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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

Commission file number 001-34504

 

ADDUS HOMECARE CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

20-5340172

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

6303 Cowboys Way, Suite 600

Frisco, TX

75034

(Address of principal executive offices)

(Zip Code)

(469) 535-8200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

ADUS

The Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company

Emerging Growth Company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of April 30, 2024, Addus HomeCare Corporation had 16,370,336 shares of Common Stock outstanding.

 

 

 


 

ADDUS HOMECARE CORPORATION

FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION

3

 

 

Item 1. Financial Statements (Unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

3

 

 

Condensed Consolidated Statements of Income For the Three Months Ended March 31, 2024 and 2023

4

 

 

Condensed Consolidated Statement of Stockholders’ Equity For the Three Months Ended March 31, 2024 and 2023

5

 

 

Condensed Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2024 and 2023

6

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

30

 

 

Item 4. Controls and Procedures

30

 

 

PART II. OTHER INFORMATION

31

 

 

Item 1. Legal Proceedings

31

 

 

Item 1A. Risk Factors

31

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

31

 

 

Item 3. Defaults Upon Senior Securities

31

 

 

Item 4. Mine Safety Disclosures

31

 

 

Item 5. Other Information

31

 

 

Item 6. Exhibits

32

 

2


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

 

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of March 31, 2024 and December 31, 2023

(Amounts and Shares in Thousands, Except Per Share Data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$

76,719

 

 

$

64,791

 

Accounts receivable, net of allowances

 

 

104,727

 

 

 

115,499

 

Prepaid expenses and other current assets

 

 

10,401

 

 

 

19,714

 

Total current assets

 

 

191,847

 

 

 

200,004

 

Property and equipment, net of accumulated depreciation and amortization

 

 

23,872

 

 

 

24,011

 

Other assets

 

 

 

 

 

 

Goodwill

 

 

663,391

 

 

 

662,995

 

Intangibles, net of accumulated amortization

 

 

90,191

 

 

 

91,983

 

Operating lease assets, net

 

 

44,699

 

 

 

45,433

 

Total other assets

 

 

798,281

 

 

 

800,411

 

Total assets

 

$

1,014,000

 

 

$

1,024,426

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

22,022

 

 

$

26,183

 

Accrued payroll

 

 

44,022

 

 

 

56,551

 

Accrued expenses

 

 

38,772

 

 

 

33,236

 

Operating lease liabilities, current portion

 

 

11,307

 

 

 

11,339

 

Government stimulus advances

 

 

13,548

 

 

 

5,765

 

Accrued workers' compensation insurance

 

 

11,920

 

 

 

12,043

 

Total current liabilities

 

 

141,591

 

 

 

145,117

 

Long-term liabilities

 

 

 

 

 

 

Long-term debt, less current portion, net of debt issuance costs

 

 

99,347

 

 

 

124,132

 

Long-term operating lease liabilities

 

 

39,044

 

 

 

39,711

 

Other long-term liabilities

 

 

8,875

 

 

 

8,772

 

Total long-term liabilities

 

 

147,266

 

 

 

172,615

 

Total liabilities

 

$

288,857

 

 

$

317,732

 

Stockholders' equity

 

 

 

 

 

 

Common stock—$.001 par value; 40,000 authorized and 16,370 and 16,227 shares
   issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

 

$

16

 

 

$

16

 

Additional paid-in capital

 

 

406,465

 

 

 

403,846

 

Retained earnings

 

 

318,662

 

 

 

302,832

 

Total stockholders' equity

 

 

725,143

 

 

 

706,694

 

Total liabilities and stockholders' equity

 

$

1,014,000

 

 

$

1,024,426

 

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

3


ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the Three Months Ended March 31, 2024 and 2023

(Amounts and Shares in Thousands, Except Per Share Data)

(Unaudited)

 

 

 

For the Three Months
Ended March 31,

 

 

 

2024

 

 

2023

 

Net service revenues

 

$

280,746

 

 

$

251,599

 

Cost of service revenues

 

 

192,569

 

 

 

173,184

 

Gross profit

 

 

88,177

 

 

 

78,415

 

General and administrative expenses

 

 

61,063

 

 

 

56,360

 

Depreciation and amortization

 

 

3,469

 

 

 

3,447

 

Total operating expenses

 

 

64,532

 

 

 

59,807

 

Operating income

 

 

23,645

 

 

 

18,608

 

Interest income

 

 

(423

)

 

 

(106

)

Interest expense

 

 

2,758

 

 

 

2,461

 

Total interest expense, net

 

 

2,335

 

 

 

2,355

 

Income before income taxes

 

 

21,310

 

 

 

16,253

 

Income tax expense

 

 

5,480

 

 

 

3,578

 

Net income

 

$

15,830

 

 

$

12,675

 

Net income per common share

 

 

 

 

 

 

Basic income per share

 

$

0.99

 

 

$

0.79

 

Diluted income per share

 

$

0.97

 

 

$

0.78

 

Weighted average number of common shares and potential common
   shares outstanding:

 

 

 

 

 

 

Basic

 

 

16,063

 

 

 

15,949

 

Diluted

 

 

16,373

 

 

 

16,297

 

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

4


ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the Three Months Ended March 31, 2024 and 2023

(Amounts and Shares in Thousands)

(Unaudited)

 

 

For the Three Months Ended March 31, 2024

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Retained

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balance at January 1, 2024

 

 

16,227

 

 

$

16

 

 

$

403,846

 

 

$

302,832

 

 

$

706,694

 

Issuance of shares of common stock under
   restricted stock award agreements

 

 

143

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,619

 

 

 

 

 

 

2,619

 

Shares issued for exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

15,830

 

 

 

15,830

 

Balance at March 31, 2024

 

 

16,370

 

 

$

16

 

 

$

406,465

 

 

$

318,662

 

 

$

725,143

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2023

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Retained

 

 

Total
Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balance at January 1, 2023

 

 

16,128

 

 

$

16

 

 

$

393,208

 

 

$

240,316

 

 

$

633,540

 

Issuance of shares of common stock under
   restricted stock award agreements

 

 

76

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,646

 

 

 

 

 

 

2,646

 

Shares issued for exercise of stock options

 

 

 

 

 

 

 

 

25

 

 

 

 

 

 

25

 

Net income

 

 

 

 

 

 

 

 

 

 

 

12,675

 

 

 

12,675

 

Balance at March 31, 2023

 

 

16,204

 

 

$

16

 

 

$

395,879

 

 

$

252,991

 

 

$

648,886

 

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

5


ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2024 and 2023

(Amounts in Thousands)

(Unaudited)

 

 

 

For the Three Months

 

 

 

Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

15,830

 

 

$

12,675

 

Adjustments to reconcile net income to net cash provided by (used in) operating
   activities, net of acquisitions:

 

 

 

 

 

 

Depreciation and amortization

 

 

3,469

 

 

 

3,447

 

Deferred income taxes

 

 

131

 

 

 

(72

)

Stock-based compensation

 

 

2,619

 

 

 

2,646

 

Amortization of debt issuance costs under the credit facility

 

 

215

 

 

 

215

 

Provision for credit losses

 

 

224

 

 

 

144

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Accounts receivable

 

 

10,552

 

 

 

85

 

Prepaid expenses and other current assets

 

 

9,331

 

 

 

7,030

 

Government stimulus advances

 

 

7,783

 

 

 

(2,345

)

Accounts payable

 

 

(4,332

)

 

 

(494

)

Accrued payroll

 

 

(12,529

)

 

 

(10,901

)

Accrued expenses and other long-term liabilities

 

 

5,385

 

 

 

6,369

 

Net cash provided by operating activities

 

 

38,678

 

 

 

18,799

 

Cash flows from investing activities:

 

 

 

 

 

 

Acquisitions of businesses, net of cash acquired

 

 

(400

)

 

 

(965

)

Purchases of property and equipment

 

 

(1,350

)

 

 

(777

)

Net cash used in investing activities

 

 

(1,750

)

 

 

(1,742

)

Cash flows from financing activities:

 

 

 

 

 

 

Payments on revolver — credit facility

 

 

(25,000

)

 

 

(23,500

)

Cash received from exercise of stock options

 

 

 

 

 

25

 

Net cash (used in) provided by financing activities

 

 

(25,000

)

 

 

(23,475

)

Net change in cash

 

 

11,928

 

 

 

(6,418

)

Cash, at beginning of period

 

 

64,791

 

 

 

79,961

 

Cash, at end of period

 

$

76,719

 

 

$

73,543

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

2,527

 

 

$

2,310

 

Cash paid (refunded) for income taxes

 

$

13

 

 

$

(39

)

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

6


 

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Nature of Operations, Consolidation, and Presentation of Financial Statements

Addus HomeCare Corporation (“Holdings”) and its subsidiaries (together with Holdings, the “Company”, “we”, “us” or “our”) operate as a multi-state provider of three distinct but related business segments providing in-home services. In its personal care services segment, the Company provides non-medical assistance with activities of daily living, primarily to persons who are at increased risk of hospitalization or institutionalization, such as the elderly, chronically ill or disabled. In its hospice segment, the Company provides physical, emotional and spiritual care for people who are terminally ill as well as related services for their families. In its home health segment, the Company provides services that are primarily medical in nature to individuals who may require assistance during an illness or after hospitalization and include skilled nursing and physical, occupational and speech therapy. The Company’s payors include federal, state and local governmental agencies, managed care organizations, commercial insurers and private individuals.

Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements and related notes have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for Quarterly Reports on Form 10-Q. The accompanying balance sheet as of December 31, 2023 has been derived from the Company’s audited financial statements for the year ended December 31, 2023 previously filed with the SEC. Accordingly, these financial statements do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements and should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2023 included in our Annual Report on Form 10-K, which includes information and disclosures not included herein.

In the opinion of management, these financial statements reflect all adjustments of a normal, recurring nature necessary for the fair statement of our financial position, results of operations, and cash flows for the interim periods presented in conformity with GAAP. Our results for any interim period are not necessarily indicative of results for a full year or any other interim period.

Principles of Consolidation

These Unaudited Condensed Consolidated Financial Statements include the accounts of Addus HomeCare Corporation, and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Estimates

The financial statements are prepared by management in conformity with GAAP and include estimated amounts and certain disclosures based on assumptions about future events. The Company’s critical accounting estimates include the following areas: revenue recognition, goodwill and intangibles in business combinations and when required, the quantitative assessment of goodwill. Actual results could differ from those estimates.

7


Computation of Weighted Average Shares

The following table sets forth the computation of basic and diluted common shares:

 

 

 

For the Three Months Ended March 31,

 

 

 

(Amounts in thousands)

 

 

2024

 

 

2023

 

Weighted average number of shares outstanding for basic per share calculation

 

 

16,063

 

 

 

15,949

 

Effect of dilutive potential shares:

 

 

 

 

 

 

Stock options

 

 

227

 

 

 

251

 

Restricted stock awards

 

 

83

 

 

 

97

 

Adjusted weighted average shares for diluted per share calculation

 

 

16,373

 

 

 

16,297

 

Anti-dilutive shares:

 

 

 

 

 

 

Stock options

 

 

61

 

 

 

61

 

Restricted stock awards

 

 

 

 

 

 

Recently Adopted Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU was adopted prospectively on January 1, 2023. The additional disclosures required did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements

In 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.

3. Leases

Amounts reported on the Company’s Unaudited Condensed Consolidated Balance Sheets for operating leases were as follows:

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

(Amounts in Thousands)

 

Operating lease assets, net

 

$

44,699

 

 

$

45,433

 

 

 

 

 

 

 

Short-term operating lease liabilities (in accrued expenses)

 

 

11,307

 

 

 

11,339

 

Long-term operating lease liabilities

 

 

39,044

 

 

 

39,711

 

Total operating lease liabilities

 

$

50,351

 

 

$

51,050

 

 

8


 

Lease Costs

Components of lease costs were reported in general and administrative expenses in the Company’s Unaudited Condensed Consolidated Statements of Income as follows:

 

 

 

For the Three Months Ended March 31,
 (Amounts in Thousands)

 

 

 

2024

 

 

2023

 

Operating lease costs

 

$

3,296

 

 

$

3,042

 

Short-term lease costs

 

 

201

 

 

 

416

 

Total lease costs

 

 

3,497

 

 

 

3,458

 

Less: sublease income

 

 

(598

)

 

 

(700

)

Total lease costs, net

 

$

2,899

 

 

$

2,758

 

 

Lease Term and Discount Rate

Weighted average remaining lease terms and discount rates were as follows:

 

 

March 31, 2024

 

 

December 31, 2023

 

Operating leases:

 

 

 

 

Weighted average remaining lease term

 

 

6.11

 

 

 

6.26

 

Weighted average discount rate

 

 

5.64

%

 

 

5.47

%

 

Maturity of Lease Liabilities

Remaining operating lease payments as of March 31, 2024 were as follows:

 

 

 

Operating Leases

 

 

 

(Amounts in Thousands)

 

Due in the 12-month period ended March 31,

 

 

 

2025

 

$

10,663

 

2026

 

 

11,299

 

2027

 

 

8,959

 

2028

 

 

6,493

 

2029

 

 

5,496

 

Thereafter

 

 

17,390

 

Total future minimum rental commitments

 

 

60,300

 

Less: Imputed interest

 

 

(9,949

)

Total lease liabilities

 

$

50,351

 

 

Supplemental cash flows information

 

 

 

For the Three Months Ended March 31,

 

 

 

(Amounts in Thousands)

 

 

 

2024

 

 

2023

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

3,589

 

 

$

3,374

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease obligations:

 

 

 

 

 

 

Operating leases

 

$

2,137

 

 

$

10,836

 

 

9


4. Goodwill and Intangible Assets

A summary of the goodwill and related adjustments is provided below:

 

 

 

Hospice

 

 

Personal Care

 

 

Home
Health

 

 

Total

 

 

 

(Amounts in Thousands)

 

Goodwill as of December 31, 2023

 

$

432,799

 

 

$

153,276

 

 

$

76,920

 

 

$

662,995

 

Additions for acquisition

 

 

 

 

 

400

 

 

 

 

 

 

400

 

Adjustments to previously recorded goodwill

 

 

(54

)

 

 

 

 

 

50

 

 

 

(4

)

Goodwill as of March 31, 2024

 

$

432,745

 

 

$

153,676

 

 

$

76,970

 

 

$

663,391

 

 

On March 9, 2024, the Company completed its acquisition of the operations of Upstate Home Care Solutions (“Upstate”) for $0.4 million. With the purchase of Upstate, the Company expanded its personal care services segment in South Carolina. In connection with the Upstate acquisition, the Company recognized goodwill in its personal care segment of $0.4 million during the three months ended March 31, 2024.

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 years. Customer and referral relationships are amortized systematically over the periods of expected economic benefit, which range from five to ten years.

The carrying amount and accumulated amortization of each identifiable intangible asset category consisted of the following:

 

 

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

 

 

(Amounts in Thousands)

 

 

(Amounts in Thousands)

 

 

 

Estimated Useful Life

 

Gross carrying value

 

 

Accumulated amortization

 

 

Net carrying value

 

 

Gross carrying value

 

 

Accumulated amortization

 

 

Net carrying value

 

Customer and referral relationships

 

5-10 years

 

$

44,672

 

 

$

(39,907

)

 

$

4,765

 

 

$

44,672

 

 

$

(39,566

)

 

$

5,106

 

Trade names and trademarks

 

1-20 years

 

 

59,566

 

 

 

(24,608

)

 

 

34,958

 

 

 

59,566

 

 

 

(23,857

)

 

 

35,709

 

Non-competition agreement

 

3-5 years

 

 

6,785

 

 

 

(5,805

)

 

 

980

 

 

 

6,785

 

 

 

(5,601

)

 

 

1,184

 

State Licenses

 

6-10 years

 

 

12,671

 

 

 

(9,511

)

 

 

3,160

 

 

 

12,671

 

 

 

(9,015

)

 

 

3,656

 

State Licenses

 

Indefinite

 

 

46,328

 

 

 

 

 

46,328

 

 

 

46,328

 

 

 

 

 

46,328

 

Total intangible assets

 

 

 

$

170,022

 

 

$

(79,831

)

 

$

90,191

 

 

$

170,022

 

 

$

(78,039

)

 

$

91,983

 

 

Amortization expense related to the intangible assets was $1.8 million and $1.7 million for the three months ended March 31, 2024 and 2023, respectively. The weighted average remaining useful lives of identifiable intangible assets as of March 31, 2024 was 10.14 years.

5. Details of Certain Balance Sheet Accounts

Prepaid expenses and other current assets consisted of the following:

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

(Amounts in Thousands)

 

Prepaid payroll

 

$

 

 

$

8,735

 

Prepaid workers' compensation and liability insurance

 

 

2,329

 

 

 

3,696

 

Prepaid licensing fees

 

 

5,651

 

 

 

4,481

 

Workers' compensation insurance receivable

 

 

699

 

 

 

577

 

Other

 

 

1,722

 

 

 

2,225

 

Total prepaid expenses and other current assets

 

$

10,401

 

 

$

19,714

 

 

10


Accrued expenses consisted of the following:

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

(Amounts in Thousands)

 

 

 

 

 

 

 

 

Accrued health benefits

 

 

7,297

 

 

 

7,400

 

Payor advances (1)

 

 

429

 

 

 

1,218

 

Accrued professional fees

 

 

9,112

 

 

 

7,304

 

Accrued payroll and other taxes

 

 

13,013

 

 

 

8,572

 

Other

 

 

8,921

 

 

 

8,742

 

Total accrued expenses

 

$

38,772

 

 

$

33,236

 

(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.

6. 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 Coronavirus Aid, Relief, and Economic Stability Act (“CARES Act”), which was expanded by the Paycheck Protection Program and Health Care Enhancement (“PPPHCE”) Act, and the Consolidated Appropriations Act, 2021 (“CAA”), as well as the American Rescue Plan Act of 2021 (“ARPA”).

ARPA Spending Plans

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 provided for a 10 percentage point increase in federal matching funds for Medicaid home and community-based services (“HCBS”) from April 1, 2021, through March 31, 2022, provided the state satisfied certain conditions. States are permitted to use the state funds equivalent to the additional federal funds through March 31, 2025. States must use the monies attributable to this matching fund increase to supplement, not supplant, their level of state spending for the implementation of activities enhanced under the Medicaid HCBS in effect as of April 1, 2021.

HCBS spending plans for the additional matching funds vary by state, but common initiatives in which the Company is participating

include those aimed at strengthening the provider workforce (e.g., efforts to recruit, retain, and train direct service providers). The Company is required to properly and fully document the use of such funds in reports to the state in which the funds originated. Funds may be subject to recoupment if not expended or if they are expended on non-approved uses.

 

During the three months ended March 31, 2024, the Company received additional state funding provided by the ARPA in an aggregate

amount of $10.2 million. The Company did not record revenue and related costs of service revenue during the three months ended March 31, 2024, because revenue recognition criteria were not met. Instead, the Company deferred recognition of the entire $10.2 million, which was received from states with specific spending plans and reporting requirements. Of the total state funding received by the Company pursuant to the ARPA through March 31, 2024, the Company utilized $2.4 million during the three months ended March 31, 2024, primarily for caregivers and adding support to recruiting and retention efforts, included as a reduction of cost of service revenues in the Company’s Unaudited Condensed Consolidated Statements of Income. As of March 31, 2024, the deferred portion of ARPA funding of $13.5 million is included within Government stimulus advances on the Company’s Unaudited Condensed 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.

 

11


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.

7. Long-Term Debt

Long-term debt consisted of the following:

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

(Amounts in Thousands)

 

Revolving loan under the credit facility

 

$

101,353

 

 

$

126,353

 

Less unamortized issuance costs

 

 

(2,006

)

 

 

(2,221

)

Long-term debt

 

$

99,347

 

 

$

124,132

 

 

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 Quarterly Report on Form 10-Q, “credit facility” shall mean the credit facility evidenced by the Credit Agreement). The credit facility consists of a $600.0 million revolving credit facility and a $125.0 million incremental loan facility, which incremental loan facility may be for term loans or an increase to the revolving loan commitments. The maturity of this credit facility is July 30, 2026.

On April 26, 2023, the Company entered into the Third Amendment to replace LIBOR with the Secured Overnight Financing Rate (“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.

12


The Credit Agreement contains customary affirmative covenants regarding, among other things, the maintenance of records, compliance with laws, maintenance of permits, maintenance of insurance and property and payment of taxes. The Credit Agreement also contains certain customary financial covenants and negative covenants that, among other things, include a requirement to maintain a minimum Interest Coverage Ratio (as defined in the Credit Agreement), a requirement to stay below a maximum Total Net Leverage Ratio (as defined in the Credit Agreement) and a requirement to stay below a maximum permitted amount of capital expenditures. The Credit Agreement also contains restrictions on guarantees, indebtedness, liens, investments and loans, subject to customary carve outs, a restriction on dividends (provided that Addus HealthCare may make distributions to the Company in an amount that does not exceed $7.5 million in any year absent of an event of default, plus limited exceptions for tax and administrative distributions), a restriction on the ability to consummate acquisitions (without the consent of the lenders) under its credit facility subject to compliance with the Total Net Leverage Ratio (as defined in the Credit Agreement) thresholds, restrictions on mergers, dispositions of assets, and affiliate transactions, and restrictions on fundamental changes and lines of business.

During the three months ended March 31, 2024, the Company did not draw on its credit facility and repaid $25.0 million under the revolving credit facility.

At March 31, 2024, the Company had a total of $101.4 million of revolving loans, with an interest rate of 7.18%, 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 $486.9 of capacity and $377.5 million available for borrowing under its credit facility. As of 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.

As of March 31, 2024, the Company was in compliance with all financial covenants under the Credit Agreement.

8. Income Taxes

The effective income tax rates were 25.7% and 22.0% for the three months ended March 31, 2024 and 2023, respectively.

For the three months ended March 31, 2024, the difference between our federal statutory and effective income tax rates was principally due to the inclusion of state taxes and non-deductible compensation, partially offset by the use of federal employment tax credits and excess tax benefit. For the three months ended March 31, 2024 and 2023, the effective tax rates were inclusive of an excess tax benefit of 0.1% and 1.2%, respectively. The excess tax expense or benefit is a discrete item, related to the vesting of equity shares, which requires the Company to recognize the expense or benefit fully in the period. An excess tax expense results if the Company’s cumulative costs of the award recognized exceed the income tax deduction, whereas an excess tax benefit results if the Company’s cumulative costs of the award recognized are less than the income tax deduction.

9. 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 Unaudited Condensed Consolidated Balance Sheets and Unaudited Condensed Consolidated Statements of Income.

13


10. Segment Information

Operating segments are defined as components of a company that engage in business activities from which it may earn revenues and incur expenses, and for which separate financial information is available and is regularly reviewed by the Company’s chief operating decision makers, to assess the performance of the individual segments and make decisions about resources to be allocated to the segments. The Company operates as a multi-state provider of three distinct but related business segments providing in-home services.

In its personal care segment, the Company provides non-medical assistance with activities of daily living, primarily to persons who are at increased risk of hospitalization or institutionalization, such as the elderly, chronically ill or disabled. In its hospice segment, the Company provides physical, emotional and spiritual care for people who are terminally ill as well as related services for their families. In its home health segment, the Company provides services that are primarily medical in nature to individuals who may require assistance during an illness or after hospitalization and include skilled nursing and physical, occupational and speech therapy.

The tables below set forth information about the Company’s reportable segments, along with the items necessary to reconcile the segment information to the totals reported in the accompanying Unaudited Condensed Consolidated Financial Statements. Segment assets are not reviewed by the Company’s chief operating decision maker function and therefore are not disclosed below.

Segment operating income consists of revenue generated by a segment, less the direct costs of service revenues and general and administrative expenses that are incurred directly by the segment. Unallocated general and administrative costs are those costs for functions performed in a centralized manner and therefore not attributable to a particular segment. These costs include accounting, finance, human resources, legal, information technology, corporate office support and facility costs and overall corporate management.

 

 

 

For the Three Months Ended March 31, 2024

 

 

 

(Amounts in Thousands)

 

 

 

Personal Care

 

 

Hospice

 

 

Home Health

 

 

Total

 

Net service revenues

 

$

208,003

 

 

$

55,863

 

 

$

16,880

 

 

$

280,746

 

Cost of services revenues

 

 

152,536

 

 

 

28,967

 

 

 

11,066

 

 

 

192,569

 

Gross profit

 

 

55,467

 

 

 

26,896

 

 

 

5,814

 

 

 

88,177

 

General and administrative expenses

 

 

15,445

 

 

 

13,439

 

 

 

4,537

 

 

 

33,421

 

Segment operating income

 

$

40,022

 

 

$

13,457

 

 

$

1,277

 

 

 

54,756

 

 

 

 

For the Three Months Ended March 31, 2023

 

 

 

(Amounts in Thousands)

 

 

 

Personal Care

 

 

Hospice

 

 

Home Health

 

 

Total

 

Net service revenues

 

$

190,032

 

 

$

49,082

 

 

$

12,485

 

 

$

251,599

 

Cost of services revenues

 

 

138,383

 

 

 

27,267

 

 

 

7,534

 

 

 

173,184

 

Gross profit

 

 

51,649

 

 

 

21,815

 

 

 

4,951

 

 

 

78,415

 

General and administrative expenses

 

 

15,935

 

 

 

13,015

 

 

 

2,879

 

 

 

31,829

 

Segment operating income

 

$

35,714

 

 

$

8,800

 

 

$

2,072

 

 

$

46,586

 

 

 

 

For the Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

(Amounts in Thousands)

 

Segment reconciliation:

 

 

 

 

 

 

Total segment operating income

 

$

54,756

 

 

$

46,586

 

 

 

 

 

 

 

Items not allocated at segment level:

 

 

 

 

 

 

Other general and administrative expenses

 

 

27,642

 

 

 

24,531

 

Depreciation and amortization

 

 

3,469

 

 

 

3,447

 

Interest income

 

 

(423

)

 

 

(106

)

Interest expense

 

 

2,758

 

 

 

2,461

 

Income before income taxes

 

$

21,310

 

 

$

16,253

 

 

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11. Significant Payors

The Company’s revenue by payor type was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Personal Care Segment

 

For the Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

Amount
(in Thousands)

 

% of Segment
Net Service
Revenues

 

 

Amount
(in Thousands)

 

% of Segment
Net Service
Revenues

 

State, local and other governmental programs

 

$107,754

 

51.8

%

 

$95,320

 

50.1

%

Managed care organizations

 

94,276

 

45.3

 

 

87,901

 

46.3

 

Private pay

 

3,906

 

1.9

 

 

4,226

 

2.2

 

Commercial insurance

 

1,486

 

0.7

 

 

1,669

 

0.9

 

Other

 

581

 

0.3

 

 

916

 

0.5

 

Total personal care segment net service revenues

 

$208,003

 

100.0

%

 

$