Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

Document
false--12-31Q22019000130331355253000623540000.010.01600000006000000035636414358377790.010.0150000005000000000049587215052927 0001303313 2019-01-01 2019-06-30 0001303313 2019-08-06 0001303313 2019-06-30 0001303313 2018-12-31 0001303313 2018-04-01 2018-06-30 0001303313 2018-01-01 2018-06-30 0001303313 2019-04-01 2019-06-30 0001303313 2018-06-30 0001303313 us-gaap:NoncontrollingInterestMember 2018-01-01 2018-03-31 0001303313 us-gaap:CommonStockMember 2018-04-01 2018-06-30 0001303313 2018-03-31 0001303313 us-gaap:RetainedEarningsMember 2018-04-01 2018-06-30 0001303313 us-gaap:TreasuryStockMember 2018-01-01 2018-03-31 0001303313 us-gaap:CommonStockMember 2017-12-31 0001303313 us-gaap:TreasuryStockMember 2018-04-01 2018-06-30 0001303313 us-gaap:TreasuryStockMember 2018-06-30 0001303313 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-03-31 0001303313 us-gaap:RetainedEarningsMember 2018-06-30 0001303313 us-gaap:AdditionalPaidInCapitalMember 2018-04-01 2018-06-30 0001303313 us-gaap:NoncontrollingInterestMember 2018-04-01 2018-06-30 0001303313 us-gaap:CommonStockMember 2018-06-30 0001303313 us-gaap:TreasuryStockMember 2017-12-31 0001303313 2017-12-31 0001303313 us-gaap:AdditionalPaidInCapitalMember 2018-06-30 0001303313 2018-01-01 2018-03-31 0001303313 us-gaap:NoncontrollingInterestMember 2017-12-31 0001303313 us-gaap:CommonStockMember 2018-03-31 0001303313 us-gaap:TreasuryStockMember 2018-03-31 0001303313 us-gaap:CommonStockMember 2018-01-01 2018-03-31 0001303313 us-gaap:RetainedEarningsMember 2018-03-31 0001303313 us-gaap:RetainedEarningsMember 2018-01-01 2018-03-31 0001303313 us-gaap:AdditionalPaidInCapitalMember 2018-03-31 0001303313 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001303313 us-gaap:NoncontrollingInterestMember 2018-03-31 0001303313 us-gaap:NoncontrollingInterestMember 2018-06-30 0001303313 us-gaap:RetainedEarningsMember 2017-12-31 0001303313 us-gaap:RetainedEarningsMember 2019-06-30 0001303313 us-gaap:CommonStockMember 2018-12-31 0001303313 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0001303313 us-gaap:TreasuryStockMember 2019-06-30 0001303313 us-gaap:TreasuryStockMember 2019-01-01 2019-03-31 0001303313 us-gaap:TreasuryStockMember 2019-03-31 0001303313 us-gaap:NoncontrollingInterestMember 2019-06-30 0001303313 us-gaap:CommonStockMember 2019-01-01 2019-03-31 0001303313 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0001303313 us-gaap:CommonStockMember 2019-04-01 2019-06-30 0001303313 us-gaap:NoncontrollingInterestMember 2019-01-01 2019-03-31 0001303313 us-gaap:TreasuryStockMember 2018-12-31 0001303313 2019-01-01 2019-03-31 0001303313 us-gaap:TreasuryStockMember 2019-04-01 2019-06-30 0001303313 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0001303313 us-gaap:AdditionalPaidInCapitalMember 2019-04-01 2019-06-30 0001303313 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0001303313 us-gaap:NoncontrollingInterestMember 2019-03-31 0001303313 us-gaap:NoncontrollingInterestMember 2019-04-01 2019-06-30 0001303313 us-gaap:CommonStockMember 2019-06-30 0001303313 us-gaap:CommonStockMember 2019-03-31 0001303313 us-gaap:RetainedEarningsMember 2018-12-31 0001303313 2019-03-31 0001303313 us-gaap:RetainedEarningsMember 2019-03-31 0001303313 us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30 0001303313 us-gaap:NoncontrollingInterestMember 2018-12-31 0001303313 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001303313 us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0001303313 lhcg:FacilityBasedServicesMember 2019-01-01 2019-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:FacilityBasedServicesMember 2019-04-01 2019-06-30 0001303313 lhcg:HealthcareInnovationsMember 2018-01-01 2018-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:HomeAndCommunityBasedServicesMember 2019-04-01 2019-06-30 0001303313 lhcg:MedicaidMember lhcg:HomeAndCommunityBasedServicesMember 2019-04-01 2019-06-30 0001303313 lhcg:MedicareMember lhcg:FacilityBasedServicesMember 2019-04-01 2019-06-30 0001303313 lhcg:FacilityBasedServicesMember 2018-04-01 2018-06-30 0001303313 lhcg:MedicareMember lhcg:HomehealthservicesMember 2019-01-01 2019-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:HomeAndCommunityBasedServicesMember 2019-01-01 2019-06-30 0001303313 lhcg:HomehealthservicesMember 2019-01-01 2019-06-30 0001303313 lhcg:MedicaidMember lhcg:HomeAndCommunityBasedServicesMember 2019-01-01 2019-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:HospiceEntityMember 2019-04-01 2019-06-30 0001303313 lhcg:HospiceEntityMember 2018-01-01 2018-06-30 0001303313 lhcg:MedicareMember lhcg:HomehealthservicesMember 2018-01-01 2018-06-30 0001303313 lhcg:MedicareMember lhcg:HealthcareInnovationsMember 2019-04-01 2019-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:FacilityBasedServicesMember 2019-01-01 2019-06-30 0001303313 lhcg:MedicareMember lhcg:FacilityBasedServicesMember 2018-04-01 2018-06-30 0001303313 lhcg:FacilityBasedServicesMember 2018-01-01 2018-06-30 0001303313 lhcg:HealthcareInnovationsMember 2019-01-01 2019-06-30 0001303313 lhcg:HomehealthservicesMember 2018-01-01 2018-06-30 0001303313 lhcg:MedicaidMember lhcg:HomeAndCommunityBasedServicesMember 2018-04-01 2018-06-30 0001303313 lhcg:MedicareMember lhcg:HospiceEntityMember 2019-01-01 2019-06-30 0001303313 lhcg:HealthcareInnovationsMember 2018-04-01 2018-06-30 0001303313 lhcg:MedicareMember lhcg:FacilityBasedServicesMember 2018-01-01 2018-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:HomehealthservicesMember 2018-01-01 2018-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:HomehealthservicesMember 2019-01-01 2019-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:HealthcareInnovationsMember 2018-01-01 2018-06-30 0001303313 lhcg:HomeAndCommunityBasedServicesMember 2018-01-01 2018-06-30 0001303313 lhcg:HomeAndCommunityBasedServicesMember 2019-04-01 2019-06-30 0001303313 lhcg:HomeAndCommunityBasedServicesMember 2018-04-01 2018-06-30 0001303313 lhcg:HealthcareInnovationsMember 2019-04-01 2019-06-30 0001303313 lhcg:MedicareMember lhcg:HealthcareInnovationsMember 2018-01-01 2018-06-30 0001303313 lhcg:HomeAndCommunityBasedServicesMember 2019-01-01 2019-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:HomeAndCommunityBasedServicesMember 2018-04-01 2018-06-30 0001303313 lhcg:MedicareMember lhcg:HealthcareInnovationsMember 2018-04-01 2018-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:FacilityBasedServicesMember 2018-01-01 2018-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:HealthcareInnovationsMember 2019-01-01 2019-06-30 0001303313 lhcg:MedicareMember lhcg:FacilityBasedServicesMember 2019-01-01 2019-06-30 0001303313 lhcg:HospiceEntityMember 2018-04-01 2018-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:HospiceEntityMember 2018-01-01 2018-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:HomehealthservicesMember 2018-04-01 2018-06-30 0001303313 lhcg:MedicareMember lhcg:HealthcareInnovationsMember 2019-01-01 2019-06-30 0001303313 lhcg:HospiceEntityMember 2019-04-01 2019-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:FacilityBasedServicesMember 2018-04-01 2018-06-30 0001303313 lhcg:FacilityBasedServicesMember 2019-04-01 2019-06-30 0001303313 lhcg:MedicareMember lhcg:HospiceEntityMember 2018-01-01 2018-06-30 0001303313 lhcg:HomehealthservicesMember 2018-04-01 2018-06-30 0001303313 lhcg:MedicareMember lhcg:HomehealthservicesMember 2019-04-01 2019-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:HomeAndCommunityBasedServicesMember 2018-01-01 2018-06-30 0001303313 lhcg:MedicareMember lhcg:HomehealthservicesMember 2018-04-01 2018-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:HealthcareInnovationsMember 2019-04-01 2019-06-30 0001303313 lhcg:MedicareMember lhcg:HospiceEntityMember 2019-04-01 2019-06-30 0001303313 lhcg:MedicaidMember lhcg:HomeAndCommunityBasedServicesMember 2018-01-01 2018-06-30 0001303313 lhcg:MedicareMember lhcg:HospiceEntityMember 2018-04-01 2018-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:HealthcareInnovationsMember 2018-04-01 2018-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:HospiceEntityMember 2019-01-01 2019-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:HomehealthservicesMember 2019-04-01 2019-06-30 0001303313 lhcg:ManagedCareCommercialandOtherMember lhcg:HospiceEntityMember 2018-04-01 2018-06-30 0001303313 lhcg:HomehealthservicesMember 2019-04-01 2019-06-30 0001303313 lhcg:HospiceEntityMember 2019-01-01 2019-06-30 0001303313 lhcg:HomeHealthAgenciesAndHospiceAgencyMember 2019-06-30 0001303313 lhcg:HomeHealthAgenciesAndHospiceAgencyMember 2019-01-01 2019-06-30 0001303313 lhcg:HomeHealthAgenciesAndHospiceAgencyMember lhcg:CertificateOfNeedandLicensesMember 2019-06-30 0001303313 lhcg:HomeHealthAgenciesAndHospiceAgencyMember us-gaap:TradeNamesMember 2019-06-30 0001303313 lhcg:EquityJointVenturesMember 2019-04-01 2019-06-30 0001303313 lhcg:AlmostFamilyMember us-gaap:CustomerRelationshipsMember 2018-04-01 2018-04-01 0001303313 lhcg:AlmostFamilyMember 2018-04-01 2018-04-01 0001303313 2018-04-01 2018-04-01 0001303313 lhcg:HospiceAgenciesMember lhcg:HomehealthservicesMember 2019-06-30 0001303313 lhcg:HomeHealthAgenciesMember lhcg:HomehealthservicesMember 2019-06-30 0001303313 lhcg:AlmostFamilyMember 2018-04-01 0001303313 lhcg:AlmostFamilyMember lhcg:CertificateOfNeedandLicensesMember 2018-04-01 0001303313 lhcg:AlmostFamilyMember us-gaap:TradeNamesMember 2018-04-01 0001303313 lhcg:FacilityBasedServicesMember 2019-06-30 0001303313 lhcg:HealthcareInnovationsMember 2019-06-30 0001303313 lhcg:HomehealthservicesMember 2018-12-31 0001303313 lhcg:HospiceEntityMember 2018-12-31 0001303313 lhcg:FacilityBasedServicesMember 2018-12-31 0001303313 lhcg:HospiceEntityMember 2019-06-30 0001303313 lhcg:HealthcareInnovationsMember 2018-12-31 0001303313 lhcg:HomehealthservicesMember 2019-06-30 0001303313 lhcg:HomeAndCommunityBasedServicesMember 2018-12-31 0001303313 lhcg:HomeAndCommunityBasedServicesMember 2019-06-30 0001303313 us-gaap:TradeNamesMember 2018-12-31 0001303313 us-gaap:TradeNamesMember 2018-12-31 0001303313 us-gaap:CustomerRelationshipsMember 2019-06-30 0001303313 us-gaap:CustomerRelationshipsMember 2018-12-31 0001303313 us-gaap:NoncompeteAgreementsMember 2019-06-30 0001303313 us-gaap:LicensingAgreementsMember 2018-12-31 0001303313 us-gaap:LicensingAgreementsMember 2019-06-30 0001303313 us-gaap:TradeNamesMember 2019-06-30 0001303313 us-gaap:TradeNamesMember 2019-06-30 0001303313 us-gaap:NoncompeteAgreementsMember 2018-12-31 0001303313 lhcg:CertificateOfNeedandLicensesMember 2019-04-01 2019-06-30 0001303313 us-gaap:CustomerRelationshipsMember 2019-01-01 2019-06-30 0001303313 us-gaap:TradeNamesMember 2018-01-01 2018-12-31 0001303313 us-gaap:TradeNamesMember 2019-01-01 2019-06-30 0001303313 us-gaap:CustomerRelationshipsMember 2018-01-01 2018-12-31 0001303313 us-gaap:NoncompeteAgreementsMember 2018-01-01 2018-12-31 0001303313 us-gaap:NoncompeteAgreementsMember 2019-01-01 2019-06-30 0001303313 us-gaap:EurodollarMember 2018-04-02 2018-04-02 0001303313 srt:MinimumMember us-gaap:EurodollarMember 2018-04-02 2018-04-02 0001303313 2018-04-02 0001303313 us-gaap:BaseRateMember 2019-01-01 2019-06-30 0001303313 srt:MinimumMember 2018-04-02 2018-04-02 0001303313 srt:MinimumMember us-gaap:BaseRateMember 2018-04-02 2018-04-02 0001303313 us-gaap:LondonInterbankOfferedRateLIBORMember 2019-01-01 2019-06-30 0001303313 srt:MaximumMember us-gaap:EurodollarMember 2018-04-02 2018-04-02 0001303313 srt:MaximumMember 2018-04-02 2018-04-02 0001303313 srt:MaximumMember us-gaap:BaseRateMember 2018-04-02 2018-04-02 0001303313 us-gaap:FederalFundsEffectiveSwapRateMember 2018-04-02 2018-04-02 0001303313 lhcg:A2018LongTermIncentivePlanMember lhcg:EmployeeMember 2019-01-01 2019-06-30 0001303313 lhcg:SecondAmendedandRestated2005NonEmployeeDirectorsCompensationPlanMember lhcg:TransitionalAdvisoryCouncilMember 2019-01-01 2019-06-30 0001303313 lhcg:A2018LongTermIncentivePlanMember 2018-06-07 0001303313 lhcg:SecondAmendedandRestated2005NonEmployeeDirectorsCompensationPlanMember srt:DirectorMember 2019-01-01 2019-06-30 0001303313 lhcg:AFAMOptionsMember 2019-01-01 2019-06-30 0001303313 lhcg:EmployeeMember 2019-01-01 2019-06-30 0001303313 lhcg:SecondAmendedandRestated2005NonEmployeeDirectorsCompensationPlanMember 2019-01-01 2019-06-30 0001303313 us-gaap:EmployeeStockOptionMember 2019-01-01 2019-06-30 0001303313 us-gaap:RestrictedStockMember 2018-12-31 0001303313 us-gaap:EmployeeStockOptionMember 2019-06-30 0001303313 us-gaap:EmployeeStockOptionMember 2018-12-31 0001303313 us-gaap:RestrictedStockMember 2019-01-01 2019-06-30 0001303313 us-gaap:RestrictedStockMember 2019-06-30 0001303313 lhcg:HomehealthservicesMember 2018-06-30 0001303313 lhcg:HealthcareInnovationsMember 2018-06-30 0001303313 lhcg:HospiceEntityMember 2018-06-30 0001303313 lhcg:HomeAndCommunityBasedServicesMember 2018-06-30 0001303313 lhcg:FacilityBasedServicesMember 2018-06-30 lhcg:Instrument lhcg:Group lhcg:Agency lhcg:visit lhcg:Location iso4217:USD xbrli:shares lhcg:State xbrli:pure lhcg:subsidiary iso4217:USD xbrli:shares lhcg:agency_sold lhcg:PeriodicRate
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________
FORM 10-Q
______________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
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: 001-33989
LHC Group, Inc
(Exact name of registrant as specified in its charter)
Delaware
 
71-0918189
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
901 Hugh Wallis Road South
Lafayette, LA 70508
(Address of principal executive offices including zip code)
(337233-1307
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value of $0.01
 
LHCG
 
NASDAQ Global Select Market

 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    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.


Table of Contents

Large accelerated filer
  
ý
 
Accelerated filer
 
Non-accelerated filer
  
 
Smaller reporting company  
 
 
 
 
 
Emerging growth company
 


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ý
Number of shares of common stock, par value $0.01, outstanding as of August 6, 2019: 31,508,180 shares.


Table of Contents

LHC GROUP, INC.
INDEX
 
 
 
Page
Part I. Financial Information
 
Item 1.
 
Condensed Consolidated Balance Sheets — June 30, 2019 and December 31, 2018
Condensed Consolidated Statements of Income — Three and six months ended June 30, 2019 and 2018
Condensed Consolidated Statements of Changes in Equity — Three and six months ended June 30, 2019 and 2018
Condensed Consolidated Statements of Cash Flows — Six months ended June 30, 2019 and 2018
Item 2.
Item 3.
Item 4.
Part II. Other Information
 
Item 1.
Item 1A.
Item 2.
Item 6.

3

Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
(Unaudited)
 
June 30, 
 2019
 
December 31, 
 2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash
$
26,737

 
$
49,363

Receivables:

 
 
Patient accounts receivable
272,941

 
252,592

Other receivables
6,153

 
6,658

Amounts due from governmental entities
1,018

 
830

Total receivables
280,112

 
260,080

Prepaid income taxes
4,511

 
11,788

Prepaid expenses
25,134

 
24,775

Other current assets
21,310

 
20,899

Total current assets
357,804

 
366,905

Property, building and equipment, net of accumulated depreciation of $62,354 and $55,253, respectively
80,088

 
79,563

Goodwill
1,188,227

 
1,161,717

Intangible assets, net of accumulated amortization of $15,854 and $15,176, respectively
296,716

 
297,379

Assets held for sale
2,500

 
2,850

Operating lease right of use asset
84,638

 

Other assets
19,882

 
20,301

Total assets
$
2,029,855

 
$
1,928,715

LIABILITIES AND STOCKHOLDERS’ EQUITY

 
 
Current liabilities:

 
 
Accounts payable and other accrued liabilities
$
79,038

 
$
77,135

Salaries, wages, and benefits payable
81,645

 
84,254

Self-insurance reserves
32,570

 
32,776

Current operating lease liabilities
26,453

 

Current portion of long-term debt

 
7,773

Amounts due to governmental entities
5,065

 
4,174

Total current liabilities
224,771

 
206,112

Deferred income taxes
46,919

 
43,306

Income taxes payable
4,671

 
4,297

Revolving credit facility
230,000

 
235,000

Long term notes payable

 
930

Operating lease payable
59,980

 

                                   Total liabilities
566,341

 
489,645

Noncontrolling interest — redeemable
15,467

 
14,596

Stockholders’ equity:

 
 
LHC Group, Inc. stockholders’ equity:

 
 
Preferred stock – $0.01 par value; 5,000,000 shares authorized; none issued or outstanding

 

Common stock — $0.01 par value; 60,000,000 shares authorized in 2019 and 2018; 35,837,779 and 35,636,414 shares issued in 2019 and 2018, respectively
358

 
356

Treasury stock — 5,052,927 and 4,958,721 shares at cost, respectively
(57,893
)
 
(49,374
)
Additional paid-in capital
941,923

 
937,968

Retained earnings
471,831

 
427,975

Total LHC Group, Inc. stockholders’ equity
1,356,219

 
1,316,925

Noncontrolling interest — non-redeemable
91,828

 
107,549

Total equity
1,448,047

 
1,424,474

Total liabilities and equity
$
2,029,855

 
$
1,928,715

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net service revenue
$
517,842


$
502,024


$
1,020,427


$
793,078

Cost of service revenue
325,860


321,004


646,852


509,622

Gross margin
191,982


181,020


373,575


283,456

General and administrative expenses
148,584


149,214


293,805


241,245

Other intangible impairment charge
1,018


778


7,337


778

Operating income
42,380


31,028


72,433


41,433

Interest expense
(2,885
)

(3,202
)

(5,937
)

(4,652
)
Income before income taxes and noncontrolling interest
39,495


27,826


66,496


36,781

Income tax expense
9,557


7,170


13,157


8,147

Net income
29,938


20,656


53,339


28,634

Less net income attributable to noncontrolling interests
4,938


3,859


9,483


6,842

Net income attributable to LHC Group, Inc.’s common stockholders
$
25,000


$
16,797


$
43,856


$
21,792

 







Earnings per share:







Basic
$
0.81


$
0.55


$
1.42


$
0.90

Diluted
$
0.80


$
0.55


$
1.41


$
0.89

Weighted average shares outstanding:







Basic
30,960


30,498


30,899


24,179

Diluted
31,201


30,742


31,188


24,403

 




See accompanying notes to the condensed consolidated financial statements.


5

Table of Contents

LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in thousands, except share data)
(Unaudited)
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Noncontrolling
Interest Non
Redeemable
 
Total
Equity
Issued
 
Treasury
 
Amount
 
Shares
 
Amount
 
Shares
 
Balance as of December 31, 2018
$
356

 
35,636,414

 
$
(49,374
)
 
4,958,721

 
$
937,968

 
$
427,975

 
$
107,549

 
$
1,424,474

Net income (1)

 

 

 

 

 
18,856

 
1,686

 
20,542

Acquired noncontrolling interest

 

 

 

 

 

 
820

 
820

Noncontrolling interest distributions

 

 

 

 

 

 
(6,799
)
 
(6,799
)
NCI acquired, net of sales

 

 

 

 

 

 
(18,000
)
 
(18,000
)
Nonvested stock compensation

 

 

 

 
1,804

 

 

 
1,804

Restricted share grants
2

 
174,562

 

 

 

 

 

 
2

Treasury shares redeemed to pay income tax

 

 
(7,577
)
 
85,509

 
(115
)
 

 

 
(7,692
)
Issuance of common stock under Employee Stock Purchase Plan

 
5,357

 

 

 
478

 

 

 
478

Balance as of March 31, 2019
$
358

 
35,816,333

 
$
(56,951
)
 
5,044,230

 
$
940,135

 
$
446,831

 
$
85,256

 
$
1,415,629

Net income (1)

 

 

 

 

 
25,000

 
1,897

 
26,897

Acquired noncontrolling interest

 

 

 

 

 

 
6,170

 
6,170

Noncontrolling interest distributions

 

 

 

 

 

 
(2,026
)
 
(2,026
)
NCI acquired, net of sales

 

 

 

 
(1,283
)
 

 
531

 
(752
)
Nonvested stock compensation

 

 

 

 
2,588

 

 

 
2,588

Restricted share grants

 
17,145

 

 

 

 

 

 

Treasury shares redeemed to pay income tax

 

 
(942
)
 
8,697

 
30

 

 

 
(912
)
Issuance of common stock under Employee Stock Purchase Plan

 
4,301

 

 

 
453

 

 

 
453

Balance as of June 30, 2019
$
358

 
35,837,779

 
$
(57,893
)
 
5,052,927

 
$
941,923

 
$
471,831

 
$
91,828

 
$
1,448,047


(1) Net income excludes net income attributable to noncontrolling interest-redeemable of $3.0 million and $5.9 million during the three and six months ended June 30, 2019, respectively. Noncontrolling interest-redeemable is reflected outside of permanent equity on the condensed consolidated balance sheets. See Note 8 of the Notes to Condensed Consolidated Financial Statements.


6

Table of Contents

 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Noncontrolling
Interest Non
Redeemable
 
Total
Equity
Issued
 
Treasury
 
Amount
 
Shares
 
Amount
 
Shares
 
Balance as of December 31, 2017
$
226

 
22,640,046

 
$
(42,249
)
 
4,890,504

 
$
126,490

 
$
364,401

 
$
57,723

 
$
506,591

Net income (1)

 

 

 

 

 
4,995

 
597

 
$
5,592

Acquired noncontrolling interest

 

 

 

 

 

 
1,235

 
1,235

Noncontrolling interest distributions

 

 

 

 

 

 
(615
)
 
(615
)
Sale of noncontrolling interest

 

 

 

 
(2,029
)
 

 
5,583

 
3,554

Purchase of additional controlling interest

 

 

 

 
(44
)
 

 
(12
)
 
(56
)
Nonvested stock compensation

 

 

 

 
1,601

 

 

 
1,601

Issuance of vested stock
2

 
165,567

 

 

 
(2
)
 

 

 

Treasury shares redeemed to pay income tax

 

 
(3,467
)
 
56,772

 

 

 

 
(3,467
)
Issuance of common stock under Employee Stock Purchase Plan

 
5,534

 

 

 
332

 

 

 
332

Balance as of March 31, 2018
$
228

 
22,811,147

 
$
(45,716
)
 
4,947,276

 
$
126,348

 
$
369,396

 
$
64,511

 
$
514,767

Net income (1)

 

 

 

 

 
16,797

 
1,390

 
18,187

Acquired noncontrolling interest

 

 

 

 

 

 
35,239

 
35,239

Noncontrolling interest distributions

 

 

 

 

 

 
(504
)
 
(504
)
Sale of noncontrolling interest

 

 

 

 
(591
)
 

 

 
(591
)
Nonvested stock compensation

 

 

 

 
2,318

 

 

 
2,318

Issuance of vested stock

 
10,818

 

 

 

 

 

 

Treasury shares redeemed to pay income tax

 

 
(628
)
 
6,389

 

 

 

 
(628
)
Merger consideration
127

 
12,765,288

 

 

 
795,278

 

 

 
795,405

Issuance of common stock under Employee Stock Purchase Plan

 
5,171

 

 

 
302

 

 

 
302

Balance as of June 30, 2018
$
355

 
35,592,424

 
$
(46,344
)
 
4,953,665

 
$
923,655

 
$
386,193

 
$
100,636

 
$
1,364,495

 
(1)
Net income excludes net income attributable to noncontrolling interest-redeemable of $2.5 million and $4.9 million during the three and six months ending June 30, 2018, respectively. Noncontrolling interest-redeemable is reflected outside of permanent equity on the condensed consolidated balance sheets. See Note 8 of the Notes to Condensed Consolidated Financial Statements.

7

Table of Contents

LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)  
 
Six Months Ended 
 June 30,
 
2019
 
2018
Operating activities:
 
 
 
Net income
$
53,339

 
$
28,634

Adjustments to reconcile net income to net cash provided by operating activities:


 
 
Depreciation and amortization expense
8,400

 
7,548

Amortization of operating lease right of use asset
15,528

 

Stock-based compensation expense
4,392

 
3,919

Deferred income taxes
4,821

 
1,714

Loss (gain) on disposal of assets
312

 
(126
)
    Impairment of intangibles and other
7,337

 
778

Changes in operating assets and liabilities, net of acquisitions:


 
 
Receivables
(22,704
)
 
(18,897
)
Prepaid expenses and other assets
(324
)
 
(6,521
)
Prepaid income taxes
5,063

 
4,624

Accounts payable and accrued expenses
(18,735
)
 
8,729

Income taxes payable
374

 

Net amounts due to/from governmental entities
528

 
(704
)
Net cash provided by operating activities
58,331

 
29,698

Investing activities:


 
 
Purchases of property, building and equipment
(7,599
)
 
(13,760
)
Cash acquired from business combination, net of cash paid
(20,431
)
 
13,086

Net cash used in investing activities
(28,030
)
 
(674
)
Financing activities:


 
 
Proceeds from line of credit
25,000

 
270,084

Payments on line of credit
(30,000
)
 
(278,884
)
Proceeds from employee stock purchase plan
931

 
634

Payments on debt
(7,650
)
 
135

  Payments on deferred financing fees

 
(1,881
)
Noncontrolling interest distributions
(13,857
)
 
(5,763
)
Withholding taxes paid on stock-based compensation
(8,519
)
 
(4,095
)
Purchase of additional controlling interest
(18,748
)
 
(55
)
Exercise of options
(84
)
 

Sale of noncontrolling interest

 
3,322

Net cash (used in) financing activities
(52,927
)
 
(16,503
)
Change in cash
(22,626
)
 
12,521

Cash at beginning of period
49,363

 
2,849

Cash at end of period
$
26,737

 
$
15,370

Supplemental disclosures of cash flow information:


 
 
Interest paid
$
4,038

 
$
3,112

Income taxes paid
$
4,042

 
$
2,139

Non-cash operating activity: The Company recorded $98.1 million in operating lease right of use assets in exchange for lease obligations.
Non-cash investing activity: The Company accrued $1.0 million for capital expenditures primarily related to the home office expansion project at the six months ended June 30, 2019.
See accompanying notes to condensed consolidated financial statements.

8

Table of Contents

LHC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization
LHC Group, Inc. (the “Company”) is a health care provider specializing in the post-acute continuum of care. The Company provides home health services, hospice services, home and community-based services, facility-based services, the latter primarily through long-term acute care hospitals (“LTACHs”), and healthcare innovations services ("HCI").
On April 1, 2018, the Company completed a "merger of equals" business combination (the "Merger") with Almost Family, Inc. ("Almost Family"). As a result, the financial results of the Company for the three and six month periods in 2019 include the operating results of Almost Family, while the financial results of the Company with the addition of Almost Family start to be reflected during the second quarter of 2018. See Note 3 to Condensed Consolidated Financial Statements.
As of June 30, 2019, the Company, through its wholly- and majority-owned subsidiaries, equity joint ventures, controlled affiliates, and management agreements operated 760 service locations in 35 states within the continental United States and the District of Columbia.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018, and the related unaudited condensed consolidated statements of income for the three and six months ended June 30, 2019 and 2018, condensed consolidated statements of changes in equity for the three and six months ended June 30, 2019 and 2018, condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018, and related notes (collectively, these financial statements are referred to as the "interim financial statements" and together with the related notes are referred to herein as the “interim financial information”) have been prepared by the Company. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been included. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from the interim financial information presented. This report should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (the "2018 Form 10-K"). The 2018 Form 10-K was filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2019, and includes information and disclosures not included herein.    
Reclassification
The Company has reclassified certain amounts relating to its prior year results to conform to its current period presentation. These reclassifications have not changed the results of operations of prior years.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported revenue and expenses during the reporting period. Actual results could differ from those estimates.
Critical Accounting Policies
The Company’s most critical accounting policies relate to revenue recognition.
Net Service Revenue

Net service revenue is reported at the amount that reflects the consideration the Company expects to receive in exchange for providing services. Receipts are from Medicare, Medicaid, and other commercial or managed care insurance programs for services rendered, are subject to adjustment based upon implicit price concessions for retroactive revenue adjustments by third-

9

Table of Contents

party payors, settlements of audits, and claims reviews. The estimated uncollectible amounts due from these payors are considered implicit price concessions that are a direct reduction to net service revenue. The Company assesses the patient's ability to pay for their healthcare services at the time of patient admission based on the Company's verification of the patient's insurance coverage under the Medicare, Medicaid, and other commercial or managed care insurance programs. Medicare contributes to the net service revenue of the Company’s home health, hospice, facility-based, and healthcare innovations services. Medicaid and other payors contribute to the net service revenue of all of the Company's segments.
Performance obligations are determined based on the nature of the services provided by the Company. The majority of the Company's performance obligations are to provide services to patients based on medical necessity and the bundle of services to be provided to achieve the goals established in the contract, while the healthcare innovations segment's performance obligations are largely to provide care, assessments and management services under various customer contracts. Revenue for performance obligations that are satisfied over time is recognized based on actual charges incurred in relation to total expected charges over the measurement period of the performance obligation, which depicts the transfer of services and related benefits received by the patient and customers over the term of the contract to satisfy the obligations. The Company measures the satisfaction of the performance obligations as services are provided.
The Company's performance obligations relate to contracts with a duration of less than one year. Therefore, the Company has elected to apply the optional exemption provided by ASC 606 - Revenue Recognition, and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. Any unsatisfied or partially unsatisfied performance obligations at the end of a reporting period are generally completed prior to the patient being discharged.
The Company determines the transaction price for the majority of its performance obligations based on gross charges for services provided, reduced by contractual adjustments provided to third-party payors and implicit price concessions. The Company determines estimates of explicit price concessions, principally contractual adjustments based on established agreements with payors, and implicit price concessions based on historical collection experience. Estimates of explicit and implicit price concessions are periodically reviewed to ensure they encompass the Company's current contract terms, are reflective of the Company's current patient mix, and are indicative of the Company's historic collections to ensure net service revenue is recognized at the expected transaction price. As a result, revenue is recorded in amounts equal to expected cash receipts for services when rendered.
The following table sets forth the percentage of net service revenue earned by category of payor for the three and six months ended June 30, 2019 and 2018:
 

10

Table of Contents

 
Three Months Ended  
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
Home health:
 
 
 
 
 
 
 
Medicare
70.8
%
 
72.9
%
 
71.1
%
 
72.3
%
Managed Care, Commercial, and Other
29.2

 
27.1

 
28.9

 
27.7

 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Hospice:
 
 
 
 
 
 
 
Medicare
92.9
%
 
91.1
%
 
92.7
%
 
91.7
%
Managed Care, Commercial, and Other
7.1

 
8.9

 
7.3

 
8.3

 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Home and Community-Based Services:
 
 
 
 
 
 
 
Medicaid
24.3
%
 
24.7
%
 
24.7
%
 
23.1
%
Managed Care, Commercial, and Other
75.7

 
75.3

 
75.3

 
76.9

 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Facility-Based Services:
 
 
 
 
 
 
 
Medicare
53.0
%
 
58.7
%
 
55.2
%
 
61.4
%
Managed Care, Commercial, and Other
47.0

 
41.3

 
44.8

 
38.6

 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
HCI:
 
 
 
 
 
 
 
Medicare
23.5
%
 
26.7
%
 
22.8
%
 
26.7
%
Managed Care, Commercial, and Other
76.5

 
73.3

 
77.2

 
73.3

 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%

Medicare
The Company's home health, hospice, and facility-based segments recognize revenue under their respective Medicare programs, which are discussed in more detail below.
The home health segment's Medicare patients, including certain Medicare Advantage patients, are classified into one of 153 home health resource groups prior to receiving services. Based on the patient’s home health resource group, the Company is entitled to receive a standard prospective Medicare payment for delivering care over a 60-day period referred to as an episode. The Company elects to use the same 60-day length of episode that Medicare recognizes as standard but accelerates revenue upon discharge to align with a patient's episode length, if less than the expected 60 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 an episode of care within the reporting period.
Final payments from Medicare will reflect base payment adjustments for case-mix and geographic wage differences and a 2% sequestration reduction. In addition, final payments may reflect one of four retroactive adjustments to the total reimbursement: (a) an outlier payment if the patient’s care was unusually costly; (b) a low utilization adjustment if the number of visits was fewer than five; (c) a partial payment if the patient transferred to another provider before completing the episode; or (d) a payment adjustment based upon the level of therapy services required. The retroactive adjustments outlined above are recognized in net service revenue when the event causing the adjustment occurs and during the period in which the services are provided to the patient. The Company reviews these adjustments to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustments is subsequently resolved. Net service revenue and related patient accounts receivable are recorded at amounts estimated to be realized from Medicare for services rendered.
The Company's hospice services segment is reimbursed by Medicare under a per diem payment system based on the daily needs determined for patients' basis. The hospice segment receives one of four predetermined daily rates based upon the level of care the Company furnishes. Each level of care is contingent upon the patient's medical necessity and is a separate and distinct performance obligation, which depicts the transfer of services and related benefits received by the patient over the term of the contract to satisfy such obligations. The Company records net service revenue for hospice services based on the promulgated per diem rate over time as services are provided, in satisfaction of performance obligation.

11

Table of Contents

Hospice payments are subject to variable consideration through an inpatient cap and an overall Medicare payment cap. The inpatient cap relates to individual programs receiving more than 20% of their total Medicare reimbursement from inpatient care services, and the overall Medicare payment cap relates to individual programs receiving reimbursements in excess of a “cap amount,” determined by Medicare to be payment equal to six months of hospice care for the aggregate base of hospice patients, indexed for inflation. The determination for each cap is made annually based on the 12-month period ending on October 31 of each year. The Company monitors its limits on a provider-by-provider basis and records an estimate of its liability for reimbursements received in excess of the cap amount, if any, in the reporting period. The Company reviews these estimates to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustments is subsequently resolved.
The Company's facility-based services segment is reimbursed primarily by Medicare for services provided under the long-term acute care hospital ("LTACH") prospective payment system. Each patient is assigned a long-term care diagnosis-related group. The Company is paid a predetermined fixed amount intended to reflect the average cost of treating a Medicare LTACH patient classified in that particular long-term care diagnosis-related group. For selected LTACH patients, the amount may be further adjusted based on length-of-stay and facility-specific costs, as well as in instances where a patient is discharged and subsequently re-admitted, among other factors. The Company calculates the adjustment based on a historical average of these types of adjustments for LTACH claims paid. Similar to other Medicare prospective payment systems, the rate is also adjusted for geographic wage differences. Net service revenue adjustments resulting from reviews and audits of Medicare cost report settlements are considered implicit price concessions for LTACHs and are measured at expected value. The Company reviews these estimates to ensure that it is probable that a significant reversal in the amount of LTACH services cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustments is subsequently resolved. Net service revenue for the Company’s LTACH services that are satisfied over time is recognized based on actual charges incurred in relation to total expected charges, which depicts the transfer of services and related benefits received by the customer over the service period to satisfy the obligations.
Non-Medicare Revenues
Each of the Company's segments recognize revenue from various non-Medicare payor sources. Revenue from these payor sources are derived from services provided under a per visit, per hour or per unit basis, per assessment or per member per month basis. Such fee for service revenues are calculated and recorded using payor-specific or patient-specific fee schedules based on the contracted rates in each underlying third party payor or services agreement or out of network rates, as applicable. Net service revenue is recognized as such services are provided and costs for delivery of such services are incurred.
Contingent Service Revenues
The Company’s Healthcare Innovations ("HCI") segment provides strategic health management services to Accountable Care Organizations (“ACOs”) that have been approved to participate in the Medicare Shared Savings Program (“MSSP”).  The HCI segment maintains service agreements with ACOs that provide for sharing of MSSP payments received by the ACO, if any.  ACOs are legal entities that contract with Centers for Medicare and Medicaid Services ("CMS") to provide services to the Medicare fee-for-service population for a specified annual period with the goal of providing better care for the individual, improving health for populations and lowering costs.  ACOs share savings with CMS to the extent that the actual costs of serving assigned beneficiaries are below certain trended benchmarks of such beneficiaries and certain quality performance measures are achieved.  The generation of shared savings is the performance obligation of each ACO, which only become certain upon the final issuance of unembargoed calculations by CMS, generally in the third quarter of each calendar year. As of June 30, 2019, no net service revenue was recognized related to potential MSSP payments for savings generated for the program periods that ended December 31, 2018, if any, as it remains unclear as to if performance obligations have been met by any ACO served by the HCI segment.
Accounts Receivable

The Company reports accounts receivable net of estimates of variable consideration and implicit price concessions. Accounts receivable are uncollateralized and primarily consist of amounts due from Medicare, Medicaid, other third-party payors, and to a lesser degree patients. The Company establishes allowances for explicit and implicit price concessions to reduce the carrying amount of such receivables to their estimated net realizable value. The credit risk associated with receivables from other payors is limited due to the significance of Medicare as the primary payor. The Company believes the credit risk associated with its Medicare accounts, which have historically exceeded 50% of its patient accounts receivable, is limited due to (i) the historical collection rate from Medicare and (ii) the fact that Medicare is a U.S. government payor. The Company does not

12

Table of Contents

believe that there are any other significant concentrations of receivables from any particular payor that would subject it to any significant credit risk in the collection of accounts receivable.

The amount of the provision for implicit price concessions is based upon the Company's assessment of historical and expected net collections, business and economic conditions, and trends in government reimbursement. Uncollectible accounts are written off when the Company has determined that the account will not be collected.
    
A portion of the estimated Medicare prospective payment system reimbursement from each submitted home nursing episode is received in the form of a request for anticipated payment (“RAP”). The Company submits a RAP for 60% of the estimated reimbursement for the initial episode at the start of care. The full amount of the episode is billed after the episode has been completed. If a final bill is not submitted within the greater of 120 days from the start of the episode, or 60 days from the date the RAP was paid, any RAP received for that episode will be recouped by Medicare from any other Medicare claims in process for that particular provider. The RAP and final claim must then be resubmitted. For subsequent episodes of care contiguous with the first episode for a particular patient, the Company submits a RAP for 50% of the estimated reimbursement.
The Company’s services to the Medicare population are paid at prospectively set amounts that can be determined at the time services are rendered. The Company’s Medicaid reimbursements are based on a predetermined fee schedule applied to each individual service it provides. The Company’s managed care contracts and other in or out of network payors provide for payments based upon a predetermined fee schedule or an episodic basis. The Company is able to calculate actual amounts to be received at the patient level and to adjust the gross charges down to the actual amount at the time of billing. This negates the need to record an estimated explicit price concessions when reporting net service revenue for each reporting period.
Other Significant Accounting Policies
Earnings Per Share
Basic per share information is computed by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding during the period, under the treasury stock method. Diluted per share information is also computed using the treasury stock method, by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding plus potentially dilutive shares.
The following table sets forth shares used in the computation of basic and diluted per share information and, with respect to the data provided for the three and six months ended June 30, 2019 (amounts in thousands).  
 
Three Months Ended  
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
Weighted average number of shares outstanding for basic per share calculation
30,960

 
30,498

 
30,899

 
24,179

Effect of dilutive potential shares:
 
 
 
 
 
 
 
Nonvested stock
241

 
244

 
289

 
224

Adjusted weighted average shares for diluted per share calculation
31,201

 
30,742

 
31,188

 
24,403

Anti-dilutive shares
13

 
20

 
153

 
236



Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases, ("ASU 2016-02"), as modified by ASUs 2018-01, 2018-10, 2018-11 and 2018-20 (collectively, ASU 2016-02), which requires lessees to recognize leases with terms exceeding 12 months on the Company's Consolidated Balance Sheet. Qualifying leases were classified as finance or operating right-of-use ("ROU") assets and lease liabilities. The new standard was effective for the Company on January 1, 2019. ASU 2016-02 provides a number of optional practical expedients in transition and the Company (a) elected the 'package of practical expedients', which permitted the Company not to reassess under the new standard the Company's prior conclusions about lease identification, lease classification and initial direct costs, (b) elected all the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company, and (c) elected all the new standard's available transition practical expedients.

13

Table of Contents

Adoption of this standard increased total assets and total liabilities by $84.6 million, primarily for the Company's operating leased office space for locations in each segment. The adoption did not change the Company's leasing activities. ASU 2016-02 also provides practical expedients for an entity's ongoing accounting. The Company elected the short-term recognition exemption for certain medical devices and storage space leases that qualify, which means it did not recognize ROU assets or lease liabilities, including not recognizing ROU assets or lease liabilities for existing short-term leases of these assets in transition. See Note 9 of the Notes to Condensed Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2019, and is not expected to significantly impact the company.
3. Acquisitions and Joint Venture Activities

The Merger
On April 1, 2018, the Company completed the Merger with Almost Family. At the effective time of the Merger on April 1, 2018, each outstanding share of common stock of Almost Family, other than certain canceled shares, was converted into the right to receive 0.9150 shares of the Company’s common stock and cash in lieu of any fractional shares of any Company common stock that Almost Family shareholders would otherwise have been entitled to receive. As a result, the Company issued approximately 12.8 million shares of its common stock to former stockholders of Almost Family, while also converting outstanding employee share awards, which resulted in total merger consideration of approximately $795.4 million.
The Company was determined to be the accounting acquirer in the Merger. The Company's final valuation analysis of identifiable assets and liabilities assumed for the Merger in accordance with the requirements of ASC Topic 805, Business Combinations, are presented in the table below (amounts in thousands):

14

Table of Contents

Merger consideration
 
 
Stock
 
$
795,412

Fair value of total consideration transferred
 
 
Recognized amounts of identifiable assets acquired and liabilities assumed:
 
 
Cash and cash equivalents
 
16,547

Patient accounts receivable
 
88,234

Prepaid income taxes
 
47

Prepaid expenses and other current assets
 
11,490

Property and equipment
 
11,144

Trade names
 
76,090

Certificates of needs/licenses
 
76,505

Customer relationships
 
13,970

Assets held for sale
 
2,500

Deferred income taxes
 
4,821

Accounts payable
 
(43,027
)
Accrued other liabilities
 
(57,243
)
Seller notes payable
 
(12,145
)
NCI - Redeemable
 
(8,034
)
Long term income taxes payable
 
(3,786
)
Line of credit
 
(106,800
)
NCI - Nonredeemable
 
(36,609
)
Other assets and (liabilities), net
 
(178
)
Total identifiable assets and liabilities
 
33,526

Goodwill
 
$
761,886


Acquisitions
The Company acquired the majority-ownership of ten home health agencies and five hospice agencies during the six months ended June 30, 2019. The total aggregate purchase price for these transactions was $23.5 million, of which $20.4 million was paid in cash. The purchase prices were determined based on the Company’s analysis of comparable acquisitions and the target market’s potential future cash flows.

Goodwill generated from the acquisitions was recognized based on the expected contributions of each acquisition to the overall corporate strategy. The Company expects its portion of goodwill to be fully tax deductible. The acquisitions were accounted for under the acquisition method of accounting. Accordingly, the accompanying interim financial information includes the results of operations of the acquired entities from the date of acquisition.    

The following table summarizes the aggregate consideration paid for the acquisitions and the amounts of the assets acquired and liabilities assumed at the acquisition dates, as well as their fair value at the acquisition dates and the noncontrolling interest acquired during the six months ended June 30, 2019:


15

Table of Contents

Consideration
 
 
Cash
 
$
20,431

Fair value of total consideration transferred
 
 
Recognized amounts of identifiable assets acquired and liabilities assumed:
 
 
Trade name
 
3,480

Certificates of need/licenses
 
2,864

Other assets and (liabilities), net
 
(3,021
)
Total identifiable assets
 
3,323

Noncontrolling interest
 
6,990

Goodwill, including noncontrolling interest of $5,359
 
$
24,098



Trade names, certificates of need and licenses are indefinite-lived assets and, therefore, not subject to amortization. Acquired trade names that are not being used actively are amortized over the estimated useful life on the straight line basis. Trade names are valued using the relief from royalty method, a form of the income approach. Certificates of need are valued using the replacement cost approach based on registration fees and opportunity costs. Licenses are valued based on the estimated direct costs associated with recreating the asset, including opportunity costs based on an income approach. In the case of states with a moratorium in place, the licenses are valued using the multi-period excess earnings method.

The other identifiable assets include customer relationships that are amortized over 20.0 years. Customer relationships were valued using the multi-period excess earnings method. Noncontrolling interest is valued at fair value.

Joint Venture Activities

During the six months ended June 30, 2019, the Company acquired the minority ownership interests associated with certain agencies previously operated within three of its equity joint ventures, whereby such agencies became wholly-owned subsidiaries of the Company. The total consideration for the purchase of such ownership interests was $18.7 million, which was paid in cash. These transactions were accounted for as equity transactions.

During the six months ended June 30, 2019, the Company sold minority ownership interests associated with two home health agencies. The total consideration for the sale of such ownership interests was $3.5 million. The transaction was accounted for as an equity transaction.
4. Goodwill and Intangibles
The changes in recorded goodwill and intangible assets by reporting unit for the six months ended June 30, 2019 were as follows (amounts in thousands):

16

Table of Contents

 
 
Home health reporting unit
 
Hospice
reporting
unit
 
Home and community-based services
reporting
 unit
 
Facility-based
reporting
 unit
 
HCI reporting unit
 
Total
Goodwill
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2018
$
822,602

 
$
118,583

 
$
165,583

 
$
14,194

 
$
40,755

 
$
1,161,717

Acquisitions
13,113

 
5,626

 

 

 

 
18,739

Noncontrolling interests
3,826

 
1,533

 

 

 

 
5,359

Adjustments and disposals
595

 
1,215

 
495

 

 
107

 
2,412

Balance as of June 30, 2019
$
840,136

 
$
126,957

 
$
166,078

 
$
14,194

 
$
40,862

 
$
1,188,227

Intangible assets
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2018
$
215,382

 
$
37,010

 
$
23,948

 
$
4,147

 
$
16,892

 
$
297,379

Acquisitions
4,981

 
1,750

 

 

 

 
6,731

Adjustments and disposals
(7,719
)
 
1,633

 

 

 
(630
)
 
(6,716
)
Amortization
(308
)
 
(51
)
 
(2
)
 
(26
)
 
(291
)
 
(678
)
Balance as of June 30, 2019
$
212,336

 
$
40,342

 
$
23,946

 
$
4,121

 
$
15,971

 
$
296,716


The allocation of goodwill from acquisitions purchased during the six months ended June 30, 2019 for each reporting unit is preliminary and subject to change once the valuation analysis required by ASC 805, Business Combinations is finalized.
In assigning fair value acquired in acquisitions as required by ASC 805, Business Combinations, the Company had assigned fair value to Certificates of need or license moratoria, as applicable, in certain states. During the six months ended June 30, 2019, the Company recorded $6.0 million of moratoria impairment as a result of the Centers for Medicare and Medicaid Services (“CMS”) action to remove all federal moratoria with regard to Medicare provider enrollment. Additionally, the Company recorded $1.3 million of disposals of intangible assets, which consist of licenses and Certificates of needs, due to the closure of underperforming locations. The disposal and impairment were classified in impairment of intangibles and other on the Company's consolidated statements of income.
The following tables summarize the changes in intangible assets during the six months ended June 30, 2019 and December 31, 2018 (amounts in thousands): 

17

Table of Contents

 
2019
 
2018
Indefinite-lived intangible assets:
 
 
 
   Trade Names
$
159,632

 
$
156,049

   Certificates of Need/Licenses
124,751

 
128,577

   Net Total
$
284,383

 
$
284,626

 
 
 
 
Definite-lived intangible assets:
 
 
 
   Trade Names
 
 
 
      Gross carrying amount
$
10,127

 
$
10,127

      Accumulated amortization
(9,087
)
 
(8,817
)
      Net total
$
1,040

 
$
1,310

   Non-compete agreements
 
 
 
      Gross carrying amount
$
6,238

 
$
5,980

      Accumulated amortization
(5,846
)
 
(5,729
)
      Net total
$
392

 
$
251

   Customer relationships
 
 
 
      Gross carrying amount
$
11,822

 
$
11,822

      Accumulated amortization
(921
)
 
(630
)
      Net total
$
10,901

 
$
11,192

   Total definite-lived intangible assets
 
 
 
      Gross carrying amount
$
28,187

 
$
27,929

      Accumulated amortization
(15,854
)
 
(15,176
)
      Net total
$
12,333

 
$
12,753

 
 
 
 
Total intangible assets:
 
 
 
   Gross carrying amount
$
312,570

 
$
312,555

   Accumulated amortization
(15,854
)
 
(15,176
)
   Net total
$
296,716

 
$
297,379

     
Remaining useful lives for trade names, customer relationships, and non-compete agreements were 8.3, 18.8 and 2.5 years, respectively, at June 30, 2019. Similar periods at December 31, 2018 were 8.8, 19.3, and 2.8 years for trade names, customer relationships, and non-compete agreements, respectively. Amortization expense was recorded in general and administrative expenses.

5. Debt
Credit Facility
On March 30, 2018, the Company entered into a Credit Agreement with JPMorgan Chase Bank, N.A., which was effective on April 2, 2018 (the "Credit Agreement"). The Credit Agreement provides a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $500.0 million, which includes an additional $200.0 million accordion expansion feature, and a letter of credit sub-limit equal to $50.0 million. The expiration date of the Credit Agreement is March 30, 2023. The Company’s obligations under the Credit Agreement are secured by substantially all of the assets of the Company and its wholly-owned subsidiaries (subject to customary exclusions), which assets include the Company’s equity ownership of its wholly-owned subsidiaries and its equity ownership in joint venture entities. The Company’s wholly-owned subsidiaries also guarantee the obligations of the Company under the Credit Agreement. 
Revolving loans under the Credit Agreement bear interest at, as selected by the Company, either a (a) Base Rate, which is defined as a fluctuating rate per annum equal to the highest of (1) the Federal Funds Rate in effect on such day plus 0.5% (2) the Prime Rate in effect on such day and (3) the Eurodollar Rate for a one month interest period on such day plus 1.5%, plus a margin ranging from 0.50% to 1.25% per annum or (b) Eurodollar rate plus a margin ranging from 1.50% to 2.25% per

18

Table of Contents

annum, with pricing varying based on the Company's quarterly consolidated Leverage Ratio. Swing line loans bear interest at the Base Rate. The Company is limited to 15 Eurodollar borrowings outstanding at any time. The Company is required to pay a commitment fee for the unused commitments at rates ranging from 0.20% to 0.35% per annum depending upon the Company’s quarterly consolidated Leverage Ratio. The Base Rate as of June 30, 2019 was 6.25% and the LIBOR rate was 4.19%. As of June 30, 2019, the effective interest rate on outstanding borrowings under the New Credit Agreement was 4.19%.
As of June 30, 2019, the Company had $230.0 million drawn, letters of credit issued in the amount of $22.3 million, and $247.7 million of remaining borrowing capacity available under the New Credit Agreement. At December 31, 2018, the Company had $235.0 million drawn and letters of credit issued in the amount of $30.4 million under the Credit Facility.
Under the terms of the Credit Agreement, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Credit Agreement permits the Company to make certain restricted payments, such as purchasing shares of its stock, within certain parameters, provided the Company maintains compliance with those financial ratios and covenants after giving effect to such restricted payments. The Company was in compliance with its debt covenants under the Credit Agreement at June 30, 2019