Addus HomeCare
Annual Report 2018

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, 2018OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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 thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90days. Yes ☒ No ☐.Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best ofthe registrant’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 Exchange Act. Large accelerated filer☐ Accelerated filer☒Non-accelerated filer☐ Smaller reporting company☐ Emerging growth company☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒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, 2018 (the last business day of the registrant’s most recently completed second fiscal quarter) was $443,506,647.As of March 1, 2019, there were 13,177,598 shares of common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCECertain portions of the registrant’s Definitive Proxy Statement for its 2019 Annual Meeting of Stockholders (which is expected to be filed with the Commission within120 days after the end of the registrant’s 2018 fiscal year) are incorporated by reference into Part III of this Annual Report on Form 10-K. Table of Contents TABLE OF CONTENTS PART I 2Item 1. Business 2Item 1A. Risk Factors 14Item 1B. Unresolved Staff Comments 28Item 2. Properties 28Item 3. Legal Proceedings 28Item 4. Mine Safety Disclosures 28 PART II 29Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 29Item 6. Selected Financial Data 29Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35Item 7A. Quantitative and Qualitative Disclosures about Market Risk 54Item 8. Financial Statements and Supplementary Data 54Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 54Item 9A. Controls and Procedures 54Item 9B. Other Information 58 PART III 59Item 10. Directors, Executive Officers and Corporate Governance 59Item 11. Executive Compensation 59Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 59Item 13. Certain Relationships and Related Transactions, and Director Independence 59Item 14. Principal Accountant Fees and Services 59 PART IV 60Item 15. Exhibits and Financial Statement Schedules 60Item 16. Form 10-K Summary 63 Table of Contents SPECIAL 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”) or instatements made by or on behalf of the Company, words like “believes,” “belief,” “expects,” “plans,” “anticipates,” “intends,” “seeks,” “projects,” “targets,”“estimates,” “may,” “might,” “continue,” “would,” “should,” “can,” “could,” “will,” and similar expressions or variations are intended to identify forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of ourmanagement based on information currently available to management. These forward-looking statements involve a variety of risks and uncertainties thatcould cause actual results to differ materially from those described therein. These risks and uncertainties include, but are not limited to, changes inoperational and reimbursement processes and payment structures at the state or federal levels; changes in Medicaid, Medicare, other government program andmanaged care organizations policies and payment rates; changes in, or our failure to comply with existing, federal and state laws or regulations or our failureto comply with new government laws or regulations on a timely basis; competition in the healthcare industry; the geographical concentration of ouroperations; changes in the case mix of consumers and payment methodologies; operational changes resulting from the assumption by managed careorganizations of responsibility for managing and paying for our services to consumers; the nature and success of future financial and/or delivery systemreforms; changes in estimates and judgments associated with critical accounting policies; our ability to maintain or establish new referral sources; our abilityto renew significant agreements or groups of agreements; our ability to attract and retain qualified personnel; federal, city and state minimum wage pressure, including any failure of Illinois or any other governmental entity to enact a minimum wage offset and/or the timing of any suchenactment; changes in payments and covered services due to the overall economic conditions and deficit spending by federal and state governments; costcontainment initiatives undertaken by state and other third party payors; our ability to access financing through the capital and credit markets; our ability tomeet debt service requirements and comply with covenants in debt agreements; business disruptions due to natural disasters or acts of terrorism; our ability tointegrate and manage our information systems; our expectations regarding the size and growth of the market for our services; the acceptance of privatizedsocial services; our expectations regarding changes in reimbursement rates; eligibility standards and limits on services imposed by state governmentalagencies; the potential for litigation; discretionary determinations by government officials; our ability to successfully implement our business model to growour business; our ability to continue identifying, pursuing and integrating acquisition opportunities and expand into new geographic markets; the impact ofacquisitions and dispositions on our business; the effectiveness, quality and cost of our services; our ability to successfully execute our growth strategy;changes in tax rates; the impact of inclement weather or natural disasters; and various other matters, many of which are beyond our control.Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should notrely on any forward-looking statement as a prediction of future events. We expressly disclaim any obligation or undertaking and we do not intend to releasepublicly any updates or changes in our expectations concerning the forward-looking statements or any changes in events, conditions or circumstances uponwhich any forward-looking statement may be based, except as required by law. For a discussion of some of the factors discussed above as well as additionalfactors, see Part I, Item 1A—“Risk Factors” and Part II, Item 7—“Critical Accounting Policies and Estimates” within “Management’s Discussion and Analysisof Financial Condition and Results of Operations”.Unless otherwise provided, “Addus,” “we,” “us,” “our,” and the “Company” refer to Addus HomeCare Corporation and our consolidated subsidiariesand “Holdings” refers to Addus HomeCare Corporation. When we refer to 2018, 2017 and 2016, we mean the twelve month period then ended December 31,unless otherwise provided.A copy of this Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC, including all exhibits, is available on ourinternet website at http://www.addus.com on the “Investors” page link. Information contained on, or accessible through, our website is not a part of, and isnot incorporated by reference into, this Annual Report on Form 10-K.1Table of Contents PART IITEM 1.BUSINESSOverviewAddus HomeCare Corporation was incorporated in Delaware in 2006 under the name Addus Holding Corporation for the purpose of acquiring AddusHealthCare, Inc. (“Addus HealthCare”). Addus HealthCare was founded in 1979. We are a home care services provider operating in three segments: personalcare; hospice; and home health. Our services are principally provided in the home under agreements with federal, state and local government agencies. Ourconsumers are predominantly “dual eligible,” meaning they are eligible to receive both Medicare and Medicaid benefits.As of December 31, 2018, we provided services to over 39,000 consumers in 24 states through 156 offices. Our payor clients include federal, state andlocal governmental agencies, managed care organizations, commercial insurers and private individuals. For the years ended December 31, 2018, 2017 and2016, we served approximately 57,000, 51,000 and 50,000 discrete consumers, respectively. Our personal care segment also includes staffing services, withclients including assisted living facilities, nursing homes and hospice facilities.A summary of our financial results for 2018, 2017 and 2016 is provided in the table below. For the Years Ended December 31, 2018 2017 (1) 2016 (1) (Amounts in Thousands) Net service revenues – continuing operations $518,119 $425,994 $400,929 Net income from continuing operations 17,377 13,534 12,063 Earnings from discontinued operations 126 147 97 Net income $17,503 $13,681 $12,160 Total assets $355,388 $271,691 $232,984 (1)Net service revenues and net income from continuing operations, net income and total assets have been updated to reflect the correctiondescribed in Note 2 to the Notes to Consolidated Financial Statements.Our services and operating model address a number of crucial needs across the healthcare continuum. Care provided in the home generally costs lessthan facility-based care and is typically preferred by consumers and their families. By providing services in the home to the elderly and others who requirelong-term care and support with the activities of daily living, we lower the cost of chronic and acute care treatment by delaying or eliminating the need forcare in more expensive settings. In addition, our caregivers observe and report changes in the condition of our consumers for the purpose of facilitating earlyintervention in the disease process, which often reduces the cost of medical services by preventing unnecessary emergency room visits and/or hospitaladmissions and re-admissions. We coordinate the services provided by our team with those of other healthcare providers and payors as appropriate. Changesin a consumer’s conditions are evaluated by appropriately trained managers and may result in a report to the consumer’s case manager at a managed careorganization or other payor. By providing care in the preferred setting of the home and by providing opportunities to improve the consumer’s conditions andallow early intervention as indicated, our model also is designed to improve consumer outcomes and satisfaction.We believe our model provides significant value to managed care organizations. States are increasingly implementing managed care programs forMedicaid enrollees, and as a result managed care organizations have been increasingly responsible for the healthcare needs and the related healthcare costs ofour consumers. Managed care organizations have an economic incentive to better manage the healthcare expenditures of their members, lower costs andimprove outcomes. We believe that our model is well positioned to assist in meeting those goals while also improving consumer satisfaction, and, as a result,we expect increased referrals from managed care organizations.Beginning January 1, 2019, a final rule of the Centers for Medicare and Medicaid Services (“CMS”), allows Medicare Advantage insurers to offerbeneficiaries more options and new benefits. Through this rule, CMS has redefined health-related supplemental benefits to include services that increasehealth and improve quality of life, including coverage of non-skilled in-home care. This policy change, emphasizing improving quality and reducing costs,aligns with our overall approach to care, and we believe the increased demand for personal care from the Medicare Advantage population represents asignificant upside opportunity over the next three to five years.We utilize Interactive Voice Response (“IVR”) systems and smart phone applications to communicate with the majority of our aides. Through thesetechnologies, our aides are able to report changes in health conditions to an appropriate manager for triage and evaluation. In addition, we use thesetechnologies to record basic information about each visit, record start and end times for a2Table of Contents scheduled shift, track mileage reimbursement, send text messages to the 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 facilitated our entry into new markets where the personalcare business has primarily been moving to managed care organizations.In 2013, we sold substantially all of the assets of our then home health skilled nursing business (the “2013 Home Health Business”) in Arkansas,Nevada, South Carolina and Pennsylvania, and 90% of the 2013 Home Health Business in California and Illinois. Effective October 1, 2017, we sold ourremaining 10% ownership interest in the 2013 Home Health Business in California and Illinois. The results of the 2013 Home Health Business sold arereflected as discontinued operations for all periods presented herein. We maintain licensure as a Medicare home health agency in Ohio and Delaware inconnection with providing services in those states. With the purchase of Ambercare Corporation (“Ambercare”), completed in the second quarter of 2018, wenow maintain licensure as a Medicare home health and hospice agency in New Mexico.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 in recentyears. Demand for personal care services is expected to continue to grow due to the aging of the U.S. population, increased life expectancy, and improvedopportunities for individuals to receive home-based care as an alternative to institutional care. The population over the age of 65 nationally has beengrowing at a consistent rate for the past five years and the U.S. Census Bureau estimates are that this demographic will more than double by 2050.Reported federal and state Medicaid expenditures for fee-for-service personal care services amounted to over $29.9 billion in calendar year 2016, themost recent year for which data is available, reflecting an increase of $1.9 billion from 2015.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 2018, 39 states contracted with risk-based managed care organizations to serve their Medicaid enrollees, with 20of those states enrolling at least 75% of all elderly beneficiaries or those with disabilities in managed care organizations. In 24 states, some or all long-termservices and support is covered through Medicaid managed care arrangements.In addition to the projected growth of government-sponsored personal care services, the private pay market for our services continues to expand. Weoffer 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 in ahighly fragmented manner, with many small local providers. Few companies have a significant market share across multiple regions or states. The lack oflicensure or certification requirements in some states makes it difficult to estimate the number of personal care services agencies.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. For example, the 21st CenturyCures Act, as amended, mandates that states implement electronic visit verification (“EVV”) by January 1, 2020, which will be used to collect home visitdata, such as when the visit begins and ends. In several states, providers are now required to obtain state licenses or registrations and must comply with lawsand regulations governing standards of practice. Providers must dedicate substantial resources to ensure continuing compliance with all applicableregulations and significant expenditures may be necessary to offer new services or to expand into new markets. The failure to comply with regulatoryrequirements could lead to the termination of rights to participate in federal and state-sponsored programs and the suspension or revocation of licenses. Webelieve new licensing requirements and regulations, including EVV, the increasing focus on improving health outcomes, the rising cost and complexity ofoperations, technology and pressure on reimbursement rates due to constrained government resources may discourage new providers and may encourageindustry consolidation.The Medicare-Medicaid Coordination Office (“MMCO”) was established within CMS to effectively improve services for consumers who are eligiblefor both Medicare and Medicaid, also known as dual eligibles, and improve coordination between the federal government and states to enhance access toquality services to which they are entitled. The MMCO works with state Medicaid agencies, other federal and state agencies, physicians and others, to makeavailable technical assistance and educational tools to improve care coordination between Medicare and Medicaid and to reduce costs and improvebeneficiary experience while reducing administrative and regulatory barriers between the programs. For example, the Financial Alignment Initiative is ademonstration project that tests capitated models and managed fee-for-service models of integrated care and payment for benefits provided to dual eligibles.We believe that our personal care program and our technology make us well-suited to partner with managed care organizations to address the needs ofthe dual eligible population. We believe that our ability to identify changes in our consumers’ health and3Table of Contents condition before acute intervention is required will lower the overall cost of care. We believe this approach to care delivery and the integration of ourservices into the broader healthcare continuum are particularly attractive to managed care organizations and others who are ultimately responsible for thehealthcare needs of our consumers and over time will increase 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 growth dependson our ability to provide consistently high quality care, maintain our existing payor relationships, establish relationships with new payors and increase ourreferral sources. Our continued growth is also dependent upon the authorization by state agencies of new consumers to receive our services. We believe thereare 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 thispopulation will more than double by 2050. Additionally, we believe the overwhelming majority of individuals in need of care generally prefer to receive carein their homes. Finally, we believe the provision of personal care services is more cost-effective than the provision of similar services in institutional settingsfor long-term care. We plan to continue our revenue growth and margin improvement and enhance our competitive positioning by executing on thefollowing growth strategies:Consistently provide high-quality careWe schedule and require our caregivers to perform their services as defined within the individual plan of care. We monitor the performance of ourcaregivers through regular supervisory visits in the homes of consumers. Our caregivers are provided with pre-service training and orientation and anevaluation of their skills. In many cases, caregivers are also required to attend ongoing in-service education. In certain states, our caregivers are required tocomplete certified training programs and maintain a state certification. The training provided assists to identify changes in our consumers’ health andcondition before acute intervention is required, which we believe lowers the overall cost of care.Drive Organic Growth in Existing MarketsWe intend to drive organic growth through several initiatives, including building our sales capabilities, increasing our interaction with referralsources, enhancing our business intelligence capabilities and expanding relationships with payors in our markets. We also expect our organic growth willbenefit from an increase in demand for our services by an aging population. We also are prepared to selectively open new offices in existing markets when anopportunity is identified and appropriate.Market to Managed Care OrganizationsAs a scaled, national provider of home-based care, we can grow by partnering with managed care organizations, taking advantage of an industry shiftaway from traditional fee-for-service Medicaid and toward managed care models, which aim to better coordinate care. We expect this shift to lead to narrowerprovider networks where we can be competitive by offering a larger, more experienced partner to these organizations, as well as by providing moresophisticated technology, electronic visit records and an outcomes-driven approach to service. We believe our coordinated care model and integration ofservices into the broader healthcare industry are particularly attractive to managed care organizations.Grow through AcquisitionsIn 2018, we completed three acquisitions. Through the Ambercare acquisition, completed in the second quarter of 2018, we acquired the businessesthat comprise our hospice and home health segments. Our acquisition pipeline and strong financial position support additional acquisitions. With risingconsolidation pressures in the industry, our focus is on identifying growing markets with favorable demographics in states that are fiscally well managed andhave a reasonable minimum wage environment and where we have the potential to become one of the leading providers in the state in order to support ourmanaged care organization strategy. We believe our experience identifying and executing on acquisition opportunities, as well as our history of integratingacquisitions, will lead to additional growth.Grow in Complementary BusinessesIn 2018, we expanded and diversified into hospice and home health via our Ambercare acquisition. Entry into these business lines allows us tobroaden our range of services in existing markets, while achieving further economies of scale and taking advantage of our home-focused management andoperational capabilities. We anticipate having further opportunities to expand these segments by acquisition, with a particular focus on hospice care.4Table of Contents Our ServicesAs of December 31, 2018, we delivered services to our consumers in 24 states through 156 individual agencies. Our services, which include non-medical personal care services, are provided to consumers who are unable to independently perform some or all of their activities of daily living. Without ourservices, many of our consumers would be at increased risk of placement in a long-term care institution. With the acquisition of Ambercare completed duringthe second quarter of 2018, we began to report our business with two additional segments, hospice and home health. Prior to the Ambercare acquisition, weoperated one business segment as a provider of personal care services.Personal CareOur personal care segment provides non-medical assistance with activities of daily living, primarily to persons who are at increased risk ofhospitalization or institutionalization, such as the elderly, chronically ill or disabled. The services we provide include assistance with bathing, grooming,oral care, assistance with feeding and dressing, medication reminders, meal planning and preparation, housekeeping and transportation services. Manyconsumers need such services on a long-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, regulationsor contracts.HospiceOur hospice segment provides physical, emotional and spiritual care for people who are terminally ill as well as for their families. The hospice serviceswe provide include palliative nursing care, social work, spiritual counseling, homemaker services and bereavement counseling. Generally, patients receivinghospice services have a life expectancy of six months or less.Home HealthOur home health segment provides services that are primarily medical in nature to individuals who may require assistance during an illness or aftersurgery and include skilled nursing and physical, occupational and speech therapy. We generally provide home health services on a short-term, intermittentor episodic basis to individuals, typically to assist patients recovering from an illness or injury.Our PayorsOur payor clients include federal, state and local governmental agencies, managed care organizations, commercial insurers and private individuals.The federal, state and local programs under which these organizations operate are subject to legislative, budgetary and other risks that can influencereimbursement rates. Managed care organizations that operate as an extension of our state payors are subject to similar economic pressures. Our commercialinsurance payor clients are typically for profit companies and are continuously seeking opportunities to control costs.Most 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, providedthat we have complied with licensing, certification and program standards, and other regulatory requirements. Reimbursement rates and methods vary bystate and service type, but are typically based on an hourly or unit-of-service basis. Managed care organizations are becoming an increasing portion of ourpersonal care segment payor mix as states shift from administering fee-for-service programs to utilizing managed care models. In our personal care segmentduring 2018, approximately 58.2% of our net service revenues were derived from state and local government programs, with 35.3% derived from managedcare organizations, while approximately 4.1% and 1.3% of net service revenues were derived from private pay consumers and commercial insuranceprograms, respectively.5Table of Contents For 2018, 2017 and 2016, our revenue mix by payor type was as follows: Years Ended December 31, 2018 2017 2016 Personal Care State, local and other governmental programs 58.2 % 64.2 % 70.5 %Managed care organizations 35.3 33.1 26.0 Private pay 4.1 2.1 2.4 Commercial insurance 1.3 0.6 1.1 Other 1.1 — — Hospice Medicare 93.6 % — % — %Managed care organizations 5.6 — — Other 0.8 — — Home Health Medicare 88.0 % — % — %Managed care organizations 11.0 — — Other 1.0 — — 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 2018, 2017 and 2016 were as follows: % of Total Revenue for theYears Ended December, 31 State 2018 2017 2016 Personal Care Illinois 47.5 % 52.6 % 53.6 %New York 13.2 8.8 12.9 New Mexico 12.0 13.7 7.5 All other states 27.3 24.9 26.0 Hospice New Mexico 100.0 — — Home Health New Mexico 100.0 — — A significant amount of our net service revenues from our personal care segment are derived from one specific payor client, the Illinois Department onAging, which accounted for 31.0%, 36.5% and 42.1% of our total net service revenues for 2018, 2017 and 2016, respectively. The Illinois Department onAging’s payments for non-Medicaid consumers have been delayed in the past and may be delayed in the future in the event of budget disputes. The state ofIllinois did not adopt comprehensive budgets for fiscal years 2016 or 2017, ending June 30, 2016 and June 30, 2017, respectively. On July 6, 2017, the stateof Illinois passed a budget for state fiscal year 2018, which began on July 1, 2017, authorizing the Illinois Department on Aging to pay for our servicesrendered to non-Medicaid consumers provided in prior fiscal years. As of December 31, 2018, we have received substantially all such payments. On June 4,2018, the state of Illinois passed a budget for state fiscal year 2019, which began on July 1, 2018.In December 2014, the Chicago City Council passed an ordinance that will raise the minimum wage for Chicago workers to $13 per hour by 2019,with increases up to $1 per hour effective on July 1 of each year. The rate is $12 per hour effective July 1, 2018. The wage increase in 2016 did not have amaterial impact on our financial results because of our existing wage scale. The 2017 wage increase was offset by a reimbursement rate increase. In the budgetprocess for the 2019 fiscal year, a similar provision was proposed but was not included in the final budget. We believe that there is legislative support for areimbursement rate increase and anticipate that an increase to offset the wage increase could be passed in the first half of 2019. Our financial performance willbe impacted in quarters for which a reimbursement rate increase is not in effect.We also measure the performance of each segment using a number of different metrics. For the personal care segment these include billable hours,billable hours per business day, revenues per billable hour and the number of consumers, or census. For the hospice segment these include admissions,average daily census, average length of stay and revenue per patient day. For the home health segment these include admissions, recertifications, totalvolume, and number of visits, completed episodes and average revenue per completed episode.6Table of Contents CompetitionOur industry is highly competitive, fragmented and market specific. Each local market has its own competitive profile and no single competitor hassignificant market share across all of our markets. Our competition consists of personal care service providers, home health providers, 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, certain governmental payors contract for serviceswith independent providers such that our relationships with these payors are not exclusive. We have experienced, and expect to continue to experience,competition from new entrants into our markets. Increased competition may result in pricing pressures, loss of or failure to gain market share or loss ofconsumers or payors, any of which could harm our business. In addition, some of our competitors may have greater financial, technical, political andmarketing resources, and name recognition with consumers and payors.Sales and MarketingWe focus on initiating and maintaining working relationships with state and local governmental agencies responsible for the provision of the serviceswe 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 toidentify service needs or changes in the service delivery or reimbursement system of governmental entities and attempt to work with and provide input to theresponsible 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 state Medicaidprograms. We have met with many contracted managed care organizations in markets where we serve our clients and believe we are building the relationshipsnecessary to ensure continued referrals of new clients.We receive substantially all of our consumers through third-party referrals, including state departments on aging, rehabilitation, mental health andchildren’s services, county departments of social services, the Veterans Health Administration and city departments on aging. Generally, family members ofpotential consumers are made aware of available in-home or alternative living arrangements through a state or local case management system. These systemsare operated by governmental or private agencies.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. With respect to our hospice and home health patients, we receive substantially all of our referrals through otherhealth care providers, such as hospitals, physicians, nursing homes and assisted living facilities. We have a team of community liaisons in our hospice andhome health operations that educate and develop relationships with other health care providers and the community at large.Payment for ServicesWe are reimbursed for substantially all of our services by federal, state and local government programs, such as Medicaid state programs, other stateagencies and the Veterans Health Administration. In addition, we are reimbursed by managed care organizations, commercial insurance and private payconsumers. Depending on the type of service, coverage for services may be predicated on a case manager, physician or nurse determination that the care isnecessary or on the development of a plan for care in the home. A significant amount of our net service revenues from our personal care segment are derivedfrom one specific payor client, the Illinois Department on Aging, which accounted for 31.0%, 36.5% and 42.1% of our total net service revenues for 2018,2017 and 2016, respectively.Illinois Department on AgingWe provide personal care services pursuant to agreements with the Illinois Department on Aging, which coordinates programs and community-basedservices intended to improve quality of life and preserve the independence of older individuals. The Illinois Department on Aging is funded by Medicaid andgeneral revenue funds of the state of Illinois, and also receives funding available under the Federal Older Americans Act (“OAA”). The Department onAging’s Community Care Program (“CCP”) provides case management, adult day service, emergency home response and homemaker services to individualsage 60 and over. Some of these services are provided through Medicaid waivers granted by CMS. Enrollment in the CCP has grown significantly over the lastten years due to the aging of the population in Illinois.Consumers are identified by case managers contracted independently with the Illinois Department on Aging. Once a consumer has been evaluated anddetermined to be eligible for a program, an assigned case manager refers the consumer to a list of authorized providers, from which the consumer selects theprovider. We provide our services in accordance with a care plan developed by the case manager and under administrative directives from the IllinoisDepartment on Aging. We are reimbursed on an hourly fee-for-service basis. The state of Illinois’s payments for non-Medicaid consumers have been delayedin the past due to budget disputes that began in 2015. The state of Illinois did not adopt a comprehensive budget for fiscal years 2016 or 2017, but did adopta7Table of Contents comprehensive budget in 2018 and 2019. On November 6, 2018, Illinois elected a new governor. The new governor is expected to be more aligned with theGeneral Assembly; therefore, the likelihood of a future budget impasse and corresponding delay in payments may be reduced.Other Federal, State and Local PayorsMedicareMedicare is a federal program that provides medical services to persons aged 65 or older and other qualified persons with disabilities or end-stagerenal disease. Each of our hospice and home care agencies must comply with the extensive conditions of participation in the Medicare program in order tocontinue receiving Medicare reimbursement.Medicare beneficiaries who have a terminal illness and a life expectancy of six months or less may elect to receive hospice benefits (i.e., palliativeservices for management of a terminal illness) in lieu of standard Medicare coverage for treatment. Hospice services are paid under the Medicare HospiceProspective Payment System (“HPPS”), under which CMS sets a daily rate for each day a patient is enrolled in the hospice benefit. Hospice payment ratesincreased by 1.8% in federal fiscal year 2019, which reflects a 2.9% market basket update; a negative 0.8% multifactor productivity adjustment; and anegative 0.3% adjustment required by the ACA. Additionally, hospice companies are subject to two specific payment limit caps under the Medicare programeach federal fiscal year: the inpatient cap and the aggregate cap. The inpatient cap limits the number of inpatient care days provided to no more than 20% ofthe total days of hospice care provided to Medicare patients for the year. If a hospice exceeds the number of inpatient care days, the hospice must refund anyamounts received for inpatient care that exceed the total of: (i) the product of the total reimbursement paid to the hospice for inpatient care multiplied by theratio of the maximum number of allowable inpatient days to the actual number of inpatient care days furnished by the hospice to Medicare patients; and (ii)the product of the number of actual inpatient days in excess of the limitation multiplied by the limitation by the routine home care rate. The aggregate cap,which is calculated each federal fiscal year, limits the amount of Medicare reimbursement a hospice may receive, based on the number of Medicare patientsserved. If a hospice’s Medicare payments exceed its aggregate cap, it must repay Medicare for the excess amount. In 2019, the aggregate cap is $29,205. Home health services for homebound patients are paid under the Medicare Home Health Prospective Payment System (“HHPPS”), which is currentlybased on a 60-day episode of care as a unit of service. The HHPPS permits multiple, continuous episodes per patient. Medicare payment rates for episodesunder HHPPS vary based on the severity of the patient’s condition as determined by assessment of a patient’s Home Health Resource Group score. CMSupdates the HHPPS payment rates each calendar year. In 2019, HHPPS rates will increase by 2.2%, which includes a 2.2% home health payment update; a0.1% increase due to a decrease of the fixed-dollar-loss ratio in order to pay no more than 2.5% of total payments as outlier payments; and a 0.1% reductiondue to a new rural add-on policy mandated by the Bipartisan Budget Act of 2018. The Bipartisan Budget Act of 2018 also requires CMS to use a 30-dayepisode of care and implement the Patient-Driven Groupings Model (“PDGM”) beginning in January 1, 2020. The PDGM model will replace the current case-mix system, which uses the number of visits to determine payment, and will classify patients based on clinical characteristics. The PDGM is intended to shifttoward a value-based payment system and remove the incentive to overprovide care.CMS requires both hospice and home health providers to submit quality reporting data each year. Hospice and home health providers that do notcomply are subject to a 2% reduction to their market basket update. Medicaid ProgramsMedicaid is a state-administered program that provides certain social and medical services to qualified low-income individuals and is jointly fundedby the federal government and individual states. Reimbursement rates and methods vary by state and service type, but are typically based on an hourly orunit-of-service basis. Rates are subject to adjustment based on statutory and regulatory changes, administrative rulings, government funding limitations andinterpretations of policy by individual state agencies. Within guidelines established by federal statutes and regulations, and subject to federal oversight, eachstate establishes its own eligibility standards, determines the type, amount, duration and scope of services, sets the rate of payment for services andadministers its own program. States typically cover Medicaid beneficiaries for intermittent home health services as well as continuous services for childrenand young adults with complicated medical conditions and cover home and community-based services for seniors and people with disabilities.Many states are moving the administration of their Medicaid and Medicare personal care programs to managed care organizations. This transition isdue to an overall desire to better manage the costs of the Medicaid long term care programs. In addition, hospice and home health services are also providedby managed care organizations. Reimbursement from the managed care organizations for personal care services is generally on an hourly, fee-for-service basiswith rates consistent with or as a percentage of the individual state funded rates.8Table of Contents Currently, personal care services and other HCBS are largely reimbursed on a fee-for-service basis. States receive permission from CMS to providepersonal care services under waivers of traditional Medicaid requirements. In an effort to control escalating Medicaid costs, states are increasingly requiringMedicaid beneficiaries to enroll in managed care plans for better coordination of HCBS and health care services. A report issued by the Illinois Departmenton 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 throughvarious managed care entities including managed care organizations. In January 2018, Illinois began transitioning Medicaid beneficiaries to the HealthChoice Illinois statewide managed care program, which is serviced by various managed care organizations. The Illinois Department of Healthcare and FamilyServices expected that managed care would expand through the Health Choice Illinois program to reach approximately 80% of Medicaid enrollees. In Marchof 2018, the Department of Healthcare and Family Services announced a delay of enrollment for certain Medicaid beneficiaries receiving long term careservices. It is unclear at this time when enrollment in HealthChoice Illinois will begin for these beneficiaries.Veterans Health AdministrationThe Veterans Health Administration operates the nation’s largest integrated healthcare system, with more than 1,900 sites of care, and provideshealthcare benefits, including personal care, hospice and home health services, to eligible military veterans. The Veterans Health Administration providesfunding to regional and local offices and facilities that support the in-home care needs of eligible aged and disabled veterans. Services are funded by localVeterans Medical Centers and the aid and attendance pension, which reimburses veterans for their otherwise unreimbursed health and long-term careexpenses. We currently have relationships and agreements with the Veterans Health Administration to provide personal care services in several states, withthe most Veterans Health Administration services being provided to eligible consumers in Illinois, Tennessee and California.OtherOther sources of funding are available to support personal care, hospice and home health services in different states and localities. In addition, manystates appropriate general funds or special use funds through targeted taxes or lotteries to finance personal care services for senior citizens and individualswith disabilities. Depending on the state, these funds may be used to supplement existing Medicaid programs or for distinct programs that serve non-Medicaid eligible consumers.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 arecompetitive with those of other local providers. We bill our private pay consumers for services rendered weekly, bi-monthly or monthly. Other private payorsinclude workers’ compensation programs/insurance, preferred provider organizations and employers.Insurance Programs and CostsWe maintain workers’ compensation, general and professional liability, cyber, 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 coverage and self-insurance reserves are adequate for our current operations. However, we cannot be certain that any potential losses or asserted claims will not exceed suchinsurance 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, 2018: Full-time Part-time Total Caregivers 4,597 28,267 32,864 National support centers 278 11 289 4,875 28,278 33,153 Our caregivers provide substantially all of our services and comprise approximately 95.7% 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, caregivers are also required toattend ongoing in-service education. In certain states, our caregivers are required to complete9Table of Contents certified training programs and maintain a state certification. Approximately 49.0% of our total employees are represented by labor unions. We maintainstrong working relationships with these labor unions. We have numerous collective bargaining agreements with the Service Employees International Union(“SEIU”), which are renegotiated from time to time.TechnologyWe currently utilize multiple applications to support our various lines of business and locations for patient accounting. For our legacy Adduslocations and Ambercare, we utilize the Horizon Homecare software solution (“Horizon”). We recently purchased and implemented HomeCare Homebase tosupport these lines of business. All locations acquired through our recent purchase of operations of Arcadia Home Care & Staffing (“Arcadia”) utilizeContinulink for their personal care and staffing business.Each of these applications support their respective lines of business and locations with administrative, office, clinical and operating informationsystem needs, including assisting with the compliance of our operating systems with the Health Insurance Portability and Accountability Act of 1996, orHIPAA, requirements. Each assists our staff in gathering information to improve the quality of consumer care, optimize financial performance, promoteregulatory compliance and enhance staff efficiency. Each application is hosted by the vendor in a secure data center, which provides multiple redundanciesfor storage, power, bandwidth and security. In order to comply with current and future state and future federal regulations around EVV use, we utilize several different vendors. In states with an“open” model, we are able to choose our vendor and have standardized Celltrak as our preferred EVV vendor. In states mandating the EVV vendor, a “closed”system, we utilize whichever vendor the state has mandated. In both cases, we have built interfaces between the EVV vendor and the patient accountingsystem utilized in the respective branch location.We license the Qlik Business Intelligence platform to provide historical, current, and forward-looking operational performance analysis. We currentlyhave our personal care business managed by Horizon and Continulink integrated into Qlikview to provide a comprehensive view of the business regardlessof the application used. Qlik provides high-level historical and current analytical views to measure performance against budget and deliver insight into thevarious factors driving our execution against our financial, operational, and compliance goals. This analysis is available in summary and detailed views toaccommodate user needs from senior management down to the operators in the field.We also utilize ADP for Talent Management and use their services and products to manage our leave of absence (“LOA”) processes, flexible spendingaccount (“FSA”) administration, and time and attendance. As of December 31, 2018, we have implemented ADP Vantage for all our acquired businesses. ADPserves as our base Human Resources and Payroll Processing system.For Financial Management, we utilize Oracle’s Planning Budgeting Cloud Service (“PBCS”) as our solution for budgeting, forecasting, and financialreporting. Currently we use Sage MAS ERP software but will be converting to Oracle Fusion in the first half of 2019. Oracle Fusion will be our solution forgeneral ledger, accounts payable, and fixed assets.Government RegulationOverviewOur business is subject to extensive federal, state and local regulation. Changes in the laws and regulations or new interpretations of existing laws andregulations may have a material impact on the definition of permissible activities, the relative cost of doing business, and the methods and amounts ofpayment for care by both governmental and other payors. In addition, differences among state laws may impede our ability to expand into certain markets. Ifwe fail to comply with applicable laws and regulations, we could suffer administrative civil or criminal penalties, including the loss of our licenses to operateand our ability to participate in federal or state programs. In addition, the healthcare industry has experienced, and is expected to 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’sDiscussion and Analysis of Financial Condition and Results of Operations—Overview.”Medicare and Medicaid ParticipationTo participate in and qualify for reimbursement under Medicare, our home health agencies and hospices must comply with extensive conditions ofparticipation. Likewise, to participate in Medicaid programs, our personal care services, home health agencies and hospices are subject to variousrequirements imposed by federal and state authorities. If we were to violate the applicable federal and state regulations governing Medicare or Medicaidparticipation, we could be excluded from participation in federal and state healthcare programs and be subject to substantial administrative, civil andcriminal penalties.10Table of Contents 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 and EducationReconciliation Act of 2010 (collectively, “ACA”). As currently structured, the ACA affects how healthcare services are delivered and reimbursed through theexpansion of public and private health insurance coverage, reduction of growth in Medicare and Medicaid program spending, and the establishment andexpansion of programs that tie reimbursement to quality and integration. It includes several provisions that may affect reimbursement for our services.However, the future of the ACA is unclear. The law has been subject to legislative and regulatory changes and court challenges, and the current presidentialadministration and certain members of Congress have stated their intent to repeal or make additional significant changes to the ACA, its implementation orinterpretation. For example, in 2017, the President of the United States signed an executive order that directs agencies to minimize “economic and regulatoryburdens” of the ACA. Effective January 1, 2019, Congress eliminated the penalty associated with the individual mandate to maintain health insurance.Because the penalty associated with the individual mandate was eliminated, a federal judge in Texas ruled in December 2018 that the entire ACA wasunconstitutional. However, the law remains in place pending appeal. These and other changes and court challenges may impact the number of individualsthat elect to obtain public or private health insurance or the scope of such coverage, if purchased.The Affordable Care Act, as enacted, requires states to expand Medicaid coverage to all individuals under age 65 with incomes effectively at or below138% of the federal poverty level. However, states may opt out of the expansion without losing existing federal Medicaid funding. Some of the states use orhave applied to use Medicaid waivers granted by CMS to implement expansion provisions, impose different eligibility or enrollment restrictions, orotherwise implement programs that vary from federal standards. CMS administrators have indicated that they intend to increase state flexibility in theadministration of Medicaid programs and states continue to explore payment and delivery reform initiatives, including beneficiary work requirements, andquality of care incentives. Enrollment in managed Medicaid plans has also increased in recent years, as state governments seek to control the cost ofMedicaid programs. Managed Medicaid programs enable states to contract with one or more entities for patient enrollment, care management and claimsadjudication. The states usually do not relinquish program responsibilities for financing, eligibility criteria and core benefit plan design.The Center for Medicare and Medicaid Innovation, or CMMI, tests innovative payment and service delivery systems to reduce program expenditureswhile maintaining or enhancing quality. For example, the CMMI has supported testing of new models of care for dual eligibles, funding of home healthproviders that offer chronic care management services, and establishment of pilot programs that bundle acute care hospital services with physician servicesand post-acute care services, which may include home health services for certain patients. These systems could have a material impact on our business. It isdifficult to predict the nature and success of future financial or delivery system reforms implemented by CMMI and other industry participants.Permits, Licensure and Certificate of NeedOur hospice, home health and personal care services are authorized and/or licensed under various state and county requirements, which cover a varietyof topics including standards regarding the provision of medical or care services, clinical records, personnel, infection control and care plans. Additionallyhealth care professionals at our agencies are required to be individually licensed or certified under state law. Although our personal care service caregivers aregenerally not subject to licensure requirements, certain states require them to complete pre and post-employment training programs, background checks, and,in certain instances, maintain state certification. We believe we are currently licensed appropriately as required by the laws of the states in which we operatein all material respects, but additional licensing requirements may be imposed upon us in existing markets or markets that we enter in the future.Some states also require a provider to obtain a certificate of need or permit of approval (“CON”) before establishing, constructing, acquiring orexpanding certain health services, operations or facilities or making certain capital expenditures. In order to obtain a CON, a state health planning agencymust determine that a need exists for the project, with the intent to avoid unnecessary duplication of services.11Table of Contents Fraud and Abuse LawsAnti-Kickback Laws: The federal Anti-Kickback Statute prohibits the offering, payment, solicitation or receipt of any remuneration to induce referralsor orders for items or services covered by federal healthcare programs such as Medicare and Medicaid. Courts have interpreted this statute broadly and heldthat there is a violation if just one purpose of the remuneration is to generate referrals. Knowledge of the law or intent to violate the law is not required.Violations of the federal Anti-Kickback Statute may be punished by criminal fines, imprisonment, significant civil monetary penalties plus damages of up tothree times the total amount of remuneration involved and exclusion from participation in federal healthcare programs. In addition, the submission of a claimfor services or items generated in violation of the federal Anti-Kickback Statute may be subject to additional penalties under the federal False Claims Act.Many states have similar laws proscribing 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 physicians fromreferring to an entity that provides certain “designated health services” covered by the Medicare and Medicaid program, 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 also prohibitsentities that provide designated health services reimbursable by Medicare or Medicaid from billing these programs for any items or services that result from aprohibited referral and requires the entities to refund amounts received for items or services provided pursuant to a prohibited referral. Violations of the StarkLaw may result in denial of payment, civil monetary penalties and exclusion from federal healthcare programs. Failure to refund amounts received as a resultof a prohibited referral on a timely basis may constitute a false or fraudulent claim, which may result in additional penalties imposed under the federal FalseClaims Act. The statute and regulations also provide for a penalty of over $165,000 for a circumvention scheme. We attempt to structure our relationships,including compensation agreements with physicians who serve as medical directors in our home health agencies, to meet an exception to the Stark Law, butwe cannot provide assurance that every relationship is fully compliant. Many states have also enacted statutes similar in scope and purpose to the Stark Law,although these laws may apply to all payors or a greater range of services.The False Claims Act: Numerous state and federal laws govern the submission of claims for reimbursement and prohibit false claims or statements.Under the federal False Claims Act, for example, the government may fine any person, company or corporation that knowingly presents or causes to bepresented claims for payment to the federal government that are false or fraudulent, or which contain false or misleading information. “Knowingly” is definedbroadly, and includes submission of a claim with reckless disregard to its truth or falsity. The federal False Claims Act can be used to prosecute fraudinvolving issues such as coding errors and billing for services not provided. Violations of other statutes, such as the federal Anti-Kickback Statute, can alsoserve as a basis for liability under the federal False Claims Act. Among other potential bases for liability is the knowing and improper failure to report andreturn overpayments received from Medicare or Medicaid in a timely manner following identification of the overpayment. An overpayment is deemed to be“identified” when a person has, or should have through reasonable diligence, determined that an overpayment 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. These penaltieswill be updated annually based on changes to the consumer price index. Private parties may initiate whistleblower lawsuits alleging the defrauding of thefederal government by a provider and may receive a share of any settlement or judgment. When a private individual brings an action under the federal FalseClaims Act, the defendant generally is not made aware of the lawsuit under the federal government commences its own investigation or determines whether itwill intervene.Every entity that receives at least $5.0 million in Medicaid payments annually must have written policies regarding certain federal and state laws forall employees, contractors and agents. These policies must provide detailed information about false claims, false statements and whistleblower protections.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 prohibit variousforms of fraud and abuse, such as anti-kickback laws, prohibitions on self-referral, fee-splitting restrictions, insurance fraud laws, and false claims acts, whichmay extend to services reimbursable by any payer, including private insurers. For example, criminal penalties may be imposed upon any person or entity thatknowingly and willfully defrauds a health care benefit plan, willfully obstructing a criminal investigation of a healthcare offense or makes a materially falsestatement in connection with delivery of or payment for health care services by a health care benefit plan. Further, the federal Civil Monetary Penalties Law(“CMPL”) imposes substantial penalties for offering remuneration or other inducements to influence federal healthcare beneficiaries’ decisions to seekspecific governmentally reimbursable items or services or to choose particular providers. It also imposes penalties for contracting with an individual or entityknown to be excluded from a federal healthcare program. The CMPL requires a lower burden of proof than some other fraud and abuse laws, including thefederal Anti-Kickback Statute. Civil monetary penalties are12Table of Contents updated annually based on changes to the consumer price index. In addition to the financial penalties, federal enforcement officials are able to exclude fromMedicare or Medicaid any individuals or entities convicted of Medicare or Medicaid fraud or other offenses related to the delivery of items or services underthose programs. Persons who have been excluded from the Medicare or Medicaid program may not retain ownership in a participating entity. Participatingentities that permit continued ownership by excluded individuals, that contract with excluded individuals, and the excluded individuals themselves, may bepenalized.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 a delay inreceipt or an adjustment to the amount of reimbursements due or received under federal or state programs.Under the Recovery Audit Contractor (“RAC”) program, CMS contracts with third parties to identify improper Medicare payments. RACs are paid acontingent fee based on the improper payments identified and corrected. CMS has also instituted Zone Program Integrity Contracts for additional audit ofMedicare providers, including home health agencies. By statute, states are required to enter into contracts with RACs to audit payments to Medicaidproviders although states are allowed to request waivers of aspects of this requirement. Further, under the Medicaid Integrity Program, CMS employs privatecontractors, referred to as Medicaid Integrity Contractors, to perform post-payment audits of Medicaid claims and identify overpayments. CMS istransitioning some of its other integrity programs to a consolidated model by engaging Unified Program Integrity Contractors (“UPICs”) to perform audits,investigations and other integrity activities.From time to time, various federal and state agencies, such as the U.S. Department of Health and Human Services (“HHS”), issue pronouncements thatidentify practices that may be subject to heightened scrutiny, as well as practices that may violate fraud and abuse laws. For example, the Office of theInspector General issued an Investigative Advisory in 2012 that identified a number of program integrity vulnerabilities in the delivery of personal careservices and recommending corrective actions by CMS. In December 2016, CMS issued a bulletin highlighting safeguards that state Medicaid agencies canput in place around personal care services. It has also issued guidance to personal care services agencies and attendants on avoiding improper payments. Webelieve, 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 transmission standardsand code sets for certain healthcare claims and reimbursement payment transactions submitted or received electronically. These provisions are intended toencourage 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 “protected healthinformation,” and provide for a number of individual rights with respect to such information. These requirements apply to most healthcare providers, whichare known as “covered entities,” including our company. Vendors, known as “business associates,” that handle protected health information, on behalf ofcovered entities must also comply with most HIPAA requirements. A covered entity may be subject to penalties as a result of a business associate violatingHIPAA, 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, andtechnical safeguards, enter into confidentiality agreements with business associates, and permit individuals to access and amend their protected healthinformation. In addition, covered entities must report breaches of unsecured (unencrypted) protected health information to affected individuals withoutunreasonable delay, but not to exceed 60 calendar days from the discovery date of the breach. Notification must also be made to HHS and, in certain casesinvolving 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 state lawsthat are more restrictive than HIPAA, which could result in additional penalties. For example, the Federal Trade Commission uses its consumer protectionauthority to initiate enforcement actions against entities whose inadequate data security programs may expose consumers to fraud, identity theft and privacyintrusions. Various state laws and regulations require entities that maintain individually identifiable information (even if not health-related) to report databreaches to affected individuals and, in some cases, state regulators. We expect compliance with HIPAA and other privacy and security standards to continueto impose significant costs on our business lines.13Table of Contents Environmental, 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. Inthe event of an accident involving such hazardous materials, we could be held liable for any damages that result, and any liability could exceed the limits orfall outside the coverage of our insurance. We may not be able to maintain insurance on acceptable terms, or at all.Access to Public FilingsThrough our website, www.addus.com, we make available, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, CurrentReports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, asamended (the “Exchange Act”) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. In addition to ourwebsite, the SEC maintains an internet site that contains our reports, proxy and information statements, and other information that we file electronically withthe SEC at www.sec.gov.ITEM 1A.RISK FACTORSAny of the 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 risk factorsdescribed below and elsewhere in this Form 10-K are not the only risks we face. Our business and consolidated financial condition, results of operationsand cash flows may also be materially adversely affected by factors that are not currently known to us, by factors that we currently consider immaterial orby 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 IndustryWe could face a variety of risks by expanding into new lines of business.In 2018, we expanded our lines of business to include hospice and home health with the acquisition of Ambercare and we acquired facility staffingoperations as part of our Arcadia transaction. Risks of our entry into the hospice and home health segments and adding facility staffing operations to ourhome care segment include, without limitation, difficulties integrating new businesses with our ongoing operations, potential diversion of management’stime and other resources from our existing personal care business, the need for additional capital and other resources to expand into these new lines ofbusiness, and inefficient integration of operational and management systems and controls. In addition, new businesses that we acquire may have unknown orcontingent liabilities, including liabilities for failure to comply with healthcare and other laws and regulations, professional liabilities, workers’compensation liabilities, and tax liabilities. Although we generally attempt to exclude significant liabilities from our acquisitions in the case of acquisitionsstructured as asset sales and seek indemnification from sellers or insurance protection, we may nevertheless have material liabilities for past activities ofacquired businesses. Entry into a new line of business may also subject us to new laws and regulations with which we are not familiar and may lead toincreased litigation and regulatory risk.Our hospice operations are subject to annual Medicare caps. If we exceed the caps, our business and consolidated financial condition, results ofoperations and cash flows could be materially adversely affected.Overall payments made by Medicare to each hospice provider number (generally corresponding to each of our hospice agencies) are subject to anoverall payment cap amount, which is calculated and published by the Medicare fiscal intermediary on an annual basis for each federal fiscal year. Ifpayments received under any of our hospice provider numbers exceed these caps, we may be required to reimburse Medicare such excess amounts, whichcould have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.Reductions in reimbursement and other changes to Medicare, Medicaid, and other federal, state and local medical and social programs couldadversely affect our consumer caseload, units of service, net service revenues, gross profit and profitability.A significant portion of our caseload and net service revenues are derived from government healthcare programs, primarily Medicare and Medicaid.For the year ended December 31, 2018, we derived approximately 59.9% of our net service revenues from state and local governmental agencies, primarilythrough Medicaid. However, changes in government healthcare programs may decrease the reimbursement we receive or limit access to, or utilization of, ourservices. As federal healthcare expenditures continue to increase and state governments face budgetary shortfalls, federal and state governments have made,and may continue to make,14Table of Contents significant changes to the Medicare and Medicaid programs and reimbursement received for services rendered to beneficiaries of such programs. For example,the Budget Control Act of 2011 requires automatic spending reductions to reduce the federal deficit, including Medicare spending reductions of up to 2%per fiscal year, with a uniform percentage reduction across all Medicare programs. CMS began imposing a 2% reduction on Medicare claims in April 2013,and these reductions have been extended through 2027.The Medicaid program, which is jointly funded by the federal and state governments, is often a state’s largest program. Governmental agenciesgenerally condition their agreements upon a sufficient budgetary appropriation. Almost all of the states in which we operate have experienced periodicfinancial pressures 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 making changes intheir Medicaid or other state and local medical and social programs, including enacting legislation designed to reduce Medicaid expenditures.Changes 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 services under those programs; •increasing consumer responsibility, including through increased co-payment requirements; •decreasing benefits, such as limiting the number of hours of personal care services that will be covered; •changing reimbursement methodology and program participation eligibility; •slowing payments to providers; •increasing utilization of self-directed care alternatives or “all inclusive” programs; •shifting beneficiaries to managed care organizations; and •implementing demonstration projects and alternative payment models.Certain of these measures have been implemented by, or are proposed in, states in which we operate. In 2018, we derived approximately 47.5% of ourtotal net service revenues from services provided in Illinois, 13.2% of our total net service revenues in New York and 12.0% of our total net service revenuesin New Mexico. Because a substantial portion of our business is concentrated in these states, any significant reduction in expenditures that pay for ourservices or other significant changes in these states may have a disproportionately negative impact on our future operating results. Illinois, in particular,operated without a state budget for fiscal years 2016 and 2017. The Illinois legislature has enacted comprehensive state budgets for fiscal years 2018 and2019. However, there is no certainty that Illinois will pass budgets in subsequent years.The ACA made significant changes to Medicare and Medicaid policy and funding, among other broad changes across the healthcare industry,promoting a shift toward value-based care, including implementation of alternative payment models. The ACA also resulted in expanded Medicaideligibility in many states and the establishment of various demonstration projects and Medicaid programs under which states may apply to test new orexisting approaches to payment and delivery of Medicaid benefits. CMS has indicated that it will look to states to drive innovation and value through suchwaivers and has taken steps to update program management, the waiver and state plan amendment approval process, and quality reporting, but the extent andeffect of these changes remains uncertain. Future health reform efforts or efforts to repeal or significantly change the ACA will likely impact both federal andstate programs.If changes in Medicare, Medicaid or other state and local medical and social programs result in a reduction in available funds for the services we offeror a reduction in the number of beneficiaries eligible for our services or a reduction in the number of hours or amount of services that beneficiaries eligible forour services may receive, then our net service revenues and profitability could be negatively impacted. Our profitability depends principally on the levels ofgovernment-mandated payment rates and our ability to manage the cost of providing services. In some cases, commercial insurance companies and otherprivate payors rely on government payment systems to determine payment rates. As a result, changes to government healthcare programs that reduceMedicare, Medicaid or other payments may negatively impact payments from private payors, as well. Any reduction in reimbursements or imposition ofcopayments that dissuade the use of our services, or any reduction in reimbursement from private payors, could also materially adversely affect ourprofitability.Federal and state regulation may impair our ability to consummate acquisitions or open new agencies.Federal laws or regulations may adversely impact our ability to acquire home health agencies or open new start-up home health agencies. For example,a Medicare regulation known as the “36 Month Rule” prohibits buyers of home health agencies from assuming the Medicare billing privileges of theacquired agency if the acquired agency either enrolled in Medicare or underwent a change in15Table of Contents majority ownership fewer than 36 months prior to the acquisition, subject to certain exceptions. Instead, the buyer must enroll the acquired home healthagencies as new providers with Medicare. The 36 Month Rule can increase competition for acquisition targets that are not subject to the rule and may causesignificant Medicare billing delays for the purchases of home health agencies that are subject to the rule. Further, CMS has implemented a moratorium onenrolling new home health agencies in Texas, Michigan, Florida and Illinois. On July 29, 2018, CMS extended the moratorium for an additional 6 months. Ifa moratorium is imposed on enrollment of new providers in a geographic area we desire to service, our ability to expand operations may be impacted.Our ability to expand operations in a state will depend on our ability to obtain a state license to operate, and where required, CON approval. Statesmay limit the number of licenses they issue. The failure to obtain any required CON or license could impair our ability to operate or expand our business.The implementation of alternative payment models and the transition of Medicaid and Medicare beneficiaries to managed care organizations maylimit our market 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 care models fortheir Medicaid populations. If we are not included in these programs, or if ACOs establish programs that overlap with our services, we are at risk for losingmarket share and for a loss of our current business.We may be similarly impacted by increased enrollment of Medicare and Medicaid beneficiaries in managed care plans, shifting away from traditionalfee-for-service models. Under the managed Medicare program, also known as Medicare Advantage, the federal government contracts with private healthinsurers to provide Medicare benefits. Insurers may choose to offer supplemental benefits and impose higher plan costs on beneficiaries. Approximately onethird of Medicare beneficiaries were enrolled in a Medicare Advantage plan in 2018, a figure that continues to grow. While hospice services are currentlyreimbursed as a traditional fee-for-service program under Medicare Part A, hospice services may eventually be offered under Medicare Advantage plans,which could result in reduced reimbursement, limited utilization, and increased competition for managed care contracts.Enrollment in managed Medicaid plans is also growing, as states are increasingly relying on managed care organizations to deliver Medicaid programservices as a strategy to control costs and manage resources. We may experience increased competition for managed care contracts due to state regulation andlimitations. For instance, effective October 2018, New York limits the number of home care providers with which a managed Medicaid plan can contract. Wecannot assure you that we will be successful in our efforts to be included in plan networks, that we will be able to secure favorable contracts with all or someof the managed care organizations, that our reimbursement under these programs will remain at current levels, that the authorizations for services will remainat current levels or that our profitability will remain at levels consistent with past performance. In addition, operational processes may not be well defined as astate transitions beneficiaries to managed care. For example, membership, new referrals and the related authorization for services to be provided may bedelayed, which may result in delays in service delivery to consumers or in payment for services rendered. Difficulties with operational processes maynegatively 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 to financialrisk. 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 those states.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 conditions in thesestates could have an adverse effect on our business, financial condition or results of operations. Changes to the Medicaid programs in these states could alsohave 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 programs could adversely affect our service revenues and profitability.For the years ended December 31, 2018 and 2017, we derived approximately 31.0% and 36.5%, respectively, of our revenue from the IllinoisDepartment on Aging programs. Previous state government officials have attempted to reduce government spending by proposing changes aimed at reducingexpenditures by this department. On November 6, 2018, Illinois elected a new governor. The new Democratic governor is expected to be more aligned withthe General Assembly. It is expected that initiatives to reduce costs in Illinois, such as shifting services to managed care organizations and implementing aCCP Medicaid Initiative to enroll eligible16Table of Contents individuals in Medicaid will continue. The nature and extent of any future cost reduction initiatives is unknown. If future reforms impact the eligibility ofconsumers for services, the number of hours authorized or otherwise restrict services provided to existing consumers, our service revenues and growth may beadversely affected.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, whichwould adversely affect our liquidity. In addition, from time to time, procedural issues require us to resubmit claims before payment is remitted, whichcontributes to our aged receivables. Additionally, unanticipated delays in receiving reimbursement from state programs due to changes in their policies orbilling or audit procedures may adversely impact our liquidity and working capital. We fund operations primarily through the collection of accountsreceivable.Failure to renew a significant agreement or group of related agreements may materially impact our revenue.In 2018, we derived approximately 31.0% 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 our agreementsdepends on our quality of service and reputation, as well as other factors over which we have little or no control, such as state appropriations and changes inprovider eligibility requirements. Additionally, failure to satisfy any of the numerous technical renewal requirements in connection with our proposals foragreements could result in a proposal being rejected even if it contains favorable pricing terms. Failure to obtain, renew or retain agreements with majorpayors may negatively impact our results of operations and revenue. We can give no assurance these agreements will be renewed on commercially reasonableterms or at all.Our industry is highly competitive, fragmented and market-specific.We compete with personal care service providers, hospice providers, home health providers, private caregivers, larger publicly held companies,privately held companies, privately held single-site agencies, hospital-based agencies, not-for-profit organizations, community-based organizations and self-directed care programs. Some of our competitors may have greater financial, technical, political and marketing resources, name recognition or a larger numberof consumers and payors than we do. In addition, some of these organizations offer more services than we do in the markets in which we operate. Thesecompetitive advantages may limit our ability to attract and retain referrals in local markets and to increase our overall market share.In many states, there are limited barriers to entry in providing personal care services. However, some states require entities to obtain a license beforeproviding home care services. Licensure is generally required of agencies providing home health and hospice services, though requirements vary by state.Economic changes such as increases in minimum wage and changes in Department of Labor rules can also impact the ease of entry into a market. Thesefactors may affect competition in our states.Often our contracts with payors are not exclusive. Local competitors may develop strategic relationships with referral sources and payors. This couldresult in pricing pressures, loss of or failure to gain market share or loss of consumers or payors, any of which could harm our business. In addition, existingcompetitors may offer new or enhanced services that we do not provide, or be viewed by consumers as a more desirable local alternative. The introduction ofnew and enhanced service offerings, in combination with the development of strategic relationships by our competitors, could cause a decline in revenue, aloss of market acceptance 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 make changes toour 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 we offer,and our interactions with providers and consumers. These requirements include matters related to: •licensure and certification and enrollment with government programs; •eligibility for services; •appropriateness and necessity of services provided; •adequacy and quality of services; •qualifications and training of personnel;17Table of Contents •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 the federal Anti-Kickback Statute, the federal Stark law, the federal False Claims Act, the federal CivilMonetary Penalties Law, other federal and state fraud and abuse, insurance fraud, and fee-splitting laws, which may extend to services reimbursable by anypayer, including private insurers; and federal and state laws governing the security and privacy of health information.We currently have contractual relationships with current and potential referral sources and recipients, including hospitals and health systems, skillednursing facilities and certain physicians who provide medical director services to our Company. Federal and state government agencies have heightened andcoordinated civil and criminal enforcement efforts throughout the healthcare industry. While we endeavor to comply with applicable laws and regulations,we cannot assure you that our practices are fully compliant or that courts or regulatory agencies will not interpret those laws and regulations in ways that willadversely affect our practices. The laws and regulations governing our business are subject to change, interpretations may evolve and enforcement focus mayshift. These changes could subject us to allegations of impropriety or illegality, require restructuring of relationships with referral sources and recipients orotherwise require changes to our operations. Failure to comply with applicable laws and regulations could lead to civil sanctions and criminal penalties, thetermination of rights to participate in federal and state healthcare programs, exclusion from federal healthcare programs, the suspension or revocation oflicenses and nonpayment or delays in our ability to bill and collect for services provided, any of which could adversely affect our business, results ofoperations, or financial results.In addition, as a result of our participation in Medicaid, Medicare and Veterans Health Administration programs and other state and localgovernmental programs, and pursuant to certain of our contractual relationships, we are subject to various reviews, compliance audits and investigations bygovernmental authorities and other third parties to verify our compliance with these programs and agreements as well as applicable laws, regulations andconditions of participation. Each of our home care and hospice agencies must comply with the extensive conditions of participation in the Medicareprogram. If any of our agencies fail to meet any of the conditions of participation or coverage with respect to state licensure or our participation in Medicaid,Medicare programs, Veterans Health Administration programs and other state and local governmental programs, we may receive a notice of deficiency fromthe applicable surveyor or authority. Failure to institute a plan of action to correct the deficiency within the period provided by the surveyor or authoritycould result in civil or criminal penalties, damage to our reputation, cancellation of our agreements, suspension or revocation of our licenses, requirements torepay amounts received, disqualification from federal and state healthcare programs and other negative consequences. These actions may adversely affect ourability to provide certain services, to receive payments from other payors and to continue to operate. Additionally, failure to comply with the conditions ofparticipation related to enrollment could result in a deactivation or revocation of billing privileges. To the extent that billing privileges are revoked, there isa mandated one to three-year bar to re-enrollment. Similarly, we could face liability under the False Claims Act if we submit claims to Medicare or Medicaidwhile not in compliance with certain conditions of participation. Further, actions taken against one of our offices may subject our other offices to adverseconsequences. We may also fail to discover all instances of noncompliance by our acquisition targets, which could subject us to adverse remedies once thoseacquisitions are complete. Any termination of one or more of our offices from any federal, state or local program for failure to satisfy such program’sconditions of participation could adversely affect our net service revenues and profitability.Delays in reimbursement may cause liquidity problems.There are delays in reimbursement from the time we provide services to the time we receive reimbursement or payment for these services. Delays mayresult from changes by payors to data submission requirements or requests by fiscal intermediaries for additional data or documentation, among other issues.If we have information system problems or issues that arise with Medicare or Medicaid, we may encounter delays in our payment cycle. Such timing delaysmay cause working capital shortages. Working capital management, including prompt and diligent billing and collection, is an important factor in our resultsof operations and liquidity. System problems, Medicare or Medicaid issues or industry trends may extend our collection period, adversely impact ourworking capital. Our working capital management procedures may not successfully negate this risk. There are often timing delays when18Table of Contents attempting to collect funds from Medicaid programs. Delays in receiving reimbursement or payments from these programs may adversely impact our workingcapital.We are and have been subject to routine and periodic surveys, audits and investigations by various governmental agencies. In addition to surveys todetermine compliance with the conditions of participation, CMS has engaged a number of contractors (including Medicare Administrative Contractors,Recovery Audit Contractors, Zone Program Integrity Contractors, Unified Program Integrity Contractors and Medicaid Integrity Contractors) to conductaudits to evaluate billing practices and identify overpayments. These audits can result in recoupments by Medicare and other payors of amounts previouslypaid to us. In addition to audits by CMS contractors, individual states are implementing similar integrity programs using Medicaid Recovery AuditContractors. We are unable to predict what additional government regulations, if any, affecting our business may be enacted in the future, how existing orfuture laws and regulations might be interpreted or whether we will be able to comply with such laws and regulations either in the markets in which wepresently conduct, or wish to commence, business. In June 2016, CMS announced its plans to implement a three-year “Pre-Claim Review Demonstration ofHome Health Services” in certain states, including Illinois. The demonstration, which involved clinical documentation requirements, sought to improveidentification, investigation, and prosecution of Medicare fraud among home health agencies and to reduce expenditures while maintaining or improvingquality of care. The demonstration began in Illinois in August 2016, but CMS paused it in April 2017. We are currently unable to predict what impact, if any,this program may have on our result of operations or financial position when and if resumed.We are subject to federal, state and local laws and regulations that govern our employment practices, including minimum wage, living wage, and paidtime-off requirements. Failure to comply with these laws and regulations, or changes to these laws and regulations that increase our employment-related expenses, could adversely impact our operations.We are required to comply with all applicable federal, state and local 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, properclassification of workers as employees or independent contractors, immigration and equal employment opportunity laws. These laws and regulations can varysignificantly among jurisdictions 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, state or local laws or regulations, or the interpretation thereof, requiring employers to providespecified benefits or rights to employees, increases in the minimum wage and local living wage ordinances, increases in the level of existing benefits or thelengthening of periods for which unemployment benefits are available. We may not be able to offset any increased costs and expenses. Furthermore, anyfailure to comply with these laws requirements, including even a seemingly minor infraction, can result in significant penalties which could harm ourreputation and have a material adverse effect on our business.Since our operations are concentrated in Illinois, New York and New Mexico, we are particularly sensitive to changes in laws and regulations in thesestates. For example, in December 2014, the Chicago City Council passed an ordinance that will raise the minimum wage for Chicago workers to $13 per hourby 2019, with increases up to $1 per hour effective on July 1 of each year. The rate is $12 per hour effective July 1, 2018. The wage increase in 2016 did nothave a material impact on us because of our existing wage scale. The 2017 wage increase was offset by a reimbursement rate increase. In the budget processfor the 2019 fiscal year, a similar provision was proposed but was not included in the final budget. We believe that there is legislative support for areimbursement rate increase and anticipate that an increase to offset the wage increase could be passed in the first half of 2019. Our financial performance willbe impacted in quarters for which a reimbursement rate increase is not in effect.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 any of ourcurrent employees or contractors becomes an excluded person in the future without our knowledge, we may be subject to substantial civil penalties,including up to $20,000 for each item or service furnished by the excluded individual to a federal or state healthcare program beneficiary, an assessment ofup to three times the amount claimed and exclusion from the program.Each of our subsidiaries that employ an average of at least 50 full-time employees in a calendar year are required to offer a minimum level of healthcoverage for 95% of our full-time employees in 2018 or be subject to an annual penalty.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 in significantchange to the healthcare industry. However, there is significant uncertainty regarding the future of the ACA, the most prominent of these reform efforts. Thelaw has been subject to legislative and regulatory changes and court challenges, and the current presidential administration and certain members of Congresshave stated their intent to repeal or make additional significant changes to, the ACA, its implementation or its interpretation. In 2017, the Tax Cuts and JobsActs was enacted, which, among other things, removes penalties for not complying with ACA's individual mandate to carry health insurance. Because theindividual mandate19Table of Contents was eliminated, a federal court in Texas ruled in December 2018 that the entire ACA was unconstitutional. However, the law remains in place pending appeal.In addition, the president has signed an executive order that directs agencies to minimize “economic and regulatory burdens” of the ACA. Effective January1, 2019, Congress eliminated the penalty associated with the individual mandate to maintain health insurance. Because the penalty associated with theindividual mandate was eliminated, a federal judge in Texas ruled in December 2018 that the entire ACA was unconstitutional. However, the law remains inplace pending appeal. These changes and court challenges may impact the number of individuals that elect to obtain public or private health insurance or thescope of such coverage, if purchased. The presidential administration and the U.S. Congress may take further action regarding the ACA, including, but notlimited to, repeal or replacement. Additionally, all or a portion of the ACA and related subsequent legislation may be modified, repealed or otherwiseinvalidated through further legislation or judicial challenge, which could result in lower numbers of insured individuals, and reduced coverage for insuredindividuals. Further legislation or regulation could be passed that could harm our business, financial condition and results of operations. For example, theBudget Control Act of 2011 included aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect beginning in2013 and have been extended through 2027. The American Taxpayer Relief Act of 2012 further reduced Medicare payments to several types of providers,including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover non-fraudulent overpayments to providers from three to five years.There is uncertainty regarding whether, when, and how the ACA will be further changed, what alternative provisions, if any, will be enacted, and theimpact of alternative provisions on providers and other healthcare industry participants. Government efforts to repeal or change the ACA or to implementalternative reform measures could cause our net revenues to decrease. Some members of Congress have proposed expanding government-funded coverage,including single payor proposals. Furthermore, we are unable to predict the nature and success of future financial or delivery system reforms that may beimplemented by other, non-governmental industry participants.The industry trend toward value-based purchasing may negatively impact our revenues.The trend in the healthcare industry toward value-based purchasing of healthcare services is growing among both government and commercial payors.Value-based purchasing programs emphasize quality of outcome and efficiency of care provided, rather than quantity of care provided. For example,Medicare requires hospices and home health agencies to report certain quality data in order to receive full reimbursement. Failure to report quality data orpoor performance may negatively impact the amount of reimbursement received. CMS currently has a value-based purchasing program affecting home healthproviders in a number of pilot states, whereby providers receive payment bonuses or penalties based on their achievement of specified performance measures.CMS may expand this program and establish new programs affecting a broader range of providers. In addition, CMS publishes hospice quality measure dataonline to allow consumers and others to search and compare data for Medicare-certified hospice providers.Other initiatives aimed at improving quality and cost of care include alternative payment models, including ACOs and bundled paymentarrangements. It is unclear whether alternative models will successfully coordinate care and reduce costs or whether they will decrease overall reimbursement.Additionally, commercial payors have expressed intent to shift toward value-based reimbursement arrangements.We expect value-based purchasing programs, including programs that condition reimbursement on patient outcome measures, to become morecommon and to involve a higher percentage of reimbursement amounts. While we believe we are adapting our business strategies to compete in a value-basedreimbursement environment, we are unable at this time to predict how this trend will affect our results of operations. If we perform at a level below theoutcomes demonstrated by our competitors, are unable to meet or exceed quality performance standards under any applicable value-based purchasingprogram, or otherwise fail to effectively provide or coordinate the efficient delivery of quality healthcare services, our reputation in the industry may benegatively impacted, we may receive reduced reimbursement amounts and we may owe repayments to payors, causing our revenues to decline.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 we provideare of high quality, if our quality measures, which are published online by CMS, are deemed to be not of the highest value, our reputation could benegatively affected. Negative publicity, changes in public perceptions of our services or government investigations of our operations could damage ourreputation and hinder our ability to receive referrals, retain agreements or obtain new agreements. Increased government scrutiny may also contribute to anincrease in compliance costs and could discourage consumers from using our services. Any of these events could have a negative effect on our business,financial condition and operating results.20Table of Contents 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 markets and theestablishment of a presence in new markets. This growth would place significant demands on our management team, systems, internal controls and financialand professional resources. In addition, we will need to further develop our financial controls and reporting systems to accommodate any such future growth.This could require us to incur expenses for hiring additional qualified personnel, retaining professionals to assist in developing the appropriate controlsystems and expanding our information technology infrastructure. Our inability to effectively manage growth could have a material adverse effect on ourfinancial 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 the acquisition oflocal service providers. These acquisitions involve significant risks and uncertainties, including difficulties assimilating acquired personnel and othercorporate cultures into our business, the potential loss of key employees or consumers of acquired providers, and the assumption of liabilities and exposure tounforeseen liabilities of acquired providers. In the past, we have made acquisitions that have not performed as expected or that we have been unable tosuccessfully integrate with our existing operations. In addition, our due diligence review of acquired businesses may not successfully identify all potentialissues. 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 novo officesinvolve risks, including those relating to accreditation, hiring new personnel, establishing relationships with referral sources and delays or difficulty ininstalling our operating and information systems. We may not be successful in establishing de novo offices in a timely manner due to generating insufficientbusiness activity and incurring higher than projected operating cost that could have a material adverse effect on our financial condition, results of operationsand cash flows.We may be unable to pursue acquisitions or expand into new geographic regions without obtaining additional capital or consent from our lenders.At December 31, 2018 and December 31, 2017, we had cash balances of $70.4 million and $53.8 million, respectively. As of December 31, 2018 and2017, we had $20.0 million and $44.4 million outstanding debt on our credit facility, respectively. After giving effect to the amount drawn on our creditfacility, approximately $10.8 million and $11.8 million of outstanding letters of credit at December 31, 2018 and 2017 and borrowing limits based on anadvanced multiple of adjusted EBITDA, we had $142.9 million and $105.1 million available for borrowing under our credit facility as of December 31, 2018and 2017, respectively. Since our credit facility provides for borrowings based on a multiple of an EBITDA ratio, any declines in our EBITDA would result ina decrease in our available borrowings under 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 associated capitalcommitments. If we do not have sufficient cash resources or availability under our credit facility, our growth could be limited unless we obtain additionalequity or debt financing. In the future, we may elect to issue additional equity securities in conjunction with raising capital, completing an acquisition orexpanding into a new geographic region. Such issuances could be dilutive to existing shareholders. In addition, our ability under our credit facility toconsummate acquisitions is restricted if we exceed certain Total Net Leverage Ratio (as defined in the New Credit Agreement (as defined below)) thresholds,without the consent of the lenders. Further, our credit facility requires, among other things, that we are in pro forma compliance with the financial covenantsset forth therein and that no event of default exists before and after giving effect to any proposed acquisition. Our ability to expand in a manner consistentwith 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 may incurexpenses 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, we haveagreed to indemnify the Purchasers for, among other things, (i) penalties, fines, judgments and settlement amounts arising from a violation of certain specifiedstatutes, including the False Claims Act, the Civil Monetary Penalties Law, the federal Anti-Kickback Statute, the Stark Law or any state law equivalent inconnection with the operation of the Home Health Business prior to the Closing, and (ii) any liability related to the failure of any reimbursement claimsubmitted to certain government programs for services rendered by the Home Health Business prior to the Closing to meet the requirements of suchgovernment programs, or any violation prior to the Closing of any healthcare laws. Such liabilities include amounts to be recouped by, or repaid to, suchgovernment programs as a result of improperly submitted claims for reimbursement or those discovered as a result of audits by investigative agencies. Allservices that we have provided that have been or may be reimbursed by Medicare are subject to retroactive21Table of Contents adjustments and/or total denial of payments received from Medicare under various review and audit provisions included in the program regulations. Thereview period is generally described as six years from the date the services are provided but could be expanded to ten years under certain circumstances iffraud is found to have existed at the time of original billing. In the event that there are adjustments relating to the period prior to the Closing, we may berequired to reimburse the Purchasers for the amount of such adjustments, which could adversely affect our business and financial condition.In addition, pursuant to the Home Health Purchase Agreement, we are obligated to indemnify the Purchasers for breaches of representations, warrantiesand covenants, certain taxes and liabilities related to the pre-Closing period (other than specifically identified assumed liabilities). Any liability we have tothe 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 of December 31,2018, approximately 49.0% of our workforce was represented by the SEIU. We have numerous agreements with local SEIU affiliates which are renegotiatedfrom time to time. These negotiations are often initiated when we receive increases in our hourly rates from various state agencies. Upon expiration of thesecollective bargaining agreements, we may not be able to negotiate labor agreements on satisfactory terms with these labor unions. A strike, work stoppage orother slowdown could result in a disruption of our operations and/or higher ongoing labor costs, which could adversely affect our business. Labor costs arethe most significant component of our total expenditures and, therefore, an increase in the cost of labor could 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 and otherpotential claims or litigation brought by our consumers and employees. From time to time, we are subject to claims alleging that we did not properly treat orcare for a consumer that we failed to follow internal or external procedures that resulted in death or harm to a consumer or that our employees mistreated ourconsumers, resulting in death or harm. We are also subject to claims arising out of accidents involving vehicle collisions brought by consumers whom we aretransporting, 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 services andseek to impose monetary penalties on us. We could be required to pay substantial amounts to respond to regulatory investigations or, if we do not prevail,damages or penalties arising from these legal proceedings. We also are subject to potential lawsuits under the federal False Claims Act or other federal andstate whistleblower statutes designed to combat fraud and abuse in our industry including the federal False Claims Act litigation discussed in Part I, Item 3hereof “Legal Proceedings.” This and other similar lawsuits can involve significant monetary awards or penalties which may not be covered by our insurance.If our third-party insurance coverage and self-insurance coverage reserves are not adequate to cover these claims, it could have a material adverse effect onour business, results of operations and financial condition. Even if we are successful in our defense, civil lawsuits or regulatory proceedings could distract usfrom 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 made againstus. 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 successful and in excess ofsuch limits, may have a material adverse effect on our business or assets. We utilize historical data to estimate our reserves for our insurance programs. Iflosses on asserted claims exceed the current insurance coverage and accrued reserves, our business, results of operations and financial condition could beadversely affected. Changes in our annual insurance costs and self-insured retention limits depend in large part on the insurance market, and insurancecoverage may not continue to be available to us at commercially reasonable rates, in adequate amounts or on satisfactory 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 services that arenot delivered due to these weather events. Furthermore, prolonged inclement weather or the occurrence of natural disasters in the markets in which we operatecould disrupt our relationships with consumers, employees and referral sources located in affected areas and, in the case of our corporate office, our ability toprovide administrative support services, including billing and collection services. For example, one of our support centers and a number of our agencies arelocated in the Midwestern United States, New York and California, increasing our exposure to blizzards and other major snowstorms, ice storms, tornadoes,flooding, wildfires and earthquakes. The impact of disasters and similar events is inherently uncertain. Future inclement weather or natural disasters mayadversely affect our reputation, business and consolidated financial condition, results of operations and cash flows.22Table of Contents Our business depends on our information systems. Our operations may be disrupted if we are unable to effectively integrate, manage and maintain thesecurity of our information systems.Our business depends on effective and secure information systems that assist us in, among other things, gathering information to improve the qualityof consumer care, optimizing financial performance, adjusting consumer mix, monitoring regulatory compliance and enhancing staff efficiency. We rely onan external service provider, McKesson Information Solutions, LLC (“McKesson”), to provide continual maintenance, upgrading, and enhancement of ourprimary information systems used for our operational needs. The software we license from McKesson supports intake, personnel scheduling, office clinicaland centralized billing and receivables management in an integrated database, enabling us to standardize the care delivered across our network of offices andmonitor our performance and consumer outcomes. In addition, we also utilize Horizon to support our personal care business for branches acquired throughour acquisition of AmberCare in the second quarter of 2018. These locations also provide Home Health and Hospice services. We recently purchased andimplemented HomeCare Homebase to support these lines of business. All locations acquired through our recent purchase of Arcadia utilize Continulink fortheir home care and staffing business. To the extent providers fail to support the software or systems, or if we lose our licenses, our operations could benegatively be affected. Our business also depends on a comprehensive payroll and human resources system for basic payroll functions and reporting, payrolltax reporting, 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 the relatedsupport services provided by them, our internal operations could be negatively affected.Our business also supports the use of EVV to collect visit submission information through our delivery of home care services. Our solution uses acombination of IVR and GPS enabled smartphones to capture time in and time out, mileage and travel time, as well as the completed care plan tasks. Welicense this software through CellTrak along with partnering with states who utilize Authenticare, SanData, and HealthStar. We rely on these providers toprovide continual maintenance, enhancements, as well as security of any protected data. To the extent that our EVV vendors fail to support these processes,our internal operations could be negatively affected.Under the 21st Century Cures Act, as amended, states have until January 1, 2020 to establish standards for EVV for Medicaid-funded personal careservices. States that fail to meet this deadline will lose an escalating amount of their funding. To the extent that the states fail to properly implement EVV, ourinternal 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, operational disruptions,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, ouroperations would failover to our geographically separate disaster recovery datacenter with a quick return to operations for all sites and systems. All of oursites and branch offices have redundant connections to our primary and backup datacenters using data lines and cellular connections through VPN or MPLS.The key business functions for our main sites also have redundancies with key functions geographically split between our two main facilities, shouldone 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 to liabilityunder HIPAA, consumer protection laws, common law and other legal theories, subject us to litigation and federal and state governmental inquiries,damage our reputation, and otherwise be disruptive to our business.We rely extensively on our computer systems to manage clinical and financial data, to communicate with our consumers, payors, vendors and otherthird parties, and to summarize and analyze our operating results. In spite of our policies, procedures and other security measures used to protect our computersystems and data, occasionally, we have experienced breaches that have required us to notify affected consumers and the government, and we have workedwith consumers and the government to resolve such issues. While these past breaches have not had a significant adverse impact on our business or results ofoperations, there can be no assurance that we will not be subject to additional and/or more severe cyber-attacks or security breaches in the future. Suchattacks or breaches 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 development ofpractices and controls to protect our systems and data. We utilize sophisticated firewalls to mitigate external threats and attacks through daily securitycontent updates and intrusion prevention policies. In addition, all email is scanned for threats and viruses as well as Domain Keys Identified Mail keysauthentication and Sender Policy Framework records are utilized23Table of Contents to mitigate spoofing and phishing attempts. Outgoing email is encrypted based on content and HIPAA regulations. In addition, we are required to complywith the privacy and security laws and regulations of HIPAA as amended by HITECH. If our privacy and security practices are not in compliance with HIPAAand/or if we fail to satisfy applicable breach notification requirements in the event of a security breach, we could be subject to significant fines, penalties,lawsuits and reputational harm.Our current principal stockholders could have significant influence over us, and they could delay, deter or prevent a change of control or other businesscombination 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 20.7% of our outstanding common stock asof December 31, 2018. As a result, the Eos Funds have the ability to significantly influence all matters submitted to our stockholders for approval, 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-market purchaseprograms or other purchases of shares of our common stock that might otherwise give you the opportunity to realize a premium over the then-prevailingmarket price of our common stock. The interests of the Eos Funds may not always coincide with the interests of the other holders of our common stock. Thisconcentration 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. This competition has increasedsignificantly as the unemployment rate has decreased in recent years. Increased competition for trained personnel or general inflationary pressures mayrequire that we enhance our pay and benefits packages to compete effectively for such personnel. We may not be able to offset such added costs by increasingthe rates we charge for our services. An increase in personnel costs could negatively impact our business. In addition, if we fail to attract and retain qualifiedand skilled personnel, our ability to conduct our business operations effectively would be harmed.Competition may be greater for managers, such as regional and agency directors. Our ability to attract and retain personnel depends on several factors,including our ability to provide employees with attractive assignments and competitive benefits and salaries. The loss of one or more of the members of theexecutive management team or the inability of a new management team to successfully execute our strategies may adversely affect our business. If we areunable to attract and retain qualified personnel, we may be unable to provide our services, the quality of our services may decline, and we could loseconsumers 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 general publicduring a pandemic or in a public health catastrophe. Our employees are also at greater risk of contracting contagious diseases due to their increased exposureto vulnerable consumers. For example, if a flu pandemic were to occur, we could suffer significant losses to our consumer population or a reduction in theavailability of our employees and, at a high cost, be required to hire replacements for affected workers. Accordingly, certain public health catastrophes couldhave 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. In 2016and 2017, we changed a majority of the members of senior management, beginning with our CEO. The departure of any member of our executive team maymaterially adversely affect our operations.24Table of Contents 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 materially adverselyaffected.Goodwill and intangible assets with finite lives represent a significant portion of our assets. Goodwill represents the excess of cost over the fair marketvalue of net assets acquired in business combinations. For example, if our market capitalization drops significantly below the amount of net equity recordedon our balance sheet, it might indicate a decline in our fair value and would require us to further evaluate whether our goodwill has been impaired. If as partof our annual review of goodwill and intangibles, we were required to write down all or a significant part of our goodwill and/or intangible assets, our netearnings and net worth could be materially adversely affected, which could affect our flexibility to obtain additional financing. In addition, if ourassumptions used in preparing our valuations for purposes of impairment testing differ materially from actual future results, we may record impairmentcharges in the future and our financial results may be materially adversely affected. We had $135.4 million and $90.3 million of goodwill and $23.8 millionand $16.6 million of intangible assets recorded on our Consolidated Balance Sheets at December 31, 2018 and 2017, 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. We willcontinue to review our goodwill and other intangible assets for possible impairment. We cannot be certain that a downturn in our business or changes inmarket conditions will not result in an impairment of goodwill or other intangible assets and the recognition of resulting expenses in future periods, whichcould adversely affect our results of operations for those periods.Ineffective internal control over financial reporting could adversely impact our business and stock price.Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires our management to report on, and requires our independentregistered public accounting firm to attest to, the effectiveness of our internal controls over financial reporting. Compliance with SEC regulations adoptedpursuant to Section 404 of the Sarbanes Oxley Act requires annual management assessments of the effectiveness of our internal control over financialreporting. Compliance with Section 404(b) of the Sarbanes-Oxley Act has increased our legal and financial compliance costs making some activities moredifficult, time-consuming or costly and may also place strain on our personnel, systems and resources.Accordingly, we are required to have an audit of our internal controls over financial reporting. As described under Item 9A. “Controls and Procedures”below, our management has determined that a material weakness in internal controls existed as of December 31, 2018. The assessment was based on theframework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.To the extent that we now or in the future have deficiencies in our internal controls over financial reporting that are not remediated, our ability toaccurately and timely report our financial position, results of operations, cash flows or key operating metrics could be impaired, which could result in amaterial misstatement in our financial statements, late filings of our annual and quarterly reports under the Exchange Act, restatements of our consolidatedfinancial statements or other corrective disclosures, or other material adverse effects on our business, reputation, results of operations, financial condition orliquidity and could create a perception that our financial results do not fairly state our financial condition or results of operations, any of which could havean adverse effect on the value of our stock.Compliance with changing regulations including specific program compliance, corporate governance and public disclosure will result in additionalexpenses 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. We have acompliance officer who monitors and reports on our efforts for achieving the desired results. State agencies are recommending increased rules and regulationsin an effort to control the growth of these programs and their overall costs. The implementation of these changes may require us to increase our efforts toremain compliant, may reduce the authorizations for services to be provided, and may result in certain consumers no longer being eligible for our services allof which may result in lower revenues and increased costs, reducing our operating performance and profitability. If we continue to serve our consumerswithout addressing these increased 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 Reform andConsumer Protection Act and the rules and regulations promulgated thereunder, the Sarbanes-Oxley Act and SEC regulations, have created uncertainty forpublic companies and significantly increased the costs and risks associated with accessing the U.S. public markets. We are committed to maintaining highstandards of internal controls over financial reporting, corporate governance and public disclosure. As a result, we intend to continue to invest appropriateresources to comply with evolving standards, and this investment has resulted and will likely continue to result in increased general and administrativeexpenses and a diversion of management time and attention from revenue-generating activities to compliance activities.25Table of Contents Restrictive covenants in the agreements governing our indebtedness may adversely affect us.Our credit facility contains 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 additional indebtedness; •enter into transactions with affiliates; •engage in any line of additional line of business; •amend our organization documents; •make a 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 financial conditiontests. Our ability to meet these restrictive covenants and financial ratios and tests may be affected by events beyond our control, and we cannot assure youthat we will meet those tests.A breach of any of these covenants could result in a default under our credit facility. Upon the occurrence of an event of default under our creditfacility, all amounts outstanding under our credit facility may become immediately due and payable and all commitments under our credit facility to extendfurther credit may be terminated. The acceleration 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 volume fluctuations thathave affected the market prices of all securities, including securities of healthcare companies. The market price of our common stock may be influenced bymany 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 of thistype is often expensive to defend and may divert our management team’s attention as well as resources from the operation of our business.26Table of Contents 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 and developmentof our business and for general corporate purposes. In addition, we do not anticipate paying cash dividends on our common stock in the foreseeable future.Any future payment of cash dividends will depend upon our financial condition, capital requirements, credit facility limitations, earnings and other factorsdeemed relevant by our board of directors. Our credit facility restricts our ability to declare or pay any dividend or other distribution to Holdings unless nodefault or event of default has occurred and is continuing or would arise as a result thereof and the aggregate amount of dividends and distributions paid inany fiscal year does not exceed $7.5 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 are belowanalysts’ estimates, our stock price and trading volume could decline.The trading market for our common stock may depend in part on the research and reports that industry or securities analysts publish about us or ourbusiness. 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 visibility in thefinancial markets, which in turn could cause our stock price or trading volume to decline. If one or more analysts do cover us and downgrade theirevaluations of our stock or our results are below analysts’ estimates, our stock price would likely decline. In addition, due to the small number of analystscovering us, a single comment or report from one of the analysts whether positive or negative, could result in a significant increase or decrease in our stockprice. Further, our inclusion on or exclusion from various published stock market indices may cause our stock price to rise or decline.Provisions in our organizational documents and Delaware or certain other state laws could delay or prevent a change in control of our company, whichcould 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 Corporation Law,could discourage, delay or prevent an unsolicited change in control of our company, which could adversely affect the price of our common stock. Theseprovisions may also have the effect of making it more difficult for third parties to replace our current management without the consent of the board ofdirectors. Provisions in our amended and restated certificate of incorporation and bylaws that could delay or prevent an unsolicited change in controlinclude: •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 from engagingin mergers and other business combinations with stockholders that beneficially own 15% or more of our voting stock, or with their affiliates, unless ourdirectors or stockholders approve the business combination in the prescribed manner. However, because the Eos Funds acquired their shares prior to our IPO,Section 203 is currently inapplicable to any business combination with the Eos Funds or their affiliates. In addition, our amended and restated bylaws requirethat any stockholder proposals or nominations for election to our board of directors must meet specific advance notice requirements and procedures, whichmake it more difficult for our stockholders to make proposals or director nominations. Certain states in which we operate, such as New York, may requireregulatory approval of persons meeting such states’ definition of “controlling persons” or similar concepts, which could delay or deter a change of control orother business combination with us.We are able to issue shares of preferred stock with greater rights than our common stock.Our board of directors is authorized to issue one or more series of preferred stock from time to time without any action on the part of our stockholders.Our board of directors also has the power, without stockholder approval, to set the terms of any such series of preferred stock that may be issued, includingvoting rights, dividend rights and preferences over our common stock with respect to dividends and other terms. If we issue preferred stock in the future thathas a preference over our common stock with respect to the payment of dividends or other terms, or if we issue preferred stock with voting rights that dilutethe voting power of our common stock, the rights of holders of our common stock or the market price of our common stock could be adversely affected.27Table of Contents ITEM 1B.UNRESOLVED STAFF COMMENTSNone.ITEM 2.PROPERTIESWe do not own any real property. As of December 31, 2018, we operated at 159 leased properties including our support centers. Personal care servicesare operated out of 156 of these facilities. We lease approximately 59,000 and 31,000 square feet of office space in Downers Grove, Illinois and Frisco, Texaswhich serve as our support centers. During the second quarter of 2016, the contact center contained within the Downers Grove support 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.On January 20, 2016, we were served with a lawsuit filed in the United States District Court for the Northern District of Illinois against the Companyand Cigna Corporation by Stop Illinois Marketing Fraud, LLC, a qui tam relator formed for the purpose of bringing this action. In the action, the plaintiffalleges, inter alia, violations of the federal False Claims Act relating primarily to allegations of violations of the federal Anti-Kickback Statute and allegedlyimproper referrals of patients from our home care division to our home health business, substantially all of which was sold in 2013. The plaintiff seeks torecover damages, fees and costs under the federal False Claims Act including treble damages, civil penalties and its attorneys’ fees. The U.S. government hasdeclined 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. We and Cigna Corporation filed a motion to dismiss the amended complaint on June 6,2016. On February 3, 2017, the Court granted Cigna Corporation’s motion to dismiss in full, and granted our motion to dismiss in part allowing Plaintiffanother chance to amend its complaint. Plaintiff timely filed a second amended complaint on March 10, 2017, withdrawing its conspiracy claim under theFederal False Claims Act and adding an explicit claim under the Illinois False Claims Act for the same underlying kickback allegations. On April 7, 2017, wefiled a partial motion to dismiss the Second Amended Complaint. On May 24, 2017, the state of Illinois filed notice that it was declining to intervene in theplaintiff’s claim under the Illinois False Claims Act. On March 21, 2018, the Court granted our motion to dismiss the Second Amended Complaint in part andnarrowed the lawsuit to whether the federal False Claims Act was violated with respect to home health services provided at three senior living facilities inIllinois. We intend to defend the litigation vigorously and believe the case will not have a material adverse effect on our business, financial condition orresults of operations.ITEM 4.MINE SAFETY DISCLOSURESNot applicable.28Table of Contents PART IIITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESMarket InformationOur common stock is listed on The Nasdaq Global Market under the symbol “ADUS.”HoldersAs of December 31, 2018, 22.5% of our shares of common stock were held by our officers and directors. An additional 72.8% of our common stock washeld by 198 institutional investors. As of February 20, 2019, Addus HomeCare Corporation had approximately 8,500 shareholders of its common stock,including 54 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 on ourcommon stock in the foreseeable future. We currently plan to retain any earnings to support the operation, and to finance the growth, of our business ratherthan to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, capital requirements, credit facilitylimitations, earnings, as well as other factors deemed relevant by our board of directors. Our credit facility restricts our ability to declare or pay any dividendor other distribution to Holdings unless no default or event of default has occurred and is continuing or would arise as a result thereof and the aggregateamount of dividends and distributions paid in any fiscal year does not exceed $7.5 million per annum.ITEM 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 related notesincluded elsewhere in this Annual Report on Form 10-K.As described in Note 2 to the Notes to Consolidated Financial Statements, the following data contain certain corrections of immaterial errors identifiedin previously reported amounts as further described in footnote (3) below.29Table of Contents For the Years Ended December 31, 2018 2017 2016 2015 2014 (Amounts In Thousands, Except Per Share Data) Consolidated Statements of Income Data: Net service revenues (1) $518,119 $425,994 (3)$400,929 (3)$336,997 (3)$313,042 (3)Cost of service revenues 379,843 310,119 294,593 245,492 229,207 Gross profit 138,276 115,875 (3) 106,336 (3) 91,505 (3) 83,835 (3)General and administrative expenses 105,025 76,902 76,840 66,143 59,016 Loss (gain) on sale of assets 38 (2,467) — — — Revaluation of contingent consideration — — — 130 — Depreciation and amortization 8,642 6,663 6,647 4,717 3,830 Provision for doubtful accounts 272 8,409 (3) 7,373 4,309 2,818 Total operating expenses 113,977 89,507 (3) 90,860 75,299 65,664 Operating income from continuing operations 24,299 26,368 (3) 15,476 (3) 16,206 (3) 18,171 Interest income (2) (2,592) (66) (2,812) (47) (18) Interest expense 5,016 4,472 2,332 786 698 Total interest expense (income), net 2,424 4,406 (480) 739 680 Other income — 217 206 — — Income from continuing operations before income taxes 21,875 22,179 (3) 16,162 (3) 15,467 (3) 17,491 (3)Income tax expense 4,498 8,645 (3) 4,099 (3) 4,013 (3) 5,674 Net income from continuing operations 17,377 13,534 (3) 12,063 (3) 11,454 (3) 11,817 (3)Discontinued Operations Net income from home health business 126 147 97 270 280 Earnings from discontinued operations 126 147 97 270 280 Net income $17,503 $13,681 (3)$12,160 (3)$11,724 (3)$12,097 (3)Basic income per common share: Continuing operations $1.44 $1.18 $1.06 $1.04 $1.08 Discontinued operations 0.01 0.01 0.01 0.03 0.02 Basic income per common share: $1.45 $1.19 $1.07 $1.07 $1.10 Diluted income per common share: Continuing operations $1.40 $1.16 $1.06 $1.02 $1.06 Discontinued operations 0.01 0.01 0.01 0.02 0.02 Diluted income per common share: $1.41 $1.17 $1.07 $1.04 $1.08 Weighted average number of common shares and potential common shares outstanding: Basic 12,049 11,470 11,292 10,986 10,900 Diluted 12,383 11,623 11,349 11,189 11,114 30Table of Contents For the Years Ended December 31, 2018 2017 2016 2015 2014 (Actual Numbers, Except Adjusted EBITDA in Thousands)Key Metrics : General: Adjusted EBITDA (4) $43,948 $36,897 $32,335 $23,809 $23,859 States served at period end 24 24 24 22 22 Locations at period end 156 116 114 119 129 Employees at period end 33,153 26,097 23,070 21,395 18,054 Operational Data: Personal Care Average billable census (5) 37,597 35,343 33,944 32,756 31,019 Billable hours (6) 26,934 23,833 23,088 19,556 18,335 Average billable hours per census per month 59 56 57 50 49 Billable hours per business day 103,195 91,664 88,460 75,214 71,903 Revenues per billable hour $18.28 $17.86 $17.35 $17.22 $17.07 Hospice Admissions 1,061 — — — — Average daily census 528 — — — — Average length of stay 136 — — — — Patient days 128,819 — — — — Revenues per patient day 146 — — — — Home Health New Admissions 1,757 — — — — Recertifications 1,443 — — — — Total Volume 3,200 — — — — Visits 53,711 — — — — Percentage of Revenues by Payor: Personal Care State, local and other governmental programs 58.2 % 64.0 % 71.0 % 78.0 % 87.0 %Managed care organizations 35.3 33.0 26.0 18.0 9.0 Private pay 4.1 2.0 2.0 3.0 3.0 Commercial insurance 1.3 1.0 1.0 1.0 1.0 Other 1.1 — — — — Hospice Medicare 94 % — % — % — % — %Managed care organizations 5 — — — — Other 1 — — — — Home Health Medicare 88 % — % — % — % — %Managed care organizations 11 — — — — Other 1 — — — — 31Table of Contents As of December 31, 2018 2017 2016 2015 2014 (Amounts In Thousands)Consolidated Balance Sheet Data: Cash $70,406 $53,754 $8,013 $4,104 $13,363 Accounts receivable, net of allowances 108,000 93,533 (3) 120,119 (3) 87,084 (3) 69,618 (3)Goodwill and intangibles 159,226 106,935 87,951 77,980 73,435 Total assets 355,388 271,691 (3) 232,984 (3) 186,812 (3) 181,079 (3)Capital leases 81 1,002 2,433 2,991 3,663 Term loans, net of debt issuance costs 17,203 38,858 22,580 — — Stockholders’ equity 275,533 176,309 (3) 158,918 (3) 141,580 (3) 127,709 (3) (1)Acquisitions completed in 2018 accounted for $75.2 million of growth in net service revenues for the year ended December 31, 2018. Acquisitions completed in 2017accounted for $20.2 million and $8.6 million of growth in net service revenues for the years ended December 31, 2018, and 2017 respectively. Acquisitions completed in2016 accounted for $65.3 million, $58.6 million and $52.7 million of growth in net service revenues for the years ended December 31, 2018, 2017 and 2016, respectively.Acquisitions completed in 2015 accounted for $6.6 million, $9.3 million, $11.6 million and $9.7 million of growth in net service revenues for the years ended December 31,2018, 2017, 2016 and 2015, respectively. Acquisitions completed in 2014 accounted for $9.2 million, $9.5 million, $8.8 million, $10.7 million and $7.5 million of growthin net service revenues for the years ended December 31, 2018, 2017, 2016, 2015 and 2014, respectively. For the years ended December 31, 2018, 2017, 2016, 2015 and2014, acquisitions completed during those years represented $176.5 million, $86.0 million, $73.1 million, $20.4 million and $7.5 million, respectively, of net servicerevenues.(2)Legislation enacted in Illinois entitles designated service program providers to receive a prompt payment interest penalty based on qualifying services approved for paymentthat remain unpaid after a designated period of time. As the amount and timing of the receipt of these payments are not certain, the interest income is recognized whenreceived. For the years ended December 31, 2018 and 2016, we received $2.3 million and $2.8 million in prompt payment interest. For the years ended December 31, 2017,2015 and 2014, we did not receive any prompt payment interest.(3)Reflects a revised amount for the impact of correcting certain errors as described in Note 2 to the Notes to Consolidated Financial Statements.Refer to Note 2 to the Notes to Consolidated Financial Statement, for the corrections to the Consolidated Statements of Income for the years ending December 31, 2017 and2016; and the Consolidated Balance Sheet as of December 31, 2017. Additionally, the Company’s 2015 and 2014 Consolidated Statements of Income were adjusted for these errors as follows: •Net service revenues, gross profit, operating income from continuing operations and income from continuing operations before taxes were increased by$0.2 million and $0.1 million, for the years ending December 31, 2015 and 2014, respectively. •Income tax expense increased by $0.1 million for the year ended December 31, 2015. •Net income from continuing operations and net income were increased by $0.1 million and $0.1 million, for the years ending December 31, 2015 and2014, respectively.The Company’s 2016, 2015 and 2014 Consolidated Balance Sheets were adjusted for these errors as follows: •Accounts receivable, net of allowances and total assets were increased by $3.1 million, $2.1 million and $1.3 million, for the years ended as of December31, 2016, 2015 and 2014, respectively. •Stockholders’ equity was increased by $0.1 million, $ 0.1 million and $0.1 million for the years ended as of December 31, 2016, 2015 and 2014,respectively. (4)We define Adjusted EBITDA as earnings before discontinued operations, interest income, interest expense, other non-operating income, income tax expense, depreciationand amortization, M&A expense, stock-based compensation 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, secondary offering costs and gain on sale of assets. Adjusted EBITDA is a performance measure usedby management that is not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”). It should not be considered in isolation oras a substitute for net income, operating income or any other measure of financial performance calculated in accordance with GAAP. For the years ending December 31,2017, 2016, 2015 and 2014, Adjusted EBITDA was corrected for the errors to the Consolidated Statements of Income discussed in footnote (3) above for $0.1 million,$0.2 million, $0.2 million and $0.1 million, respectively.32Table of Contents Management believes that Adjusted EBITDA is useful to investors, management and others in evaluating our operating performance for the following reasons: •By reporting Adjusted EBITDA, we believe that we provide investors with insight and consistency in our financial reporting and present a basis for comparisonof our business operations between current, past and future periods. We believe that Adjusted EBITDA allows management, investors and others to evaluateand compare our core operating results, including return on capital and operating efficiencies, from period to period, by removing the impact of our capitalstructure (interest expense), asset base (amortization and depreciation), tax consequences, stock-based compensation expense, and other identified adjustments. •We believe that Adjusted EBITDA is a measure widely used by securities analysts, investors and others to evaluate the financial performance of other publiccompanies, and therefore may be useful as a means of comparison with those companies, when viewed in conjunction with traditional GAAP financialmeasures. •We recorded stock-based compensation expense of $4.1 million, $2.6 million, $1.1 million, $1.6 million and $0.8 million for the years ended December 31,2018, 2017, 2016, 2015, and 2014, respectively. By comparing our Adjusted EBITDA in different periods, our investors can evaluate our operating resultswithout stock-based compensation expense, which is a non-cash expense which we believe is not a key measure of our operations.In addition, management has chosen to use Adjusted EBITDA as a performance measure because the amount of non-cash expenses, such as depreciation, amortization andstock-based compensation expense, may not directly correlate to the underlying performance of our business operations, and because such expenses can vary significantlyfrom period to period as a result of new acquisitions, full amortization of previously acquired tangible and intangible assets or the timing of new stock-based awards, as thecase may be. This facilitates internal comparisons to historical operating results, as well as external comparisons to the operating results of our competitors and othercompanies in the personal care services industry. Because management believes Adjusted EBITDA is useful as a performance measure, management uses AdjustedEBITDA: •as one of our primary financial measures in the day-to-day oversight of our business to allocate financial and human resources across our organization, to assessappropriate levels of marketing and other initiatives and to generally enhance the financial performance of our business; •in the preparation of our annual operating budget, as well as for other planning purposes on a quarterly and annual basis, including allocations in order toimplement our growth strategy, to determine appropriate levels of investments in acquisitions and to endeavor to achieve strong core operating results; •to evaluate the effectiveness of business strategies, such as the allocation of resources, the mix of organic growth and acquisitive growth and adjustments to ourpayor mix; •as a means of evaluating the effectiveness of management in directing our core operating performance, which we consider to be performance that can be affectedby our management in any particular period through their allocation and use of resources that affect our underlying revenue and profit-generating operationsduring 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 has limitations as an analyticaltool, and you should not consider it in isolation or as a substitute for analysis of our results of operations as reported under 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 in the future, and AdjustedEBITDA 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;33Table of Contents •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.Management compensates for these limitations by using GAAP financial measures in addition to Adjusted EBITDA in managing the day-to-day and long-term operationsof our business. We believe that consideration of Adjusted EBITDA, together with a careful review of our GAAP financial measures, is the most informed method ofanalyzing our company.The following table sets forth a reconciliation of net income, the most directly comparable GAAP measure, to Adjusted EBITDA: Years Ended December 31, 2018 2017 2016 2015 2014 (Amounts In Thousands) Reconciliation of net income to Adjusted EBITDA (a): Net income $17,503 $13,681 (d)$12,160 (d)$11,724 (d)$12,097 (d)Less: earnings from discontinued operations, net of tax (126) (147) (97) (270) (280) Net income from continuing operations 17,377 13,534 (d) 12,063 (d) 11,454 (d) 11,817 (d)Interest (income) expense, net, excluding write- off of debt issuance costs 2,198 3,083 (480) 739 680 Secondary offering costs 189 — — — — Other non-operating income — (217) (206) — — Income tax expense from continuing operations, excluding write down of deferred tax assets/impact of Tax Reform Act 4,498 7,340 (d) 4,099 (d) 4,013 (d) 5,674 Depreciation and amortization 8,642 6,663 6,647 4,717 3,830 M&A expenses 4,989 2,116 1,122 1,013 1,031 Stock-based compensation expense 4,109 2,552 1,072 1,573 827 Restructuring charges 1,035 627 4,787 — — Severance and other costs 647 1,038 3,231 — — IRS accrual — — — 300 — Write down of deferred tax assets/impact of Tax Reform Act (b) — 1,305 — — — Write-off of debt issuance costs (c) 226 1,323 — — — (Loss) gain on sale of assets 38 (2,467) — — — Adjusted EBITDA $43,948 $36,897 (d)$32,335 (d)$23,809 (d)$23,859 (d) (a)The selected historical Consolidated Statements of Income data for the fiscal years ended December 31, 2018, 2017, 2016, 2015 and 2014, were derived fromour audited Consolidated Financial Statements included in the Annual Report on Form 10-K for the applicable year. (b)Included in income tax expense on the Consolidated Statements of Income. (c)Included in interest expense on the Consolidated Statements of Income. (d)Reflects a revised amount for the impact of correcting certain errors as described in footnote (3) above.(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.34Table of Contents ITEM 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 on Form 10-Kand other risks as well as other factors that are not currently known to us, that we currently consider immaterial or that are not specific to us, such as generaleconomic conditions.OverviewWe are a home care services provider operating in three segments: personal care; hospice; and home health. Our services are principally provided inthe home under agreements with federal, state and local government agencies. Our consumers are predominantly “dual eligible,” meaning they are eligible toreceive both Medicare and Medicaid benefits. Managed care revenues accounted for 33.9%, 33.1% and 26.1% of our revenue during the years endedDecember 31, 2018, 2017 and 2016, respectively.A summary of our financial results for 2018, 2017 and 2016 is provided in the table below. For the Years Ended December 31, 2018 2017 (1) 2016 (1) (Amounts in Thousands) Net service revenues – continuing operations $518,119 $425,994 $400,929 Net income from continuing operations 17,377 13,534 12,063 Earnings from discontinued operations 126 147 97 Net income $17,503 $13,681 $12,160 Total assets $355,388 $271,691 $232,984 (1)Net service revenues and net income from continuing operations, net income and total assets have been updated to reflect the correctiondescribed in Note 2 to the Notes to Consolidated Financial Statements.As of December 31, 2018, we provided our services in 24 states through 156 offices. Our payor clients include federal, state and local governmentalagencies, managed care organizations, commercial insurers and private individuals. For the years ended December 31, 2018, 2017 and 2016, we servedapproximately 57,000, 51,000 and 50,000 discrete individuals, respectively. Our personal care segment also includes staffing services, with clients includingassisted living facilities, nursing homes and hospice facilities.AcquisitionsIn addition to our organic growth, we have grown through acquisitions that have expanded our presence in current markets or facilitated our entry intonew markets where in-home care has been moving to managed care organizations.On January 1, 2018, we acquired certain assets of LifeStyle Options, Inc. (“LifeStyle”) in order to expand private pay services in Illinois. The totalconsideration for the transaction was $4.1 million, comprised of $3.3 million in cash and $0.8 million, which represented the estimated fair value ofcontingent consideration, subject to the achievement of certain performance targets set forth in an earn-out agreement. As of December 31, 2018, theperformance targets were not met and the Company remeasured the earn-out to fair value.On April 1, 2018, we completed an acquisition of certain assets of Arcadia for approximately $18.9 million. Arcadia provides home care services toapproximately 2,300 consumers through 26 offices in 10 states. We funded this acquisition through the delayed draw term loan portion of our credit facility.In September 2018, we acquired certain affiliate branches of Arcadia for $0.6 million using cash on hand.On May 1, 2018, we completed the acquisition of all of the issued and outstanding stock of Ambercare for approximately $39.6 million plus theamount of excess cash held by Ambercare at closing (approximately $12.0 million). With the purchase of Ambercare, we expanded our personal careoperations and acquired hospice and home health operations in the state of New Mexico. We funded this acquisition through the delayed draw term loanportion of our credit facility.Effective October 31, 2018, we entered into a definitive agreement to acquire the assets of VIP Health Care Services for approximately $28.0 million.With the purchase of VIP Health Care Services, we will expand our personal care operations in the state of New York and into the New York Citymetropolitan area. We expect to complete this transaction in the second quarter of 2019,35Table of Contents contingent on the timing of certain regulatory approvals. We expect to fund this acquisition through a delayed draw term loan under our credit facility andavailable cash on hand. Revenue by PayorOur payor clients are principally federal, state and local governmental agencies and, increasingly, managed care organizations. The federal, state andlocal programs under which the agencies operate are subject to legislative, budgetary and other risks that can influence reimbursement rates. We areexperiencing a transition of business from government payors to managed care organizations, which we believe aligns with our emphasis on coordinated careand the reduction of the need for acute care.For the years ended December 31, 2018, 2017 and 2016, our payor revenue was: Personal Care 2018 2017 2016 Amount(in Thousands) % ofSegmentNetServiceRevenues Amount(in Thousands) % ofSegmentNetServiceRevenues Amount(in Thousands) % ofSegmentNetServiceRevenues State, local and other governmental programs $286,787 58.2 % $273,525 64.2 % $282,540 70.5 %Managed care organizations 173,884 35.3 140,993 33.1 104,413 26.0 Private pay 20,060 4.1 8,739 2.1 9,644 2.4 Commercial insurance 6,190 1.3 2,737 0.6 4,332 1.1 Other 5,492 1.1 — — — — Total personal care segment net service revenues $492,413 100.0 % $425,994 100.0 % $400,929 100.0 % With the acquisition of Ambercare completed during the second quarter of 2018, we began to report our business with two additional segments,hospice and home health. For the year ended December 31, 2018, our hospice and home health revenue was: Hospice Home Health 2018 2018 Amount(in Thousands) % of Segment NetService Revenues Amount(in Thousands) % of Segment NetService Revenues Medicare $17,652 93.6 % $6,034 88.0 %Managed care organizations 1,047 5.6 752 11.0 Other 151 0.8 70 1.0 Total segment net service revenues $18,850 100.0 % $6,856 100.0 % New Mexico $18,850 100.0 % $6,856 100.0 %Total hospice segment net service revenues $18,850 100.0 % $6,856 100.0 % We derive a significant amount of our net service revenues in Illinois, which represented 47.5%, 52.6% and 53.6% of our total net service revenues forthe years ended December 31, 2018, 2017 and 2016, respectively.A significant amount of our net service revenues are derived from one payor client, the Illinois Department on Aging, which accounted for 31.0%,36.5% and 42.1% of our total net service revenues for the years ended December 31, 2018, 2017 and 2016, respectively.The Illinois Department on Aging’s payments for non-Medicaid consumers have been delayed in the past and may continue to be delayed in thefuture due to budget disputes. The state of Illinois did not adopt comprehensive budgets for fiscal years 2016 or 2017, ending June 30, 2016 and June 30,2017, respectively. On July 6, 2017, the state of Illinois passed a budget for the state fiscal year 2018, which began on July 1, 2017, authorizing the IllinoisDepartment on Aging to pay for our services rendered to non-Medicaid consumers provided in prior fiscal years. As of December 31, 2018, we have receivedsubstantially all such payments. On June 4, 2018, the state of Illinois passed a budget for state fiscal year 2019, which began in July 1, 2018.In December 2014, the Chicago City Council passed an ordinance that will raise the minimum wage for Chicago workers to $13 per hour by July of2019, with increases up to $1 per hour effective on July 1 of each year. The rate is $12 per hour effective July 1, 2018. The wage increase in 2016 did nothave a material impact on our financial results because of our existing wage scale. The 201736Table of Contents wage increase was offset by a reimbursement rate increase. In the budget process for the 2019 fiscal year, a similar provision was proposed but was notincluded in the final budget. We believe that there is legislative support for a reimbursement rate increase and anticipate that an increase to offset the wageincrease could be passed in the first half of 2019. Our financial performance will be impacted in quarters for which a reimbursement rate increase is not ineffect.Impact of Changes in Medicare and Medicaid ReimbursementIn April of 2018, the Centers for Medicare and Medicaid Services (“CMS”) issued a final rule, which beginning January 1, 2019, will allow MedicareAdvantage insurers to offer beneficiaries more options and new benefits. Through this new rule, CMS has redefined health-related supplemental benefits toinclude services that increase health and improve quality of life, including coverage of non-skilled in-homecare. This policy change, emphasizing improvingquality and reducing costs, aligns with our overall approach to care, and we believe the increased demand for personal care from the Medicare Advantagepopulation represents a significant upside opportunity over the next three to five years.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 for providingsuch services from our payor clients, including federal, state and local governmental agencies, managed care organizations, commercial insurers and privateconsumers. Net service revenues are principally provided based on authorized hours, determined by the relevant agency, at an hourly rate which is eithercontractual or fixed by legislation and are recognized at the time services are rendered.On January 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, (“ASU 2014-09”) whichrequires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Weadopted the standard using the modified retrospective approach and did not record a cumulative catch-up adjustment as the timing and measurement ofrevenue for our customers consistent with our prior revenue recognition model. However, the majority of what historically was classified as provision fordoubtful accounts under operating expenses is now treated as an implicit price concession factored into net service revenues.Cost of Service RevenuesWe incur direct care wages, payroll taxes and benefit-related costs in connection with providing our services. We also provide workers’ compensationand 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 office administrativecosts. Personnel costs include wages, payroll taxes, and employee benefits. Facility costs including rents, utilities, and postage, telephone and officeexpenses. Our support centers include costs for accounting, information systems, human resources, billing and collections, contracting, marketing andexecutive leadership. These expenses consist of compensation, including stock-based compensation, payroll taxes, employee benefits, legal, accounting andother 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 $1.9 million,$1.7 million and $8.0 million for the years ended December 31, 2018, 2017 and 2016, respectively. The expenses recorded for the year ended December 31,2018 primarily relates to terminated employees resulting mainly from changes made to the management team during the year and other professional fees. Theexpenses recorded for the year ended December 31, 2017 included costs related to terminated employees resulting mainly from changes made to themanagement team made during the year, fees related to the termination of professional services relationships, other contract termination costs and asset write-offs. The expenses recorded for the year ended December 31, 2016, included costs related to terminated employees resulted mainly from the closure of thecontact center and other changes to the executive leadership team made during the year and other direct costs associated with implementing these initiativesincluding contract termination costs, accelerated depreciation and asset write-offs.37Table of Contents 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 and equipment,network administration and telephone equipment, and operating system software. Depreciable and leasehold assets are depreciated or amortized on a straight-line method over their useful lives or, if less and if applicable, their lease terms.Provision for Doubtful AccountsPrior to 2018, we established our allowance for doubtful accounts to the extent it was probable that a portion or all of a particular account will not becollected. We established our provision for doubtful accounts primarily by reviewing the creditworthiness of significant customers and through evaluationsover the collectability of the receivables. An allowance for doubtful accounts was maintained at a level that our management believed was sufficient to coverpotential losses.In 2018, subsequent adjustments that are determined to be the result of an adverse change in the payor’s ability to pay are recognized as provision fordoubtful accounts with the adoption of ASU 2014-09, Revenue from Contracts with Customers. We recorded $9.7 million for the year ended December 31,2018 as a reduction to revenue that would have been recorded as provision for doubtful accounts under the prior revenue recognition guidance.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 interest income isrecognized when received and reported in the statement of income caption, “Interest income.” For the years ended December 31, 2018 and 2016, we received$2.3 million and $2.8 million, respectively, in prompt payment interest. For the year ended December 31, 2017, we did not receive any prompt paymentinterest. While we may be owed additional prompt payment interest, the amount, timing, and intent to provide such payments remains uncertain, and we willcontinue to recognize prompt payment interest income upon satisfaction of these constraintsInterest ExpenseInterest expense is reported in the Consolidated Statements of Income when incurred and consists of (i) interest and unused credit line fees on ourcredit facility, and our Terminated Senior Credit Facility (as defined under Senior Secured Credit Facility below), (ii) interest on our capital lease obligationsand (iii) amortization and write-off of debt issuance costs.Other IncomeFor the year ended December 31, 2017, other income of $0.2 million consisted of income distributions received from 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 netaccumulated 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, 2018, 2017and 2016, our federal statutory rate was 21.0%, 35.0% and 35.0%, respectively. The effective income tax rate was 20.6%, 39.0% and 25.5% for the yearsended December 31, 2018, 2017 and 2016, 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.On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“Tax Reform Act”). The legislation significantlychanges U.S. tax law by, among other things, lowering corporate income tax rates. The Tax Reform Act permanently reduces the U.S. corporate income taxrate from a maximum of 35.0% to a flat 21.0% rate, effective January 1, 2018. Our effective income tax rate increased by approximately 5.3% in 2017 due tothe 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.38Table of Contents Discontinued OperationsDiscontinued operations consists of the reduction of the indemnification reserve, net of tax, for our 2013 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. Results of OperationsYear Ended December 31, 2018 Compared to Year Ended December 31, 2017The following table sets forth, for the periods indicated, our consolidated results of operations. 2018 2017 (1) Change Net Service Net Service Amount Revenues Amount Revenues Amount % Net service revenues $518,119 100.0 % $425,994 100.0 % $92,125 21.6 %Cost of service revenues 379,843 73.3 310,119 72.8 69,724 22.5 Gross profit 138,276 26.7 115,875 27.2 22,401 19.3 General and administrative expenses 105,025 20.3 76,902 18.1 28,123 36.6 Loss (gain) on sale of assets 38 — (2,467) (0.6) 2,505 (101.5) Depreciation and amortization 8,642 1.7 6,663 1.6 1,979 29.7 Provision for doubtful accounts 272 0.1 8,409 2.0 (8,137) (96.8) Total operating expenses 113,977 22.0 89,507 21.0 24,470 27.3 Operating income from continuing operations 24,299 4.7 26,368 6.2 (2,069) (7.8) Interest income (2,592) (0.5) (66) — (2,526) Interest expense 5,016 1.0 4,472 1.0 544 12.2 Total interest expense (income), net 2,424 0.5 4,406 1.0 (1,982) (45.0) Other income — — 217 0.1 (217) (100.0) Income from continuing operations before income taxes 21,875 4.2 22,179 5.2 (304) (1.4) Income tax expense 4,498 0.9 8,645 2.0 (4,147) (48.0) Net income from continuing operations 17,377 3.4 13,534 3.2 3,843 28.4 Discontinued operations: Earnings from 2013 Home Health Business, net of tax 126 — 147 — (21) (14.3) Net income $17,503 3.4 % $13,681 3.2 % $3,822 27.9 % (1)For the year ended December 31, 2017, revenue, gross profit, provision for doubtful accounts, operating expenses, operating income from continuing operations, incometax expense, net income from continuing operations and net income have been updated to reflect the correction, as discussed in Note 2 to the Notes to ConsolidatedFinancial Statements.Net service revenues increased by 21.6% to $518.1 million for the year 2018 compared to $426.0 million in 2017. Net service revenues increasedprimarily due to the acquisitions of Arcadia and Ambercare during the second quarter of 2018 and an increase in average billable census for personal careservices in 2018 as compared to 2017. This increase in net service revenues was offset by a $9.7 million decrease in net service revenues as a result of ouradoption of ASC 606. Under ASC 606 the majority of what historically was classified as provision for doubtful accounts under operating expenses is nowtreated as an implicit price concession factored into net service revenues. See Note 1 to the Notes to Consolidated Financial Statements for additionalinformation.Gross profit, expressed as a percentage of net service revenues, decreased to 26.7% for 2018, from 27.2% in 2017. The decrease was primarily due toour adoption of ASC 606, as described above, which resulted in a $9.7 million decrease in net service revenues. This decrease was offset by the acquisition ofthe relatively higher margin Ambercare business in the second quarter of 2018.General and administrative expenses increased to $105.0 million as compared to $76.9 million for 2018 and 2017, respectively. The increase ingeneral and administrative expenses was primarily due to acquisitions that resulted in an increase in administrative employee wages, taxes and benefit costsof $14.3 million, an increase in acquisition expenses of $2.9 million and an increase in rent expense of $1.9 million. General and administrative expenses,expressed as a percentage of net service revenues increased to 20.3% for 2018, from 18.1% in 2017. The increase was primarily due to our adoption of ASC606, as described above, which resulted in a $9.7 million decrease in net service revenues and an increase in administrative employee wages, taxes andbenefit costs.39Table of Contents Provision for doubtful accounts decreased by approximately $8.1 million to $0.3 million for 2018 compared to $8.4 million for the same period in2017. The decrease was primarily due to our adoption of ASC 606 which resulted in a $8.0 million decrease in the provision for doubtful accounts as themajority of what historically was classified as provision for doubtful accounts under operating expenses is now treated as an implicit price concessionfactored into net service revenues.Depreciation and amortization increased to $8.6 million from $6.7 million for the years ended December 31, 2018 and 2017, respectively, primarilydue to the increase of intangible assets related to the fiscal year 2018 acquisitions.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 interest income isrecognized when received and reported in the statement of income caption, “Interest income.” For the year ended December 31, 2018, we received$2.3 million in prompt payment interest. For the year ended December 31, 2017, we did not receive any prompt payment interest. While we may be owedadditional prompt payment interest, the amount, timing, and intent to provide such payments remains uncertain, and we will continue to recognize promptpayment interest income upon satisfaction of these constraints.Interest ExpenseInterest expense increased to $5.0 million from $4.5 million for the year ended December 31, 2018 as compared to December 31, 2017. The increasesin interest expenses are primarily due to higher outstanding term loan balance under our credit facility in 2018 compared to 2017, offset by a write-off of theunamortized debt issuance costs in the amount of $1.3 million upon the termination of our Terminated Senior Secured Credit Facility on May 8, 2017. SeeNote 10 to the Notes to Consolidated Financial Statements for additional information.Other IncomeFor the year ended December 31, 2017, other income of $0.2 million, consisted of income distributions received from the investments in jointventures, which were sold on October 1, 2017. We accounted for this income in accordance with ASC Topic 325, “Investments—Other” and recognized thenet 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, 2018 and2017, our federal statutory rate was 21.0% and 35.0%, respectively. The effective income tax rate was 20.6% and 39.0% for the years ended December 31,2018 and 2017, respectively. The difference between our federal statutory and effective income tax rates are principally due to the inclusion of state taxesand the use of federal employment tax credits.Discontinued OperationsEffective March 1, 2013, we sold substantially all of the assets used in our 2013 Home Health Business as described in Part I, Item 1. Therefore, wehave segregated the 2013 Home Health Business operating results and presented them separately as discontinued operations for all periods presented, seeNote 5 to the Notes to Consolidated Financial Statements for additional information.The table below summarizes the results of discontinued operations. 2018 2017 (Amounts In Thousands) Net service revenues $— $— Cost of service revenues — — Gross profit — — General and administrative expenses (174) (245)Operating income from discontinued operations 174 245 Income tax 48 98 Net loss from discontinued operations $126 $147 40Table of Contents No revenues were recorded for the year ended December 31, 2018 or 2017 related to the 2013 Home Health Business due to the sale of the business.For the year ended December 31, 2018 and 2017, the earnings from discontinued operations represented our reduction of the Medicare indemnificationreserve for the 2013 Home Health Business for periods no longer subject to audit. As of December 31, 2018, we have estimated no further billing adjustmentsfor 2013 and 2012 which were previously subject to Medicare audits.Results of Operations – SegmentsThe following tables and related analysis summarize our operating results and business metrics by segment:Personal Care Segment For the Years Ended December 31, 2018 2017 (3) Change Personal Care Segment Amount % ofSegmentNet ServiceRevenues Amount % ofSegmentNet ServiceRevenues Amount % Operating Results Net service revenues $492,413 100.0 % $425,994 100.0 % $66,419 15.6 %Cost of services revenues 365,264 74.2 310,119 72.8 55,145 17.8 Gross profit 127,149 25.8 115,875 27.2 11,274 9.7 Provision for doubtful accounts 265 0.1 8,409 2.0 (8,144) (96.8) General and administrative expenses 44,463 9.0 35,655 8.4 8,808 24.7 Segment operating income $82,421 16.7 % $71,811 16.9 % $10,610 14.8 % Business Metrics (Actual Numbers, Except Billable Hours in Thousands) Average billable census(1) 37,597 35,343 2,254 6.4 %Billable hours(2) 26,934 23,833 3,101 13.0 Average billable hours per census per month 59 56 3 5.4 Billable hours per business day 103,195 91,664 11,531 12.6 Revenues per billable hour $18.28 $17.86 $0.42 2.4 % Segment Revenue by Payor State, local and other governmental programs $286,787 58.2 % $273,525 64.2 % Managed care organizations 173,884 35.3 140,993 33.1 Private pay 20,060 4.1 8,739 2.1 Commercial insurance 6,190 1.3 2,737 0.6 Other 5,492 1.1 — — Total segment net service revenues $492,413 100.0 % $425,994 100.0 % Segment Revenue by Significant States Illinois $233,990 47.5 % $224,257 52.6 % New York 65,117 13.2 37,588 8.8 New Mexico 58,914 12.0 58,360 13.7 All other states 134,392 27.3 105,789 24.9 Total segment net service revenues $492,413 100.0 % $425,994 100.0 % (1)Average billable census is the number of unique clients receiving a billable service during the year.(2)Billable hours is the total number of hours served to clients during a year.(3)For the year ended December 31, 2017, revenue, gross profit, provision for doubtful accounts, operating expenses, operating income from continuing operations, incometax expense, net income from continuing operations and net income have been updated to reflect the correction, as discussed in Note 2 to the Notes to ConsolidatedFinancial Statements for additional information.Net service revenues increased by 15.6% for the year ended December 31, 2018 compared to the year ended December 31, 2017. Net service revenuesincreased primarily as a result of a 13.0% increase in billable hours in the year ended December 31, 2018 as compared to the year ended December 31, 2017.The increases are primarily due to the acquisitions of Arcadia and Ambercare41Table of Contents during the second quarter of 2018. In addition, net service revenues increased as a result of a 12.6% increase in billable hours and a 2.4% increase in revenuesper billable hour in the year ended December 31, 2018 as compared to the year ended December 31, 2017. A significant amount of our net service revenueswere derived from one payor client, the Illinois Department on Aging, which accounted for 31.0% and 36.5% of net service revenues for the years endedDecember 31, 2018 and 2017, respectively. These increases in net service revenues were offset by a $9.7 million decrease in net service revenues for the yearended December 31, 2018 as a result of our adoption of ASC 606. Under ASC 606 the majority of what historically was classified as provision for doubtfulaccounts under operating expenses is now treated as an implicit price concession factored into net service revenues. See Note 1 to the Notes to ConsolidatedFinancial Statements for additional information.Gross profit, expressed as a percentage of net service revenues, decreased from 27.2% for the year ended December 31, 2017 to 25.8% for the yearended December 31, 2018. The decrease was primarily due to our adoption of ASC 606, as described above, which resulted in a $9.7 million decrease in netservice revenues for the year ended December 31, 2018.Provision for doubtful accounts decreased by approximately $8.1 million to $0.3 million for the year ended December 31, 2018 compared to $8.4million for the year ended December 31, 2017. The decrease was primarily due to our adoption of ASC 606 which resulted in a $8.0 million decrease in theprovision for doubtful accounts for the year ended December 31, 2017, as the majority of what historically was classified as provision for doubtful accountsunder operating expenses is now treated as an implicit price concession factored into net service revenues.General and administrative expenses increased by approximately $8.8 million for the year ended December 31, 2018. The increase in general andadministrative expenses was primarily due to acquisitions that resulted in a $6.4 million increase in administrative employee wages, taxes and benefit costs, a$1.2 million increase in commissions, and a $0.7 million increase in rent expenses for the year ended December 31, 2018.Hospice Segment For the Years EndedDecember 31, 2018 Hospice Segment Amount % of SegmentNet ServiceRevenues (Amounts in Thousands,Except Percentages) Operating Results Net service revenues $18,850 100.0 %Cost of services revenues 10,010 53.1 Gross profit 8,840 46.9 Provision for doubtful accounts 5 — General and administrative expenses 3,737 19.9 Segment operating income $5,098 27.0 % Business Metrics (Actual Numbers) Admissions 1,061 Average daily census 528 Average length of stay 136 Patient days 128,819 Revenue per patient day $146.33 Segment Revenue by Payor Medicare $17,652 93.6 %Managed care organizations 1,047 5.6 Other 151 0.8 Total segment net service revenues $18,850 100.0 % Segment revenue by significant states New Mexico $18,850 100.0 %Total segment net service revenues $18,850 100.0 % 42Table of Contents In the second quarter of 2018, with the completion of the acquisition of Ambercare, we began operating a hospice segment. Hospice generates netservice revenues by providing care to patients with a life expectancy of six months or less and their families. Net service revenues from Medicare andmanaged care organizations accounted for 93.6% and 5.6% for the year ending December 31, 2018, respectively.Gross profit, expressed as a percentage of net service revenues was 46.9% for the year ending December 31, 2018. General and administrativeexpenses, expressed as a percentage of net service revenues was 19.9% for the year ending December 31, 2018. The hospice segment’s general andadministrative expenses primarily consist of administrative employee wages, taxes and benefit costs, rent, information technology and office expenses. Thehospice segment’s operating income was $5.1 million for the year ending December 31, 2018.Home Health Segment For the Years EndedDecember 31, 2018 Home Health Segment Amount % of SegmentNet ServiceRevenues (Amounts in Thousands,Except Percentages) Operating Results Net service revenues $6,856 100.0 %Cost of services revenues 4,569 66.6 Gross profit 2,287 33.4 Provision for doubtful accounts 2 — General and administrative expenses 1,543 22.6 Segment operating income $742 10.8 % Business Metrics (Actual Numbers) New admissions 1,757 Recertifications 1,443 Total volume 3,200 Visits 53,711 Segment Revenue by Payor Medicare $6,034 88.0 %Managed care organizations 752 11.0 Other 70 1.0 Total segment net service revenues $6,856 100.0 % Segment revenue by significant states New Mexico $6,856 100.0 %Total segment net service revenues $6,856 100.0 % On May 1, 2018, with the acquisition of Ambercare, we began operating a home health segment. Home health generates net service revenues byproviding home health services on a short-term, intermittent or episodic basis to individuals, generally to treat an illness or injury. Net service revenues fromMedicare and managed care organizations accounted for 88.0% and 11.0% for the year ending December 31, 2018, respectively. Gross profit, expressed as a percentage of net service revenues was 33.4% for the year ending December 31, 2018. General and administrativeexpenses, expressed as a percentage of net service revenues was 22.6% for the year ending December 31, 2018. The home health segment’s general andadministrative expenses consist of administrative employee wages, taxes and benefit costs, rent, information technology and office expenses. The homehealth segment’s operating income was $0.7 million for the year ending December 31, 2018.43Table of Contents Results 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 (3) 2016 (3) Change Amount Net ServiceRevenues Amount Net ServiceRevenues Amount % (Amounts In Thousands, Except Percentages)Net service revenues $425,994 100.0 % $400,929 100.0 %$25,065 6.3 %Cost of service revenues 310,119 72.8 294,593 73.5 15,526 5.3 Gross profit 115,875 27.2 106,336 26.5 9,539 9.0 General and administrative expenses 76,902 18.1 76,840 19.2 62 0.1 Gain on sale of assets (2,467) (0.6) — — (2,467) — Depreciation and amortization 6,663 1.6 6,647 1.7 16 0.2 Provision for doubtful accounts 8,409 2.0 7,373 1.8 1,036 14.1 Total operating expenses 89,507 21.0 90,860 22.7 (1,353) (1.5) Operating income from continuing operations 26,368 6.2 15,476 3.9 10,892 70.4 Interest income (66) — (2,812) (0.7) 2,746 (97.7) Interest expense 4,472 1.0 2,332 0.6 2,140 91.8 Total interest (income) expense, net 4,406 1.0 (480) (0.1) 4,886 — Other income 217 0.1 206 0.1 11 5.3 Income from continuing operations before income taxes 22,179 5.2 16,162 4.0 6,017 37.2 Income tax expense 8,645 2.0 4,099 1.0 4,546 110.9 Net income from continuing operations 13,534 3.2 12,063 3.0 1,471 12.2 Earnings from discontinued operations, net of tax 147 — 97 — 50 51.5 Net income $13,681 3.2 % $12,160 3.0 %$1,521 12.5 % Business Metrics (Actual Numbers, Except Billable Hours in Thousands) 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 the year.(2)Billable hours is the total number of hours served to clients during a year.(3)For the years ended December 31, 2017 and 2016, revenue, gross profit, provision for doubtful accounts, operating expenses, operating income from continuing operations,income tax expense, net income from continuing operations and net income have been updated to reflect the correction, as discussed in Note 2 to the Notes to ConsolidatedFinancial Statements for additional information.Net service revenues from state, local and other governmental programs accounted for 64.2% and 70.5% of net service revenues for 2017 and 2016,respectively. Managed care organizations accounted for 33.1% and 26.0% of net service revenues in 2017 and 2016 respectively, with private andcommercial payors accounting for the remainder of net service revenues. A significant amount of our net service revenues in 2017 and 2016 were derivedfrom one payor client, Illinois Department on Aging, which accounted for 36.5% and 42.1% respectively, of our total net service revenues.Net service revenues increased $25.1 million, or 6.3%, to $426.0 million for 2017 compared to $400.9 million for 2016. The increase was primarilydue 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 due to a$3.7 million reduction in direct service costs associated with benefits, travel mileage and unemployment taxes, and our exit from the lower margin adult dayservices centers.44Table of Contents 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 in costsfor outside consultants of $0.9 million and a decrease in telephone expenses of $0.8 million. These decreases were offset by an increase in administrativeemployee 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 for the years endedDecember 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 interest income isrecognized when received and reported in the statement of income caption, “Interest income.” For the year ended December 31, 2017, we did not receive anyprompt payment interest. For the year ended December 31, 2016, we received $2.8 million in prompt payment interest. While we may be owed additionalprompt payment interest, the amount, timing, and intent to provide such payments remains uncertain, and we will continue to recognize prompt paymentinterest income upon satisfaction of these constraints.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. The increasewas primarily due to the write-off of the unamortized debt issuance costs in the amount of $1.3 million upon the termination of our Terminated SeniorSecured Credit Facility on May 8, 2017, as well as increased interest expense due to the higher outstanding term loan balance under our credit facility. SeeNote 10 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, 2017 and2016, our federal statutory rate was 35.0 % and 35.0%, respectively. The effective income tax rate was 39.0 % and 25.5% for the years ended December 31,2017 and 2016, respectively. The difference between our federal statutory and effective income tax rates are principally due to the inclusion of state taxesand the use of federal employment tax credits.On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“Tax Reform Act”). The legislation significantlychanged U.S. tax law by, among other things, lowering corporate income tax rates. The Tax Reform Act permanently reduces the U.S. corporate income taxrate from a maximum of 35.0% to a flat 21.0% rate, effective January 1, 2018. Our effective income tax rate increased by approximately 5.3% in 2017 due tothe 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.Discontinued OperationsEffective March 1, 2013, we sold substantially all of the assets used in our 2013 Home Health Business as described in Part I, Item 1. Therefore, wehave segregated the 2013 Home Health Business operating results and presented them separately as discontinued operations for all periods presented, seeNote 5 to the Notes to Consolidated Financial Statements for additional information.45Table of Contents 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 Net loss from discontinued operations $147 $97 No revenues were recorded for the year ended December 31, 2017 or 2016 related to the 2013 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 2013 Home Health Business sold for periods no longer subject to audit.Liquidity and Capital ResourcesOur primary sources of liquidity are cash from operations and borrowings under our credit facility. During the year ending December 31, 2018, wereceived cash proceeds from the issuance and sale of shares of common stock of Holdings in our secondary public offering as described below under “SecondaryOffering”. As described below under “Senior Secured Credit Facility”, we entered into a credit agreement on May 8, 2017 that replaced our Terminated SeniorSecured Credit Facility. As described below under “Amended and Restated Senior Secured Credit Facility”, we amended and restated our Existing Credit Agreement on October31, 2018. At December 31, 2018 and 2017, we had cash balances of $70.4 million and $53.8 million, respectively.During the year ending December 31, 2018, we drew a total of approximately $60.4 million on our delayed draw term loan under our credit facility tofund the acquisitions of Ambercare and Arcadia. As of December 31, 2018, the term loan was paid in full in connection with the New Credit Agreemententered into during the fourth quarter of 2018, as discussed below.As of December 31, 2018, we had a total of $20.0 million revolving credit loans outstanding on our credit facility. After giving effect to the amountdrawn on our credit facility, approximately $10.8 million of outstanding letters of credit and borrowing limits based on an advance multiple of adjustedEBITDA, we had $142.9 million available for borrowing under our credit facility.As of December 31, 2017, we had a total of $44.4 million outstanding on our credit facility. After giving effect to the amount drawn on our creditfacility, approximately $11.8 million of outstanding letters of credit and borrowing limits based on an advance multiple of adjusted EBITDA, we had$105.1 million available for borrowing under our credit facility.Cash flows from operating activities represent the inflow of cash from our payor clients and the outflow of cash for payroll and payroll taxes, operatingexpenses, interest and taxes. Due to its revenue deficiencies as well as budget and financing issues, from time to time the state of Illinois has reimbursed us ona delayed basis with respect to our various agreements including with our largest payor, the Illinois Department on Aging. The open receivable balance fromthe state of Illinois decreased by $13.6 million from $37.9 million as of December 31, 2017 to $24.3 million as of December 31, 2018.The Illinois Department on Aging’s payments for non-Medicaid consumers have been delayed in the past and may continue to be delayed in thefuture due to budget disputes. The state of Illinois did not adopt comprehensive budgets for fiscal years 2016 or 2017, ending June 30, 2016 and June 30,2017, respectively. On July 6, 2017, the state of Illinois passed a budget for state fiscal year 2018, which began on July 1, 2017, authorizing the IllinoisDepartment on Aging to pay for our services rendered to non-Medicaid consumers in prior fiscal years. As of December 31, 2018, we have receivedsubstantially all such payments. On June 4, 2018, the state of Illinois passed a budget for state fiscal year 2019, which began on July 1, 2018.There remains uncertainty surrounding the state of Illinois’ future year budgets. If future budgets are not enacted timely, payments from the state ofIllinois could be delayed in the future. The delays could adversely impact our liquidity and result in the need to increase borrowings under our credit facilityor cause us to pursue other liquidity options.In December 2014, the Chicago City Council passed an ordinance that will raise the minimum wage for Chicago workers to $13 per hour by July of2019, with increases up to $1 per hour effective on July 1 of each year. The rate is $12 per hour effective July 1, 2018. The wage increase in 2016 did nothave a material impact on us because of our existing wage scale. The 2017 wage increase was offset by a reimbursement rate increase. In the budget processfor the 2019 fiscal year, a similar provision was proposed but was not included in the final budget. We believe that there is legislative support for areimbursement rate increase and anticipate that an46Table of Contents increase to offset the wage increase could be passed in the first half of 2019. Our financial performance will be impacted in quarters for which areimbursement rate increase is not in effect.Amended and Restated Senior Secured Credit Facility On October 31, 2018, we amended and restated our Existing Credit Agreement, as hereinafter defined (the “New Credit Agreement,” and together withthe Existing Credit Agreement, our “credit facility”) with certain lenders and Capital One, National Association as a lender and swing line lender and as agentfor all lenders. This amended and restated credit facility totals $269.6 million, inclusive of a $250.0 million revolving loan and a $19.6 million delayed drawterm loan, and amends and restates our existing senior secured credit facility totaling $250.0 million. The maturity of this amended and restated credit facilityis May 8, 2023, with borrowing under the delayed draw term loan available until June 30, 2019, as extended pursuant to the consent letter, dated January 30,2019, executed by the Required Lenders (as defined in the New Credit Agreement). Interest on our amended and restated credit facility may be payable at(x) the sum of (i) an applicable margin ranging from 0.75% to 1.50% based on the applicable senior net leverage ratio plus (ii) a base rate equal to the greatestof (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 sumof the adjusted LIBOR that would be applicable to a loan with an interest period of one month advanced on the applicable day (not to be less than 0.00%)plus a margin of 1.00% or (y) the sum of (i) an applicable margin ranging from 1.75% to 2.50% based on the applicable senior net leverage ratio plus (ii) theoffered rate per annum for similar dollar deposits for the applicable interest period that appears on Reuters Screen LIBOR01 Page (not to be less than zero).Swing loans may not be LIBOR loans. The availability of additional draws under this amended and restated credit facility is conditioned, among otherthings, upon (after giving effect to such draws) the Total Net Leverage Ratio (as defined in the New Credit Agreement) not exceeding 3.75:1.00. In certaincircumstances, in connection with a Material Acquisition (as defined in the New Credit Agreement), we can elect to increase our Total Net Leverage Ratio (asdefined in the New Credit Agreement) compliance covenant to 4.25:1.00 for the then current fiscal quarter and the three succeeding fiscal quarters. Inconnection with this amended and restated credit facility, we incurred approximately $1.1 million of debt issuance costs.Addus HealthCare, Inc. (“Addus HealthCare”) is the borrower, and its parent, Holdings, and substantially all of Holdings’ subsidiaries are guarantorsunder this amended and restated credit facility, and it 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. The New Credit Agreement contains affirmative and negativecovenants customary for credit facilities of this type, including limitations on us with respect to liens, indebtedness, guaranties, investments, distributions,mergers and acquisitions and dispositions of assets.We pay a fee ranging from 0.20% to 0.35% based on the applicable senior net leverage ratio times the unused portion of the revolving portion of theamended and restated credit facility.The New 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 New Credit Agreement also contains certain customaryfinancial covenants and negative covenants that, among other things, include a requirement to maintain a minimum Interest Coverage Ratio (as defined inthe New Credit Agreement), a requirement to stay below a maximum Total Net Leverage Ratio (as defined in the New Credit Agreement) and a requirement tostay below a maximum permitted amount of capital expenditures, as well as restrictions on guarantees, indebtedness, liens, investments and loans, subject tocustomary carve outs, a restriction on dividends (provided that Addus HealthCare may make distributions to us in an amount that does not exceed $7.5 million in any year absent of an event of default, plus limited exceptions for tax and administrative distributions), a restriction on the ability toconsummate acquisitions under our credit facility if we exceed certain Total Net Leverage Ratio (as defined in the New Credit Agreement) thresholds withoutthe consent of the lenders, restrictions on mergers, dispositions of assets, and affiliate transactions, and restrictions on fundamental changes and lines ofbusiness.During the year ended December 31, 2018, we drew a total of approximately $60.4 million of delayed draw term loans under our credit facility to fundthe acquisitions of Ambercare and Arcadia. As of December 31, 2018, we had a total of $20.0 million of revolving loans outstanding on our credit facilitywith an interest rate of 4.35%.Senior Secured Credit FacilityPrior to October 31, 2018, we were a party to a credit agreement (the “Existing Credit Agreement”) with certain lenders and Capital One, NationalAssociation, as a lender and swing lender and as agent for all lenders. This credit facility totaled $250.0 million, replaced our previous senior secured creditfacility totaling $125.0 million (“Terminated Senior Secured Credit Facility”), and terminated the Second Amended and Restated Credit and GuarantyAgreement, dated as of November 10, 2015, as modified by the May 24, 2016 amendment (as amended, the “Terminated Senior Secured Credit Agreement”),between us, certain lenders and Fifth Third Bank, as agent, which evidenced the Terminated Senior Secured Credit Facility. The credit facility included a$125.0 million revolving loan, a $45.0 million term loan and an $80.0 million delayed draw term loan.47Table of Contents On October 31, 2018, we repaid in full the outstanding debt balance of $102.6 million together with accrued interest of $0.5 million and amended andrestated the Existing Credit Agreement.Secondary OfferingOn August 20, 2018, we, together with Eos Capital Partners III, L.P. (the “Selling Stockholder”) completed a secondary public offering of an aggregate2,100,000 shares of common stock, par value $0.001 per share at a purchase price per share to the public of $59.00 (the “Public Offering Price”). Pursuant tothe terms and conditions of the Underwriting Agreement, 1,075,267 shares of common stock were issued and sold by us (the “Primary Shares”) and 1,024,733shares of Common Stock were sold by the Selling Stockholder (the “Secondary Shares”). Net proceeds of approximately $59.1 million were received by usfrom the sale of 1,075,267 Primary Shares. On August 22, 2018, the underwriters exercised their full over-allotment option in connection with the offeringand, as a result, we issued and sold an additional 315,000 shares of common stock to the underwriters at the Public Offering Price, less the underwritingdiscount. The over-allotment resulted in additional net proceeds to us of approximately $17.5 million. We used the proceeds received from this offering forgeneral corporate purposes, and to pay down the $102.6 million of our delayed term loan discussed above in connection with the amendment and restatementof our credit facility. We did not receive any of the proceeds from the sale of the Secondary Shares. The secondary offering resulted in an increase toadditional paid in capital of approximately $76.6 million, net of issuance costs of $5.4 million, on our Consolidated Balance Sheets at December 31, 2018.Cash FlowsThe following table summarizes historical changes in our cash flows for the years ended December 31, 2018, 2017 and 2016: 2018 2017 2016 (Amounts in Thousands) Net cash provided by (used in) operating activities $33,203 $52,771 $(743)Net cash used in investing activities (67,789) (24,268) (21,738)Net cash provided by financing activities 51,238 17,238 26,390 Year Ended December 31, 2018 Compared to Year Ended December 31, 2017Net cash provided by operating activities was $33.2 million for the year ended December 31, 2018, compared to $52.8 million for the same period in2017. For the year ended December 31, 2017, the state of Illinois passed a budget on July 6, 2017, which resulted in significant receipts on accountsreceivable for services previously provided. During the year ended December 31, 2018, we received timely payments on receivables from the state of Illinois.Net cash used in investing activities was $67.8 million for the year ended December 31, 2018, compared to $24.3 million for the year endedDecember 31, 2017. Our investing activities for the year ended December 31, 2018 consisted of $39.6 million for the acquisition of Ambercare, net of cashacquired of $12.0 million, $18.9 million for the acquisition of Arcadia, $3.3 million for the acquisition of LifeStyle and $3.4 million in purchases of propertyand equipment primarily related to investments in our technology infrastructure. Our investing activities for the year ended December 31, 2017 consisted of$2.6 million in proceeds from the sale of three adult day 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 equipment primarily related to new office space and investments in our technology infrastructure.Net cash provided by financing activities was $51.2 million for the year ended December 31, 2018 as compared to $17.2 million for the year endedDecember 31, 2017. Our financing activities for the year ended December 31, 2018 were from net proceeds from our secondary offering of $76.6 million,borrowings of $60.4 million on the delayed draw term loan portion of our credit facility to fund the acquisitions of Arcadia and Ambercare, $104.9 million ofpayments on our term loan portion of the credit facility, $20.0 million borrowing on the revolver, $1.0 million in payments on capital lease obligations and$1.0 in cash received from the exercise of stock options. Our financing activities for the year ended December 31, 2017 were borrowings of $45.0 million andsubsequent repayments of $0.6 million on the term loan portion of our credit facility, $30.0 million in draws and subsequent repayments on the revolverportion of our credit facility, $20.0 million in draws and subsequent repayments on the revolver portion of our Terminated Senior Secured Credit Facility,$24.1 million of payments on the term loan portion of our Terminated Senior Secured Credit Facility, $1.2 million in cash received from exercise of stockoptions, $2.9 million payment for debt issuance costs under our credit facility, and $1.4 million of payments on capital lease obligations.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 operating activitiesof $0.7 million for the same period in 2016. This increase in cash provided by operations was primarily due to48Table of Contents significant receipts on accounts 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 adult dayservices 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 cashacquired, $1.9 million for the acquisition of Sun Cities, net of cash acquired, and $3.6 million in purchases of property and equipment primarily related tonew office space and investments in our technology infrastructure. Our investing activities for the year ended December 31, 2016 were $20.0 million for theacquisition of South Shore as described in Note 6 to the Notes to Consolidated Financial Statements and $1.7 million in purchases of property and equipmentrelated to new office space and investments in our technology infrastructure.Net cash provided by financing activities was $17.2 million for the year ended December 31, 2017 as compared to $26.4 million for the year endedDecember 31, 2016. Our financing activities for the year ended December 31, 2017 were borrowings of $45.0 million and subsequent repayments of$0.6 million on the term loan portion of our credit facility, $30.0 million in draws and subsequent repayments on the revolver portion of our credit facility,$20.0 million in draws and subsequent repayments on the revolver portion of our Terminated Senior Secured Credit Facility, $24.1 million of payments onthe term loan portion of our Terminated Senior Secured Credit Facility, $1.2 million in cash received from exercise of stock options, $2.9 million payment fordebt issuance costs under our credit facility, and $1.4 million of payments on capital lease obligations. Our financing activities for the year endedDecember 31, 2016 were $52.0 million in draws on our credit facility to fund on-going operations and the acquisition of South Shore, a full repayment of therevolving portion of our credit facility in the amount of $27.0 million and $0.9 million payments on the term loan portion of our credit facility. Our financingactivities 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 excess tax benefit from exercise of stock options, $0.5 million payment for debt issuance costs and a $0.1 million payment for the contingentearn-out obligation related to our December 1, 2013 acquisition of Coordinated Home Health Care, LLC.Outstanding Accounts ReceivableGross accounts receivable as of December 31, 2018 and 2017 were $108.7 million and $104.3 million, respectively. Outstanding accounts receivable,net of the allowance for doubtful accounts, increased by $15.1 million as of December 31, 2018 as compared to December 31, 2017. The increase in netaccounts receivable was primarily due to accounts receivable acquired from our Arcadia and Ambercare acquisitions in the second quarter of 2018.In 2017, we established our allowance for doubtful accounts to the extent it was probable that a portion or all of a particular account will not becollected. We established our provision for doubtful accounts primarily by reviewing the creditworthiness of significant customers and through evaluationsover the collectability of the receivables. An allowance for doubtful accounts was maintained at a level that our management believed was sufficient to coverpotential losses.In 2018, subsequent adjustments that are determined to be the result of an adverse change in the payor’s ability to pay are recognized as provision fordoubtful accounts with the adoption of ASC 606-10. We recorded $9.7 million as a reduction to revenue that would have been recorded as provision fordoubtful accounts for the year ended December 31, 2018. Our collection procedures include review of account aging and direct contact with our payors. Wehave historically not used collection agencies. An uncollectible amount is written off to the allowance account after reasonable collection efforts have beenexhausted.We calculate our days sales outstanding (“DSO”) by taking the accounts receivable outstanding net of the allowance for doubtful accounts divided bythe total net service revenues for the last quarter, multiplied by the number of days in that quarter. Our DSOs were 71, 77 and 107 days at December 31, 2018,2017 and 2016, respectively. The DSOs for our largest payor, the Illinois Department on Aging, at December 31, 2018, 2017 and 2016 were 55, 75 and 152days, respectively. We may not receive payments on a consistent basis in the near term and our DSOs and the DSO for the Illinois Department on Aging mayincrease despite the state of Illinois’s enactment of state budget for fiscal years 2018 and 2019.Off-Balance Sheet ArrangementsAs of December 31, 2018, 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 of assetsand liabilities, revenues and expense and related disclosures. We base our estimates and judgments on historical experience and other sources and factors thatwe believe to be reasonable under the49Table of Contents circumstances, however, actual results may differ from these estimates. We consider the items discussed below to be critical because of their impact onoperations and their application requires our judgment and estimates.Revenue RecognitionOn January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenueto which it expects to be entitled for the transfer of promised goods or services to customers. We adopted the standard using the modified retrospectiveapproach and did not record a cumulative catch-up adjustment as the timing and measurement of revenue for our customers is similar to its prior revenuerecognition model. However, the majority of what historically was classified as provision for doubtful accounts under operating expenses is now treated as animplicit price concession factored into net service revenues. We recorded $9.7 million for the year ended December 31, 2018 as a reduction to revenue thatwould have been recorded as provision for doubtful accounts under the prior revenue recognition guidance.Personal CareThe majority of our net service revenues are generated from providing personal care services directly to consumers under contracts with state, localand other governmental agencies, managed care organizations, commercial insurers and private consumers. Generally, these contracts, which are negotiatedbased on current contracting practices as appropriate for the payor, establish the terms of a customer relationship and set the broad range of terms for servicesto be performed at a stated rate. However, the contracts do not give rise to rights and obligations until an order is placed with us. When an order is placed, itcreates the performance obligation to provide a defined quantity of service hours, or authorized hours, per consumer. We satisfy our performance obligationsover time, given that consumers simultaneously receive and consume the benefits provided by us as the services are performed. As we have a right toconsideration from customers commensurate with the value provided to customers from the performance completed over a given invoice period, we haveelected to use the practical expedient for measuring progress toward satisfaction of performance obligations and recognizes patient service revenue in theamount to which we have a right to invoice.Hospice RevenueWe generate net service revenues from providing hospice services to consumers who are terminally ill and as well as for families. Net service revenuesare recognized as services are provided and costs for delivery of such services are incurred. The estimated payment rates are daily rates for each of the levelsof care we deliver. Hospice companies are subject to two specific payment limit caps under the Medicare program each federal fiscal year, the inpatient capand the aggregate cap. The aggregate cap limits the amount of Medicare reimbursement a hospice may receive, based on the number of Medicare patientsserved. For the year ended December 31, 2018, we were below the payment limits and did not record a cap liability.Home Health RevenueWe also generate net service revenues from providing home healthcare services directly to consumers mainly under contracts with Medicare andmanaged care organizations. Generally, these contracts, which are negotiated based on current contracting practices as appropriate for the payor, establish theterms of a relationship and set the broad range of terms for services to be performed on an episodic basis at a stated rate. Home health Medicare services arepaid under the Medicare Home Health Prospective Payment System (“HHPPS”), which is based on a 60-day episode of care. The HHPPS permits multiple,continuous episodes per patient. Medicare payment rates for episodes under HHPPS vary based on the severity of the patient’s condition as determined byassessment of a patient’s Home Health Resource Group score. We elect to use the same 60-day length of episode that Medicare recognizes as standard butaccelerates revenue upon discharge to align with a patient’s episode length if less than the expected 60-days, which depicts the transfer of services andrelated benefits received by the patient over the term of the contract necessary to satisfy the obligations. We recognize revenue based on the number of dayselapsed during an episode of care within the reporting period. We satisfy our performance obligations as consumers receive and consume the benefitsprovided by us as the services are performed. As we have a right to consideration from Medicare commensurate with the services provided to customers fromthe performance completed over a given episodic period, we have elected to use the practical expedient for measuring progress toward satisfaction ofperformance obligations. Under this method recognizing revenue ratably over the episode based on beginning and ending dates is a reasonable proxy for thetransfer of benefit of the service.Accounts Receivable and Allowance for Doubtful AccountsWe are paid for our services primarily by federal, state and local agencies under Medicaid programs, managed care organizations, commercialinsurance companies and private consumers. While our accounts receivable are uncollateralized, our credit risk is somewhat limited due to the significance ofgovernmental payors to our results of operations. Laws and regulations governing the governmental programs in which we participate are complex andsubject 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.50Table of Contents For 2017, we established our allowance for doubtful accounts to the extent it was probable that a portion or all of a particular account will not becollected. We established our provision for doubtful accounts primarily by reviewing the creditworthiness of significant customers and through evaluationsover the collectability of the receivables. An allowance for doubtful accounts was maintained at a level that our management believed was sufficient to coverpotential losses.In 2018, subsequent adjustments that are determined to be the result of an adverse change in the payor’s ability to pay are recognized as provision fordoubtful accounts with the adoption of ASU 2014-09, Revenue from Contracts with Customers. We adopted the standard using the modified retrospectiveapproach and did not record a cumulative catch-up adjustment as the timing and measurement of revenue was consistent with its prior revenue recognitionmodel. However, the majority of what historically was classified as provision for doubtful accounts under operating expenses is now treated as an implicitprice concession factored into net service revenues. We recorded $9.7 million for the year ended December 31, 2018 as a reduction to revenue that wouldhave been recorded as provision for doubtful accounts under the prior revenue recognition guidance. As of December 31, 2018 and 2017, the allowance fordoubtful accounts balance was $0.7 million and $10.5 million, which is included in the account receivable, net of allowances on our Consolidated BalanceSheets.GoodwillOur carrying value of goodwill is the excess of the purchase price over the fair value of the net assets acquired from various acquisitions. In accordancewith ASC Topic 350, Goodwill and Other Intangible Assets, goodwill and intangible assets with indefinite useful lives are not amortized. We test goodwillfor 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 inbusiness climate or regulatory changes that would indicate that an impairment may have occurred. We may use a qualitative test, known as “Step 0,” or a two-step quantitative method to determine whether impairment has occurred. In Step 0, we can elect to perform an optional qualitative analysis and based on theresults skip the two-step analysis. Additionally, it is our policy to update the fair value calculation of our reporting units and perform the quantitativegoodwill impairment test on a periodic basis. For the year ended December 31, 2018, we performed the quantitative analysis to evaluate whether animpairment occurred. In 2017 and 2016, we elected to implement Step 0 and were not required to conduct the remaining two-step analysis. Based on thetotality of the information available, we concluded that it was more likely than not that the estimated fair values were greater than the carrying values of thereporting units, and as such, no further analysis was required. We concluded that there were no impairments for the years ended December 31, 2018, 2017 or2016. As of December 31, 2018 and 2017, goodwill was $135.4 million and $90.3, respectively, included in our Consolidated Balance Sheets.Intangible AssetsOur identifiable intangible assets consist of customer and referral relationships, trade names, trademarks, state licenses and non-compete agreements.We use various valuation techniques to determine initial fair value of our intangible assets, including relief-from-royalty, income approach, discounted cashflow analysis, and multi-period excess earnings, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Underthese valuation approaches, we are required to make estimates and assumptions about future market growth and trends, forecasted revenue and costs,expected periods over which the assets will be utilized, appropriate discount rates and other variables. We base our fair value estimates on assumptions webelieve to be reasonable but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates.Amortization is computed using straight-line and accelerated methods based upon the estimated useful lives of the respective assets, which range fromthree to twenty-five years and assessed for impairment whenever events or changes in circumstances indicate that the carrying amount may not berecoverable. We would recognize an impairment loss when the estimated future non-discounted cash flows associated with the intangible asset is less than thecarrying value. An impairment charge would then be recorded for the excess of the carrying value over the fair value. We estimate the fair value of theseintangible assets using the income approach. In accordance with ASC Topic 350, Goodwill and Other Intangible Assets, intangible assets with indefiniteuseful lives are not amortized. We test intangible assets with indefinite useful lives for impairment at the reporting unit level on an annual basis, as ofOctober 1, or whenever potential impairment triggers occur, such as a significant change in business climate or regulatory changes that would indicate that animpairment may have occurred. No impairment charge was recorded for the years ended December 31, 2018, 2017 or 2016. As of December 31, 2018 and2017, intangibles, net of accumulated depreciation and amortization was $23.0 million and $16.6 million, respectively, included in our ConsolidatedBalance Sheets.Workers’ Compensation ProgramOur workers’ compensation insurance program has a $0.4 million deductible component. We recognize our obligations associated with this programin 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 basedon historical claims experience, industry statistics and an actuarial analysis performed by an independent third party. We monitor our claims quarterly andadjust our reserves accordingly. These costs are recorded primarily as the cost of services on the Consolidated Statements of Income. As of December 31,2018 and 2017, we recorded $15.2 million and $12.6 million, respectively, in accrued workers’ compensation insurance. The accrued workers’ compensation51Table of Contents insurance is included in accrued expenses on our Consolidated Balance Sheets. As of December 31, 2018 and 2017, we recorded $1.7 million and$0.5 million, respectively, in workers’ compensation insurance recovery receivables. The workers’ compensation insurance recovery receivable is included inprepaid 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 interest income isrecognized when received and reported in the statement of income caption, “Interest income.” For the years ended December 31, 2018 and December 31,2016, we received $2.3 million and $2.8 million, respectively, in prompt payment interest. For the year ended December 31, 2017, we did not receive anyprompt payment interest. While we may be owed additional prompt payment interest in the future, the amount, timing and intent to provide receipt of suchpayments remains uncertain, and we will continue to recognize prompt payment interest income upon satisfaction of these constraints.Income Tax ExpenseWe account for income taxes under the provisions of ASC Topic 740, Income Taxes. The objective of accounting for income taxes is to recognize theamount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have beenrecognized in our financial statements or tax returns Deferred taxes, resulting from differences between the financial and tax basis of our assets and liabilities,are also adjusted for changes in tax rates and tax laws when changes are enacted. ASC Topic 740 also requires that deferred tax assets be reduced by avaluation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. ASC Topic 740 also prescribes arecognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return.In addition, ASC Topic 740 provides guidance on derecognition, classification, accounting in interim periods and disclosure requirements for uncertain taxpositions.We recognize interest and penalties accrued related to uncertain tax positions in interest expense and penalties within operating expenses on ourConsolidated Statements of Income.Stock-based CompensationWe currently have one stock incentive plan, the 2017 Omnibus Incentive Plan (the “2017 Plan”), under which new grants of stock-based employeecompensation are made. We account for stock-based compensation in accordance with ASC Topic 718, Stock Compensation. Compensation expense isrecognized, net of estimated forfeitures, on a straight-line basis under the 2017 Plan over the vesting period of the equity awards based on the grant date fairvalue of the options and restricted stock awards. Beginning January 1, 2017, we began utilizing the Black-Scholes Option Pricing Model to value ouroptions, as we believe it is a more widely accepted and understood valuation model. Prior to January 1, 2017, we utilized the Enhanced Hull-White TrinomialModel to value our options. The determination of the fair value of stock-based payments utilizing the Black-Scholes Model and the Enhanced Hull-WhiteTrinomial Model is affected by our stock price and a number of assumptions, including expected volatility, risk-free interest rate, expected term, expecteddividends yield, expected forfeiture rate, expected turn-over rate and the expected exercise multiple.Recent Accounting PronouncementsRefer to Note 1 to the Notes to Consolidated Financial Statements for further discussion.Contractual Obligations and CommitmentsWe had outstanding letters of credit of $10.8 million at December 31, 2018. These standby letters of credit benefit our third-party insurer for our highdeductible workers’ compensation insurance program. The amount of the letters of credit is negotiated annually in conjunction with the insurance renewals.We anticipate our commitment could increase as we continue to grow our business.52Table of Contents The following table summarizes our cash contractual obligations as of December 31, 2018: Less than 1-2 3-4 More than Contractual Obligations Total 1 Year Years Years 5 Years (Amounts in Thousands) Revolving loan under the amended and restated credit facility, 4.52% due 2023 $20,000 $— $— $20,000 $— Interest payable on revolving loan (1) 7,887 1,994 3,521 2,372 — Capital leases 86 67 19 — — Operating leases 20,543 6,374 8,280 4,507 1,382 Total Contractual Obligations $48,516 $8,435 $11,820 $26,879 $1,382 (1)As described in Note 10 to the Notes to Consolidated Financial Statements, interest on borrowings under the revolving loan are variable. The calculated interest payableamounts above use actual rates available through January 2019 and assumes the January rate of 4.52% for all future interest payable.Impact 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. economy andelsewhere and some market forecasts indicate an expectation of increased inflation in the near to intermediate term. Future inflation would have mostlynegative impacts on our business. Rising price levels might allow us to increase our fees to private pay clients, but would cause our operating costs,particularly the wages we pay our caregivers, to increase. Further, our ability to realize rate increases from government programs might be limited despiteinflation.53Table of Contents 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, 2018, we hadoutstanding borrowings of approximately $20.0 million on our credit facility, all of which was subject to variable interest rates. As of December 31, 2017, wehad outstanding borrowings of approximately $44.4 million on our credit facility, all of which was subject to variable interest rates. If the variable rates onthis debt were 100 basis points higher than the rate applicable to the borrowing during the year ended December 31, 2018, our net income would havedecreased by $0.6 million, or $0.05 per diluted share. We do not currently have any derivative or hedging arrangements, or other known exposures, tochanges in interest rates.ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAOur Consolidated Financial Statements together with the related Notes to Consolidated Financial Statements and the report of our independentregistered public accounting firm, are set forth on the pages indicated in Part IV, Item 15.ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENoneITEM 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 our disclosurecontrols and procedures as of December 31, 2018. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by an issuer in thereports that it files or submits under the Exchange Act, is recorded, processed, summarized, and reported, within the time periods specified in the Securitiesand Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure thatinformation required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to theissuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timelydecisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provideonly reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures.Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures were not effective as of December 31, 2018 due to the material weakness in internal control over financial reporting described belowin “Management’s Report on Internal Control over Financial Reporting.”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, including ourChief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reportingbased on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission. Based on our evaluation under the framework in Internal Control—Integrated Framework (2013), our management concluded our internalcontrol over financial reporting was not effective as of December 31, 2018 because of the following material weakness identified during management’sassessment:As part of our system of controls related to the review and approval of hours worked and billed, we were unable to rely on internal controls within thesoftware provided by our preferred electronic visit verification (“EVV”) vendor because that vendor has not provided a third party attestation report withregard to those internal controls, which, in part because of the growth of our Company and the migration to EVV, we now believe is necessary. Our existingreview controls did not have a sufficient level of precision to compensate for this deficiency. However, we believe that the financial statements included inthis annual report fairly present in all material respects our financial condition, results of operations, and cash flows for the periods presented.To remediate this issue, we have held discussions with our EVV vendor and received assurances that it will deliver a Service Organization Control 1Type 2 (“SOC 1 Type 2”) report with respect to 2019. We will monitor progress toward that delivery and, if necessary, consider alternative arrangements. Inaddition, we are reviewing related existing controls to consider additional and modified controls to increase our level of precision to further strengthen thecontrol environment without regard to whether we obtain the SOC 1 Type 2 report from our EVV vendor.54Table of Contents Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed,have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statementpreparation and presentation.Under SEC guidance, companies are allowed to exclude acquisitions from their first assessment of internal control over financial reporting whichcovers the period in which such acquisition is completed. Management’s assessment of the effectiveness of our internal control over financial reportingexcluded LifeStyle, Arcadia and Ambercare, which were acquired on January 1, 2018, April 1, 2018 and May 1, 2018, respectively. Lifestyle represented1.1% of our revenues and 0.0% of our operating income, respectively, for the year ended December 31, 2018. Arcadia represented 6.3% of our revenues and8.2% of our operating income, respectively, for the year ended December 31, 2018. Ambercare represented 7.1% of our revenues and 20.5% of our operatingincome, respectively, for the year ended December 31, 2018.Ernst & Young LLP, the independent registered public accounting firm that audited our Consolidated Financial Statements included in this Form 10-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 manage riskto the company and financial reporting efforts.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, 2018 that has materially affected,or is reasonably likely to materially affect, our internal control over financial reporting.55Table of Contents Report 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, 2018, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSOcriteria). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives on the control criteria, AddusHomeCare Corporation and subsidiaries (the Company) has not maintained effective internal control over financial reporting as of December 31, 2018, basedon the COSO criteria.A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonablepossibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Thefollowing material weakness has been identified and included in management’s assessment. Management has identified a material weakness in controlsrelated to the Company’s process to review and approve hours worked and billed.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 Lifestyle Options, Inc., Arcadia Home Care& Staffing and Ambercare Corporation, which were acquired on January 1, 2018, April 1, 2018 and May 1, 2018, respectively. Lifestyle Options, Inc.represented 1.1% of the Company’s revenues and 0.0% of the Company’s operating income, respectively, for the year ended December 31, 2018. ArcadiaHome Care & Staffing represented 6.3% of the Company’s revenues and 8.2% of the Company’s operating income, respectively, for the year ended December31, 2018. Ambercare represented 7.1% of the Company’s revenues and 20.5% of the Company’s operating income, respectively, for the year ended December31, 2018.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), theconsolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of income, stockholders’ equity andcash flows for each of the two years in the period ended December 31, 2018, and the related notes and financial statement schedule listed in the Index at Item15(a) (collectively referred to as the “consolidated financial statements”). This material weakness was considered in determining the nature, timing and extentof audit tests applied in our audit of the 2018 consolidated financial statements, and this report does not affect our report dated March 15, 2019, whichexpressed 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 theeffectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over FinancialReporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a publicaccounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securitieslaws and the 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 included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the 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 are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being56Table of Contents made only 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 the degreeof compliance with the policies or procedures may deteriorate./s/ Ernst & Young LLPDallas, TexasMarch 15, 201957Table of Contents ITEM 9B.OTHER INFORMATIONNone. 58Table of Contents PART 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 for the2019 Annual Meeting of Stockholders pursuant to Regulation 14A of the Exchange Act not later than 120 days after the end of the fiscal year covered by thisAnnual 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 2019 Proxy Statement to be filed with the SEC not later than 120 days afterthe end of the fiscal year ended December 31, 2018.We have adopted a Code of Conduct that is applicable to all of our employees, officers and members of our Board of Directors, and our subsidiaries. Acopy of the current version of our Code of Conduct is available in the Investors—Corporate Governance section of our internet website athttp://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 by writing toAddus HomeCare Corporation, 6801 Gaylord Parkway, Suite 110, Frisco, TX 75034. We intend to post amendments to or waivers, if any, from our Code ofConduct at this location on our website, in each case to the extent such amendment or waiver would otherwise require the filing of a Current Report on Form8-K pursuant to Item 5.05 thereof.ITEM 11.EXECUTIVE COMPENSATIONThe information required by this item is incorporated by reference to the 2019 Proxy Statement to be filed with the SEC not later than 120 days afterthe end of the fiscal year ended December 31, 2018.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe information required by this item is incorporated by reference to the 2019 Proxy Statement to be filed with the SEC not later than 120 days afterthe end of the fiscal year ended December 31, 2018.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by this item is incorporated by reference to the 2019 Proxy Statement to be filed with the SEC not later than 120 days afterthe end of the fiscal year ended December 31, 2018.ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by this item is incorporated by reference to the 2019 Proxy Statement to be filed with the SEC not later than 120 days afterthe end of the fiscal year ended December 31, 2018. 59Table of Contents PART IVITEM 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 are includedherein. All other schedules are omitted, either because they are not applicable or because the required information is shown in the financialstatements 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 on November 20,2009 as Exhibit 3.1 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (File No. 001-34504) and incorporated by referenceherein). 3.2 Amended and Restated Bylaws of Addus HomeCare Corporation, as amended by the First Amendment to Amended and Restated Bylaws (filedon May 9, 2013 as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q (File No. 001-34504) and incorporated by reference herein). 4.1 Form of Common Stock Certificate (filed on October 2, 2009 as Exhibit 4.1 to Amendment No. 4 to 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., EosPartners SBIC III, L.P., Freeport Loan Fund LLC, W. Andrew Wright, III, Addus Term Trust, W. Andrew Wright Grantor Retained Annuity Trust,Mark S. Heaney, James A. Wright and Courtney E. Panzer (filed on July 17, 2009 as Exhibit 4.3 to Addus HomeCare Corporation’s RegistrationStatement 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 onSeptember 21, 2009 as Exhibit 10.1(b) to Amendment No. 2 to Addus HomeCare Corporation’s Registration Statement on Form S-1(File No. 333-160634) and incorporated by reference herein).* 10.2 Addus HealthCare, Inc. Home Health and Home Care Division Vice President and Regional Director Bonus Plan (filed on July 17, 2009 asExhibit 10.10 to Addus HomeCare Corporation’s Registration Statement on Form S-1 (File No. 333-160634) and incorporated by referenceherein).* 10.3 Addus HealthCare, Inc. Support Center Vice President and Department Director Bonus Plan (filed on July 17, 2009 as Exhibit 10.11 to AddusHomeCare Corporation’s Registration Statement on Form S-1 (File No. 333-160634) and incorporated by reference herein).* 10.4 Addus Holding Corporation 2006 Stock Incentive Plan (filed on July 17, 2009 as Exhibit 10.12 to Addus HomeCare Corporation’s RegistrationStatement 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 10.13 to AddusHomeCare 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 Exhibit 10.14 toAddus HomeCare Corporation’s Registration Statement on Form S-1 (File No. 333-160634) and incorporated by reference herein).* 10.7 Form of Indemnification Agreement (filed on July 17, 2009 as Exhibit 10.16 to Addus HomeCare Corporation’s Registration Statement onForm 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 Registration Statement onForm 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) to AmendmentNo. 1 to Addus HomeCare Corporation’s Registration Statement on Form S-1 (File No. 333-160634) and incorporated by reference 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 by referenceherein).60Table of Contents 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 Registration Statementon 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. 2 toAddus 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 as Exhibit10.20(a) to Amendment No. 2 to Addus HomeCare Corporation’s Registration Statement on Form S-1 (File No. 333-160634) and incorporatedby reference herein).* 10.14 Form of Restricted Stock Award Agreement pursuant to the 2009 Stock Incentive Plan (filed on September 21, 2009 as Exhibit 10.20(b) toAmendment No. 2 to Addus HomeCare Corporation’s Registration Statement on Form S-1 (File No. 333-160634) and incorporated by referenceherein).* 10.15 The Executive Nonqualified “Excess” Plan Adoption Agreement, by Addus HealthCare, Inc., dated April 1, 2012 (filed on April 5, 2012 asExhibit 99.1 to Addus HomeCare Corporation’s Current Report on Form 8-K (File No. 001-34504) and incorporated by reference herein).* 10.16 The Executive Nonqualified Excess Plan Document (filed on April 5, 2012 as Exhibit 99.2 to Addus HomeCare Corporation’s Current Reporton 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, LHC Group,Inc. and its subsidiaries identified therein (filed on March 6, 2013 as Exhibit 99.1 to Addus HomeCare Corporation’s Current Report on Form 8-K (File No. 001-34504) and incorporated by reference herein). 10.18 Employment and Non-Competition Agreement, effective December 15, 2014, by and between Addus HealthCare, Inc. and Maxine Hochhauser(filed on December 15, 2014 as Exhibit 99.1 to Addus HomeCare Corporation’s Current Report on Form 8-K (File No. 001-34504) andincorporated by reference herein).* 10.19 Securities Purchase Agreement, dated as of April 24, 2015, by and among Addus HealthCare, Inc., Margaret Coffey, Carol Kolar, South ShoreHome Health Service, Inc. and Acaring Home Care, LLC (filed on May 8, 2015 as Exhibit 10.1 to Addus HomeCare Corporation’s QuarterlyReport 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., AddusHealthCare (Idaho), Inc., Addus HealthCare (Indiana), Inc., Addus HealthCare (Nevada), Inc., Addus HealthCare (New Jersey), Inc., AddusHealthCare (North Carolina), Inc., Benefits Assurance Co., Inc., PHC Acquisition Corporation, Professional Reliable Nursing Service, Inc., AddusHealthCare (South Carolina), Inc., Addus HealthCare (Delaware), Inc., Cura Partners, LLC and Priority Home Health Care, Inc., as borrowers,Addus HomeCare Corporation, as guarantor, the other credit parties from time to time party thereto, the various institutions from time to timeparty thereto, as lenders, and Fifth Third Bank, as agent and L/C issuer (filed on November 16, 2015 as Exhibit 99.1 to Addus HomeCareCorporation’s Current Report on Form 8-K (File No. 001-34504) and incorporated by reference herein). 10.21 Consent and Amendment No. 2 to Second Amended and Restated Credit and Guaranty Agreement, effective May 24, 2016, among AddusHealthCare, Inc., Addus HealthCare (Idaho), Inc., Addus HealthCare (Indiana), Inc., Addus HealthCare (Nevada), Inc., Addus HealthCare (NewJersey), Inc., Addus HealthCare (North Carolina), Inc., Benefits Assurance Co., Inc., PHC Acquisition Corporation, Professional Reliable NursingService, 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, as guarantor, the other credit parties from time to timeparty 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 Current Report on Form 8-K (File No. 001-34504) and incorporated by referenceherein). 10.22 Separation Agreement and General Release, dated as of March 18, 2016, by and between Addus HealthCare, Inc. and Inna Berkovich (filed onMarch 23, 2016 as Exhibit 10.1 to Addus HomeCare Corporation’s Current Report on Form 8-K (File No. 001-34504) and incorporated byreference herein).* 10.23 Separation Agreement and General Release, effective May 25, 2016, by and between Addus HealthCare, Inc. and Donald Klink (filed on May 27, 2016 as Exhibit 99.1 to Addus HomeCare Corporation’s Current Report on Form 8-K (File No. 001-34504) and incorporated by referenceherein).* 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 incorporatedby reference herein).* 61Table of Contents 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 (File No. 001-34504)and incorporated by reference herein).* 10.26 Credit Agreement, dated as of May 8, 2017, by and among Addus Healthcare, Inc., as the Borrower, the other parties from time to time a partythereto, and Capital One, National Association, 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 other financialinstitutions party thereto, as Lenders, Capital One, National Association, Bank of the West, Compass Bank, Fifth Third Bank and JPMorgan ChasBank, N.A. and Suntrust Robinson Humphrey as Joint Lead Arrangers and Capital One, National Association, as Sole Bookrunner (filed on May 9, 2017 as Exhibit 10.3 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (File No. 001-34504) and incorporated by referenceherein). 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 to AddusHomeCare 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. (filed on March 14, 2018 as Exhibit 10.28to Addus HomeCare Corporation’s Annual Report on Form 10-K (File No. 001-34504) and incorporated by reference herein).* 10.29 Form of Restricted Stock Award Agreement pursuant to the 2017 Omnibus Incentive Plan. (filed on March 14, 2018 as Exhibit 10.29 to AddusHomeCare Corporation’s Annual Report on Form 10-K (File No. 001-34504) and incorporated by reference herein).* 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 (File No. 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 BrianPoff (filed on August 8, 2017 as Exhibit 10.3 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (File No. 001-34504) andincorporated by reference herein).* 10.32 Amended and Restated Employment and Non-Competition Agreement, dated April 25, 2017, by and between Addus HealthCare, Inc. andJames Zoccoli (filed on August 8, 2017 as Exhibit 10.4 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (File No. 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. andDarby 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. andBrenda Belger (filed on August 8, 2017 as Exhibit 10.7 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (File No. 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 (filed on July 31, 2017 as Exhibit 10.1 to Addus HomeCare Corporation’s Current Report on Form 8-K (File No. 001-34504) and incorporated by referenceherein).* 10.37 Employment and Non-Competition Agreement, effective as of August 14, 2017, by and between Addus HealthCare, Inc. and Laurie Manning(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 incorporatedby reference herein).* 10.38 Stock Purchase Agreement, dated February 27, 2018, by and among Addus Healthcare, Inc., Michael J. Merrell and Mary E. Merrell,individually, Michael J. Merrell and Mary E. Merrell, as Trustees of the Merrell Revocable Trust UTA dated June 3, 2012, and Michael J. Merrelland Mary E. Merrell, as Trustees of the Ambercare Corporation Employee Stock Ownership Plan Trust (filed on March 5, 2018 as Exhibit 10.1 toAddus HomeCare Corporation’s Current Report on Form 8-K (File No. 001-34504) and incorporated by reference herein). 10.39 Amended and Restated Credit Agreement by and among Addus HealthCare, Inc., as borrower, the Company, the other Credit Parties partythereto, the Lenders and L/C Issuers party thereto, and Capital One, National Association, as administrative agent (filed on August 11, 2018 asExhibit 10.2 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (File No. 001-34504) and incorporated by reference herein). 62Table of Contents 10.40 Second Amended and Restated Employment and Non-Competition Agreement, dated November 5, 2018, by and between Addus HealthCare,Inc. and R. Dirk Allison (filed on August 11, 2018 as Exhibit 10.3 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (File No.001-34504) and incorporated by reference herein). * 10.41 Second Amended and Restated Employment and Non-Competition Agreement, dated November 5, 2018, by and between Addus HealthCare,Inc. and Brian Poff (filed on August 11, 2018 as Exhibit 10.4 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (File No. 001-34504) and incorporated by reference herein). * 10.42 Second Amended and Restated Employment and Non-Competition Agreement, dated November 5, 2018, by and between Addus HealthCare,Inc. and James Zoccoli (filed on August 11, 2018 as Exhibit 10.5 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (File No.001-34504) and incorporated by reference herein). * 10.43 Second Amended and Restated Employment and Non-Competition Agreement, dated November 5, 2018, by and between Addus HealthCare,Inc. and Darby Anderson (filed on August 11, 2018 as Exhibit 10.6 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (File No.001-34504) and incorporated by reference herein). * 10.44 Second Amended and Restated Employment and Non-Competition Agreement, dated November 5, 2018, by and between Addus HealthCare,Inc. and W. Bradley Bickham (filed on August 11, 2018 as Exhibit 10.7 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (FileNo. 001-34504) and incorporated by reference herein). * 10.45 Amended and Restated Employment and Non-Competition Agreement, dated November 5, 2018, by and between Addus HealthCare, Inc. andLaurie Manning (filed on August 11, 2018 as Exhibit 10.8 to Addus HomeCare Corporation’s Quarterly Report on Form 10-Q (File No. 001-34504) and incorporated by reference herein). * 10.46 Amended and Restated Credit Agreement, dated as of October 31, 2018, by and among Addus HealthCare, Inc., as borrower, the Company, theother Credit Parties party thereto, the Lenders and L/C Issuers party thereto, and Capital One, National Association, as administrative agent (filedon November 8, 2018 as Exhibit 10.2 to Addus HomeCare Corporation’s Current Report on Form 10-Q (File No. 001-34504) and incorporatedby reference herein). 10.47 Underwriting Agreement, dated as of August 15, 2018, by and among Addus HomeCare Corporation, Eos Capital Partners III, L.P., and JefferiesLLC, RBC Capital Markets, LLC and Raymond James & Associates, Inc., as representatives of the several underwriters named in Schedule Athereto (filed on August 16, 2018 as Exhibit 1.1 to Addus HomeCare Corporation’s Current Report on Form 8-K (File No. 001-34504) andincorporated by reference herein). 16.1 Letter from BDO USA, LLP, dated May 10, 2017, regarding change in certifying accountant (filed on May 10, 2017 as Exhibit 16.1 to AddusHomeCare Corporation’s Current Report on Form 8-K/A (File No. 001-34504) and incorporated by reference herein). 21.1 Subsidiaries of Addus HomeCare Corporation 23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm 23.2 Consent of BDO USA, LLP, Independent Registered Public Accounting Firm 31.1 Certification of Chief Executive Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302of 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 to Section 302 ofthe 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 of2002. 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 of2002. 101 The following materials from Addus HomeCare Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018, formatted inExtensive Business Reporting Language (XBRL), (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) ConsolidatedStatements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements. *Management compensatory plan or arrangementITEM 16.FORM 10-K SUMMARYNone. 63Table of Contents SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized. Addus HomeCare Corporation By: /s/ R. DIRK ALLISON R. Dirk Allison,President and Chief Executive Officer Date: March 15, 2019Pursuant 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 15, 2019 /s/ BRIAN POFF Brian Poff Chief Financial Officer (Principal Financial andAccounting Officer) March 15, 2019 /s/ MICHAEL EARLEY Michael Earley Director March 15, 2019 /s/ MARK L. FIRST Mark L. First Director March 15, 2019 /s/ STEVEN I. GERINGER Steven I. Geringer Director March 15, 2019 /s/ DARIN J. GORDON Darin J. Gordon Director March 15, 2019 /s/ JEAN RUSH Director March 15, 2019Jean Rush /s/ SUSAN T. WEAVER, M.D., FACP Susan T. Weaver, M.D., FACP Director March 15, 2019 64Table of Contents INDEX TO CONSOLIDATED FINANCIAL INFORMATION PageReports of Independent Registered Public Accounting Firms F-2Consolidated Balance Sheets F-4Consolidated Statements of Income F-5Consolidated Statements of Stockholders’ Equity F-6Consolidated Statements of Cash Flows F-7Notes to Consolidated Financial Statements F-8Schedule II Valuation and Qualifying Accounts F-38 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not requiredunder the related instructions or are inapplicable and therefore have been omitted. F-1Table of Contents Report 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 31,2018 and December 31, 2017, the related consolidated statements of income, stockholders’ equity and cash flows for each of the two years in the periodended December 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of theCompany at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31,2018, 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”), theCompany’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issuedby the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 15, 2019 expressed an adverseopinion thereon.Adoption of New Accounting StandardAs discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for revenue in 2018 due to theadoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the related amendments.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 to theCompany in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and thePCAOB.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 included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures inthe financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall 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 15, 2019F-2Table of Contents Report of Independent Registered Public Accounting FirmBoard of Directors and StockholdersAddus HomeCare CorporationFrisco, TexasWe have audited the accompanying consolidated statements of income, stockholders’ equity, and cash flows of Addus HomeCare Corporation for theyear ended December 31, 2016. In connection with our audit of the financial statements, we have also audited the financial statement schedule listed in theaccompanying index. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements and schedule based on our audit.We conducted our audit 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. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that ouraudit provides a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows ofAddus HomeCare Corporation for the year ended December 31, 2016, in conformity with accounting principles generally accepted in the United States ofAmerica.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 Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSAs of December 31, 2018 and 2017(amounts and shares in thousands, except per share data) 2018 2017 Assets Current assets Cash $70,406 $53,754 Accounts receivable, net of allowances 108,000 93,533 Prepaid expenses and other current assets 7,098 8,379 Total current assets 185,504 155,666 Property and equipment, net of accumulated depreciation and amortization 10,658 7,489 Other assets Goodwill 135,442 90,339 Intangibles, net of accumulated amortization 23,784 16,596 Deferred tax assets, net — 1,601 Total other assets 159,226 108,536 Total assets $355,388 $271,691 Liabilities and stockholders’ equity Current liabilities Accounts payable $12,238 $7,381 Current portion of long-term debt, net of debt issuance costs 62 3,099 Accrued expenses 49,204 44,596 Total current liabilities 61,504 55,076 Long-term liabilities Long-term debt, less current portion, net of debt issuance costs 17,222 39,860 Deferred tax liabilities, net 494 — Other long-term liabilities 635 446 Total long-term liabilities 18,351 40,306 Total liabilities $79,855 $95,382 Stockholders’ equity Common stock—$.001 par value; 40,000 authorized and 13,126 and 11,632 shares issued and outstanding as of December 31, 2018 and 2017, respectively $13 $12 Additional paid-in capital 177,683 95,963 Retained earnings 97,837 80,334 Total stockholders’ equity 275,533 176,309 Total liabilities and stockholders’ equity $355,388 $271,691 See accompanying Notes to Consolidated Financial Statements F-4Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOMEFor the years ended December 31, 2018, 2017 and 2016(amounts and shares in thousands, except per share data) For the Years Ended December 31, 2018 2017 2016 Net service revenues $518,119 $425,994 $400,929 Cost of service revenues 379,843 310,119 294,593 Gross profit 138,276 115,875 106,336 General and administrative expenses 105,025 76,902 76,840 Loss (gain) on sale of assets 38 (2,467) — Depreciation and amortization 8,642 6,663 6,647 Provision for doubtful accounts 272 8,409 7,373 Total operating expenses 113,977 89,507 90,860 Operating income from continuing operations 24,299 26,368 15,476 Interest income (2,592) (66) (2,812)Interest expense 5,016 4,472 2,332 Total interest expense (income), net 2,424 4,406 (480)Other income — 217 206 Income from continuing operations before income taxes 21,875 22,179 16,162 Income tax expense 4,498 8,645 4,099 Net income from continuing operations 17,377 13,534 12,063 Earnings from discontinued operations 126 147 97 Net income $17,503 $13,681 $12,160 Net income per common share Basic income per share Continuing operations $1.44 $1.18 $1.06 Discontinued operations 0.01 0.01 0.01 Basic income per share $1.45 $1.19 $1.07 Diluted income per share Continuing operations $1.40 $1.16 $1.06 Discontinued operations 0.01 0.01 0.01 Diluted income per share $1.41 $1.17 $1.07 Weighted average number of common shares and potential common shares outstanding: Basic 12,049 11,470 11,292 Diluted 12,383 11,623 11,349 See accompanying Notes to Consolidated Financial Statements F-5Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYFor the years ended December 31, 2018, 2017 and 2016(amounts and shares in thousands) Common Stock AdditionalPaid inCapital RetainedEarnings TotalStockholders'Equity Shares Amount Balance at January 1, 2016 11,108 $11 $87,076 $54,493 $141,580 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 — — — 12,160 12,160 Balance at December 31, 2016 11,527 $12 $92,253 $66,653 $158,918 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 Excess tax benefit from exercise of stock options — — — — — Shares issued for exercise of stock options 51 — 1,158 — 1,158 Net income — — — 13,681 13,681 Balance at December 31, 2017 11,632 $12 $95,963 $80,334 $176,309 Issuance of shares of common stock under restricted stock award agreements 78 — — — — Forfeiture of shares of common stock under restricted stock award agreements (16) — — — — Stock-based compensation — — 4,109 — 4,109 Shares issued for exercise of stock options 42 — 994 — 994 Shares issued in secondary offering, net of offering costs 1,390 1 76,617 — 76,618 Net income — — — 17,503 17,503 Balance at December 31, 2018 13,126 $13 $177,683 $97,837 $275,533 See accompanying Notes to Consolidated Financial Statements F-6Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended December 31, 2018, 2017 and 2016(amounts in thousands) For the Years Ended December 31, 2018 2017 2016 Cash flows from operating activities: Net income $17,503 $13,681 $12,160 Adjustments to reconcile net income to net cash provided by (used in) operating activities, net of acquisitions: Depreciation and amortization 8,642 6,663 6,647 Non-cash restructuring — 383 2,550 Deferred income taxes (43) 1,754 (1,328)Stock-based compensation 4,109 2,552 1,072 Amortization of debt issuance costs under the terminated credit facility — 1,484 357 Amortization of debt issuance costs under the credit facility 606 382 — Provision for doubtful accounts 272 8,409 7,373 Contingent consideration (847) — — (Loss) gain on sale of assets 38 (2,467) — Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (2,169) 19,412 (33,601)Prepaid expenses and other current assets 1,964 (2,364) (282)Accounts payable 4,235 1,103 (776)Accrued expenses and other long-term liabilities (1,107) 1,779 5,085 Net cash provided by (used in) operating activities 33,203 52,771 (743)Cash flows from investing activities: Proceeds from the sale of assets — 3,702 — Acquisitions of businesses, net of cash acquired (62,440) (24,354) (20,026)Purchases of property and equipment (5,349) (3,616) (1,712)Net cash used in investing activities (67,789) (24,268) (21,738)Cash flows from financing activities: Borrowings on revolver- credit facility 20,000 30,000 — Borrowings on revolver- terminated credit facility — 20,000 27,000 Borrowings on term loan- credit facility 60,420 45,000 — Borrowings on term loan- terminated credit facility — — 25,000 Payments on revolver- credit facility — (30,000) — Payments on revolver- terminated credit facility — (20,000) (27,000)Payments on term loan- credit facility (104,858) (563) — Payments on term loan- terminated credit facility — (24,063) (938)Payments on capital lease obligations (1,013) (1,432) (1,175)Payments for debt issuance costs under the credit facility (923) (2,862) — Payments for debt issuance costs under the terminated credit facility — — (503)Proceeds from issuance of common stock, net of issuance costs 76,618 — — Cash received from exercise of stock options 994 1,158 3,016 Excess tax benefit from exercise of stock options — — 1,090 Payment on contingent earn-out obligation — — (100)Net cash provided by financing activities 51,238 17,238 26,390 Net change in cash 16,652 45,741 3,909 Cash, at beginning of period 53,754 8,013 4,104 Cash, at end of period $70,406 $53,754 $8,013 Supplemental disclosures of cash flow information: Cash paid for interest $4,339 $2,261 $2,322 Cash paid for income taxes 4,314 6,838 5,087 Supplemental disclosures of non-cash investing and financing activities Property and equipment acquired through capital lease obligations — — 618 Tax benefit related to the amortization of tax goodwill in excess of book basis — 206 203 See accompanying Notes to Consolidated Financial Statements F-7Table of Contents ADDUS 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 three reportable business segments as a multi-state provider of personal care,hospice and home health services in the home. The Company’s personal care services provide non-medical assistance with activities of daily living, primarilypersons who are at increased risk of hospitalization or institutionalization, such as the elderly, chronically ill and disabled. The Company’s hospice segmentprovides physical, emotional and spiritual care for people who are terminally ill as well as for their families. The Company’s home health segment providesservices that are primarily medical in nature to individuals who may require assistance during an illness or after surgery and include skilled nursing andphysical, occupational and speech therapy. The Company’s payor clients include federal, state and local governmental agencies, managed careorganizations, commercial insurers and private individuals. As of December 31, 2018, the Company provided services to over 39,000 consumers in 24 statesthrough 156 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 sold suchinvestments on October 1, 2017. See Note 4, Gain on Sale of Assets, for additional information.Reclassification of Prior Period BalancesCertain reclassifications have been made to prior period amounts to conform to the current-year presentation including the reporting of other long-term liabilities as a separate line item on the Consolidated Balance Sheets. These reclassifications have no effect on the reported net income for the yearsended December 31, 2018, 2017 and 2016.Revenue RecognitionOn January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which requiresan entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The Companyadopted the standard using the modified retrospective approach and did not record a cumulative catch-up adjustment as the timing and measurement ofrevenue for the Company’s customers is similar to its prior revenue recognition model. However, the majority of what historically was classified as provisionfor doubtful accounts under operating expenses is now treated as an implicit price concession factored into net service revenues. The Company recorded $9.7million for the year ended December 31, 2018 as a reduction to revenue that would have been recorded as provision for doubtful accounts under the priorrevenue recognition guidance.Personal CareThe majority of the Company’s net service revenues are generated from providing personal care services directly to consumers under contracts withstate, local and other governmental agencies, managed care organizations, commercial insurers and private consumers. Generally, these contracts, which arenegotiated based on current contracting practices as appropriate for the payor, establish the terms of a customer relationship and set the broad range of termsfor services to be performed at a stated rate. However, the contracts do not give rise to rights and obligations until an order is placed with the Company. Whenan order is placed, it creates the performance obligation to provide a defined quantity of service hours, or authorized hours, per consumer. The Companysatisfies its performance obligations over time, given that consumers simultaneously receive and consume the benefits provided by the Company as theservices are performed. As the Company has a right to consideration from customers commensurate with the value provided to customers from theperformance completed over a given invoice period, the Company has elected to use the practical expedient for measuring progress toward satisfaction ofperformance obligations and recognizes patient service revenue in the amount to which the Company has a right to invoice.Hospice RevenueThe Company generates net service revenues from providing hospice services to consumers who are terminally ill as well as for their families. Netservice revenues are recognized as services are provided and costs for delivery of such services are incurred. TheF-8Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) estimated payment rates are daily rates for each of the levels of care the Company delivers. Hospice companies are subject to two specific payment limit capsunder the Medicare program each federal fiscal year, the inpatient cap and the aggregate cap. The aggregate cap limits the amount of Medicarereimbursement a hospice may receive, based on the number of Medicare patients served. For the year ended December 31, 2018, the Company was below thepayment limits and did not record a cap liability.Home Health RevenueThe Company also generates net service revenues from providing home healthcare services directly to consumers mainly under contracts withMedicare and managed care organizations. Generally, these contracts, which are negotiated based on current contracting practices as appropriate for thepayor, establish the terms of a relationship and set the broad range of terms for services to be performed on an episodic basis at a stated rate. Home healthMedicare services are paid under the Medicare Home Health Prospective Payment System (“HHPPS”), which is based on a 60-day episode of care. The HHPPSpermits multiple, continuous episodes per patient. Medicare payment rates for episodes under HHPPS vary based on the severity of the patient’s condition asdetermined by assessment of a patient’s Home Health Resource Group score. The Company elects to use the same 60-day length of episode that Medicarerecognizes as standard but accelerates revenue upon discharge to align with a patient’s episode length if less than the expected 60 days, which depicts thetransfer of services and related benefits received by the patient over the term of the contract necessary to satisfy the obligations. The Company recognizesrevenue based on the number of days elapsed during an episode of care within the reporting period. The Company satisfies its performance obligations asconsumers receive and consume the benefits provided by the Company as the services are performed. As the Company has a right to consideration fromMedicare commensurate with the services provided to customers from the performance completed over a given episodic period, the Company has elected touse the practical expedient for measuring progress toward satisfaction of performance obligations. Under this method recognizing revenue ratably over theepisode based on beginning and ending dates is a reasonable proxy for the transfer of benefit of the service.Accounts Receivable and Allowance for Doubtful AccountsWe are paid for our services primarily by federal, state and local agencies under Medicaid programs, managed care organizations, commercialinsurance companies and private consumers. While our accounts receivable are uncollateralized, our credit risk is somewhat limited due to the significance ofgovernmental payors to our results of operations. Laws and regulations governing the governmental programs in which we participate are complex andsubject 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.For 2017, the Company established its allowance for doubtful accounts to the extent it was probable that a portion or all of a particular account willnot be collected. The Company established its provision for doubtful accounts primarily by reviewing the creditworthiness of significant customers andthrough evaluations over the collectability of the receivables. An allowance for doubtful accounts was maintained at a level that the Company’s managementbelieved was sufficient to cover potential losses.In 2018, subsequent adjustments that are determined to be the result of an adverse change in the payor’s ability to pay are recognized as provision fordoubtful accounts with the adoption of ASU 2014-09, Revenue from Contracts with Customers. The majority of what historically was classified as provisionfor doubtful accounts under operating expenses is now treated as an implicit price concession factored into net service revenues. The Company recorded $9.7million for the year ended December 31, 2018 as a reduction to revenue that would have been recorded as provision for doubtful accounts under the priorrevenue recognition guidance. As of December 31, 2018 and 2017, the allowance for doubtful accounts balance was $0.7 million and $10.5 million, which isincluded in the account receivable, net of allowances on the Company’s Consolidated Balance Sheets.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-line method.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 yearsFurniture and equipment 5—7 yearsTransportation equipment 5 yearsComputer software 3—10 yearsLeasehold improvements Lesser of useful life or lease termF-9Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) GoodwillThe Company’s carrying value of goodwill is the excess of the purchase price over the fair value of the net assets acquired from various acquisitions.In accordance with 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, suchas a significant change in business climate or regulatory changes that would indicate that an impairment may have occurred. The Company may use aqualitative test, known as “Step 0,” or a two-step quantitative method to determine whether impairment has occurred. In Step 0, the Company can elect toperform an optional qualitative analysis and based on the results skip the two-step analysis. Additionally, it is the Company’s policy to update the fair valuecalculation of our reporting units and perform the quantitative goodwill impairment test on a periodic basis. For the year ended December 31, 2018, theCompany performed the quantitative analysis to evaluate whether an impairment occurred. In 2017 and 2016, the Company elected to implement Step 0 andwere not required to conduct the remaining two-step analysis. Based on the totality of the information available, the Company concluded that it was morelikely than not that the estimated fair values were greater than the carrying values of the reporting units, and as such, no further analysis was required. TheCompany concluded that there were no impairments for the years ended December 31, 2018, 2017 or 2016. As of December 31, 2018 and 2017, goodwill was$135.4 million and $90.3 million, respectively, included in the Company’s Consolidated Balance Sheets.Intangible AssetsThe Company’s identifiable intangible assets consist of customer and referral relationships, trade names, trademarks, state licenses and non-competeagreements. The Company uses various valuation techniques to determine initial fair value of its intangible assets, including relief-from-royalty, incomeapproach, discounted cash flow analysis, and multi-period excess earnings, which use significant unobservable inputs, or Level 3 inputs, as defined by thefair value hierarchy. Under these valuation approaches, we are required to make estimates and assumptions about future market growth and trends, forecastedrevenue and costs, expected periods over which the assets will be utilized, appropriate discount rates and other variables. The Company bases its fair valueestimates on assumptions the Company believes to be reasonable but which are unpredictable and inherently uncertain. Actual future results may differ fromthose estimates.Amortization is computed using straight-line and accelerated methods based upon the estimated useful lives of the respective assets, which range fromthree to twenty-five years and assessed for impairment whenever events or changes in circumstances indicate that the carrying amount may not berecoverable. The Company would recognize an impairment loss when the estimated future non-discounted cash flows associated with the intangible asset isless than the carrying value. An impairment charge would then be recorded for the excess of the carrying value over the fair value. The Company estimatesthe fair value of these intangible assets using the income approach. In accordance with ASC Topic 350, Goodwill and Other Intangible Assets, intangibleassets with indefinite useful lives are not amortized. We test intangible assets with indefinite useful lives for impairment at the reporting unit level on anannual basis, as of October 1, or whenever potential impairment triggers occur, such as a significant change in business climate or regulatory changes thatwould indicate that an impairment may have occurred. No impairment charge was recorded for the years ended December 31, 2018, 2017 or 2016. As ofDecember 31, 2018 and 2017, intangibles, net of accumulated depreciation and amortization was $23.8 million and $16.6 million, respectively, included inthe Company’s Consolidated Balance Sheets.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. 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, 2018 and 2017.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 third party.The Company monitors its claims quarterly and adjusts its reserves accordingly. These costs are recorded primarily as the cost of services on the ConsolidatedStatements of Income. As of December 31, 2018 and 2017, the Company recorded $15.2 million and $12.6 million, respectively, in accrued workers’compensation insurance.F-10Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) The accrued workers’ compensation insurance is included in accrued expenses on the Company’s Consolidated Balance Sheets. As of December 31, 2018and 2017, respectively, the Company recorded $1.7 million and $0.5 million, respectively, in workers’ compensation insurance recovery receivables. Theworkers’ compensation insurance recovery receivable is included in prepaid expenses and other current assets on the Company’s Consolidated BalanceSheets.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 interest income isrecognized when received and reported in the statement of income caption, “Interest income.” For the years ended December 31, 2018 and 2016, theCompany received $2.3 million and $2.8 million, respectively, in prompt payment interest. For the year ended December 31, 2017, the Company did notreceive any prompt payment interest. While the Company may be owed additional prompt payment interest in the future, the amount, timing and intent toprovide receipt of such payments remains uncertain, and the Company will continue to recognize prompt payment interest income upon satisfaction of theseconstraints.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 Consolidated Statement of Income when incurred.Other IncomeIn fiscal year 2017 and 2016, other income consisted of income distributions received from investments in joint ventures. The Company recognizedthe net accumulated earnings only to the extent distributed by the joint ventures on the date received.Income Tax ExpenseThe Company accounts 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 events thathave been recognized in its financial statements or tax returns. Deferred taxes, resulting from differences between the financial and tax basis of theCompany’s assets and liabilities, are also adjusted for changes in tax rates and tax laws when changes are enacted. ASC Topic 740 also requires that deferredtax 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 be realized. ASC Topic740 also prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to betaken in a tax return. In addition, ASC Topic 740 provides guidance on derecognition, classification, accounting in interim periods and disclosurerequirements for uncertain tax positions.The Company recognizes interest and penalties accrued related to uncertain tax positions in interest expense and penalties within operating expenseson the Consolidated Statements of Income.F-11Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) Stock-based CompensationThe Company currently has one stock incentive plan, the 2017 Omnibus Incentive Plan (the “2017 Plan”), under which new grants of stock-basedemployee compensation are made. The Company accounts for stock-based compensation in accordance with ASC Topic 718, Stock Compensation.Compensation expense is recognized, net of estimated forfeitures, on a straight-line basis under the 2017 Plan over the vesting period of the equity awardsbased on the grant date fair value of the options and restricted stock awards. Beginning January 1, 2017, the Company began utilizing the Black-ScholesOption Pricing Model to value the Company’s options, as the Company believes it is a more widely accepted and understood valuation model. Prior toJanuary 1, 2017, the Company utilized the Enhanced Hull-White Trinomial Model to value our options. The determination of the fair value of stock-basedpayments utilizing the Black-Scholes Model and the Enhanced 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 theexpected exercise multiple. Stock-based compensation expense was $4.1 million, $2.5 million and $1.1 million for the years ended December 31, 2018, 2017and 2016, respectively.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 outstanding duringthe 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, 2018 were approximately 683,000 stock optionsoutstanding, of which approximately 247,000 were dilutive. In addition, there were approximately 149,000 restricted stock awards outstanding, of whichapproximately 88,000 were dilutive for the year ended December 31, 2018.Included in the Company’s calculation of diluted earnings per share for the year ended December 31, 2017 were approximately 479,000 stock optionsoutstanding, of which approximately 101,000 were dilutive. In addition, there were approximately 143,000 restricted stock awards outstanding, of whichapproximately 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 stock optionsoutstanding, of which approximately 30,000 were dilutive. In addition, there were approximately 103,000 restricted stock awards outstanding, of whichapproximately 27,000 were dilutive for the year ended December 31, 2016.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 the followingareas: implicit price concession, the allowance for doubtful accounts, reserve for self-insurance claims, accounting for stock-based compensation, accountingfor income 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-term nature ofthese instruments. The carrying value of the Company’s long-term debt with variable interest rates approximates fair value based on instruments with similarterms 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 determining the fair value of contingent consideration, if applicable. To determine the fairvalue 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 own assumptions, such as discounted cash flows, or if available, what a market participant would pay on themeasurement date.The Company uses various valuation techniques to determine fair value of its intangible assets, including relief-from-royalty, income approach,discounted cash flow analysis, and multi-period excess earnings, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair valuehierarchy. Under these valuation approaches, we are required to make estimates andF-12Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) assumptions about future market growth and trends, forecasted revenue and costs, expected periods over which the assets will be utilized, appropriatediscount rates and other variables.Going ConcernIn connection with the preparation of the financial statements for the years ended December 31, 2018 and 2017, 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 to continue asa going concern within one year after the date of the issuance, or the date of availability, of the financial statements to be issued. The evaluation concludedthat there did not appear to be evidence of substantial doubt of the entity’s ability to continue as a going concern.Recently Adopted Accounting PronouncementsIn May 2014, the Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity torecognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 replaced mostexisting revenue recognition guidance in GAAP. The Company adopted the new standard on January 1, 2018, and elected to adopt using the modifiedretrospective method. See the significant accounting policy “Revenue Recognition” above for additional information.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.This standard amends and adjusts how cash receipts and cash payments are presented and classified in the statement of cash flows. We adopted the standardon a retrospective basis on January 1, 2018. ASU 2016-15 did not have an impact on our Consolidated Statements of Cash Flows.Recently Issued Accounting PronouncementsIn February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-10, ASU 2018-11 and ASU 2018-20 (collectively, Topic 842), which replaces existing leasing rules with a comprehensive lease measurement and recognitionstandard and expanded disclosure requirements. Topic 842 will require lessees to recognize most leases on their balance sheets as liabilities, withcorresponding “right-of-use” assets and is effective for annual reporting periods beginning after December 15, 2018, subject to early adoption. For incomestatement recognition purposes, leases will be classified as either a finance or an operating lease. The Company has secured new software to account for thechange in accounting for leases and is evaluating the population of leased assets in order to assess the impact of the ASU on our lease portfolio, anddesigning and implementing new processes and controls. While we are continuing to assess the effects of adoption, we currently believe the most significantchanges relate to the recognition of right-of-use assets and significant lease liabilities on our consolidated balance sheet as a result of our operating leaseobligations, as well as the impact of new disclosure requirements. Upon initial evaluation, the Company believes that the new standard will not have amaterial impact to our results of operations or liquidity. The Company will reflect the impact of Topic 842 retrospectively beginning January 1, 2019, byrecognizing a cumulative-effect adjustment in the January 1, 2019 opening balance of retained earnings. As such, financial information for the comparativeperiods will not be updated.In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on FinancialInstruments. ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. Under the new standard, entities holdingfinancial assets and net investment in leases that are not accounted for at fair value through net income are to be presented at the net amount expected to becollected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present thenet carrying value at the amount expected to be collected on the financial asset. ASU 2016-13 is effective as of January 1, 2020. Early adoption is permitted.The Company is currently evaluating the impact of ASU 2016-13.In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Thenew guidance eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure agoodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value(i.e., measure the charge based on the current Step 1). ASU 2017-04 is effective for annual and any interim impairment tests for periods beginning afterDecember 15, 2019. Early adoption is permitted. The Company is currently assessing the impact of adopting this standard.F-13Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accountingfor Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. ASU 2018-15 requires customers in a hostingarrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification (“ASC”) 350-40 to determine whichimplementation costs to capitalize as assets or expense as incurred. The ASU is effective for annual periods, including interim periods within those annualperiods, beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the impact of adopting this standard.2. Correction to Prior Period Financial StatementsThe Company identified errors in the Company’s previously issued Consolidated Financial Statements related to revenues and provision for doubtfulaccounts that resulted in a cumulative understatement of net income and stockholders’ equity of $1.2 million. Specifically, the cumulative errors included anunderstatement of revenues in the amount of $1.5 million, an understatement of provision for doubtful accounts of $0.1 million and an increase of $0.2million in cumulative incremental tax expense. Additionally, the Company discovered overpayments by payors, which are to be refunded or utilized by thepayor of $3.1 million that should have been reclassified from accounts receivable to accounts payable.In evaluating whether the previously issued Consolidated Financial Statements were materially misstated for the interim or annual periods prior toDecember 31, 2018, the Company applied the guidance of ASC 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 YearFinancial Statements and concluded that the effect of the errors on prior period financial statements was immaterial; however, the cumulative effect ofcorrecting all of the prior period misstatements in the current year would be material to the current year consolidated financial statements. The guidancestates that prior-year misstatements which, if corrected in the current year would materially misstate the current year’s financial statements, must be correctedby adjusting prior year financial statements, even though such correction previously was and continues to be immaterial to the prior-year financialstatements. Correcting prior-year financial statements for such “immaterial misstatements” does not require previously filed reports to be amended.The cumulative effect of adjustments required to correct the misstatements in the financial statements years prior to 2017 are reflected in the revisedopening retained earnings balance as of January 1, 2016. The cumulative effect of those adjustments on all periods prior to 2016 increased retained earningsas of January 1, 2016 by $1.0 million. Additionally, the Consolidated Statements of Income and Consolidated Statement of Cash Flows have been adjustedto reflect the correction for the years ended December 31, 2017 and December 31, 2016.The Company’s consolidated financial statements have been revised from the amounts previously reported to correct these errors as shown in thetables below. We also corrected our financial statements for each of the interim periods in the years ended December 31, 2018 and 2017, see Note 20.Consolidated Balance Sheet as of December 31, 2017 (in thousands): As Previously As Reported Corrections Revised Accounts receivable, net of allowances $88,952 $4,581 $93,533 Total assets 267,110 4,581 271,691 Accounts payable 4,271 3,110 7,381 Accrued expenses 44,354 242 44,596 Total liabilities 92,030 3,352 95,382 Total stockholders’ equity 175,080 1,229 176,309 Total liabilities and stockholders’ equity 267,110 4,581 271,691 F-14Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) Consolidated Statements of Income (in thousands): For the Years Ended December 31, 2017 2016 As As Previously As Previously As Reported Corrections Revised Reported Corrections Revised Net service revenues $425,715 $279 $425,994 $400,688 $241 $400,929 Gross profit 115,596 279 115,875 106,095 241 106,336 Provision for doubtful accounts 8,259 150 8,409 7,373 — 7,373 Total operating expenses 89,357 150 89,507 90,860 — 90,860 Operating income from continuing operations 26,239 129 26,368 15,235 241 15,476 Income from continuing operations before income taxes 22,050 129 22,179 15,921 241 16,162 Income tax expense 8,589 56 8,645 3,994 105 4,099 Net income from continuing operations 13,461 73 13,534 11,927 136 12,063 Net income $13,608 $73 $13,681 $12,024 $136 $12,160 Consolidated Statements of Cash Flows (in thousands): For the Years Ended December 31, 2017 2016 As As Previously As Previously As Reported Corrections Revised Reported Corrections Revised Net income $13,608 $73 $13,681 $12,024 $136 $12,160 Provision for doubtful accounts 8,259 150 8,409 7,373 — 7,373 Accounts receivable 21,023 (1,611) 19,412 (32,606) (995) (33,601)Accounts payable (229) 1,332 1,103 (1,530) 754 (776)Accrued expenses 1,723 56 1,779 4,980 105 5,085 Net cash provided by (used in) operating activities $52,771 $— $52,771 $(743) $— $(743) 3. Secondary OfferingOn August 20, 2018, the Company together with Eos Capital Partners III, L.P. (the “Selling Stockholder”) completed a secondary public offering of anaggregate 2,100,000 shares of common stock, par value $0.001 per share at a purchase price per share to the public of $59.00. Pursuant to the terms andconditions of the Underwriting Agreement, 1,075,267 shares of Common Stock were issued and sold by the Company (the “Primary Shares”) and 1,024,733shares of Common Stock were sold by the Selling Stockholder (the “Secondary Shares”). The Company received net proceeds of approximately $59.1million from the sale of 1,075,267 Primary Shares. On August 22, 2018, the underwriters exercised their full over-allotment option in connection with theoffering and, as a result, the Company issued and sold an additional 315,000 shares of common stock to the underwriters at the Public Offering Price, less theunderwriting discount. The over-allotment resulted in additional net proceeds to the Company of approximately $17.5 million. The Company used the netproceeds from the offering for general corporate purposes, and to pay down the $102.6 million of our delayed term loan in connection with the amendmentand restatement of our credit facility. The Company did not receive any of the proceeds from the sale of the Secondary Shares. The secondary offeringresulted in an increase to additional paid in capital of approximately $76.6 million, net of issuance costs of $5.4 million, on the Company’s ConsolidatedBalance Sheets at December 31, 2018.4. 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 were previouslyreported as Investments in joint ventures on the Company’s Consolidated Balance Sheets at December 31,F-15Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 2016. The Company received proceeds 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 business andcompleted its sale of substantially all of the assets used in three adult day services centers in Illinois. The Company received proceeds of approximately$2.4 million and recorded a pre-tax gain of $2.1 million on the sale of the three adult day services centers.5. Discontinued OperationsEffective March 1, 2013, the Company sold substantially all of the assets used in its home health business (the “2013 Home Health Business”) inArkansas, Nevada and South Carolina, and 90% of the 2013 Home Health Business in California and Illinois, to subsidiaries of LHC Group, Inc. (“LHCG”)for a cash consideration of $20.0 million. The Company held a 10% ownership interest in the 2013 Home Health Business in California and Illinois fromMarch 1, 2013 to October 1, 2017, when it sold its interest as described in Note 4. On December 30, 2013, the Company sold one home health agency inPennsylvania for approximately $0.2 million. The results of the 2013 Home Health Business and the Pennsylvania home health agency sold are reflected asdiscontinued operations for all periods presented herein.As a condition of the sale of the 2013 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. As of December 31, 2017, the related liability was $0.2 million, and the Company determined that nofurther accrual is required as of December 31, 2018. For the years ended December 31, 2018, 2017 and 2016, the Company reduced the indemnificationreserve accrual by $0.2 million for each year, respectively, for periods no longer subject to Medicare audits. This amount is reflected as a reduction in generaland administrative expense of discontinued operations and reflected in the table below.The following table presents the net service revenues and earnings attributable to discontinued operations, which include the financial results for theyears ended December 31, 2018, 2017 and 2016: 2018 2017 2016 (Amounts in Thousands) Net service revenues $— $— $— Income before income taxes 174 245 163 Income tax expense 48 98 66 Net income from discontinued operations $126 $147 $97 6. AcquisitionsOn May 1, 2018, the Company completed its acquisition of all the outstanding securities of Ambercare Corporation (“Ambercare”). The purchaseprice was approximately $39.6 million plus the amount of excess cash held by Ambercare at closing (approximately $12.0 million). The purchase ofAmbercare was funded by a delayed draw term loan under the Company’s credit facility. With the purchase of Ambercare, the Company expanded itspersonal care operations and acquired hospice and home health operations in the state of New Mexico. Following this acquisition the Company operates ahospice segment and home health segment. The related acquisition costs of $0.8 million and integration cost of $1.6 million for the year ended December 31,2018, were included in general and administrative expenses on the Company’s Consolidated Statements of Income, and were expensed as incurred. Theresults of Ambercare are included on the Company’s Consolidated Statements of Income from the date of the acquisition.F-16Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) The Company’s acquisition of Ambercare 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 recorded at its fairvalue as of May 1, 2018. Under business combination accounting, the Ambercare purchase price was $51.6 million and was allocated to Ambercare’s nettangible and identifiable intangible assets based on their estimated fair values. Based upon management’s valuation, which is preliminary and subject to thecompletion of working capital adjustments, the total purchase price has been allocated as follows: Total(Amounts inThousands) Goodwill $28,831 Cash 12,028 Identifiable intangible assets 9,944 Accounts receivable 6,512 Other assets 442 Property and equipment 154 Accrued liabilities (4,073)Deferred tax liability (2,138)Capital lease (75)Accounts payable (3)Total purchase price allocation $51,622 Management’s assessment of qualitative factors affecting goodwill for Ambercare includes estimates of market share at the date of purchase, ability togrow in the market, synergy with existing Company operations, and the payor profile in the market.The Company acquired all of the outstanding stock of Ambercare. Identifiable intangible assets acquired consist of trade names and customerrelationships, with the estimated useful lives of the respective assets ranging from three to fifteen years, as well as indefinite lived state licenses. Thepreliminary estimated fair value of identifiable intangible assets was determined, using Level 3 inputs as defined under ASC Topic 820, with the assistance ofa valuation specialist. The goodwill and intangible assets acquired are non-deductible for tax purposes.The Ambercare acquisition accounted for $36.7 million of net service revenues and $7.1 million of net income prior to corporate allocation for theyear ended December 31, 2018.On April 1, 2018, the Company acquired certain assets of Arcadia Home Care & Staffing (“Arcadia”), expanding its personal care services. The totalconsideration for the transaction was $18.9 million and was funded by a delayed draw term loan under the Company’s credit facility. The related acquisitioncosts were $0.8 million and $0.4 million for the years ended December 31, 2018 and 2017, respectively, and integration cost of $1.1 million for the yearended December 31, 2018, were included in general and administrative expenses on the Company’s Consolidated Statements of Income, and were expensedas incurred. The results of operations from this acquired entity are included in the Company’s Consolidated Statements of Income from the date of theacquisition.F-17Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) The Company’s acquisition of Arcadia has been accounted for in accordance with ASC Topic 805 and the resulting goodwill and other intangibleassets was accounted for under ASC Topic 350. The acquisition was recorded at its fair value as of April 1, 2018. Under business combination accounting, theArcadia purchase price was $18.9 million and was allocated to Arcadia’s net tangible and identifiable intangible assets based on their estimated fair values.Based upon management’s valuation, which is preliminary and subject to the completion of working capital adjustments, the total purchase price has beenallocated as follows: Total(Amounts inThousands) Goodwill $13,072 Accounts receivable 5,317 Identifiable intangible assets 2,264 Property and equipment 155 Other assets 92 Accrued liabilities (1,540)Accounts payable (508)Total purchase price allocation $18,852 Management’s assessment of qualitative factors affecting goodwill for Arcadia includes estimates of market share at the date of purchase, ability togrow in the market, synergy with existing Company operations, and the payor profile in the market.Identifiable intangible assets acquired consist of trade name, customer relationships and state licenses and the estimated useful lives of the respectiveassets, which range from seven to fifteen years. The preliminary estimated fair value of identifiable intangible assets was determined, using Level 3 inputs asdefined under ASC Topic 820, with the assistance of a valuation specialist. The goodwill and intangible assets acquired are deductible for tax purposes.The Arcadia acquisition accounted for $32.7 million of net service revenues and $4.7 million of net income prior to corporate allocation for the yearended December 31, 2018.In September 2018, the Company acquired certain assets of affiliate branches of Arcadia for $0.6 million using cash on hand, the Company recordedgoodwill of $0.6 million on the Company’s Consolidated Balance Sheets. Goodwill generated from the acquisition is primarily attributable to expectedsynergies with existing Company operations and the goodwill acquired is deductible for tax purposes. Pro forma results of the operations related to theacquisition are not included in the pro forma presentation as they are not material to the Company’s Consolidated Statements of Income.Effective January 1, 2018, the Company acquired certain assets of LifeStyle Options, Inc. (“LifeStyle”) in order to expand private pay services inIllinois. The total consideration for the transaction was $4.1 million, comprised of $3.3 million in cash and $0.8 million, representing the estimated fair valueof contingent consideration, subject to the achievement of certain performance targets set forth in an earn-out agreement. The related acquisition costs of $0.2million for the year ended December 31, 2017, were included in general and administrative expenses on the Company’s Consolidated Statements of Income,and were expensed as incurred. The results of operations from this acquired entity are included in the Company’s Consolidated Statements of Income fromthe date of the acquisition.F-18Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) The Company’s acquisition of LifeStyle has been accounted for in accordance with ASC Topic 805 and the resulting goodwill and other intangibleassets was accounted for under ASC Topic 350. The acquisition was recorded at its fair value as of January 1, 2018. Under business combination accounting,the LifeStyle purchase price was $4.1 million and was allocated to LifeStyle’s net tangible and identifiable intangible assets based on their estimated fairvalues. Based upon management’s valuation, the total purchase price has been allocated as follows: Total(Amounts inThousands) Goodwill $2,751 Identifiable intangible assets 1,152 Accounts receivable 573 Other assets 32 Property and equipment 18 Accrued liabilities (291)Accounts payable (105)Total purchase price allocation $4,130 Management’s assessment of qualitative factors affecting goodwill for LifeStyle includes estimates of market share at the date of purchase, ability togrow in the market, synergy with existing Company operations, and the payor profile in the market.Identifiable intangible assets acquired consist of trade name and customer relationships and the estimated useful lives of the respective assets, whichrange from ten to fifteen years. The estimated fair value of identifiable intangible assets was determined, using Level 3 inputs as defined under ASC Topic820, with the assistance of a valuation specialist. The goodwill and intangible assets acquired are deductible for tax purposes.The LifeStyle acquisition accounted for $5.8 million of net service revenues and $0.5 million of net income prior to corporate allocation for the yearended December 31, 2018.Effective October 1, 2017, the Company acquired certain assets of Community Partnered Resources, Inc. d/b/a Sun Cities Caregivers and d/b/a SunCities Homecare (‘Sun Cities”), in the state of Arizona, to enhance operations in an advantageous market. The total consideration for the transaction wascomprised of $2.3 million in cash. The related acquisition costs were $0.1 million and $0.1 million for the years ended December 31, 2018 and 2017,respectively, were included in general and administrative expenses on the Company’s Consolidated Statements of Income, and were expensed as incurred.The results of operations 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 Sun Cities has been accounted for in accordance with ASC Topic 805 and the resulting goodwill and other intangibleassets was accounted for under ASC Topic 350. The acquisition was recorded at 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 Sun Cities’ net tangible and identifiable intangible assets based on their estimated fairvalues. Based upon management’s valuation, the total purchase price has been allocated as follows: Total(Amounts inThousands) Goodwill $1,089 Identifiable intangible assets 682 Accounts receivable 254 Cash 321 Other assets 10 Accrued liabilities (86)Accounts payable (14)Total purchase price allocation $2,256 F-19Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) Management’s assessment of qualitative factors affecting goodwill for Sun Cities includes: estimates of market share at the date of purchase; ability togrow 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 and the estimated useful lives of the respective assets, whichrange from seven to fifteen years. The estimated fair value of identifiable intangible assets was determined, using Level 3 inputs as defined under ASC Topic820, with the assistance of a valuation specialist. The goodwill and intangible assets acquired are deductible for tax purposes.The Sun Cities acquisition accounted for $2.4 million and $0.7 million of net service revenues and $0.2 million and $14.8 thousands of net incomeprior to corporate allocation for the years ended December 31, 2018 and 2017, respectively.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 outstanding securitiesof Options Home Care for a total purchase price of $22.6 million (the “Options Purchase Price”). Options Home Care is a provider of personal care services inmore than 20 counties in New Mexico and the acquisition expands the footprint of the Company’s existing operations in the state. The related acquisitioncosts were $0.1 million and $0.7 million for the years ended December 31, 2018 and 2017, respectively, and integration costs of $0.1 million for the yearended December 31, 2017, were included in general and administrative expenses on the Company’s Consolidated Statements of Income, and were expensedas incurred. The results of Options Home Care are included on the Company’s Consolidated Statements of Income from the date of the acquisition.The Company’s acquisition of Options Home Care has been accounted for in accordance with ASC Topic 805 and the resulting goodwill and otherintangible assets were accounted for under ASC Topic 350. The acquisition was recorded at its fair value as of August 1, 2017. Under business combinationaccounting, the Options Purchase Price was $22.6 million and was allocated to Options Home Care’s net tangible and identifiable intangible assets based ontheir estimated fair values. Based upon management’s valuation, the total purchase price has been allocated as follows: Total(Amounts inThousands) Goodwill $16,671 Identifiable intangible assets 5,324 Accounts receivable 1,084 Cash 205 Other assets 41 Accrued liabilities (701)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 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 and the estimated useful lives of the respective assets, whichrange from three to ten years. The estimated fair value of identifiable intangible assets was determined, using Level 3 inputs as defined under ASC Topic 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 $17.8 million and $8.0 million of net service revenues and $3.4 million and $0.5 million of netincome prior to corporate allocation for the years ended December 31, 2018 and 2017, respectively.F-20Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) The following table contains unaudited pro forma Consolidated Income Statement information of the Company as if each of the acquisitions ofAmbercare, Arcadia, LifeStyle, Sun Cities and Options Home Care closed on January 1, 2017. For the Years Ended December 31,(Amounts in Thousands) 2018 2017 Net service revenues $550,326 $534,647 Operating income from continuing operations 36,985 33,293 Net income from continuing operations 24,346 10,174 Earnings from discontinued operations 126 147 Net income $24,472 $10,321 Net income per common share Basic income per share Continuing operations $2.02 $0.89 Discontinued operations 0.01 0.01 Basic income per share $2.03 $0.90 Diluted income per share Continuing operations $1.97 $0.88 Discontinued operations 0.01 0.01 Diluted income per share $1.98 $0.89 The pro forma disclosures in the table above include adjustments for amortization of intangible assets, tax expense, and acquisition costs to reflectresults that are more representative of the combined results of the transactions as if Ambercare, Arcadia, LifeStyle, Sun Cities and Options Home Care hadbeen acquired effective January 1, 2017. This pro forma information is presented for illustrative purposes only and may not be indicative of the results ofoperations that 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 cost savingsfrom operating synergies. 7. Property and EquipmentProperty and equipment consisted of the following: December 31, 2018 2017 (Amounts in Thousands) Computer equipment $3,768 $2,770 Furniture and equipment 3,161 3,392 Transportation equipment 156 152 Leasehold improvements 2,962 2,749 Computer software 6,712 3,269 16,759 12,332 Less: accumulated depreciation and amortization (6,101) (4,843) $10,658 $7,489 Computer software includes $1.3 million and $1.0 million of internally developed software for the years ended December 31, 2018 and 2017.Depreciation and amortization expense related to computer equipment and software and leasehold improvements totaled $2.5 million, $2.0 million and$1.7 million for the years ended December 31, 2018, 2017 and 2016, respectively.F-21Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 8. Goodwill and Intangible AssetsThe Company did not record any impairment charges for the years ended December 31, 2018, 2017 or 2016. The goodwill for the Company was$135.4 million and $90.3 million as of December 31, 2018 and 2017, respectively. See Note 6 for additional information regarding the acquisitions made bythe Company for the years ending December 31, 2018 and 2017, respectively.A summary of goodwill and related adjustments is provided below: Goodwill Personal Care Hospice Home Health Total (Amounts In Thousands) Goodwill at December 31, 2016 $72,688 $— $— $72,688 Additions for acquisitions 17,857 — — 17,857 Adjustments to previously recorded goodwill (206) — — (206)Goodwill at December 31, 2017 90,339 — — 90,339 Additions for acquisitions 22,135 22,200 865 45,200 Adjustments to previously recorded goodwill (97) (97)Goodwill at December 31, 2018 $112,377 $22,200 $865 $135,442 The Company’s identifiable intangible assets consist of customer and referral relationships, trade names, trademarks and non-compete agreements.Amortization is computed using straight-line and accelerated methods based upon the estimated useful lives of the respective assets, which range from threeto twenty-five years. Goodwill and certain state licenses are not amortized pursuant to ASC Topic 350.For the year ending December 31, 2018, adjustments to the previously recorded goodwill are primarily adjustments to accounts receivable based onthe final valuations. For the year ending December 31, 2017, adjustments to the previously recorded goodwill are primarily credits related to amortization oftax goodwill in excess of book basis.The carrying amount and accumulated amortization of each identifiable intangible asset category consisted of the following at December 31, 2018and 2017: Customerand referralrelationships Tradenames andtrademarks Non-competitionagreements StateLicenses Total (Amounts in Thousands) 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 Gross balance at January 1, 2018 Intangible assets with indefinite lives Additions for acquisitions — — — 2,871 2,871 Intangible assets subject to amortization Gross balances 39,017 14,641 2,155 — 55,813 Additions for acquisitions 3,339 6,910 — 241 10,490 Accumulated amortization, intangible assets subject to amortization (32,752) (10,638) (1,981) (19) (45,390)Net book value, intangible assets subject to amortization 9,604 10,913 174 222 20,913 Net Balance at December 31, 2018 $9,604 $10,913 $174 $3,093 $23,784 Amortization expense related to the identifiable intangible assets amounted to $6.2 million, $4.7 million and $4.9 million for the years endedDecember 31, 2018, 2017 and 2016, respectively.The weighted average remaining lives of identifiable intangible assets as of December 31, 2018 is 8.8 years.F-22Table of Contents ADDUS 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) 2019 $5,013 2020 3,400 2021 2,758 2022 1,724 2023 1,406 Thereafter 6,612 Total, intangible assets subject to amortization $20,913 9. Details of Certain Balance Sheet AccountsPrepaid expenses and other current assets consist of the following: December 31, 2018 2017 (Amounts in Thousands) Prepaid workers’ compensation and liability insurance $1,840 $1,332 Workers’ compensation insurance receivable 1,692 543 Prepaid rent 1,191 555 Health insurance receivable 564 2,349 Other 1,811 3,600 $7,098 $8,379 Accrued expenses consisted of the following: December 31, 2018 2017 (Amounts in Thousands) Accrued payroll $22,449 $19,783 Accrued workers’ compensation insurance 15,169 12,574 Accrued health insurance (1) 3,926 6,471 Accrued professional fees 2,260 1,312 Accrued payroll taxes 769 1,065 Other 4,631 3,391 $49,204 $44,596 (1)The Company provides health insurance coverage to qualified union employees providing personal care services in Illinois through a Taft-Hartley multi-employer health andwelfare plan under Section 302(c)(5) of the Labor Management Relations Act of 1947. The Company’s insurance contributions equal the amount reimbursed by the state ofIllinois. Contributions are due within five business days from the date the funds are received from the state. Amounts due of $0.6 million and $2.3 million for healthinsurance reimbursements and contributions were reflected in prepaid insurance and accrued insurance at December 31, 2018 and 2017, respectively.The Company’s workers’ compensation program has a $0.4 million deductible component. The Company recognizes its obligations associated withthis 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 beenaccrued based on historical claims experience, industry statistics and an actuarial analysis performed by an independent third party. The future claimspayments related to the workers’ compensation program are secured by letters of credit. These letters of credit totaled $10.8 million and $11.8 million atDecember 31, 2018 and 2017.F-23Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 10. Long-Term DebtLong-term debt consisted of the following: December 31, 20182017 (Amounts in Thousands) Term loan under the credit facility $— $44,438 Revolving loan under the credit facility 20,000 — Capital leases 81 1,002 Less unamortized issuance costs (2,797) (2,481)Total 17,284 42,959 Less current maturities (62) (3,099)Long-term debt $17,222 $39,860 Amended and Restated Senior Secured Credit FacilityOn October 31, 2018, the Company amended and restated its Existing Credit Agreement, as hereinafter defined (the “New Credit Agreement,” andtogether with the Existing Credit Agreement, our “credit facility”) with certain lenders and Capital One, National Association as a lender and swing linelender and as agent for all lenders. This amended and restated credit facility totals $269.6 million, inclusive of a $250.0 million revolving loan and a$19.6 million delayed draw term loan, and amends and restates the Company’s existing senior secured credit facility totaling $250.0 million. The maturity ofthis amended and restated credit facility is May 8, 2023, with borrowing under the delayed draw term loan available until June 30, 2019. Interest on theCompany’s amended and restated credit facility may be payable at (x) the sum of (i) an applicable margin ranging from 0.75% to 1.50% based on theapplicable senior net leverage ratio plus (ii) a base rate equal to the greatest of (a) the rate of interest last quoted by The Wall Street Journal as the “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 be applicable to a loan with an interestperiod of one month advanced on the applicable day (not to be less than 0.00%) plus a margin of 1.00% or (y) the sum of (i) an applicable margin rangingfrom 1.75% to 2.50% based on the applicable senior net leverage ratio plus (ii) the offered rate per annum for similar dollar deposits for the applicable interestperiod that appears on Reuters Screen LIBOR01 Page (not to be less than zero). Swing loans may not be LIBOR loans. The availability of additional drawsunder this amended and restated credit facility is conditioned, among other things, upon (after giving effect to such draws) the Total Net Leverage Ratio (asdefined in the New Credit Agreement) not exceeding 3.75:1.00. In certain circumstances, in connection with a Material Acquisition (as defined in the NewCredit Agreement), the Company can elect to increase its Total Net Leverage Ratio compliance covenant to 4.25:1.00 for the then current fiscal quarter andthe three succeeding fiscal quarters. In connection with this amended and restated credit facility, the Company incurred approximately $0.9 million of debtissuance costs.Addus HealthCare, Inc. (“Addus HealthCare”) is the borrower, and its parent, Holdings, and substantially all of Holdings’ subsidiaries are guarantorsunder this amended and restated credit facility, and it 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. The New Credit Agreement contains affirmative andnegative covenants customary for credit facilities of this type, including limitations on the Company with respect to liens, indebtedness, guaranties,investments, distributions, mergers and acquisitions and dispositions of assets.The Company pays a fee ranging from 0.20% to 0.35% based on the applicable senior net leverage ratio times the unused portion of the revolvingportion of the amended and restated credit facility.The New 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 New Credit Agreement also contains certain customaryfinancial covenants and negative covenants that, among other things, include a requirement to maintain a minimum Interest Coverage Ratio (as defined inthe New Credit Agreement), a requirement to stay below a maximum Total Net Leverage Ratio (as defined in the New Credit Agreement) and a requirement tostay below a maximum permitted amount of capital expenditures, as well as restrictions on guarantees, indebtedness, liens, investments and loans, subject tocustomary carve outs, a restriction on dividends (provided that Addus HealthCare may make distributions to the Company in an amount that does not exceed$7.5 million in any year absent of an event of default, plus limited exceptions for tax and administrative distributions), a restriction to consummateacquisitions under our credit facility if we exceed certain Total Net Leverage Ratio (as defined in the New Credit Agreement) thresholds without the consentof the lenders, restrictions on mergers, dispositions of assets, and affiliateF-24Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) transactions, and restrictions on fundamental changes and lines of business. As of December 31, 2018, the Company was in compliance with all of its NewCredit Agreement covenants.During the year ended December 31, 2018, the Company drew a total of approximately of $60.4 million of delayed draws terms under its credit facilityto fund the acquisition of Ambercare and Arcadia. As of December 31, 2018, the Company had a total of $20.0 million of revolving loans outstanding withan interest rate of 4.35% on our credit facility and the total availability under the revolving credit loan facility was $142.9 million.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 our credit facility andthe total availability under the revolving credit loan facility was $105.1 million.Senior Secured Credit FacilityPrior to October 31, 2018, the Company was party to a credit agreement (the “Existing Credit Agreement”) with certain lenders and Capital One,National Association, as a lender and swing lender and as agent for all lenders. This credit facility totals $250.0 million, replaced the Company’s previoussenior secured credit facility totaling $125.0 million (“Terminated Senior Secured Credit Facility”, see description below for more details), and terminatedthe Company’s Second Amended and Restated Credit and Guaranty Agreement, dated as of November 10, 2015, as modified by the May 24, 2016amendment, between the Company, certain lenders and Fifth Third Bank, as agent, which evidenced the Terminated Senior Secured Credit Facility. Thecredit facility includes a $125.0 million revolving loan, a $45.0 million term loan and an $80.0 million delayed draw term loan. The credit facility was tomature on May 8, 2022, although the delayed draw term loan was only available until November 8, 2018. Under the terms of an accordion feature of theExisting Credit Agreement, $100.00 million was also available for incremental term loans. Borrowings under the delayed draw term loans and theincremental term loans were limited to financing or refinancing Permitted Acquisitions (as defined in the Existing Credit Agreement). Addus HealthCare wasthe borrower, and its parent, Holdings, and substantially all of Holdings’ subsidiaries, were guarantors under the credit facility. The credit facility was securedby a first priority security interest in all of the Company’s and the other credit parties’ then and future tangible and intangible assets, including the shares ofstock of the borrower and subsidiaries. The availability of additional draws under the revolving credit portion of the Company’s credit facility wasconditioned, among other things, upon (after giving effect to such draws) the ratio of Consolidated Total Indebtedness (as defined in the Existing CreditAgreement), less subordinated indebtedness, to Consolidated Adjusted EBITDA (as defined in the Existing Credit Agreement) not exceeding 4.25:1.00. Inconnection with the credit facility, the Company incurred $2.9 million of debt issuance costs.Interest on the Company’s credit facility was payable at (x) the sum of (i) an applicable margin ranging from 1.50% to 2.25% based on the applicablesenior 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 ofthe 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 monthadvanced on the applicable day (not to be less than 0.00%) plus a margin of 1.00% or (y) the sum of (i) an applicable margin ranging from 2.50% to 3.25%based on the applicable leverage ratio plus (ii) the offered rate per annum for the applicable interest period that appears on Reuters Screen LIBOR01 Page.Swing loans may not be LIBOR loans.The Company paid a fee ranging from 0.25% to 0.50% based on the applicable leverage ratio times the unused portion of the revolving portion of thecredit facility.On October 31, 2018, we repaid in full the outstanding debt balance of $102.6 million together with accrued interest of $0.5 million and amendedand restated the Existing Credit Agreement.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, as agentand letters 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, 2020 andincluded a $35.0 million sublimit for the issuance of letters of credit. Substantially all of the subsidiaries of Holdings were co-borrowers, and Holdings hadguaranteed the borrowers’ obligations under the Terminated Senior Secured Credit Facility. The Terminated Senior Secured Credit Facility was secured by afirst priority security interest in all of Holdings’ and the borrowers’ then and future tangible and intangible assets, including the shares of stock of theborrowers.F-25Table of Contents ADDUS 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 and terminated theTerminated Senior Secured Credit Facility. In connection with the termination, the Company wrote off the unamortized debt issuance costs under theTerminated Senior Secured Credit Facility in the amount of $1.3 million, which was included in interest expense on the Company’s Consolidated Statementsof Income.For the period January 1, 2017 through May 7, 2017, the Company drew and subsequently repaid $20.0 million of the Company’s revolving creditline to fund operations. As of December 31, 2016, the Company had a total of $24.1 million outstanding on the Terminated Senior Secured Credit Facilityand the total availability under the revolving credit loan facility was $79.7 million.Capital LeasesAs of December 31, 2018 and 2017 the Company has various capital leases (the underlying assets are included in “Property and equipment net ofaccumulated depreciation and amortization” in the accompanying Consolidated Balance Sheets). The capital lease obligations totaled $0.1 million and $1.1million at December 31, 2018 and 2017, respectively. These require monthly payments through August 2020 and have implicit interest rates that range from3.64% to 7.72%. At the end of the term, the Company has the option to purchase the assets for $1 per lease agreement. 11. Income TaxesThe current and deferred federal and state income tax provision from continuing operations, are comprised of the following: December 31, 2018 2017 2016 (Amounts in Thousands) Current Federal $2,969 $5,828 $4,486 State 1,588 1,079 927 Deferred Federal (47) 1,672 (1,147)State (12) 66 (167)Provision for income taxes $4,498 $8,645 $4,099 F-26Table of Contents ADDUS 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 significant portions ofthe deferred income tax assets (liabilities) at December 31, 2018 and 2017. The deferred tax assets (liabilities) consisted of the following: December 31, 2018 2017 (Amounts in Thousands) Deferred tax assets Long-term Accounts receivable allowances $4,118 $2,917 Accrued compensation 2,257 1,919 Accrued workers’ compensation 3,677 3,274 Transaction costs 1,020 898 Reserves — 47 Restructuring costs 160 293 Stock-based compensation 576 811 Other 279 138 Total long-term deferred tax assets 12,087 10,297 Deferred tax liabilities Long-term Goodwill and intangible assets (11,048) (7,301)Property and equipment (903) (749)Prepaid insurance (508) (359)Other (122) (1)Total long-term deferred tax liabilities (12,581) (8,410)Valuation allowance — (286)Total net deferred tax assets/(liabilities) $(494) $1,601 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 differences becomedeductible. Management considers projected future taxable income in making this assessment.A reconciliation for continuing operation of the statutory federal tax rate of 21.0%, 35.0% and 35.0% and to the effective income tax rate, for the yearsended December 31, 2018, 2017, and 2016, is summarized as follows: December 31, 2018 2017 2016 Federal income tax at statutory rate 21.0 % 35.0 % 35.0 %State and local taxes, net of federal benefit 6.3 5.1 5.2 Jobs tax credits, net (10.0) (6.1) (15.8) 162(m) disallowance for executive compensation 4.2 1.3 — Nondeductible permanent items 2.1 0.4 0.9 2017 Tax Reform Act — 4.0 — Excess tax benefit (2.6) (0.6) — Other (0.4) (0.1) 0.2 Effective income tax rate 20.6 % 39.0 % 25.5 % On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“Tax Reform Act”). The legislation significantlychanged U.S. tax law by, among other things, lowering corporate income tax rates. The Tax Reform Act permanently reduced the U.S. corporate income taxrate from a maximum of 35.0% to a flat 21.0% rate, effective January 1, 2018. The effective income tax rate was 20.6%, 39.0% and 25.5% for the years endedDecember 31, 2018, 2017 and 2016, 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.F-27Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) Shortly after the “Tax Reform Act” was enacted, the SEC staff issued Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of theTax Cuts and Jobs Act” (“SAB 118”), which provides guidance on accounting for the Tax Act’s impact. SAB 118 provided a measurement period, which inno case should extend beyond one year from the Tax Act enactment date, during which a company acting in good faith may complete the accounting for theimpacts of the Tax Act under ASC Topic 740. In accordance with the expiration of the SAB 118 measurement period, we completed the assessment of theincome tax effects of the Tax Act in the fourth quarter of 2018, with no adjustments recorded to the provisional amounts.The Company is subject to taxation in the jurisdictions in which it operates. The Company continues to remain subject to examination by U.S. federalauthorities for the years 2015 through 2017 and for various state authorities for the years 2013 through 2017.The total amount of unrecognized tax benefits under ASC Topic 740 at December 31, 2018 was $0.2 million. If recognized, the entire amount wouldfavorably impact the effective tax rate in future periods. Interest and penalties related to income tax liability are recognized in interest expense and generaland administrative expense, respectively. The company does not anticipate that the total amount of unrecognized tax benefits will significantly increase ordecrease the effective tax rate within 12 months of December 31, 2018.A reconciliation of the gross unrecognized tax benefits (excluding interest and penalties) for the years ended December 31, 2018, 2017, and 2016follows: 2018 2017 2016 (Amounts in Thousands) Balance as of January 1, $261 $210 $113 Additions for current year tax positions — 51 97 Increases for prior year tax positions — — — Settlements of prior year tax positions — — — Expiration of statutes (40) — — Balance as of December 31, $221 $261 $210 12. 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 on June 14,2017. The 2017 Plan was intended to replace our existing incentive compensation plan, the 2009 Stock Incentive Plan. Outstanding awards under the 2009Plan will continue to be governed by the 2009 Plan and the agreements under which they were granted. The 2009 Plan authorized the issuance of up to1,500,000 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 Stock Units,Other Stock Units or Performance Awards. The Board believes that the 2017 Plan is necessary to continue the Company’s effectiveness in attracting,motivating and retaining employees, directors and consultants with appropriate experience and to increase the grantees’ alignment of interest with theshareholders.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 the numberof shares subject to awards that are granted pursuant to the 2009 Plan after March 31, 2017. The aggregate awards granted during any calendar year to anysingle Participant 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 any shares ofcommon 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 that fiscal year, thenumber of shares of common stock will automatically increase in the subsequent fiscal years during the term of the 2017 Plan until the earlier of the time theincrease 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 without adistribution of shares to a participant, or that are delivered by attestation or withheld by the Company in connection with an option exercise or the paymentof any required income tax withholding upon an option exercise or the vesting ofF-28Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) restricted stock, will be deemed available for Awards under the 2017 Plan. Additionally, any shares of common stock subject to an Award under the 2009Plan that are forfeited, canceled, settled in cash or otherwise terminated without a distribution of shares to a participant, or that are delivered by attestation orwithheld by the Company in connection with an option exercise or the payment of any required income tax withholding upon an option exercise or thevesting of restricted stock, will be deemed 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 for both the2009 and 2017 Plans. Options granted under the 2009 and 2017 Plans typically vest over a service period ranging from three to four years and expire tenyears from the date of grant. Restricted shares granted under the 2009 and 2017 Plans typically vest over a service period ranging from one to four years andexpire ten years from date of grant.The exercise price of stock options outstanding on December 31, 2018 range from $4.62 to $71.00. Restricted stock awards are full-value awards.There were 0.8 million shares available for grant under the 2017 Plan at December 31, 2018.Stock OptionsA summary of stock option activity and weighted average exercise price is as follows: For The Year Ended December 31, 2018 Options(Amounts inThousands) Weighted AverageExercise Price Outstanding, beginning of period 479 $23.91 Granted 278 38.10 Exercised (42) 23.50 Forfeited/Cancelled (32) 26.20 Outstanding, end of period 683 $29.60 F-29Table of Contents ADDUS 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 in 2018and 2017 and the Enhanced Hull-White Trinomial Model in 2016, and the related assumptions follow: For the Year Ended December 31, 2018 2017 2016 Grants Grants Grants Weighted average fair value $14.72 $12.97 $9.32 Risk-free discount rate 2.32% - 2.84% 1.67% - 1.85% 1.70% - 2.02% Expected life 4.1 - 4.2 years 3.6 - 4.2 years 8.2 years Dividend yield — — — Volatility 45% 47% 47% Expected turn-over rate N/A N/A 2% Expected exercise multiple N/A N/A 2.2 Stock option compensation expense totaled $2.0 million, $1.1 million and $0.6 million for the years ended December 31, 2018, 2017 and 2016,respectively. As of December 31, 2018, there was $4.7 million of total unrecognized compensation cost that is expected to be recognized over a weightedaverage period of 2.2 years.The intrinsic value of vested and outstanding stock options was $8.5 million and $17.7 million as of December 31, 2018.As of December 31, 2018, there were 180,442 and 502,687 shares of stock options vested and unvested respectively.The intrinsic value of stock options exercised during the year ended December 31, 2018, 2017 and 2016 was $1.8 million, $0.5 million and$3.9 million, respectively.Restricted Stock AwardsThe following table summarizes the status of unvested restricted stock awards outstanding at December 31, 2018: For The Year Ended December 31, 2018 RestrictedStockAwards(Amounts inThousands) WeightedAverageGrant DateFair Value Unvested restricted stock awards, beginning of period 143 $29.30 Awarded 77 42.70 Vested (55) 30.10 Forfeited (16) 28.00 Unvested restricted stock awards, end of period 149 $36.10 The fair market value of restricted stock awards that vested during the year ended December 31, 2018 was $2.0 million.Restricted stock award compensation expense totaled $2.1 million, $1.4 million and $0.5 million for the years ended December 31, 2018, 2017 and2016, respectively. As of December 31, 2018, there was $3.7 million of total unrecognized compensation costs that are expected to be recognized over aweighted average period of 1.8 years.13. Operating LeasesThe Company leases its branch office space under various operating leases that expire at various dates through 2025. The Company also leases officespace in Frisco, TX and Downers Grove, IL which both serve as support centers. The Company is typically responsible for real estate taxes, maintenance,insurance and common area costs. A number of the office leases also contain escalation and renewal option clauses. Aggregate rental expense for alloperating leases amounted to $6.0 million, $3.9 million and $3.8 million for the years ended December 31, 2018, 2017 and 2016, respectively.F-30Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) The following is a schedule of the future minimum payments under non-cancelable operating leases, exclusive of taxes and other operating expenses. Rent(Amount inThousands) 2019 $6,374 2020 4,820 2021 3,460 2022 2,377 2023 2,130 Thereafter 1,382 Total $20,543 We have a sublease related to our leased space in Downers Grove. During the years ended December 31, 2018 and 2017, we recognized subleaseincome of $0.3 million and $0.1 million, respectively. 14. Employee Benefit PlansThe 401(k) retirement plan is a defined contribution plan that provides for matching contributions by the Company to all non-union employees.Matching contributions are discretionary and subject to change by management. Under the provisions of the 401(k) plan, employees can contribute up to themaximum percentage and limits allowable under the U.S. Revenue Code. The Company provided a matching contribution, equal to 6.0% of the employees’contributions, totaling $0.3 million, $44.0 thousand and $31.1 thousand for the years ended December 31, 2018, 2017 and 2016, respectively. The Companyacquired Ambercare on May 1, 2018. During the year ended December 31, 2018, Ambercare accounted for $0.2 million of the Company’s matchingcontribution.15. 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 management thatthe outcome of pending legal and/or administrative proceedings will not have a material effect on our Consolidated Balance Sheets and ConsolidatedStatements 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 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, theplaintiff alleges, inter alia, violations of the federal False Claims Act relating primarily to allegations of violations of the federal Anti-Kickback Statute andallegedly improper referrals of patients from the Company’s home care division to the Company’s home health business, substantially all of which was soldin 2013. The plaintiff seeks to recover damages, fees and costs under the federal False Claims Act including treble damages, 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 supportof its False Claims Act claims, including alleged violations of the federal Anti-Kickback Statute. The Company and Cigna Corporation filed a motion todismiss the amended complaint on June 6, 2016. On February 3, 2017, the Court granted Cigna Corporation’s motion to dismiss in full, and granted theCompany’s motion to dismiss in part allowing Plaintiff another chance to amend its complaint. Plaintiff timely filed a second amended complaint onMarch 10, 2017, withdrawing its conspiracy claim under the Federal False Claims Act and adding an explicit claim under the Illinois False Claims Act for thesame underlying kickback allegations. On April 7, 2017, the Company filed a partial motion to dismiss the Second Amended Complaint. On March 21, 2018,the Court granted the Company’s motion to dismiss the Second Amended Complaint in part and narrowed the lawsuit to whether the federal False Claims Actwas violated with respect to home health services provided at three senior living facilities in Illinois. The Company intends to defend the litigationvigorously and believes the case will not have a material adverse effect on its business, financial condition or results of operations.Employment AgreementsDuring 2017, the Company entered into employment agreements with certain members of senior management. The terms of these agreements are up tofour years with the potential to auto-renew and include non-compete and nondisclosure provisions, as wellF-31Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) as provide for defined severance payments in the event of termination. On November 5, 2018 we amended and restated the employment agreements of each ofour named executive officers in order to: (i) increase the amount of severance that would be payable on certain terminations of employment in connectionwith a change in control (as defined in the employment agreements), from two times annual compensation to three times annual compensation (as defined inthe employment agreements) in the case of our chief executive officer, and from one times annual compensation to two times annual compensation (asdefined in the employment agreements) in the case of our other named executive officers; (ii) provide that the enhanced severance for terminations ofemployment in connection with a change in control would be payable if the named executive officers self-terminated for good reason (as defined in theemployment agreements); (iii) stipulate that severance for terminations of employment in connection with a change in control would include any unpaidbonus for a performance period completed prior to termination (the chief executive officer already had this right); and (iv) adjust the duration of non-competition and non-solicitation periods to match the number of years of annual compensation that the named executive officer would receive in severance.A substantial percentage of the Company’s workforce is represented by the Service Employees International Union (“SEIU”) through local collectivebargaining agreements. These agreements are re-negotiated at various intervals. These negotiations are often initiated when the Company receives increasesin hourly 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.16. Severance and RestructuringEmployee termination costs represent accrued severance payable to terminated employees with employment and/or separation agreements with theCompany. Restructuring and other costs consists of the accrual related to lease commitments and write-offs of leasehold improvements and unused officespace and property and equipment resulting from the closure of three adult day services centers in Illinois. These costs are included in general andadministrative expenses on the Consolidated Statements of Income.In 2016, the Company initiated steps to streamline its operations. The Company incurred total expenses related to these initiatives of approximately$1.9 million, $1.7 million and $8.0 million for the years ended December 31, 2018, 2017 and 2016, respectively. The expenses recorded for the year endedDecember 31, 2018, primarily relates to terminated employees resulting mainly from changes made to the management team during the year and otherprofessional fees. The expenses recorded for the year ended December 31, 2017 included costs related to terminate employees resulting mainly from changesmade to the management team made during the year, fees related to the termination of professional services relationships, other contract termination costs andasset write-offs. The expenses recorded for the year ended December 31, 2016 included costs related to terminated employees as a result primarily of theclosure of the contact center and other changes made to the executive leadership team made during the year and other direct costs associated withimplementing these initiatives including contract termination costs, accelerated depreciation and asset write-offs.The following provides the components of and changes in our severance and restructuring accruals: EmployeeTerminationCosts Restructuringand Other (Amounts in Thousands) 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 Provision 647 564 Utilization (1,129) (1,056)Balance at December 31, 2018 $80 $585 The aforementioned accruals are included in accrued expenses on the Consolidated Balance Sheets and the aforementioned expenses are included ingeneral and administrative expenses on the Consolidated Statements of Income. The remaining employee termination costs accrual, as of December 31, 2018is expected to be paid by the end of 2019.F-32Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 17. Segment InformationOperating segments are defined as components of a company that engage in business activities from which it may earn revenues and incur expenses,and for which separate financial information is available and is regularly reviewed by a company’s chief operating decision makers, to assess the performanceof the individual segments and make decisions about resources to be allocated to the segments. Our operations involve servicing patients through our threereportable business segments: personal care, hospice and home health. As a result of the acquisition of Ambercare on May 1, 2018, we began reporting thehospice and home health segments.Our personal care segment provides non-medical assistance with activities of daily living, primarily to persons who are at risk of hospitalization orinstitutionalization, such as the elderly, chronically ill or disabled. Our hospice segment provides physical, emotional and spiritual care for people who areterminally ill as well as for their families. Our home health segment provides services that are primarily medical in nature to individuals who may requireassistance during an illness or after surgery, and include skilled nursing and physical, occupational and speech therapy.The tables below set forth information about our reportable segments for the years ended December 31, 2018, 2017 and 2016 along with the itemsnecessary to reconcile the segment information to the totals reported in the accompanying consolidated financial statements. Segment assets are not reviewedby the company’s chief decision makers and therefore are not disclosed below.Segment operating income consists of the net service revenues generated by a segment, less the direct costs of service revenues and general andadministrative expenses that are incurred directly by the segment. Unallocated general and administrative costs are those costs for functions performed in acentralized manner and therefore not attributable to a particular segment. These costs include accounting, finance, human resources, legal, informationtechnology, corporate office support and facility costs and overall corporate management. For the Year Ended December 31, 2018 (Amounts in Thousands) Personal Care Hospice Home Health Total Net service revenues $492,413 $18,850 $6,856 $518,119 Cost of services revenues 365,264 10,010 4,569 379,843 Gross profit 127,149 8,840 2,287 138,276 Provision for doubtful accounts 265 5 2 272 General and administrative expenses 44,463 3,737 1,543 49,743 Segment operating income $82,421 $5,098 $742 $88,261 For the Year Ended December 31, 2017 (Amounts in Thousands) Personal Care Hospice Home Health Total Net service revenues $425,994 $— $— $425,994 Cost of services revenues 310,119 — — 310,119 Gross profit 115,875 — — 115,875 Provision for doubtful accounts 8,409 — — 8,409 General and administrative expenses 35,655 — — 35,655 Segment operating income $71,811 $— $— $71,811 For the Year Ended December 31, 2016 (Amounts in Thousands) Personal Care Hospice Home Health Total Net service revenues $400,929 $— $— $400,929 Cost of services revenues 294,593 — — 294,593 Gross profit 106,336 — — 106,336 Provision for doubtful accounts 7,373 — — 7,373 General and administrative expenses 37,927 — — 37,927 Segment operating income $61,036 $— $— $61,036F-33Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) For the Years Ended December 31, (Amounts in Thousands) 2018 2017 2016 Segment Reconciliation: Total segment operating income $88,261 $71,811 $61,036 Items not allocated at segment level: Other general and administrative expenses 55,282 41,247 38,913 Loss (gain) on sale of assets 38 (2,467) — Depreciation and amortization 8,642 6,663 6,647 Interest income (2,592) (66) (2,812)Interest expense 5,016 4,472 2,332 Other income — (217) (206)Income before income taxes $21,875 $22,179 $16,162 18. Significant PayorsFor 2018, 2017 and 2016, our revenue by payor type was as follows: Personal Care 2018 2017 2016 Amount(in Thousands) % ofSegmentNetServiceRevenues Amount(in Thousands) % ofSegmentNetServiceRevenues Amount(in Thousands) % ofSegmentNetServiceRevenues State, local and other governmental programs $286,787 58.2 % $273,525 64.2 % $282,540 70.5 %Managed care organizations 173,884 35.3 140,993 33.1 104,413 26.0 Private pay 20,060 4.1 8,739 2.1 9,644 2.4 Commercial insurance 6,190 1.3 2,737 0.6 4,332 1.1 Other 5,492 1.1 — — — — Total personal care segment net service revenues $492,413 100.0 % $425,994 100.0 % $400,929 100.0 % Hospice 2018 Amount(in Thousands) % of Segment NetService Revenues Medicare $17,652 93.6 %Managed care organizations 1,047 5.6 Other 151 0.8 Total segment net service revenues $18,850 100.0 % Home Health 2018 Amount(in Thousands) % of Segment NetService Revenues Medicare $6,034 88.0 %Managed care organizations 752 11.0 Other 70 1.0 Total segment net service revenues $6,856 100.0 % F-34Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) The Company derives a significant amount of its net service revenues from its operations in Illinois, New York and New Mexico. The percentages oftotal revenue for each of these significant states for 2018, 2017 and 2016 were as follows: Personal Care 2018 2017 2016 Amount(in Thousands) % of SegmentNetService Revenues Amount(in Thousands) % of SegmentNet ServiceRevenues Amount(in Thousands) % of SegmentNet ServiceRevenues Illinois $233,990 47.5 % $224,257 52.6 % $215,162 53.6 %New York 65,117 13.2 37,588 8.8 51,718 12.9 New Mexico 58,914 12.0 58,360 13.7 29,924 7.5 All other states 134,392 27.3 105,789 24.9 104,125 26.0 Total personal care segment net service revenues $492,413 100.0 % $425,994 100.0 % $400,929 100.0 % Hospice 2018 Amount(in Thousands) % of Segment NetService Revenues New Mexico $18,850 100.0 %Total hospice segment net service revenues $18,850 100.0 % Home Health 2018 Amount(in Thousands) % of Segment NetService Revenues New Mexico $6,856 100.0 %Total home health segment net service revenues $6,856 100.0 % A substantial portion of the Company’s net service revenues and accounts receivables are derived from services performed for federal, state and localgovernmental agencies. The Illinois Department on Aging accounted for 31.0%, 36.5% and 42.1% of the Company’s net service revenues for 2018, 2017,and 2016, respectively.The related receivables due from the Illinois Department on Aging represented 22.5% and 37.5% of the Company’s net accounts receivable atDecember 31, 2018 and 2017, respectively.19. Concentration of CashThe Company owns financial instruments that potentially subject the Company to significant concentrations of credit risk include cash. TheCompany maintains cash with financial institutions which, at times, may exceed federally insured limits. The Company believes it is not exposed to anysignificant credit risk on cash. F-35Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 20. Unaudited Summarized Quarterly Financial InformationThe following is a summary of the Company’s unaudited quarterly results of operations. See Note 2. Corrections to Prior Period Financial Statements. Year Ended December 31, 2018 Year Ended December 31, 2017 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 $139,669 $137,716 $131,258 $109,476 $112,028 $108,662 $103,629 $101,675 Gross profit 37,810 36,790 35,743 27,933 30,785 29,123 28,581 27,386 Operating income from continuing operations 6,809 5,988 6,913 4,589 7,470 5,877 5,991 7,030 Net income from continuing operations 4,542 3,631 4,318 4,886 3,000 3,464 2,756 4,314 Earnings from discontinued operations 126 — — — 147 — — — Net income $4,668 $3,631 $4,318 $4,886 $3,147 $3,464 $2,756 $4,314 Average shares outstanding: Basic 12,964 12,179 11,533 11,502 11,488 11,486 11,470 11,434 Diluted 13,381 12,569 11,838 11,696 11,638 11,631 11,622 11,581 Income per common share: Basic Continuing operations $0.35 $0.29 $0.37 $0.42 $0.26 $0.30 $0.24 $0.38 Discontinued operations 0.01 — — — 0.01 — — — Basic net income per share $0.36 $0.29 $0.37 $0.42 $0.27 $0.30 $0.24 $0.38 Diluted net income per share Continuing operations $0.34 $0.28 $0.36 $0.42 $0.26 $0.29 $0.24 $0.37 Discontinued operations 0.01 — — — 0.01 — — — Diluted net income per share $0.35 $0.28 $0.36 $0.42 $0.27 $0.29 $0.24 $0.37 As described in Note 2 above, the Company identified errors in the Company’s previously issue Consolidated Financial Statements related torevenues and provision for doubtful accounts. The following are the effects of the corrections, of the errors on the Company’s unaudited quarterly results ofoperations. For the Three Months Ended March 31, 2018 For the Three Months Ended March 31, 2017 Previouslyreported Adjusted As adjusted Previouslyreported Adjusted As adjusted (Amounts and Shares in Thousands, Except Per Share Data) Net service revenues $109,448 $28 $109,476 $101,606 $69 $101,675 Gross profit 27,905 28 27,933 27,317 69 27,386 Operating income from continuing operations 4,561 28 4,589 6,961 69 7,030 Net income from continuing operations 4,858 28 4,886 4,259 55 4,314 Net income 4,858 28 4,886 4,259 55 4,314 Income per common share: Basic $0.42 $— $0.42 $0.37 $0.01 $0.38 Diluted $0.42 $— $0.42 $0.37 $— $0.37 F-36Table of Contents ADDUS HOMECARE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) For the Three Months Ended June 30, 2018 For the Three Months Ended June 30, 2017 Previouslyreported Adjusted As adjusted Previouslyreported Adjusted As adjusted (Amounts and Shares in Thousands, Except Per Share Data) Net service revenues $131,237 $21 $131,258 $103,559 $70 $103,629 Gross profit 35,722 21 35,743 28,511 70 28,581 Operating income from continuing operations 6,892 21 6,913 5,921 70 5,991 Net income from continuing operations 4,297 21 4,318 2,700 56 2,756 Net income 4,297 21 4,318 2,700 56 2,756 Income per common share: Basic $0.37 $— $0.37 $0.24 $— $0.24 Diluted $0.36 $— $0.36 $0.23 $0.01 $0.24 For the Three Months Ended September 30, 2018 For the Three Months Ended September 30, 2017 Previouslyreported Adjusted As adjusted Previouslyreported Adjusted As adjusted (Amounts and Shares in Thousands, Except Per Share Data) Net service revenues $137,631 $85 $137,716 $108,592 $70 $108,662 Gross profit 36,705 85 36,790 29,053 70 29,123 Operating income from continuing operations 5,903 85 5,988 5,807 70 5,877 Net income from continuing operations 3,546 85 3,631 3,408 56 3,464 Net income 3,546 85 3,631 3,408 56 3,464 Income per common share: Basic $0.29 $— $0.29 $0.30 $— $0.30 Diluted $0.28 $— $0.28 $0.29 $— $0.29 For the Three Months Ended December 30, 2017 Previously reported Adjusted As adjusted (Amounts and Shares in Thousands, Except Per Share Data) Net service revenues $111,958 $70 $112,028 Gross profit 30,715 70 30,785 Operating income from continuing operations 7,550 (80) 7,470 Net income from continuing operations 3,094 (94) 3,000 Net income 3,241 (94) 3,147 Income per common share: Basic $0.28 $(0.01) $0.27 Diluted $0.28 $(0.01) $0.27 F-37Table of Contents VALUATION AND QUALIFYING ACCOUNTSSCHEDULE II(Amounts in Thousands) Allowance for doubtful accounts Balance atbeginning ofperiod Additions/charges Deductions* Balance atend of period Year ended December 31, 2018 Allowance for doubtful accounts $10,537 272 10,138 $671 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 *Write-offs, net of recoveriesIn 2018, subsequent adjustments that are determined to be the result of an adverse change in the payor’s ability to pay are recognized as provision fordoubtful accounts with the adoption of ASU 2014-09, Revenue from Contracts with Customers. We recorded $9.7 million for the year ended December 31,2018 as a reduction to revenue that would have been recorded as provision for doubtful accounts under the prior revenue recognition guidance.F-38 Exhibit 21.1SUBSIDIARIES OF THE REGISTRANT Name of Subsidiary State ofIncorporation Doing Business As NameAddus HealthCare (Delaware), Inc. Delaware Addus HomeCare DelawareAddus HealthCare (Idaho), Inc. Delaware Addus HomeCareAddus HealthCare (Nevada), Inc. Delaware Desert PCA, Addus HomeCareAddus HealthCare (North Carolina), Inc. Delaware Down East HealthCare; Addus HomeCareAddus HealthCare (South Carolina), Inc. Delaware Addus HomeCare; Arcadia Home Care & StaffingAddus HealthCare, Inc. Illinois Addus HomeCare; Arcadia Home Care & StaffingAddus Nurse Care, Inc. Delaware Sun City Caregivers; Lifestyle OptionsAmbercare Home Health Care Corporation New Mexico Ambercare Home Health Care CorporationAmbercare Hospice, Inc. New Mexico Ambercare Hospice, Inc.Cura Partners, LLC Tennessee Addus HomeCare; Arcadia Home Care & StaffingOptions Service, Inc. New Mexico Options Service, Inc.PHC Acquisition Corporation California Addus HomeCarePRAC Holdings Delaware Arcadia Home Care & StaffingPriority Home Health Care, Inc. Ohio Addus HomeCare; Arcadia Home Care & StaffingProfessional Reliable Nursing Services, Inc. California Arcadia Home Care & StaffingSouth Shore Home Health Service, Inc. New York South Shore Home Health Service, Inc. 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, 2019, with respect to the consolidated financial statements of Addus HomeCare Corporation and the effectiveness of internalcontrol over financial reporting of Addus HomeCare Corporation included in this Annual Report (Form 10-K) of Addus HomeCare Corporation for the yearended December 31, 2018./s/ Ernst & Young LLPDallas, TexasMarch 15, 2019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 statements andfinancial statement schedule, which appears in this Form 10-K./s/ BDO USA, LLPChicago, IllinoisMarch 15, 2019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 respects thefinancial 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 defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-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; and5.The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe 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 15, 2019 /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 respects thefinancial 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 defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-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; and5.The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe 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 15, 2019 /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, 2018 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 Executive 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 15, 2019BY: / 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, 2018 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 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 15, 2019BY: /s/ Brian Poff Brian Poff Chief Financial Officer 

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