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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-34504
ADDUS HOMECARE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
6303 Cowboys Way, Suite 600 Frisco, TX
(Address of principal executive offices)
20-5340172
(I.R.S. Employer
Identification No.)
75034
(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
Common Stock, $0.001 par value
Trading Symbol(s)
Name of each exchange on which registered
ADUS
The Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-Accelerated Filer
☒
☐
Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously
issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during
the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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 on June 30, 2023 (the last business
day of the registrant’s most recently completed second fiscal quarter) was approximately $1,473,419,000.
As of February 16, 2024, there were 16,227,251 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s Definitive Proxy Statement for its 2024 Annual Meeting of Stockholders (which is expected to be filed with the Commission within 120 days after the end of the registrant’s
2023 fiscal year) are incorporated by reference into Part III of this Annual Report on Form 10-K.
Auditor Firm PCAOB Id:
238
Auditor Name:
PricewaterhouseCoopers LLP
Auditor Location:
Dallas, Texas
Table of Contents
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
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SPECIAL CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
When included in this Annual Report on Form 10-K, or in other documents that we file with the Securities and Exchange Commission (“SEC”) or in
statements made by or on behalf of the Company, words like “believes,” “belief,” “expects,” “plans,” “anticipates,” “intends,” “projects,” “estimates,”
“may,” “might,” “would,” “should,” and similar expressions are intended to be forward-looking statements as defined by the Private Securities Litigation
Reform Act of 1995. These statements are based on the beliefs and assumptions of our management based on information currently available to
management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing
of certain events to differ materially from future results expressed or implied by such forward-looking statements. These risks and uncertainties include, but
are not limited to:
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The impact of macroeconomic conditions, including significant global inflation and elevated interest rates, legislative developments, trade
disruptions and the potential adverse effects of current geopolitical conditions;
business disruptions due to natural disasters, acts of terrorism, pandemics, riots, civil insurrection or social unrest, looting, protests, strikes or
street demonstrations;
changes in operational and reimbursement processes and payment structures at the state or federal levels;
changes in Medicaid, Medicare, other government program and managed care organizations policies and payment rates, and the timeliness of
reimbursements received under government programs;
changes in, or our failure to comply with, existing federal and state laws or regulations, or our failure to comply with new government laws or
regulations on a timely basis;
competition in the healthcare industry;
the geographical concentration of our operations;
changes in the case mix of consumers and payment methodologies;
operational changes resulting from the assumption by managed care organizations of responsibility for managing and paying for our services to
consumers;
the nature and success of future financial and/or delivery system reforms;
changes in estimates and judgments associated with critical accounting policies;
our ability to maintain or establish new referral sources;
our ability to renew significant agreements or groups of agreements;
our ability to attract and retain qualified personnel;
federal, state and city minimum wage pressure, including any failure of any governmental entity to enact a minimum wage offset and/or the
timing of any such enactment;
changes in payments and covered services due to the overall economic conditions and deficit reduction measures by federal and state
governments, and our expectations regarding these changes;
cost containment initiatives undertaken by federal and state governmental and other third-party payors;
our ability to access financing through the capital and credit markets;
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our ability to meet debt service requirements and comply with covenants in debt agreements;
our ability to integrate and manage our information systems;
the potential impact of security breaches, cyber-attacks, loss of data, or cybersecurity threats or incidents, and any actual or perceived failures
to comply with legal requirements related to the privacy of confidential consumer data and other sensitive information;
the size and growth of the markets for our services, including our expectations regarding the markets for our services;
eligibility standards and limits on services imposed by state governmental agencies;
the potential for litigation, audits and investigations;
discretionary determinations by government officials;
our ability to successfully implement our business model to grow our business;
our ability to continue identifying, pursuing, consummating and integrating acquisition opportunities and expand into new geographic markets;
the impact of acquisitions and dispositions on our business, including the potential inability to realize the benefits of potential acquisitions;
the effectiveness, quality and cost of our services;
changes in tax rates; 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
not rely on any forward-looking statement as a prediction of future events. We expressly disclaim any obligation or undertaking, and we do not intend to
release publicly any updates or changes in our expectations concerning the forward-looking statements or any changes in events, conditions or
circumstances upon which 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 additional factors, see Part I, Item 1A—“Risk Factors” and Part II, Item 7—”Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Critical Accounting Policies and Estimates.”
Unless otherwise provided, “Addus,” “we,” “us,” “our,” and the “Company” refer to Addus HomeCare Corporation and our consolidated
subsidiaries and “Holdings” refers to Addus HomeCare Corporation. When we refer to 2023, 2022 and 2021, 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, 2023 as filed with the SEC, including all exhibits, is available on our
internet 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 is
not incorporated by reference into, this Annual Report on Form 10-K.
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ITEM 1. BUSINESS
Overview
PART I
Addus has been providing home care services since 1979. We operate three segments: personal care, hospice, and home health. Our services are
principally provided in-home under agreements with federal, state and local government agencies, managed care organizations, commercial insurers and
private individuals. Our consumers are predominantly “dual eligible,” meaning they are eligible to receive both Medicare and Medicaid benefits.
As of December 31, 2023, we provided services in 22 states through approximately 219 offices. For the year ended December 31, 2023, we served
approximately 91,000 discrete consumers.
We continue to drive organic growth while also growing through acquisitions, focusing on growth in the states in which we have a presence while
adding clinical care services to our offerings. As of December 31, 2023, we provide all three levels of care, personal care, home health and hospice
services, in Ohio, Tennessee, Illinois and New Mexico and strategically continue to pursue other markets.
A summary of our financial results is provided in the table below.
Personal care
Hospice
Home health
Total net service revenue by segment
Net income
Total assets
For the Years Ended December 31,
2022
2023
(Amounts in Thousands)
794,718
$
207,155
56,778
1,058,651
$
62,516
1,024,426
$
706,507
201,772
42,841
951,120
46,025
937,994
$
$
$
Our services and operating model address a number of crucial needs across the healthcare continuum. Care provided in the home generally costs less
than facility-based care and is typically preferred by consumers and their families. By providing services in the home to the elderly and others who require
long-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 for
care in more expensive settings. In addition, our caregivers observe and report changes in the condition of our consumers for the purpose of facilitating
early intervention in the disease process, which often reduces the cost of medical services by preventing unnecessary emergency room visits and/or hospital
admissions and re-admissions. We coordinate the services provided by our team with those of other healthcare providers and payors, as appropriate.
Changes in a consumer’s conditions are evaluated by appropriately trained managers, which may result in a report to the consumer’s case manager at a
managed care organization or other payor. By providing care in the preferred setting of the home and by providing opportunities to improve the consumer’s
conditions and allow 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 continue to implement managed care programs for Medicaid
enrollees, and, as a result, managed care organizations have been increasingly responsible for the healthcare needs and the related healthcare costs of our
consumers. Managed care organizations have an economic incentive to better manage the healthcare expenditures of their members, lower costs and
improve 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.
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Our Market and Opportunity
We provide home care services that primarily include personal care services to assist with activities of daily living, as well as hospice and home
health services. These services allow the elderly and other infirm adults who require long-term care and assistance with activities of daily living to maintain
their independence at home with their families. Personal care services are a significant component of home and community-based services (“HCBS”),
which have grown in significance and demand in recent years. In particular, the demand for personal care services is growing from managed care delivery
models, including Medicaid Long-Term Services and Supports (“LTSS”) programs and Medicare Advantage plans. Managed care plans aim to manage
cost, utilization and quality through collaboration of health insurance plans and healthcare providers. We also offer personal care services to private pay
consumers. We expect demand for HCBS to continue to grow due to the aging of the U.S. population and improved opportunities for individuals to receive
home-based care as an alternative to institutional care.
Because our model serves an aging population in a home setting at a lower cost, we believe that we have favorable opportunities for growth. The
personal care, hospice and home health service industries have developed in a fragmented manner, with many small participants and a few larger
participants that have a significant market share across multiple regions or states. The historic lack of licensure or certification requirements in some states
makes it difficult to estimate the number of home-based services agencies, although these requirements and other barriers to entry are now increasing. We
expect ongoing consolidation within our industry, driven by the desire of healthcare systems and managed care organizations to narrow their networks of
service providers, and also by the industry’s increasingly complex regulatory, operating and technology requirements. We believe we are well positioned to
capitalize on these trends, given our reputation in the market, strong payor relationships and integration of technology into our business model.
The personal care services industry is subject to increasing regulation. At the federal level, efforts have focused on improved coordination of
regulation across the various types of Medicaid programs through which personal care services are offered. For example, federal standards require states to
mandate that providers use an electronic visit verification (“EVV”) system to collect certain data from Medicaid-funded home visits. States have flexibility
in the model they use to implement the mandate, which means EVV systems, vendors and contracting processes can vary significantly by state. States
increasingly require providers to register with regulatory authorities or obtain licenses. Providers must dedicate substantial resources to ensure continuing
compliance with all applicable laws and regulations, and significant expenditures may be necessary to offer new services or to expand into new markets.
We believe licensing and other operational requirements and regulations, the increasing focus on improving health outcomes, the rising cost and complexity
of operations and technology and pressure on reimbursement rates may discourage new providers and may encourage industry consolidation.
The Medicare-Medicaid Coordination Office (“MMCO”) was established within the Centers for Medicare & Medicaid Services (“CMS”) to
improve services for consumers who are eligible for both Medicare and Medicaid, also known as “dual eligibles,” and improve coordination between the
federal government and states to enhance access to quality services to which they are entitled. The MMCO works with state Medicaid agencies, other
federal and state agencies, physicians and others, to make available technical assistance and educational tools to improve care coordination between
Medicare and Medicaid and to reduce costs and improve beneficiary experience while reducing administrative and regulatory barriers between the
programs. In addition, the MMCO and the CMS Innovation Center are considering or have implemented demonstration projects affecting reimbursement
for services 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
of the “dual eligible” population, and we believe that our ability to identify changes in our consumers’ health and condition before acute intervention is
required will lower the overall cost of care. We believe this approach to care delivery and the integration of our services into the broader healthcare
continuum are particularly attractive to managed care organizations and others who are ultimately responsible for the healthcare needs of our consumers
and over time will increase our business with them.
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Our Growth Strategy
The growth of our revenues is closely correlated with the number of consumers to whom we provide our services. Our continued growth depends on
our ability to provide consistent high-quality care, maintain our existing payor relationships, establish relationships with new payors, increase our referral
sources and attract and retain caregivers. Our continued growth is also dependent upon the authorization by state agencies of new consumers to receive our
services. We believe there are several market opportunities for growth as the population ages. Moreover, individuals generally prefer to receive care in their
homes, and we believe the COVID-19 pandemic heightened this preference due to health concerns that may be associated with institutional settings for
long-term care, along with concerns about the re-imposition of visitor restrictions that were imposed in many long-term care facilities in response to the
pandemic. Finally, we believe the provision of home-based services is more cost-effective than the provision of similar services in institutional settings for
long-term care. We plan to continue our revenue growth and enhance our competitive positioning by executing on the following growth strategies:
Consistently Provide High-Quality Care
We schedule and require our caregivers to perform their services as defined within the individual plan of care. We monitor the performance of our
caregivers through regular supervisory visits in the homes of consumers. Our caregivers are provided with pre-service training and orientation and an
evaluation of their skills. In many cases, caregivers are also required to attend ongoing in-service education. In certain states, our caregivers are required to
complete certified training programs and maintain a state certification. The training assists our caregivers with identifying changes in our consumers’ health
and condition before acute intervention is required, which we believe lowers the overall cost of care.
Drive Organic Growth in Existing Markets
We intend to drive organic growth through several initiatives, including continuing to build and enhance our sales and marketing capabilities,
enhancing our business intelligence analytic capabilities, recruiting and retaining employees and investing in technology and operations to drive
efficiencies. We also expect our organic growth will benefit from an increase in demand for our services by an aging population and our increased
alignment with referral sources and payors. We continue to selectively open new offices in existing markets when an opportunity is identified and
appropriate.
Market to Managed Care Organizations
As a large-scale provider of home-based care, we are partnering with managed care organizations, taking advantage of an industry shift from
traditional fee-for-service Medicare and Medicaid and toward managed care models which aim to better coordinate care, among other goals. We expect this
shift to lead to narrower provider networks where we can be competitive by offering a larger, more experienced partner to these organizations, as well as by
providing more sophisticated technology, electronic visit records and an outcomes-driven approach to service. We believe our coordinated care model and
integration of services into the broader healthcare industry are particularly attractive to managed care organizations. In particular, our expansion from
primarily personal care services into hospice and home health has increased our value to our managed care partners by diversifying our home-based care
offerings.
Grow Through Acquisitions
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. We completed two acquisitions in 2023: Coastal Nursecare of Florida, Inc. (“CareStaff”) on January 1, 2023 and American Home
Care, LLC, a Tennessee limited liability company (“AHC”), and its subsidiaries, Homecare, LLC, a Tennessee limited liability company (“Homecare”),
Tennessee Valley Home Care, LLC (d/b/a Tennessee Quality Care – Home Health), a Tennessee limited liability company (“TQC – Home Health”), and
Tri-County Home Health and Hospice, LLC (d/b/a Tennessee Quality Care - Hospice), a Tennessee limited liability company (“TQC – Hospice”, and
collectively with AHC, Homecare and TQC – Home Health, “Tennessee Quality Care”) on August 1, 2023. Acquisitions completed in 2023 accounted for
$18.8 million in net service revenues for the year ended December 31, 2023. We also completed two acquisitions in 2022: JourneyCare Inc.
(“JourneyCare”) on February 1, 2022 and Apple Home Healthcare, LTD (“Apple Home”) on October 1, 2022.
Our active pipeline and strong financial position support additional acquisitions. With rising consolidation pressures in the industry, our focus is on
identifying growing markets with favorable demographics in states that are fiscally well managed and have 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 our managed care organization strategy. We believe our
experience identifying and executing on opportunities generated by our acquisition pipeline, as well as our history of integrating acquisitions, will lead to
additional growth.
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Our Services
We operate three business segments: personal care, hospice and home health. Without our services, many of our consumers would be at increased
risk of placement in a long-term care institution.
Personal Care
Our personal care segment provides non-medical assistance with activities of daily living, primarily to persons who are at increased risk of
hospitalization or institutionalization, such as the elderly, chronically ill or disabled. The services we provide include assistance with bathing, grooming,
oral care, feeding and dressing, medication reminders, meal planning and preparation, housekeeping and transportation services. Many consumers need
such services on a long-term basis to address chronic or acute conditions. Our personal care segment also includes staffing services, with clients including
assisted living facilities, nursing homes and hospice facilities. 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 laws, regulations or contracts.
Hospice
Our hospice segment provides physical, emotional and spiritual care for people who are terminally ill as well as related services for their families.
The hospice services we provide include palliative nursing care, social work, spiritual counseling, homemaker services and bereavement counseling.
Generally, patients receiving hospice services have a life expectancy of six months or less.
Home Health
Our home health segment provides services that are primarily medical in nature to individuals who may require assistance during an illness or after
hospitalization and include skilled nursing and physical, occupational and speech therapy. We generally provide home health services on a short-term,
intermittent or episodic basis to individuals, typically to assist patients recovering from an illness or injury.
We measure the performance of each segment using a number of different metrics. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Results of Operations” for information regarding the Company’s segment metrics.
Our Payors
Our payor clients are principally federal, state and local governmental agencies and managed care organizations. The federal, state and local
programs under which the agencies operate are subject to legislative and budgetary restrictions, changes and other risks that can influence reimbursement
rates. Managed care organizations that operate as an extension of government payors are subject to similar economic pressures. Our commercial insurance
payor clients are typically for-profit companies and are continuously seeking opportunities to control costs.
Most of our services are provided pursuant to agreements with state and local governmental social and aging service agencies. These agreements
generally have an initial term of one to two years and may be terminated with 60 days' notice. They are typically renewed for one to five-year terms,
provided that we have complied with licensing, certification and program standards, and other regulatory requirements. Reimbursement rates and methods
vary by state and service type, but are typically based on an hourly or unit-of-service basis. Managed care organizations are becoming an increasing portion
of our personal care segment payor mix as states shift from administering fee-for-service programs to utilizing managed care models. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Overview” for our revenue mix by payor type.
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Competition
We believe our industry is highly competitive, fragmented and market specific. Each local market has its own competitive profile and no single
competitor has significant market share across all of our markets. Our competition consists of personal care service providers, home health providers,
hospice providers, private caregivers, 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, payors, including
governmental agencies, contract with other providers for services we offer. 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 of consumers or payors,
any of which could harm our business. In addition, some of our competitors and/or competitive care models may have greater financial, technical, political
and marketing resources, as well as name recognition with consumers and payors.
Sales and Marketing
We focus on initiating and maintaining working relationships with state and local governmental agencies responsible for the provision of the
services we offer. We target these agencies in our current markets and in geographical areas that we have identified as potential markets for expansion. We
also seek to identify service needs or changes in the service delivery or reimbursement systems of governmental entities and attempt to work with and
provide input to the responsible government personnel, provider associations and consumer advocacy groups.
We establish new referral relationships with various managed care organizations that contract with the states to service the Medicaid programs. We
have met with many contracted managed care organizations in markets we serve and believe we are building the relationships necessary to generate
continued referrals of new clients.
We receive substantially all of our personal care consumers through third-party referrals, including state departments on aging, rehabilitation, mental
health and children’s services, county departments of social services, managed care organizations, the Veterans Health Administration and city departments
on aging. Generally, family members of potential consumers are made aware of available in-home or alternative living arrangements through state or local
case management systems. These systems are 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 care
options and to communicate our role in providing quality personal care services. We also utilize consumer-directed sales, marketing and advertising
programs designed to attract consumers.
With respect to our hospice and home health patients, we receive substantially all of our referrals through other healthcare providers, such as
hospitals, physicians, nursing homes and assisted living facilities. We have a team of community liaisons in our hospice and home health operations that
educate and develop relationships with other healthcare providers and the community at large.
Payment for Services
We are reimbursed for substantially all of our services by federal, state and local government programs, such as Medicare and Medicaid state
programs, managed care organizations, other state agencies and the Veterans Health Administration. In addition, we are reimbursed by commercial
insurance and private pay consumers. Depending on the type of service, coverage for services may be predicated on a case manager, physician or nurse
determination that the care is necessary or on the development of a plan for care in the home.
Medicare
Medicare is a federal program that provides certain medical insurance benefits to persons aged 65 or older and other qualified persons. Each of our
hospice and home care agencies must comply with the extensive conditions of participation in the Medicare program in order to continue receiving
Medicare reimbursement.
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Hospice
Medicare beneficiaries who have a terminal illness and a life expectancy of six months or less may elect to receive hospice benefits (i.e., palliative
services for management of a terminal illness) in lieu of standard Medicare coverage for treatment. Hospice services are paid under the Medicare Hospice
Prospective Payment System (“HPPS”), under which CMS sets a daily rate for each day a patient is enrolled in the hospice benefit. CMS requires hospice
providers to submit quality reporting data each year and updates hospice payment rates annually using a market basket index. Hospices that do not satisfy
quality reporting requirements are subject to a 2 percentage point reduction to the market basket percentage update. Beginning in federal fiscal year 2024,
the reduction to the market basket update for failure to satisfy quality reporting requirements will increase to 4 percentage points. Additionally, hospice
providers are subject to two specific payment limit caps under the Medicare program each federal fiscal year: the inpatient cap and the aggregate cap, as
discussed further in Note 1 to the Notes to Consolidated Financial Statements.
Home Health
CMS reimburses home health agencies under a prospective payment system, paying a national, standardized 30-day period payment rate if a period
of care meets a threshold of home health visits. The daily home health payment rate is adjusted for case-mix and area wage levels. CMS uses the Patient-
Driven Groupings Model (“PDGM”) as the case-mix classification model to place periods of care into payment categories, classifying patients based on
clinical characteristics. An outlier adjustment may be paid for periods of care in which costs exceed a specific threshold amount. CMS updates home health
payment rates annually using a market basket index. Home health agencies that do not submit required quality data are subject to a 2 percentage point
reduction to the market basket update. CMS began implementing a nationwide expansion of the Home Health Value-Based Purchasing (“HHVBP”) Model
in 2022. Under the HHVBP Model, home health agencies receive increases or reductions to their Medicare fee-for-service payments of up to 5% based on
performance against specific quality measures relative to the performance of other home health providers. Data collected in each performance year impacts
Medicare payments two years later. Calendar year 2023 was the first performance year under the expanded HHVBP Model, which will affect payments in
calendar year 2025.
Medicare requires home health agencies to submit a one-time Notice of Admission (“NOA”) for each patient that establishes that the beneficiary is
under a Medicare home health period of care. Failure to submit the NOA within five calendar days from the start of care date will result in a reduction to
the 30-day period payment amount for each day from the start of care date until the date the NOA is submitted.
Medicaid Programs
Medicaid is a state-administered program that provides certain social and medical services to qualified low-income individuals and is jointly funded
by the federal government and individual states. Reimbursement rates and methods vary by state and service type, but are typically based on an hourly or
unit-of-service basis. Rates are subject to adjustment based on statutory and regulatory changes, administrative rulings, government funding limitations and
interpretations of policy by individual state agencies. Within guidelines established by federal statutes and regulations, and subject to federal oversight,
each state establishes its own eligibility standards, determines the type, amount, duration and scope of services, sets the rate of payment for services and
administers its own program. States typically cover intermittent home health services for Medicaid beneficiaries, but cover continuous services for children
and young adults with complicated medical conditions and home and community-based services for seniors and people with disabilities.
Payment models vary by state. Currently, home health services are often reimbursed by state Medicaid programs on a fee-for-service basis. For
hospice services, the state pays an amount for each day that a beneficiary is under the care of a hospice provider based on the type and intensity of services
furnished. Many states are moving the administration of their Medicaid hospice and home healthcare programs to managed care organizations in order to
effectively manage costs.
Currently, personal care services and other HCBS are largely reimbursed on a fee-for-service basis. Some states have received permission from
CMS to provide HCBS under waivers of traditional Medicaid requirements. In an effort to control escalating Medicaid costs, states are increasingly
requiring Medicaid beneficiaries to enroll in managed care plans for better coordination of HCBS and healthcare services. For example, over three-quarters
of Medicaid beneficiaries in Illinois are a part of the Health Choice Illinois statewide managed care program, which is serviced by various managed care
organizations. Reimbursement from the managed care organizations for personal care services is generally on an hourly, fee-for-service basis with rates
consistent with or as a percentage of the individual state funded rates, where applicable.
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Illinois Department on Aging
A significant amount of our net service revenues from our personal care segment are derived from once specific payor client, the Illinois Department
on Aging, which accounted for 20.9% and 20.7% of our net service revenues for 2023 and 2022, respectively. The Illinois Department on Aging
coordinates programs and community-based services intended to improve quality of life and preserve the independence of older individuals. The Illinois
Department on Aging is funded by Medicaid, Illinois’s Commitment to Human Services Fund, and general revenue funds of the state of Illinois, and also
receives funding available under the federal Older Americans Act (“OAA”). The Department on Aging’s Community Care Program (“CCP”) provides
adult day services, emergency home response, automated medication dispenser services, and in-home services, which consist of personal care services, to
individuals who are age 60 and over and meet other eligibility requirements. Some of these services are provided through Medicaid waivers granted by
CMS.
Consumers are identified by “care coordinators” contracted independently with the Illinois Department on Aging. Once a consumer has been
evaluated and determined to be eligible for a program, an assigned care coordinator refers the consumer to a list of authorized providers, from which the
consumer selects the provider. We provide our services in accordance with a care plan developed by the care coordinator and under administrative
directives from the Illinois Department on Aging. We are reimbursed on an hourly fee-for-service basis.
Veterans Health Administration
The Veterans Health Administration operates the nation’s largest integrated healthcare system, with more than 1,300 healthcare facilities, and
provides healthcare benefits, including personal care, hospice and home health services, to eligible military veterans. The Veterans Health Administration
provides funding to regional and local offices and facilities that support the in-home care needs of eligible aged and disabled veterans. Services are funded
by local Veterans Medical Centers and the aid and attendance pension, which reimburses veterans for their otherwise unreimbursed health and long-term
care expenses. We currently have relationships and agreements with the Veterans Health Administration to provide personal care services in several states,
principally in New Mexico, Illinois and California.
Other
Other sources of funding are available to support personal care, hospice and home health services in different states and localities. For example,
many states appropriate general funds or special use funds through targeted taxes or lotteries to finance personal care services for senior citizens and
individuals with 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 Insurance
Most long-term care insurance policies contain benefits for in-home services. Policies are generally subject to dollar limitations on the amount of
daily, weekly or monthly coverage provided.
Private Pay
Our private pay services are provided on an hourly or type of services basis. Our rates are established to achieve a pre-determined gross margin, and
are competitive with those of other local providers. We bill our private pay consumers for services rendered weekly, bi-monthly or monthly. Other private
payors include workers’ compensation programs/insurance, preferred provider organizations and employers.
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Insurance Programs and Costs
We maintain workers’ compensation, general and professional liability, cyber, automobile, directors’ and officers’ liability, fiduciary liability and
excess 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
such insurance coverage and self-insurance reserves.
Human Capital Management
The following is a breakdown of our part- and full-time employees, including the employees in our corporate support center, as of December 31,
2023:
Caregivers and agency staff
Corporate support centers
Full-time
Part-time
Total
5,528
531
6,059
28,776
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28,787
34,304
542
34,846
At Addus, our people are crucial to our mission. Our Addus CARES commitment to human capital excellence inspires a culture that attracts, retains,
and engages our employees to serve our important mission, and it is fundamental to our corporate philosophy.
Workforce Composition:
Our workforce is a dynamic and diverse assembly of talent. At the core of our operations is a dedicated team of 5,528 full-time caregivers, clinical
staff, and administrative employees. Complementing their efforts are 28,776 part-time caregivers and administrative employees. We offer flexibility in the
form of adaptable work options, which may not be as readily available in other industries. In our most recent annual employee engagement survey, our
workforce scored work-life balance at an 80% satisfaction rating.
Two corporate support centers house a total of 542 administrative and professional employees.
Approximately 17,859 or 51.3% of our total employees are represented by labor unions. We maintain strong working relationships with these labor
unions. We have numerous collective bargaining agreements with local affiliates of the Service Employees International Union (“SEIU”), which are
renegotiated from time to time.
People Development and Experience:
We believe in a strong workplace culture focused on people development. We have named this initiative “Addus CARES”, which represents our
commitment to creating a culture that attracts, retains, and engages people to serve our important mission.We aspire to create a workplace that values and
listens to its employees, provides ample opportunities for their skills development, and effectively recognizes their achievements. By leveraging our People
Development and Experience Department, we aspire to create a workplace that values and listens to its employees, provides ample opportunities for their
skills development, and effectively recognizes their achievements throughout the employee life cycle.
Addus prioritizes a robust listening strategy that allows for regular opportunities for feedback throughout an employee’s tenure. People experience
surveys serve as a foundation of this strategy. In the most recent such survey, company management received an 82% satisfaction rating among all
employee respondents, and 80% of our caregiver respondents indicated they would recommend Addus as a great place to work.
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Our dedication to workforce experience is also reflected in the breadth of our training programs and our ongoing commitment to employee
development. Addus has recently introduced new innovative initiatives such as our Ignite and Emerge employee development programs. Ignite equips new
leaders with the necessary skills, tools, and resources to lead within our organizational culture and values. Emerge cultivates future leaders, strengthening
our future with a diverse internal leadership pipeline for potential future promotions. Additionally, Addus deploys ongoing learning opportunities
throughout the employee life cycle via the Addus Learning Academy and clinical learning management systems. The Addus Learning Academy allows
employees to access online resources needed to build and enhance the important skills related to their respective roles at Addus and to provide beneficial
soft-skills training for personal growth. With recent investments in new learning management platforms and additional investments in existing platforms,
Addus’ clinical learning management systems provide a growing catalog of continuing learning opportunities for patient-facing employees to improve their
clinical skills and promote consistent, quality care.
We believe it is important to acknowledge our employees and managers who are carrying our mission and values forward every day, and we are
committed to fostering employee engagement through effective recognition programs and communications. The Addus Elite employee recognition
program consists of three levels of employee recognition: real-time peer-to-peer, quarterly company-wide, and annual Addus Elite Hall of Fame. All three
components are designed to recognize and celebrate the work our employees do daily. Additionally, we have focused our organizational communication
tools to disseminate vital company information more efficiently and effectively through the Addus Resource Center, AddusConnect, and Addus Ink. The
Addus Resource Center is a company information portal for on-demand company information. AddusConnect is a biweekly e-newsletter that succinctly
features important company updates, information, and resources. Addus Ink is a semi-annual publication that highlights local stories and news from around
the country that celebrate our mission and values.
Employee Welfare
As part of our commitment to providing high quality care and service to our clients and patients, while also promoting the health and well-being of
our employees, Addus takes a multifaceted approach to employee wellness and safety.
Through strategically designed benefit offerings, Addus provides access to healthcare coverage that balances the medical needs of our workforce
with affordability for our diverse employment populations. In addition, the company aims to assist in the financial well-being of our workforce through
company benefits such as early wage access programs, an employee discount marketplace, and educational resources for employees on financial well-
being. Addus offers a non-profit employee disaster relief fund program, Addus ACTS, that provides emergency financial grants for employees in need.
In addition, Addus maintains a structured workplace safety program throughout the employee life cycle that provides job-relevant education,
training, and skills focused on both the prevention of workplace injuries and improving awareness of mitigation efforts, should risks materialize on the job.
Through these comprehensive safety efforts, the Addus safety program enhances our ability to provide consistent and quality client care and service.
Talent Acquisition
Talent acquisition is a strategic imperative of the company, and our Addus CARES culture is committed to attracting, retaining, and engaging
talent. Our commitment to talent acquisition is evident in both our internal mobility efforts and our external recruitment. Internally, the company provides a
tuition reimbursement program designed to encourage the continued educational pursuit of academic degrees that prepare employees for their next logical
internal career progression, or that improve their ability to perform their current role. Clinical ladder initiatives focus on clinical certification advancement
of existing employees. External recruitment has been bolstered by new investments in job search efforts, programmatic job advertising, and new
recruitment technologies, most recently with the introduction of a new mobile-optimized Applicant Tracking System. Recruitment strategies, including
company-wide hiring events, local partnerships with colleges and nursing schools, sponsored clinical rotations, and student scholarships have better
positioned the company to attract top talent.
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Technology
We currently utilize multiple applications to support our various lines of business and locations for patient accounting. Each application supports its
respective line of business and locations with administrative, office, clinical and operating information system needs, including compliance of our operating
systems with federal and state privacy, security and interoperability requirements. Each assists our staff in gathering information to improve the quality of
consumer care, optimize financial performance, promote regulatory compliance and enhance staff efficiency. Each application is hosted by the vendor in a
secure data center, which provides multiple redundancies for storage, power, bandwidth and security.
In order to comply with federal and state laws and regulations around EVV use, we utilize several different vendors and have built interfaces
between the EVV vendor and the patient accounting system utilized in the respective branch location. Our caregivers use a mix of Interactive Voice
Response (“IVR”) and mobile applications for EVV. In addition, we use these technologies to record basic information about each visit, record start and
end times for a scheduled shift, track mileage reimbursement, send text messages to the caregivers and communicate basic payroll information.
We license the Qlik Business Intelligence (“Qlik”) platform to provide historical, current, and forward-looking operational performance analysis. We
currently have our personal care and hospice segments integrated into Qlik. Qlik provides high-level historical and current analytical views to measure
performance against budget and deliver insight into the various factors driving our execution against our financial, operational, and compliance goals. This
analysis is available in summary and detailed views to accommodate user needs at all levels, from senior management to operators in the field.
We utilize the ADP Vantage Suite as our base human resources and payroll processing system and use their services and products to manage our
leave of absence processes, benefits, 401(k) and flexible spending account administration, garnishment services, payroll tax filings, ACA compliance and
filings, and time and attendance. For financial management, we utilize Oracle’s Planning Budgeting Cloud Service as our solution for budgeting,
forecasting, and financial reporting and Oracle Fusion for the general ledger, accounts payable and fixed assets.
Government Regulation
Overview
Our business is subject to extensive federal, state and local regulation. Changes in the laws and regulations, or new interpretations of existing laws
and regulations, may have a material impact on the scope of services offered (including the definition of permissible activities), the relative cost of doing
business, and the methods and amounts of payment for care by both governmental and other payors. In addition, differences among state laws may impede
our ability to expand into certain markets. If we fail to comply with applicable laws and regulations, we could suffer administrative civil or criminal
penalties, including substantial fines, the loss of our licenses to operate and 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 further discussion at “Management’s Discussion and Analysis of Financial Condition and Results of Operations
—“Liquidity and Capital Resources.”
Medicare and Medicaid Participation
To participate in and qualify for reimbursement under Medicare, our home health agencies and hospices must comply with extensive conditions of
participation. Likewise, to participate in Medicaid programs, our personal care services, hospices and home health agencies are subject to various
requirements imposed by federal and state authorities. If we were to violate the applicable federal and state regulations governing Medicare or Medicaid
participation, we could be excluded from participation in federal and state healthcare programs and be subject to substantial administrative, civil and
criminal penalties.
Healthcare Reform
The healthcare industry is subject to changing political, regulatory, and economic influences at the federal and state level, along with scientific and
technological initiatives and innovations that may affect our business. In recent years, the healthcare industry has undergone significant changes, many of
which have been aimed at reducing costs and government spending and increasing access to health insurance. The most prominent of these efforts, the
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”), affects
how healthcare services are covered, delivered and reimbursed. The ACA increased health insurance coverage through a combination of public program
expansion, private sector health insurance requirements and other reforms. However, the law has been, and continues to be, subject to legislative and
regulatory changes and court challenges.
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States continue to explore payment and delivery reform initiatives, including quality of care incentives. Some states use or have applied to use
Medicaid waivers granted by CMS to implement the ACA’s Medicaid expansion provisions, impose different eligibility or enrollment restrictions, or
otherwise implement programs that vary from federal standards. Some of these program changes may reduce the number of current and/or future Medicaid
enrollees in certain states. For example, Georgia imposes work and community engagement requirements under a Medicaid demonstration program for new
enrollees that launched in mid-2023 with the permission of a federal court, while the current presidential administration and several courts have rejected
similar initiatives in other states, making it difficult to predict the nature and success of potential changes. In addition, enrollment in managed Medicaid
plans has increased in recent years, as state governments seek to control the cost of Medicaid programs. Managed Medicaid programs enable states to
contract with one or more entities for patient enrollment, care management and claims adjudication. The states usually do not relinquish program
responsibilities for financing, eligibility criteria and core benefit plan design.
The CMS Innovation Center tests innovative payment and service delivery systems to reduce Medicare and Medicaid program expenditures while
maintaining or enhancing quality. For example, the CMS Innovation Center has supported testing of new models of care for “dual eligibles,” funding of
home health providers that offer chronic care management services, and establishment of pilot programs that bundle acute care hospital services with
physician services and post-acute care services, which may include home health services for certain patients. In addition, the Improving Medicare Post-
Acute Care Transformation Act of 2014 (the “IMPACT Act”) required HHS, in conjunction with the Medicare Payment Advisory Commission, to consider
and propose a unified post-acute care payment model for post-acute care services. Currently, home health agencies, skilled nursing facilities, inpatient
rehabilitation facilities, and long-term care hospitals are reimbursed under four distinct Medicare payment systems. In contrast, a unified post-acute care
payment model would pay these post-acute care providers under a single framework according to a patient’s characteristics, rather than the post-acute care
setting where the patient receives treatment. As required by the IMPACT Act, CMS and the HHS Office of the Assistant Secretary for Planning and
Evaluation issued a report in July 2022 that presented an initial prototype, and MedPAC issued a report in June 2023 evaluating a prototype design.
Although both CMS and MedPAC determined that designing a unified prospective payment system for post-acute care providers is feasible, MedPAC
concluded that implementation would require significant policy changes and considerable agency resources and noted that CMS may consider smaller-scale
site-neutral policies to address some of the overlap in patients treated in different settings. Other recent reform initiatives and proposals at the federal and
state levels include those focused on price transparency, which may impact prices and the relationships between providers, patients, and payors. For
example, among other consumer protections, the No Surprises Act imposes various requirements on providers and health plans intended to prevent
“surprise” medical bills. It requires providers to send an insured patient’s health plan a good faith estimate of expected charges, including billing and
diagnostic codes, prior to when the patient is scheduled to receive the item or service. HHS is deferring enforcement of the good faith estimate requirement
for insured patients until it issues additional regulations. The No Surprises Act also generally requires providers to provide a good faith estimate of
expected charges to uninsured or self-pay individuals in advance of the scheduled services or upon request. HHS is delaying enforcement with regard to
good faith estimates that do not include expected charges for co-providers or co-facilities until the agency issues additional regulations. A number of states
have adopted their own healthcare price transparency requirements. In addition, trends toward transparency and value-based pricing may impact our
competitive position and patient volumes. For example, the CMS Care Compare website makes publicly available certain data on home health agency and
hospice performance on quality measures and patient satisfaction. Further, Medicare reimbursement is tied to reporting of quality measures.
In May 2023, CMS published a proposed rule, intended to improve access to services for Medicaid beneficiaries, that includes provisions related to
HCBS payments. Specifically, in an effort to address workforce shortages, the proposed rule would (if finalized in its proposed form) require that a
minimum of 80% of Medicaid payments in a state for home health aide, personal care services and some similar services be spent on compensation to
direct care workers, in addition to related payment transparency requirements. CMS has proposed allowing states four years to implement changes required
by a final rule. The ultimate impact of the 80% requirement, if finalized as proposed, could be adverse for periods after implementation, but other aspects
of the rule could also benefit our business by improving access to services, depending on the policies ultimately set forth in any final rule. The comment
period for the proposed rule ended July 1, 2023. The Company filed a comment letter on the proposed rule before this deadline, as did many other
organizations, states and stakeholders. On January 26, 2024, CMS sent a final rule to the Office of Management and Budget (OMB) for review and
clearance. The contents of the final rule are unknown at this time, and the final rule may be significantly different than the proposed rule. OMB review is
the last step in the process prior to release of the regulation in the Federal Register. The final rule’s timetable on the OMB website projects a release by
April 2024.
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There is uncertainty regarding the potential impact of health reform efforts at the federal and state levels. For example, some members of Congress
have proposed measures that would expand government-sponsored coverage, including single-payor models. Some states have implemented or are
considering measures such as individual health insurance mandates and public health insurance options. Other industry participants, such as private payors
and large employer groups and their affiliates, may also introduce financial or delivery system reforms. Health reform initiatives and proposals from the
government or the private sector may impact prices, our relationships with patients, payors or ancillary providers, and our competitive position, among
other effects.
Permits, Licensure and Certificate of Need
Our hospice, home health and personal care services are authorized and/or licensed in accordance with various state and county requirements, which
also address a variety of operational issues including standards for the provision of medical or care services, clinical records, personnel, infection control
and care plans. Additionally, healthcare professionals at our agencies are required to be individually licensed or certified under state law. Although our
personal care service caregivers are generally 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 operate in 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 or
expanding certain health services, operations or facilities or making certain capital expenditures. These requirements are intended to avoid unnecessary
duplication of services. In order to obtain a CON, a state health planning agency must determine that a need exists for the project.
Fraud and Abuse Laws
The laws and regulations governing our operations, including the terms of participation in Medicare, Medicaid and other government programs,
impose certain requirements and limitations on our operations, business arrangements and our interactions with providers and consumers. These laws
include, but are not limited to, the federal Anti-Kickback Statute, the federal Stark Law, the federal False Claims Act (“FCA”), the federal Civil Monetary
Penalties Law, other federal and state fraud and abuse, insurance fraud, and fee-splitting laws, which may extend to services reimbursable by any payor,
including private insurers.
The fraud and abuse laws and regulations to which we are subject include but are not limited to:
•
•
•
The federal Anti-Kickback Statute, which prohibits providers and others from directly or indirectly soliciting, receiving, offering or paying any
remuneration with the intent of generating referrals or orders for services or items covered by a federal healthcare program. Courts have
interpreted this statute broadly and held that there is a violation of the Anti-Kickback Statute if just one purpose of the remuneration is to
generate referrals.
The federal physician self-referral law, commonly known as the Stark Law, which prohibits physicians from referring Medicare and Medicaid
patients to healthcare entities in which they or any of their immediate family members have ownership interests or other financial arrangements,
if these entities provide certain “designated health services” (including home health services) reimbursable by Medicare or Medicaid, unless an
exception applies. The Stark Law also prohibits entities that provide designated health services reimbursable by Medicare and Medicaid from
billing the Medicare and Medicaid programs for any items or services that result from a prohibited referral and requires the entities to refund
amounts received for items or services provided pursuant to the prohibited referral on a timely basis.
The federal FCA and similar state laws that govern the submission of claims for reimbursement and prohibit the making of false claims or
statements. The government may use the FCA to prosecute Medicare and other government program fraud in areas such as coding errors and
billing for services not provided. Among the many other potential bases for liability is the knowing and improper failure to report and refund
amounts owed to the government within 60 days of identifying an overpayment. Submission of claims for services or items generated in
violation of the Anti-Kickback Statute constitutes a false or fraudulent claim under the FCA. The federal government has taken the position, and
some courts have held, that providers who allegedly have violated other statutes, such as the Stark Law, have thereby submitted false claims
under the FCA. The FCA may be enforced directly by the federal government or by a whistleblower on the government’s behalf.
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•
•
The federal Civil Monetary Penalties Law, which prohibits, among other conduct, offering remuneration to influence a Medicare or Medicaid
beneficiary’s selection of a healthcare provider, contracting with an individual or entity known to be excluded from a federal healthcare program,
billing for services not rendered or for medically unnecessary services, misrepresenting actual services rendered in order to obtain higher
reimbursement, and the failure to return overpayments in a timely manner.
State anti-kickback and self-referral provisions, false claims laws, insurance fraud laws, and fee-splitting laws. The scope and interpretation of
these state laws vary, and in some cases apply to items or services reimbursed by any payor, including patients and commercial insurers. For
instance, the Illinois Insurance Claims Fraud Prevention Act penalizes the knowing offer or payment of remuneration to induce a person to
procure client or patients under a contract of insurance, including commercial insurance plans.
Penalties for violation of various fraud and abuse laws or other failure to substantially comply with the numerous conditions of participation in the
Medicare or Medicaid programs may result in criminal penalties, civil sanctions, including substantial civil monetary penalties, and exclusion from
participation in federal healthcare programs, including Medicare and Medicaid.
Payment Integrity
We are subject to routine and periodic surveys and audits by various governmental agencies and other payors. From time to time, we receive and
respond to survey reports containing statements of deficiencies. Periodic and random audits conducted or directed by these agencies could result in a delay
in receipt or an adjustment to the amount of reimbursements due or received under federal or state programs and could result in referrals to other agencies
to investigate and/or prosecute potential fraud or abuse.
CMS and state Medicaid agencies contract with third parties to promote the integrity of the Medicaid and Medicare programs through reviews of
quality concerns and detections and corrections of improper payments. For example, CMS and state Medicaid agencies contract with recovery audit
contractors (“RACs”) on a contingency fee basis to conduct post-payment reviews to detect and correct improper payments in the Medicare and Medicaid
programs. RACs review claims submitted to Medicare for billing compliance, including correct coding and medical necessity. The RAC program’s scope
also includes Medicaid claims. States may coordinate with Medicaid RACs regarding recoupment of overpayments and refer suspected fraud and abuse to
appropriate law enforcement agencies. In addition, CMS engages unified program integrity contractors (“UPICS”) to perform proactive analysis, audits,
investigations and other program integrity functions across the Medicare and Medicaid programs, with the goal of identifying and deterring fraud and abuse
to avoid improper payments. Working across five geographic jurisdictions, UPICs collaborate with states and coordinate provider investigations across the
Medicare and Medicaid programs.
From time to time, various federal and state agencies, such as HHS, issue pronouncements that identify practices and provider types that may be
subject to heightened scrutiny, as well as practices that may violate fraud and abuse laws. We believe, but cannot assure you, that our operations comply
with the principles expressed by HHS in these reports, advisories and guidance.
HIPAA and Other Privacy and Security and Data Exchange Requirements
The Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”) and its implementing regulations require the use of
uniform electronic data transmission standards and code sets for certain healthcare claims and reimbursement payment transactions submitted or received
electronically. HIPAA extensively regulates the use, disclosure, confidentiality, availability and integrity of individually identifiable health information,
known as “protected health information,” and provides for a number of individual rights with respect to such information. As a “covered entity” subject to
HIPAA, we are required to maintain privacy and security policies, train workforce members, maintain physical, administrative, and technical safeguards,
enter into confidentiality agreements with vendors that handle protected health information (“business associates”), and permit individuals to access and
amend their protected health information. In addition, we must report any breaches of unsecured protected health information. HIPAA violations may result
in criminal penalties and significant civil penalties.
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Other federal and state laws and regulations that apply to the collection, use, retention, protection, security, disclosure, transfer and other processing
of personal data, such as the California Consumer Protection Act, which was recently significantly modified by the California Privacy Rights Act, may also
impose additional or inconsistent obligations and/or result in additional penalties. Virginia and certain other states have also passed comprehensive privacy
legislation, and several privacy bills have been proposed both at the federal and state level that may result in additional legal requirements that impact our
business. The potential effects of these laws are far-reaching and may require us to modify our data processing practices and policies and to incur
substantial costs and expenses in order to comply. Healthcare providers and industry participants are also subject to a growing number of requirements
intended to promote the interoperability and exchange of patient health information, including prohibitions on information blocking. For example, certain
healthcare providers and other entities are subject to information blocking restrictions pursuant to the 21st Century Cures Act that prohibit practices that are
likely to interfere with the access, exchange or use of electronic health information, except as required by law or specified by HHS as a reasonable and
necessary activity. Violations may result in penalties or other negative financial impacts.
Environmental, Health and Safety Laws
We are subject to federal, state and local regulations governing the storage, transport, use and disposal of hazardous materials and waste products. In
the event of an accident involving such hazardous materials, we could be held liable for any damages that result, and any liability could exceed the limits or
fall outside the coverage of our insurance. We may not be able to maintain insurance on acceptable terms, or at all.
In addition, we could be affected by climate change to the extent that climate change results in severe weather conditions or other disruptions
impacting the communities in which we conduct operations or adversely impacts general economic conditions, including in communities in which we
conduct operations. Moreover, legal requirements regulating greenhouse gas emissions or otherwise associated with the transition to a lower carbon
economy may increase in the future, which could increase our costs associated with compliance and otherwise disrupt and adversely affect our operations.
At the current time, our compliance with environmental legal requirements, including legal requirements relating to climate change, do not have a material
effect on our capital expenditures, financial results or operations, and we did not incur material capital expenditures for environmental matters during the
year ended December 31, 2023. However, it is possible that future environmental-related developments may impact us, including as a result of climate
change and/or new legal requirements associated with the transition to a lower carbon economy, in a manner that we are currently unable to predict.
Access to Public Filings
Through our website, www.addus.com, we make available, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. In
addition to our website, the SEC maintains an internet site that contains our reports, proxy and information statements, and other information that we file
electronically with the SEC at www.sec.gov. The references to our website address in this Form 10-K do not constitute incorporation by reference of the
information contained on the website and should not be considered part of this document.
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ITEM 1A. RISK FACTORS
Any of the risks described below, and the risks described elsewhere in this Form 10-K, could have a material adverse effect on our business and
consolidated financial condition, results of operations and cash flows, cause the trading price of our common stock to decline and cause the actual
outcome of matters to differ materially from our current expectations as reflected in forward-looking statements made in this Form 10-K. The
considerations and risks that follow are organized within relevant headings but may be relevant to other headings as well. The risk factors described below
and elsewhere in this Form 10-K are not the only risks we face. Our business and consolidated financial condition, results of operations and cash flows
may also be materially adversely affected by factors that are not currently known to us, by factors that we currently consider immaterial or by factors that
are not specific to us, such as general economic conditions.
You should refer to the explanation of the qualifications and limitations on forward-looking statements under “Special Caution Concerning
Forward-Looking Statements.” All forward-looking statements made by us are qualified by the risk factors described below.
Risks Related to our Growth Strategy
Our growth strategy depends on our ability to manage growing and effectively integrating 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
the potential establishment of a presence in new markets. This growth has placed and continues to place significant demands on our management team,
systems, internal controls and financial and professional resources. In addition, we will need to further develop our financial controls and reporting systems
to accommodate our growth. This could require us to incur expenses for hiring additional qualified personnel, retaining professionals to assist in developing
the appropriate control systems and expanding our information technology infrastructure. Our inability to effectively manage growth could have a material
adverse effect on our financial results.
Previously completed or future acquisitions, or growth initiatives, may be unsuccessful and could expose us to unforeseen liabilities.
Our growth strategy includes potential geographical expansion into new markets and the addition of new services in existing markets through the
acquisition of local service providers. These acquisitions involve significant risks and uncertainties, including difficulties assimilating acquired personnel
and other corporate cultures into our business, the potential loss of key employees or consumers of acquired providers, regulatory risks, the assumption of
liabilities, exposure to unforeseen liabilities of acquired providers, and the diversion of the management team’s attention. In addition, our due diligence
review of acquired businesses may not successfully identify all potential issues. Further, following completion of an acquisition, we may not be able to
maintain the growth rate, levels of revenue, earnings or operating efficiency that we and the acquired business have achieved or might achieve separately.
The failure to effectively integrate future acquisitions could have a material adverse impact on our operations.
We have grown our business opportunistically through de novo offices and we may in the future selectively open new offices in existing and new
states. De novo offices involve risks, including those relating to licensing, accreditation, and payor program enrollment, hiring new personnel, establishing
relationships with referral sources and delays or difficulty in installing our operating and information systems. We may not be successful in generating
sufficient business activity to sustain the operating costs of such de novo operations.
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, 2023 and 2022, we had cash balances of $64.8 million and $80.0 million, respectively, and $126.4 million and $134.9 million,
respectively, of outstanding debt on our credit facility. After giving effect to the amount drawn on our credit facility, approximately $8.0 million and $8.2
million of outstanding letters of credit at December 31, 2023 and 2022, respectively, and borrowing limits based on an advanced multiple of Adjusted
EBITDA (as defined in the Credit Agreement), we had $335.6 million and $237.2 million available for borrowing under our credit facility as of December
31, 2023 and 2022, respectively. Since our credit facility provides for borrowings based on a multiple of an Adjusted EBITDA ratio, any declines in our
Adjusted EBITDA would result in a decrease in our available borrowings under our credit facility.
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We cannot predict the timing, size and success of our acquisition efforts, our efforts to expand into new geographic regions or the associated capital
commitments. If we do not have sufficient cash resources or availability under our credit facility, our growth could be limited unless we obtain additional
equity or debt financing. In the future, we may elect to issue additional equity securities in conjunction with raising capital, completing an acquisition or
expanding into a new geographic region. Such issuances could be dilutive to existing shareholders. In addition, our ability under our credit facility to
consummate acquisitions is restricted if we exceed certain Total Net Leverage Ratio (as defined in the Credit Agreement, and subject to adjustments as
provided therein) thresholds, without the consent of the lenders; provided, however, in certain circumstances, in connection with a Material Acquisition (as
defined in the Credit Agreement), we can elect to increase our Total Net Leverage Ratio compliance covenant for the then current fiscal quarter and the
three succeeding fiscal quarters. Further, our credit facility requires, among other things, that we are in pro forma compliance with the financial covenants
set 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 consistent
with historic practices may be limited if we are unable to obtain such consent from our lenders.
Business Risks
Our financial results have been, and may continue to be, adversely impacted by negative macroeconomic conditions.
Economic conditions in the United States continue to be challenging in various respects, and the United States economy continues to experience
significant inflationary pressures, elevated interest rates, challenging labor market conditions, potential adverse effects associated with current geopolitical
conditions. Taking into account these factors, we have incurred, and may continue to incur, increased competition for new caregivers and skilled healthcare
staff, which will continue to impact our ability to attract and retain new employees. Further, the inflationary conditions have resulted in, and may continue
to result in, increased operating costs, particularly as the result of increased wages we have paid and may continue to pay our caregivers and other
personnel and our ability to attract and retain personnel. Our ability to realize rate increases from government programs and private payors, which represent
most of our revenue, might be limited despite inflation. Higher interest rates also raise our financing costs. These factors had an unfavorable impact on our
financial results during the year ended December 31, 2023, and may have an unfavorable impact on our financial results in future periods which could be
material.
Moreover, we anticipate that the federal deficit, the growing magnitude of Medicare and Medicaid expenditures and the aging of the U.S. population
will continue to place pressure on government healthcare programs, and it is possible that future deficit reduction legislation will mandate additional
Medicare spending reductions. In addition, if economic conditions in the United States significantly deteriorate, any such developments could materially
and adversely affect our results of operations, financial position, and/or our cash flows, even if interest rates fall. For example, states could face significant
fiscal challenges and revise their revenue forecasts and adjust their budgets, and sales tax collections and income tax receipts could be depressed. Negative
macroeconomic conditions could also disrupt financial markets and capital markets and the businesses of financial institutions, potentially causing a
slowdown in the decision-making of these institutions. This may affect the timing on which we may obtain any additional funding and there can be no
assurance that we will be able to raise additional funds on terms acceptable to us, if at all.
Timing differences in reimbursement may cause liquidity problems.
We fund operations primarily through the collection of accounts receivable, but there is a delay between the time that we provide services and the
time that we receive reimbursement or payment for these services. These delays may result from such factors as changes by payors to data submission
requirements, requests by fiscal intermediaries for additional data or documentation, other Medicare or Medicaid issues, or information system problems.
Further, many of the states in which we operate are operating with budget deficits for the 2023 fiscal year and fiscal year 2024 state budgets could be
impacted to the extent economic conditions in the United States are challenging in 2024. Various states may in the future delay reimbursement, which
would adversely affect our liquidity. In addition, from time to time, procedural issues require us to resubmit claims before payment is remitted, which
contributes to our aged receivables. Additionally, we may experience unanticipated delays in receiving reimbursement from state programs due to changes
in their policies or billing or audit procedures. Delays in receiving reimbursement or payments from Medicare, Medicaid and other payors may adversely
impact our working capital. As a result, working capital management, including prompt and diligent billing and collection, is an important factor in our
results of operations and liquidity. Our working capital management procedures may not successfully negate this risk.
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We face routine and periodic surveys, audits and investigations by governmental agencies and private payors, which could have adverse findings
that may negatively impact our business.
We are and have been subject to routine and periodic surveys, audits and investigations by various governmental agencies. In addition to surveys to
determine compliance with the conditions of participation, CMS has engaged a number of contractors (including Medicare Administrative Contractors
(“MACs”), RACs and UPICs) to conduct audits and investigations to evaluate billing practices and identify overpayments. In addition, individual states
have similar integrity programs, including Medicaid RAC Programs. In certain states, payment of home health claims may be impacted by the Review
Choice Demonstration for Home Health Services, a program intended to identify and prevent fraud, reduce the number of Medicare appeals, and improve
provider compliance with Medicare program requirements. The program is currently limited to home health agencies in in certain states, including Illinois,
Ohio, Oklahoma, North Carolina, Florida and Texas. Providers in these states may initially select from the following claims review and approval processes:
pre-claim review, post-payment review, or a minimal post-payment review with a 25% payment reduction. Home health agencies that maintain high
compliance levels will be eligible for additional, less burdensome options.
Private third-party payors may also conduct audits and investigations, and we also perform internal audits and monitoring.
These audits and investigations can result and have resulted in recoupments by Medicare, state programs and other payors of amounts previously
paid to us if we fail to comply with applicable laws or program requirements. Depending on the nature of the conduct found in such audits and
investigations and whether the underlying conduct could be considered systemic, the resolution of these audits and investigations could have a material,
adverse effect on our financial position, results of operations and liquidity.
Private third-party payors may also conduct audits and investigations, and we also perform internal audits and monitoring. Depending on the nature
of the conduct found in such audits and whether the underlying conduct could be considered systemic, the resolution of these audits could have a material,
adverse effect on our financial position, results of operations and liquidity.
Our revenues are concentrated in a small number of states, which makes 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 revenues
including Illinois, New Mexico and New York. Accordingly, any change in the current demographic, economic, competitive or regulatory conditions in
these states could have an adverse effect on our business, financial condition or results of operations. Changes to the Medicaid programs in these states
could also have a disproportionately adverse effect on our business, financial condition, results of operations or cash flows.
Future 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, 2023 and 2022, we derived approximately 20.9% and 20.7%, respectively, of our revenue from the Illinois
Department on Aging programs. State government officials have in the past attempted, and in the future may attempt, to reduce government spending by
proposing changes aimed at reducing expenditures by this department. The nature and extent of any proposed future cost reduction initiatives is unknown.
If future reforms impact the eligibility of consumers for services, the number of hours authorized or otherwise restrict services provided to existing
consumers, our service revenues, results of operations, financial position and growth may be adversely affected.
Failure to renew a significant payor agreement or group of related payor agreements may materially impact our revenue.
Each of our agreements is generally in effect for a specific term, but they are also generally terminable with 60 days' notice. Our ability to renew or
retain our agreements depends 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 in provider eligibility requirements. Additionally, failure to satisfy any of the numerous technical renewal requirements in
connection with our proposals for agreements could result in a proposal being rejected even if it contains favorable pricing terms. Failure to obtain, renew
or retain agreements with major payors may negatively impact our results of operations and revenue. We can give no assurance these agreements will be
renewed on commercially reasonable terms or at all.
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Negative publicity or changes in public perception of our services may adversely affect our ability to receive referrals, obtain new agreements and
renew existing agreements.
Our success in receiving referrals, obtaining new agreements and renewing our existing agreements depends upon maintaining our reputation as a
quality 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. The HCBS Quality Measure Set, published by
CMS, is intended to promote more common and consistent use of nationally standardized quality measures within and across state HCBS programs. Use of
these HCBS measures by states, managed care organizations and other entities involved in HCBS is voluntary. In addition, the CMS Care Compare website
makes publicly available certain data on home health agency and hospice performance on quality measures and patient satisfaction. Medicare
reimbursement for these provider types is tied to reporting of quality measures.
While we believe that the services that we provide are of high quality, if our quality measures, some of which are published online by CMS, are
deemed to be unsatisfactory or not of the highest value in relation to those of our competitors, our reputation could be negatively affected. Negative
publicity, changes in public perceptions of our services or government investigations of our operations could damage our reputation and hinder our ability
to receive referrals, retain agreements or obtain new agreements. Increased government scrutiny may also contribute to an increase 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.
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,
2023, 51.3% of our workforce was represented by labor unions. We have numerous agreements with local SEIU affiliates which are renegotiated from time
to time. These negotiations are often initiated when we receive increases in our hourly rates from various state agencies. Upon expiration of these collective
bargaining agreements, we may not be able to negotiate labor agreements on satisfactory terms with these labor unions. A strike, work stoppage or other
slowdown could result in a disruption of our operations and/or higher ongoing labor costs, which could adversely affect our business. Moreover, potential
changes to federal labor laws and regulations, including those supported by the current presidential administration, could increase the likelihood of
employee unionization activity and the ability of employees to unionize. Labor costs are the most significant component of our total expenditures and,
therefore, an increase in the cost of labor could significantly harm our business.
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
adversely affected.
Goodwill and intangible assets with finite lives represent a significant portion of our assets. Goodwill represents the excess of cost over the fair
market value of net assets acquired in business combinations. For example, if our market capitalization drops significantly below the amount of net equity
recorded on 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 part of 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 net earnings and net worth could be materially adversely affected, which could affect our flexibility to obtain additional financing. In addition, if our
assumptions used in preparing our valuations for purposes of impairment testing differ materially from actual future results, we may record impairment
charges in the future and our financial results may be materially adversely affected. We had $663.0 million and $582.8 million of goodwill and $92.0
million and $72.2 million of intangible assets recorded on our Consolidated Balance Sheets at December 31, 2023 and 2022, 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
will continue to review our goodwill and other intangible assets for possible impairment. We cannot be certain that a downturn in our business or changes
in market conditions will not result in an impairment of goodwill or other intangible assets and the recognition of resulting expenses in future periods,
which could adversely affect our results of operations for those periods.
If we fail to maintain an effective system of internal control over financial reporting, such failure 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 independent
registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting. Compliance with SEC regulations adopted
pursuant to Section 404 of the Sarbanes Oxley Act requires annual management assessments of the effectiveness of our internal control over financial
reporting. Compliance with Section 404(b) of the Sarbanes-Oxley Act has increased our legal and financial compliance costs making some activities more
difficult, time-consuming or costly and may also place strain on our personnel, systems and resources.
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To the extent that we now or in the future have deficiencies in our internal control over financial reporting that are not remediated, our ability to
accurately and timely report our financial position, results of operations, cash flows or key operating metrics could be impaired, which could result in a
material misstatement in our financial statements, late filings of our annual and quarterly reports under the Exchange Act, restatements of our consolidated
financial statements or other corrective disclosures, or other material adverse effects on our business, reputation, results of operations, financial condition or
liquidity and could create a perception that our financial results do not fairly state our financial condition or results of operations, any of which could have
an adverse effect on the value of our stock.
Regulatory Risks
Compliance with changing laws and regulations including specific program compliance may result in additional expenses and pose challenges for
our management team.
Our industry is subject to extensive government regulation. For example, the state agencies that contract for our services require us to comply with
various laws and regulations affecting the services we provide. We have a compliance department, headed by our chief compliance officer, that monitors
and reports on our compliance efforts. The laws and regulations governing our operations are subject to change. The implementation of these changes may
require us to modify our operations or increase our efforts to remain compliant, may reduce the authorizations for services to be provided, and may result in
certain consumers no longer being eligible for our services, any of which may result in lower revenues and increased costs, reducing our operating
performance and profitability. If we continue to serve our consumers without addressing changes in laws and regulations, we are at risk for non-compliance
with program requirements and potential penalties, which may be significant.
Our hospice operations are subject to annual Medicare caps. If we exceed the caps, our business and consolidated financial condition, results of
operations 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 an
inpatient cap and an aggregate cap, which are set each federal fiscal year. The inpatient cap limits the number of days of inpatient care to no more than 20%
of total patient care days. The aggregate cap limits the amount of Medicare reimbursement a hospice may receive, based on the number of Medicare
patients served. If a hospice’s Medicare payments exceed its inpatient or aggregate caps, it must repay Medicare for the excess amount. If payments
received under any of our hospice provider numbers exceed these caps, we may be required to reimburse Medicare such excess amounts, which could 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 could
adversely affect our consumer caseload, units of service, revenues, gross profit and profitability.
A significant portion of our caseload and revenues are derived from government healthcare programs, primarily Medicare and Medicaid. For the
year ended December 31, 2023, we derived approximately 59.5% of our net service revenues from state and local governmental agencies, primarily
through Medicaid state programs and 21.5% from Medicare. However, changes in government healthcare programs may decrease the reimbursement we
receive or limit access to, or utilization of, our services. As federal healthcare expenditures continue to increase and as many state governments navigate
budgetary pressures, federal and state governments have made, and may continue to make, 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 (“BCA”) requires automatic
spending reductions to reduce the federal deficit, resulting in a uniform reduction across all Medicare programs of 2% per fiscal year that extends through
the first seven months of 2032. As a result of the American Rescue Plan Act of 2021 (“ARPA”), an additional Medicare payment reduction of up to 4% was
required to take effect in January 2022, although Congress has delayed implementation of this reduction until 2025. It is difficult to predict whether, when,
or what other deficit reduction initiatives may be proposed by Congress, but future legislation may include additional Medicare spending reductions.
The Medicaid program, which is jointly funded by the federal and state governments, is often a state’s largest program. Governmental agencies
generally condition their agreements upon a sufficient budgetary appropriation. Almost all of the states in which we operate have experienced periodic
financial pressures and budgetary shortfalls due to challenging economic conditions and the rising costs of healthcare, among other factors. Reductions to
federal support for state Medicaid or other programs could also result in budgetary shortfalls. As a result, many states have made, are considering or may
consider making changes in their 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 contain costs include, for example:
•
•
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;
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•
•
•
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•
•
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. For example, we provide support services as a
fiscal intermediary to the New York Consumer Directed Personal Assistance Program (“CDPAP”), a self-directed care alternative program that allows
eligible individuals who need help with activities of daily living or skilled nursing services to choose their caregivers. In 2019, New York initiated a new
Request For Offer (“RFO”) process to competitively procure CDPAP fiscal intermediaries. The Company was not selected in the initial RFO process. We
submitted a formal protest in response to the selection process, which was filed and accepted in March 2021. In April 2022, the New York legislature
passed its fiscal year 2023 state budget, which amended the Fiscal Intermediary RFO process to authorize all fiscal intermediaries that submitted an RFO
application and served at least 200 clients in New York City or 50 clients in other counties between January 1, 2020, and March 31, 2020, but that were not
initially awarded a contract, to contract with the New York State Department of Health (“NYSDOH”). These fiscal intermediaries are permitted to continue
operating in all counties contained in their RFO application, provided they submitted an attestation and supporting information to the NYSDOH no later
than November 29, 2022. The Company submitted an attestation on November 22, 2022, which allowed the Company to continue its CDPAP fiscal
intermediary operations. However, the Company decided at that time to suspend materially all of its new fee-for-service patient admissions in the CDPAP
through County Social Service Departments. On June 6, 2023, the NYSDOH notified the Company that it had received a contract award. Under this
contract, the Company is providing services to all current payors and has resumed new fee-for-service patient admissions through County Social Service
Departments in the CDPAP. The CDPAP continues to be targeted for changes by New York governmental authorities, however. For example, the
governor’s most recent update on the state budget contained proposals that could adversely affect the Company’s ability to participate in the CDPAP. These
proposals may not be adopted in their current form, or at all. The Company recognized approximately $40.7 million and $3.5 million in net service revenue
and operating income, respectively, from the CDPAP for the year ended December 31, 2023.
In 2023, we derived approximately 44.5% of our net service revenues from services provided in Illinois, 17.0% of our net service revenues in New
Mexico and 8.7% of our net service revenues in New York. Because a substantial portion of our business is concentrated in these states, any significant
reduction in state expenditures that pay for our services or other significant changes in these states may have a disproportionately negative impact on our
future operating results. We cannot predict whether states material to our operating results will experience changes or other challenges that negatively
impact our ability to be reimbursed for our services in a timely manner.
Changes in the volume of uninsured patients could adversely affect our cash flows and results of operations. In recent years, federal and state
legislatures have considered or passed various proposals impacting the size of the uninsured population. For example, Medicaid enrollment increased as a
result of COVID-19 relief legislation that authorized a temporary increase in federal funds for certain Medicaid expenditures in states that maintained
continuous Medicaid enrollment, among other requirements. The end of the continuous enrollment condition in 2023, including the resumption of
redeterminations for Medicaid enrollees, has resulted in significant coverage disruptions and dis-enrollments of enrollees, and Medicaid enrollment is
generally expected to decline through fiscal year 2024 (which ends June 30, 2024, in most states). While we believe the population targeted by our model
will be less affected than other Medicaid enrollees, there is uncertainty regarding how enrollment will ultimately change as unwinding continues and states
return to normal eligibility and enrollment operations.
Congress, CMS and state authorities may implement changes to reimbursement for or coverage of items and services that affect our business and
operations. For example, from time to time, CMS revises the reimbursement systems used to reimburse healthcare providers, including through changes to
the home health and hospice reimbursement systems, which may result in reduced Medicare and/or Medicaid payments. The shift toward value-based care
continues, including through the implementation of alternative payment models and various demonstration projects. Some states have obtained CMS
approval to test new or existing approaches to payment and delivery of Medicaid benefits. Payment policies for different types of providers and for various
items and services continue to evolve, and future health reform efforts could impact both federal and state programs.
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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
offer, 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 for our services may receive, then our revenues and profitability could be negatively impacted. Our profitability depends principally on the levels
of government-mandated payment rates and our ability to manage the cost of providing services. In some cases, commercial insurance companies and other
private payors rely on government payment systems to determine payment rates and policies. As a result, changes to government healthcare programs that
reduce Medicare, Medicaid or other payments may negatively impact payments from private payors, as well. Any reduction in reimbursements from
governmental or private payors or policies that negatively affect utilization of our services, such as the imposition of copayments or prior authorization
requirements, could also materially adversely affect our profitability.
Federal and state regulation may impair our ability to consummate acquisitions or open new agencies.
Federal and state laws and regulations may adversely impact our ability to acquire or open new start-up agencies, and the change of ownership
processes for Medicare, Medicaid and other payors can be complex. For example, a Medicare regulation known as the “36 Month Rule” restricts buyers
from assuming Medicare billing privileges of Medicare-certified home health agencies and, effective January 1, 2024, hospices. The 36 Month Rule applies
if the acquired home health agency or hospice either enrolled in Medicare or underwent a change in majority ownership fewer than 36 months prior to the
acquisition, subject to certain exceptions. Instead, the buyer must enroll as a new provider with Medicare. The 36 Month Rule can increase competition for
acquisition targets that are not subject to the rule and may cause significant Medicare billing delays for the purchases of home health agencies and hospices
that are subject to the rule. Home health agencies and (effective January 1, 2024) hospices undergoing changes of ownership are considered a “high-risk”
provider type, subjecting provider enrollment applications to increased scrutiny, which may result in delays in processing. Further, in the past, CMS has
limited enrollment of new home health agencies. If another 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 also depend, where required, on our ability to obtain a state license to operate and, in some cases,
CON approval. States may limit the number of licenses they issue. In addition, some states require disclosures by healthcare entities to state attorneys
general or other designated entities in advance of sales or other transactions. The failure to obtain any required CON or license or other required approvals
could impair our ability to operate or expand our business. The increasingly challenging regulatory environment may negatively impact our ability to
acquire healthcare businesses if they are found to have material unresolved compliance issues. Resolving any such issues and completing applicable review
or approval processes could significantly delay or prevent us from acquiring other businesses and increase our acquisition costs.
The implementation of alternative payment models and the transition of Medicaid and Medicare beneficiaries to managed care organizations may
limit 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 to
organize and coordinate patient care while reducing unnecessary costs. Several states have implemented, or plan to implement, accountable care models for
their 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 losing
market share and for a loss of our current business. Further, if we fail to effectively provide or coordinate the efficient delivery of quality services, our
reputation may be negatively impacted, we may receive reduced reimbursement amounts and we may owe repayments to payors, which could cause our
revenues to decline.
We may be similarly impacted by increased enrollment of Medicare and Medicaid beneficiaries in managed care plans, which is part of the general
shift away from traditional fee-for-service models. Under the managed Medicare program, also known as Medicare Advantage, the federal government
contracts with private health insurers to provide Medicare benefits. Insurers may choose to offer supplemental benefits, including in-home support services,
and impose higher plan costs on beneficiaries. Approximately half of Medicare beneficiaries are enrolled in a Medicare Advantage plan, a figure that
continues to grow. While hospice services are currently reimbursed as a traditional fee-for-service program under Medicare Part A, CMS is testing the
inclusion of the Part A hospice benefit with the Medicare Advantage benefits package. Under the Hospice Benefit Component of the Value-Based
Insurance Design Model, Medicare Advantage plans are financially responsible for all traditional Medicare services, including hospice care. If hospice
services are offered more widely under Medicare Advantage plans, the change could result in reduced reimbursement, limited utilization, and increased
competition for managed care contracts.
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Enrollment in managed Medicaid plans is also growing, as states are increasingly relying on managed care organizations to deliver Medicaid
program services as a strategy to control costs and manage resources. We may experience increased competition for managed care contracts due to state
regulation and limitations. For instance, New York law limits the number of home care providers with which a managed Medicaid long-term care plan can
contract. We cannot 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 some of the managed care organizations, that our reimbursement under these programs will remain at current levels, that the authorizations for
services will remain at current levels or that our profitability will remain at levels consistent with past performance. In addition, operational processes may
not be well defined as a state transitions beneficiaries to managed care. For example, membership, new referrals and the related authorization for services to
be provided may be delayed, which may result in delays in service delivery to consumers or in payment for services rendered. Difficulties with operational
processes may negatively affect our revenue growth rates, cash flow and profitability for services provided. Other alternative payment models may be
presented by the government and commercial payors that subject our Company to financial risk. It is difficult to predict the nature and success of any such
models. We cannot predict at this time what effect alternative payment models may have on our Company.
Our industry is highly competitive, fragmented and market-specific.
The healthcare and long-term care industries are highly competitive among service providers and care models. We compete with personal care
service providers, hospice providers, home health providers, private caregivers, 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 these
providers and competitive care models may have greater financial, technical, political and marketing resources, name recognition or a larger number of
consumers and payors than we do. In addition, some of our competitors offer more services than we do in the markets in which we operate. These
competitive 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 before
providing home care services. Licensure is generally required of agencies providing home health and hospice services, though requirements vary by state.
Some states also require a provider to obtain a CON before establishing certain health services, operations or facilities. CON restrictions may reduce the
level of competition in a given industry or in a particular geographic region. In addition, 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. These factors may affect competition in the states in which we
operate.
Often our contracts with payors are not exclusive. Local competitors may develop strategic relationships with referral sources and payors. Further,
consolidation within the payor industry, vertical integration efforts involving payors and healthcare providers, and cost-reduction strategies by payors
continue to increase, which may affect our competitive position. In addition, existing competitors may offer new or enhanced services that we do not
provide or be viewed by consumers as a more desirable local alternative. These and other factors could impact our ability to contract with payors on
favorable terms, result in pricing pressures, loss of or failure to gain market share or loss of consumers or payors, or otherwise affect our competitive
position. Further, the introduction of new and enhanced service offerings, in combination with the development of strategic relationships by our
competitors, could cause a decline in revenue, a loss of market acceptance of our services and a negative impact on our results of operations.
Trends toward price transparency and value-based purchasing may have an impact on our competitive position, ability to obtain and maintain
favorable contract terms, and consumer volumes. For example, health insurers must provide online price comparison tools to help individuals get
personalized cost estimates for covered items and services. HHS also requires health insurers to publish online the charges negotiated with providers for
healthcare services. In addition, the CMS Care Compare website makes publicly available certain data on home health agency and hospice performance on
quality measures and patient satisfaction. It is unclear how price transparency requirements, value-based purchasing and similar initiatives will affect
consumer behavior, our relationships with payors, or our ability to set and negotiate prices.
We expect these competitive trends to continue. If we are unable to compete effectively, consumers may seek services from other providers, which
could have a negative impact on our business and 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
to our operations, which could negatively impact our profitability.
The federal government and the states in which we operate regulate our industry extensively. The laws and regulations governing our operations,
along with the terms of participation in various government programs, impose certain requirements on the way in which we do business, the services we
offer, and our interactions with providers and consumers. These requirements include matters related to:
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licensure and certification and enrollment with government programs;
eligibility for services;
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appropriateness and necessity of services provided;
adequacy and quality of services;
qualifications and training of personnel;
confidentiality, maintenance, interoperability, data breach, identity theft, security, access and exchange of medical records and other health-
related and personal information including information blocking, data breach, ransomware, identify theft and online tracking of personal
information;
environmental protection, health and safety;
relationships with physicians, other referral sources and recipients of referrals;
operating policies and procedures;
addition of, and changes to, 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 FCA, the federal Civil Monetary
Penalties Law, other federal and state fraud and abuse, insurance fraud, and fee-splitting laws, which may extend to services reimbursable by any payor,
including private insurers, the No Surprises Act, 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, skilled
nursing facilities and certain physicians who provide medical director and clinical services to our Company. We attempt to structure our relationships to
meet applicable regulatory requirements, but we cannot provide assurance that every relationship is fully compliant. Further, we may fail to discover
instances of noncompliance by businesses we acquire.
If we fail to comply with applicable laws and regulations, which are subject to change, we could be subject to civil sanctions and criminal penalties,
including substantial monetary penalties, the termination of rights to participate in federal and state healthcare programs, exclusion from federal healthcare
programs, the suspension or revocation of licenses, and we could face nonpayment or encounter delays in our ability to bill and collect for services
provided, any of which could adversely affect our business, results of operations, or financial results. Actions taken against one of our entities may subject
our other entities to adverse consequences. While we endeavor to comply with applicable laws and regulations, we cannot ensure you that our practices are
fully compliant or that courts or regulatory agencies will not interpret those laws and regulations in ways that will adversely affect our practices. Further,
the laws and regulations governing our business are subject to change, interpretations may evolve and enforcement focus may shift. These changes could
subject us to allegations of impropriety or illegality, require restructuring of relationships with referral sources and recipients or otherwise require changes
to our operations. The costs of compliance with, and the other burdens imposed by, applicable laws and regulations may be substantial and could increase
our operational costs, result in interruptions or delays in the availability of systems and/or result in a patient volume decline.
Federal and state government agencies have heightened and coordinated civil and criminal enforcement efforts throughout the healthcare industry.
We may face audits or investigations by government agencies or third parties, including under certain of our contractual relationships. An adverse outcome
under any such audit or investigation, a determination that we have violated applicable laws and regulations, or a public announcement that we are being
investigated for possible violations could result in liability, result in adverse publicity, require us to change our operations to implement plans of correction
for alleged deficiencies, and result in other negative consequences that could adversely affect our business, financial condition, or results of operations.
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We are subject to federal, state and local laws and regulations that govern our employment practices, including minimum wage, living wage, and
paid time-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 OSHA requirements,
wage and hour and other compensation requirements (including disclosure requirements), employee benefits, providing leave and sick pay, employment
insurance, proper classification of workers as employees or independent contractors, immigration and equal employment opportunity laws. These laws and
regulations can vary significantly among jurisdictions and can be highly technical. Costs and expenses related to these requirements are a significant
operating expense and may increase as a result of, among other things, changes in federal, state or local laws or regulations, or the interpretation thereof,
requiring employers to provide specified benefits or rights to employees, increases in the minimum wage and local living wage ordinances, increases in the
level of existing benefits or the lengthening of periods for which unemployment benefits are available. 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 health coverage for 95% of our full-time employees in 2023 or
be subject to an annual penalty, for example. Since our personal care operations are concentrated in Illinois, New Mexico and New York, we are also
particularly sensitive to changes in laws and regulations in these states. Additionally, the current presidential administration has signaled its support for
increases in minimum wage. We may not be able to offset any increased costs and expenses. Furthermore, any failure to comply with these laws, including
even a seemingly minor infraction, can result in significant penalties which could harm our reputation and have a material adverse effect on our business.
The COVID-19 pandemic increased some of these risks, with certain states modifying occupational health and safety guidelines in a manner that increases
scrutiny and complexity of operations with respect to appropriate training and use in the workplace of PPE and the possibility of corresponding regulatory
audit activity with respect to the adequacy of our practices and procedures. The COVID-19 pandemic also resulted in states modifying standards associated
with payment amounts and required justifications to qualify for sick leave and unemployment benefits. These modifications may result in increased
operational costs to us, which may adversely impact our financial performance.
In addition, certain individuals and entities, known as excluded persons, are prohibited from receiving payment for their services rendered to
Medicaid, Medicare and other federal and state healthcare program beneficiaries. If we inadvertently hire or contract with an excluded person, or if any of
our current employees or contractors becomes an excluded person in the future without our knowledge, we may be subject to substantial civil penalties,
including civil monetary penalties, an assessment of up to three times the amount claimed and exclusion from the program.
Our business may be adversely impacted by healthcare reform efforts.
In recent years, the healthcare industry has undergone significant changes, many of which have been aimed at reducing costs and government
spending. The U.S. Congress and certain state legislatures have considered and passed a large number of laws affecting the healthcare industry, including
laws intended to impact access to health insurance. The most prominent of these legislative reform efforts, the ACA affects how healthcare services are
covered, delivered, and reimbursed, and expanded health insurance coverage through a combination of public program expansion and private sector health
insurance reforms. However, the ACA has been, and continues to be, subject to legislative and regulatory changes and court challenges. It is possible that
changes by Congress or government agencies could eliminate or alter provisions beneficial to us, while leaving in place provisions reducing our
reimbursement or otherwise negatively impacting our business.
In addition, CMS administrators may make changes to Medicaid payment models or impose new limitations on the use of Medicaid funds. For
example, in May 2023, CMS published a proposed rule that, if finalized in its current form, would require that a minimum of 80% of Medicaid payments in
a state for home health aide, personal care services and some similar services be spent on compensation to direct care workers, in addition to related
payment transparency requirements. If adopted, this requirement could negatively impact our business and financial performance by, among other things,
increasing our labor costs. Likewise, CMS administrators may grant various flexibilities to states in the administration of state Medicaid programs,
including by modifying the scope of waivers under which states may implement Medicaid expansion provisions, impose different eligibility or enrollment
restrictions, or otherwise implement programs that vary from federal standards. Some of these program changes may reduce the number of Medicaid
enrollees in certain states.
Other recent reform initiatives and proposals at the federal and state levels include those focused on price transparency and value-based pricing,
which may impact our competitive position, patient volumes, and the relationships between providers, patients, and payors. For example, the CMS Care
Compare website makes publicly available certain data on home health agency and hospice performance on quality measures and patient satisfaction.
Medicare reimbursement is tied to reporting of quality measures. In addition, among other consumer protections, the No Surprises Act imposes various
requirements on providers and health plans that are intended to prevent “surprise” medical bills. The law generally requires providers to send an insured
patient’s health plan a good faith estimate of expected charges, including billing and diagnostic codes, prior to when the patient is scheduled to receive the
item or service.
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There is uncertainty regarding whether, when and what other health reform measures will be adopted through governmental avenues and/or the
private sector, the timing and implementation of any such efforts, and the impact of those efforts on providers as well as other healthcare industry
participants. Some members of Congress have proposed expanding government-funded coverage, including proposals to expand coverage of federally-
funded insurance programs as an alternative to private insurance or to establish a single payor system (such reforms are often referred to as “Medicare for
All”), and some states have implemented or proposed public health insurance options. We are unable to predict the nature and success of current and future
healthcare reform initiatives, any of which may have an adverse effect on our business, financial condition, and operating results.
The industry trend toward value-based purchasing may negatively impact our revenues.
There is a trend in the healthcare industry toward value-based purchasing of healthcare services among both government and commercial payors.
Generally, 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 or poor performance may negatively impact the amount of reimbursement received. In addition, CMS publishes home health and hospice quality
measure data online, through its Care Compare website, to allow consumers and others to search and compare data for Medicare-certified providers.
Alongside this quality and public reporting effort, home health agencies receive, under the HHVBP Model, increases or decreases to their Medicare fee-for-
service payments of up to 5% based on performance against specific quality measures relative to the performance of other home health providers. Data
collected in each performance year impacts Medicare payments two years later.
In the future, CMS may establish new value-based purchasing programs affecting a broader range of providers, some of which may be mandatory.
Initiatives aimed at improving quality and cost of care include alternative payment models, such as ACOs and bundled payment arrangements. The CMS
Innovation Center is aiming to have all fee-for-service Medicare beneficiaries and most Medicaid beneficiaries in a care relationship with accountability for
quality and total cost of care by 2030. There are also several state-driven value-based care initiatives. For example, some states have aligned quality metrics
across payors through legislation or regulation. Commercial payors are shifting toward value-based reimbursement arrangements as well.
We expect value-based purchasing programs, including programs that condition reimbursement on patient outcome measures, to become more
common and to involve a higher percentage of reimbursement amounts. It is unclear whether alternative models will successfully coordinate care and
reduce costs or whether they will decrease overall reimbursement. While we believe we are adapting our business strategies to compete in a value-based
reimbursement 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 the
outcomes demonstrated by our competitors, fail to satisfy quality data reporting requirements, are unable to meet or exceed quality performance standards
under any applicable value-based purchasing program, or otherwise fail to effectively provide or coordinate the efficient delivery of quality healthcare
services, our reputation in the industry may be negatively impacted, we may receive reduced reimbursement amounts and we may owe repayments to
payors, causing our revenues, financial position, results of operations and cash flows to decline.
Liability Risks
Our operations subject us to risk of litigation.
Operating in the healthcare and personal care services industries exposes us to an inherent risk of wrongful death, personal injury, professional
malpractice and other potential 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 or care for a consumer, that we failed to follow internal or external procedures, resulting in death or harm to a consumer, or that our
employees mistreated our consumers, resulting in death or harm. We are also subject to claims arising out of accidents involving vehicle collisions brought
by consumers whom we are transporting, from employees driving to or from home visits or other affected individuals. We may also be subject to lawsuits
from patients, employees and others exposed to contagious diseases in connection with the services provided by our workforce in client residences and
third party facilities. Some of the actions brought against us may seek large sums of money as damages and involve significant defense costs. Our
professional and general liability insurance may not cover all claims against us.
In addition, regulatory agencies have previously brought and may in the future initiate administrative proceedings alleging violations of statutes and
regulations arising from our services and seek 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 FCA or other federal and state whistleblower statutes designed to combat fraud and abuse in our industry. These and other similar lawsuits can
involve significant defense costs, as well as significant monetary awards or penalties that 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 on our business, results of
operations and financial condition. Even if we are successful in our defense, lawsuits or regulatory proceedings could distract us from running our business
or irreparably damage our reputation.
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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 against
us. We cannot assure you that claims will not be made in the future in excess of the limits of our insurance, and any such claims, if successful and in excess
of such limits, may have a material adverse effect on our business or assets. We utilize historical data to estimate our reserves for our insurance programs. If
losses on asserted claims exceed the current insurance coverage and accrued reserves, our business, results of operations and financial condition could be
adversely affected. Changes in our annual insurance costs and self-insured retention limits depend in large part on the insurance market, and insurance
coverage may not continue to be available to us at commercially reasonable rates, in adequate amounts or on satisfactory terms.
Data Security and Privacy Risks
Our business depends on the proper functioning, availability, and security of our information systems. Our operations may be disrupted if we are
unable to effectively integrate, manage and maintain the security of our information systems.
Our business depends on effective and secure information systems that assist us in, among other things, gathering information to improve the quality
of consumer care, optimizing financial performance, adjusting consumer mix, monitoring regulatory compliance and enhancing staff efficiency. We rely on
external service providers to provide continual maintenance, upgrading, and enhancement of our primary information systems used for our operational
needs. The software we license for our various patient information systems supports intake, personnel scheduling, office clinical and centralized billing and
receivables management in an integrated database, enabling us to standardize the care delivered across our network of offices and monitor our performance
and consumer outcomes. Information systems may be vulnerable to damage from a variety of sources, including telecommunications or network failures,
human acts and natural disasters. The number of administrative employees working remotely has increased substantially in recent years, increasing our
dependence on systems that facilitate remote access, and we may experience increased risks as a result.
To the extent providers fail to support the software or systems we use, or if we lose our software licenses, our operations could be negatively
affected. Our business also depends on a comprehensive payroll and human resources system for basic payroll functions and reporting, payroll tax
reporting, managing wage assignments and garnishments. We rely on an external service provider, ADP, to provide continual maintenance, upgrading and
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 related
support services provided by them, our internal operations could be negatively affected.
Our business supports the use of EVV to electronically collect visit information when our caregivers and providers deliver home care services. Our
solution uses a combination of IVR and GPS enabled smartphones to capture time in and time out, mileage and travel time, as well as the completed care
plan tasks. We license this software through CellTrak and partner with states that utilize other software. We rely on these vendors to provide continual
maintenance and 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, states must require the use of EVV for all Medicaid-funded personal care
services and home health services that require an in-home visit by a provider. States that failed to meet the deadlines for implementation may be subject to
incremental reductions in federal funding, absent approval of a good faith exemption. If any states in which we operate fail to properly and timely
implement EVV and lose an amount of their funding, or if those states adopt standards for EVV that are not compatible with our operations, our internal
operations could be negatively affected. Further, to the extent that the EVV solutions that we use are determined to be noncompliant with federal or state
EVV requirements, we could be subject to penalties.
The COVID-19 pandemic also led to a substantial increase in administrative employees working remotely and, consequently, accessing our system
remotely. As a result, we are more dependent on our systems that facilitate remote access and potentially could experience increased risks.
We have taken precautionary measures designed to prevent problems that could affect our information systems. We have implemented backup of our
key information systems that are designed to allow our operations to failover to our geographically separate disaster recovery datacenter with a quick return
to operations for all sites and systems in the event our main datacenter becomes inoperable because of a natural disaster, attacks or other cause. All of our
sites 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,
should one not be available due to the above mentioned scenarios. While we believe these measures are reasonable, no system of information security is
able to eliminate the risk of business disruptions, and we or our third-party vendors that we rely upon may experience system failures.
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If we experience a reduction in the performance, reliability, or availability of our information systems, our operations and ability to process
transactions and produce timely and accurate reports could be adversely affected. If we experience difficulties with the transition and integration of
information 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. The occurrence of any system failure could result in interruptions, delays, the
loss or corruption of data and cessations or interruptions in the availability of systems, all of which could have a material, adverse effect on our financial
position and results of operations and harm our business reputation.
A cyber-attack or security breach could cause a loss of confidential consumer data, give rise to remediation and other expenses, expose us to
liability under HIPAA, consumer protection laws, common law and other legal theories, subject us to litigation and federal and state governmental
inquiries, damage our reputation, adversely impact our financial results, and otherwise be disruptive to our business.
We rely extensively on computer systems to manage clinical and financial data, to communicate with our consumers, payors, vendors and other third
parties, and to summarize and analyze our operating results. We frequently exchange clinical and financial data with third parties in connection with our
routine operations and in order to meet our contractual and regulatory obligations. We are required to comply with the federal and state privacy and security
laws and requirements, including HIPAA.
In addition, various states, including California, Colorado, Illinois, Nevada, New York, Massachusetts and Virginia have enacted, and other states
are expected to enact, laws and regulations concerning privacy, data protection and information security. To the extent we are subject to such legislation,
including as a result of any creation, use or deployment of artificial intelligence, we may be required to modify our data processing practices and policies
and to incur substantial costs and expenses in an effort to comply. These laws often provide for civil penalties for violations, as well as a private right of
action for data breaches that may increase data breach litigation.
We have invested in security measures designed to protect against the threat of security breaches and cyber-attacks, including email phishing
schemes, malware and ransomware. However, our technology, and that of our third-party service providers, may fail to adequately secure the protected
health information and personally identifiable information we create, receive, transmit and maintain in our databases. We may be at increased risk because
we outsource certain services or functions to, or have systems that interface with, third parties. These third parties may store or have access to our data. The
information systems of third parties are also subject to various risks, and a breach or attack affecting any of these third parties could harm our business.
Furthermore, because the techniques used in cyber-attacks change frequently, they may not be immediately recognized, and we may experience or be
affected by security or data breaches that remain undetected for an extended time.
The current cyber threat environment presents increased risk for all companies, including companies in our industry. We are regularly the target of
attempted cybersecurity and other threats that could have a security impact, and we expect to continue to experience an increase in cybersecurity threats in
the future. In spite of our policies, procedures and other security measures used to protect our computer systems and data, occasionally, we have
experienced breaches that have required us to notify affected consumers and the government, and we have worked with consumers and the government to
resolve such issues. While these past breaches have not had a significant adverse impact on our business or results of operations, 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. If we or any of our third-party service providers
or certain other third-parties are subject to cyber-attacks or experience security or data breaches in the future, this could result in harm to consumers, loss,
misappropriation, corruption, or unauthorized access of protected patient medical data or other information subject to privacy laws, disruption to our
information technology systems and/or business, reputational harm. We may also be subject us to litigation and governmental enforcement actions
(including under HIPAA and other applicable laws) as a result of cyber-attacks or security or data breaches, which could result in fines, settlement
agreements, corrective action plans, and of which could have a material adverse effect on our business, financial position and results of operations. Some
state laws provide a private right of action for data breaches, which may increase data breach litigation. Further, our insurance coverage intended to address
cybersecurity and data breach risks may not be sufficient to cover all losses or the types of claims that may arise.
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Human Capital Risks
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 for
personnel with other providers of social and medical services as well as companies in other service-based industries. As the labor market continues to be
tight and unemployment remains at low levels, the competition for employees has increased, which will continue to impact our ability to attract and retain
new caregivers. In addition, the competition for skilled healthcare staff has increased significantly, which continues to impact our ability to attract and
retain qualified skilled healthcare staff. To the extent that the United States continues to have low unemployment levels and shortages of caregivers and
skilled healthcare staff, it may continue to hinder our ability to attract and retain sufficient caregivers and skilled healthcare staff to meet the continuing
demand for both our non-clinical and clinical services. Moreover, the increased staffing challenges have resulted in, and may continue to result in,
increased labor cost to satisfy our staffing requirements.
We may not be able to offset higher labor costs by increasing the rates we charge for our services. In addition, if we fail to attract and retain qualified
and skilled personnel, our ability to conduct our business operations effectively and our results of operations 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 the executive management team or the inability of a new management team to successfully execute our strategies may adversely affect our
business. If we are unable to attract and retain qualified personnel, we may be unable to provide our services, the quality of our services may decline, and
we could lose consumers and referral sources.
We 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.
Moreover, the current competitive labor market may make it more difficult to retain or hire members of our executive team. The departure of any member
of our executive team may materially adversely affect our operations.
Risk Related to Our Indebtedness
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:
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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
condition tests. Our ability to meet these restrictive covenants and financial ratios and tests may be affected by events beyond our control, and we cannot
assure you that we will meet those tests.
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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 credit
facility, all amounts outstanding under our credit facility may become immediately due and payable and all commitments under our credit facility to extend
further 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.
General Risks
Factors beyond our control, including inclement weather, natural disasters, acts of terrorism, pandemics, riots, civil insurrection or social unrest,
looting, protests, strikes and street demonstrations, may impact our ability to provide services.
Adverse weather conditions, natural disasters, acts of terrorism, military conflict, pandemics, riots, civil insurrection or social unrest, looting,
protests, strikes or street demonstrations may prevent our employees from providing authorized services. We are not paid for authorized services that are
not delivered due to these events. Furthermore, prolonged disruptions as a result of such events in the markets in which we operate could disrupt our
relationships with consumers, patients, caregivers and employees and referral sources located in affected areas and, in the case of our corporate office, our
ability to provide administrative support services, including billing and collection services. For example, one of our support centers and a number of our
agencies are located 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. Moreover, adverse weather
conditions may become more frequent and/or severe as the result of climate change. Moreover, we could be affected by climate change and other
environmental issues to the extent such issues adversely affect the general economy, adversely impact our supply chain or increase the costs of supplies
needed for our operations, or otherwise result in disruptions impacting the communities in which our facilities are located. In addition, legal requirements
regulating greenhouse gas emissions and energy inputs or otherwise associated with the transition to a lower carbon economy may increase in the future,
which could increase our costs associated with compliance and otherwise disrupt and adversely affect our operations. The impact of these or other factors
beyond our control could have an adverse effect on our business, financial position and results of operations.
The emergence and effects related to a potential future pandemic, epidemic, or outbreak of infectious disease could adversely impact our business
and future results of operations and financial condition.
As a provider of healthcare and personal care services, we have been and continue to be affected by the health and economic effects of COVID-19.
COVID-19 continues to evolve, and we may not be able to predict or effectively respond to future developments and any such developments could
materially affect our business, results of operations, financial position, and cash flows. The extent of any ongoing and future impact will depend on, among
other factors, the duration and severity of any severe or widespread outbreaks of COVID-19; the availability, acceptance and effectiveness of medical
treatments and vaccines; the impact of any mutations of the virus; and the impact of COVID-19 and related government actions on the healthcare industry
and broader economy.
Moreover, in response to the COVID-19 pandemic, the federal government authorized financial relief for eligible healthcare providers through the
Provider Relief Fund. Although recipients are not required to repay funding received, provided that they attest to and comply with certain terms and
conditions, changes to interpretations of guidance on the underlying terms and conditions may result in derecognition of amounts previously received. We
received amounts from the Provider Relief Fund and returned any unused funds. We have also acquired and may in the future acquire companies that
received funds from the Provider Relief Fund. We believe we have structured our use of these funds in accordance with the terms and conditions. However,
we may be subject to or incur costs from related government actions including payment recoupment, audits and inquiries by governmental authorities, and
criminal, civil or administrative penalties.
In addition, if a future pandemic, epidemic, or outbreak of an infectious disease or other public health crisis were to affect our markets, our business
could be adversely affected. Any such crisis could diminish public trust in healthcare providers, particularly those that are treating or have treated patients
affected by contagious diseases. Patient volumes may decline or volumes of uninsured and underinsured patients may increase, depending on the economic
circumstances surrounding the pandemic, epidemic or outbreak. Further, a pandemic, epidemic or outbreak could adversely impact our business by causing
a temporary shutdown or difficulty accessing patients, particularly facility-based patients, by causing disruption or delays in supply chains for materials and
products, or by causing staffing shortages. Although we have contingency plans in place, including infection control plans, the potential impact of, as well
as the public’s response and governmental responses to, any such future pandemic, epidemic or outbreak of infectious disease with respect to our markets is
difficult to predict and could adversely impact our business and future results of operations and financial condition.
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We may be more vulnerable to the effects of a public health emergency than other businesses due to the nature of our consumers and the physical
proximity required by our operations.
The majority of our consumers and patients are older individuals, many of whom may be more vulnerable than the general public during a pandemic
or in a public health emergency due to complex medical conditions or socioeconomic factors. Our employees may also be at greater risk of contracting
contagious diseases due to their increased exposure to vulnerable consumers. Due to the physical proximity required to offer many of our services, our
employees could have difficulty attending to our consumers if social distancing policies or quarantines are instituted in response to a public health
emergency. In addition, the Company may expand existing internal policies in a manner that may have a similar effect. If another pandemic occurs, we
could again suffer losses to our consumer population or a reduction in the availability of our employees. Further, we could face litigation if our employees
or customers contract contagious diseases while our employees perform their duties. Accordingly, certain public health emergencies could have a material
adverse effect on our financial condition and results of operations.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
We recognize that cybersecurity threats pose a risk to our business. As part of the Company’s overall risk management systems and processes, we
employ a risk management framework designed with the goals of identifying, assessing and managing material risks from cybersecurity threats. Key
aspects of this risk management framework include, but are not limited to:
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Maintaining a cybersecurity incident response plan, coordinated by the Company’s IT department and Chief Information Security Officer,
which includes controls and procedures for identifying, reporting and responding to cybersecurity incidents;
Partnering with outside cybersecurity vendors periodically to gain an independent view of our cybersecurity and information security
program;
Providing our employees with regular training on cybersecurity and the protection of our information systems;
Maintaining and testing a business continuity and disaster recovery program;
Database activity monitoring, encryption, secure file transfer protocols and application firewalls; and
Maintaining insurance coverage intended to address cybersecurity and data breach risks.
We have also implemented processes to help identify, assess and manage cybersecurity risks associated with our use of third-party service providers.
We do not believe that risks from cybersecurity threats of which we are currently aware, including as a result of any previous cybersecurity
incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations or financial
condition. For additional information, see “A cyber-attack or security breach could cause a loss of confidential consumer data, give rise to remediation and
other expenses, expose us to liability under HIPAA, consumer protection laws, common law and other legal theories, subject us to litigation and federal and
state governmental inquiries, damage our reputation, adversely impact our financial results, and otherwise be disruptive to our business.” included in Part I,
Item 1A of this Form 10-K.
Governance
Our cybersecurity risk management program is integrated into our overall risk management system and processes. Together with the Board’s
standing committees, the Company’s Board of Directors is responsible for ensuring that material risks, including material cybersecurity risks, are identified
and managed appropriately. The Board receives updates at least bi-annually from our Chief Information Officer concerning our information security and
cyber risk strategy, cyber defense initiatives, cyber event preparedness and cybersecurity risk assessments. The Chief Information Officer has extensive IT
and program management experience and works closely with our Chief Information Security Officer, who oversees our cybersecurity program on a day-to-
day basis. The Chief Information Security Officer has extensive cybersecurity experience, including more than 15 years working in senior IT infrastructure
and IT security roles in the healthcare sector (seven of which years were spent as the Chief Information Security Officer). Our cybersecurity incident
response plan provides that the Chief Information Security Officer will work with our IT Department and the impacted segment of our business to
investigate and respond to any identified incident (including by escalating the incident to the Company’s senior management and the Board depending on
the nature and scope).
ITEM 2. PROPERTIES
We do not own any real property. We lease administrative offices for our local branches, none of which are individually material. We lease
approximately 59,000 and 75,000 square feet of office space in Downers Grove, Illinois and Frisco, Texas, respectively, which serve as our support centers.
We sublease approximately 21,000 and 37,400 square feet of our office space in Downers Grove and Frisco, respectively, to third parties.
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ITEM 3. LEGAL PROCEEDINGS
From time to time, we are subject to legal and/or administrative proceedings incidental to our business. It is the opinion of management that the
outcome of pending legal and/or administrative proceedings will not have a material effect on our financial position and results of operations.
Further information with respect to this item may be found in Note 11 to the Consolidated Financial Statements in Part II, Item 8—“Financial
Statements and Supplementary Data,” which is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information
Our common stock is listed on The Nasdaq Global Market under the symbol “ADUS.”
Holders
As of December 31, 2023, 2.0% of our shares of common stock were held by our officers and directors and approximately 98.0% of our common
stock was held by 374 institutional investors. An insignificant amount of common stock is held by individual holders. As of February 16, 2024, Addus
HomeCare Corporation had approximately 32,080 shareholders of its common stock, including 89 shareholders of record.
Dividends
We 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 our
common stock in the foreseeable future. We currently plan to retain any earnings to support the operation, and to finance the growth, of our business rather
than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, capital requirements, credit facility
limitations, earnings, as well as other factors deemed relevant by our Board. Our credit facility restricts our ability to declare or pay any dividend or other
distribution to Holdings unless no default or event of default has occurred and is continuing or would arise as a result thereof and the aggregate amount of
dividends and distributions paid in any fiscal year does not exceed $7.5 million per annum.
ITEM 6. [Reserved]
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with our Consolidated Financial Statements and the related notes included elsewhere in this
Annual Report on Form 10-K. This discussion contains forward-looking statements about our business and operations. Our actual results may differ
materially 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-
K and 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
general economic conditions. The discussion of our financial condition and results of operations for the year ended December 31, 2022 compared to the
year ended December 31, 2021, included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
can be found in the Annual Report on Form 10-K for the year ended December 31, 2022.
Overview
We are a home care services provider operating three segments: personal care, hospice and home health. Our services are principally provided in-
home under agreements with federal, state and local government agencies, managed care organizations, commercial insurers and private individuals. Our
consumers are predominantly “dual eligible,” meaning they are eligible to receive both Medicare and Medicaid benefits. Managed care revenues accounted
for 36.6%, 36.0% and 37.2% of our revenue during the years ended December 31, 2023, 2022, and 2021 respectively.
A summary of certain consolidated financial and statistical data results for 2023, 2022 and 2021 are provided in the table below.
Net service revenues
Net income
Total assets
(1)
Adjusted EBITDA
States served at period end
Locations at period end
2023
For the Years Ended December 31,
2022
(Amounts in Thousands, except States and Locations)
2021
$
$
$
$
$
$
$
$
1,058,651
62,516
1,024,426
121,020
22
219
$
$
$
$
951,120
46,025
937,994
101,480
22
202
864,499
45,126
947,585
97,661
22
206
(1) The Company defines adjusted EBITDA as earnings before interest expense, other non-operating income, taxes, depreciation, amortization, acquisition expense,
stock-based compensation expense, restructure expenses and other non-recurring costs and loss on the sale of assets and retroactive rate increases from New
York. The Company defined adjusted EBITDA to exclude net COVID expenses arising from the pandemic from the second quarter of 2020 to the first quarter of
2021. Adjusted EBITDA is a performance measure used by management that is not calculated in accordance with generally accepted accounting principles in the
United States (“GAAP”). It should not be considered in isolation or as a substitute for net income, operating income or any other measure of financial
performance calculated in accordance with GAAP. Additionally, our calculation of Adjusted EBITDA may not be comparable to similarly titled measures
reported by other companies. Management believes that Adjusted EBITDA is useful to investors, management and others in evaluating the Company’s operating
performance, to provide investors with insight and consistency in the Company’s financial reporting and to present a basis for comparison of the Company’s
business operations among periods, and to facilitate comparison with the results of the Company’s peers. Additionally, we believe that Adjusted EBITDA is a
measure widely used by securities analysts, investors and others to evaluate the financial performance of other public companies. The financial results presented
in accordance with U.S. GAAP and a reconciliation of this non-GAAP measure included within this Annual Report on Form 10-K should be carefully evaluated.
Acquisitions
In addition to our organic growth, we have grown through acquisitions that have expanded our presence in current markets, with the goal of having
all three levels of in-home care in our markets, or facilitating our entry into new markets where in-home care has been moving to managed care
organizations.
On February 1, 2022, we completed the acquisition of the operations of JourneyCare. The purchase price was approximately $86.6 million,
including the amount of acquired excess cash held by JourneyCare at the closing of the acquisition (approximately $0.4 million). The JourneyCare
acquisition was funded with a combination of a $35.0 million draw on the Company’s revolving credit facility and available cash. With the JourneyCare
acquisition, the Company expanded its hospice services in the state of Illinois.
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On October 1, 2022, we completed the acquisition of Apple Home for $12.7 million, with funding provided by drawing on the Company’s revolving
credit facility. With the purchase of Apple Home, the Company expanded clinical services for its home health segment to Illinois.
On January 1, 2023, we completed the acquisition of CareStaff for approximately $1.0 million, with funding provided by available cash. With the
purchase of CareStaff, the Company expanded its personal care services to consumers in Florida.
On August 1, 2023, we completed the acquisition of Tennessee Quality Care for approximately $111.2 million, with funding primarily provided by
drawing on the Company’s revolving credit facility. The purchase price is subject to the completion of working capital and related adjustments. With the
purchase of Tennessee Quality Care, the Company expanded its services within its hospice and home health segment to Tennessee.
Revenue by Payor and Significant States
Our payor clients are principally federal, state and local governmental agencies and managed care organizations. The federal, state and local
programs under which the agencies operate are subject to legislative and budgetary changes and other risks that can influence reimbursement rates. We are
experiencing a transition of business from government payors to managed care organizations, which we believe aligns with our emphasis on coordinated
care and the reduction of the need for acute care.
For the years ended December 31, 2023, 2022 and 2021, our revenue by payor and significant states by segment were as follows:
2023
% of
Segment
Net
Service
Revenues
Amount
(in Thousands)
Personal Care
2022
Amount
(in Thousands)
% of
Segment
Net
Service
Revenues
2021
% of
Segment
Net
Service
Revenues
Amount
(in Thousands)
State, local and other governmental
programs
Managed care organizations
Private pay
Commercial insurance
Other
Total personal care segment net
service revenues
Illinois
New Mexico
New York
All other states
Total personal care segment net
service revenues
$
$
$
400,753
367,557
16,268
6,321
3,819
794,718
411,081
115,986
92,469
175,182
50.4 % $
46.2
2.0
0.8
0.6
100.0 % $
51.7 % $
14.6
11.6
22.1
348,234
326,778
18,301
7,689
5,505
706,507
360,778
105,315
86,592
153,822
49.3 % $
46.3
2.6
1.1
0.7
100.0 % $
51.1 % $
14.9
12.3
21.7
338,325
311,801
19,991
9,820
5,917
685,854
328,619
97,784
99,732
159,719
$
794,718
100.0 % $
706,507
100.0 % $
685,854
49.3 %
45.5
2.9
1.4
0.9
100.0 %
47.9 %
14.3
14.5
23.3
100.0 %
With the acquisition of CareStaff in 2023, the Company expanded its personal care services to consumers in the state of Florida.
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Medicare
Managed care organizations
Other
Total hospice segment net
service revenues
Ohio
Illinois
New Mexico
All other states
Total hospice segment net
service revenues
2023
Hospice
2022
2021
Amount
(in Thousands)
% of Segment
Net Service
Revenues
Amount
(in Thousands)
% of Segment
Net Service
Revenues
Amount
(in Thousands)
% of Segment
Net Service
Revenues
$
$
$
186,317
7,037
13,801
207,155
74,871
47,247
30,782
54,255
89.9 % $
3.4
6.7
100.0 % $
36.1 % $
22.8
14.9
26.2
183,407
7,353
11,012
201,772
70,503
47,181
30,722
53,366
90.9 % $
3.6
5.5
100.0 % $
35.0 % $
23.4
15.2
26.4
142,086
5,664
4,503
152,253
61,415
—
36,063
54,775
93.3 %
3.7
3.0
100.0 %
40.3 %
—
23.7
36.0
$
207,155
100.0 % $
201,772
100.0 % $
152,253
100.0 %
With the acquisition of JourneyCare in 2022, the Company expanded its hospice services to patients in the state of Illinois, and with the acquisition
of Tennessee Quality Care in 2023, the Company also expanded its hospice services to patients in the state of Tennessee.
Medicare
Managed care organizations
Other
Total home health segment net
service revenues
New Mexico
Illinois
Tennessee
Total home health segment net
service revenues
2023
Home Health
2022
2021
Amount
(in Thousands)
% of Segment
Net Service
Revenues
Amount
(in Thousands)
% of Segment
Net Service
Revenues
Amount
(in Thousands)
% of Segment
Net Service
Revenues
$
$
$
41,078
12,613
3,087
56,778
32,949
12,851
10,978
72.3 % $
22.2
5.5
100.0 % $
58.0 % $
22.6
19.4
31,505
8,698
2,638
42,841
34,111
8,730
—
73.5 % $
20.3
6.2
100.0 % $
79.6 % $
20.4
—
20,700
4,457
1,235
26,392
24,735
1,657
—
78.4 %
16.9
4.7
100.0 %
93.7 %
6.3
—
$
56,778
100.0 % $
42,841
100.0 % $
26,392
100.0 %
With the acquisition of Tennessee Quality Care in 2023, the Company also expanded its home health services to patients in the state of Tennessee.
We derive a significant amount of our net service revenues in Illinois, which represented 44.5% and 43.8% of our net service revenues for the years
ended December 31, 2023 and 2022, respectively. A significant amount of our revenue is derived from one payor client, the Illinois Department on Aging,
the largest payor program for our Illinois personal care operations, which accounted for 20.9% and 20.7% of our net service revenues for the years ended
December 31, 2023 and 2022, respectively.
Changes in Illinois Reimbursement
On November 26, 2019, the City of Chicago voted to approve increases in the Chicago minimum wage to $14 per hour beginning July 1, 2020 and
to $15 per hour beginning July 1, 2021. In each subsequent year, the City is required to raise the wage based on the lower of the increases in the Consumer
Price Index (“CPI”) or 2.5% subject to a cap and other requirements. On July 1, 2023, the rate was adjusted to $15.80.
The Illinois fiscal year 2022 budget included an increase in hourly rates for in-home care services to $24.96, to be effective January 1, 2022. On July
12, 2021, in connection with the temporary increase in federal funding for Medicaid HCBS authorized by the ARPA, the State of Illinois submitted its
Initial Spending Plan and Narrative to CMS for approval. That plan included the acceleration by two months of the rate increase to $24.96 from January 1,
2022, to November 1, 2021. The Company recognized $3.6 million related to the rate increase for the year ended December 31, 2021.
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The Illinois fiscal year 2023 budget included an increase of hourly rates for in-home care services to $25.66, to be effective January 1, 2023. This
increase offsets the $0.40 increase in Chicago minimum wage that occurred on July 1, 2022. In addition, CMS approved a waiver amendment proposal
submitted by the Illinois Department of Healthcare and Family Services with regard to its Persons who are Elderly program, further increasing in-home
care rates to $26.92, effective March 1, 2023.
The Illinois Medicaid omnibus legislation passed in June 2023 included an increase in hourly rates for in-home care services to $28.07, which took
effect on January 1, 2024 and required a minimum wage rate of $17.00 per hour.
Our business will benefit from the rate increases noted above as planned for 2024, but there is no assurance that there will be additional offsetting
rate increases in Illinois for fiscal years beyond fiscal year 2024, and our financial performance will be adversely impacted for any periods in which an
additional offsetting reimbursement rate increase is not in effect.
Changes in Medicare and Medicaid Reimbursement
Hospice
Hospice services provided to Medicare beneficiaries are paid under the Medicare Hospice Prospective Payment System, under which CMS sets a
daily rate for each day a patient is enrolled in the hospice benefit. CMS updates these rates each federal fiscal year. Effective October 1, 2023, CMS
increased hospice payment rates by 3.1%. This reflects a 3.3% market basket increase and a negative 0.2 percentage point productivity adjustment.
Hospices that do not satisfy quality reporting requirements will be subject to a 4-percentage point reduction to the market basket update.
Overall payments made by Medicare to each hospice provider number are subject to an inpatient cap and an aggregate cap, which is set each federal
fiscal year. The inpatient cap limits the number of days of inpatient care to no more than 20% of total patient care days. The aggregate cap, which limits the
total Medicare reimbursement that a hospice may receive based on an annual per-beneficiary cap amount and the number of Medicare patients served, was
updated to $33,494.01 for federal fiscal year 2024. If a hospice’s Medicare payments exceed its inpatient or aggregate caps, it must repay Medicare the
excess amount.
Home Health
Home health services provided to Medicare beneficiaries are paid under the Medicare Home Health Prospective Payment System (“HHPPS”),
which uses national, standardized 30-day period payment rates for periods of care that meet a certain threshold of home health visits (periods of care that do
not meet the visit threshold are paid a per-visit payment rate for providing care). Although payment is made for each 30-day period, the HHPPS permits
continuous 60-day certification periods through which beneficiaries are verified as eligible for the home health benefit. The daily home health payment rate
is adjusted for case-mix and area wage levels. CMS uses the PDGM as the case-mix classification model to place periods of care into payment categories,
classifying patients based on clinical characteristics and their resource needs. An outlier adjustment may be paid for periods of care where costs exceed a
specific threshold amount.
CMS updates the HHPPS payment rates each calendar year. For calendar year 2024, CMS estimates that Medicare payments to home health
agencies will increase by 0.8%. This is based on a home health payment update percentage of 3.0, which reflects a 3.3% market basket update reduced by a
productivity adjustment of negative 0.3 percentage points, and an estimated 2.6% decrease associated with the transition to the PDGM, among other
changes. Home health providers that do not comply with quality data reporting requirements are subject to a 2-percentage point reduction to their market
basket update. In addition, Medicare requires home health agencies to submit a one-time Notice of Admission (“NOA”) for each patient that establishes
that the beneficiary is under a Medicare home health period of care. Failure to submit the NOA within five calendar days from the start of care will result in
a reduction to the 30-day period payment amount for each day from the start of care date until the date the NOA is submitted.
Under the Home Health Value-Based Purchasing (“HHVBP”) Model, home health agencies receive increases or decreases to their Medicare fee-for-
service payments of up to 5% based on performance against specific quality measures relative to the performance of other home health providers. Data
collected in each performance year will impact Medicare payments two years later.
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In certain states, payment of claims may be impacted by the Review Choice Demonstration for Home Health Services, a program intended to
identify and prevent fraud, reduce the number of Medicare appeals and improve provider compliance with Medicare program requirements. The program
currently applies to home health agencies in certain states, including Illinois, Ohio, Oklahoma, North Carolina, Florida and Texas. Providers in states
subject to the Review Choice Demonstration may initially select from the following claims review and approval processes: pre-claim review, post-payment
review or a minimal post-payment review with a 25% payment reduction. Home health agencies that maintain high compliance levels will be eligible for
additional options that may be less burdensome. We are currently unable to predict what impact, if any, this program may have on our result of operations
or financial position.
The IMPACT Act required HHS, together with MedPAC, to consider and propose a unified payment system for post-acute care services provided by
home health agencies, inpatient rehabilitation facilities, skilled nursing facilities, and long-term care hospitals. A unified post-acute care payment system
would pay post-acute care providers under a single framework according to a patient’s characteristics, rather than based on the post-acute care setting
where the patient receives treatment. As required under the statute, CMS and the HHS Office of the Assistant Secretary for Planning and Evaluation issued
a report in July 2022 presenting a prototype for a unified post-acute care payment model, and MedPAC submitted a report to Congress in June 2023
evaluating a prototype design. Although both CMS and MedPAC concluded that designing a unified payment system is feasible, CMS noted that universal
implementation of a unified payment system would require congressional action and MedPAC cautioned that implementation would be complex. Due to
the agency resources required to implement a unified model, MedPAC noted that CMS may consider smaller-scale site-neutral policies to address some of
the overlap in patients treated in different settings and highlighted that recent changes to various post-acute care payment systems address some of the
concerns underlying the push for a unified model.
New York Consumer Directed Personal Assistance Program (“CDPAP”)
The CDPAP is a self-directed care alternative program that allows eligible individuals who need help with activities of daily living or skilled nursing
services to choose their caregivers. We provide support services as a CDPAP fiscal intermediary. The Company recognized approximately $40.7 million in
revenue from the program for the year ended December 31, 2023.
In 2019, New York initiated a new RFO process to competitively procure CDPAP fiscal intermediaries. On February 11, 2021, the NYSDOH
announced its initial selection of entities to enter into contracts as a Lead Fiscal Intermediary. The Company was not one of the selected entities in the
initial RFO process. The Company submitted a formal protest in response to this selection process, which was filed and accepted on March 19, 2021. In
April 2022, the New York legislature passed the fiscal year 2023 state budget, which amended the RFO process to authorize all fiscal intermediaries that
submitted an RFO application and served at least 200 clients in New York City or 50 clients in other counties between January 1, 2020, and March 31,
2020, but that were not initially awarded a contract, to contract with the New York State Department of Health. These fiscal intermediaries were permitted
to continue operating in all counties contained in their RFO application, provided they submitted an attestation and supporting information to the New York
State Department of Health no later than November 29, 2022. The Company submitted an attestation on November 22, 2022, which allowed the Company
to continue its CDPAP fiscal intermediary operations. However, the Company decided at that time to suspend materially all of its new fee-for-service
patient admissions through County Social Service Departments in the CDPAP. On June 6, 2023, the New York State Department of Health notified the
Company that it had received a contract award. Under this contract, the Company is providing services to all current payors and has resumed new fee-for-
service patient admissions through County Social Service Departments in the CDPAP. The CDPAP continues to be targeted for changes by New York
governmental authorities, however. For example, the governor’s most recent update on the state budget contained proposals that could adversely affect the
Company’s ability to participate in the CDPAP.
CMS Proposed Rule: “Ensuring Access to Medicaid Services”
In May 2023, CMS published a proposed rule, intended to improve access to services for Medicaid beneficiaries, that includes provisions related to
HCBS payments. Specifically, in an effort to address workforce shortages, the proposed rule would (if finalized in its proposed form) require that a
minimum of 80% of Medicaid payments in a state for home health aide, personal care services and some similar services be spent on compensation to
direct care workers, in addition to related payment transparency requirements. CMS has proposed allowing states four years to implement changes required
by a final rule. The ultimate impact of the 80% requirement, if finalized as proposed, could be adverse for periods after implementation, but other aspects
of the rule could also benefit our business by improving access to services, depending on the policies ultimately set forth in any final rule. The comment
period for the proposed rule ended July 1, 2023. The Company filed a comment letter on the proposed rule before this deadline, as did many other
organizations, states and stakeholders. On January 26, 2024, CMS sent a final rule to the Office of Management and Budget (OMB) for review and
clearance. The contents of the final rule are unknown at this time, and the final rule may be significantly different than the proposed rule. OMB review is
the last step in the process prior to release of the regulation in the Federal Register. The final rule’s timetable on the OMB website projects a release by
April 2024.
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COVID-19 Update
The federal public health emergency declared by HHS as a result of the COVID-19 pandemic expired May 11, 2023. Compared to earlier periods,
the number of COVID-19 infections and related hospitalizations has significantly declined. However, we may be more vulnerable to the effects of COVID-
19 than other businesses due to the nature of our consumers and patients and the physical proximity required by our operations.
For the years ended December 31, 2023 and 2022, COVID-19-related expenses in our personal care segment were approximately $2.8 million and
$4.5 million, respectively. COVID-19 related expenses are included in cost of service revenue on the Consolidated Statements of Income. Additionally, we
recognized revenue of $1.6 million and $4.3 million attributable to temporary rate increases from certain payors in our personal care segment for the years
ended December 31, 2023 and 2022, respectively.
For the years ended December 31, 2023 and 2022, COVID-19-related expenses in our hospice segment were approximately $0.1 million and $0.2
million, respectively.
As the labor market continues to be tight and unemployment remains at low levels, we expect the competition for new caregivers, including skilled
healthcare staff to be significant. To the extent that we continue to experience a shortage of caregivers, it may hinder our ability to attract and retain
sufficient caregivers to meet the continuing demand for both our non-clinical and clinical services. The ongoing staffing challenges may also continue to
result in increased labor costs to satisfy our staffing requirements.
Components of our Statements of Income
Net Service Revenues
We generate net service revenues by providing our services directly to consumers and primarily on an hourly basis in our personal care segment, on
a daily basis in our hospice segment and on an episodic basis in our home health segment. We receive payment for providing such services from our payor
clients, including federal, state and local governmental agencies, managed care organizations, commercial insurers and private consumers.
In our personal care segment, net service revenues are principally provided based on authorized hours, determined by the relevant agency, at an
hourly rate, which is either contractual or fixed by legislation, and are recognized at the time services are rendered. In our hospice segment, net service
revenues are provided based on daily rates for each of the levels of care and are recognized as services are provided. In our home health segment, net
service revenues are based on an episodic basis at a stated rate and recognized based on the number of days elapsed during a period of care within the
reporting period. We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to
record revenues.
Cost of Service Revenues
We incur direct care wages, payroll taxes and benefit-related costs in connection with providing our services. We also provide workers’
compensation and general liability coverage for our employees. Employees are also reimbursed for their travel time and related travel costs in certain
instances.
General and Administrative Expenses
Our general and administrative expenses include our costs for operating our network of local agencies and our administrative offices. Our agency
expenses consist of costs for supervisory personnel, our community care supervisors and office administrative costs. Personnel costs include wages, payroll
taxes and employee benefits. Facility costs include rents, utilities, and postage, telephone and office expenses. Our corporate and support center expenses
include costs for accounting, information systems, human resources, billing and collections, contracting, marketing and executive leadership. These
expenses consist of compensation, including stock-based compensation, payroll taxes, employee benefits, legal, accounting and other professional fees,
travel, general insurance, rents, provision for credit losses and related facility costs. Expenses related to streamlining our operations such as costs related to
terminated employees, termination of professional services relationships, other contract termination costs and asset write-offs are also included in general
and administrative expenses.
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Depreciation and Amortization Expenses
Depreciable assets consist principally of furniture and equipment, network administration and telephone equipment and operating system software.
Depreciable and leasehold assets are depreciated or amortized on a straight-line method over their useful lives or, if less and if applicable, their lease terms.
We amortize our intangible assets with finite lives, consisting of customer and referral relationships, trade names, trademarks and non-competition
agreements, using straight line or accelerated methods based upon their estimated useful lives.
Interest Expense
Interest expense is reported when incurred and principally consists of interest and unused credit line fees on the credit facility.
Income Tax Expense
All of our income is from domestic sources. We incur state and local taxes in states in which we operate. Our effective income tax rate was 23.1%
and 23.5% for the years ended December 31, 2023 and 2022, respectively. The difference between our federal statutory and effective income tax rates was
principally due to the inclusion of state taxes, non-deductible compensation, excess tax expense/benefit and the use of federal employment tax credits.
Results of Operations
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
The following table sets forth, for the periods indicated, our consolidated results of operations.
Net service revenues
Cost of service revenues
Gross profit
General and administrative expenses
Depreciation and amortization
Total operating expenses
Operating income
Interest income
Interest expense
Total interest expense, net
Income before income taxes
Income tax expense
Net income
2023
Amount
1,058,651
718,775
339,876
234,794
14,126
248,920
90,956
(1,476 )
11,106
9,630
81,326
18,810
62,516
$
$
Net Service
Revenues
2022
Net Service
Revenues
Amount
Change
Amount
%
100.0 % $
67.9
32.1
22.2
1.3
23.5
8.6
(0.1 )
1.0
0.9
7.7
1.8
5.9 % $
951,120
651,381
299,739
216,942
14,060
231,002
68,737
(341 )
8,907
8,566
60,171
14,146
46,025
100.0 % $
68.5
31.5
22.8
1.5
24.3
7.2
—
0.9
1.0
6.2
1.5
4.7 % $
107,531
67,394
40,137
17,852
66
17,918
22,219
(1,135 )
2,199
1,064
21,155
4,664
16,491
11.3 %
10.3
13.4
8.2
0.5
7.8
32.3
332.6
24.7
12.4
35.2
33.0
35.8 %
Net service revenues increased by 11.3% to $1,058.7 million for the year ended December 31, 2023 compared to $951.1 million in 2022. Net service
revenue increased by $88.2 million, $5.4 million and $13.9 million in our personal care, hospice and home health segments, respectively, for the year ended
December 31, 2023, compared to 2022. Net service revenue increased due to a 8.2% increase in revenues per billable hour and a 4.2% increase in billable
hours for the year ended December 31, 2023 in our personal care segment compared to 2022. The increase in our hospice segment revenue was primarily
due to an increase in average daily census and revenue per patient day, mainly attributed to the acquisition of Tennessee Quality Care on August 1, 2023.
The increase in our home health segment is primarily due to the full-year effect in 2023 of the acquisition of Apple Home on October 1, 2022 and the
acquisition of Tennessee Quality Care on August 1, 2023.
Gross profit, expressed as a percentage of net service revenues, increased to 32.1% for the year ended December 31, 2023, from 31.5% in 2022. The
increase was primarily attributable to the increase in gross profit percentage in our personal care and home health segments of 1.6% and 6.6%, respectively,
offset by a decline in our hospice segment of 3.2%. The home health increase was primarily attributable to the Tennessee Quality Care acquisition on
August 1, 2023.
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General and administrative expenses increased to $234.8 million for the year ended December 31, 2023 compared to $216.9 million in 2022. The
increase in general and administrative expenses was primarily due to acquisitions that resulted in an increase in administrative employee wages, taxes and
benefit costs of $16.3 million. General and administrative expenses, expressed as a percentage of net service revenues, decreased to 22.2% for 2023, from
22.8% in 2022.
Depreciation and amortization were $14.1 million for each of the years ended December 31, 2023 and 2022.
Total interest expense, net increased to $9.6 million from $8.6 million for the year ended December 31, 2023 compared to 2022. The increase in
interest expense was primarily due to higher average outstanding borrowings from additional borrowings used to fund acquisitions and increased interest
rates under our credit facility for the year ended December 31, 2023 compared to 2022.
All of our income is from domestic sources. We incur state and local taxes in states in which we operate. The effective income tax rate was 23.1%
and 23.5% for the years ended December 31, 2023 and 2022, respectively. Our lower effective income tax rate in 2023 was principally due to the inclusion of state
taxes and non-deductible compensation, partially offset by excess tax benefit and the use of federal employment tax credits. For the years ended December 31, 2023 and
2022, the state tax rates were 5.6% and 6.0%, respectively.
Results of Operations – Segments
The following tables and related analysis summarize our operating results and business metrics by segment:
Personal Care Segment
2023
2022
Change
For the Years Ended December 31,
% of
Segment
Net
Service
Revenue
s
Amount
% of
Segmen
t
Net
Service
Revenu
es
Amount
Amount
%
(Amounts in Thousands, Except Percentages)
$
$
794,718 100.0 % $
572,807
221,911
64,382
157,529
72.1
27.9
8.1
19.8 % $
706,507 100.0 % $
520,617 73.7
185,890 26.3
60,532
8.6
125,358 17.7 % $
88,211
52,190
36,021
3,850
32,171
12.5 %
10.0
19.4
6.4
25.7 %
156
38,521
30,658
66.2
117,915
25.86
12.1 %
$
156
37,482
29,412
65.1
113,122
23.91
4.6 %
$
1,039
1,246
1.1
4,793
1.95
$
2.8 %
4.2
1.7
4.2
8.2 %
Operating Results
Net service revenues
Cost of services revenues
Gross profit
General and administrative expenses
Segment operating income
(1)
Business Metrics (Actual Numbers, Except
Billable Hours in Thousands)
Locations at period end
Average billable census *
Billable hours *
Average billable hours per census per month *
Billable hours per business day *
Revenues per billable hour *
Same store growth revenue % *
(3) (4)
(2)
(2)
(2)
(2)
(1)
(2)
Average billable census is the number of unique clients receiving a billable service during the year and is the total census divided by months in operation during the
period.
Billable hours is the total number of hours served to clients during the period. Average billable hours per census per month is billable hours divided by average
billable census. Billable hours per day is total billable hours divided by the number of business days in the period. Revenues per billable hour is revenue, attributed
to billable hours, divided by billable hours.
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(3)
(4)
2023 same store growth reflects the change in year-over-year revenue for the same store base. We define the same store base to include those stores open for at least
52 full weeks. This measure highlights the performance of existing stores, while excluding the impact of acquisitions, new store openings and closures, and ARPA
associated revenue from this calculation.
2022 same store growth reflects the change in year-over-year revenue for the same store base. We define the same store base to include those stores open for at least
52 full weeks. This measure highlights the performance of existing stores, while excluding the impact of acquisitions, new store openings and closures, the New
York CDPAP and ARPA associated revenue from this calculation.
* Management deems these metrics to be key performance indicators. Management uses these metrics to monitor our performance, both in our existing operations and
acquisitions. Many of these metrics serve as the basis of reported revenues and assessment of these, provide direct correlation to the results of operations from period to
period and facilitate comparison with the results of our peers. Historical trends established in these metrics can be used to evaluate current operating results, identify trends
affecting our business, determine the allocation of resources and assess the quality and potential variability of our cash flows and earnings. We believe they are useful to
investors in evaluating and understanding our business but should not be used solely in assessing the Company’s performance. These key performance indicators should not
be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein to fully
evaluate and understand the business as a whole. These measures may not be comparable to similarly-titled performance indicators used by other companies.
The personal care segment derives a significant amount of net service revenues from operations in Illinois, which represented 51.7% and 51.1% of
our net service revenues for the years ended December 31, 2023 and 2022, respectively. One payor client, the Illinois Department on Aging, accounted for
20.9% and 20.7% of net service revenues for the years ended December 31, 2023 and 2022, respectively. Net service revenues from state, local and other
governmental programs accounted for 50.4% and 49.3% of net service revenues for the years ended December 31, 2023 and 2022, respectively. Managed
care organizations accounted for 46.2% and 46.3% of net service revenues for the years ended December 31, 2023 and 2022, respectively, with commercial
insurance, private pay and other payors accounting for the remainder of net service revenues.
Net service revenues increased by 12.5% for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a
result of an increase in revenues per billable hour of 8.2%, mainly attributed to rate increases discussed above.
Gross profit, expressed as a percentage of net service revenues, increased from 26.3% for the year ended December 31, 2022 to 27.9% for the year
ended December 31, 2023 due to a decrease of 1.1% in direct payroll expense as a percentage of net service revenues.
The personal care segment’s general and administrative expenses primarily consist of administrative employee wages, taxes and benefit costs, rent,
information technology and office expenses. General and administrative expenses, expressed as a percentage of net service revenues, was 8.1% and 8.6%
for the years ended December 31, 2023 and 2022, respectively.
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Table of Contents
Hospice Segment
Operating Results
Net service revenues
Cost of services revenues
Gross profit
General and administrative expenses
Segment operating income
(1)
(2)
Business Metrics (Actual Numbers)
Locations at period end
Admissions *
Average daily census *
Average length of stay *
Patient days *
Revenue per patient day *
Organic growth
(6)
- Revenue *
- Average daily census *
(5)
(3)
(4)
(6)
2023
% of Segment
Net Service
Revenues
Amount
For the Years Ended December 31,
2022
Change
Amount
% of Segment
Net Service
Revenues
(Amounts in Thousands, Except Percentages)
Amount
%
$
$
207,155
110,219
96,936
52,083
44,853
39
12,902
3,415
94.4
1,203,522
175.43
$
2.0 %
0.3 %
100.0 % $
53.2
46.8
25.1
21.7 % $
201,772
100,956
100,816
49,742
51,074
100.0 % $
50.0
50.0
24.7
25.3 % $
5,383
9,263
(3,880 )
2,341
(6,221 )
2.7 %
9.2
(3.8 )
4.7
(12.2 ) %
33
13,171
3,279
87.7
1,176,193
171.55
$
0.4 %
1.9 %
(269 )
136
6.7
27,329
3.88
(2.0 ) %
4.1
7.7
2.3
2.3 %
$
(1)
(2)
(3)
(4)
(5)
(6)
Represents referral process and new patients on service during the period.
Average daily census is total patient days divided by the number of days in the period, adjusted for patient days for acquisitions beginning on date of acquisition.
Average length of stay is the average number of days a patient is on service, calculated upon discharge, and is total patient days divided by total discharges in the
period.
Patient days is days of service for all patients in the period.
Revenue per patient day is hospice revenue divided by the number of patient days in the period.
Revenue organic growth and average daily census organic growth reflect the change in year-over-year revenue and average daily census for the same store base. We
define the same store base to include those stores open for at least 52 full weeks. These measures highlight the performance of existing stores, while excluding the
impact of acquisitions, new store openings and closures.
* Management deems these metrics to be key performance indicators. Management uses these metrics to monitor our performance, both in our existing operations and
acquisitions. Many of these metrics serve as the basis of reported revenues and assessment of these, provide direct correlation to the results of operations from period to
period and facilitate comparison with the results of our peers. Historical trends established in these metrics can be used to evaluate current operating results, identify trends
affecting our business, determine the allocation of resources and assess the quality and potential variability of our cash flows and earnings. We believe they are useful to
investors in evaluating and understanding our business but should not be used solely in assessing the Company’s performance. These key performance indicators should not
be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein to fully
evaluate and understand the business as a whole. These measures may not be comparable to similarly-titled performance indicators used by other companies.
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Hospice generates revenue by providing care to patients with a life expectancy of six months or less, as well as related services for their families.
Hospice offers four levels of care, as defined by Medicare, to meet the varying needs of patients and their families. The four levels of hospice include
routine care, continuous care, general inpatient care and respite care. Our hospice segment principally provides routine care.
Net service revenues from Medicare accounted for 89.9% and 90.9% and Medicare Advantage accounted for 3.4% and 3.6% for the years ended
December 31, 2023 and 2022, respectively. Net service revenues increased by $5.4 million for the year ended December 31, 2023 compared to the year
ended December 31, 2022 primarily due to increases in average daily census and revenue per patient day, mainly attributed to the organic growth and the
acquisitions of the operations of Tennessee Quality Care on August 1, 2023 and JourneyCare on February 1, 2022.
Gross profit, expressed as a percentage of net service revenues, was 46.8% and 50.0% for the years ended December 31, 2023 and 2022,
respectively. The decrease in gross profit as a percentage of net service revenues was mainly attributed to higher direct employee wages, taxes and benefit
costs of $6.4 million.
The hospice segment’s general and administrative expenses primarily consist of administrative employee wages, taxes and benefit costs, rent,
information technology and office expenses. General and administrative expenses, expressed as a percentage of net service revenues, was 25.1% and 24.7%
for the years ended December 31, 2023 and 2022, respectively. The increase in general and administrative expenses was primarily due to acquisitions that
resulted in a $2.4 million increase in administrative employee wages for the year ended December 31, 2023.
Home Health Segment
Operating Results
Net service revenues
Cost of services revenues
Gross profit
General and administrative expenses
Segment operating income
(1)
Business Metrics (Actual Numbers)
Locations at period end
New admissions *
Recertifications *
(3)
Total volume *
Visits *
Organic growth
(5)
- Revenue *
(2)
(4)
2023
% of Segment
Net Service
Revenues
Amount
For the Years Ended December 31,
2022
Amount
% of Segment
Net Service
Revenues
(Amounts in Thousands, Except Percentages)
Change
Amount
%
$
$
56,778
35,749
21,029
14,017
7,012
100.0 % $
63.0
37.0
24.7
12.3 % $
42,841
29,808
13,033
10,251
2,782
100.0 % $
69.6
30.4
23.9
6.5 % $
13,937
5,941
7,996
3,766
4,230
32.5 %
19.9
61.4
36.7
152.0 %
24
16,251
9,030
25,281
344,919
(7.1 ) %
13
14,452
5,838
20,290
293,381
8.2 %
1,799
3,192
4,991
51,538
12.4 %
54.7
24.6
17.6 %
(1)
(2)
(3)
(4)
(5)
Represents new patients during the period.
A home health certification period begins with a start of care visit and continues for 60 days. If at the end of the initial certification, the patient continues to require
home health services, a recertification is required. This represents the number of recertifications during the period.
Total volume is total admissions and total recertifications in the period.
Represents number of services to patients in the period.
Revenue organic growth and new admissions organic growth reflect the change in year-over-year revenue and new admissions for the same store base. We define the
same store base to include those stores open for at least 52 full weeks. These measures highlight the performance of existing stores, while excluding the impact of
acquisitions, new store openings and closures.
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Table of Contents
* Management deems these metrics to be key performance indicators. Management uses these metrics to monitor our performance, both in our existing operations and
acquisitions. Many of these metrics serve as the basis of reported revenues and assessment of these, provide direct correlation to the results of operations from period to
period and facilitate comparison with the results of our peers. Historical trends established in these metrics can be used to evaluate current operating results, identify trends
affecting our business, determine the allocation of resources and assess the quality and potential variability of our cash flows and earnings. We believe they are useful to
investors in evaluating and understanding our business but should not be used solely in assessing the Company’s performance. These key performance indicators should not
be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein to fully
evaluate and understand the business as a whole. These measures may not be comparable to similarly-titled performance indicators used by other companies.
Home health generates revenue by providing home health services on a short-term, intermittent or episodic basis to individuals, generally to treat an
illness or injury. Net service revenues from Medicare accounted for 72.3% and 73.5% and managed care organizations accounted for 22.2% and 20.3% for
the years ended December 31, 2023 and 2022, respectively. Home health services provided to Medicare beneficiaries are paid under the Medicare HHPPS,
which uses national, standardized 30-day period payment rates for periods of care. CMS uses the PDGM as the case-mix classification model to place
periods of care into payment categories, classifying patients based on clinical characteristics. An outlier adjustment may be paid for periods of care in
which costs exceed a specific threshold amount.
Net service revenues increased by $13.9 million for the year ended December 31, 2023 compared to 2022. Total visits increased for the year ended
December 31, 2023, mainly attributed to the acquisition of Tennessee Quality Care on August 1, 2023 and the full-year effect in 2023 of the acquisition of
Apple Home on October 1, 2022.
Gross profit, expressed as a percentage of net service revenues, was 37.0% and 30.4% for the years ended December 31, 2023 and 2022,
respectively. The increase in gross profit as a percentage of net service revenues was due to a decrease of 6.6% in direct payroll expense as a percentage of
net service revenues.
The home health segment’s general and administrative expenses consist of administrative employee wages, taxes and benefit costs, rent, information
technology and office expenses. General and administrative expenses, expressed as a percentage of net service revenues, was 24.7% and 23.9% for the
years ended December 31, 2023 and 2022, respectively. The increase in general and administrative expenses was primarily due to acquisitions that resulted
in a $3.1 million increase in administrative employee wages, taxes and benefit costs and a $0.3 million increase in rent expenses for the year ended
December 31, 2023.
Non-GAAP Financial Measures
Adjusted EBITDA is a non-GAAP measure that has limitations as an analytical tool, and should not be considered in isolation or as a substitute for
analysis of our results of operations as reported under generally accepted accounting principles in the United States (“GAAP”). The financial results
presented in accordance with U.S. GAAP and a reconciliation of this non-GAAP measure included within this Annual Report on Form 10-K should be
carefully evaluated.
We define Adjusted EBITDA as earnings before interest expense, other non-operating income, taxes, depreciation, amortization, acquisition
expenses, stock-based compensation expense, restructure expenses and other non-recurring costs, loss on the sale of assets and retroactive rate increases
from New York. The Company defined adjusted EBITDA to exclude net COVID expenses arising from the pandemic from the second quarter of 2020 to
the first quarter of 2021. Adjusted EBITDA is a performance measure used by management that is not calculated in accordance with GAAP. It should not
be considered in isolation or as a substitute for net income, operating income or any other measure of financial performance calculated in accordance with
GAAP. Additionally, our calculation of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.
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 comparison of our business operations between current, past and future periods. We believe that Adjusted EBITDA allows
management, investors and others to evaluate and compare our core operating results, including return on capital and operating
efficiencies, from period to period, by removing the impact of our capital structure (interest expense), asset base (amortization and
depreciation), tax consequences, stock-based compensation expense 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 public companies.
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•
We recorded stock-based compensation expense of $10.3 million, $10.6 million and $9.4 million for the years ended December 31, 2023,
2022 and 2021, respectively. By comparing our Adjusted EBITDA in different periods, our investors can evaluate our operating results
without 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 we believe that the amount of non-cash expenses,
such as depreciation, amortization and stock-based compensation expense, may not directly correlate to the underlying performance of our business
operations, and because such expenses can vary significantly from 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 the case may be. This facilitates internal comparisons to historical operating
results, as well as external comparisons to the operating results of our competitors and other companies in the personal care services industry. Because
management believes Adjusted EBITDA is useful as a performance measure, management uses Adjusted EBITDA:
•
•
•
•
•
•
as one of our primary financial measures in the day-to-day oversight of our business to allocate financial and human resources across our
organization, to assess appropriate 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 to implement 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 our payor 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 affected by our management in any particular period through their allocation and use of resources that affect our
underlying revenue and profit-generating operations during that period;
for the valuation of prospective acquisitions, and to evaluate the effectiveness of integration of past acquisitions into our Company; and
in communications with our Board 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 analytical tool, 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 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 Adjusted EBITDA does not reflect any cash requirements for these replacements;
Adjusted EBITDA does not reflect any acquisition expenses;
Adjusted EBITDA does not reflect any stock-based compensation;
Adjusted EBITDA does not reflect any restructure expense and other non-recurring costs;
Adjusted EBITDA does not reflect any net COVID-19 expense arising from the pandemic from the second quarter of 2020 to the first
quarter of 2021; 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 operations of our business. We believe that consideration of Adjusted EBITDA, together with a careful review of our GAAP financial measures,
is the most informed method of analyzing our Company.
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The following table sets forth a reconciliation of net income, the most directly comparable GAAP measure, to Adjusted EBITDA:
2023
For the Years Ended December 31,
2022
(Amounts In Thousands)
2021
Reconciliation of net income to Adjusted EBITDA
(a):
Net income
Interest expense, net
Impact of retroactive New York rate increase
Income tax expense
Depreciation and amortization
Acquisition expenses
Stock-based compensation expense
Restructure expense and other related costs
COVID-19 expense, net
(Gain) loss on sale of assets
(b)
Adjusted EBITDA*
$
$
62,516
9,630
(868 )
18,810
14,126
6,220
10,319
269
—
(2 )
121,020
$
$
$
46,025
8,566
—
14,146
14,060
7,657
10,625
461
—
(60 )
$
101,480
45,126
5,538
—
15,272
14,494
7,306
9,434
1,057
(591 )
25
97,661
(a)
(b)
The selected historical Consolidated Statements of Income data for the fiscal years ended December 31, 2023, 2022 and 2021, were derived from our
audited Consolidated Financial Statements.
Excludes net COVID expenses arising from the pandemic from the second quarter of 2020 to the first quarter of 2021.
* Management deems Adjusted EBITDA to be a key performance indicator. Management uses key performance indicators to monitor our performance, both in
our existing operations and acquisitions. Many of these metrics serve as the basis of reported revenues and assessment of these, provide direct correlation to the
results of operations from period to period and facilitate comparison with the results of our peers. Historical trends established in these metrics can be used to
evaluate current operating results, identify trends affecting our business, determine the allocation of resources and assess the quality and potential variability of
our cash flows and earnings. We believe they are useful to investors in evaluating and understanding our business but should not be used solely in assessing the
Company’s performance. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be
considered in conjunction with, the GAAP financial measures presented herein to fully evaluate and understand the business as a whole. These measures may not
be comparable to similarly-titled performance indicators used by other companies.
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are cash on hand and cash from operations and borrowings under our credit facility. At December 31, 2023 and
2022, we had cash balances of $64.8 million and $80.0 million, respectively. Cash flows from operating activities represent the inflow of cash from our
payor clients and the outflow of cash for payroll and payroll taxes, operating expenses, interest and taxes.
We drew approximately $110.0 million on the revolver portion of our credit facility to fund, in part, the purchase price paid in connection with the
Tennessee Quality Care acquisition, and repaid $118.5 million under our revolving credit facility in 2023. At December 31, 2023, we had a total of $126.4
million in revolving loans, with an interest rate of 7.21% outstanding on our credit facility. After giving effect to the amounts drawn on our credit facility,
approximately $8.0 million of outstanding letters of credit and borrowing limits based on an advance multiple of Adjusted EBITDA (as defined in the
Credit Agreement), we had $470.0 million of capacity and $335.6 million available for borrowing under our credit facility. At December 31, 2022, we had
a total of $134.9 million of revolving loans, with an interest rate of 6.13%. During the year ended December 31, 2022, the Company drew approximately
$47.0 million on the revolver portion of its credit facility to fund, in part, the Journey Care and Apple Home acquisitions on February 1, 2022 and October
1, 2022, respectively.
Our credit facility requires us to maintain a total net leverage ratio not exceeding 3.75:1.00. At December 31, 2023, we were in compliance with our
financial covenants under the Credit Agreement. Although we believe our liquidity position remains strong, we can provide no assurance that we will
remain in compliance with the covenants in our Credit Agreement, and in the future, it may prove necessary to seek an amendment with the bank lending
group under our credit facility. Additionally, there can be no assurance that we will be able to raise additional funds on terms acceptable to us, if at all.
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Borrowing Capacity
The Company’s Credit Agreement provides for a $600.0 million revolving credit facility and a $125.0 million incremental loan facility, which
incremental loan facility may be for term loans or an increase to the revolving loan commitments. The maturity of the credit facility is July 30, 2026.
Pursuant to the Third Amendment to Amended and Restated Credit Agreement dated as of April 26, 2023, the Company amended its credit facility to
replace the London Inter-Bank Offered Rate (“LIBOR”) with the secured overnight financing rate as administered by the Federal Reserve Bank of New
York (“SOFR”) as the benchmark reference rate for loans under its credit facility. The transition to SOFR did not and is not expected to have a material
impact on the Company’s results of operations or liquidity.
See Note 7, Long-Term Debt, to the Notes to Consolidated Financial Statements for additional details of our long-term debt.
Current Macroeconomic Conditions and COVID-19 Relief Funding
Economic conditions in the United States continue to be challenging in various respects. For example, the United States economy continues to
experience significant inflationary pressures, elevated interest rates, challenging labor market conditions, and disruptions to supply networks. Any resulting
economic downturn would pose a risk to states’ revenues, which in turn could affect our reimbursements and collections received for services rendered.
Depending on the severity and length of any potential economic downturn, states could face significant fiscal challenges and revise their revenue forecasts
and adjust their budgets, and sales tax collections and income tax withholdings could be depressed in fiscal year 2023 (which began July 1 in most states),
and, potentially, future fiscal years. In this regard, Illinois, New Mexico and New York, our top three personal care markets, previously revised revenue
estimates downward for the 2022 fiscal year as the result of earlier negative economic conditions arising from the pandemic. Also, in response to reduced
revenues, the state of New York authorized the issuance of short-term bonds and implemented uniform reductions to Medicaid payments, applicable to
home health and personal care services (hospice services were exempt). These reductions took effect for dates of service on or after April 2, 2020, and were
eliminated effective April 1, 2022.
COVID-19 Provider Relief Fund
In response to the COVID-19 pandemic, the federal government took various measures intended to assist healthcare providers, including authorizing
several forms of financial relief. One of the primary sources of relief for eligible healthcare providers was the Provider Relief Fund, distributions from
which were intended to compensate healthcare providers for lost revenues and healthcare related expenses incurred in response to the COVID-19
pandemic. Recipients were not required to repay funding received, provided that they attested to and complied with certain terms and conditions.
In November 2020, the Company received grants in an aggregate principal amount of $13.7 million from the Provider Relief Fund, for which we
had previously applied. The Company utilized the remaining $12.3 million of these funds during the year ended December 31, 2021, for healthcare related
expenses, including retention payments attributable to COVID-19 that were unreimbursed by other sources. We were required to properly and fully
document the use of such funds in reports to HHS. The Company documented the use of such funds in reports to HHS, as required, and submitted the
reports to HHS prior to the deadline of March 31, 2022. During the year ended December 31, 2022, we submitted an unmodified audit report to HHS in
accordance with Generally Accepted Government Auditing Standards, as required for commercial organizations that received and expended total awards of
$750,000 or more.
Payroll tax deferral
The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) also provides for certain federal income and other tax changes, including
allowing for the deferral of the employer portion of Social Security payroll taxes through December 31, 2020. The payroll tax deferral requires that the
deferred payroll taxes be paid over two years, with half of the eligible deferred amount required to be paid by December 31, 2021 and the other half by
December 31, 2022. The Company received a cash benefit of approximately $7.1 million related to the deferral of employer payroll taxes for 2020 under
the CARES Act, for the period April 2, 2020 through June 30, 2020. Effective July 1, 2020, the Company began paying its deferred portion of employer
Social Security payroll taxes and repaid $4.1 million and $3.0 million as of December 31, 2022 and 2021, respectively.
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ARPA Spending Plans
The ARPA became law on March 11, 2021 and provides for $350 billion in relief funding for eligible state, local, territorial, and Tribal governments
to mitigate the fiscal effects of the COVID-19 public health emergency. Additionally, the law provided for a 10 percentage point increase in federal
matching funds for Medicaid HCBS from April 1, 2021, through March 31, 2022, provided the state satisfied certain conditions. States are permitted to use
the state funds equivalent to the additional federal funds through March 31, 2025. States must use the monies attributable to this matching fund increase to
supplement, not supplant, their level of state spending for the implementation of activities enhanced under the Medicaid HCBS in effect as of April 1, 2021.
HCBS spending plans for the additional matching funds vary by state, but common initiatives in which the Company is participating include those
aimed at strengthening the provider workforce (e.g., efforts to recruit, retain, and train direct service providers). The Company is required to properly and
fully document the use of such funds in reports to the state in which the funds originated. Funds may be subject to recoupment if not expended or if they
are expended on non-approved uses.
The Company received state funding provided by the ARPA in an aggregate amount of $3.7 million and $23.4 million for the years ended
December 31, 2023 and 2022, respectively. The Company recorded revenue of $0.3 million and $1.9 million and related cost of service revenues of $0.1
million and $1.5 million for certain states that met the revenue recognition criteria for the years ended December 31, 2023 and 2022, respectively. The
Company deferred the remaining $3.4 million and $21.5 million, which was received from states with specific spending plans and reporting requirements,
for the years ended December 31, 2023 and 2022, respectively. The Company utilized $10.5 million and $8.6 million of these funds during the years ended
December 31, 2023 and 2022, respectively, primarily for caregivers and adding support to recruiting and retention efforts. The deferred portion of ARPA
funding was $5.8 million and $12.9 million for the years ended December 31, 2023 and 2022, respectively, which is included within Government stimulus
advances on the Company’s Consolidated Balance Sheets.
Medicare sequester
The CARES Act and related legislation also include other provisions offering financial relief, including, for example, temporarily suspending the
Medicare sequester, which would have otherwise reduced payments to Medicare providers by 2% as required by the Budget Control Act of 2011. The
sequestration adjustment resumed with a 1% reduction beginning April 1, 2022, and a 2% reduction beginning July 1, 2022. These sequestration cuts have
been extended through April 2032.
In our hospice segment, Medicare sequester relief resulted in an increase in net service revenues of $0.0 million and $1.4 million for the years ended
December 31, 2023 and 2022, respectively. In our home health segment, Medicare sequester relief resulted in an increase in net service revenues of $0.0
million and $0.3 million, for the years ended December 31, 2023 and 2022, respectively.
However, the ARPA increased the federal budget deficit in a manner that triggers an additional statutorily mandated sequestration under the PAYGO
Act. As a result, an additional Medicare payment reduction of up to 4% was required to take effect in January 2022. However, Congress has delayed
implementation of this payment reduction until 2025. We cannot currently determine if, or to what extent, our business, results of operations, financial
condition or liquidity will ultimately be impacted by mandated sequestration triggers under the PAYGO Act, or if or when the mandated sequestration will
occur. Further, we anticipate that the federal deficit will continue to place pressure on government healthcare programs, and it is possible that future deficit
reduction legislation will impose additional Medicare spending reductions.
Cash Flows
The following table summarizes historical changes in our cash flows for the years ended December 31, 2023, 2022 and 2021:
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
$
2023
112,247
(119,236 )
(8,181 )
2022
(Amounts in Thousands)
105,110
$
(106,590 )
(87,454 )
$
2021
39,488
(42,015 )
26,344
Net cash provided by operating activities was $112.2 million for the year ended December 31, 2023, compared to $105.1 million in 2022 primarily
due to the timing of receipts on accounts receivable and the timing of government stimulus funds. The changes in accounts receivable were primarily
related to the growth in revenue and a decrease in days sales outstanding (“DSO”) during the year ended December 31, 2023 compared to 2022, as
described below. The related receivables due from the Illinois Department on Aging represented 25.8% and 18.0% of net accounts receivable at December
31, 2023 and 2022, respectively.
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Net cash used in investing activities was $119.2 million for the year ended December 31, 2023, compared to $106.6 million for the year ended
December 31, 2022. Our investing activities for the year ended December 31, 2023 consisted of $1.0 million primarily for the acquisition of CareStaff,
$111.2 million for the acquisition of Tennessee Quality Care and $9.4 million in purchases of property and equipment primarily related to technology
infrastructure. Our investing activities for the year ended December 31, 2022 primarily consisted of $86.6 million primarily for the acquisition of
JourneyCare, $12.7 million for the acquisition of Apple Home and $8.3 million in purchases of property and equipment primarily related to technology
infrastructure.
Net cash used in financing activities was $8.2 million for the year ended December 31, 2023 compared to $87.4 million for the year ended
December 31, 2022. Our financing activities for the year ended December 31, 2023 included borrowings of $110.0 million on the revolver portion of our
credit facility to fund two acquisitions and the payment of $118.5 million of our revolving loans. Our financing activities for the year ended December 31,
2022 included borrowings of $47.0 million on the revolver portion of our credit facility to fund two acquisitions and the payment of $137.0 million of our
revolving loans.
Outstanding Accounts Receivable
Gross accounts receivable as of December 31, 2023 and 2022 were $117.8 million and $127.1 million, respectively. Outstanding accounts
receivable, net of the allowance for credit losses, decreased by $10.0 million as of December 31, 2023 compared to December 31, 2022. The open
receivable balance from the Illinois Department on Aging, the largest payor program for the Company’s Illinois personal care operation, increased by $7.3
million from $22.5 million as of December 31, 2022 to $29.8 million as of December 31, 2023. Our collection procedures include review of account aging
and direct contact with our payors. We have historically not used collection agencies. An uncollectible amount is written off to the allowance account after
reasonable collection efforts have been exhausted.
We calculate our DSO by taking the accounts receivable outstanding, net of the allowance for credit losses, divided by the net service revenues for
the last quarter, multiplied by the number of days in that quarter. Our DSOs were 39 days and 45 days at December 31, 2023 and 2022, respectively. The
DSOs for our largest payor, the Illinois Department on Aging, at December 31, 2023 and 2022 were 50 days and 42 days, respectively.
Off-Balance Sheet Arrangements
As of December 31, 2023, we did not have any off-balance sheet guarantees or arrangements with unconsolidated entities.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our Consolidated Financial Statements prepared in
accordance with GAAP. The preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities, revenues and expense and related disclosures.
Our significant accounting policies are described in Note 1 to the Notes to Consolidated Financial Statements. An accounting policy is deemed to be
critical if it involves a significant level of estimation uncertainty and has had or is reasonably likely to have a material impact on our financial condition or
results of operations. We base our estimates and judgments on historical experience and other sources and factors that we believe to be reasonable under the
circumstances, however, actual results may differ from these estimates. Our critical accounting policies requiring estimates, assumptions and judgments
that we believe have the most significant impact on our consolidated financial statements are described below.
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Revenue Recognition, Accounts Receivable and Allowances
Net service revenue is recognized at the amount that reflects the consideration the Company expects to receive in exchange for providing services
directly to consumers. Receipts are from federal, state and local governmental agencies, managed care organizations, commercial insurers and private
consumers for services rendered. The Company assesses the consumers’ ability to pay at the time of their admission based on the Company’s verification
of the customer’s insurance coverage under the Medicare, Medicaid, and other commercial or managed care insurance programs. Laws and regulations
governing the governmental programs in which we participate are complex and subject to interpretation. Net service revenues related to uninsured
accounts, or self-pay, is recorded net of implicit price concessions estimated based on historical collection experience to reduce revenue to the estimated
amount we expect to collect. Amounts collected from all sources may be less than amounts billed due to implicit price concessions resulting from client
eligibility issues, insufficient or incomplete documentation, services at levels other than authorized, pricing differences and other reasons unrelated to credit
risk. We monitor our net service revenues and collections from these sources and record any necessary adjustment to net service revenues based upon
management’s assessment of historical write offs and expected net collections, business and economic conditions, trends in federal, state and private
employer healthcare coverage and other collection indicators.
Accounts receivable is reduced to the amount expected to be collected in future periods for services rendered to customers prior to the balance sheet
date. Management estimates the value of accounts receivable, net of allowances for implicit price concessions based upon historical experience and other
factors, including an aging of accounts receivable, evaluation of expected adjustments, past adjustments and collection experience in relation to amounts
billed, current contract and reimbursement terms, shifts in payors and other relevant information. Collection of net service revenues we expect to receive is
normally a function of providing complete and correct billing information to the payors within the various filing deadlines. The evaluation of these
historical and other factors involves complex, subjective judgments impacting the determination of the implicit price concession assumption. In addition,
we compare our cash collections to recorded net service revenues and evaluate our historical allowances, including implicit price concessions, based upon
the ultimate resolution of the accounts receivable balance.
Goodwill and Intangible Assets
Under business combination accounting, assets and liabilities are generally recognized at their fair values and the difference between the
consideration transferred, excluding transaction costs, and the fair values of the assets and liabilities is recognized as goodwill. The Company’s significant
identifiable intangible assets consist of customer and referral relationships, trade names and trademarks and state licenses. The Company uses various
valuation techniques to determine initial 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 value hierarchy. Under these 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. The Company estimates the fair values of the trade names using the relief-
from-royalty method, which requires assumptions such as the long-term growth rates of future revenues, the relief from royalty rate for such revenue, the
tax rate and the discount rate. The Company estimates the fair value of existing indefinite-lived state licenses based on a blended approach of the
replacement cost method and cost savings method, which involves estimating the total process costs and opportunity costs to obtain a license, by estimating
future earnings before interest and taxes and applying an estimated discount rate, tax rate and time to obtain the license. The Company estimates the fair
value of existing finite-lived state licenses based on a method of analyzing the definite revenue streams with the license and without the license, which
involves estimating revenues and expenses, estimated time to build up to a current revenue base, which is market specific, and the non-licensed revenue
allocation, revenue growth rates, discount rate and tax amortization benefits. The Company estimates the fair value of customer and referral relationships
based on a multi-period excess earnings method, which involves identifying revenue streams associated with the assets, estimating the attrition rates based
upon historical financial data, expenses and cash flows associated with the assets, contributory asset charges, rates of return for specific assets, growth
rates, discount rate and tax amortization benefits. The Company estimates the fair value of non-competition agreements based on a method of analyzing the
factors to compete and factors not to compete, which involves estimating historical financial data, forecasted financial statements, growth rates, tax
amortization benefit, discount rate, review of factors to compete and factors not to compete as well as an assessment of the probability of successful
competition for each non-competition agreement.
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As of December 31, 2023 and 2022, goodwill was $663.0 million and $582.8 million, respectively, included in our Consolidated Balance Sheets.
The carrying value of our 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. We test goodwill
for impairment at the reporting unit level on an annual basis, as of October 1, or whenever potential impairment triggers occur, such as a significant change
in business climate or regulatory changes that would indicate that an impairment may have occurred. We may elect to use a qualitative test to determine
whether impairment has occurred, focused on various factors including macroeconomic conditions, market trends, specific reporting unit financial
performance and other entity specific events, to determine if it is more likely than not that the fair value of a reporting unit exceeds its carrying value,
including goodwill. We may also bypass the qualitative assessment and perform a quantitative test. Additionally, it is our policy to update the fair value
calculation of our reporting units and perform the quantitative goodwill impairment test on a periodic basis. The quantitative goodwill impairment test
involves comparing the fair value of a reporting unit with its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying
value, then goodwill is not impaired. If the fair value of a reporting unit is less than its carrying value, then goodwill is impaired to the extent of the
difference.
For the years ended December 31, 2023, 2022 and 2021, we performed the quantitative analysis to evaluate whether an impairment occurred. Since
quoted market prices for our reporting units are not available, we rely on widely accepted valuation techniques to determine fair value, including
discounted cash flow and market multiple approaches, which capture both the future income potential of the reporting unit and the market behaviors and
actions of market participants in the industry that includes the reporting unit. These types of models require us to make assumptions and estimates
regarding future cash flows, industry-specific economic factors and the profitability of future business strategies. The discounted cash flow model uses a
projection of estimated operating results and cash flows that are discounted using a weighted average cost of capital. The market multiple model estimates
fair value based on market multiples of earnings before interest, taxes and depreciation and amortization. Under the discounted cash flow model, the
projection uses management’s best estimates of economic and market conditions over the projected period for each reporting unit using significant
assumptions such as revenue growth rates, operating margins and the weighted-average cost of capital.
Based on the totality of the information available, we concluded that it was more likely than not that the estimated fair values of our reporting units
were greater than their carrying values. Consequently, we concluded that there were no impairments for the years ended December 31, 2023, 2022 or 2021.
For the fiscal year 2023 impairment tests, the fair value of the reporting units exceeded their respective carrying values (commonly referred to as
“headroom”) by at least 100% in the personal care and in the home health reporting unit, and 20% in the hospice reporting unit. The headroom percentage
for the hospice reporting unit decreased as compared to the prior year primarily due to the result of labor shortages with rising costs adding pressure to
gross margin and patient volumes have not rebounded as quickly following the acute phase of the COVID-19 pandemic as previously anticipated. We
performed a sensitivity analysis on this reporting unit and determined that a more than 1.2% increase to the weighted- average cost of capital, the most
sensitive assumption used in the estimate, would result in the fair value being lower than the carrying value. The Company bases its fair value estimates on
assumptions management believes to be reasonable but which are unpredictable and inherently uncertain. Actual future results may differ from those
estimates.
As of December 31, 2023 and 2022, intangibles, net of accumulated amortization, was $92.0 million and $72.2 million, respectively, included in our
Consolidated Balance Sheets. Our identifiable intangible assets consist of customer and referral relationships, trade names, trademarks, state licenses and
non-competition agreements. Definite-lived intangible assets are amortized using straight-line and accelerated methods based upon the estimated useful
lives of the respective assets, which range from one to twenty-five years, and assessed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. Customer and referral relationships are amortized systematically over the periods of expected
economic benefit, which range from five to ten years. We would recognize an impairment loss when the estimated future non-discounted cash flows
associated with the intangible asset are less than the carrying 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 these intangible assets using the income approach. In accordance with ASC Topic 350, Goodwill and Other
Intangible Assets, intangible assets with indefinite useful lives are not amortized. We test intangible assets with indefinite useful lives for impairment at the
reporting unit level on an annual basis, as of October 1, or whenever potential impairment triggers occur, such as a significant change in business climate or
regulatory changes that would indicate that an impairment may have occurred. No impairment charge was recorded for the years ended December 31,
2023, 2022 or 2021. Amortization of intangible assets is reported in the statement of income caption, “Depreciation and amortization” and not included in
the income statement caption cost of service revenues.
Recent Accounting Pronouncements
Refer to Note 1 to the Notes to Consolidated Financial Statements for further discussion.
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Standby Letters of Credit
We had outstanding letters of credit of $8.0 million at December 31, 2023. These standby letters of credit benefit our third-party insurer for our high
deductible workers’ compensation insurance program. The amount of the letters of credit is negotiated annually in conjunction with the insurance renewals.
Material Cash Requirements
We believe that our existing cash on hand, our anticipated cash flows from operations and amounts available under our Credit Agreement will be
sufficient to fund our anticipated operating and investing needs for the next 12 months and for the foreseeable future thereafter. Cash from operations could
also be affected by various risks and uncertainties, including, but not limited to the effects of risks detailed in Part I, Item 1A—”Risk Factors”
Debt
As of December 31, 2023, the Company had outstanding debt on our revolving loan under our credit facility of $126.4 million, payable on July 30,
2026. Interest payments associated with the debt aggregate to $27.1 million, with $10.8 million payable within 12 months. As described in Note 7 to the
Notes to Consolidated Financial Statements, interest on borrowings under the revolving loan are variable. The calculated interest payable amounts use
actual rates available through January 2024 and assumes the January rates of 7.21%, respectively, for all future interest payable on the revolving loans. See
Note 7, Long-Term Debt, to the Notes to Consolidated Financial Statements for additional details of our long-term debt.
Leases
The Company has lease arrangements for local branches, our corporate headquarters and certain equipment. As of December 31, 2023, the Company
had fixed lease payment obligations aggregating to $61.2 million, with $13.8 million payable within 12 months. See Note 2, Leases, to the Notes to
Consolidated Financial Statements for additional details of our leases.
Impact of Inflation
The United States has recently experienced high rates of inflation. These inflationary conditions have resulted in, and may continue to result in,
increased operating costs, particularly as the result of increased wages we have paid and may continue to pay our caregivers and other personnel and our
ability to attract and retain personnel. Increased price levels might allow us to increase our fees to private pay clients, but our ability to realize rate increases
from government programs might be limited despite inflation. Inflation may also raise our financing costs. For additional information regarding the risks to
us from the current competitive labor market and increasing labor costs, see Item 1A—Risk Factors — “We may not be able to attract and retain qualified
personnel or we may incur increased costs in doing so.”
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk associated with changes in interest rates on our variable rate long-term debt. As of December 31, 2023, we had
outstanding borrowings of approximately $126.4 million on our credit facility, all of which was subject to variable interest rates. As of December 31, 2022,
we had outstanding borrowings of approximately $134.9 million on our credit facility, all of which was subject to variable interest rates. If the variable
rates on this debt were 100 basis points higher than the rate applicable to the borrowing during the year ended December 31, 2023, our net income would
have decreased by $1.0 million, or $0.06 per diluted share. We do not currently have any derivative or hedging arrangements, or other known exposures, to
changes in interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements together with the related Notes to Consolidated Financial Statements and the report of our independent
registered public accounting firm, are set forth on the pages indicated in Part IV, Item 15—”Exhibits and Financial Statement Schedules.”
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed
by an issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the issuer’s management, including its principal
executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving
their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of December 31, 2023.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Exchange Act Rule 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Under
the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an
assessment of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our assessment under the framework in Internal
Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2023.
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Under SEC Staff guidance, companies are permitted to exclude acquisitions from their first assessment of internal control over financial reporting
which covers the period in which such acquisition was completed. We excluded Coastal Nursecare of Florida, Inc. (“CareStaff”) and American Home Care,
LLC, a Tennessee limited liability company (“AHC”), and its subsidiaries, Homecare, LLC, a Tennessee limited liability company (“Homecare”),
Tennessee Valley Home Care, LLC (d/b/a Tennessee Quality Care – Home Health), a Tennessee limited liability company (“TQC – Home Health”), and
Tri-County Home Health and Hospice, LLC (d/b/a Tennessee Quality Care - Hospice), a Tennessee limited liability company (“TQC – Hospice”, and
collectively with AHC, Homecare, and TQC – Home Health “Tennessee Quality Care”) each of which are wholly-owned subsidiaries, from our assessment
of internal control over financial reporting as of December 31, 2023 because they were acquired in purchase business combinations on January 1, 2023 and
August 1, 2023, respectively.
•
•
CareStaff represented 0.2% of our revenues and 0.4% of our operating income, respectively, for the year ended December 31, 2023.
Tennessee Quality Care represented 1.5% of our revenues and 3.3% of our operating income, respectively, for the year ended December 31,
2023.
The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in its report which appears within Part IV, Item 15—“Exhibits and Financial Statement
Schedules.”.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and
15d-15(d) of the Exchange Act that occurred during the fiscal quarter ended December 31, 2023 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable. Without limiting the generality of the foregoing, during the quarter ended December 31, 2023, no director or Section 16 officer
adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements, as such terms are defined in Item 408 of
Regulation S-K.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
Certain 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 the
2023 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
this Annual Report, and certain information included in the Proxy Statement is incorporated herein by reference.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference to the 2024 Proxy Statement to be filed with the SEC not later than 120 days after
the end of the fiscal year ended December 31, 2023.
We have adopted a Code of Business Conduct and Ethics (“Code of Conduct”) that is applicable to all of our employees, officers and members of
our Board of Directors, and our subsidiaries. The Code of Conduct addresses, among other things, legal compliance, conflicts of interest, corporate
opportunities, protection and proper use of Company assets, confidential and proprietary information, integrity of records, compliance with accounting
principles and relations with government agencies. A copy of the current version of our Code of Conduct is available in the Investors—Corporate
Governance section of our internet website located at www.addus.com. A copy of the Code of Conduct is also available in print, free of charge, to any
stockholder who requests it by writing to Addus HomeCare Corporation, 6303 Cowboys Way, Suite 600, Frisco, TX 75034. We intend to post amendments
to or waivers from, if any, our Code of Conduct 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 Form 8-K pursuant to Item 5.05 thereof.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the 2024 Proxy Statement to be filed with the SEC not later than 120 days after
the end of the fiscal year ended December 31, 2023.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this item is incorporated by reference to the 2024 Proxy Statement to be filed with the SEC not later than 120 days after
the end of the fiscal year ended December 31, 2023.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to the 2024 Proxy Statement to be filed with the SEC not later than 120 days after
the end of the fiscal year ended December 31, 2023.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference to the 2024 Proxy Statement to be filed with the SEC not later than 120 days after
the end of the fiscal year ended December 31, 2023.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
(1), (2) The Financial Statements listed on the index on page F-1 following are included herein. All schedules are omitted, either because they
are not applicable or because the required information is shown in the financial statements or the notes thereto.
(b) Exhibits
Exhibit
Number
EXHIBIT INDEX
Incorporated by Reference
Description of Document
Form
File No.
Date Filing
3.1
3.2
4.1
4.2
Amended and Restated Certificate of Incorporation of Addus HomeCare
Corporation dated as of October 27, 2009.
10-Q
001-34504
11/20/2009
Amended and Restated Bylaws of Addus HomeCare Corporation, as amended
by the First Amendment to Amended and Restated Bylaws.
10-Q
001-34504
05/9/2013
Form of Common Stock Certificate.
S-1
333-160634
10/2/2009
Description of Securities of Addus HomeCare Corporation Registered under
Section 12 of the Exchange Act.
10-K 001-34504
8/10/2020
Exhibit
Number
3.1
3.2
4.1
4.2
10.1*
Addus Holding Corporation 2006 Stock Incentive Plan.
S-1
333-160634
7/17/2009
10.12
10.2*
10.3*
Director Form of Non-Qualified Stock Option Certificate under the 2006 Stock
Incentive Plan.
S-1
333-160634
7/17/2009
10.13
Executive Form of Non-Qualified Stock Option Certificate under the 2006
Stock Incentive Plan.
S-1
333-160634
7/17/2009
10.14
10.4
2009 Form of Indemnification Agreement.
10.5*
Form of Addus HomeCare Corporation 2009 Stock Incentive Plan.
S-1
S-1
333-160634
7/17/2009
333-160634
9/21/2009
10.16
10.20
10.6*
10.7*
10.8
10.9
Form of Nonqualified Stock Option Award Agreement pursuant to the 2009
Stock Incentive Plan.
S-1
333-160634
9/21/2009
10.20(a)
Form of Restricted Stock Award Agreement pursuant to the 2009 Stock
Incentive Plan.
S-1
333-160634
9/21/2009
10.20(b)
Securities Purchase Agreement, dated as of April 24, 2015, by and among
Addus HealthCare, Inc., Margaret Coffey, Carol Kolar, South Shore Home
Health Service, Inc. and Acaring Home Care, LLC.
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 party thereto, and
Capital One, National Association, as a Lender and Swing Lender and as Agent
for all Lenders, Suntrust Bank, as Documentation Agent, Bank of the West,
Compass Bank, Fifth Third Bank and JPMorgan Chase Bank, N.A., as Co-
Syndication Agents, the other financial institutions party thereto, as Lenders,
Capital One, National Association, Bank of the West, Compass Bank, Fifth
Third Bank and JPMorgan Chase Bank, N.A. and Suntrust Robinson Humphrey
as Joint Lead Arrangers and Capital One, National Association, as Sole
Bookrunner.
10-Q
001-34504
5/8/2015
10.1
10-Q
001-34504
5/9/2017
10.3
10.10*
Addus HomeCare Corporation’s 2017 Omnibus Incentive Plan, effective as of
April 27, 2017.
8-K
001-34504
6/16/2017
10.1
59
Table of Contents
10.11*
10.12*
10.13
10.14
10.15*
10.16*
10.17*
10.18*
10.19
10.20*
10.21*
10.22*
10.23
10.24
Form of Nonqualified Stock Option Award Agreement pursuant to the 2017
Omnibus Incentive Plan.
10-K
001-34504
3/14/2018
10.28
Form of Restricted Stock Award Agreement pursuant to the 2017 Omnibus
Incentive Plan.
10-K
001-34504
3/14/2018
10.29
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. Merrell and Mary E. Merrell, as Trustees of
the Ambercare Corporation Employee Stock Ownership Plan Trust.
Amended and Restated Credit Agreement by and among Addus HealthCare,
Inc., as borrower, the Company, the other Credit Parties party thereto, the
Lenders and L/C Issuers party thereto, and Capital One, National Association,
as administrative agent.
Second Amended and Restated Employment and Non-Competition Agreement,
dated November 5, 2018, by and between Addus HealthCare, Inc. and R. Dirk
Allison.
Second Amended and Restated Employment and Non-Competition Agreement,
dated November 5, 2018, by and between Addus HealthCare, Inc. and Brian
Poff.
Second Amended and Restated Employment and Non-Competition Agreement,
dated November 5, 2018, by and between Addus HealthCare, Inc. and Darby
Anderson.
Second Amended and Restated Employment and Non-Competition Agreement,
dated November 5, 2018, by and between Addus HealthCare, Inc. and W.
Bradley Bickham.
Amended and Restated Credit Agreement, dated as of October 31, 2018, by and
among Addus HealthCare, Inc., as borrower, the Company, the other Credit
Parties party thereto, the Lenders and L/C Issuers party thereto, and Capital
One, National Association, as administrative agent.
8-K
001-34504
3/5/2018
10.1
10-Q
001-34504
8/11/2018
10.2
10-Q
001-34504
8/11/2018
10.3
10-Q
001-34504
8/11/2018
10.4
10-Q
001-34504
8/11/2018
10.6
10-Q
001-34504
8/11/2018
10.7
10-Q
001-34504
11/8/2018
10.2
Employment and Non-Competition Agreement, effective April 29, 2019, by and
between Addus HealthCare, Inc. and Sean Gaffney.
8-K
001-34504
4/8/2019
99.2
Employment and Non-Competition Agreement, effective November 7, 2019, by
and between Addus HealthCare, Inc. and David Tucker.
10-K
001-34504
8/10/2020
10.40
Employment and Non-Competition Agreement, effective November 7, 2019, by
and between Addus HealthCare, Inc. and Mike Wattenbarger.
10-K
001-34504
8/10/2020
10.41
Equity Purchase Agreement, dated August 25, 2019, by and among Addus
Healthcare, Inc., Hospice Partners of America, LLC, New Capital Partners II –
HS, Inc., Senior Care Services, LLC, Eastside Partners II, L.P., and New Capital
Partners II, LLC.
First Amendment to Amended and Restated Credit Agreement, dated as of
September 12, 2019, by and among Addus HealthCare, Inc., as the Borrower,
Addus HomeCare Corporation, other Credit Parties party thereto, Capital One,
National Association, as administrative agent and as a Lender, and the other
Lenders party thereto.
60
S-3ASR 333-233600
9/3/2019
2.1
10-Q
001-34504
9/13/2019
10.1
10.25
10.26
10.27*
10.28**
10.30*
10.31*
10.32
10.33*
10.34**
Table of Contents
Unit Purchase Agreement, dated November 10, 2020, by and among Addus
Healthcare, Inc., Queen City Hospice, LLC, Miracle City Hospice, LLC, and
QCH Holdings LLC.
Amendment to Unit Purchase Agreement, dated December 3, 2020, by and
among Addus Healthcare, Inc., Queen City Hospice, LLC, Miracle City
Hospice, LLC, and QCH Holdings LLC.
10-K
001-34504
3/1/2021
10.45
10-K
001-34504
3/1/2021
10.46
Employment and Non-Competition Agreement, effective June 14, 2021, by and
between Addus HealthCare, Inc. and Roberton James Stevenson.
10-Q
001-34504
8/4/2021
10.2
Second Amendment to Amended and Restated Credit Agreement, dated as of
July 30, 2021, by and among Addus HealthCare, Inc., as the Borrower, Addus
HomeCare Corporation, the other Credit Parties party thereto, Capital One,
National Association, as administrative agent and as a Lender, and the other
Lenders party thereto.
10.29*
2022 Form of Indemnification Agreement.
Amended and Restated Employment and Non-Competition Agreement,
effective March 1, 2022, by and between Addus HealthCare, Inc. and Monica
Raines.
8-K
001-34504
8/4/2021
10.1
10-K
001-34504
2/25/2022
10-Q
001-34504
5/23/2022
10.50
10.1
Employment and Non-Competition Agreement, effective April 20, 2022, by and
between Addus HealthCare, Inc. and Cliff Blessing.
10-Q
001-34504
8/2/2022
10.1
Third Amendment to Amended and Restated Credit Agreement, dated as of
April 26, 2023, by and among Addus HealthCare, Inc., as the Borrower, Addus
HomeCare Corporation, the other Credit Parties party thereto, Capital One,
National Association, as administrative agent and as a Lender, and the other
Lenders party thereto.
10-Q
001-34504
5/2/2023
10.1
Addus HomeCare Corporation Amended and Restated 2017 Omnibus Incentive
Plan.
10-Q
001-34504
8/1/2023
10.1
Membership Interests Purchase Agreement, dated June 28, 2023, by and among
Addus HealthCare, Inc., HHH Newco Holdings, LLC, American Health
Companies, LLC, American Home Care, LLC, Homecare, LLC, Tennessee
Valley Home Care, LLC, and Tri-County Home Health and Hospice, LLC.
10-Q
001-34504
8/1/2023
10.1
21.1
Subsidiaries of Addus HomeCare Corporation.
23.1
31.1
31.2
32.1
32.2
97.1***
Consent of PricewaterhouseCoopers LLP, Independent Registered Public
Accounting Firm.
Certification of Chief Executive Officer Pursuant to Rule 13-14(a) of the
Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to Rule 13-14(a) of the
Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Addus Homecare Corporation Compensation Recoupment Policy
61
Table of Contents
101.INS
Inline XBRL Instance Document (the instance document does not appear in the
Interactive Data File because its XBRL tags are embedded within the Inline
XBRL document).
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
101.CAL
Inline XBRL Taxonomy Calculation Linkbase Document.
101.LAB
Inline XBRL Taxonomy Label Linkbase Document.
101.PRE
Inline XBRL Presentation Linkbase Document.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
104
Cover Page Interactive Data File (embedded within the Inline XBRL document
and contained in Exhibit 101).
* Management compensatory plan or arrangement
** Schedules and exhibits have been omitted pursuant to Item 601 of Regulation S-K. The Company hereby undertakes to furnish supplementally a copy of
any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission.
***Filed herewith
ITEM 16. FORM 10-K SUMMARY
None.
62
Table of Contents
SIGNATURES
Pursuant 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
on its behalf by the undersigned, thereunto duly authorized.
Addus HomeCare Corporation
By:
/s/ R. DIRK ALLISON
R. Dirk Allison,
Chief Executive Officer and
Chairman of the Board
Date: February 27, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated:
Signature
Title
Date
Chief Executive Officer and Chairman of the Board
February 27, 2024
(Principal Executive Officer)
Chief Financial Officer (Principal Financial and
February 27, 2024
Accounting Officer)
/s/ R. DIRK ALLISON
R. Dirk Allison
/s/ BRIAN POFF
Brian Poff
/s/ HEATHER DIXON
Heather Dixon
/s/ MICHAEL EARLEY
Michael Earley
/s/ MARK L. FIRST
Mark L. First
/s/ DARIN J. GORDON
Darin J. Gordon
/s/ ESTEBAN LÓPEZ, M.D.
Esteban López, M.D.
/s/ VERONICA HILL-MILBOURNE
Veronica Hill-Milbourne
/s/ JEAN RUSH
Jean Rush
Director
Director
Director
Director
Director
Director
Director
/s/ SUSAN T. WEAVER, M.D., FACP
Susan T. Weaver, M.D., FACP
Director
63
February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL INFORMATION
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
F-2
F-5
F-6
F-7
F-8
F-9
All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been omitted.
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Addus HomeCare Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Addus HomeCare Corporation and its subsidiaries (the “Company”) as of December 31,
2023 and 2022, and the related consolidated statements of income, of stockholders’ equity and of cash flows for each of the three years in the period ended
December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's
internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over
Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the
Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective
internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Annual Report on Internal Control Over Financial Reporting, management has excluded Coastal Nursecare of Florida, Inc.
(“CareStaff”) and American Home Care, LLC, a Tennessee limited liability company (“AHC”), and its subsidiaries, Homecare, LLC, a Tennessee limited
liability company (“Homecare”), Tennessee Valley Home Care, LLC (d/b/a Tennessee Quality Care – Home Health), a Tennessee limited liability company
(“TQC – Home Health”), and Tri-County Home Health and Hospice, LLC (d/b/a Tennessee Quality Care - Hospice), a Tennessee limited liability company
(“TQC – Hospice”, and collectively with AHC, Homecare, and TQC – Home Health “Tennessee Quality Care”), from its assessment of internal control
over financial reporting as of December 31, 2023, because they were acquired by the Company in purchase business combinations during 2023. We have
also excluded Carestaff and Tennessee Quality Care from our audit of internal control over financial reporting. Carestaff and Tennessee Quality Care are
wholly-owned subsidiaries whose total revenues and total operating income excluded from management’s assessment and our audit of internal control over
financial reporting represent approximately 0.2% and 1.5% of total revenues, respectively, and approximately 0.4% and 3.3% of total operating income,
respectively, of the related consolidated financial statement amounts for the year ended December 31, 2023.
F-2
Table of Contents
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely 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 any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were
communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated
financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of Accounts Receivable, Net of Allowances for Implicit Price Concessions
As described in Note 1 to the consolidated financial statements, net service revenue is recognized at the amount that reflects the consideration the Company
expects to receive in exchange for providing services directly to consumers. Amounts collected may be less than amounts billed due to implicit price
concessions, resulting from client eligibility issues, insufficient or incomplete documentation, services at levels other than authorized, pricing differences
and other reasons unrelated to credit risk. Management estimates the value of accounts receivable, net of allowances for implicit price concessions, based
upon historical experience and other factors, including an aging of accounts receivable, evaluation of expected adjustments, past adjustments and collection
experience in relation to amounts billed, current contract and reimbursement terms, shifts in payors and other relevant information. The evaluation of these
historical and other factors involves complex, subjective judgments. Accounts receivable, net of allowances for implicit price concessions (before the
allowance for credit losses) were $117.8 million as of December 31, 2023.
The principal considerations for our determination that performing procedures relating to the valuation of accounts receivable, net of allowances for
implicit price concessions is a critical audit matter are (i) the significant judgment by management when developing the estimate of accounts receivable, net
of allowances for implicit price concessions and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating
audit evidence related to the estimate.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included testing the effectiveness of controls relating to management’s estimate of accounts receivable, net of
implicit price concessions, including controls over the allowance for implicit price concessions. These procedures also included, among others (i) testing
management’s process for developing the estimate of accounts receivable, net of allowances for implicit price concessions; (ii) evaluating the relevance and
use of historical experience data as an input into management’s estimate; (iii) testing the completeness and accuracy of underlying historical collection data
used as an input into management’s estimate; (iv) testing, on a sample basis, the accuracy of revenue transactions and cash collections from the billing and
collection data used as an input into the estimate; (v) evaluating the historical accuracy of management’s estimate of the amount expected to be collected by
performing a retrospective comparison of actual cash collections to the related accounts receivable; and (vi) performing a comparison of the remaining
uncollected accounts receivable balance as of a date subsequent to year end, to expected future cash collections based on the Company's historical
collection patterns.
F-3
Table of Contents
Goodwill Impairment Assessment – Hospice Reporting Unit
As described in Notes 1 and 5 to the consolidated financial statements, the Company’s goodwill balance was $663.0 million as of December 31, 2023, and
the goodwill associated with the Hospice reporting unit was $432.8 million. Management tests goodwill for impairment at the reporting unit level on an
annual basis, as of October 1, or whenever potential impairment triggers occur, such as a significant change in business climate or regulatory changes that
would indicate that an impairment may have occurred. The goodwill impairment test involves comparing the fair value of a reporting unit with its carrying
value, including goodwill. Management estimated the fair value of the Hospice reporting unit using the discounted cash flow and market multiple
approaches. These types of models require management to make assumptions and estimates regarding future cash flows, industry-specific economic factors
and the profitability of future business strategies. The discounted cash flow model uses a projection of estimated operating results and cash flows that are
discounted using a weighted-average cost of capital. The market multiple model estimates fair value based on market multiples of earnings before interest,
taxes and depreciation and amortization (EBITDA). Under the discounted cash flow model, the projection uses management’s best estimates of economic
and market conditions over the projected period for each reporting unit using significant assumptions such as revenue growth rates, operating margins, and
the weighted-average cost of capital.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Hospice reporting unit
is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the Hospice reporting unit; (ii) a high
degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the revenue
growth rates, operating margins, and the weighted-average cost of capital used in the discounted cash flow model, and the market multiples of EBITDA
used in the market multiple model; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including
controls over the valuation of the Hospice reporting unit. These procedures also included, among others (i) testing management’s process for developing
the fair value estimate of the Hospice reporting unit; (ii) evaluating the appropriateness of the discounted cash flow model and market multiple model used
by management; (iii) testing the completeness and accuracy of underlying data used by management in the discounted cash flow model and market multiple
model; and (iv) evaluating the reasonableness of the significant assumptions used by management related to the revenue growth rates, operating margins,
and the weighted-average cost of capital used in the discounted cash flow model and the market multiples of EBITDA used in the market multiple model.
Evaluating management’s assumptions related to the revenue growth rates and operating margins involved evaluating whether the assumptions used by
management were reasonable considering (i) the current and past performance of the Hospice reporting unit; (ii) the consistency with external market and
industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill
and knowledge were used to assist in the evaluation of the appropriateness of the discounted cash flow model and market multiples model, and the
reasonableness of the weighted-average cost of capital and market multiples of EBITDA significant assumptions.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
February 27, 2024
We have served as the Company’s auditor since 2019.
F-4
Table of Contents
ADDUS HOMECARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 2023 and 2022
(amounts and shares in thousands, except per share data)
2023
2022
Assets
Current assets
Cash
Accounts receivable, net of allowances for credit losses
Prepaid expenses and other current assets
Total current assets
Property and equipment, net of accumulated depreciation and amortization
Other assets
Goodwill
Intangibles, net of accumulated amortization
Operating lease assets, net
Total other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities
Accounts payable
Accrued payroll
Accrued expenses
Operating lease liabilities, current portion
Government stimulus advances
Accrued workers’ compensation insurance
Total current liabilities
Long-term liabilities
Long-term debt, net of debt issuance costs
Long-term operating lease liabilities
Other long-term liabilities
Total long-term liabilities
Total liabilities
Stockholders’ equity
Common stock—$.001 par value; 40,000 authorized and 16,227 and 16,128 shares
issued and outstanding as of December 31, 2023 and 2022, respectively
Additional paid-in capital
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
$
$
$
64,791
115,499
19,714
200,004
24,011
662,995
91,983
45,433
800,411
1,024,426
26,183
56,551
33,236
11,339
5,765
12,043
145,117
124,132
39,711
8,772
172,615
317,732
16
403,846
302,832
706,694
1,024,426
$
$
$
$
$
79,961
125,501
17,345
222,807
21,182
582,837
72,188
38,980
694,005
937,994
22,092
44,937
27,507
10,801
12,912
12,897
131,146
131,772
35,479
6,057
173,308
304,454
16
393,208
240,316
633,540
937,994
See accompanying Notes to Consolidated Financial Statements
F-5
Table of Contents
Net service revenues
Cost of service revenues
Gross profit
General and administrative expenses
Depreciation and amortization
Total operating expenses
Operating income
Interest income
Interest expense
Total interest expense, net
Income before income taxes
Income tax expense
Net income
Net income per common share
Basic net income per share
Diluted net income per share
ADDUS HOMECARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 2023, 2022 and 2021
(amounts and shares in thousands, except per share data)
For the Years Ended December 31,
2022
$
$
$
$
$
2023
1,058,651
718,775
339,876
234,794
14,126
248,920
90,956
(1,476 )
11,106
9,630
81,326
18,810
62,516
$
3.91
3.83
$
$
$
951,120
651,381
299,739
216,942
14,060
231,002
68,737
(341 )
8,907
8,566
60,171
14,146
46,025
$
2.90
2.84
$
$
Weighted average number of common shares and potential common shares
outstanding:
Basic
Diluted
15,996
16,311
15,861
16,181
See accompanying Notes to Consolidated Financial Statements
F-6
2021
864,499
594,651
269,848
189,418
14,494
203,912
65,936
(268 )
5,806
5,538
60,398
15,272
45,126
2.87
2.81
15,737
16,064
Table of Contents
ADDUS HOMECARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the years ended December 31, 2023, 2022 and 2021
(amounts and shares in thousands)
Balance at January 1, 2021
Issuance of shares of common stock under
restricted stock award agreements
Forfeiture of shares of common stock under
restricted stock award agreements
Stock-based compensation
Shares issued for exercise of stock options
Net income
Balance at December 31, 2021
Issuance of shares of common stock under
restricted stock award agreements
Forfeiture of shares of common stock under
restricted stock award agreements
Stock-based compensation
Shares issued for exercise of stock options
Net income
Balance at December 31, 2022
Issuance of shares of common stock under
restricted stock award agreements
Stock-based compensation
Shares issued for exercise of stock options
Net income
Balance at December 31, 2023
Common Stock
Shares
Amount
Additional
Paid in
Capital
Retained
Earnings
Total
Stockholders’
Equity
15,826
89
(7 )
—
32
—
$
15,940
129
(4 )
—
63
—
$
16,128
86
—
13
—
16,227
$
16
—
—
—
—
—
16
—
—
—
—
—
16
—
—
—
—
16
$
$
$
369,495
149,165
518,676
—
—
—
—
9,434
1,108
—
380,037 $
—
—
—
45,126
194,291 $
—
9,434
1,108
45,126
574,344
—
—
—
—
10,625
2,546
-
393,208 $
—
10,319
319
—
403,846 $
—
—
—
46,025
240,316 $
—
—
—
62,516
302,832 $
—
10,625
2,546
46,025
633,540
—
10,319
319
62,516
706,694
See accompanying Notes to Consolidated Financial Statements
F-7
Table of Contents
ADDUS HOMECARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2023, 2022 and 2021
(amounts in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities, net of acquisitions:
Depreciation and amortization
Deferred income taxes
Stock-based compensation
Amortization of debt issuance costs under the credit facility
Provision for credit losses
Impairment of operating lease assets
Gain on termination of operating leases
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
Prepaid expenses and other current assets
Government stimulus advances
Accounts payable
Accrued payroll
Accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Business acquisition, net of cash acquired
Purchases of property and equipment
Proceeds on disposal of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Borrowings on revolver — credit facility
Payments on revolver — credit facility
Payments on term loan — credit facility
Payments for debt issuance costs under the credit facility
Cash received from exercise of stock options
Net cash (used in) provided by financing activities
Net change in cash
Cash, at beginning of period
Cash, at end of period
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes
Supplemental disclosures of non-cash investing and financing activities
Leasehold improvements acquired through tenant allowances
Licensing fees included in Fixed assets
Tax benefit related to the amortization of tax goodwill in excess of book basis
For the Years
Ended December 31,
2022
2023
2021
$
62,516
$
46,025
$
45,126
14,126
2,819
10,319
860
731
13
(23 )
15,666
(3,113 )
(7,577 )
2,025
9,176
4,709
112,247
(109,797 )
(9,454 )
15
(119,236 )
110,000
(118,500 )
—
—
319
(8,181 )
(15,170 )
79,961
64,791
$
14,060
3,908
10,625
860
678
1,174
—
20,592
1,471
8,739
2,514
(918 )
(4,618 )
105,110
(98,290 )
(8,300 )
—
(106,590 )
47,000
(137,000 )
—
—
2,546
(87,454 )
(88,934 )
168,895
79,961
$
$
10,254
14,985
$
7,985
1,483
—
4,000
—
295
4,000
—
14,494
7,282
9,434
804
962
—
—
(3,916 )
(8,599 )
(27,914 )
(4,810 )
7,888
(1,263 )
39,488
(37,370 )
(4,645 )
—
(42,015 )
46,395
—
(18,130 )
(3,029 )
1,108
26,344
23,817
145,078
168,895
5,094
17,820
—
—
61
$
$
See accompanying Notes to Consolidated Financial Statements
F-8
ADDUS HOMECARE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Basis of Presentation and Description of Business
The Consolidated Financial Statements include the accounts of Addus HomeCare Corporation (“Holdings”) and its subsidiaries (together with
Holdings, the “Company,” “we,” “us,” or “our”). The Company operates as a multi-state provider of three distinct but related business segments providing
in-home services. In its personal care services segment, the Company provides non-medical assistance with activities of daily living, primarily to persons
who are at increased risk of hospitalization or institutionalization, such as the elderly, chronically ill or disabled. In its hospice segment, the Company
provides physical, emotional and spiritual care for people who are terminally ill as well as related services for their families. In its home health segment, the
Company provides services that are primarily medical in nature to individuals who may require assistance during an illness or after hospitalization and
include skilled nursing and physical, occupational and speech therapy. The Company’s payor clients include federal, state and local governmental agencies,
managed care organizations, commercial insurers and private individuals.
Principles of Consolidation
All intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition
Net service revenue is recognized at the amount that reflects the consideration the Company expects to receive in exchange for providing services
directly to consumers. Receipts are from federal, state and local governmental agencies, managed care organizations, commercial insurers and private
consumers for services rendered. The Company assesses the consumers’ ability to pay at the time of their admission based on the Company’s verification
of the customer’s insurance coverage under the Medicare, Medicaid, and other commercial or managed care insurance programs. Laws and regulations
governing the governmental programs in which the Company participates are complex and subject to interpretation. Net service revenues related to
uninsured accounts, or self-pay, is recorded net of implicit price concessions estimated based on historical collection experience to reduce revenue to the
estimated amount the Company expects to collect. Amounts collected from all sources may be less than amounts billed due to implicit price concessions,
resulting from client eligibility issues, insufficient or incomplete documentation, services at levels other than authorized, pricing differences and other
reasons unrelated to credit risk. The Company monitors our net service revenues and collections from these sources and records any necessary adjustment
to net service revenues based upon management’s assessment of historical write offs and expected net collections, business and economic conditions, trends
in federal, state and private employer healthcare coverage and other collection indicators.
The initial estimate of net service revenues is determined by reducing the standard charge by any contractual adjustments, discounts and implicit
price concessions. Subsequent changes to the estimate of net service revenues are generally recorded in the period of the change. Subsequent changes that
are determined to be the result of an adverse change in the patient’s ability to pay are recorded as bad debt expense.
Personal Care
The majority of the Company’s net service revenues are generated from providing personal care services directly to consumers under contracts with
state, local and other governmental agencies, managed care organizations, commercial insurers and private consumers. Generally, these contracts, which
are negotiated based on current contracting practices as appropriate for the payor, establish the terms of a customer relationship and set the broad range of
terms for 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. When an order is placed, it creates the performance obligation to provide a defined quantity of service hours, or authorized hours, per consumer.
The Company satisfies its performance obligations over time, given that consumers simultaneously receive and consume the benefits provided by the
Company as the services are performed. As the Company has a right to consideration from customers commensurate with the value provided to customers
from the performance completed over a given invoice period, the Company has elected to use the practical expedient for measuring progress toward
satisfaction of performance obligations and recognizes patient service revenue in the amount to which the Company has a right to invoice.
F-9
Table of Contents
Hospice Revenue
The Company generates net service revenues from providing hospice services to consumers who are terminally ill as well as related services for
their families. Net service revenues are 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 levels of care the Company delivers. Hospice companies are subject to two specific payment limit caps under the
Medicare program each 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% of the total days of hospice care provided to Medicare patients for the year. If a hospice exceeds the number of allowable inpatient care
days, the hospice must refund any amounts 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 the ratio 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 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 patients served. If a hospice’s Medicare payments exceed its aggregate cap, it must repay Medicare for the excess amount. In federal fiscal
year 2024, the aggregate cap is $33,494.01. For the years ended December 31, 2023 and 2022, the Company recorded a liability of $0.8 million and $0.9
million, respectively, related to the Medicare aggregate cap limit.
Home Health Revenue
The Company also generates net service revenues from providing home healthcare services directly to consumers mainly under contracts with
Medicare and managed care organizations. Generally, these contracts, which are negotiated based on current contracting practices as appropriate for the
payor, 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 health
Medicare services are paid under the Medicare Home Health Prospective Payment System (“HHPPS”), which is based on 30-day periods of care as a unit
of service. The HHPPS permits multiple, continuous periods per patient. Medicare payment rates for periods under HHPPS are determined through use of a
case-mix classification system, the Patient-Driven Groupings Model (“PDGM”), which assigns patients to resource groups based on a patient’s clinical
characteristics.
The Company elects to use the same 30-day periods that Medicare recognizes as standard but accelerates revenue upon discharge to align with a
patient’s episode length if less than the expected 30 days, which depicts the transfer of services and related benefits received by the patient over the term of
the contract necessary to satisfy the obligations. The Company recognizes revenue based on the number of days elapsed during a period of care within the
reporting period. The Company satisfies its performance obligations as consumers receive and consume the benefits provided by the Company as the
services are performed. As the Company has a right to consideration from Medicare commensurate with the services provided to customers from the
performance completed over a given episodic period, the Company has elected to use the practical expedient for measuring progress toward satisfaction of
performance obligations. Under this method recognizing revenue ratably over the episode based on beginning and ending dates is a reasonable proxy for
the transfer of benefit of the service.
Accounts Receivable and Allowances
Accounts receivable is reduced to the amount expected to be collected in future periods for services rendered to customers prior to the balance sheet
date. Management estimates the value of accounts receivable, net of allowances for implicit price concessions, based upon historical experience and other
factors, including an aging of accounts receivable, evaluation of expected adjustments, past adjustments and collection experience in relation to amounts
billed, current contract and reimbursement terms, shifts in payors and other relevant information. Collection of net service revenues the Company expects
to receive is normally a function of providing complete and correct billing information to the payors within the various filing deadlines. The evaluation of
these historical and other factors involves complex, subjective judgments impacting the determination of the implicit price concession assumption. In
addition, the Company compares its cash collections to recorded net service revenues and evaluates its historical allowance, including implicit price
concessions, based upon the ultimate resolution of the accounts receivable balance.
Subsequent adjustments to accounts receivable determined to be the result of an adverse change in the payor’s ability to pay are recognized as
provision for credit losses. The majority of what historically was classified as provision for credit losses under operating expenses is now treated as an
implicit price concession factored into the determination of net service revenues discussed above. Our collection procedures include review of account
aging and direct contact with our payors. We have historically not used collection agencies. An uncollectible amount is written off to the allowance account
after reasonable collection efforts have been exhausted. As of December 31, 2023 and 2022, the allowance for credit losses balance was $2.3 million and
$1.6 million, respectively, which is included in accounts receivable, net of allowances for credit losses on the Company’s Consolidated Balance Sheets.
F-10
Table of Contents
Activity in the allowance for credit losses is as follows (in thousands):
Allowance for credit losses
Year ended December 31, 2023
Allowance for credit losses
Year ended December 31, 2022
Allowance for credit losses
Year ended December 31, 2021
Allowance for credit losses
(1) Write-offs, net of recoveries
Property and Equipment
Balance at
beginning of
period
Additions/
charges
Deductions
(1)
Balance at
end of period
$
$
$
1,634
731
55 $
2,310
1,433
678
477 $
1,634
973
962
502 $
1,433
Property 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
Furniture and equipment
Transportation equipment
Computer software
Leasehold improvements
Leases
3-5 years
5-7 years
5 years
3-10 years
Lesser of useful life or lease term
The Company recognizes a lease liability and a right-of-use (“ROU”) asset for all leases, including operating leases, with a term greater than twelve
months on the balance sheet. We have historically entered into operating leases for local branches, our corporate headquarters and certain equipment. The
Company’s current leases have expiration dates through 2031. Certain of our arrangements have free rent periods and/or escalating rent payment
provisions. We recognize rent expense on a straight-line basis over the lease term. Certain of the Company’s leases include termination options and renewal
options for periods ranging from one to five years. Renewal options generally are not considered in determining the lease term, and payments associated
with the option years are excluded from lease payments unless we are reasonably certain to exercise the renewal option.
The operating lease liabilities are calculated using the present value of lease payments. If available, we use the rate implicit in the lease to discount
lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our
incremental borrowing rate to discount the lease payments based on information available at lease commencement.
Operating lease assets are valued based on the initial operating lease liabilities plus any prepaid rent, reduced by tenant improvement allowances.
Operating lease assets are tested for impairment in the same manner as our long-lived assets. For the years ended December 31, 2023 and 2022, the
Company recorded $13,000 and $1.2 million, respectively, in impairment charges on operating lease assets, included within general administrative
expenses. For the year ended December 31, 2021, the Company recorded no material impairment charges.
F-11
Table of Contents
Goodwill and Intangible Assets
Under business combination accounting, assets and liabilities are generally recognized at their fair values and the difference between the
consideration transferred, excluding transaction costs, and the fair values of the assets and liabilities is recognized as goodwill. The Company’s significant
identifiable intangible assets consist of customer and referral relationships, trade names and trademarks and state licenses. The Company uses various
valuation techniques to determine initial 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 value hierarchy. Under these 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. The Company estimates the fair values of the trade names using the relief-
from-royalty method, which requires assumptions such as the long-term growth rates of future revenues, the relief from royalty rate for such revenue, the
tax rate and the discount rate. The Company estimates the fair value of existing indefinite-lived state licenses based on a blended approach of the
replacement cost method and cost savings method, which involves estimating the total process costs and opportunity costs to obtain a license, by estimating
future earnings before interest and taxes and applying an estimated discount rate, tax rate and time to obtain the license. The Company estimates the fair
value of existing finite-lived state licenses based on a method of analyzing the definite revenue streams with the license and without the license, which
involves estimating revenues and expenses, estimated time to build up to a current revenue base, which is market specific, and the non-licensed revenue
allocation, revenue growth rates, discount rate and tax amortization benefits. The Company estimates the fair value of customer and referral relationships
based on a multi-period excess earnings method, which involves identifying revenue streams associated with the assets, estimating the attrition rates based
upon historical financial data, expenses and cash flows associated with the assets, contributory asset charges, rates of return for specific assets, growth
rates, discount rate and tax amortization benefits. The Company estimates the fair value of non-competition agreements based on a method of analyzing the
factors to compete and factors not to compete, which involves estimating historical financial data, forecasted financial statements, growth rates, tax
amortization benefit, discount rate, review of factors to compete and factors not to compete as well as an assessment of the probability of successful
competition for each non-competition agreement.
As of December 31, 2023 and 2022, goodwill was $663.0 million and $582.8 million, respectively, included on the Company’s Consolidated
Balance Sheets. The 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 Accounting Standards Codification (“ASC”) Topic 350, Goodwill and Other Intangible Assets, goodwill and intangible
assets with indefinite useful lives are not amortized. The Company tests goodwill for impairment at the reporting unit level on an annual basis, as of
October 1, or whenever potential impairment triggers occur, such as a significant change in business climate or regulatory changes that would indicate that
an impairment may have occurred. The Company may elect to use a qualitative test to determine whether impairment has occurred, focused on various
factors including macroeconomic conditions, market trends, specific reporting unit financial performance and other entity specific events, to determine if it
is more likely than not that the fair value of a reporting unit exceeds its carrying value, including goodwill. The Company may also bypass the qualitative
assessment and perform a quantitative test. Additionally, it is the Company’s policy to update the fair value calculation of our reporting units and perform
the quantitative goodwill impairment test on a periodic basis. The quantitative goodwill impairment test involves comparing the fair value of a reporting
unit with its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, then goodwill is not impaired. If the fair
value of a reporting unit is less than its carrying value, then goodwill is impaired to the extent of the difference.
For the years ended December 31, 2023, 2022 and 2021, the Company performed the quantitative analysis to evaluate whether an impairment
occurred. Since quoted market prices for our reporting units are not available, the Company relies on widely accepted valuation techniques to determine
fair value, including discounted cash flow and market multiple approaches, which capture both the future income potential of the reporting unit and the
market behaviors and actions of market participants in the industry that includes the reporting unit. These types of models require us to make assumptions
and estimates regarding future cash flows, industry-specific economic factors and the profitability of future business strategies. The discounted cash flow
model uses a projection of estimated operating results and cash flows that are discounted using a weighted average cost of capital. The market multiple
model estimates fair value based on market multiples of earnings before interest, taxes and depreciation and amortization. Under the discounted cash flow
model, the projection uses management’s best estimates of economic and market conditions over the projected period for each reporting unit using
significant assumptions such as revenue growth rates, operating margins and the weighted-average cost of capital.
Based on the totality of the information available, the Company concluded that it was more likely than not that the estimated fair values of our
reporting units were greater than their carrying values. Consequently, the Company concluded that there were no impairments for the years ended
December 31, 2023, 2022 or 2021. The Company bases its fair value estimates on assumptions management believes to be reasonable but which are
unpredictable and inherently uncertain. Actual future results may differ from those estimates.
F-12
Table of Contents
As of December 31, 2023 and 2022, intangibles, net of accumulated amortization, was $92.0 million and $72.2 million, respectively, included on the
Company’s Consolidated Balance Sheets. The Company’s identifiable intangible assets consist of customer and referral relationships, trade names,
trademarks, state licenses and non-competition agreements. Definite-lived intangible assets are amortized using straight-line and accelerated methods based
upon the estimated useful lives of the respective assets, which range from one to twenty-five years, and assessed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. Customer and referral relationships are amortized systematically over
the periods of expected economic benefit, which range from five to ten years. The Company would recognize an impairment loss when the estimated future
non-discounted cash flows associated with the intangible asset are less than the carrying value. An impairment charge would then be recorded for the
excess of the carrying value over the fair value. The Company estimates the fair value of these intangible assets using the income approach. In accordance
with ASC Topic 350, Goodwill and Other Intangible Assets, intangible assets with indefinite useful lives are not amortized. We test intangible assets with
indefinite useful lives for impairment at the reporting unit level on an annual basis, as of October 1, or whenever potential impairment triggers occur, such
as a significant change in business climate or regulatory changes that would indicate that an impairment may have occurred. No impairment charge was
recorded for the years ended December 31, 2023, 2022 or 2021. Amortization of intangible assets is reported in the statement of income caption,
“Depreciation and amortization” and not included in the income statement caption cost of service revenues.
Debt Issuance Costs
The Company amortizes debt issuance costs on a straight-line method over the term of the related debt. This method approximates the effective
interest method. In accordance with ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, the Company has classified the debt issuance costs
as a direct deduction from the carrying amount of the related liability.
Workers’ Compensation Program
The Company’s workers’ compensation insurance program has a $0.4 million deductible component. The Company recognizes its obligations
associated 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 the
deductible, have been accrued based on historical claims experience, industry statistics and an actuarial analysis. The future claims payments related to the
workers’ compensation program are secured by letters of credit. These letters of credit totaled $8.0 million and $8.2 million at December 31, 2023 and
2022, respectively. The Company monitors its claims quarterly and adjusts its reserves as necessary in the current period. These costs are recorded
primarily as cost of services on the Consolidated Statements of Income. As of December 31, 2023 and 2022, the Company recorded $12.0 million and
$12.9 million, respectively, in accrued workers’ compensation insurance on the Company’s Consolidated Balance Sheets. As of December 31, 2023 and
2022, the Company recorded $0.6 million and $0.7 million, respectively, in workers’ compensation insurance receivables. The workers’ compensation
insurance receivable is included in prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets.
Interest Expense
Interest expense is reported in the Consolidated Statements of Income when incurred and consists of interest and unused credit line fees on the credit
facility.
Income Tax Expense
The Company accounts for income taxes under the provisions of ASC Topic 740, Income Taxes. The objective of accounting for income taxes is to
recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that
have been recognized in its financial statements or tax returns. Deferred taxes, resulting from differences between the financial and tax basis of the
Company’s assets and liabilities, are also adjusted for changes in tax rates and tax laws when changes are enacted. ASC Topic 740 also requires that
deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.
ASC Topic 740 also prescribes a recognition 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 tax positions. The Company recognizes interest and penalties accrued related to uncertain tax positions in interest
expense and penalties within operating expenses on the Consolidated Statements of Income. Uncertain tax positions are immaterial for all periods
presented.
F-13
Table of Contents
Stock-based Compensation
The Company currently has one stock incentive plan, the Amended and Restated 2017 Omnibus Incentive Plan (the “A&R 2017 Plan”), under
which new grants of stock-based employee compensation are made. The Company accounts for stock-based compensation in accordance with ASC Topic
718, Stock Compensation. Compensation expense is recognized on a straight-line basis under the A&R 2017 Plan over the vesting period of the equity
awards based on the grant date fair value of the options and restricted stock awards. The Company utilizes the Black-Scholes Option Pricing Model to
value the Company’s options. Forfeitures are recognized when they occur. Stock-based compensation expense was $10.3 million, $10.6 million and $9.4
million for the years ended December 31, 2023, 2022 and 2021, respectively, included within general and administrative expenses on the Consolidated
Statements of Income.
Diluted Net Income Per Common Share
Diluted net income per common share, calculated on the treasury stock method, is based on the weighted average number of shares outstanding
during the period. The Company’s outstanding securities that may potentially dilute the common stock are stock options and restricted stock awards.
Included in the Company’s calculation of diluted earnings per share for the year ended December 31, 2023 were approximately 455,000 stock
options outstanding, of which approximately 234,000 were dilutive. In addition, there were approximately 201,000 restricted stock awards outstanding, of
which approximately 82,000 were dilutive for the year ended December 31, 2023.
Included in the Company’s calculation of diluted earnings per share for the year ended December 31, 2022 were approximately 468,000 stock
options outstanding, of which approximately 248,000 were dilutive. In addition, there were approximately 210,000 restricted stock awards outstanding, of
which approximately 72,000 were dilutive for the year ended December 31, 2022.
Included in the Company’s calculation of diluted earnings per share for the year ended December 31, 2021 were approximately 493,000 stock
options outstanding, of which approximately 282,000 were dilutive. In addition, there were approximately 159,000 restricted stock awards outstanding, of
which approximately 44,000 were dilutive for the year ended December 31, 2021.
Use of Estimates
The financial statements are prepared by management in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) and include
estimated amounts and certain disclosures based on assumptions about future events. The Company’s critical accounting estimates include the following
areas: revenue recognition, goodwill and intangibles and business combinations and when required, the quantitative assessment of goodwill. Actual results
could differ from those estimates.
Fair Value Measurements
The Company’s financial instruments consist of cash, accounts receivable, payables and debt. The carrying amounts reported on the Company’s
Consolidated Balance Sheets for cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature
of these instruments. The carrying value of the Company’s long-term debt with variable interest rates approximates fair value based on instruments with
similar terms using level 2 inputs as defined under ASC Topic 820, Fair Value Measurement.
The Company applies fair value techniques on a non-recurring basis associated with valuing potential impairment losses related to goodwill, if
required, and indefinite-lived intangible assets and also when determining the fair value of contingent consideration, if applicable. To determine the fair
value in these situations, the Company uses Level 3 inputs, under ASC Topic 820 and defined as unobservable inputs in which little or no market data
exists; therefore requiring an entity to develop its own assumptions, such as discounted cash flows, or if available, what a market participant would pay on
the measurement 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 value
hierarchy. Under these 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.
F-14
Table of Contents
Going Concern
In connection with the preparation of the financial statements for the years ended December 31, 2023 and 2022, the Company conducted an
evaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to the entity’s ability to continue
as a going concern within one year after the date of the issuance, of the financial statements. Based on the evaluation, we believe that cash flows from
operations will be sufficient to meet our ongoing liquidity requirements for at least twelve months from the date of issuance.
Recently Adopted Accounting Pronouncements
In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update ASU 2021-10, Government
Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. ASU 2021-10 requires entities to disclose certain information about
the nature of certain governmental assistance received, including the nature of the transaction and the related accounting policy, the financial statement line
items impacted by the assistance, as well as the significant terms and conditions of the transactions. The ASU was adopted as of January 1, 2022 and did
not have a material impact on the Company’s results of operations or liquidity.
In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
(Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue)
from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had
originated the acquired contracts. The ASU was adopted prospectively on January 1, 2023. The additional disclosures required did not have a material
impact on our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on
Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships,
and other transactions subject to meeting certain criteria, that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected
to be discontinued. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from
reference rates that are expected to be discontinued. Therefore, it was in effect for a limited time through December 31, 2022. The ASU could be adopted
no later than December 1, 2022 with early adoption permitted. As discussed further in Note 8 and pursuant to the Third Amendment to Amended and
Restated Credit Agreement dated as of April 26, 2023, the Company amended its credit facility to replace LIBOR with the secured overnight financing rate
as administered by the Federal Reserve Bank of New York (“SOFR”) as the benchmark reference rate for loans under its credit facility. The transition to
SOFR did not and is not expected to have a material impact on the Company’s results of operations or liquidity.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, which expands reportable segment
disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in the ASU require, among other
things, disclosure of significant segment expenses that are regularly provided to an entity's chief operating decision maker (“CODM”) and a description of
other segment items (the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each
reported measure of segment profit or loss) by reportable segment, as well as disclosure of the title and position of the CODM, and an explanation of how
the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Annual
disclosures are required for fiscal years beginning after December 15, 2023 and interim disclosures are required for periods within fiscal years beginning
after December 15, 2024. Retrospective application is required, and early adoption is permitted. These requirements will result in expanded disclosures.
In December 2023, the FASB issued ASU 2023-09, Improvement to Income Tax Disclosures, which requires disclosure of disaggregated income
taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures.
ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, may be applied prospectively or retrospectively, and allows for early
adoption. These requirements are not expected to have an impact on the Company's financial statements and will expand income tax disclosures.
F-15
Table of Contents
2. Leases
Amounts reported on the Company’s Consolidated Balance Sheets for operating leases were as follows:
Operating lease assets, net
Short-term operating lease liabilities (in accrued expenses)
Long-term operating lease liabilities
Total operating lease liabilities
Lease Costs
December 31,
2023
2022
(Amounts in Thousands)
$
$
45,433 $
11,339
39,711
51,050 $
38,980
10,801
35,479
46,280
Components of lease costs were reported in general and administrative expenses in the Company’s Consolidated Statements of Income as follows:
Operating lease costs
Short-term lease costs
Total lease costs
Less: sublease income
Total lease costs, net
For the Years Ended December 31,
(Amounts in Thousands)
2022
2021
2023
$
$
$
13,026
1,147
14,173
(2,770 )
11,403 $
11,354 $
2,885
14,239
(951 )
13,288 $
11,150
739
11,889
(679 )
11,210
Lease Term and Discount Rate
Weighted average remaining lease terms and discount rates were as follows:
Operating leases:
Weighted average remaining lease term
Weighted average discount rate
Maturity of Lease Liabilities
Remaining operating lease payments as of December 31, 2023 were as follows:
2023
December 31,
2022
2021
6.26
5.47 %
5.82
3.98 %
6.39
3.91 %
Due in 12-month period ended December 31,
2024
2025
2026
2027
2028
Thereafter
Total future minimum rental commitments
Less: Imputed interest
Total lease liabilities
F-16
Operating Leases
(Amounts in Thousands)
$
$
13,809
10,580
8,284
6,101
5,274
17,154
61,202
(10,152 )
51,050
Table of Contents
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
$
$
14,396 $
13,015 $
11,288
17,221 $
14,746 $
7,705
The Company sublet a portion of its corporate headquarters space in Frisco, Texas in November 2022 to a third party under a two-year sublease term
For the Years Ended December 31,
(Amounts in Thousands)
2022
2021
2023
for a monthly base rent of $0.1 million.
3. Acquisitions
The Company’s acquisitions have been accounted for in accordance with ASC Topic 805, Business Combinations, and the resulting goodwill and
other intangible assets were accounted for under ASC Topic 350, Goodwill and Other Intangible Assets. Under business combination accounting, the assets
and liabilities are generally recognized at their fair values and the difference between the consideration transferred, excluding transaction costs, and the fair
values of the assets and liabilities is recognized as goodwill. The results of each business acquisition are included on the Consolidated Statements of
Income from the date of the acquisition.
Management’s assessment of qualitative factors affecting goodwill for each acquisition includes estimates of market share at the date of purchase,
ability to grow in the market, synergy with existing Company operations and the payor profile in the markets.
Tennessee Quality Care
On August 1, 2023, the Company completed the acquisition of Tennessee Quality Care. The purchase price was approximately $111.2 million,
including the amount of acquired excess cash held by Tennessee Quality Care at the closing of the acquisition (approximately $2.4 million), and is subject
to the completion of working capital and related adjustments. The Tennessee Quality Care acquisition was funded with a combination of a $110.0 million
draw on the Company’s revolving credit facility and available cash. With the purchase of Tennessee Quality Care, the Company expanded its services
within its hospice and home health segments to Tennessee. The related acquisition and integration costs were $2.1 million and $1.0 million, respectively,
for the year ended December 31, 2023. These costs are included in general and administrative expenses on the Consolidated Statements of Income and
were expensed as incurred.
Based upon management’s valuations, which are preliminary and subject to completion of working capital adjustments, the fair values of the assets
and liabilities acquired are as follows:
Goodwill
Identifiable intangible assets
Cash
Accounts receivable
Property and equipment
Operating lease assets, net
Other assets
Accrued expenses
Accrued payroll
Long-term operating lease liabilities
Total purchase price
F-17
Total
(Amounts in Thousands)
79,346
26,740
2,357
5,940
307
194
200
(1,407 )
(2,368 )
(80 )
111,229
$
$
Table of Contents
Identifiable intangible assets acquired included $7.5 million in a trade name and $19.2 million of indefinite-lived state licenses. The preliminary
estimated fair value of identifiable intangible assets was determined with the assistance of a valuation specialist, using Level 3 inputs as defined under ASC
Topic 820. The fair value analysis and related valuations reflect the conclusions of management. All estimates, key assumptions, and forecasts were either
provided by or reviewed by the Company. The goodwill and intangible assets acquired are deductible for tax purposes.
The Tennessee Quality Care acquisition accounted for $16.3 million of net service revenues and $3.0 million of operating income for the year ended
December 31, 2023.
JourneyCare
On February 1, 2022, the Company completed the acquisition of the hospice and palliative operations of JourneyCare. The purchase price was
approximately $86.6 million, including the amount of acquired excess cash held by JourneyCare at the closing of the acquisition (approximately $0.4
million) plus the finalization of net working capital payable to seller of $1.6 million. The JourneyCare acquisition was funded with a combination of a
$35.0 million draw on the Company’s revolving credit facility and available cash. With the JourneyCare acquisition, the Company expanded its hospice
services to patients in the state of Illinois. The related acquisition and integration costs were $0.5 million and $4.3 million, respectively, for the year ended
December 31, 2022. These costs are included in general and administrative expenses on the Consolidated Statements of Income and were expensed as
incurred.
Based upon management’s valuations, which are preliminary and subject to completion of working capital adjustments, the fair values of the assets
and liabilities acquired are as follows:
Goodwill
Identifiable intangible assets
Cash
Accounts receivable
Property and equipment
Operating lease assets, net
Other assets
Accrued expenses
Accrued payroll
Long-term operating lease liabilities
Total purchase price
Total
(Amounts in Thousands)
69,446
13,792
421
7,747
1,194
3,728
317
(5,002 )
(1,511 )
(3,537 )
86,595
$
$
Identifiable intangible assets acquired included $9.0 million in a trade name and $4.8 million of indefinite-lived state licenses. The estimated fair
value of identifiable intangible assets was determined with the assistance of a valuation specialist, using Level 3 inputs as defined under ASC Topic 820.
The fair value analysis and related valuations reflect the conclusions of management. All estimates, key assumptions, and forecasts were either provided by
or reviewed by the Company. The goodwill and intangible assets acquired are deductible for tax purposes.
JourneyCare accounted for $47.2 million of net service revenues and $9.1 million of operating income for the year ended December 31, 2022.
Armada Skilled Homecare
On August 1, 2021, we completed the acquisition of Armada Skilled Homecare of New Mexico LLC, Armada Hospice of New Mexico LLC and
Armada Hospice of Santa Fe LLC (collectively, “Armada”) for approximately $29.7 million, including the amount of acquired excess cash held by Armada
at the closing of the acquisition (approximately $0.7 million). The purchase of Armada was funded with the Company’s revolving credit facility. With the
purchase of Armada, the Company expanded its home health and hospice services in the state of New Mexico. The related acquisition and integration costs
were $0.4 million and $0.5 million, respectively, for the year ended December 31, 2021. These costs are included in general and administrative expenses on
the Consolidated Statements of Income and were expensed as incurred.
F-18
Table of Contents
Based upon management’s final valuations, the fair values of the assets and liabilities acquired are as follows:
Goodwill
Identifiable intangible assets
Cash
Property and equipment
Other assets
Accounts payable
Accrued payroll
Total purchase price
Total
(Amounts in
Thousands)
28,287
990
676
40
24
—
(361 )
29,656
$
$
Identifiable intangible assets acquired included $0.6 million of non-competition agreements with estimated useful lives of five years and $0.4
million of indefinite-lived state licenses. The estimated fair value of identifiable intangible assets was determined with the assistance of a valuation
specialist, using Level 3 inputs as defined under ASC Topic 820. The fair value analysis and related valuations reflect the conclusions of management. All
estimates, key assumptions, and forecasts were either provided by or reviewed by the Company. The goodwill and intangible assets acquired are deductible
for tax purposes.
Other Acquisitions
On January 1, 2023, we completed the acquisition of CareStaff for approximately $1.0 million, with funding provided by available cash. With the
purchase of CareStaff, the Company expanded its personal care services segment in Florida and recorded goodwill of $0.6 million.
On October 1, 2022, we completed the acquisition of Apple Home for approximately $12.7 million, with funding provided by drawing on the
Company’s revolving credit facility. The additional contingent consideration of up to approximately $2 million was settled without further payment. With
the purchase of Apple Home, the Company expanded clinical services for its home health segment in Illinois and recorded goodwill of $8.9 million.
On October 1, 2021, we completed the acquisition of Summit Home Health, LLC (“Summit”) for approximately $8.1 million, with funding
provided by available cash. With the purchase of Summit, we added clinical services to our home health segment in Illinois and recorded goodwill of $6.5
million.
For the year ended December 31, 2023, the following table contains unaudited pro forma Consolidated Income Statement information of the
Company as if the acquisition of Tennessee Quality Care closed on January 1, 2022. For the year ended December 31, 2022, the following table contains
unaudited pro forma Consolidated Income Statement information of the Company as if the acquisition of JourneyCare closed on January 1, 2021. For the
year ended December 31, 2021, the following table contains unaudited pro forma Consolidated Income Statement information of the Company as if the
acquisition of Armada closed on January 1, 2020.
Net service revenues
Operating income from continuing operations
Net income from continuing operations
Net income per common share
Basic income per share
Diluted income per share
$
$
$
For the Years Ended December 31,
(Amounts in Thousands, Unaudited)
2022
$
$
991,566
73,353
46,270
2023
1,084,759
96,679
65,436
2021
936,601
69,081
47,622
4.09
4.01
$
$
2.92
2.86
$
$
3.03
2.96
The pro forma disclosures in the table above include adjustments for amortization of intangible assets, tax expense and acquisition costs to reflect
results that are more representative of the combined results of the transactions. This pro forma information is presented for illustrative purposes only and
may not be indicative of the results of operations that would have actually occurred. In addition, future results may vary significantly from the results
reflected in the pro forma information. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the
acquisition, such as anticipated cost savings from operating synergies.
F-19
Table of Contents
4. Property and Equipment
Property and equipment consisted of the following:
Computer software
Computer equipment
Leasehold improvements
Furniture and equipment
Transportation equipment
Less: accumulated depreciation and amortization
December 31,
2023
2022
(Amounts in Thousands)
23,936 $
10,430
11,110
5,758
258
51,492
(27,481 )
24,011 $
19,675
12,343
10,746
5,534
194
48,492
(27,310 )
21,182
$
$
Computer software includes $1.6 million of internally developed software for both years ended December 31, 2023 and 2022. Depreciation and
amortization expense totaled $6.9 million, $6.8 million and $5.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.
5. Goodwill and Intangible Assets
A summary of goodwill by segment and related adjustments is provided below:
Hospice
Personal Care
Home Health
Total
Goodwill
Goodwill at December 31, 2021
Additions for acquisitions
Adjustments to previously recorded goodwill
Goodwill at December 31, 2022
Additions for acquisitions
Adjustments to previously recorded goodwill
Goodwill at December 31, 2023
$
$
$
328,334
69,446
(52 )
397,728
35,071
—
432,799 $
$
(Amounts In Thousands)
152,688
—
—
152,688
601
(13 )
153,276 $
$
23,370
8,910
141
32,421
44,274
225
76,920 $
504,392
78,356
89
582,837
79,946
212
662,995
In 2023, the Company recognized goodwill in the hospice and home health segments of $35.0 million and $44.3 million, respectively, related to the
acquisition of Tennessee Quality Care and $0.6 million related to the acquisition of CareStaff in the personal care services segment. In connection with the
acquisition of JourneyCare in 2022, the Company recognized goodwill in its hospice segment of $69.4 million and $8.9 million with the acquisition of
Apple Home in 2022 in our home health segment.
Goodwill adjustments to previously recorded goodwill are generally related to accounts receivable and accrued expenses based on the final
valuations. See Note 3 to the Notes to Consolidated Financial Statements for additional information regarding the acquisitions made by the Company in
2022 and 2023.
The Company’s identifiable intangible assets consist of customer and referral relationships, trade names and trademarks, non-competition
agreements and state licenses. Amortization is computed using straight-line and accelerated methods based upon the estimated useful lives of the respective
assets, which range from one to twenty-five years. Customer and referral relationships are amortized systematically over the periods of expected economic
benefit, which range from five to ten years.
F-20
Table of Contents
Goodwill and certain state licenses are not amortized pursuant to ASC Topic 350. We test intangible assets with indefinite useful lives for
impairment at the reporting unit level on an annual basis, as of October 1, or whenever potential impairment triggers occur, such as a significant change in
business climate or regulatory changes that would indicate that an impairment may have occurred. The Company estimates the fair value of the reporting
unit using both a discounted cash flow model as well as a market multiple model. The cash flow forecasts are adjusted by an appropriate discount rate
based on the Company’s estimate of a market participant’s weighted-average cost of capital. These models are both based on the Company’s best estimate
of future revenues and operating costs and are reconciled to the Company’s consolidated market capitalization, with consideration of the amount a potential
acquirer would be required to pay, in the form of a control premium. The determination of fair value in the Company’s goodwill impairment analysis is
based on an estimate of fair value for each reporting unit utilizing known and estimated inputs at the evaluation date. Some of those inputs include, but are
not limited to, the most recent price of the Company’s common stock and fair value of long term debt, estimates of future revenue and expense growth,
estimated market multiples, expected capital expenditures, income tax rates and cost of invested capital. Significant assumptions used in the analysis
included a 10.0% discount rate and long-term revenue growth rates that ranged from 3.5% to 5.8%. The Company did not record any impairment charges
for the years ended December 31, 2023, 2022 or 2021.
The carrying amount and accumulated amortization of each identifiable intangible asset category consisted of the following at December 31, 2023
and 2022:
Estimated Useful
Life
Gross carrying
value
December 31, 2023
(Amounts in Thousands)
Accumulated
amortization
Net carrying
value
Gross carrying
value
December 31, 2022
(Amounts in Thousands)
Accumulated
amortization
Net carrying
value
Customer and referral
relationships
Trade names and trademarks
Non-competition agreement
State Licenses
State Licenses
Total intangible assets
5-10 years
1-20 years
3-5 years
6-10 years
Indefinite
$
$
$
44,672
59,566
6,785
12,671
46,328
170,022 $
(39,566 ) $
(23,857 )
(5,601 )
(9,015 )
—
(78,039 ) $
5,106 $
35,709
1,184
3,656
46,328
91,983 $
44,672 $
52,046
6,785
12,517
27,108
143,128 $
(38,088 ) $
(21,058 )
(4,785 )
(7,009 )
—
(70,940 ) $
6,584
30,988
2,000
5,508
27,108
72,188
During the year ended December 31, 2023, the Company acquired indefinite-lived state licenses and a trade name of $7.6 million and $2.1 million,
respectively, in its hospice segment related to the acquisition of Tennessee Quality Care. The Company also acquired indefinite-lived state licenses and
trade name of $11.6 million and $5.4 million, respectively, in its home health segment in connection with the Tennessee Quality Care acquisition.
During the year ended December 31, 2022, the Company acquired indefinite-lived state licenses and trade names of $4.8 million and $9.0 million,
respectively, related to the acquisition of JourneyCare. During the year ended December 31, 2022, the Company acquired indefinite lived state licenses and
trade names of $1.2 million and $0.1 million, respectively, related to the acquisition of Apple Home.
Amortization expense related to the identifiable intangible assets amounted to $7.1 million, $7.2 million and $8.5 million for the years ended
December 31, 2023, 2022 and 2021, respectively.
The weighted average remaining useful life of identifiable intangible assets as of December 31, 2023 is 10.23 years.
F-21
Table of Contents
The estimated future intangible amortization expense is as follows:
For the year ended December 31,
2024
2025
2026
2027
2028
Thereafter
Total, intangible assets subject to amortization
6. Details of Certain Balance Sheet Accounts
Prepaid expenses and other current assets consisted of the following:
Prepaid payroll
Prepaid workers’ compensation and liability insurance
Prepaid licensing fees
Workers’ compensation insurance receivable
Other
Total prepaid expenses and other current assets
Accrued expenses consisted of the following:
(1)
Accrued health benefits
Payor advances
Accrued professional fees
Accrued payroll and other taxes
Other
Total accrued expenses
$
$
$
$
Total
(Amount in
Thousands)
$
$
December 31,
2023
2022
(Amounts in Thousands)
$
8,735
3,696
4,481
577
2,225
19,714 $
December 31,
2023
2022
(Amounts in Thousands)
$
7,400
1,218
7,304
8,572
8,742
33,236
$
7,047
5,424
4,800
4,178
3,285
20,921
45,655
7,566
3,399
3,722
666
1,992
17,345
5,152
4,473
3,576
6,175
8,131
27,507
(1)
Represents the deferred portion of payments received from payors for COVID-19 reimbursements which will be recognized as we incur specific COVID-19 related
expenses (including expenses related to securing and maintaining adequate personnel) or will be returned to the extent such related expenses are not incurred.
7. Long-Term Debt
Long-term debt consisted of the following:
Revolving loan under the credit facility
Term loan under the credit facility
Less unamortized issuance costs
Total
Less current maturities
Long-term debt
$
$
F-22
December 31,
2023
2022
$
(Amounts in Thousands)
126,353
—
(2,221 )
124,132
—
124,132
$
134,853
—
(3,081 )
131,772
—
131,772
Table of Contents
Amended and Restated Senior Secured Credit Facility
On October 31, 2018, the Company entered into the Amended and Restated Credit Agreement, with certain lenders and Capital One, National
Association, as a lender and as agent for all lenders, as amended by the First Amendment to Amended and Restated Credit Agreement, dated as of
September 12, 2019, as further amended by the Second Amendment to Amended and Restated Credit Agreement, dated as of July 30, 2021, and as further
amended by the Third Amendment to Amended and Restated Credit Agreement, dated as of April 26, 2023 (as described below, the “Third Amendment”)
(as amended, the “Credit Agreement”, as used throughout this Annual Report on Form 10-K, “credit facility” shall mean the credit facility evidenced by the
Credit Agreement). The credit facility consists of a $600.0 million revolving credit facility and a $125.0 million incremental loan facility, which
incremental loan facility may be for term loans or an increase to the revolving loan commitments. The maturity of this credit facility is July 30, 2026.
On April 26, 2023, the Company entered into the Third Amendment to replace LIBOR with SOFR as the benchmark reference rate for loans under
its credit facility. The Third Amendment did not amend any other terms of the Credit Agreement. The transition to SOFR did not and is not expected to
have a material impact on the Company’s results of operations or liquidity.
Interest on the credit facility may be payable at (x) the sum of (i) an applicable margin ranging from 0.75% to 1.50% based on the applicable senior
net leverage ratio plus (ii) a base rate equal to the greatest of (a) the rate of interest last quoted by The Wall Street Journal as the “prime rate,” (b) the sum
of the federal funds rate plus a margin of 0.50% and (c) the sum of Term SOFR (as published by the CME Group Benchmark Administrative Limited) for
an interest period of one month for such applicable day plus 0.10% (not to be less than 0.00%), plus a margin of 1.00% or (y) the sum of (i) an applicable
margin ranging from 1.75% to 2.50% based on the applicable senior net leverage ratio plus (ii) the rate per annum equal to the sum of Term SOFR (as
published by the CME Group Benchmark Administrative Limited) for the applicable interest period plus 0.10% (not to be less than zero). Swing loans may
not be SOFR loans.
Addus HealthCare, Inc. (“Addus HealthCare”) is the borrower, and its parent, Holdings, and substantially all of Holdings’ subsidiaries are
guarantors under this credit facility, and it is collateralized by a first priority security interest in all of the Company’s and the other credit parties’ current
and future tangible and intangible assets, including the shares of stock of the borrower and subsidiaries. The Credit Agreement contains affirmative and
negative covenants customary for credit facilities of this type, including limitations on the Company with respect to liens, indebtedness, guaranties,
investments, distributions, mergers and acquisitions and dispositions of assets. The availability of additional draws under this credit facility is conditioned,
among other things, upon (after giving effect to such draws) the Total Net Leverage Ratio (as defined in the Credit Agreement) not exceeding 3.75:1.00. In
certain circumstances, in connection with a Material Acquisition (as defined in the Credit Agreement), the Company can elect to increase its Total Net
Leverage Ratio compliance covenant to 4.25:1.00 for the then current fiscal quarter and the three succeeding fiscal quarters.
The Company pays a fee ranging from 0.20% to 0.35% based on the applicable senior net leverage ratio times the unused portion of the revolving
loan portion of the credit facility.
The Credit Agreement contains customary affirmative covenants regarding, among other things, the maintenance of records, compliance with laws,
maintenance of permits, maintenance of insurance and property and payment of taxes. The Credit Agreement also contains certain customary financial
covenants and negative covenants that, among other things, include a requirement to maintain a minimum Interest Coverage Ratio (as defined in the Credit
Agreement), a requirement to stay below a maximum Total Net Leverage Ratio (as defined in the Credit Agreement) and a requirement to stay below a
maximum permitted amount of capital expenditures. The Credit Agreement also contains restrictions on guarantees, indebtedness, liens, investments and
loans, subject to customary carve outs, a restriction on dividends (provided that Addus HealthCare may make distributions to the Company in an amount
that does not exceed $7.5 million in any year absent of an event of default, plus limited exceptions for tax and administrative distributions), a restriction on
the ability to consummate acquisitions (without the consent of the lenders) under its credit facility subject to compliance with the Total Net Leverage Ratio
(as defined in the Credit Agreement) thresholds, restrictions on mergers, dispositions of assets, and affiliate transactions, and restrictions on fundamental
changes and lines of business. As of December 31, 2023, the Company was in compliance with all financial covenants under the Credit Agreement.
During the twelve months ended December 31, 2023, the Company drew approximately $110.0 million under its credit facility to fund, in part, the
Tennessee Quality Care acquisition. At December 31, 2023, the Company had a total of $126.4 million of revolving loans, with an interest rate of 7.21%,
outstanding on its credit facility. After giving effect to the amount drawn on its credit facility, approximately $8.0 million of outstanding letters of credit
and borrowing limits based on an advance multiple of Adjusted EBITDA (as defined in the Credit Agreement), the Company had $470.0 million of
capacity and $335.6 million available for borrowing under its credit facility.
F-23
Table of Contents
During the twelve months ended December 31, 2022, the Company drew approximately $47.0 million under its credit facility to fund in part, the
JourneyCare and Apple Home acquisitions. At December 31, 2022, the Company had a total of $134.9 million of revolving loans, with an interest rate of
6.13%, outstanding on its credit facility. After giving effect to the amount drawn on its credit facility, approximately $8.2 million of outstanding letters of
credit and borrowing limits based on an advance multiple of Adjusted EBITDA (as defined in the Credit Agreement), the Company had $380.2 million of
capacity and $237.2 million available for borrowing under its credit facility.
8. Income Taxes
The current and deferred federal and state income tax provision from continuing operations, are comprised of the following:
Current
Federal
State
Deferred
Federal
State
Provision for income taxes
For the Years Ended December 31,
(Amounts in Thousands)
2022
2023
2021
$
$
11,839 $
4,139
2,306
526
18,810 $
7,075 $
3,090
3,118
863
14,146 $
4,603
2,398
6,407
1,864
15,272
The tax effects of certain temporary differences between the Company’s book and tax bases of assets and liabilities give rise to significant portions
of the deferred income tax assets (liabilities) at December 31, 2023 and 2022. The deferred tax assets (liabilities) consisted of the following:
Deferred tax assets
Long-term
Accounts receivable allowances
Operating lease liabilities
Accrued compensation
Accrued workers’ compensation
Transaction costs
Stock-based compensation
Net operating loss
Restructuring costs
Other
Total long-term deferred tax assets
Deferred tax liabilities
Long-term
Goodwill and intangible assets
Operating lease assets, net
Property and equipment
Insurance premiums
Total long-term deferred tax liabilities
Total net deferred tax (liabilities) assets
For the Years Ended December 31,
(Amounts in Thousands)
2023
2022
$
21,480
13,562
4,957
3,046
2,390
1,456
87
26
2,908
49,912
(42,980 )
(11,650 )
(2,829 )
(982 )
(58,441 )
(8,529 ) $
18,515
12,472
3,676
3,296
2,056
1,473
—
54
1,420
42,962
(34,310 )
(10,323 )
(3,123 )
(916 )
(48,672 )
(5,710 )
$
$
Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences
become deductible. Management considers all available evidence in making this assessment.
F-24
Table of Contents
A reconciliation for continuing operations of the statutory federal tax rate of 21.0% to the effective income tax rate is summarized as follows:
Federal income tax at statutory rate
State and local taxes, net of federal benefit
162(m) disallowance for executive compensation
Nondeductible penalties
Excess tax benefit
Jobs tax credits, net
Nondeductible permanent items
Federal/state return to provision
Other
Effective income tax rate
2023
For the Years Ended December 31,
2022
2021
21.0 %
5.6
2.2
0.1
(0.5 )
(4.0 )
0.1
(1.3 )
(0.1 )
23.1 %
21.0 %
5.9
3.2
—
(0.4 )
(5.1 )
—
(1.0 )
(0.1 )
23.5 %
21.0 %
6.3
3.5
0.6
(2.0 )
(4.1 )
—
—
(0.1 )
25.2 %
The effective income tax rate was 23.1%, 23.5% and 25.2% for the years ended December 31, 2023, 2022 and 2021, respectively. The difference
between our federal statutory and effective income tax rates was principally due to the inclusion of state taxes and non-deductible compensation, partially
offset by an excess tax benefit and the use of federal employment tax credits. The excess tax expense/benefit is a discrete item, related to the vesting of
equity shares, which requires the Company to recognize the expense or benefit fully in the period.
The Company is subject to taxation in the jurisdictions in which it operates. The Company continues to remain subject to examination by U.S.
federal authorities for the years 2020 through 2022 and for various state authorities for the years 2018 through 2022.
9. Stock Options and Restricted Stock Awards
The Board approved the A&R 2017 Plan as of April 13, 2023 and our shareholders approved it as of June 14, 2023. The A&R 2017 Plan amended
and restated our 2017 Omnibus Incentive Plan (the “2017 Plan”), which in turn was intended to replace our 2009 Stock Incentive Plan (the “2009 Plan”).
All awards are now granted from the A&R 2017 Plan. Outstanding awards under the 2009 Plan will continue to be governed by the 2009 Plan and the
agreements under which they were granted.
The A&R 2017 Plan allows us to grant performance-based incentive awards and equity-based awards (each, an “Award”) to eligible employees,
directors and consultants in the form of Stock Options, Stock Appreciation Rights (“SARs”), Restricted Stock Restricted Stock Units, Performance Awards
and Other Stock Unit Awards. The Board believes that the A&R 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 the Company’s
shareholders.
Under the A&R 2017 Plan, Awards may be made in shares of our common stock. Subject to adjustment as provided by the terms of the A&R 2017
Plan, the maximum aggregate number of shares of common stock with respect to which awards may be granted under the A&R 2017 Plan is 864,215,
comprised of 274,215 shares (the number of shares that were available for issuance under the 2017 Plan as of April 13, 2023) and 590,000 shares (the
number of shares newly authorized by the Company’s shareholders upon their approval of the A&R 2017 Plan).. The aggregate awards granted during any
calendar year to any single Participant cannot exceed 500,000 shares subject to stock options or SARs. These individual annual limitations are cumulative
in that any shares of common stock or cash for which Awards are permitted to be granted to a Participant during a fiscal year are not covered by an Award
in that fiscal year (such shortfall, the “Shortfall Amount”), the number of shares of common stock (or amount of cash, as the case may be) will
automatically increase in the subsequent fiscal years during the term of the A&R 2017 Plan until the earlier of the time when the Shortfall Amount has
been granted to the Participant, or the end of the third fiscal year following the year to which such Shortfall Amount relates. At December 31, 2023, there
were 854,003 shares of common stock available for future grant under the A&R 2017 Plan.
F-25
Table of Contents
Awards made under the 2017 Plan (and the 2009 Plan) that are forfeited, canceled, settled in cash or otherwise terminated without a distribution of
shares to a Participant will be deemed available for Awards under the A&R 2017 Plan; provided, that the A&R 2017 Plan explicitly prohibits shares
withheld for payment of taxes for awards, the exercise price for appreciation awards, shares acquired with the proceeds of appreciation awards, and shares
from stock settled SARs from being added back to the share reserve. Stock options are awarded with an exercise price equal to the fair market value based
on the closing price of our common stock on the date of grant. Options granted typically vest over a service period ranging from three to four years and
expire ten years from the date of grant. Restricted shares typically vest over a service period ranging from one to four years and expire ten years from date
of grant.
Stock options are awarded with an exercise price equal to the fair market value based on the closing price of our common stock on the date of grant.
Options granted typically vest over a service period ranging from three to four years and expire ten years from the date of grant. Restricted shares typically
vest over a service period ranging from one to four years and expire ten years from date of grant.
The exercise prices of stock options outstanding on December 31, 2023 range from $19.71 to $92.00. Restricted stock awards are full-value awards.
Stock Options
A summary of stock option activity for the year ended December 31, 2023 follows:
Outstanding, beginning of period
Granted
Exercised
Forfeited/Cancelled
Outstanding, end of period
Exercisable, end of period
Options
(Amounts in
Thousands)
Weighted
Average
Exercise Price
Weighted Average
Remaining
Contractual Terms
(Years)
468 $
—
(13 )
—
455 $
415 $
45.72
—
24.38
—
46.33
42.21
5.2
4.3
4.0
The weighted-average estimated fair value of employee stock options granted was calculated using the Black-Scholes Option Pricing Model in 2022
and 2021. The Company did not grant any stock options in 2023. The related assumptions follow:
Weighted average fair value
Risk-free discount rate
Expected life
Dividend yield
Volatility
2023
Grants
$
$
—
—
—
—
—
2022
Grants
1.76% - 2.86%
4.2 years
43%
32.96 $
—
2021
Grants
0.65%
4.1 years
45%
32.71
—
Stock option compensation expense totaled $0.9 million, $1.2 million and $1.4 million for the years ended December 31, 2023, 2022 and 2021,
respectively. As of December 31, 2023, there was $1.0 million of total unrecognized compensation cost that is expected to be recognized over a weighted
average period of 2.0 years.
The intrinsic value of exercisable and outstanding stock options was $21.0 million and $21.2 million, respectively, as of December 31, 2023.
As of December 31, 2023, there were 415,000 and 40,000 shares of stock options vested and unvested, respectively.
The intrinsic value of stock options exercised during the years ended December 31, 2023, 2022 and 2021 was $0.8 million, $3.5 million and $1.8
million, respectively.
F-26
Table of Contents
Restricted Stock Awards
A summary of unvested restricted stock awards activity and weighted average grant date fair value for the year ended December 31, 2023 follows:
Restricted
Stock
Awards
(Amounts in
Thousands)
Weighted
Average
Grant Date
Fair Value
Unvested restricted stock awards, beginning of period
Awarded
Vested
Forfeited
Unvested restricted stock awards, end of period
$
210
87
(95 )
(1 )
$
201
88.22
103.24
89.92
84.00
93.93
The fair value of restricted stock awards that vested during the year ended December 31, 2023 was $9.9 million.
Restricted stock award compensation expense totaled $9.4 million, $9.4 million and $8.0 million for the years ended December 31, 2023, 2022 and
2021, respectively. As of December 31, 2023, there was $10.4 million of total unrecognized compensation cost that is expected to be recognized over a
weighted average period of 1.4 years.
10. Employee Benefit Plans
The 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
the maximum percentage and limits allowable under the U.S. Revenue Code. The Company provided contributions totaling $0.6 million, $0.4 million and
$0.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.
11. Commitments and Contingencies
Legal Proceedings
From time to time, the Company is subject to legal and/or administrative proceedings incidental to its business.
It is the opinion of management that the outcome of pending legal and/or administrative proceedings will not have a material effect on the
Company’s Consolidated Balance Sheets and Consolidated Statements of Income.
Concentration of Cash
The Company owns financial instruments that potentially subject the Company to significant concentrations of credit risk, including cash. The
Company maintains cash with financial institutions which, at times, may exceed federally insured limits. The Company believes it is not exposed to any
significant credit risk on cash.
12. Segment Information
Operating segments are defined as components of a company that engage in business activities from which it may earn revenues and incur expenses,
and for which separate financial information is available and is regularly reviewed by the Company’s chief operating decision makers, to assess the
performance of the individual segments and make decisions about resources to be allocated to the segments. The Company operates as a multi-state
provider of three distinct but related business segments providing in-home services.
In its personal care segment, the Company provides non-medical assistance with activities of daily living, primarily to persons who are at increased
risk of hospitalization or institutionalization, such as the elderly, chronically ill or disabled. In its hospice segment, the Company provides physical,
emotional and spiritual care for people who are terminally ill as well as related services for their families. In its home health segment, the Company
provides services that are primarily medical in nature to individuals who may require assistance during an illness or after hospitalization and include skilled
nursing and physical, occupational and speech therapy.
F-27
Table of Contents
The tables below set forth information about the Company’s reportable segments for the years ended December 31, 2023, 2022 and 2021 along with
the items necessary to reconcile the segment information to the totals reported in the accompanying consolidated financial statements. Segment assets are
not reviewed by the Company’s chief operating decision maker function and therefore are not disclosed below.
Segment operating income consists of revenue generated by a segment, less the direct costs of service revenues and general and administrative
expenses that are incurred directly by the segment. Unallocated general and administrative costs are those costs for functions performed in a centralized
manner and therefore not attributable to a particular segment. These costs include accounting, finance, human resources, legal, information technology,
corporate office support and facility costs and overall corporate management.
For the Year Ended December 31, 2023
(Amounts in Thousands)
Net service revenues
Cost of services revenues
Gross profit
General and administrative expenses
Segment operating income
Net service revenues
Cost of services revenues
Gross profit
General and administrative expenses
Segment operating income
Net service revenues
Cost of services revenues
Gross profit
General and administrative expenses
Segment operating income
Segment reconciliation:
Total segment operating income
Items not allocated at segment level:
Other general and administrative expenses
Depreciation and amortization
Interest income
Interest expense
Income before income taxes
$
$
$
$
$
$
F-28
Home Health
$
Personal Care
Hospice
794,718
572,807
221,911
64,382
157,529
$
$
207,155
110,219
96,936
52,083
44,853
For the Year Ended December 31, 2022
(Amounts in Thousands)
Home Health
$
Personal Care
Hospice
706,507
520,617
185,890
60,532
125,358
$
$
201,772
100,956
100,816
49,742
51,074
For the Year Ended December 31, 2021
(Amounts in Thousands)
Home Health
$
Personal Care
Hospice
685,854
502,024
183,830
61,565
122,265
$
$
152,253
75,186
77,067
34,632
42,435
56,778
35,749
21,029
14,017
7,012
42,841
29,808
13,033
10,251
2,782
26,392
17,441
8,951
5,713
3,238
Total
1,058,651
718,775
339,876
130,482
209,394
Total
951,120
651,381
299,739
120,525
179,214
Total
864,499
594,651
269,848
101,910
167,938
$
$
$
$
$
$
$
$
$
For the Years Ended December 31,
(Amounts in Thousands)
2022
2023
2021
$
209,394
$
179,214
$
167,938
104,312
14,126
(1,476 )
11,106
81,326
$
96,417
14,060
(341 )
8,907
60,171
$
87,508
14,494
(268 )
5,806
60,398
$
Table of Contents
13. Significant Payors
For 2023, 2022 and 2021, the Company’s revenue by payor type was as follows:
2023
% of
Segment
Net
Service
Revenues
Amount
(in Thousands)
Personal Care
For the Years Ended December 31,
2022
Amount
(in Thousands)
% of
Segment
Net
Service
Revenues
2021
% of
Segment
Net
Service
Revenues
Amount
(in Thousands)
State, local and other governmental
programs
Managed care organizations
Private pay
Commercial insurance
Other
Total personal care segment net service
revenues
$
400,753
367,557
16,268
6,321
3,819
50.4 % $
46.2
2.0
0.8
0.6
348,234
326,778
18,301
7,689
5,505
49.3 % $
46.3
2.6
1.1
0.7
338,325
311,801
19,991
9,820
5,917
49.3 %
45.5
2.9
1.4
0.9
$
794,718
100.0 % $
706,507
100.0 % $
685,854
100.0 %
2023
Amount
(in Thousands)
$
186,317
7,037
13,801
Hospice
For the Years Ended December 31,
2022
2021
% of Segment
Net Service
Revenues
Amount
(in Thousands)
% of Segment
Net Service
Revenues
Amount
(in Thousands)
% of Segment
Net Service
Revenues
89.9 % $
3.4
6.7
183,407
7,353
11,012
90.9 % $
3.6
5.5
142,086
5,664
4,503
93.3 %
3.7
3.0
$
207,155
100.0 % $
201,772
100.0 % $
152,253
100.0 %
2023
Home Health
For the Years Ended December 31,
2022
2021
Amount
(in Thousands)
% of Segment
Net Service
Revenues
Amount
(in Thousands)
% of Segment
Net Service
Revenues
Amount
(in Thousands)
% of Segment
Net Service
Revenues
$
41,078
12,613
3,087
72.3 % $
22.2
5.5
31,505
8,698
2,638
73.5 % $
20.3
6.2
20,700
4,457
1,235
78.4 %
16.9
4.7
$
56,778
100.0 % $
42,841
100.0 % $
26,392
100.0 %
Medicare
Managed care organizations
Other
Total hospice segment net service
revenues
Medicare
Managed care organizations
Other
Total home health segment net service
revenues
F-29
Table of Contents
The Company derives a significant amount of its revenue from its operations in Illinois, New Mexico and New York. The percentages of segment
revenue for each of these significant states for 2023, 2022 and 2021 were as follows:
2023
Amount
(in Thousands)
$
411,081
92,469
115,986
175,182
Personal Care
For the Years Ended December 31,
2022
Amount
(in Thousands)
% of
Segment
Net
Service
Revenues
% of
Segment
Net
Service
Revenues
2021
% of
Segment
Net
Service
Revenues
Amount
(in Thousands)
51.7 % $
11.6
14.6
22.1
360,778
86,592
105,315
153,822
51.1 % $
12.3
14.9
21.7
328,619
99,732
97,784
159,719
47.9 %
14.5
14.3
23.3
$
794,718
100.0 % $
706,507
100.0 % $
685,854
100.0 %
Illinois
New York
New Mexico
All other states
Total personal care segment net service
revenues
Hospice
For the Years Ended December 31,
Ohio
New Mexico
Illinois
All other states
Total hospice segment net service
revenues
2023
2022
2021
Amount
(in Thousands)
% of Segment
Net Service
Revenues
Amount
(in Thousands)
% of Segment
Net Service
Revenues
Amount
(in Thousands)
% of Segment
Net Service
Revenues
$
74,871
30,782
47,247
54,255
36.1 % $
14.9
22.8
26.2
70,503
30,722
47,181
53,366
35.0 % $
15.2
23.4
26.4
61,415
36,063
—
54,775
40.3 %
23.7
—
36.0
$
207,155
100.0 % $
201,772
100.0 % $
152,253
100.0 %
With the acquisition of JourneyCare in 2022, the Company expanded its hospice services to patients in the state of Illinois.
Home Health
For the Years Ended December 31,
New Mexico
Illinois
Tennessee
Total home health segment net service
revenues
2023
2022
2021
Amount
(in Thousands)
% of Segment
Net Service
Revenues
Amount
(in Thousands)
% of Segment
Net Service
Revenues
Amount
(in Thousands)
% of Segment
Net Service
Revenues
$
32,949
12,851
10,978
58.0 % $
22.6
19.4
34,111
8,730
—
79.6 % $
20.4
—
24,735
1,657
—
93.7 %
6.3
—
$
56,778
100.0 % $
42,841
100.0 % $
26,392
100.0 %
With the acquisition of Tennessee Quality Care in 2023, the Company expanded its home health services to patients in the state of Tennessee.
A substantial portion of the Company’s revenue and accounts receivable is derived from services performed for state and local governmental
agencies. We derive a significant amount of our net service revenues in Illinois, which represented 44.5%, 43.8% and 38.2% of our net service revenues for
the years ended December 31, 2023, 2022 and 2021, respectively. The Illinois Department on Aging, the largest payor program for the Company’s Illinois
personal care operations, accounted for 20.9%, 20.7% and 21.4% of the Company’s net service revenues for 2023, 2022 and 2021, respectively.
The related receivables due from the Illinois Department on Aging represented 25.8% and 18.0% of the Company’s net accounts receivable at
December 31, 2023 and 2022, respectively.
F-30
Table of Contents
In 2019, New York initiated a new RFO process to competitively procure CDPAP fiscal intermediaries. The Company was not selected in the initial
RFO process. We submitted a formal protest in response to the selection process, which was filed and accepted in March 2021. The New York fiscal year
2023 state budget, passed in April 2022, amended the Fiscal Intermediary RFO process to authorize all fiscal intermediaries that submitted an RFO
application and served at least 200 clients in New York City or 50 clients in other counties between January 1, 2020 and March 31, 2020 to contract with
the New York State Department of Health and continue to operate in all counties contained in their application, if the fiscal intermediary submitted an
attestation and supporting information to the New York State Department of Health no later than November 29, 2022. The Company submitted an
attestation on November 22, 2022, which allowed the Company to continue its CDPAP fiscal intermediary operations. However, the Company decided at
that time to suspend materially all of its new fee-for-service patient admissions in the CDPAP through County Social Service Departments. On June 6,
2023, the New York State Department of Health notified the Company that it had received a contract award. Under this contract, the Company is providing
services to all current payors and has resumed new fee-for-service patient admissions through County Social Service Departments in the CDPAP. The
CDPAP continues to be targeted for changes by New York governmental authorities, however. For example, the governor’s most recent update on the state
budget contained proposals that could adversely affect the Company’s ability to participate in the CDPAP.
The Company recognized approximately $40.7 million from the program for the year ended December 31, 2023.
14. Government Actions to Mitigate COVID-19’s Impact
The acute phase of the COVID-19 pandemic has faded, but the future course of COVID-19 remains uncertain. We will continue to closely monitor
the impact of COVID-19 on all aspects of our business, including the impacts to our employees, patients and suppliers.
In recognition of the significant threat to the liquidity of financial markets posed by the COVID-19 pandemic, the Federal Reserve and Congress
took dramatic actions to provide liquidity to businesses and the banking system in the United States, including relief for healthcare providers in the CARES
Act, which was expanded by the Paycheck Protection Program and Health Care Enhancement (“PPPHCE”) Act, and the Consolidated Appropriations Act
(“CAA”), as well as the ARPA.
ARPA
The ARPA provides for $350 billion in relief funding for eligible state, local, territorial, and Tribal governments to mitigate the fiscal effects of the
COVID-19 public health emergency. Additionally, the law provides for a 10-percentage point increase in federal matching funds for Medicaid home and
community-based services (“HCBS”) from April 1, 2021, through March 31, 2022, provided the state satisfied certain conditions. States are permitted to
use the state funds equivalent to the additional federal funds through March 31, 2025. States must use the monies attributable to this matching fund increase
to supplement, not supplant, their level of state spending for the implementation of activities enhanced under the Medicaid HCBS in effect as of April 1,
2021.
HCBS spending plans for the additional matching funds vary by state, but common initiatives in which the Company is participating include those
aimed at strengthening the provider workforce (e.g., efforts to recruit, retain, and train direct service providers). The Company is required to properly and
fully document the use of such funds in reports to the state in which the funds originated. Funds may be subject to recoupment if not expended or if they
are expended on non-approved uses.
The Company received state funding provided by the ARPA in an aggregate amount of $3.7 million and $23.4 million for the years ended
December 31, 2023 and 2022, respectively. The Company recorded revenue of $0.3 million and $1.9 million and related cost of service revenues of $0.1
million and $1.5 million for certain states that met the revenue recognition criteria for the years ended December 31, 2023 and 2022, respectively. The
Company deferred the remaining $3.4 million and $21.5 million for the years ended December 31, 2023 and 2022, respectively, which was received from
states with specific spending plans and reporting requirements. The Company utilized $10.5 million and $8.6 million of these funds during the years ended
December 31, 2023 and 2022, respectively, primarily for caregivers and adding support to recruiting and retention efforts. The deferred portion of ARPA
funding was $5.8 million and $12.9 million as of December 31, 2023 and 2022, respectively, which is included within Government stimulus advances on
the Company’s Consolidated Balance Sheets.
F-31
Table of Contents
Provider Relief Funds
In addition, the CARES Act authorized funding to be distributed through the Provider Relief Fund to eligible providers, including public entities
and Medicare- and/or Medicaid-enrolled providers. In November 2020, the Company received grants in an aggregate principal amount of $13.7 million
from the Provider Relief Fund. The Company utilized $12.3 million remaining of these funds during the year ended December 31, 2021 for healthcare
related expenses, including retention payments, attributable to COVID-19 that were unreimbursed by other sources. The Company documented the use of
such funds in 2021 in reports to the U.S. Department of Health and Human Services (“HHS”), as required, and submitted the reports to HHS prior to the
deadline of March 31, 2022. During the year ended December 31, 2023, we submitted an unmodified audit report to HHS for 2022 in accordance with
Generally Accepted Government Auditing Standards, as required for commercial organizations that received and expended total awards of $750,000 or
more.
Medicare sequester
The CARES Act and related laws temporarily lifted the Medicare sequester which would have otherwise reduced payments to Medicare providers
by 2%, as required by the Budget Control Act of 2011, from May 1, 2020, through March 31, 2022. The sequestration payment adjustment was phased
back in with a 1% reduction beginning April 1, 2022, and returned to 2% on July 1, 2022. These sequestration cuts have been extended through April 2032.
The ARPA increases the federal budget deficit in a manner that triggers an additional statutorily mandated sequestration under the Pay-As-You-Go
Act of 2010 (“PAYGO Act”). As a result, an additional Medicare payment reduction of up to 4% was required to take effect in January 2022. However,
Congress delayed implementation of this payment reduction until 2025.
In the hospice segment, Medicare sequester relief resulted in an increase in net service revenues of $0.0 million and $1.4 million for the years
ended December 31, 2023 and 2022, respectively. In the home health segment, Medicare sequester relief resulted in an increase in net service revenues of
$0.0 million and $0.3 million for the years ended December 31, 2023 and 2022, respectively.
Payroll tax deferral
The CARES Act also provides for certain federal income and other tax changes, including the deferral of the employer portion of Social Security
payroll taxes through December 31, 2021. The payroll tax deferral requires that the deferred payroll taxes be paid over two years, with half of the eligible
deferred amount required to be paid by December 31, 2021 and the other half by December 31, 2022. The Company received a cash benefit of
approximately $7.1 million related to the deferral of employer payroll taxes for 2020 under the CARES Act, for the period April 2, 2020 through June 30,
2020. Effective July 1, 2020, the Company began paying its deferred portion of employer Social Security payroll taxes and repaid $4.1 million and $3.0
million as of December 31, 2022 and 2021 respectively.
F-32
Name of Subsidiary
A Plus Health Care, Inc.
Addus HealthCare, Inc.
Addus HealthCare (Delaware), Inc.
Addus HealthCare (Idaho), Inc.
Addus HealthCare (South Carolina), Inc.
Addus Home Office, LLC
Addus Hospice of Illinois, LLC
Addus Nurse Care, Inc.
Alamo Area Home Hospice, LP
Alliance Home Health Care, LLC
Ambercare Corporation
Ambercare Home Health Care Corporation
Ambercare Hospice, Inc.
Apple Home Healthcare, LTD
Armada Hospice of New Mexico, LLC
Armada Hospice of Santa Fe, LLC
Armada Skilled Home Care of New Mexico, LLC
Coastal Nursecare of Florida, Inc.
County Homemakers Inc.
Cura Partners, LLC
Hospice Partners of America, LLC
Hospice Partners of America Holding, LLC
Hospice Partners of Texas, LLC
House Calls of New Mexico, LLC
HPA Idaho, LLC
HPA Medical Management, LLC
H&PC of America, LLC
Miracle City Hospice, LLC
New Capital Partners II-HS, Inc.
Options Service, Inc.
PHC Acquisition Corporation
PRAC Holdings, Inc.
Priority Home Health Care, Inc.
Professional Reliable Nursing Service, Inc.
Queen City Hospice, LLC
Serenity Palliative Care and Hospice, LLC
SLHC, Inc.
South Shore Home Health Service, Inc.
Summit Home Health, LLC
Tennessee Valley Home Care, LLC
TR&B, LLC
Tri County Home Health and Hospice, LLC
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21.1
State of
Incorporation
Montana
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Texas
New Mexico
New Mexico
New Mexico
New Mexico
Illinois
Delaware
Delaware
Delaware
Florida
Pennsylvania
Tennessee
Delaware
Delaware
Delaware
New Mexico
Idaho
Delaware
Delaware
Delaware
Delaware
Colorado
California
Delaware
Ohio
California
Delaware
Delaware
Arizona
New York
Illinois
Tennessee
Texas
Tennessee
Doing Business As Name
A-Plus HealthCare
Addus HomeCare; Arcadia Home Care & Staffing
Addus HomeCare Delaware
Addus HomeCare
Addus HomeCare; Arcadia Home Care & Staffing
N/A
JourneyCare - Barrington; JourneyCare - Deerfield; JourneyCare -
Crystal Lake
Lifestyle Options
Alamo Hospice
Ambercare Home Health; Ambercare
N/A
Ambercare Home Health; Ambercare Personal Care Services
Ambercare
JourneyCare Home Health - Chicago
Armada Hospice of New Mexico, LLC
Armada Hospice of Santa Fe, LLC
Ambercare Home Health
Addus HomeCare
Arcadia Home Care & Staffing
Addus HomeCare
Hospice Partners of America
Alamo Hospice of Conroe; Alamo Hospice of Waco; Hospice of
Virginia
Hospice Partners of Texas
House Calls of New Mexico
Harrison’s Hope; Harrison’s Hope Twin Falls
Alamo Supportive Care; Serenity Supportive Care; JourneyCare
Palliative Care, Hospice of Virginia Supportive Care
H&PC of America
Miracle City Hospice
New Capital Partners II-HS
Ambercare Personal Care Services
Addus HomeCare
Arcadia Home Care & Staffing
Addus HomeCare
Arcadia Home Care & Staffing
Queen City Hospice; Day City Hospice; Capital City Hospice, Queen
City Hospice East
Serenity Hospice
Sunlife Home Care
Addus HomeCare
JourneyCare Home Health
Tennessee Quality Care-Home Health
TR&B
Tennessee Quality Care-Hospice
Pursuant to Item 601(b)(21)(ii) of Regulation S-K, certain subsidiaries have been omitted because, when considered in the aggregate, they do not constitute a significant
subsidiary.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-267253) and on Form S-8 (Nos. 333-272871,
333-219946, 333-190433, and 333-164413) of Addus HomeCare Corporation of our report dated February 27, 2024 relating to the financial statements and
the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
Exhibit 23.1
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
February 27, 2024
CERTIFICATION
Exhibit 31.1
I, R. Dirk Allison, Chief Executive Officer and Chairman of the Board of Addus HomeCare Corporation certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Addus HomeCare Corporation (the “Registrant”);
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 the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the Registrant and have:
(a)
(b)
(c)
(d)
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 within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most
recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the Registrant’s internal control over financial reporting; and
5.
The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal
control over financial reporting.
Date: February 27, 2024
/s/ R. Dirk Allison
R. Dirk Allison
Chief Executive Officer and Chairman of the Board
Exhibit 31.2
I, Brian Poff, Chief Financial Officer of Addus HomeCare Corporation, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Addus HomeCare Corporation (the “Registrant”);
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 the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the Registrant and have:
(a)
(b)
(c)
(d)
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 within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most
recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the Registrant’s internal control over financial reporting; and
5.
The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal
control over financial reporting.
Date: February 27, 2024
/s/ Brian Poff
Brian Poff
Chief Financial Officer
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
In connection with the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 of Addus HomeCare Corporation (the
“Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, R. Dirk Allison, Chief Executive Officer and
Chairman of the Board 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)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: February 27, 2024
BY:
/s/ R. Dirk Allison
R. Dirk Allison
Chief Executive Officer and Chairman of the Board
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
In connection with the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 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)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: February 27, 2024
BY:
/s/ Brian Poff
Brian Poff
Chief Financial Officer
ADDUS HOMECARE CORPORATION
Compensation Recoupment Policy
Exhibit 97.1
1. Purpose. The purpose of this Compensation Recoupment Policy of the Company (as amended from time to time, the “Policy”),
dated as of November 24, 2023 (the “Adoption Date”) is to describe the circumstances in which current and former Executive Officers will
be required to repay or return Erroneously Awarded Compensation to members of the Company Group. The Company has adopted this
Policy to comply with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as codified by Section 10D
of the Exchange Act, Exchange Act Rule 10D-1 promulgated thereunder, and the rules and requirements of Nasdaq (including Nasdaq
Listing Rule 5608) (such legal requirements, and rules and requirements of Nasdaq, collectively, the “SEC/Nasdaq Clawback Rules”). Each
Executive Officer shall be required to sign and return to the Company an acknowledgment to this Policy in the form attached hereto as
Exhibit A pursuant to which such Executive Officer will agree to be bound by the terms and comply with this Policy.
2. Administration. This Policy shall be administered by the Committee. The Committee is authorized to interpret and construe
this Policy and to make all determinations necessary, appropriate, or advisable for the administration of this Policy, and any such
determinations made by the Committee shall be in the Committee’s sole discretion, and shall be final and binding on all affected individuals.
Subject to applicable legal requirements and the rules and requirements of Nasdaq, the Committee may delegate any or all of its powers and
duties under the Policy to authorized officers of the Company, subject to such limitations on such delegated powers and duties as the
Committee may impose, if any. Except as otherwise required by applicable legal requirements or the rules and requirements of the Nasdaq,
any determinations of the Committee hereunder need not be uniform with respect to one or more Executive Officers (whether current or
former).
3. Definitions. For purposes of this Policy, the following capitalized terms shall have the meanings set forth below:
(a) “Accounting Restatement” shall mean an accounting restatement due to the material noncompliance of the Company with
any financial reporting requirement under the securities laws, including any required accounting restatement (i) to correct
an error in previously issued financial statements that is material to the previously issued financial statements (a “Big R”
restatement), or (ii) that would result in a material misstatement if the error were corrected in the current period or left
uncorrected in the current period (a “little r” restatement). For the avoidance of doubt, a restatement resulting solely from
the retrospective application of a change in generally accepted accounting principles is not an Accounting Restatement.
(b)
(c)
“Board” shall mean the Board of Directors of the Company.
“Clawback Eligible Incentive Compensation” shall mean all Incentive-Based Compensation Received by any
current or former Executive Officer on or after the Nasdaq Effective Date, provided that:
(i) such Incentive-Based Compensation is Received after such individual began serving as an Executive Officer;
(ii) such individual served as an Executive Officer at any time during the performance period for such Incentive-
Based Compensation;
(iii)such Incentive-Based Compensation is Received while the Company has a class of securities listed on
Nasdaq; and
(iv)such Incentive-Based Compensation is Received during the applicable Clawback Period.
(d)
“Clawback Period” shall mean, with respect to any Accounting Restatement, the three completed fiscal years of the
Company immediately preceding the Restatement Date and any transition period (that results from a change in the Company’s fiscal
year) of less than nine months within or immediately following those three completed fiscal years.
(e)
(f)
(g)
(h)
“Committee” shall mean the Compensation Committee of the Board.
“Common Stock” shall mean the common stock, par value $0.001 per share, of the Company.
“Company” shall mean Addus Homecare Corporation, a Delaware corporation.
“Company Group” shall mean the Company, together with each of its direct and indirect subsidiaries.
(i)
“Erroneously Awarded Compensation” shall mean, with respect to any current or former Executive Officer in
connection with any Accounting Restatement, the amount of Clawback Eligible Incentive Compensation Received by such current
or former Executive Officer that exceeds the amount of Clawback Eligible Incentive Compensation that otherwise would have been
Received by such current or former Executive Officer had such Clawback Eligible Incentive Compensation been determined based
on the restated amounts as reflected in connection with such Accounting Restatement, computed without regard to any taxes paid.
(j)
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
(k)
“Executive Officer” shall mean any officer as defined in Rule 10D-1(d) (or any successor provision thereof) under
the Exchange Act.
(l)
“Financial Reporting Measures” shall mean measures that are determined and presented in accordance with the
accounting principles used in preparing the Company’s financial statements, and any other measures that are derived wholly or in
part from such measures. For purposes of this Policy, stock price and total shareholder return (and any measures that are derived
wholly or in part from stock price or total shareholder return) shall be considered Financial Reporting Measures. For the avoidance
of doubt, a Financial Reporting Measure need not be presented within the Company’s financial statements or included in a filing
with the SEC.
(m)
“Incentive-Based Compensation” shall mean any compensation that is granted, earned or vested based wholly or in
part upon the attainment of a Financial Reporting Measure.
(n)
(o)
(p)
“Nasdaq” shall mean the Nasdaq Stock Market.
“Nasdaq Effective Date” shall mean October 2, 2023.
“Received” shall mean when Incentive-Based Compensation is received, and Incentive-Based Compensation shall
be deemed received in the Company’s fiscal period during
which the Financial Reporting Measure specified in the Incentive-Based Compensation award is attained, even if payment or grant
of the Incentive-Based Compensation occurs after the end of that period.
(q)
“Restatement Date” shall mean the earlier to occur of (i) the date the Board, a committee of the Board or the
officers of the Company authorized to take such action if Board action is not required, concludes, or reasonably should have
concluded, that the Company is required to prepare an Accounting Restatement, or (ii) the date a court, regulator or other legally
authorized body directs the Company to prepare an Accounting Restatement.
(r)
“SEC” shall mean the U.S. Securities and Exchange Commission.
4. Recoupment of Erroneously Awarded Compensation.
(a)
If the Company is required to prepare an Accounting Restatement, (i) the Committee shall determine the amount of
any Erroneously Awarded Compensation for each applicable current or former Executive Officer (whether or not such individual is
serving as an Executive Officer at such time) (the “Applicable Executives”) in connection with such Accounting Restatement, and
(ii) the Company will reasonably promptly require the recoupment of such Erroneously Awarded Compensation from any such
Applicable Executive, and any such Applicable Executive shall surrender such Erroneously Awarded Compensation to the
Company, at such time(s), and via such method(s), as determined by the Committee in accordance with the terms of this Policy. In
such event, any such Applicable Executive shall enter into any recoupment or similar agreement as may be reasonably requested by
the Committee in connection with the Company’s recoupment of Erroneously Awarded Compensation from such Applicable
Executive pursuant to the terms of this Policy.
(b)
For Incentive-Based Compensation based on (or derived from) stock price or total shareholder return where the
amount of Erroneously Awarded Compensation is not subject to mathematical recalculation directly from the information in the
applicable Accounting Restatement, (i) such amount shall be determined by the Committee based on a reasonable estimate of the
effect of the Accounting Restatement on the stock price or total shareholder return upon which the Incentive-Based Compensation
was Received, and (ii) the Company will maintain documentation of the determination of that reasonable estimate and provide such
documentation to Nasdaq.
(c)
The Committee shall determine, in its sole discretion, the method(s) for recouping any Erroneously Awarded
Compensation from any Applicable Executive, which may include one or more of the following:
(i) requiring one or more cash payments to the Company Group from such Applicable Executive, including, but
not limited to, the repayment of cash Incentive-Based Compensation previously paid by the Company Group to such
Applicable Executive;
(ii) seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer or other disposition
of any equity-based awards previously made by the Company to such Applicable Executive and/or otherwise requiring the
delivery to the Company of shares of Common Stock held by such Applicable Executive;
(iii)withholding, reducing or eliminating future cash compensation (including cash incentive payments), future
equity awards and/or other benefits or amounts otherwise to be paid or awarded by the Company Group to such
Applicable Executive;
(iv)offsetting amounts against compensation or other amounts otherwise payable by the Company Group to such
Applicable Executive;
(v) cancelling, adjusting or offsetting against some or all outstanding vested or unvested equity awards of the
Company held by such Applicable Executive; and/or
(vi)taking any other remedial and recovery actions with respect to such Applicable Executive permitted by
applicable legal requirements and the rules and regulations of Nasdaq, as determined by the Committee.
(d) Notwithstanding anything herein to the contrary, the Company shall not be required to recover Erroneously Awarded
Compensation from any Applicable Executive pursuant to the terms of this Policy if (1) the Committee determines that such
recovery would be impracticable, and (2) any of the following conditions is met:
(i) the direct expenses paid to a third party to assist in enforcing the Policy would exceed the amount to be
recovered, provided that, before concluding that it would be impracticable to recover any amount of Erroneously Awarded
Compensation based on expense of enforcement pursuant to this clause (i), the Company has (x) made a reasonable
attempt to recover such Erroneously Awarded Compensation, (y) documented such reasonable attempt(s) to recover, and
(z) provided such documentation to Nasdaq;
(ii) recovery would violate home country law where that law was adopted before November 28, 2022, provided
that, before determining that it would be impracticable to recover any amount of Erroneously Awarded Compensation
based on violation of home country law, the Company has obtained an opinion of home country counsel, acceptable to
Nasdaq, that recovery would result in such a violation, has provided copy of the opinion is provided to Nasdaq; or
(iii)recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly
available to employees of the Company Group, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C.
411(a) and regulations thereunder.
5. No Indemnification. The Company Group shall not (x) indemnify any current or former Executive Officer against (i) the loss of
any Erroneously Awarded Compensation that is repaid, returned or recovered pursuant to the terms of this Policy, or (ii) any claims relating
to the Company Group’s enforcement of its rights under this Policy, or (y) pay or reimburse any current or former Executive Officers for
insurance premiums to recover losses incurred under this Policy.
6. Supersedure. This Policy will supersede any provisions in (x) any agreement, plan or other arrangement applicable to any
member of the Company Group, and (y) any organizational documents of any entity that is part of Company Group that, in any such case, (a)
exempt any Incentive-Based Compensation from the application of this Policy, (b) waive or otherwise prohibit or restrict the Company
Group’s right to recover any Erroneously Awarded Compensation, including, without limitation, in connection with exercising any right of
setoff as provided herein, and/or (c) require or provide for indemnification to the extent that such indemnification is prohibited under Section
5 above.
7. Amendment; Termination; Interpretation. The Board may amend or terminate this Policy at any time, subject to compliance
with all applicable legal requirements and the rules and requirements of Nasdaq. It is intended that this Policy be interpreted in a manner that
is consistent with the SEC/Nasdaq Clawback Rules.
8. Other Recoupment Rights; No Additional Payments.
(a)
Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of
recoupment that may be available to the Company Group pursuant to (i) the terms of any recoupment provisions in any employment
agreement, incentive or equity compensation plan or award or other agreement, (ii) any other legal requirements, including, but not
limited to, Section 304 of Sarbanes-Oxley Act of 2002 (subject to Section 8(b) of this Policy below), and (iii) any other legal rights
or remedies available to the Company.
(b)
Notwithstanding anything herein to the contrary, to the extent that the Committee determines that any Erroneously
Awarded Compensation includes any amounts that have been actually reimbursed to the Company Group from any Applicable
Executive pursuant to Section 304 of the Sarbanes-Oxley Act (any such amounts that have been reimbursed to the Company Group,
the “Applicable SOX Recoupment Amount”), in order to prevent duplicative recovery, the amount of any Erroneously Awarded
Compensation to be recovered from any such Applicable Executive shall be reduced by the Applicable SOX Recoupment Amount.
(c)
To the extent so determined by the Committee, the Company shall be entitled to recover from any Applicable
Executive all fees and expenses incurred by the Company Group in connection with enforcing its rights under this Policy against
any Applicable Executive.
9. Successors. This Policy shall be binding and enforceable against all current and former Executive Officers and their
beneficiaries, heirs, executors, administrators or other legal representatives.
Exhibit A
Form of Acknowledgment
By signing below, the undersigned acknowledges and confirms that the undersigned has received and reviewed a copy of the Addus
Homecare Corporation Compensation Recoupment Policy (the “Policy”). Capitalized terms used but not otherwise defined in this
acknowledgment shall have the meanings ascribed to such terms in the Policy.
By signing this acknowledgment, the undersigned acknowledges and agrees that the undersigned is and will continue to be subject
to the Policy and that the Policy will apply both during and after the undersigned’s employment with the Company Group. Further, by
signing below, the undersigned agrees to abide by the terms of the Policy, including, without limitation, by returning any Erroneously
Awarded Compensation to the Company Group to the extent required by the Policy.
______________________________
Signature
______________________________
Print Name
______________________________
Date