Company Quick10K Filing
Quick10K
Addus Homecare
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$68.26 13 $900
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-12 Shareholder Vote
8-K 2019-05-06 Earnings, Regulation FD, Exhibits
8-K 2019-04-24 Accountant, Exhibits
8-K 2019-04-08 Regulation FD, Other Events, Exhibits
8-K 2018-11-05 Earnings, Regulation FD, Exhibits
8-K 2018-10-29 Enter Agreement, Off-BS Arrangement, Officers
8-K 2018-08-15 Enter Agreement, Exhibits
8-K 2018-08-06 Earnings, Regulation FD, Exhibits
8-K 2018-06-13 Shareholder Vote
8-K 2018-05-07 Earnings, Regulation FD, Exhibits
8-K 2018-05-01 M&A, Regulation FD, Exhibits
8-K 2018-04-02 Other Events, Exhibits
8-K 2018-03-05 Earnings, Regulation FD, Exhibits
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CALX Calix 376
UBFO United Security Bancshares 175
ENZ Enzo Biochem 173
CFRX Contrafect 43
GREAT Greater Cannabis Company 0
AEXC American Express Credit 0
FULO Fullnet Communications 0
LVYN Lvyuan Green Building Material Technology 0
ADUS 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 adus-ex311_11.htm
EX-31.2 adus-ex312_10.htm
EX-32.1 adus-ex321_8.htm
EX-32.2 adus-ex322_9.htm

Addus Homecare Earnings 2019-03-31

ADUS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 adus-10q_20190331.htm 10-Q adus-10q_20190331.htm

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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, 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 001-34504

 

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.)

 

 

6801 Gaylord Parkway, Suite 110

Frisco, TX

 

75034

(Address of principal executive offices)

 

(Zip code)

(469) 535-8200

(Registrant’s telephone number, including area code)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 .

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

 

As of April 30, 2019, Addus HomeCare Corporation had 13,182,598 shares of Common Stock outstanding.

 

 


Table of Contents

 

 

ADDUS HOMECARE CORPORATION

FORM 10-Q

INDEX

 

PART I. FINANCIAL INFORMATION

3

 

 

Item 1. Financial Statements

3

 

 

Condensed Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and December 31, 2018

3

 

 

Condensed Consolidated Statements of Income (Unaudited) For the Three Months Ended March 31, 2019 and 2018

4

 

 

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) For the Three Months Ended March 31, 2019 and 2018

5

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2019 and 2018

6

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

 

 

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

22

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

33

 

 

Item 4. Controls and Procedures

33

 

 

PART II. OTHER INFORMATION

34

 

 

Item 1. Legal Proceedings

34

 

 

Item 1A. Risk Factors

34

 

 

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

34

 

 

Item 3. Defaults Upon Senior Securities

34

 

 

Item 4. Mine Safety Disclosures

34

 

 

Item 5. Other Information

34

 

 

Item 6. Exhibits

35

 

2


Table of Contents

 

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

 

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of March 31, 2019 and December 31, 2018

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

 

 

 

(Unaudited)

 

 

(Audited)

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash

 

$

66,170

 

 

$

70,406

 

Accounts receivable, net of allowances

 

 

120,143

 

 

 

108,000

 

Prepaid expenses and other current assets

 

 

7,146

 

 

 

7,098

 

Total current assets

 

 

193,459

 

 

 

185,504

 

Property and equipment, net of accumulated depreciation and amortization

 

 

10,843

 

 

 

10,658

 

Other assets

 

 

 

 

 

 

 

 

Goodwill

 

 

135,399

 

 

 

135,442

 

Intangibles, net of accumulated amortization

 

 

22,531

 

 

 

23,784

 

Operating lease assets, net

 

 

16,691

 

 

 

 

Total other assets

 

 

174,621

 

 

 

159,226

 

Total assets

 

$

378,923

 

 

$

355,388

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

11,506

 

 

$

12,238

 

Accrued payroll

 

 

24,139

 

 

 

22,449

 

Accrued expenses

 

 

17,202

 

 

 

11,648

 

Accrued workers' compensation insurance

 

 

14,537

 

 

 

15,169

 

Total current liabilities

 

 

67,384

 

 

 

61,504

 

Long-term liabilities

 

 

 

 

 

 

 

 

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

 

 

17,375

 

 

 

17,222

 

Long-term operating lease liabilities

 

 

11,679

 

 

 

 

Deferred tax liabilities, net

 

 

615

 

 

 

494

 

Other long-term liabilities

 

 

242

 

 

 

635

 

Total long-term liabilities

 

 

29,911

 

 

 

18,351

 

Total liabilities

 

$

97,295

 

 

$

79,855

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock—$.001 par value; 40,000 authorized and 13,178 and 13,126 shares

   issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

 

$

13

 

 

$

13

 

Additional paid-in capital

 

 

178,916

 

 

 

177,683

 

Retained earnings

 

 

102,699

 

 

 

97,837

 

Total stockholders’ equity

 

 

281,628

 

 

 

275,533

 

Total liabilities and stockholders’ equity

 

$

378,923

 

 

$

355,388

 

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

3


Table of Contents

 

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the Three Months Ended March 31, 2019 and 2018

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

(Unaudited)

 

 

 

For the Three Months

Ended March 31,

 

 

 

2019

 

 

2018

 

Net service revenues

 

$

139,254

 

 

$

109,476

 

Cost of service revenues

 

 

101,680

 

 

 

81,543

 

Gross profit

 

 

37,574

 

 

 

27,933

 

General and administrative expenses

 

 

29,257

 

 

 

21,537

 

Depreciation and amortization

 

 

2,074

 

 

 

1,807

 

Total operating expenses

 

 

31,331

 

 

 

23,344

 

Operating income

 

 

6,243

 

 

 

4,589

 

Interest income

 

 

(215

)

 

 

(2,322

)

Interest expense

 

 

618

 

 

 

910

 

Total interest expense (income), net

 

 

403

 

 

 

(1,412

)

Income before income taxes

 

 

5,840

 

 

 

6,001

 

Income tax expense

 

 

978

 

 

 

1,115

 

Net income

 

$

4,862

 

 

$

4,886

 

Net income per common share

 

 

 

 

 

 

 

 

Basic income per share

 

$

0.37

 

 

$

0.42

 

Diluted income per share

 

$

0.36

 

 

$

0.42

 

Weighted average number of common shares and potential common

   shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

12,995

 

 

 

11,502

 

Diluted

 

 

13,381

 

 

 

11,696

 

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

4


Table of Contents

 

 

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31, 2019 and 2018

(Amounts and Shares in Thousands)

(Unaudited)

 

 

 

Common Stock

 

 

Additional

Paid-in Capital

 

 

Retained

Earnings

 

 

Total

Stockholders'

Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2019

 

 

13,126

 

 

$

13

 

 

$

177,683

 

 

$

97,837

 

 

$

275,533

 

Issuance of shares of common stock under

   restricted stock award agreements

 

 

52

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,233

 

 

 

 

 

 

1,233

 

Net income

 

 

 

 

 

 

 

 

 

 

 

4,862

 

 

 

4,862

 

Balance at March 31, 2019

 

 

13,178

 

 

$

13

 

 

$

178,916

 

 

$

102,699

 

 

$

281,628

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2018

 

 

11,632

 

 

$

12

 

 

$

95,963

 

 

$

80,334

 

 

$

176,309

 

Issuance of shares of common stock under

   restricted stock award agreements

 

 

60

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of shares of common stock under

   restricted stock award agreements

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

859

 

 

 

 

 

 

859

 

Shares issued for exercise of stock options

 

 

1

 

 

 

 

 

 

 

24

 

 

 

 

 

 

24

 

Net income

 

 

 

 

 

 

 

 

 

 

 

4,886

 

 

 

4,886

 

Balance at March 31, 2018

 

 

11,691

 

 

$

12

 

 

$

96,846

 

 

$

85,220

 

 

$

182,078

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

5


Table of Contents

 

 

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2019 and 2018

(Amounts in Thousands)

(Unaudited)

 

 

 

For the Three Months

 

 

 

Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

4,862

 

 

$

4,886

 

Adjustments to reconcile net income to net cash provided by operating

   activities, net of acquisitions:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,074

 

 

 

1,807

 

Deferred income taxes

 

 

121

 

 

 

129

 

Stock-based compensation

 

 

1,233

 

 

 

859

 

Amortization of debt issuance costs under the credit facility

 

 

161

 

 

 

147

 

Provision for doubtful accounts

 

 

57

 

 

 

78

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(12,989

)

 

 

5,599

 

Prepaid expenses and other current assets

 

 

2,494

 

 

 

1,161

 

Accounts payable

 

 

(689

)

 

 

2,092

 

Accrued expenses and other long-term liabilities

 

 

(521

)

 

 

(2,482

)

Net cash (used in) provided by operating activities

 

 

(3,197

)

 

 

14,276

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisitions of businesses, net of cash acquired

 

 

 

 

 

(3,283

)

Purchases of property and equipment

 

 

(1,006

)

 

 

(416

)

Net cash used in investing activities

 

 

(1,006

)

 

 

(3,699

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payments on term loan- credit facility

 

 

 

 

 

(563

)

Payments for debt issuance costs under the credit facility

 

 

 

 

 

(18

)

Payments on financing lease obligations

 

 

(33

)

 

 

(368

)

Cash received from exercise of stock options

 

 

 

 

 

24

 

Net cash used in financing activities

 

 

(33

)

 

 

(925

)

Net change in cash

 

 

(4,236

)

 

 

9,652

 

Cash, at beginning of period

 

 

70,406

 

 

 

53,754

 

Cash, at end of period

 

$

66,170

 

 

$

63,406

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

723

 

 

$

766

 

Cash paid for income taxes

 

 

1,082

 

 

 

1,187

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Contingent and deferred consideration accrued for acquisition

 

$

 

 

$

847

 

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

6


Table of Contents

 

 

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.

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. 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, 2018 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 and have not been audited by our independent auditors.

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.

Reclassification of Prior Period Balances

Certain reclassifications have been made to prior period amounts to conform to the current-year presentation. These reclassifications have no effect on the reported net income.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset for all leases, including operating leases, with a term greater than twelve months in their balance sheets. For income statement recognition purposes, leases will be classified as either a finance or an operating lease. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provided entities with additional and optional transition method. We elected to adopt the standard effective January 1, 2019 using the modified retrospective transition method. We elected the package of practical expedients available for expired or existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are, or contain, leases, (2) lease classification and (3) initial direct costs. The Company secured new software to account for the change in accounting for leases. In addition, the Company is designing and implementing new processes and controls. The most significant changes relate to the recognition of right-of-use assets and significant lease liabilities on our consolidated balance sheet as a result of our operating lease obligations, as well as the impact of new disclosure requirements. Adoption of the new standard did not have a significant impact to our results of operations or liquidity.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. Under the new standard, entities holding financial assets and net investment in leases that are not accounted for at fair value through net income are to be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. ASU 2016-13 is effective as of January 1, 2020. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new guidance eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on the current Step 1). ASU 2017-04 is effective for annual and any interim impairment tests for periods beginning after December 15, 2019. Adoption of the new standard is not expected to have an impact to our results of operations or liquidity.

7


Table of Contents

 

In August 2018, the FASB issued ASU 2018-15, IntangiblesGoodwill and OtherInternal-Use Software (Subtopic 350-40): Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. ASU 2018-15 requires customers in a hosting arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification (“ASC”) 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the impact of adopting this standard.

2. Summary of Significant Accounting Policies

Revenue Recognition

Personal Care Revenue

The majority of the Company’s net service revenues are generated from providing personal care services directly to consumers under contracts with state, local and other governmental agencies, managed care organizations, commercial insurers and private consumers. Generally, these contracts, which are negotiated based on current contracting practices as appropriate for the payor, establish the terms of a customer relationship and set the broad range of terms for services to be performed at a stated rate. However, the contracts do not give rise to rights and obligations until an order is placed with the Company. When an order is placed, it creates the performance obligation to provide a defined quantity of service hours, or authorized hours, per consumer. The Company satisfies its performance obligations over time, given that consumers simultaneously receive and consume the benefits provided by the Company as the services are performed. As the Company has a right to consideration from customers commensurate with the value provided to customers from the performance completed over a given invoice period, the Company has elected to use the practical expedient for measuring progress toward satisfaction of performance obligations and recognizes patient service revenue in the amount to which the Company has a right to invoice.

Hospice Revenue

The Company generates net service revenues from providing hospice services to terminally ill consumers and their families. Net service revenues are recognized as services are provided and costs for delivery of such services are incurred. The estimated payment rates are daily rates for each of the levels of care the Company delivers. Hospice companies are subject to two specific payment limit caps under the Medicare program each federal fiscal year, the inpatient cap and the aggregate cap. The inpatient cap limits the number of inpatient care days provided to no more than 20% of the total days of hospice care provided to Medicare patients for the year. The aggregate cap limits the amount of Medicare reimbursement a hospice may receive, based on the number of Medicare patients served. For the three months ended March 31, 2019, the Company was below the payment limits and did not record a cap liability.

Home Health Revenue

The Company also generates net service revenues from providing home healthcare services directly to consumers mainly under contracts with Medicare and managed care organizations. Generally, these contracts, which are negotiated based on current contracting practices as appropriate for the payor, establish the terms of a relationship and set the broad range of terms for services to be performed on an episodic basis at a stated rate. Home health Medicare services are paid under the Medicare Home Health Prospective Payment System (“HHPPS”), which is based on a 60-day episode of care. The HHPPS permits multiple, continuous episodes per patient. Medicare payment rates for episodes under HHPPS vary based on the severity of the patient’s condition as determined by assessment of a patient’s Home Health Resource Group score. 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. The Company satisfies its performance obligations as consumers receive and consume the benefits provided by the Company as the services are performed. As the Company has a right to reimbursement from Medicare commensurate with the services provided to customers from the performance completed over a given episodic period, the Company has elected to use the practical expedient for measuring progress toward satisfaction of performance obligations. Under this method recognizing revenue ratably over the episode based on beginning and ending dates is a reasonable proxy for the transfer of benefit of the service.

Implicit Price Concessions

We record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record self-pay revenues at the estimated amounts we expect to collect. The estimates for implicit price concessions are based upon management’s assessment of historical write offs and expected net collections, business and economic conditions, trends in federal, state and private employer health care coverage and other collection indicators. The Company recorded $2.2 million and $2.0 million for the three months ended March 31, 2019 and 2018, respectively, as a reduction to revenue.

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Allowance for Doubtful Accounts

We are paid for our services primarily by federal, state and local agencies under Medicaid and Medicare programs, managed care organizations, commercial insurance companies and private consumers. While our accounts receivable are uncollateralized, our credit risk is somewhat limited due to the significance of governmental payors to our financial results of operations. Laws and regulations governing the governmental programs in which we participate are complex and subject to interpretation and change. Subsequent adjustments that are determined to be the result of an adverse change in the payor’s ability to pay are recognized as allowance for doubtful accounts. As of March 31, 2019 and December 31, 2018, the allowance for doubtful accounts balance was $0.8 million and $0.7 million, which is included in the account receivable, net of allowances on the Company’s Unaudited Condensed Consolidated Balance Sheets.

Property and Equipment

Property and equipment are recorded at cost and depreciated over the estimated useful lives of the related assets by use of the straight-line method. Maintenance and repairs are charged to expense as incurred. The estimated useful lives of the property and equipment are as follows:

 

 

 

 

 

 

Computer equipment

  

 

3 – 5 years

 

Furniture and equipment

  

 

5 – 7 years

 

Transportation equipment

  

 

5 years

 

Computer software

  

 

3 –10 years

 

Leasehold improvements

  

 

Lesser of useful life or lease term

 

 

Goodwill

The Company’s carrying value of goodwill is the excess of the purchase price over the fair value of the net assets acquired from various acquisitions. In accordance with ASC Topic 350, Goodwill and Other Intangible Assets, goodwill and intangible assets with indefinite useful lives are not amortized. The Company tests goodwill for impairment at the reporting unit level on an annual basis, as of October 1, or whenever potential impairment triggers occur, such as a significant change in business climate or regulatory changes that would indicate that an impairment may have occurred. The Company may use a qualitative test, known as “Step 0,” or a two-step quantitative method to determine whether impairment has occurred. In Step 0, the Company can elect to perform an optional qualitative analysis and based on the results can skip the two-step analysis. Additionally, it is the Company’s policy to update the fair value calculation of our reporting units and perform the quantitative goodwill impairment test on a periodic basis. In 2018, the Company performed the quantitative analysis to evaluate whether an impairment occurred. The Company concluded that there were no impairments for the year ended December 31, 2018. No impairment charges were recorded for the three months ended March 31, 2019 or 2018. As of March 31, 2019 and December 31, 2018, goodwill was $135.4 million, included in the Company’s Unaudited Condensed Consolidated Balance Sheets.

Intangible Assets

The Company’s identifiable intangible assets consist of customer and referral relationships, trade names, trademarks, state licenses and non-compete agreements. The Company uses various valuation techniques to determine initial fair value of its intangible assets, including relief-from-royalty, income approach methods, and discounted cash flow analysis, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy in ASC 820, Fair Value Measurement. Under these valuation approaches, we are required to make estimates and assumptions about future market growth and trends, forecasted revenue and costs, expected periods over which the assets will be utilized, appropriate discount rates and other variables. The Company bases its fair value estimates on assumptions the Company believes to be reasonable but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates.

Amortization is computed using straight-line and accelerated methods based upon the estimated useful lives of the respective assets, which range from three to twenty-five years and assessed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company would recognize an impairment loss when the estimated future non-discounted cash flows associated with the intangible asset are less than the carrying value. An impairment charge would then be recorded for the excess of the carrying value over the fair value. The Company estimates the fair value of these intangible assets using the income approach. In accordance with ASC Topic 350, Goodwill and Other Intangible Assets, intangible assets with indefinite useful lives are not amortized. We test intangible assets with indefinite useful lives for impairment at the reporting unit level on an annual basis, as of October 1, or whenever potential impairment triggers occur, such as a significant change in business climate or regulatory changes that would indicate that an impairment may have occurred. No impairment charge was recorded for the three months ended March 31, 2019 and 2018. As of March 31, 2019 and December 31, 2018, intangibles, net of accumulated depreciation and amortization was $22.5 million and $23.8 million, respectively, included in the Company’s Unaudited Condensed Consolidated Balance Sheets.

Debt Issuance Costs

The Company amortizes debt issuance costs on a straight-line method over the term of the related debt. This method approximates the effective interest method. Debt issuance costs are classified as a current portion of long-term debt or long-term debt, less current portion as of March 31, 2019 and December 31, 2018.

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Workers’ Compensation Program

The Company’s workers’ compensation insurance program has a $0.4 million deductible component. The Company recognizes its obligations associated with this program in the period the claim is incurred. The cost of both the claims reported and claims incurred but not reported, up to the deductible, have been accrued based on historical claims experience, industry statistics and an actuarial analysis performed by an independent third party. The Company monitors its claims quarterly and adjusts its reserves accordingly. These costs are recorded primarily as the cost of services on the Company’s Unaudited Condensed Consolidated Statements of Income. As of March 31, 2019 and December 31, 2018, the Company recorded $14.5 million and $15.2 million, respectively, in workers’ compensation insurance. As of March 31, 2019 and December 31, 2018, the Company recorded $1.6 million and $1.7 million, respectively, in workers’ compensation insurance recovery receivables. The workers’ compensation insurance recovery receivable is included in prepaid expenses and other current assets on the Company’s Unaudited Condensed Consolidated Balance Sheets.

Interest Income

Illinois law entitles designated service program providers to receive a prompt payment interest penalty based on qualifying services approved for payment that remain unpaid after a designated period of time. As the amount and timing of the receipt of these payments are not certain, the interest income is recognized when received. For the three months ended March 31, 2019, the Company received $0.1 million in prompt payment interest. For the three months ended March 31, 2018, the Company received $2.3 million in prompt payment interest.

Interest Expense

The Company’s interest expense consists of interest and unused credit line fees on its credit facilities, its Terminated Senior Credit Facility (as defined herein), and interest on its financing lease obligations, which is reported in the statement of income when incurred.

Income Tax Expense

The Company accounts for income taxes under the provisions of ASC Topic 740, Income Taxes. The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in its financial statements or tax returns. Deferred taxes, resulting from differences between the financial and tax basis of the Company’s assets and liabilities, are also adjusted for changes in tax rates and tax laws when changes are enacted. ASC Topic 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. ASC Topic 740 also prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. In addition, ASC Topic 740 provides guidance on derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions.

Stock-based Compensation

The Company currently has one stock incentive plan, the 2017 Omnibus Incentive Plan (the “2017 Plan”), under which new grants of stock-based employee compensation may be made. In addition, the Company has outstanding awards under its 2009 Stock Incentive Plan, as amended and restated. The Company accounts for stock-based compensation in accordance with ASC Topic 718, Stock Compensation. Under the 2017 Plan, compensation expense is recognized on a straight-line basis over the vesting period of the equity awards based on the grant date fair value of the options and restricted stock awards. The Company uses the Black-Scholes Option Pricing Model to value the Company’s options. The determination of the fair value of stock-based payments utilizing the Black-Scholes Model is affected by the Company’s stock price and a number of assumptions, including expected volatility, risk-free interest rate, expected term, and expected dividends yield. Stock-based compensation expense was $1.2 million and $0.9 million for the three months ended March 31, 2019 and 2018, respectively.

Diluted Net Income Per Common Share

Diluted net income per common share, calculated on the treasury stock method, is based on the weighted average number of shares outstanding during the period. The Company’s outstanding securities that may potentially dilute the common stock are stock options and restricted stock awards.

Included in the Company’s calculation of diluted earnings per share for the three months ended March 31, 2019 were approximately 685,000 stock options outstanding, of which approximately 303,000 were dilutive. In addition, there were approximately 153,000 restricted stock awards outstanding, 83,000 of which were dilutive for the three months ended March 31, 2019.

Included in the Company’s calculation of diluted earnings per share for the three months ended March 31, 2018 were approximately 746,000 stock options outstanding, of which approximately 129,000 were dilutive. In addition, there were approximately 166,000 restricted stock awards outstanding, 65,000 of which were dilutive for the three months ended March 31, 2018.

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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: implicit price concessions, the allowance for doubtful accounts, reserve for self-insurance claims, accounting for stock-based compensation, accounting for lease incremental borrowing rates, accounting for income taxes, business combinations and when required, the quantitative assessment of goodwill. Actual results could differ from those estimates.

Fair Value Measurements

The Company’s financial instruments consist of cash, accounts receivable, payables and debt. The carrying amounts reported on the Company’s Unaudited Condensed Consolidated Balance Sheets for cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The carrying value of the Company’s long-term debt with variable interest rates approximates fair value based on instruments with similar terms using level 2 inputs as defined under ASC Topic 820, Fair Value Measurement.

Going Concern

In connection with the preparation of the financial statements for the three months ended March 31, 2019 and 2018, the Company conducted an evaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to the entity’s ability to continue as a going concern within one year after the date of the issuance, or the date of availability, of the financial statements to be issued. The evaluation concluded that there did not appear to be evidence of substantial doubt of the entity’s ability to continue as a going concern.

3. Leases

During the quarter ended March 31, 2019, we adopted ASU 2016-02, Leases (Topic 842), which requires leases with durations greater than twelve months to be recognized on the balance sheet. We adopted the standard using the modified retrospective approach with an effective date as of the beginning of our fiscal year, January 1, 2019. Prior year financial statements were not recast under the new standard and, therefore, those amounts are not presented below. We elected the package of practical expedients available for expired or existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. We also elected the practical expedients available for the consistent treatment of short-term leases for month-to-month leases and leases with a remaining term of less than one year and for all classes of assets we elected the practical expedient to aggregate lease and non-lease components.

We have historically had operating leases for local branches, our corporate headquarters and certain equipment, with lease expiration dates through 2029. Certain of our arrangements have free rent periods or escalating rent payment provisions. We recognize rent expense on a straight-line basis over the lease term. Our leases generally contain renewal options for periods ranging from one to five years. Because we are not reasonably certain to exercise these renewal options, the options generally are not considered in determining the lease term, and payments associated with the option years are excluded from lease payments.

When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.

Amounts reported in the Company’s Unaudited Condensed Consolidated Balance Sheets as of March 31, 2019 for our operating leases were as follows:

 

 

 

The Three Months

Ended March 31,

(Amounts in

Thousands)

 

 

 

2019

 

Operating lease right of use assets, net

 

$

16,691

 

Short-term operating lease liabilities (in Accrued expenses)

 

 

5,154

 

Long-term operating lease liabilities

 

 

11,679

 

Total operating lease liabilities

 

$

16,833

 

 

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Leases Costs

Components of lease cost 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)

 

 

 

2019

 

Operating lease costs

 

$

1,646

 

Short-term lease costs

 

 

64

 

Total lease cost

 

$

1,710

 

 

Lease Term and Discount Rate

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

 

 

 

For the Three Months

Ended March 31,

 

 

 

2019

 

Operating leases:

 

 

 

 

Weighted average remaining lease term

 

 

4.02

 

Weighted average discount rate

 

 

5.75

%

 

Maturity of Lease Liabilities

A summary of our remaining operating lease payments as of March 31, 2019 were as follows:

 

 

 

Operating Leases

 

 

 

(Amounts in Thousands)

 

Due in 12 month period ended March 31,

 

 

 

 

2020

 

$

5,747

 

2021

 

 

4,544

 

2022

 

 

3,495

 

2023

 

 

2,248

 

2024

 

 

1,726

 

Thereafter

 

 

1,200

 

Total future minimum rental commitments

 

 

18,960

 

Less: Imputed interest

 

 

(2,127

)

Total lease liabilities

 

$

16,833

 

 

Supplemental cash flow information

 

 

 

For the Three

Months Ended

March 31,

(Amounts in

Thousands)

 

 

 

2019

 

Supplemental Cash Flows Information

 

 

 

 

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

 

 

 

 

Operating cash flows from operating leases

 

$

1,639

 

 

 

 

 

 

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

 

 

 

 

Operating leases

 

 

17,660

 

 

Financing Leases

Some of our financing leases include provisions to purchase the asset at the conclusion of the lease. The treatment of these leases remains consistent and the transition does not have an impact on the accounting for these leases.

As of March 31, 2019 and December 31, 2018 the Company has various financing leases (the underlying assets are included in “Property and equipment net of accumulated depreciation and amortization” in the accompanying the Company’s Unaudited Condensed Consolidated

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Balance Sheets). The financing lease obligations totaled $48,000 and $0.1 million at March 31, 2019 and December 31, 2018, respectively, the current portion is recorded in accrued expense and the long-term portion is recorded in long-term debt, less current portion, net of debt issuance cost in the Company’s Unaudited Condensed Consolidated Balance Sheets. These require monthly payments through August 2020 and have implicit interest rates that range from 3.64% to 7.72%. At the end of the term, the Company has the option to purchase the assets for $1 per lease agreement.

4. Acquisitions

On May 1, 2018, the Company completed its acquisition of all the outstanding securities of Ambercare Corporation (“Ambercare”). The purchase price was approximately $39.6 million plus the amount of excess cash held by Ambercare at closing (approximately $12.0 million). The purchase of Ambercare was funded by a delayed draw term loan under the Company’s credit facility. With the purchase of Ambercare, the Company expanded its New Mexico personal care operations and acquired its hospice and home health segments in the state of New Mexico. The related integration costs of $0.1 million for the three months ended March 31, 2019, were included in general and administrative expenses on the Company’s Unaudited Condensed Consolidated Statements of Income, and were expensed as incurred. The results of Ambercare are included on the Company’s Unaudited Condensed Consolidated Statements of Income from the date of the acquisition.

The Company’s acquisition of Ambercare has been accounted for in accordance with ASC Topic 805, Business Combinations, and the resulting goodwill and other intangible assets was accounted for under ASC Topic 350, Goodwill and Other Intangible Assets. The acquisition was recorded at its fair value as of May 1, 2018. Under business combination accounting, the Ambercare purchase price was $51.6 million and was allocated to Ambercare’s net tangible and identifiable intangible assets based on their estimated fair values. Based upon management’s valuation, which is preliminary and subject to completion of working capital adjustments, the total purchase price has been allocated as follows:

 

 

 

Total

(Amounts in

Thousands)

 

Goodwill

 

$

28,831

 

Cash

 

 

12,028

 

Identifiable intangible assets

 

 

9,944

 

Accounts receivable

 

 

6,512

 

Other assets

 

 

442

 

Property and equipment

 

 

154

 

Accrued liabilities

 

 

(4,073

)

Deferred tax liability

 

 

(2,138

)

Financing lease

 

 

(75

)

Accounts payable

 

 

(3

)

Total purchase price allocation

 

$

51,622

 

 

Management’s assessment of qualitative factors affecting goodwill for Ambercare includes estimates of market share at the date of purchase, ability to grow in the market, synergy with existing Company operations, and the payor profile in the market.

The Company acquired all of the outstanding stock of Ambercare. Identifiable intangible assets acquired consist of trade names and customer relationships, with estimated useful lives ranging from three to fifteen years, as well as indefinite lived state licenses. The preliminary estimated fair value of identifiable intangible assets was determined, using Level 3 inputs as defined under ASC Topic 820, with the assistance of a valuation specialist. The goodwill and intangible assets acquired are non-deductible for tax purposes.

The Ambercare acquisition accounted for $14.8 million of net service revenues and $3.4 million of net income prior to corporate allocation for the three months ended March 31, 2019.

On April 1, 2018, the Company acquired certain assets of Arcadia Home Care & Staffing (“Arcadia”), expanding its personal care services. The total consideration for the transaction was $18.9 million and was funded by a delayed draw term loan under the Company’s credit facility. The related integration costs of $0.1 million for the three months ended March 31, 2019, were included in general and administrative expenses on the Company’s Unaudited Condensed Consolidated Statements of Income, and were expensed as incurred. The results of operations from this acquired entity are included in the Company’s Unaudited Condensed Consolidated Statements of Income from the date of the acquisition.

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The Company’s acquisition of Arcadia has been accounted for in accordance with ASC Topic 805 and the resulting goodwill and other intangible assets was accounted for under ASC Topic 350. The acquisition was recorded at its fair value as of April 1, 2018. Under business combination accounting, the Arcadia purchase price was $18.9 million and was allocated to Arcadia’s net tangible and identifiable intangible assets based on their estimated fair values. Based upon management’s valuation, the total purchase price has been allocated as follows:

 

 

 

Total

(Amounts in

Thousands)

 

Goodwill

 

$

13,072

 

Accounts receivable

 

 

5,317

 

Identifiable intangible assets

 

 

2,264

 

Property and equipment

 

 

155

 

Other assets

 

 

92

 

Accrued liabilities

 

 

(1,540

)

Accounts payable

 

 

(508

)

Total purchase price allocation

 

$

18,852

 

 

Management’s assessment of qualitative factors affecting goodwill for Arcadia includes estimates of market share at the date of purchase, ability to grow in the market, synergy with existing Company operations, and the payor profile in the market.

Identifiable intangible assets acquired consist of trade name, customer relationships and state licenses, with estimated useful lives ranging from seven to fifteen years. The preliminary estimated fair value of identifiable intangible assets was determined, using Level 3 inputs as defined under ASC Topic 820, with the assistance of a valuation specialist. The goodwill and intangible assets acquired are deductible for tax purposes.

The Arcadia acquisition accounted for $10.3 million of net service revenues and $1.3 million of net income prior to corporate allocation for the three months ended March 31, 2019.

During the fourth quarter of 2018, the Company acquired certain assets of affiliate branches of Arcadia for $0.6 million using cash on hand, the Company recorded goodwill of $0.6 million on the Company’s Unaudited Condensed Consolidated Balance Sheets. Goodwill generated from the acquisition is primarily attributable to expected synergies with existing Company operations and the goodwill acquired is deductible for tax purposes. Pro forma results of the operations related to the acquisition are not included in the pro forma presentation as they are not material to the Company’s Unaudited Condensed Consolidated Statements of Income.

Effective January 1, 2018, the Company acquired certain assets of LifeStyle Options, Inc. (“LifeStyle”) in order to expand private pay services in Illinois. The total consideration for the transaction was $4.1 million, comprised of $3.3 million in cash and $0.8 million, representing the preliminary estimated fair value of contingent consideration, subject to the achievement of certain performance targets set forth in an earn-out agreement. As of December 31, 2018, the performance targets were not met and the Company remeasured the earn-out to fair value. The related acquisition costs of $48,000 for the three months ended March 31, 2018 were included in general and administrative expenses on the Company’s Unaudited Condensed Consolidated Statements of Income, and were expensed as incurred. The results of operations from this acquired entity are included in the Company’s Unaudited Condensed Consolidated Statements of Income from the date of the acquisition.

The Company’s acquisition of LifeStyle has been accounted for in accordance with ASC Topic 805 and the resulting goodwill and other intangible assets was accounted for under ASC Topic 350. The acquisition was recorded at its fair value as of January 1, 2018. Under business combination accounting, the LifeStyle purchase price was $4.1 million and was allocated to LifeStyle’s net tangible and identifiable intangible assets based on their estimated fair values. Based upon management’s valuation, the total purchase price is final and has been allocated as follows:

 

 

 

Total

(Amounts in

Thousands)

 

Goodwill

 

$

2,751

 

Identifiable intangible assets

 

 

1,152

 

Accounts receivable

 

 

573

 

Other assets

 

 

32

 

Property and equipment

 

 

18

 

Accrued liabilities

 

 

(291

)

Accounts payable

 

 

(105

)

Total purchase price allocation

 

$

4,130

 

 

Management’s assessment of qualitative factors affecting goodwill for LifeStyle includes estimates of market share at the date of purchase, ability to grow in the market, synergy with existing Company operations, and the payor profile in the market.

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Identifiable intangible assets acquired consist of trade name and customer relationships, with estimated useful lives ranging from ten to fifteen years. The estimated fair value of identifiable intangible assets was determined, using Level 3 inputs as defined under ASC Topic 820, with the assistance of a valuation specialist. The goodwill and intangible assets acquired are deductible for tax purposes.

The LifeStyle acquisition accounted for $1.2 million of net service revenues and $0.0 million of net income prior to corporate allocation for the three months ended March 31, 2019.

The following table contains unaudited pro forma condensed consolidated income statement information of the Company had the acquisitions of Ambercare and Arcadia closed on January 1, 2018.

 

 

 

For the Three Months Ended

March 31,

(Amounts in Thousands)

 

 

 

2019

 

 

2018

 

Net service revenues

 

$

139,254

 

 

$

138,218

 

Operating income

 

 

6,486

 

 

 

11,583

 

Net income

 

 

5,105

 

 

 

7,852

 

Net income per common share

 

 

 

 

 

 

 

 

Basic income per share

 

$

0.39

 

 

$

0.68

 

Diluted income per share

 

$

0.38

 

 

$

0.67

 

 

 

The pro forma disclosures in the table above include adjustments for amortization of intangible assets, tax expense and acquisition costs to reflect results that are more representative of the combined results of the transactions as if Ambercare and Arcadia had been acquired effective January 1, 2018. This pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have actually occurred. In addition, future results may vary significantly from the results reflected in the pro forma information. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, such as anticipated cost savings from operating synergies.

5. Goodwill and Intangible Assets

A summary of the goodwill activity for the three months ended March 31, 2019 is provided below:

 

 

 

Goodwill

 

 

 

Personal

Care

 

 

Hospice

 

 

Home

Health

 

 

Total

 

 

 

(Amounts in Thousands)

 

Goodwill as of December 31, 2018

 

$

112,377

 

 

$

22,200

 

 

$

865

 

 

$

135,442

 

Adjustments to previously recorded goodwill

 

 

(43

)

 

 

 

 

 

 

 

 

(43

)

Goodwill as of March 31, 2019

 

$

112,334

 

 

$

22,200

 

 

$

865

 

 

$

135,399

 

 

The Company’s identifiable intangible assets consist of customer and referral relationships, trade names, trademarks and non-competition agreements. Amortization is computed using straight-line and accelerated methods based upon the estimated useful lives of the respective assets, which range from three to twenty-five years. Goodwill and certain state licenses are not amortized pursuant to ASC Topic 350.

The carrying amount and accumulated amortization of each identifiable intangible asset category consisted of the following as of March 31, 2019:

 

 

 

Customer

and referral

relationships

 

 

Trade

names and

trademarks

 

 

Non-

competition

agreements

 

 

State

Licenses

 

 

Total

 

 

 

(Amounts in Thousands)

 

Intangible assets with indefinite lives:

 

 

 

 

 

 

 

 

 

 

 

2,871

 

 

 

2,871

 

Intangible assets subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross carrying amount

 

 

42,356

 

 

 

21,551

 

 

 

2,155

 

 

 

241

 

 

 

66,303

 

Accumulated amortization

 

 

(33,436

)

 

 

(11,175

)

 

 

(2,009

)

 

 

(23

)

 

 

(46,643

)

Net book value, intangible assets subject to amortization

 

 

8,920

 

 

 

10,376

 

 

 

146

 

 

 

218

 

 

 

19,660

 

Total intangible assets at March 31, 2019

 

$

8,920

 

 

$

10,376

 

 

$

146

 

 

$

3,089

 

 

$

22,531

 

 

Amortization expense related to the identifiable intangible assets amounted to $1.3 million for the three months ended March 31, 2019 and 2018.

The weighted average remaining lives of identifiable intangible assets as of March 31, 2019 is 8.7 years.

 

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The estimated future intangible amortization expense is as follows:

 

For the Three Months Ended March 31, 2019

 

Total

(Amounts in

Thousands)

 

Remainder of 2019

 

 

3,760

 

2020

 

 

3,400

 

2021

 

 

2,758

 

2022

 

 

1,724

 

2023

 

 

1,406

 

Thereafter

 

 

6,612

 

Total intangible assets subject to amortization

 

$

19,660

 

 

6. Details of Certain Balance Sheet Accounts

Prepaid expenses and other current assets consisted of the following:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(Amounts in Thousands)

 

Workers’ compensation insurance receivable

 

$

1,564

 

 

$

1,692

 

Prepaid workers’ compensation and liability insurance

 

 

1,152

 

 

 

1,840

 

Health insurance receivable

 

 

676

 

 

 

564

 

Other

 

 

3,754

 

 

 

3,002

 

 

 

$

7,146

 

 

$

7,098

 

 

Accrued expenses consisted of the following:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(Amounts in Thousands)

 

Current portion of operating lease liabilities

 

$

5,154

 

 

$

 

Accrued health insurance (1)

 

 

3,681

 

 

 

3,926

 

Accrued professional fees

 

 

2,096

 

 

 

2,260

 

Accrued payroll taxes

 

 

1,585

 

 

 

769

 

Other

 

 

4,686

 

 

 

4,693

 

 

 

$

17,202

 

 

$

11,648

 

 

(1)

The Company provides health insurance coverage to qualified union employees providing personal care services in Illinois through a Taft-Hartley multi-employer health and welfare plan under Section 302(c)(5) of the Labor Management Relations Act of 1947. The Company’s insurance contributions equal the amount reimbursed by the state of Illinois. Contributions are due within five business days from the date the funds are received from the state. Amounts due of $0.7 million and $0.6 million for health insurance reimbursements and contributions were reflected in prepaid insurance and accrued insurance as of March 31, 2019 and December 31, 2018, respectively.

7. Long-Term Debt

Long-term debt consisted of the following:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(Amounts in Thousands)

 

Revolving loan under the credit facility

 

$

20,000

 

 

$

20,000

 

Financing leases

 

 

48

 

 

 

81

 

Less unamortized issuance costs

 

 

(2,636

)

 

 

(2,797

)

Total

 

$

17,412

 

 

$

17,284

 

Less current maturities

 

 

(37

)

 

 

(62

)

Long-term debt

 

$

17,375

 

 

$

17,222

 

 

Amended and Restated Senior Secured Credit Facility

On October 31, 2018, the Company amended and restated its Existing Credit Agreement, as hereinafter defined (the “Credit Agreement,” and together with the Existing Credit Agreement, our “amended and restated credit facility” or “credit facility”) with certain lenders and Capital One, National Association as a lender and swing line lender and as agent for all lenders. This amended and restated credit facility totals $269.6 million, inclusive of a $250.0 million revolving loan and a $19.6 million delayed draw term loan, and is evidenced by the Credit

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Agreement. This amended and restated credit facility amended and restated the Company’s existing senior secured credit facility totaling $250.0 million. The maturity of this amended and restated credit facility is May 8, 2023, with borrowing under the delayed draw term loan available until June 30, 2019, as extended pursuant to the consent letter, dated January 30, 2019, executed by the Required Lenders (as defined in the Credit Agreement). Interest on the Company’s amended and restated credit facility may be payable at (x) the sum of (i) an applicable margin ranging from 0.75% to 1.50% based on 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 the adjusted LIBOR that would be applicable to a loan with an interest period of one month advanced on the applicable day (not to be less than 0.00%) plus a margin of 1.00% or (y) the sum of (i) an applicable margin ranging from 1.75% to 2.50% based on the applicable senior net leverage ratio plus (ii) the offered rate per annum for similar dollar deposits for the applicable interest period that appears on Reuters Screen LIBOR01 Page (not to be less than zero). Swing loans may not be LIBOR loans. The availability of additional draws under this amended and restated credit facility is conditioned, among 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. In connection with this amended and restated credit facility, the Company incurred approximately $0.9 million of debt issuance costs.

Addus HealthCare, Inc. (“Addus HealthCare”) is the borrower, and its parent, Holdings, and substantially all of Holdings’ subsidiaries are guarantors under this amended and restated credit facility, and it is secured by a first priority security interest in all of the Company’s and the other credit parties’ 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 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 portion of the amended and restated credit facility.

The Credit Agreement contains customary affirmative covenants regarding, among other things, the maintenance of records, compliance with laws, maintenance of permits, maintenance of insurance and property and payment of taxes. The Credit Agreement also contains certain customary financial covenants and negative covenants that, among other things, include a requirement to maintain a minimum Interest Coverage Ratio (as defined in the Credit Agreement), a requirement to stay below a maximum Total Net Leverage Ratio (as defined in the Credit Agreement) and a requirement to stay below a maximum permitted amount of capital expenditures, as well as restrictions on guarantees, indebtedness, liens, investments and loans, subject to customary carve outs, a restriction on dividends (provided that Addus HealthCare may 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 our credit facility subject to compliance with the Total Net Leverage Ratio (as defined in the Credit Agreement), restrictions on mergers, dispositions of assets, and affiliate transactions, and restrictions on fundamental changes and lines of business. As of March 31, 2019, the Company was in compliance with all its Credit Agreement covenants.

During the three months ended March 31, 2019, the Company had no draws under its credit facility.

As of March 31, 2019, the Company had a total of $20.0 million of revolving loans outstanding with an interest rate of 4.49% on our credit facility and the total availability under the revolving credit loan facility was $141.2 million.

As of December 31, 2018, the Company had a total of $20.0 million of revolving loans outstanding with an interest rate of 4.35% on our credit facility and the total availability under the revolving credit loan facility was $142.9 million.

 

Senior Secured Credit Facility

Prior to October 31, 2018, we were a party to a credit agreement (the “Existing Credit Agreement”) with certain lenders and Capital One, National Association, as a lender and swing lender and as agent for all lenders. This credit facility totaled $250.0 million, replaced our previous senior secured credit facility totaling $125.0 million (“Terminated Senior Secured Credit Facility”), and terminated the Second Amended and Restated Credit and Guaranty Agreement, dated as of November 10, 2015, as modified by the May 24, 2016 amendment (as amended, the “Terminated Senior Secured Credit Agreement”), between us, certain lenders and Fifth Third Bank, as agent, which evidenced the Terminated Senior Secured Credit Facility. The credit facility included a $125.0 million revolving loan, a $45.0 million term loan and an $80.0 million delayed draw term loan.

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8. Income Taxes

A reconciliation of the statutory federal tax rate of 21.0% for the three months ended March 31, 2019 and 2018 is summarized as follows:

 

 

 

Three Months Ended March 31,

 

 

 

 

2019

 

 

 

2018

 

 

Federal income tax at statutory rate

 

 

21.0

 

%

 

 

21.0

 

%

State and local taxes, net of federal benefit

 

 

6.1

 

 

 

 

6.9

 

 

Jobs tax credits, net

 

 

(6.0

)

 

 

 

(10.9

)

 

162(m) disallowance for executive compensation

 

 

2.8

 

 

 

 

2.2

 

 

Nondeductible permanent items

 

 

0.4

 

 

 

 

1.0

 

 

Excess tax benefit

 

 

(7.6

)

 

 

 

(1.5

)

 

Effective income tax rate

 

 

16.7

 

%

 

 

18.7

 

%

 

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“Tax Reform Act”). The legislation significantly changed U.S. tax law by, among other things, lowering corporate income tax rates. The Tax Reform Act permanently reduced the U.S. corporate income tax rate from a maximum of 35.0% to a flat 21.0% rate, effective January 1, 2018. The effective income tax rate was 16.7% and 18.7% for the three months ended March 31, 2019 and 2018, respectively. The difference between our federal statutory and effective income tax rates are principally due to the inclusion of state taxes and the use of federal employment tax credits.

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.

On January 20, 2016, the Company was served with a lawsuit filed in the United States District Court for the Northern District of Illinois against the Company and Cigna Corporation by Stop Illinois Marketing Fraud, LLC, a qui tam relator formed for the purpose of bringing this action. In the action, the plaintiff alleges, inter alia, violations of the federal False Claims Act relating primarily to allegations of violations of the federal Anti-Kickback Statute and allegedly improper referrals of patients from the Company’s home care division to the Company’s home health business, substantially all of which was sold in 2013. The plaintiff seeks to recover damages, fees and costs under the federal False Claims Act including treble damages, civil penalties and its attorneys’ fees. The U.S. government has declined to intervene at this time. Plaintiff amended its complaint on April 4, 2016 to include additional allegations in support of its False Claims Act claims, including alleged violations of the federal Anti-Kickback Statute. The Company and Cigna Corporation filed a motion to dismiss the amended complaint on June 6, 2016. On February 3, 2017, the Court granted Cigna Corporation’s motion to dismiss in full, and granted the Company’s motion to dismiss in part allowing Plaintiff another chance to amend its complaint. Plaintiff timely filed a second amended complaint on March 10, 2017, withdrawing its conspiracy claim under the Federal False Claims Act and adding an explicit claim under the Illinois False Claims Act for the same underlying kickback allegations. On April 7, 2017, the Company filed a partial motion to dismiss the Second Amended Complaint. On May 24, 2017, the State of Illinois filed notice that it was declining to intervene in the plaintiff’s claim under the Illinois False Claims Act. On March 21, 2018, the Court granted the Company’s motion to dismiss the Second Amended Complaint in part and narrowed the lawsuit to whether the federal False Claims Act was violated with respect to home health services provided at three senior living facilities in Illinois. The Company intends to defend the litigation vigorously and believes the case will not have a material adverse effect on its business, financial condition or results of operations.

Employment Agreements

During 2017, the Company entered into employment agreements with certain members of senior management. The terms of these agreements are up to four years with the potential to auto-renew and include non-compete, non-solicitation and nondisclosure provisions, as well as provide for defined severance payments in the event of termination. On November 5, 2018 we amended and restated the employment agreements of each of our named executive officers in order to: (i) increase the amount of severance that would be payable on certain terminations of employment in connection with a change in control (as defined in the employment agreements), from two times annual compensation to three times annual compensation (as defined in the employment agreements) in the case of our chief executive officer, and from one times annual compensation to two times annual compensation (as defined in the employment agreements) in the case of our other named executive officers; (ii) provide that the enhanced severance for terminations of employment in connection with a change in control would be payable if the named executive officers self-terminated for good reason (as defined in the employment agreements); (iii) stipulate that severance for terminations of employment in connection with a change in control would include any unpaid bonus for a performance period completed prior to termination (the chief executive officer already had this right); and (iv) adjust the duration of non-competition and non-solicitation periods to match the number of years of annual compensation that the named executive officer would receive in severance.

A substantial percentage of the Company’s workforce is represented by the Service Employees International Union (“SEIU”) through local collective bargaining agreements. These agreements are re-negotiated at various intervals. These negotiations are often initiated when the Company receives increases in hourly reimbursement rates from various state agencies. Upon expiration of these collective bargaining agreements, the Company may not be able to negotiate labor agreements on satisfactory terms with these labor unions.

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10. Severance and Restructuring

 

In 2016, the Company initiated steps to streamline its operations. The Company incurred total expenses related to these initiatives of approximately $0.4 million and $0.5 million for the three months ended March 31, 2019 and 2018, respectively. These costs are included in general and administrative expenses on the Company’s Unaudited Condensed Consolidated Statements of Income. The expenses recorded for the three months ended March 31, 2019 and 2018 included costs related to terminated employees and other professional fees. The Company expects some additional restructuring and other costs to occur, however, the amount and timing cannot be determined at this time.

 

The following provides the components of and changes in our severance and restructuring accruals:

 

 

 

Employee

Termination

Costs

 

 

Restructuring

and Other

 

 

 

(Amounts in Thousands)

 

Balance at December 31, 2018

 

$

80

 

 

$

585

 

Provision