net income for the year endedDecember 31, 2017.The following table contains unaudited pro forma condensed consolidated income statement information of the Company had the acquisition ofSun Cities and Options Home Care closed on January 1, 2016. For the Years EndedDecember 31,(Amounts in Thousands) 2017 2016 Net service revenues $441,858 $425,704 Operating income from continuing operations 28,103 15,575 Net income from continuing operations 15,010 12,196 Earnings from discontinued operations, net of tax 147 97 Net income $15,157 $12,293 Net income per common share Basic income per share Continuing operations $1.31 $1.08 Discontinued operations 0.01 0.01 Basic income per share $1.32 $1.09 Diluted income per share Continuing operations $1.29 $1.07 Discontinued operations 0.01 0.01 Diluted income per share $1.30 $1.08 F-18Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) The pro forma disclosures in the table above include adjustments for amortization of intangible assets, tax expense, and acquisition costs toreflect results that are more representative of the combined results of the transactions as if Sun Cities and Options Home Care had been acquiredeffective January 1, 2016. This pro forma information is presented for illustrative purposes only and may not be indicative of the results of operationsthat would have actually occurred. In addition, future results may vary significantly from the results reflected in the pro forma information. Theunaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, such as anticipated costsavings from operating synergies.Effective February 23, 2016, the Company acquired certain assets of Lutheran Social Services of Illinois (“LSSI”) for approximately $0.1 million.The results of operations from the acquisition of LSSI are included in the Company’s Consolidated Statements of Income from the date of theacquisition. The LSSI acquisition accounted for $0.2 million of net service revenues and $49.3 thousand of net loss from continuing operations for theyear ended December 31, 2017 and $1.0 million of net service revenues and $0.1 million of net income from continuing operations for the year endedDecember 31, 2016. In order to focus on providing services to consumers in their homes, effective March 1, 2017, Addus ceased providing adult dayservices and sold substantially all of the assets used in our adult day services centers, including LSSI.On April 24, 2015, Addus HealthCare entered into a Securities Purchase Agreement with Margaret Coffey and Carol Kolar (the “South ShoreSellers”), South Shore Home Health Service Inc. (“South Shore”) and Acaring Home Care, LLC (“Acaring”), pursuant to which Addus HealthCareagreed to acquire all of the issued and outstanding securities of each of South Shore and Acaring. On February 5, 2016, Addus HealthCare completedits acquisition of all the outstanding securities of South Shore and Acaring for a total purchase price of $20.0 million (the “South Shore PurchasePrice”). The related acquisition costs, included in general and administrative expenses on the Consolidated Statements of Income, were $1.3 millionand were expensed as incurred. The results of operations from South Shore and Acaring are included in the Company’s Consolidated Statements ofIncome from the date of the acquisition. Acaring was dissolved on March 1, 2016, and its assets were transferred to South Shore.The Company’s acquisition of South Shore and Acaring has been accounted for in accordance with ASC Topic 805, “Business Combinations, ”and the resulting goodwill and other intangible assets was accounted for under ASC Topic 350 “ Goodwill and Other Intangible Assets .” Theacquisition was recorded at its fair value as of February 5, 2016. Under business combination accounting, the South Shore Purchase Price was$20.0 million and was allocated to South Shore’s net tangible and identifiable intangible assets based on their estimated fair values. Based uponmanagement’s valuation, the total purchase price has been allocated as follows: Total(Amounts inThousands) Goodwill $5,265 Identifiable intangible assets 9,957 Accounts receivable 6,807 Other current assets 858 Accrued liabilities (1,593) Accounts payable (1,268) Total purchase price allocation $20,026 F-19Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) Management’s assessment of qualitative factors affecting goodwill for South Shore includes: estimates of market share at the date of purchase;ability to grow in the market; synergy with existing Company operations and the presence of managed care payors in the market.Identifiable intangible assets acquired consist of trade names and trademarks, customer relationships and non-compete agreements. The estimatedfair value of identifiable intangible assets was determined, using Level 3 inputs as defined under ASC Topic 820, by the Company’s management. Thenet intangible and identifiable intangible assets, including goodwill, are deductible for tax purposes.The South Shore acquisition accounted for $58.4 million of net service revenues and $0.2 million net income from continuing operations for theyear ended December 31, 2017 and $51.7 million of net service revenues and $0.8 million net loss from continuing operations for the year endedDecember 31, 2016.Effective November 9, 2015, the Company acquired certain assets of Five Points Healthcare of Virginia, LLC (“Five Points”), in order to furtherexpand the Company’s presence in the State of Virginia. The total consideration for the transaction was comprised of $4.1 million in cash. The relatedacquisition costs, included in general and administrative expenses on the Consolidated Statements of Income, were $0.4 million and were expensed asincurred. The results of operations from this acquired entity are included in the Company’s Consolidated Statements of Income from the date of theacquisition.The Company’s acquisition of Five Points has been accounted for in accordance with ASC Topic 805, “Business Combinations,” and theresulting goodwill and other intangible assets was accounted for under ASC Topic 350 “Goodwill and Other Intangible Assets.” The acquisition ofFive Points was recorded at its fair value as of November 9, 2015. The total purchase price was $4.1 million. Under business combination accounting,the total purchase price was allocated to Five Points’ net tangible and identifiable intangible assets based on their estimated fair values. Based uponmanagement’s valuation, the total purchase price has been allocated as follows: Total(Amounts inThousands) Goodwill $2,885 Identifiable intangible assets 920 Accounts receivable 472 Accrued liabilities (155) Accounts payable (7) Total purchase price allocation $4,115 Management’s assessment of qualitative factors affecting goodwill for Five Points includes: estimates of market share at the date of purchase;ability to grow in the market; synergy with existing Company operations and the presence of managed care payors in the market.Identifiable intangible assets acquired consist of trade names and trademarks, customer relationships and non-compete agreements. The estimatedfair value of identifiable intangible assets was determined, using Level 3 as defined under ASC Topic 820, inputs by the Company’s management. Thenet intangible and identifiable intangible assets, including goodwill, are deductible for tax purposes. F-20Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) The Five Points acquisition accounted for $2.9 million of net service revenues and $0.3 million of net loss from continuing operations for theyear ended December 31, 2017, $4.1 million of net service revenues and $30.6 thousand of net income from continuing operations for the year endedDecember 31, 2016 and $0.7 million of net service revenues and $18.1 thousand of net loss from continuing operations for the year endedDecember 31, 2015.Effective January 1, 2015, the Company acquired Priority Home Health Care, Inc. (“PHHC”), in order to further expand the Company’s presencein the State of Ohio. The total consideration for the transaction was comprised of $4.3 million in cash. The related acquisition costs, included ingeneral and administrative expenses on the Consolidated Statements of Income, were $0.5 million and were expensed as incurred. The results ofoperations from this acquired entity are included in the Company’s Consolidated Statements of Income from the date of the acquisition.The Company’s acquisition of PHHC has been accounted for in accordance with ASC Topic 805, “Business Combinations,” and the resultantgoodwill and other intangible assets will be accounted for under ASC Topic 350 “Goodwill and Other Intangible Assets .” The acquisition wasrecorded at its fair value as of January 1, 2015. The total purchase price is $4.3 million. Under business combination accounting, the total purchaseprice was allocated to PHHC’s net tangible and identifiable intangible assets based on their estimated fair values. Based upon management’s valuation,the total purchase price has been allocated as follows: Total(Amounts inThousands) Goodwill $1,862 Identifiable intangible assets 1,930 Accounts receivable 951 Furniture, fixtures and equipment 58 Other current assets 8 Accrued liabilities (339) Accounts payable (220) Total purchase price allocation $4,250 Management’s assessment of qualitative factors affecting goodwill for PHHC includes: estimates of market share at the date of purchase; abilityto grow in the market; synergy with existing Company operations and the presence of managed care payors in the market.Identifiable intangible assets acquired consist of trade names and trademarks, customer relationships and non-compete agreements. The estimatedfair value of identifiable intangible assets was determined, using Level 3 as defined under ASC Topic 820, inputs by the Company’s management. Thenet intangible and identifiable intangible assets, including goodwill, are deductible for tax purposes.The PHHC acquisition accounted for $6.4 million of net service revenues and $0.1 million of net loss from continuing operations for the yearended December 31, 2017, $7.5 million of net service revenues and $0.3 million of net income from continuing operations for the year endedDecember 31, 2016 and $9.0 million of net service revenues and $0.1 million of net income from continuing operations for the year endedDecember 31, 2015. F-21Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) For the acquisition of Cura Partners, LLC, which conducts business under the name Aid & Assist at Home, LLC (“Aid & Assist”) on June 1, 2014,a contingent earn-out obligation was recorded at its fair value of $1.0 million, which was the present value of the Company’s obligation to pay up to$1.2 million based on probability-weighted estimates of the achievement of certain performance targets, as defined in the earn-out agreement betweenthe parties. As of December 31, 2014, the Company revalued this liability at $0.2 million. As of December 31, 2016 and 2015, based on its valuations,the Company believed a liability did not exist for this contingent earn-out obligation. These declines in the fair value of the contingent earn-outobligation reflected the acquisition’s failure to achieve performance targets expected at the date of acquisition for 2014, 2015 and 2016. Thecontingent earn-out obligation expired December 31, 2016.For the acquisition of Coordinated Home Health Care, LLC on December 1, 2013, a contingent earn-out obligation was recorded at its fair valueof $1.1 million, which was the present value of the Company’s obligation to pay up to $2.3 million based on probability-weighted estimates of theachievement of certain performance targets, as defined in the earn-out agreement between the parties. As of December 31, 2014, the Company revaluedthis liability at $1.9 million. This increase in the fair value of the contingent earn-out obligation reflected the acquisition’s excess achievement ofperformance targets for the year ended December 31, 2014 as a result of higher than anticipated rate of conversion to managed care organizations in theState of New Mexico. $1.0 million of the liability, which was recorded as the current portion at December 31, 2014, was subsequently paid during thesecond quarter of 2015. As of December 31, 2015, the remaining contingent earn-out obligation was recorded at its fair value of $1.3 million which wasthe maximum earn-out obligation based on probability-weighted estimates of the achievement of certain performance targets, as defined in the earn-outagreement between the parties. The obligation was paid during the second quarter of 2016. The contingent earn-out obligation expired December 31,2015.6. Property and EquipmentProperty and equipment consisted of the following: December 31, 2017 2016 (Amounts in Thousands) Computer equipment $2,770 $3,807 Furniture and equipment 3,392 3,146 Transportation equipment 152 898 Leasehold improvements 2,749 3,551 Computer software 3,269 5,419 12,332 16,821 Less: accumulated depreciation and amortization (4,843) (10,173) $7,489 $6,648 Computer software includes $1.0 million of internally developed software. Depreciation and amortization expense predominantly related tocomputer equipment and software and leasehold improvements totaled $2.0 million, $1.7 million and $1.7 million for the years ended December 31,2017, 2016 and 2015, respectively. F-22Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 7. Goodwill and Intangible AssetsThe Company did not record any impairment charges for the years ended December 31, 2017, 2016, or 2015. The goodwill for the Company was$90.3 million and $72.7 million as of December 31, 2017 and 2016, respectively.A summary of goodwill and related adjustments is provided below: Goodwill(Amounts inThousands) Goodwill, at December 31, 2015 $67,626 Additions for acquisitions 5,265 Adjustments to previously recorded goodwill (203) Goodwill, at December 31, 2016 72,688 Additions for acquisitions 17,857 Adjustments to previously recorded goodwill (206) Goodwill, at December 31, 2017 $90,339 Adjustments to the previously recorded goodwill are primarily credits related to amortization of tax goodwill in excess of book basis.The Company’s identifiable intangible assets consist of customer and referral relationships, trade names, trademarks and non-competeagreements. Amortization is computed using straight-line and accelerated methods based upon the estimated useful lives of the respective assets, whichrange from two to twenty-five years.The carrying amount and accumulated amortization of each identifiable intangible asset category consisted of the following at December 31,2017 and 2016: Customerand referralrelationships Tradenames andtrademarks Non-competitionagreements Total (Amounts in Thousands) Gross balance at January 1, 2016 $29,872 $8,161 $2,098 $40,131 Additions for acquisitions 4,800 5,100 57 9,957 Accumulated amortization (26,766) (6,296) (1,763) (34,825) Net Balance at December 31, 2016 7,906 6,965 392 15,263 Gross balance at January 1, 2017 34,672 13,261 2,155 50,088 Other (281) — — (281) Additions for acquisitions 4,626 1,380 — 6,006 Accumulated amortization (29,147) (8,198) (1,872) (39,217) Net Balance at December 31, 2017 $9,870 $6,443 $283 $16,596 Amortization expense related to the identifiable intangible assets amounted to $4.7 million, $4.9 million and $3.0 million for the years endedDecember 31, 2017, 2016 and 2015, respectively. Goodwill and state licenses are not amortized pursuant to ASC Topic 350.The weighted average remaining lives of identifiable intangible assets as of December 31, 2017 is 6.5 years. F-23Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) The estimated future intangible amortization expense is as follows: For the year ended December 31, Total(Amount inThousands) 2018 $4,919 2019 3,662 2020 2,345 2021 1,925 2022 965 Thereafter 2,780 Total $16,596 8. Details of Certain Balance Sheet AccountsPrepaid expenses and other current assets consist of the following: December 31, 2017 2016 (Amounts in Thousands) Prepaid health insurance $2,901 $2,238 Prepaid workers’ compensation and liability insurance 1,332 1,190 Prepaid rent 555 568 Workers’ compensation insurance receivable 543 747 Other 3,048 1,255 $8,379 $5,998 Accrued expenses consisted of the following: December 31, 2017 2016 (Amounts in Thousands) Accrued payroll $19,783 $17,509 Accrued workers’ compensation insurance 12,574 12,823 Accrued health insurance (1) 6,471 4,092 Indemnification reserve (2) 174 419 Accrued payroll taxes 1,065 1,747 Accrued professional fees 1,312 1,485 Accrued severance 562 1,326 Accrued restructuring (3) 1,077 1,786 Other 1,782 1,416 $44,800 $42,603 (1)The Company provides health insurance coverage to qualified union employees providing personal care services in Illinois through a Taft-Hartley multi-employer health and welfare plan under Section 302(c)(5) of the Labor Management Relations Act of 1947. The Company’sinsurance contributions equal the amount F-24Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) reimbursed by the State of Illinois. Contributions are due within five business days from the date the funds are received from the State. Amountsdue of $2.3 million and $2.2 million for health insurance reimbursements and contributions were reflected in prepaid insurance and accruedinsurance at December 31, 2017 and 2016, respectively.(2)As a condition of the sale of the Home Health Business to subsidiaries of LHCG the Company is responsible for any adjustments to Medicare andMedicaid billings prior to the closing of the sale. The Company has estimated a total of $0.2 million for billing adjustments for 2013 and 2012services which may be subject to Medicare audits. For the years ended December 31, 2017 and 2016, the Company reduced the indemnificationreserve accrual by the amounts accrued for periods no longer subject to Medicare audits of $0.2 million and $0.2 million, respectively. Thisamount is reflected as a reduction in general and administrative expense of discontinued operations.(3)Accrued restructuring includes reserves for lease commitments related to the closure of three adult day services centers in Illinois during the thirdquarter of 2016 and unused contact center office space.The Company’s workers’ compensation program has a $0.4 million deductible component. The Company recognizes its obligations associatedwith this program in the period the claim is incurred. The cost of both the claims reported and claims incurred but not reported, up to the deductible,have been accrued based on historical claims experience, industry statistics and an actuarial analysis performed by an independent third party. Thefuture claims payments related to the workers’ compensation program are secured by letters of credit. These letters of credit totaled $11.8 million and$16.7 million at December 31, 2017 and 2016.9. Long-Term DebtLong-term debt consisted of the following: December 31,2017 December 31,2016 (Amounts in Thousands) Term loan under the new credit facility $44,438 $— Term loan under the terminated credit facility — 24,063 Capital leases 1,002 2,433 Less unamortized issuance costs (2,481) (1,483) Total $42,959 $25,013 Less current maturities (3,099) (2,531) Long-term debt $39,860 $22,482 In accordance with ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” the Company has classified the debt issuance costs ascurrent portion of long-term debt or long-term debt, less current portion as of December 31, 2017 and 2016.Capital LeasesOn July 12, 2014, September 11, 2014 and April 13, 2015, the Company executed three 48-month capital lease agreements for $2.7 million,$1.4 million and $0.4 million, respectively, with First American Commercial Bancorp, Inc. The capital leases were entered into to finance property andequipment at the Company’s support center in Downers Grove, IL. The underlying assets are included in “Property and equipment, net of accumulated F-25Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) depreciation and amortization” in the accompanying Consolidated Balance Sheets. These capital lease obligations require monthly payments throughSeptember 2019 and have implicit interest rates that range from 3.0% to 3.6%. At the end of the term, the Company has the option to purchase theassets for $1 per lease agreement.Effective October 1, 2016, the Company entered into a 25-month capital lease agreement for $0.6 million with Meridian Leasing Corporation.The capital leases were entered into to finance property and equipment for the Company’s telephone systems. The underlying assets are included in“Property and equipment, net of accumulated depreciation and amortization” in the accompanying Consolidated Balance Sheets. These capital leaseobligations require monthly payments through October 2018 and have an implicit interest rate of 11.1%. At the end of the term, the Company has theoption to purchase the assets for $1 per lease agreement.An analysis of the leased property under capital leases by major classes is as follows. Classes of Property Asset Balances atDecember 31, 2017(Amounts in Thousands) Leasehold improvements $1,485 Furniture and equipment 868 Computer equipment 635 Computer software 303 Total 3,291 Less: accumulated depreciation (1,333) $1,958 The future minimum payments for capital leases as of December 31, 2017 are as follows: Capital Lease(Amounts In Thousands) 2018 $1,026 2019 30 Total minimum lease payments 1,056 Less: amount representing estimated executory costs (such as taxes,maintenance and insurance), including profit thereon, included intotal minimum lease payments (30) Net minimum lease payments 1,026 Less: amount representing interest (1) (24) Present value of net minimum lease payments (2) $1,002 (1)Amount necessary to reduce net minimum lease payments to present value calculated at the Company’s incremental borrowing rate at leaseinception. (2)Included in the balance sheet as $974.4 thousand of the current portion of long-term debt and $27.8 thousand of the long-term debt, less currentportion. F-26Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) Senior Secured Credit FacilityOn May 8, 2017, the Company entered into a new credit facility and credit agreement (the “Credit Agreement”) with certain lenders and CapitalOne, N.A., as a lender and swing lender and as agent for all lenders. This new credit facility totals $250.0 million, replaces the Company’s TerminatedSenior Secured Credit Facility totaling $125.0 million with certain lenders and Fifth Third Bank as agent (“Terminated Senior Secured Credit Facility”,see description below for more details), and terminates the Company’s Second Amended and Restated Credit and Guaranty Agreement, dated as ofNovember 10, 2015. The new credit facility includes a $125.0 million revolving loan, a $45.0 million term loan and an $80.0 million delayed drawterm loan. The maturity of the new credit facility is five years, although the delayed draw term loan is only available until November 8, 2018. Underthe terms of an accordion feature of the Credit Agreement, $100.0 million is also available for incremental term loans. Fundings under the delayed drawterm loans and the incremental term loans are limited to financing or refinancing Permitted Acquisitions (as defined in the Credit Agreement). Theavailability of additional draws under the revolving credit portion of the Company’s new credit facility is conditioned, among other things, upon (aftergiving effect to such draws) the ratio of Consolidated Total Indebtedness (as defined in the Credit Agreement), less subordinated indebtedness, toConsolidated Adjusted EBITDA (as defined in the Credit Agreement) not exceeding 4.25:1.00. In connection with the new credit facility, theCompany incurred $2.8 million of debt issuance costs.Addus HealthCare is the borrower under the Credit Agreement, with Holdings, and substantially all of Holdings’ subsidiaries as guarantors underthe new credit facility. The new credit facility is secured by a first priority security interest in all of the Company’s and the other credit parties’ currentand future tangible and intangible assets, including the shares of stock of the borrower and subsidiaries.Interest on the Company’s new credit facility may be payable at (x) the sum of (i) an applicable margin ranging from 1.50% to 2.25% based onthe applicable senior leverage ratio (provided that the applicable margin will be 1.50% through approximately November 1, 2017) plus (ii) a base rateequal 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 amargin 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 theapplicable 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 2.50% to 3.25% based on theapplicable leverage ratio (provided that the applicable margin will be 2.50% through approximately November 30, 2017) plus (ii) the offered rate perannum for the applicable interest period that appears on Reuters Screen LIBOR01 Page. Swing loans may not be LIBOR loans.The Company pays a fee ranging from 0.25% to 0.50% based on the applicable leverage ratio times the unused portion of the revolving portionof the new credit facility (provided that the fee will be 0.25% through approximately November 30, 2017).In July 2017, the Company drew a total of $30.0 million on the revolving credit line under the new credit facility primarily to fund theacquisition of Options Home Care. The Company repaid the balance in August 2017. As of December 31, 2017, the Company had a total of$44.4 million of term loans outstanding with an interest rate of 3.86% on the new credit facility and the total availability under the revolving creditloan facility was $105.1 million.The Credit Agreement contains customary affirmative covenants regarding, among other things, the maintenance of records, compliance withlaws, maintenance of permits, maintenance of insurance and property and payment of taxes. The Credit Agreement also contains certain customaryfinancial covenants and negative F-27Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) covenants that, among other things, include a requirement to maintain a minimum fixed charge coverage ratio, a requirement to stay below a maximumsenior leverage ratio and a requirement to stay below a maximum permitted amount of capital expenditures, as well as restrictions on guarantees,indebtedness, liens, investments and loans, subject to customary carve outs, a restriction on dividends (provided that Addus HealthCare may makedistributions to us in an amount that does not exceed $5.0 million in any year absent of an event of default, plus limited exceptions for tax andadministrative distributions), a restriction on the ability to consummate any individual acquisition or a series of related acquisitions with totalconsideration paid or payable in excess of $60.0 million and consummating acquisitions with total consideration paid or payable in excess of$80.0 million in the aggregate in any fiscal year (in each case, without the consent of the lenders), restrictions on mergers, dispositions of assets, andaffiliate transactions, and restrictions on fundamental changes and lines of business. As of December 31, 2017, the Company was in compliance withall of its Credit Agreement covenants.Terminated Senior Secured Credit FacilityPrior to May 8, 2017, the Company was a party to the Terminated Senior Secured Credit Facility with certain lenders and Fifth Third Bank, asagent and letters of credit issuer. The Terminated Senior Secured Credit Facility provided a $100.0 million revolving line of credit, a delayed draw termloan facility of up to $25.0 million and an uncommitted incremental term loan facility of up to $50.0 million, which was to expire on November 10,2020 and included a $35.0 million sublimit for the issuance of letters of credit. The Terminated Senior Secured Credit Facility increased the specifiedadvance multiple from 3.25 to 3.75 to 1.00 and the maximum permitted senior leverage ratio from 3.50 to 4.00 to 1.00. Except as modified by theMay 24, 2016, amendment, the Terminated Senior Secured Credit Facility contained the same material terms as the previous agreement datedNovember 10, 2015. Substantially all of the subsidiaries of Holdings were co-borrowers, and Holdings had guaranteed the borrowers’ obligations underthe Terminated Senior Secured Credit Facility. The Terminated Senior Secured Credit Facility was secured by a first priority security interest in all ofHoldings’ and the borrowers’ then and future tangible and intangible assets, including the shares of stock of the borrowers.The availability of funds under the revolving credit portion of the Company’s Terminated Senior Secured Credit Facility was based on the lesserof (i) the product of adjusted EBITDA, as defined in the Company’s terminated credit agreement, for the most recent 12-month period for whichfinancial statements had been delivered under the credit agreement multiplied by the specified advance multiple, up to 3.75, less the outstandingsenior indebtedness and letters of credit, and (ii) $100.0 million less the outstanding revolving loans and letters of credit. Interest on the Company’sTerminated Senior Secured Credit Facility might have been payable at (x) the sum of (i) an applicable margin ranging from 2.00% to 2.50% based onthe applicable 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 “primerate,” (b) the sum of the federal funds rate plus a margin of 0.50% and (c) the sum of the adjusted LIBOR that would have been applicable to a loan withan interest period of one month advanced on the applicable day plus a margin of 3.00% or (y) the sum of (i) an applicable margin ranging from 3.00%to 3.50% based on the applicable leverage ratio plus (ii) the adjusted LIBOR that would have been applicable to a loan with an interest period of one,two or three months advanced on the applicable day or (z) the sum of (i) an applicable margin ranging from 3.00% to 3.50% based on the applicableleverage ratio plus (ii) the daily floating LIBOR that would have been applicable to a loan with an interest period of one month advanced on theapplicable day. We paid a fee ranging from 0.25% to 0.50% per annum based on the applicable leverage ratio times the unused portion of therevolving portion of the Terminated Senior Secured Credit Facility. Issued stand-by letters of credit were charged at a rate equal to the applicablemargin for LIBOR loans payable quarterly. F-28Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) On May 8, 2017, the Company repaid the outstanding debt balance of $23.8 million together with accrued interest of $0.1 million andterminated the Terminated Senior Secured Credit Facility. In connection with the termination, the Company wrote off the unamortized debt issuancecosts under the Terminated Senior Secured Credit Facility in the amount of $1.3 million, which was included in interest expense on the Company’sConsolidated Statements of Income.For the period January 1, 2017 through May 7, 2017, the Company drew and subsequently repaid $20.0 million of the Company’s revolvingcredit line to fund operations. As of December 31, 2016, the Company had a total of $24.1 million outstanding on the Terminated Senior SecuredCredit Facility and the total availability under the revolving credit loan facility was $79.7 million.10. Income TaxesThe current and deferred federal and state income tax provision from continuing operations, are comprised of the following: December 31, 2017 2016 2015 (Amounts in Thousands) Current Federal $5,782 $4,400 $2,743 State 1,069 908 528 Deferred Federal 1,672 (1,147) 546 State 66 (167) 115 Provision for income taxes $8,589 $3,994 $3,932 F-29Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) The tax effects of certain temporary differences between the Company’s book and tax bases of assets and liabilities give rise to significantportions of the deferred income tax assets at December 31, 2017 and 2016. The deferred tax assets consisted of the following: December 31, 2017 2016 (Amounts inThousands) Deferred tax assets Long-term Accounts receivable allowances $2,917 $2,960 Accrued compensation 1,919 2,733 Accrued workers’ compensation 3,274 4,854 Transaction costs 898 1,137 Reserves 47 169 Restructuring costs 293 718 Stock-based compensation 811 799 Other 138 524 Total long-term deferred tax assets 10,297 13,894 Deferred tax liabilities Long-term Goodwill and intangible assets (7,301) (9,506) Property and equipment (749) (552) Prepaid insurance (359) (478) Other (1) (3) Total long-term deferred tax liabilities (8,410) (10,539) Valuation allowance (286) — Total net deferred tax assets $1,601 $3,355 Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimaterealization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differencesbecome deductible. Management considers projected future taxable income in making this assessment. F-30Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) A reconciliation for continuing operation of the statutory federal tax rate of 35.0%, 35.0% and 34.5% and to the effective income tax rate, for theyears ended December 31, 2017, 2016, and 2015, is summarized as follows: December 31, 2017 2016 2015 Federal income tax at statutory rate 35.0% 35.0% 34.5% State and local taxes, net of federal benefit 5.1 5.2 5.2 Jobs tax credits, net (6.1) (15.8) (11.1) Nondeductible permanent items 0.4 0.9 0.5 2017 Tax Reform Act, deferred tax assets rate changes 5.3 — — Other (0.7) (0.2) (3.4) Effective income tax rate 39.0% 25.1% 25.7% In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications ofthe Tax Cuts and Job Act,” (“SAB 118”) to address the application of GAAP in situations when a registrant does not have the necessary informationavailable, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TaxReform Act. Additional work is necessary for a more detailed analysis of our deferred tax assets and liabilities as well as potential correlativeadjustments. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of theeffects can be made and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed.The Company is subject to taxation in the jurisdictions in which it operates. The Company continues to remain subject to examination by U.S.federal authorities for the years 2014 through 2017 and for various state authorities for the years 2013 through 2017.At December 31, 2017 and 2016, the Company did not have any unrecognized tax benefits under ASC Topic 740.11. Stock Options and Restricted Stock AwardsThe Board approved the 2017 Omnibus Incentive Plan (“the 2017 Plan”) as of April 27, 2017, which was approved by our shareholders onJune 14, 2017. The 2017 Plan was intended to replace our existing incentive compensation plan, the 2009 Stock Incentive Plan. Outstanding awardsunder the 2009 Plan will continue to be governed by the 2009 Plan and the agreements under which they were granted. The 2009 Plan authorized theissuance of up to 1,500,000 shares of the Company’s stock.The 2017 Plan, like the 2009 Plan, allows us to grant performance-based incentive awards and equity-based awards (each an “Award”) to eligibleemployees, directors and consultants in the form of Stock Options, Stock Appreciation Rights, Restricted Stock, Deferred Stock Units/Restricted StockUnits, Other Stock Units or Performance Awards. The Board believes that the 2017 Plan is necessary to continue the Company’s effectiveness inattracting, motivating and retaining employees, directors and consultants with appropriate experience and to increase the grantees’ alignment ofinterest with the shareholders.Under the 2017 Plan, Awards may be made in shares of our common stock. Subject to adjustment as provided by the terms of the 2017 Plan, themaximum aggregate number of shares of common stock with respect to which awards may be granted under the 2017 Plan will be 1,182,270, less thenumber of shares subject to F-31Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) awards that are granted pursuant to the 2009 Plan after March 31, 2017. The aggregate awards granted during any calendar year to any singleParticipant cannot exceed (i) 500,000 shares subject to stock options or stock appreciation rights (“SARs”) or (ii) 300,000 shares subject to Awardsdenominated in shares of common stock (whether or not settled in common stock). These individual annual limitations are cumulative in that anyshares of common stock or cash for which Awards are permitted to be granted to a Participant during a fiscal year are not covered by an Award in thatfiscal year, the number of shares of common stock will automatically increase in the subsequent fiscal years during the term of the 2017 Plan until theearlier of the time the increase has been granted to the Participant, or the end of the third fiscal year following the year to which such increase relates.Any shares of common stock subject to an Award under the 2017 Plan that are forfeited, canceled, settled in cash or otherwise terminated withouta distribution of shares to a participant, or that are delivered by attestation or withheld by the Company in connection with an option exercise or thepayment of any required income tax withholding upon an option exercise or the vesting of restricted stock, will be deemed available for Awards underthe 2017 Plan. Additionally, any shares of common stock subject to an Award under the 2009 Plan that are forfeited, canceled, settled in cash orotherwise terminated without a distribution of shares to a participant, or that are delivered by attestation or withheld by the Company in connectionwith an option exercise or the payment of any required income tax withholding upon an option exercise or the vesting of restricted stock, will bedeemed available for Awards under the 2017 Plan.Stock options were awarded with a strike price at the fair market value equal to the closing price of our common stock on the date of grant forboth the 2009 and 2017 Plans. Options granted under the 2009 and 2017 Plans typically vest over a service period ranging from three to four years andexpire ten years from the date of grant. Restricted shares granted under the 2009 and 2017 Plans typically vest over a service period ranging from oneto four years and expire ten years from date of grant.The exercise price of stock options outstanding on December 31, 2017 range from $4.62 to $34.85. Restricted stock awards are full-value awards.There were 1.1 million shares available for grant under the 2017 Plan at December 31, 2017.Stock OptionsA summary of stock option activity and weighted average exercise price is as follows: For The Year Ended December 31, 2017 Options(Amounts inThousands) WeightedAverageExercise Price Outstanding, beginning of period 405 $19.71 Granted 154 34.32 Exercised (51) 22.60 Forfeited/Cancelled (29) 23.61 Outstanding, end of period 479 $23.91 F-32Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) The weighted-average estimated fair value of employee stock options granted as calculated using the Black-Scholes Option Pricing Model in2017 and the Enhanced Hull-White Trinomial Model in 2016 and 2015, and the related assumptions follow: For the Year Ended December 31, 2017 2016 2015 Grants Grants Grants Weighted average fair value $12.97 $9.32 $9.18 Risk-free discount rate 1.67% - 1.85% 1.70% - 2.02% 2.29% Expected life 3.6 - 4.2 years 8.20 years 8.20 years Dividend yield — — — Volatility 47% 47% 47% Expected turn-over rate N/A 2% 2% Expected exercise multiple N/A 2.2 2.2 Stock option compensation expense totaled $1.1 million, $0.6 million and $0.6 million for the years ended December 31, 2017, 2016 and 2015,respectively. As of December 31, 2017, there was $2.9 million of total unrecognized compensation cost that is expected to be recognized over aweighted average period of 2.4 years.The intrinsic value of vested and outstanding stock options was $2.0 million and $3.2 million as of December 31, 2017.As of December 31, 2017, there were 113,044 and 365,526 shares of stock options vested and unvested respectively.The intrinsic value of stock options exercised during the year ended December 31, 2017, 2016 and 2015 was $0.5 million, $3.9 million and$0.9 million, respectively.Restricted Stock AwardsThe following table summarizes the status of unvested restricted stock awards outstanding at December 31, 2017: For The Year Ended December 31, 2017 RestrictedStockAwards(Amounts inThousands) WeightedAverageGrantDate FairValue Unvested restricted stock awards, beginning of period 103 $20.84 Awarded 90 34.60 Vested (35) 21.07 Forfeited (15) 22.79 Unvested restricted stock awards, end of period 143 $29.30 F-33Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) The fair market value of restricted stock awards that vested during the year ended December 31, 2017 was $1.0 million.Restricted stock award compensation expense totaled $1.4 million, $0.5 million and $0.9 million for the years ended December 31, 2017, 2016and 2015, respectively. As of December 31, 2017, there was $3.0 million of total unrecognized compensation costs that are expected to be recognizedover a weighted average period of 2.1 years.12. Operating LeasesThe Company leases its branch office space under various operating leases that expire at various dates through 2025. In addition to rent, theCompany is typically responsible for taxes, maintenance, insurance and common area costs. A number of the office leases also contain escalation andrenewal option clauses. Total rent expense on these office leases was $2.5 million, $2.9 million and $3.0 million for the years ended December 31,2017, 2016, and 2015, respectively.The Company entered into a 132 month lease with a third party for approximately 59,000 square feet (unaudited) of office space in DownersGrove, IL for a support center. The Company assumed occupancy in May 2014. Rental expense relating to this lease amounted to $0.8 million,$0.8 million and $0.8 million for the years ended December 31, 2017, 2016 and 2015, respectively. In the second quarter of 2016, the contact centercontained within the Downers Grove support center closed. As a result, approximately 21,000 square feet (unaudited) of the office space in DownersGrove is unused by the Company. Effective August 1, 2017, the Company subleased the office space to a third party. Additionally, the Companyentered into a 64 month lease with a third party for approximately 27,000 square feet (unaudited) of office space in Frisco, Texas which also serves asan additional support center. The Company assumed occupancy in July 2016. Rental expense relating to this lease amounted to $0.7 million and$0.2 million for the years ended December 31, 2017 and 2016, respectively.During 2011, the Company entered into a lease for its telecom system under a five year operating lease that expired in June 2016. Total expenseon the telecom lease was $0.5 million and $0.6 million for the years ended December 31, 2016 and 2015, respectively. In 2016, the Company decidedto retain the leased telecom system by entering into a capital lease agreement for the fair value of the equipment as described in Note 9.The following is a schedule of the future minimum payments, exclusive of taxes and other operating expenses, required under the Company’soperating leases. The payments owed with respect to the approximately 21,000 square feet (unaudited) of subleased space in Downers Grove of$2.0 million have been included in the table below because the Company remains liable for payments in the event that the sublessee does not make therequired payment to the landlord. Rent(Amount inThousands) 2018 $3,155 2019 2,565 2020 1,948 2021 1,414 2022 981 Thereafter 2,237 Total $12,300 F-34Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 13. Employee Benefit PlansThe Company’s 401(k) Retirement Plan covers all non-union employees. The 401(k) plan is a defined contribution plan that provides formatching contributions by the Company. Matching contributions are discretionary and subject to change by management. Under the provisions of the401(k) plan, employees can contribute up to the maximum percentage and limits allowable under the Internal Revenue Code of 1986. The Companyprovided a matching contribution, equal to 6.0% of the employees’ contributions, totaling $44.0 thousand, $31.1 thousand and $33.5 thousand for theyears ended December 31, 2017, 2016 and 2015, respectively.14. Commitments and ContingenciesLegal ProceedingsFrom time to time, the Company is subject to legal and/or administrative proceedings incidental to its business. It is the opinion of managementthat the outcome of pending legal and/or administrative proceedings will not have a material effect on our Consolidated Balance Sheets andConsolidated Statements of Income.On January 20, 2016, the Company was served with a lawsuit filed in the United States District Court for the Northern District of Illinois againstthe Company and Cigna Corporation by Stop Illinois Marketing Fraud, LLC, a qui tam relator formed for the purpose of bringing this action. In theaction, the plaintiff alleges, inter alia, violations of the federal False Claims Act relating primarily to allegations of violations of the federal Anti-Kickback Statute and allegedly improper referrals of patients from the Company’s home care division to the Company’s home health business,substantially all of which was sold in 2013. The plaintiff seeks to recover damages, fees and costs under the federal False Claims Act including trebledamages, civil penalties and its attorneys’ fees. The U.S. government has declined to intervene at this time. Plaintiff amended its complaint on April 4,2016 to include additional allegations in support of its False Claims Act claims, including alleged violations of the federal Anti-Kickback Statute. TheCompany and Cigna Corporation filed a motion to dismiss the amended complaint on June 6, 2016. On February 3, 2017, the Court granted CignaCorporation’s motion to dismiss in full, and granted the Company’s motion to dismiss in part allowing Plaintiff another chance to amend its complaint.Plaintiff timely filed a second amended complaint on March 10, 2017, withdrawing its conspiracy claim under the Federal False Claims Act and addingan explicit claim under the Illinois False Claims Act for the same underlying kickback allegations. On April 7, 2017, the Company filed a partialmotion to dismiss the Second Amended Complaint, which has not yet been ruled on by the court. On May 24, 2017, the State of Illinois filed noticethat it was declining to intervene in the plaintiff’s claim under the Illinois False Claims Act. The Company intends to defend the litigation vigorouslyand believes the case will not have a material adverse effect on its business, financial condition or results of operations.Employment AgreementsThe Company has entered into employment agreements with certain members of senior management. The terms of these agreements are up to fouryears with the potential to auto-renew and include non-compete and nondisclosure provisions, as well as provide for defined severance payments in theevent of termination.Approximately 60.4% of the Company’s total employees are represented by labor unions. A substantial percentage of the Company’s workforceis represented by the Service Employees International Union (“SEIU”). The Company has a national agreement with the SEIU. Wages and benefits arenegotiated at the local level at various times throughout the year. These negotiations are often initiated when the Company receives increases inhourly rates from various state agencies. Upon expiration of these collective bargaining agreements, the Company may not be able to negotiate laboragreements on satisfactory terms with these labor unions. F-35Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 15. Severance and RestructuringIn 2016, the Company initiated steps to streamline its operations. The Company incurred total expenses related to these initiatives ofapproximately $1.7 million and $8.0 million for the years ended December 31, 2017 and 2016, respectively. These costs are included in general andadministrative expenses on the Consolidated Statements of Income. The expenses recorded for the year ended December 31, 2017 primarily includescosts related to terminated employees, fees related to the termination of professional services relationships, other contract termination costs and assetwrite-offs. The expenses recorded for the year ended December 31, 2016 included costs related to terminated employees and other direct costsassociated with implementing these initiatives including contract termination costs, accelerated depreciation and asset write-offs. The Companyexpects some additional restructuring and other costs to occur, however, the amount and timing cannot be determined at this time.The following provides the components of and changes in our severance and restructuring accruals: EmployeeTerminationCosts Restructuringand Other (Amounts in Thousands) Balance at December 31, 2015 $— $— Provision 3,230 4,786 Utilization (1,904) (3,000) Balance at December 31, 2016 1,326 1,786 Provision 1,038 627 Utilization (1,802) (1,336) Balance at December 31, 2017 $562 $1,077 Employee termination costs represent accrued severance payable to terminated employees with employment and/or separation agreements withthe Company. For the year ended December 31, 2017, employee termination costs resulted mainly from changes made to the management team madeduring the year. For the year ended December 31, 2016, employee termination costs resulted mainly from the closure of the contact center and otherchanges made to the executive leadership team made during the year. The remaining accruals as of December 31, 2017 are expected to be paid throughJanuary 2019.Restructuring and other costs for the year ended December 31, 2017 primarily consisted of fees for the termination of professional servicesrelationships, other contract termination costs and asset write-offs. For the year ended December 31, 2016, restructuring and other costs consisted ofcosts related to lease commitments and write-offs of leasehold improvements and property and equipment resulting from the closure of three adult dayservices centers in Illinois and for unused contact center office space, costs related to a discontinued internally developed software product and fees forthe termination of various contracts with outside vendors.The aforementioned accruals are included in accrued expenses on the Consolidated Balance Sheets and the aforementioned expenses areincluded in general and administrative expenses on the Consolidated Statements of Income. F-36Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 16. Significant PayorsFor 2017, 2016 and 2015, our revenue mix by payor type was as follows: Year Ended December 31, 2017 2016 2015 State, local and other governmental programs 64.2% 70.4% 77.7% Managed care organizations 33.1 26.1 18.3 Private pay 2.1 2.4 3.0 Commercial insurance 0.6 1.1 1.0 100.0% 100.0% 100.0% The Company derives a significant amount of its net service revenues from its operations in Illinois, New York and New Mexico. The percentagesof total revenue for each of these significant states for 2017, 2016 and 2015 were as follows: % of Total Revenue for the Years Ended December, 31 State 2017 2016 2015 Illinois 52.6% 53.6% 59.5% New York 13.7 12.9 — New Mexico 8.8 7.5 8.5 A substantial portion of the Company’s net service revenues and accounts receivables are derived from services performed for federal, state andlocal governmental agencies. The Illinois Department on Aging accounted for 36.6%, 42.1% and 48.8% of the Company’s net service revenues for2017, 2016, and 2015, respectively.The related receivables due from the Illinois Department on Aging represented 37.5% and 55.4% of the Company’s net accounts receivable atDecember 31, 2017 and 2016, respectively.17. Concentration of CashFinancial instruments that potentially subject the Company to significant concentrations of credit risk include cash. The Company maintainscash with financial institutions which, at times, may exceed federally insured limits. The Company believes it is not exposed to any significant creditrisk on cash. F-37Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 18. Unaudited Summarized Quarterly Financial InformationThe following is a summary of the Company’s unaudited quarterly results of operations: Year Ended December 31, 2017 Year Ended December 31, 2016 Dec. 31 Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 Jun. 30 Mar. 31 (Amounts and Shares in Thousands, Except Per Share Data) Net service revenues $111,958 $108,592 $103,559 $101,606 $103,657 $103,502 $100,927 $92,602 Gross profit 30,715 29,053 28,511 27,317 28,658 27,423 25,695 24,319 Operating income from continuingoperations 7,550 5,807 5,921 6,961 7,693 2,495 4,394 653 Net income from continuing operations 3,094 3,408 2,700 4,259 7,471 1,699 2,600 157 Earnings from discontinued operations 147 — — — 97 — — — Net income $3,241 $3,408 $2,700 $4,259 $7,568 $1,699 $2,600 $157 Average shares outstanding: Basic 11,488 11,486 11,470 11,434 11,383 11,367 11,361 11,022 Diluted 11,638 11,631 11,622 11,581 11,494 11,417 11,385 11,178 Income per common share: Basic Continuing operations $0.27 $0.30 $0.24 $0.37 $0.66 $0.15 $0.23 $0.01 Discontinued operations 0.01 — — — 0.01 — — — Basic net income per share $0.28 $0.30 $0.24 $0.37 $0.67 $0.15 $0.23 $0.01 Diluted net income per share Continuing operations $0.27 $0.29 $0.23 $0.37 $0.65 $0.15 $0.23 $0.01 Discontinued operations 0.01 — — — 0.01 — — — Diluted net income per share $0.28 $0.29 $0.23 $0.37 $0.66 $0.15 $0.23 $0.01 F-38Table of ContentsADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 19. Subsequent EventsOn January 1, 2018, the Company entered into an Asset Purchase Agreement with LifeStyle Options, Inc. (“LifeStyle”) pursuant to which theCompany acquired substantially all of the assets of LifeStyle for approximately $3.4 million in order to expand private pay services in Illinois.On February 27, 2018, the Company entered into a purchase agreement to acquire Ambercare Corporation, Inc. (Ambercare) for approximately$40.0 million to expand in the State of New Mexico. Addus expects to complete the transaction in the second quarter of 2018, subject to the usualclosing conditions, with funding through the delayed draw term loan portion of its credit facility. F-39Table of ContentsVALUATION AND QUALIFYING ACCOUNTSSCHEDULE II(Amounts In Thousands) Allowance for doubtful accounts Balance atbeginningof period Additions/charges Deductions* Balance atend ofperiod Year ended December 31, 2017 Allowance for doubtful accounts $7,363 8,259 5,085 $10,537 Year ended December 31, 2016 Allowance for doubtful accounts $4,850 7,373 4,860 $7,363 Year ended December 31, 2015 Allowance for doubtful accounts $3,881 4,309 3,340 $4,850 *Write-offs, net of recoveries F-40Exhibit 10.28NONQUALIFIED STOCK OPTION AWARD AGREEMENTPursuant to theADDUS HOMECARE CORPORATION2017 OMNIBUS INCENTIVE PLANName of Option Holder: Date of Grant: Number of Option Shares: Exercise Price per Share: Expiration Date: Vesting Start Date: This NONQUALIFIED STOCK OPTION AWARD AGREEMENT (this “Award Agreement”) is made as of , betweenAddus HomeCare Corporation (the “Company”), and the above-named individual, an Employee of the Company or one of its Subsidiaries (the“Option Holder”), to record the granting of a nonqualified stock option pursuant to the Company’s 2017 Omnibus Incentive Plan (the “Plan”). Termsused herein that are defined in the Plan shall have the meanings ascribed to them in the Plan. If there is any inconsistency between the terms of thisAward Agreement and the terms of the Plan, the Plan’s terms shall supersede and replace the conflicting terms herein.1. Grant of Option. The Company hereby grants to the Option Holder, subject to and pursuant to the terms and conditions of the Plan and thisAward Agreement, the option to purchase from the Company (the “Option”) an aggregate number of shares of common stock of the Company, parvalue $0.001 per share (the “Shares”), set forth above at an exercise price per share set forth above. Said exercise price is equal to the Fair Market Valueof a Share on the date of grant of the Option. The Shares subject to the Option are referred to herein as the “Option Shares.”2. Type of Option. The Option is a Nonqualified Stock Option which is not intended to be governed by Section 422 of the Code and will beinterpreted accordingly.3. Expiration Date. The Option shall expire on the expiration date set forth above (the “Expiration Date”) unless the Option expires earlier asprovided in Section 6 of this Award Agreement. 4. Vesting of Option. Subject to the provisions of the Plan and the provisions of this Award Agreement (including the requirement in Section 6that the Option Holder continue to be employed by the Company or one of its Subsidiaries on the dates set forth below), the Option will be exercisablein accordance with the following schedule:(a) on the anniversary of the Vesting Start Date (as set forth above) the Option will vest with respect to, and may be exercised forup to, of the total number of Option Shares as set forth above;(b) on each succeeding anniversary of the Vesting Start Date, the Option will vest with respect to, and may be exercised for up to, anadditional of the Option Shares so that on the anniversary of the Vesting Start Date, the Option shall be exercisable in full;(c) to the extent not exercised, installments shall be cumulative and may be exercised in whole or in part; and(d) the Option shall vest upon a Change in Control of the Company while the Option Holder is employed by the Company or one of itsSubsidiaries.5. Method of Exercising Options.(a) To the extent that the Option is vested and exercisable in accordance with Section 4 of this Award Agreement, the Option may beexercised by the Option Holder at any time, or from time to time, in whole or in part, on or prior to the earlier of the cancellation of the Option (asset forth in Section 6 of this Award Agreement) or the Expiration Date, upon payment of the Option Price for the Option Shares to be acquired inaccordance with the terms and conditions of this Award Agreement and the Plan.(b) If the Option Holder is entitled to exercise the vested and exercisable portion of the Option, and wishes to do so, in whole or part, theOption Holder shall deliver to the Company a fully completed and executed notice of exercise, in such form as may be designated by theCompany in its sole discretion, specifying the exercise date and the number of Option Shares to be purchased pursuant to such exercise. Exceptin as provided below, in order for the notice to be effective the notice must be accompanied by payment of the Option Price for the Option Sharesto be acquired on exercise of the Option, plus an amount sufficient to satisfy any withholding tax obligations of the Company that arise inconnection with such exercise (as determined by the Company) in accordance with the provisions of the Plan. The form of payment of the OptionPrice must be in (a) cash, certified check or bank draft, (b) an election to make a cashless exercise through a registered broker-dealer (if approvedin advance by the Committee or an executive officer of the Company), or (c) any other form of payment that is acceptable to the Committee.(c) The Committee may permit the Option Holder to elect to pay the Option Price and any applicable tax withholding resulting from suchexercise by authorizing a third-party broker to sell all or a portion of the Option Shares acquired upon exercise of the Option and remit to theCompany a sufficient portion of the sale proceeds to pay the Option Price and any applicable tax withholding resulting from such exercise. TheCommittee may also permit the Option Holder to elect to pay the Option Price and any - 2 -applicable tax withholding resulting from such exercise by authorizing the withholding of Option Shares otherwise deliverable to the OptionHolder having a Fair Market Value at the time of exercise equal to the total Option Price together with any withholding taxes, or through anyother means authorized by the Plan.(d) The Company’s obligation to deliver Option Shares to the Option Holder under this Award Agreement is subject to and conditionedupon the Option Holder satisfying all tax obligations associated with the Option Holder’s receipt, holding and exercise of the Option. Unlessotherwise approved by the Committee, all such tax obligations shall be payable in accordance with the provisions of the Plan.(e) The Company and its affiliates and Subsidiaries, as applicable, shall be entitled to deduct from any compensation otherwise due to theOption Holder the amount necessary to satisfy all such taxes.(f) Upon full payment of the Option Price and satisfaction of all applicable tax obligations, and subject to the applicable terms andconditions of the Plan and the terms and conditions of this Award Agreement, the Company shall cause certificates for the Shares purchasedhereunder to be delivered to the Option Holder or (subject to Section 19.8 of the Plan) cause a noncertificated book-entry representing suchShares to be made.(g) Upon the exercise of the Option Holder’s right to purchase the Option Shares under the Option, the number of Option Shares shall bereduced on a one-for-one basis.(h) Notwithstanding the foregoing, if on the Expiration Date the Fair Market Value of one Share exceeds the Option Price of the Optionby [ ], the Option Holder has not exercised the Option and the Option has not otherwise expired, the Option shall be deemed to havebeen exercised by the Option Holder on such day [pursuant to such procedures as may be determined by the Committee].6. Cancellation of Options.(a) Expiration of Term. On the Expiration Date, the unexercised portion of the Option shall be cancelled automatically. Notwithstandingany other provision of the Plan or this Award Agreement, the Option may not be exercised after the Expiration Date.(b) Termination of Employment. Except as provided in subsections (c), (d), (e) and (f) below, any unvested portion of the Option shallautomatically be cancelled upon termination of the Option Holder’s employment with the Company or any of its Subsidiaries for any reason.Any portion of the Option vested at the time of termination may only be exercised by the Option Holder at any time on or prior to the earlier ofthe Expiration Date or the expiration of three (3) months after the date of termination. Any vested portion of the Option that is not exercisedwithin such time period shall be automatically cancelled. If the Option Holder ceases to be an employee of the Company or any of itsSubsidiaries for any reason, the Option shall not continue to vest after such cessation of service as an employee. - 3 -(c) Retirement. Upon termination of the Option Holder’s employment due to Retirement, within the meaning of the Plan, any portion ofthe Option vested at the time of such Retirement may only be exercised by the Option Holder at any time on or prior to the earlier of theExpiration Date or the expiration of six (6) months after the date of termination. Any vested portion of the Option that is not exercised withinsuch time period shall be automatically cancelled.(d) Termination for Cause. If Option Holder ceases to be an Employee of the Company or one of its Subsidiaries due to Cause, within themeaning of the Plan, all of the Option shall be forfeited and become null and void immediately upon such cessation, whether or not thenexercisable.(e) Death of Option Holder. Upon the death of the Option Holder while the Option Holder is an Employee of the Company or aSubsidiary, any unvested portion of the Option shall fully vest. The Option may be exercised by the Option Holder’s estate, or by a person whoacquires the right to exercise the Option by bequest or inheritance or by reason of the death of the Option Holder, provided that such exerciseoccurs at any time on or prior to the earlier of the Expiration Date or the expiration of twelve (12) months after the Option Holder’s death. Anyportion of the Option not exercised within such time period will be cancelled.(f) Disability. Upon termination of the Option Holder’s employment by reason of the Option Holder’s Disability, any unvested portion ofthe Option shall fully vest. The Option may be exercised by the Option Holder, provided that such exercise occurs at any time on or prior to theearlier of the Expiration Date or the expiration of twelve (12) months after the Option Holder’s Disability. Any portion of the Option notexercised within such time period will be cancelled.(g) Securities Laws. The Expiration Date shall be automatically extended if on the Expiration Date of the Option the exercise of theOption would violate applicable securities law. During the extended exercise period, the Option shall only be exercised to the extent the Optionwas exercisable in accordance with its terms immediately prior to the Expiration Date. The extended exercise period shall end not later thanthirty (30) days after the exercise of such Option first would no longer violate such laws.7. Tax Withholding. To the extent that the receipt of the Option, this Award Agreement, the vesting of the Option or the exercise of the Optionresults in income to the Option Holder for federal, state, local or foreign income, employment or other tax purposes with respect to which the Companyor its Subsidiaries or any affiliate has a withholding obligation, the Option Holder shall deliver to the Company at the time of such receipt, vesting orexercise, as the case may be, such amount of money as the Company or its Subsidiaries or any affiliate may require to meet its obligation underapplicable tax laws or regulations, and, if the Option Holder fails to do so, the Company or its Subsidiaries or any affiliate is authorized to withholdfrom the Shares subject to the Option (based on the Fair Market Value of such Shares as of the date the amount of tax to be withheld is determined) orfrom any cash or stock remuneration then or thereafter payable to the Option Holder any tax required to be withheld by reason of such taxable income,sufficient to satisfy the withholding obligation. - 4 -8. Assignability. The Option shall not be assignable or transferable by the Option Holder, except by will or by the laws of descent anddistribution. During the life of the Option Holder, the Option shall be exercisable only by the Option Holder.9. Rights as a Shareholder. The Option Holder shall have no rights as a shareholder by reason of the Option unless and until certificates for theShares or noncertificated book-entries representing such Shares are issued to him or her.10. Discretionary Plan; Employment. The Plan is discretionary in nature and may be suspended or terminated by the Company at any time.With respect to the Plan, (a) each grant of an Option is a one-time benefit which does not create any contractual or other right to receive future grants ofOptions, or benefits in lieu of Options; (b) all determinations with respect to any such future grants, including, but not limited to, the times when theOption shall be granted, the number of Option Shares, the Option Price, and the times when each Option shall be exercisable, will be at the solediscretion of the Company; (c) if the Option Holder is an Employee, the Option Holder’s participation in the Plan shall not create a right to further orcontinued employment with the Option Holder’s employer and shall not interfere with the ability of the Option Holder’s employer to terminate theOption Holder’s employment relationship at any time with or without cause; (d) the Option Holder’s participation in the Plan is voluntary; (e) theOption is not part of normal and expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payment,bonuses, long-service awards, pension or retirement benefits, or similar payments; (f) the future value of the Shares underlying the Option is unknownand cannot be predicted with certainty; (g) if the underlying Shares do not increase in value, the Option will have no value; and (h) the ability of theOption Holder to sell Shares acquired pursuant to the Option may be limited by applicable securities laws.11. Effect of Plan. The Plan is hereby incorporated by reference into this Award Agreement, and this Award Agreement is subject in all respectsto the provisions of the Plan, including without limitation the authority of the Committee to adjust awards and to make interpretations and otherdeterminations with respect to all matters relating to this Award Agreement and the Plan.12. Notices. Any notice, instruction, authorization, request, demand or other communications required hereunder shall be in writing, and shallbe delivered either by personal delivery, by telegram, telex, telecopy or similar facsimile means, by certified or registered mail, return receipt requested,or by courier or delivery service, addressed to the Company at the Company’s principal business office address to the attention of the Company’s ChiefFinancial Officer and to the Option Holder at the Option Holder’s residential address as it appears on the books and records of the Company, or at suchother address and number as a party shall have previously designated by written notice given to the other party in the manner hereinabove set forth.Notices shall be deemed given when received, if sent by facsimile means (confirmation of such receipt by confirmed facsimile transmission beingdeemed receipt of communications sent by facsimile means); and when delivered (or upon the date of attempted delivery where delivery is refused), ifhand-delivered, sent by express courier or delivery service, or sent by certified or registered mail, return receipt requested. - 5 -13. Successors and Assigns. This Award Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Companyand, to the extent provided in Section 6 hereof, to the heirs or legatees of the Option Holder.14. Transfer Restrictions. The Option Shares may not be sold or otherwise disposed of in any manner that would constitute a violation of anyapplicable federal or state securities laws. The Option Holder also agrees (a) that the Company may refuse to cause the transfer of Option Shares to beregistered on the applicable stock transfer records if such proposed transfer would in the opinion of counsel satisfactory to the Company constitute aviolation of any applicable securities law and (b) that the Company may give related instructions to the transfer agent, if any, to stop registration of thetransfer of the Option Shares. The Option Holder consents to the placing on the certificate for any Option Shares of an appropriate legend restrictingresale or other transfer of such shares except in accordance with the Securities Act of 1933, as amended, and all applicable rules thereunder.15. Electronic Signatures. Each party agrees that the Option Holder shall execute this Award Agreement by completing the associatedelectronic signature. Such electronic signature is intended to authenticate this writing and shall have the same force and effect as a manual signature.Electronic signature shall mean any electronic sound, symbol, or process attached to or logically associated with this Award Agreement that isexecuted and adopted by the Option Holder with the intent to sign the Award Agreement.16. Acceptance. The Option Holder, by his or her acceptance of the Option, which shall be conclusively evidenced by his or her execution ofthe electronic signature associated with this Award Agreement, agrees to be bound by all of the terms and conditions of this Award Agreement and thePlan. - 6 -Exhibit 10.29RESTRICTED STOCK AWARD AGREEMENTPursuant to theADDUS HOMECARE CORPORATION2017 OMNIBUS INCENTIVE PLANName of Participant: Date of Grant: Number of Shares: Fair Market Value of each Share on Date of Grant: Vesting Start Date: This RESTRICTED STOCK AGREEMENT (this “Agreement”), dated as of , is between Addus HomeCare Corporation (the“Company”) and the above-named individual (the “Participant”) to record the granting of Restricted Stock on (the “Date of Grant”) tothe Participant pursuant to the Addus HomeCare Corporation 2017 Omnibus Incentive Plan, as amended (the “Plan”). Terms used herein that aredefined in the Plan shall have the meanings ascribed to them in the Plan.1. Grant of Restricted Stock. The Company hereby grants to the Participant, as of the Date of Grant, subject to and in accordance with the termsand conditions of the Plan and this Agreement, the above-referenced number of shares of the Company’s common stock, par value $.001 per share (the“Shares”). The grant of the Shares to the Participant, evidenced by this Agreement, is an award of Restricted Stock (as defined in the Plan) and suchshares of Restricted Stock are referred to herein as the “Restricted Shares.”2. Vesting of Shares.(a) Ownership of the Shares shall vest pursuant to the following vesting schedule, provided, in each case, the Participant is still employedor retained by the Company or one of its Subsidiaries:(i) on the first anniversary of the Vesting Start Date (as set forth above), the Restricted Shares will vest with respect to ofthe total number of Restricted Shares as set forth above;(ii) on each succeeding anniversary of the Vesting Start Date, the Restricted Shares will vest with respect to of theRestricted Shares so that on the anniversary of the Vesting Start Date, the Restricted Shares shall be fully vested;(b) The foregoing vesting schedule notwithstanding, upon the occurrence of a Change in Control, all Restricted Shares or portions thereofnot yet vested shall become immediately vested, provided Participant is actively employed or otherwise in service as of such date.(c) The foregoing vesting schedule notwithstanding, if the employment or other relationship of the Participant with the Company or oneof its Subsidiaries terminates by reason of the Participant’s Disability or death, all Restricted Shares or portions thereof not yet vested shallbecome immediately vested.3. Forfeiture. Shares that do not become vested in accordance with the vesting criteria set forth in Section 2 (and any dividends or otherdistributions related to such Restricted Shares) shall be forfeited to the Company. Accordingly, if the Restricted Shares do not vest in accordance withthe vesting criteria set forth in Section 2 and the Participant’s employment or service terminates for any reason, the Restricted Shares shall be forfeited.4. Legend. Each share certificate representing the Restricted Shares shall bear a legend indicating that such Restricted Shares are “RestrictedStock” within the meaning of the Plan and are subject to the provisions of this Agreement and the Plan.5. Withholding Taxes. To the extent that the receipt of the Restricted Shares or the lapse of any forfeiture restrictions results in income toParticipant for federal, state, local or foreign income, employment or other tax purposes with respect to which the Company or any of Subsidiaries havea withholding obligation, Participant shall deliver to the Company at the time of such receipt or lapse, as the case may be, such amount of money as theCompany or any Subsidiary may require to meet such obligation under applicable tax laws or regulations, and, if Participant fails to do so, theCompany is authorized to withhold from the Restricted Shares granted hereby or from any cash or stock remuneration then or thereafter payable toParticipant in any capacity any tax required to be withheld by reason of such taxable income, sufficient to satisfy the withholding obligation.6. General Restrictions on Issuance of Stock Certificates and Book Entries. The Company shall not be required to deliver any certificate, ormake any book entry, representing the Restricted Shares until it has been furnished with such opinions, representations or other documents as it maydeem necessary or desirable, in its discretion, to ensure compliance with any law or rules of the Securities and Exchange Commission or any othergovernmental authority having jurisdiction under the Plan or over the Company, the Participant or the Shares or any interests granted thereunder.7. Rights as Shareholder. Except for the dividend and distribution restrictions described below, and the transfer and other restrictions set forthelsewhere in this Agreement and in the Plan, the Participant, as record holder of the Restricted Shares, shall possess all the rights of a holder of theCompany’s Shares, including voting, dividend and other distribution rights,provided, however, that prior to vesting, the certificates representing the Restricted Shares, as well as any dividends or other distributions with respectto such Restricted Shares, shall be held by the Company for the benefit of the Participant, and such dividends or other distributions shall not bearinterest or be segregated in separate accounts. Any distributions with respect to the Restricted Shares in the form of capital stock shall be treated asRestricted Stock in the same manner as the Restricted Shares. If the underlying Shares do not vest, then any capital stock distributed with respect to theRestricted Shares, as well as any other dividends or other distributions with respect to such Restricted Shares, shall be forfeited to the Company. Uponforfeiture of any Restricted Share, the Participant agrees to deliver promptly to the Company certificates representing such Restricted Shares which donot vest and a stock power executed in blank covering such Restricted Shares (and covering any capital stock distributed with respect to suchRestricted Shares). The stock power with respect to any certificate representing Restricted Shares which do not vest shall be completed in the name ofthe Company by an officer of the Company and returned to treasury.8. Transferability — Restricted Share Certificates. Prior to vesting, all rights with respect to the Restricted Stock granted to a Participant underthe Plan shall be available, during such Participant’s lifetime, only to such Participant. The Restricted Shares may not be sold, transferred, pledged,assigned, encumbered or otherwise alienated or hypothecated until they become vested in accordance with Section 2 of this Agreement and then onlyto the extent permitted under this Agreement and the Plan and by applicable securities laws. Any such attempted sale, transfer, pledge, assignment,encumbrance, alienation or hypothecation in violation of this Agreement shall be void and the Company shall not be bound thereby. Participant alsoagrees that the Company may (a) refuse to cause the transfer of the Restricted Shares to be registered on the applicable stock transfer records of theCompany if such proposed transfer would, in the opinion of counsel satisfactory to the Company, constitute a violation of any applicable securitieslaw and (b) give related instructions to the transfer agent, if any, to stop registration of the transfer of the Restricted Shares.9. Capital Adjustments and Reorganizations. The existence of the Restricted Shares shall not affect in any way the right or power of theCompany or any company the stock of which is awarded pursuant to this Agreement to make or authorize any adjustment, recapitalization,reorganization or other change in its capital structure or its business, engage in any merger or consolidation, issue any debt or equity securities,dissolve or liquidate, or sell, lease, exchange or otherwise dispose of all or any part of its assets or business, or engage in any other corporate act orproceeding.10. Section 83(b) Election. The Participant may elect, within 30 days of the Date of Grant pursuant to Section 83(b) of the Code, to include inhis or her gross income the fair market value of the Restricted Shares covered by this Agreement in the taxable year of grant. The election must be madeby filing the appropriate notice with the Internal Revenue Service within 30 days of the Date of Grant. If the Participant makes this election, theParticipant shall promptly notify the Company by submitting to the Company a copy of the election notice filed with the Internal Revenue Service.11. Adjustment of Shares. As provided by the Plan, in the event of any change in the Shares of the Company by reason of any change incorporate capitalization, such as a stock split, stock dividend or a corporate transaction, such as any merger, consolidation, combination, exchange ofshares or the like, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization or any partial orcomplete liquidation of the Company, the Restricted Shares shall be adjusted as the Committee may determine to be appropriate and equitable toprevent dilution or enlargement of rights.13. Effect of Plan. The Plan is hereby incorporated by reference into this Agreement, and this Agreement is subject in all respects to theprovisions of the Plan, including without limitation the authority of the Committee to adjust awards and to make interpretations and otherdeterminations with respect to all matters relating to this Agreement and the Plan. If there is any inconsistency between the terms of this Agreement andthe terms of the Plan, the Plan’s terms shall supersede and replace the conflicting terms herein.13. No Consultant/Employment Rights. Neither the Plan nor this Agreement shall confer upon the Participant any right with respect tocontinuance of employment by or service as a consultant to the Company or any Subsidiary nor shall they interfere in any way with the right of theCompany or any Subsidiary to terminate the Participant’s employment or service as a consultant at any time, with or without Cause.14. No Fractional Shares. All provisions of this Agreement concern whole Shares. If the application of any provision hereunder would yield afractional share, such fractional share shall be rounded down to the next whole share if it is less than 0.5 and rounded up to the next whole share if it is0.5 or more.15. Legend. Participant consents to the placing on the certificate for the Shares of an appropriate legend restricting resale or other transfer of theShares except in accordance with all applicable securities laws and rules thereunder.16. Amendment and Waiver. Except as otherwise provided herein or in the Plan or as necessary to implement the provisions of the Plan, thisAgreement may be amended, modified or superseded only by written instrument executed by the Company and Participant. Only a written instrumentexecuted and delivered by the party waiving compliance hereof shall waive any of the terms or conditions of this Agreement. Any waiver granted bythe Company shall be effective only if executed and delivered by a duly authorized officer of the Company or the Committee other than Participant.The failure of any party at any time or times to require performance of any provisions hereof shall in no manner effect the right to enforce the same. Nowaiver by any party of any term or condition, or the breach of any term or condition contained in this Agreement, in one or more instances, shall beconstrued as a continuing waiver of any such condition or breach, a waiver of any other condition, or the breach of any other term or condition.17. Governing Law and Severability. The validity, construction and performance of this Agreement shall be governed by the laws of the Stateof Delaware, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to thesubstantive law of another jurisdiction. The invalidity of any provision of this Agreement shall not affect any other provision of this Agreement, whichshall remain in full force and effect.18. Successors and Assigns. Subject to the limitations which this Agreement imposes upon the transferability of the Shares granted hereby, thisAgreement shall bind, be enforceable by and inure to the benefit of the Company and its successors and assigns, and to Participant, Participant’spermitted assigns, executors, administrators, agents, legal and personal representatives.19. Notices. Any notice, instruction, authorization, request, demand or other communications required hereunder shall be in writing, andshall be delivered either by personal delivery, by telegram, telex, telecopy or similar facsimile means, by certified or registered mail, return receiptrequested, or by courier or delivery service, addressed to the Company at the Company’s principal business office address to the attention of theCompany’s Chief Financial Officer and to Participant at Participant’s residential address as it appears on the books and records of the Company, or atsuch other address and number as a party shall have previously designated by written notice given to the other party in the manner hereinabove setforth. Notices shall be deemed given when received, if sent by facsimile means (confirmation of such receipt by confirmed facsimile transmission beingdeemed receipt of communications sent by facsimile means); and when delivered (or upon the date of attempted delivery where delivery is refused), ifhand-delivered, sent by express courier or delivery service, or sent by certified or registered mail, return receipt requested.20. Electronic Signatures. Each party agrees that the Participant shall execute this Agreement by completing the associated electronicsignature. Such electronic signature is intended to authenticate this writing and shall have the same force and effect as a manual signature. Electronicsignature shall mean any electronic sound, symbol, or process attached to or logically associated with this Agreement that is executed and adopted bythe Participant with the intent to sign the Agreement.21. Acceptance. The Participant, by his or her acceptance of the Restricted Stock, which shall be conclusively evidenced by his or herexecution of the electronic signature associated with this Agreement, agrees to be bound by all of the terms and conditions of this Agreement and thePlan, and further consents to and agrees to be bound by any stock power presented in connection herewith.Exhibit 21.1SUBSIDIARIES OF THE REGISTRANT Name of Subsidiary State ofIncorporation Doing Business As NameAddus HealthCare (Delaware), Inc. Delaware Addus HomeCareAddus HealthCare (Idaho), Inc. Delaware A Full Life HomeCare; Addus HomeCareAddus HealthCare (Nevada), Inc. Delaware Desert PCA; Silver State Personal CareAddus HealthCare (North Carolina), Inc. Delaware Down East HealthCare; AddusHomeCareAddus HealthCare (South Carolina), Inc. Delaware AddusAddus HealthCare, Inc. Illinois Addus HealthCareAddus Personal Care Services Addus Nurse Care, Inc. Delaware Sun City Caregivers; Lifestyle OptionsCura Partners, LLC Tennessee Aid & Assist at Home, LLCOptions Service, Inc. New Mexico Addus HomeCareExhibit 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements:1. Registration Statement (Form S-3 No.333-214988);2. Registration Statement (Form S-8 No.333-190433);3. Registration Statement (Form S-8 No.333-164413); and,4. Registration Statement (Form S-8 No.333-219946)of our reports dated March 14, 2018, with respect to the consolidated financial statements of Addus HomeCare Corporation and the effectiveness ofinternal control over financial reporting of Addus HomeCare Corporation included in this Annual Report (Form 10-K) of Addus HomeCareCorporation for the year ended December 31, 2017./s/ Ernst & Young, LLPDallas, TexasMarch 14, 2018Exhibit 23.2Consent of Independent Registered Public Accounting FirmAddus HomeCare CorporationFrisco, TexasWe hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-214988) and Form S-8 (No. 333-190433,333-164413, and 333-219946) of Addus HomeCare Corporation of our report dated March 15, 2017, relating to the consolidated financial statementsand financial statement schedule, which appear in this Form 10-K./s/ BDO USA, LLPChicago, IllinoisMarch 14, 2018Exhibit 31.1CERTIFICATIONI, R. Dirk Allison, President and Chief Executive Officer of Addus HomeCare Corporation certify that: 1.I have reviewed this annual report on Form 10-K of Addus HomeCare Corporation (the “Registrant”); 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4.The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the Registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s mostrecent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the Registrant’s internal control over financial reporting; and 5.The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internalcontrol over financial reporting.Date: March 14, 2018 /s/ R. Dirk Allison R. Dirk AllisonPresident and Chief Executive OfficerExhibit 31.2CERTIFICATIONI, Brian Poff, Chief Financial Officer of Addus HomeCare Corporation, certify that: 1.I have reviewed this annual report on Form 10-K of Addus HomeCare Corporation (the “Registrant”); 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4.The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the Registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s mostrecent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the Registrant’s internal control over financial reporting; and 5.The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internalcontrol over financial reporting.Date: March 14, 2018 /s/ Brian PoffBrian PoffChief Financial OfficerExhibit 32.1CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TO 18 U.S.C. SECTION 1350(AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)In connection with the Annual Report on Form 10-K for the fiscal year ended December 31, 2017 of Addus HomeCare Corporation (the“Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, R. Dirk Allison, President and Chief ExecutiveOfficer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: March 14, 2018 BY: /S/ R. DIRK ALLISON R. Dirk Allison President and Chief Executive Officer Exhibit 32.2CERTIFICATION OF CHIEF FINANCIAL OFFICERPURSUANT TO 18 U.S.C. SECTION 1350(AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)In connection with the Annual Report on Form 10-K for the fiscal year ended December 31, 2017 of Addus HomeCare Corporation (the“Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian Poff, Chief Financial Officer of theCompany, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: March 14, 2018 BY: /s/ Brian Poff Brian Poff Chief Financial Officer

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