# Addus HomeCare Corp: Form 10-Q for the period ended Mar 31, 2023

- Company: [Addus HomeCare Corp](/companies/adus.md) (CIK 1468328)
- Form: 10-Q
- Filed: 2023-05-02
- Accepted by EDGAR: May 2, 2023, 16:31 ET
- Period: 2023-03-31
- Accession: 0000950170-23-016717
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1468328/000095017023016717/adus-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1468328/000095017023016717/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $251.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $173.2m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-01-01 to 2023-03-31 | $78.4m | us-gaap:GrossProfit |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | $18.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $2.5m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $3.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $12.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.78 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.79 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 16,297,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | $18.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $777.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-03-31 | $73.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $209.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $931.1m | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $124.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $282.2m | us-gaap:Liabilities |
| Long-term debt | at 2023-03-31 | $108.5m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2023-03-31 | $648.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 61,860 characters.

*You should read the following discussion together with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements about our business and operations. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words like “believes,” “belief,” “expects,” “plans,” “anticipates,” “intends,” “projects,” “estimates,” “may,” “might,” “would,” “should” and similar expressions are intended to be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to: the impact of macroeconomic conditions, rising global inflation and interest rates, legislative developments, trade disruptions and supply chain disruptions on our business and our customers’ businesses; financial market instability and disruptions to the banking system due to bank failures, particularly in light of the closures of Silicon Valley Bank and Signature Bank in March 2023; business disruptions due to natural disasters, acts of terrorism, pandemics (including the ongoing COVID-19 pandemic), riots, civil insurrection or social unrest, looting, protests, strikes or street demonstrations; changes in operational and reimbursement processes and payment structures at the state or federal levels; changes in Medicaid, Medicare, other government program and managed care organizations policies and payment rates, and the timeliness of reimbursements received under government programs; changes in, or our failure to comply with, existing, federal and state laws or regulations, or our failure to comply with new government laws or regulations on a timely basis; competition in the healthcare industry; the geographical concentration of our operations; changes in the case mix of consumers and payment methodologies; operational changes resulting from the assumption by managed care organizations of responsibility for managing and paying for our services to consumers; the nature and success of future financial and/or delivery system reforms; changes in estimates and judgments associated with critical accounting policies; our ability to maintain or establish new referral sources; our ability to renew significant agreements or groups of agreements; our ability to attract and retain qualified personnel; federal, state and city minimum wage pressure, including any failure of any governmental entity to enact a minimum wage offset and/or the timing of any such enactment; changes in payments and covered services due to the overall economic conditions and deficit reduction measures by federal and state governments, and our expectations regarding these changes; cost containment initiatives undertaken by federal and state governmental and other third-party payors; our ability to access financing through the capital and credit markets; our ability to meet debt service requirements and comply with covenants in debt agreements; our ability to integrate and manage our information systems; any security breaches, cyber-attacks, loss of data, or cybersecurity threats or incidents, and any actual or perceived failures to comply with legal requirements related to the privacy of confidential consumer data and other sensitive information; the size and growth of the markets for our services, including our expectations regarding the markets for our services; the acceptance of privatized social services; eligibility standards and limits on services imposed by state governmental agencies; the potential for litigation, audits and investigations; discretionary determinations by government officials; our ability to successfully implement our business model to grow our business; our ability to continue identifying, pursuing, consummating and integrating acquisition opportunities and expand into new geographic markets; the impact of acquisitions and dispositions on our business, including the potential inability to realize the benefits of potential acquisitions; the potential impact of the discontinuation or modification of LIBOR; the effectiveness, quality and cost of our services; our ability to successfully execute our growth strategy; changes in tax rates; the impact of inclement weather or natural disasters; and various other matters, many of which are beyond our control. In addition, these forward-looking statements are subject to the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the period ended December 31, 2022, filed with the SEC on February 28, 2023. You should carefully review all of these factors. Moreover, our business may be materially adversely affected by factors that are not currently known to us, by factors that we currently consider immaterial or by factors that are not specific to us, such as general economic conditions. These forward-looking statements were based on information, plans and estimates at the date of this report, and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes, except as may be required by law.*

### Overview

We are a home care services provider operating three segments: personal care, hospice and home health. Our services are principally provided in-home under agreements with federal, state and local government agencies, managed care organizations, commercial insurers and private individuals. Our consumers are predominantly “dual eligible,” meaning they are eligible to receive both Medicare and Medicaid benefits. Managed care revenues accounted for 36.6% and 35.7% of our net service revenues during the three months ended March 31, 2023 and 2022, respectively.

A summary of certain consolidated financial results is provided in the table below.

*(Amounts in Thousands)*

| Net service revenues by segment: | For the Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Personal care | $190,032 | $169,632 |
| Hospice | 49,082 | 47,727 |
| Home health | 12,485 | 9,275 |
| Total net service revenue | $251,599 | $226,634 |
| Net income | $12,675 | $8,470 |

As of March 31, 2023, we provided our services in 22 states through 203 offices. We served approximately 55,000 and 53,000 discrete individuals, respectively, during the three months ended March 31, 2023 and 2022. Our personal care segment also includes staffing services, with clients including assisted living facilities, nursing homes and hospice facilities.

### Acquisitions

In addition to our organic growth, we have grown through acquisitions that have expanded our presence in current markets, with the goal of having all three levels of in-home care in our markets or facilitating our entry into new markets where in-home care has been moving to managed care organizations or that present other strategic opportunities.

On February 1, 2022, we completed the acquisition of the operations of JourneyCare Inc. (“JourneyCare”). The purchase price was approximately $86.6 million, including the amount of acquired excess cash held by JourneyCare at the closing of the acquisition (approximately $0.4 million). The JourneyCare acquisition was funded with a combination of a $35.0 million draw on the Company’s revolving credit facility and available cash. With the JourneyCare acquisition, the Company expanded its hospice services in Illinois.

On October 1, 2022, we completed the acquisition of Apple Home HealthCare, LTD (“Apple Home”) for $12.7 million, with funding provided by drawing on the Company’s revolving credit facility. With the purchase of Apple Home, the Company expanded clinical services for its home health segment in Illinois.

On January 1, 2023, we completed the acquisition of CareStaff for approximately $1.0 million, with funding provided by available cash. With the purchase of CareStaff, the Company expanded its personal care services in Florida.

### COVID-19 Pandemic Update

Compared to earlier periods, the United States has generally experienced a moderation of COVID-19 infections and related hospitalizations. However, given the longer-term uncertainties associated with the COVID-19 pandemic, it is difficult to predict the effect and ultimate impact of the COVID-19 pandemic on the Company as conditions related to the COVID-19 pandemic continue to evolve.

For the three months ended March 31, 2023 and 2022, COVID-19-related expenses in our personal care segment were approximately $0.7 million and $1.7 million, respectively, and are included in cost of service revenues on the Consolidated Statements of Income. Additionally, we recognized revenue of $0.9 million and $1.4 million attributable to temporary rate increases from certain payors in our personal care segment for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, the Company deferred the recognition of $2.9 million of payments received from payors for COVID-19 reimbursement, included within accrued expenses, which will be recognized as we incur specific expenses related to the pandemic, such as expenses related to acquiring additional PPE and COVID-19 related paid time off, or will be returned to the extent COVID-19-related expenses are not incurred. We are not able to reasonably predict the total costs we will incur related to the COVID-19 pandemic, and such costs could be substantial.

As the COVID-19 public health situation continues to evolve, federal and state governments have shifted to reducing or terminating certain temporary measures that were implemented to ease delivery of care earlier in the COVID-19 public health emergency. In addition, the current federal public health emergency declaration expires May 11, 2023, and the Biden administration has indicated it will not be extended. We will continue to assess the impact and consequences of the COVID-19 pandemic and government responses to the pandemic, including the implementation of the CARES Act, the PPPHCE Act, the CAA, the ARPA, other stimulus and relief legislation, the President’s National COVID-19 Preparedness Plan, and existing and potential additional federal, state and local vaccine mandates, on our business, results of operations, financial condition and cash flows. Given the dynamic nature of these circumstances, we cannot currently predict with certainty the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted by the pandemic but is not expected to have a material adverse impact. See Part I, Item 1A—Risk Factors — “*The COVID-19 pandemic could negatively affect our operations, business and financial condition, and our liquidity could also be negatively impacted, particularly if the U.S. economic and/or public health conditions deteriorate in connection with the pandemic”* of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023.

See “Liquidity and Capital Resources” below for additional information regarding funds received related to COVID-19 pandemic relief.

### Recruiting

As the labor market has tightened and unemployment has declined in comparison to earlier levels, the competition for new caregivers, including skilled healthcare staff, and support staff has increased. In addition, the United States economy continues to experience significant inflationary pressures and a competitive labor market. To the extent that we continue to experience a shortage of caregivers, it may hinder our ability to fully meet the continuing demand for both our non-clinical and clinical services.

### Revenue by Payor and Significant States

Our payors are principally federal, state and local governmental agencies and managed care organizations. The federal, state and local programs under which the agencies operate are subject to legislative and budgetary changes and other risks that can influence reimbursement rates. We are experiencing a transition of business from government payors to managed care organizations, which we believe aligns with our emphasis on coordinated care and the reduction of the need for acute care.

Our revenue by payor and significant states by segment were as follows:

| Personal Care Segment | For the Three Months Ended March 31, 2023 Amount (in Thousands) | % of Segment Net Service Revenues | 2022 Amount (in Thousands) | % of Segment Net Service Revenues |
| --- | ---: | ---: | ---: | ---: |
| State, local and other governmental programs | $95,320 | 50.1% | $83,908 | 49.5% |
| Managed care organizations | 87,901 | 46.3 | 77,390 | 45.6 |
| Private pay | 4,226 | 2.2 | 4,626 | 2.7 |
| Commercial insurance | 1,669 | 0.9 | 2,024 | 1.2 |
| Other | 916 | 0.5 | 1,684 | 1.0 |
| Total personal care segment net service revenues | $190,032 | 100.0% | $169,632 | 100.0% |
| Illinois | $98,414 | 51.8% | $84,693 | 49.9% |
| New Mexico | 28,474 | 15.0 | 25,440 | 15.0 |
| New York (1) | 21,885 | 11.5 | 21,385 | 12.6 |
| All other states | 41,259 | 21.7 | 38,114 | 22.5 |
| Total personal care segment net service revenues | $190,032 | 100.0% | $169,632 | 100.0% |

(1) The Company has suspended materially all of its new patient admissions under the New York CDPAP program as discussed below.

| Hospice Segment | For the Three Months Ended March 31, 2023 Amount (in Thousands) | % of Segment Net Service Revenues | 2022 Amount (in Thousands) | % of Segment Net Service Revenues |
| --- | ---: | ---: | ---: | ---: |
| Medicare | $44,556 | 90.8% | $43,485 | 91.1% |
| Commercial insurance | 2,547 | 5.2 | 2,244 | 4.7 |
| Managed care organizations | 1,647 | 3.4 | 1,715 | 3.6 |
| Other | 332 | 0.6 | 283 | 0.6 |
| Total hospice segment net service revenues | $49,082 | 100.0% | $47,727 | 100.0% |
| Ohio | $18,451 | 37.6% | $16,328 | 34.2% |
| Illinois | 11,480 | 23.4 | 9,541 | 20.0 |
| New Mexico | 6,486 | 13.2 | 8,233 | 17.3 |
| All other states | 12,665 | 25.8 | 13,625 | 28.5 |
| Total hospice segment net service revenues | $49,082 | 100.0% | $47,727 | 100.0% |

20

| Home Health Segment | For the Three Months Ended March 31, 2023 Amount (in Thousands) | % of Segment Net Service Revenues | 2022 Amount (in Thousands) | % of Segment Net Service Revenues |
| --- | ---: | ---: | ---: | ---: |
| Medicare | $9,270 | 74.2% | $6,812 | 73.4% |
| Managed care organizations | 2,539 | 20.3 | 1,904 | 20.5 |
| Other | 676 | 5.5 | 559 | 6.1 |
| Total home health segment net service revenues | $12,485 | 100.0% | $9,275 | 100.0% |
| New Mexico | $9,116 | 73.0% | $7,509 | 81.0% |
| Illinois | 3,369 | 27.0 | 1,766 | 19.0 |
| Total home health segment net service revenues | $12,485 | 100.0% | $9,275 | 100.0% |

We derive a significant amount of our net service revenues in Illinois, which represented 39.1% and 37.4% of our net service revenues for the three months ended March 31, 2023 and 2022, respectively.

A significant amount of our net service revenues are derived from one payor, the Illinois Department on Aging, the largest payor program for our Illinois personal care operations, which accounted for 21.5% and 20.7% of our net service revenues for the three months ended March 31, 2023 and 2022, respectively.

### Changes in Reimbursement Rates

#### Illinois

On November 26, 2019, the City of Chicago voted to approve additional increases in the Chicago minimum wage to $14 per hour beginning July 1, 2020 and to $15 per hour beginning July 1, 2021. In each subsequent year, the City is required to raise the wage based on increases in the Consumer Price Index (“CPI”) subject to a cap and other requirements. On July 1, 2022, the rate was adjusted to $15.40 based on the increase in the CPI.

The Illinois fiscal year 2022 budget included an increase of hourly rates for in-home care services to $24.96, to be effective January 1, 2022. On July 12, 2021, in connection with the temporary increase in federal funding for Medicaid home and community-based services authorized by the ARPA, the State of Illinois submitted its Initial Spending Plan and Narrative to CMS for approval. That plan included the acceleration by two months of the rate increase to $24.96 from January 1, 2022, to November 1, 2021. The Company recognized $3.6 million related to the rate increase for the year ended December 31, 2021.

The Illinois fiscal year 2023 budget included an increase of hourly rates for in-home care services to $25.66, to be effective January 1, 2023. This increase offsets the $0.40 increase in Chicago minimum wage that occurred on July 1, 2022. In March 2023, the Illinois Department of Healthcare and Family Services submitted a waiver amendment proposal to CMS to further increase in-home care rates to $26.92, effective as of April 1,2023, which CMS approved.

Our business will benefit from the rate increases noted above as planned for 2023, but there is no assurance that there will be additional offsetting rate increases in Illinois for fiscal years beyond fiscal year 2023, and our financial performance will be adversely impacted for any periods in which an additional offsetting reimbursement rate increase is not in effect.

### Impact of Changes in Medicare and Medicaid Reimbursement

#### Home Health

Home health services provided to Medicare beneficiaries are paid under the Medicare Home Health Prospective Payment System (“HHPPS”), which uses national, standardized 30-day period payment rates for periods of care that meet a certain threshold of home health visits (periods of care that do not meet the visit threshold are paid a per-visit payment rate for providing care). Although payment is made for each 30-day period, the HHPPS permits continuous 60-day certification periods through which beneficiaries are verified as eligible for the home health benefit. The daily home health payment rate is adjusted for case-mix and area wage levels. CMS uses the Patient-Driven Groupings Model (“PDGM”) as the case-mix classification model to place periods of care into payment categories, classifying patients based on clinical characteristics and their resource needs. An outlier adjustment may be paid for periods of care where costs exceed a specific threshold amount.

CMS updates the HHPPS payment rates each calendar year. For calendar year 2023, CMS estimates that Medicare payments to home health agencies will increase by 0.7%. This is based on a home health payment update percentage of 4.0, which reflects a 4.1% market basket update reduced by a productivity adjustment of negative 0.1 percentage points, and an estimated 3.5% decrease associated with the transition to the PDGM that is intended to help achieve budget-neutrality on a prospective basis, among other changes. Home health providers that do not comply with quality data reporting requirements are subject to a 2-percentage point reduction to their market basket update. In addition, beginning January 1, 2022, Medicare requires home health agencies to submit a one-time Notice of Admission (“NOA”) for each patient that establishes that the beneficiary is under a Medicare home health period of care. Failure to submit the NOA within five calendar days from the start of care will result in a reduction to the 30-day period payment amount for each day from the start of care date until the date the NOA is submitted.

CMS began implementing a nationwide expansion of the Home Health Value-Based Purchasing (“HHVBP”) Model in January 2022. Under the model, home health agencies will receive increases or decreases to their Medicare fee-for-service payments of up to 5%, based on performance against specific quality measures relative to the performance of other home health providers. Data collected in each performance year will impact Medicare payments two years later. Calendar year 2023 is the first performance year under the expanded HHVBP Model, which will affect payments in calendar year 2025.

In certain states, payment of claims may be impacted by the Review Choice Demonstration for Home Health Services, a program intended to identify and prevent fraud, reduce the number of Medicare appeals and improve provider compliance with Medicare program requirements. The program applies to home health agencies in Illinois, Ohio, North Carolina, Florida and Texas and may expand, in the future, into additional states. Providers in states subject to the Review Choice Demonstration may initially select from the following claims review and approval processes: pre-claim review, post-payment review or a minimal post-payment review with a 25% payment reduction. Home health agencies that maintain high compliance levels will be eligible for additional options that may be less burdensome. We are currently unable to predict what impact, if any, this program may have on our result of operations or financial position.

The IMPACT Act requires HHS, together with the Medicare Payment Advisory Commission, to work toward a unified payment system for post-acute care services provided by home health agencies, inpatient rehabilitation facilities, skilled nursing facilities, and long-term care hospitals. A unified post-acute care payment system would pay post-acute care providers under a single framework according to a patient’s characteristics, rather than based on the post-acute care setting where the patient receives treatment. As required under the statute, CMS and the HHS Office of the Assistant Secretary for Planning and Evaluation issued a report presenting a prototype for a unified post-acute care payment model in July 2022. CMS noted in its report the need for additional analyses and acknowledged that the universal implementation of a unified post-acute care payment system would require congressional action. The Medicare Payment Advisory Commission is required to submit a report to Congress by June 2023.

#### Hospice

Hospice services provided to Medicare beneficiaries are paid under the Medicare Hospice Prospective Payment System, under which CMS sets a daily rate for each day a patient is enrolled in the hospice benefit. CMS updates these rates each federal fiscal year. Effective October 1, 2022, CMS increased hospice payment rates by 3.8%. This reflects a 4.1% market basket increase and a negative 0.3 percentage point productivity adjustment. Hospices that do not satisfy quality reporting requirements are subject to a 2-percentage point reduction to the market basket update. Beginning in 2024, the reduction to the market basket update for failure to report quality data will increase to 4 percentage points.

Overall payments made by Medicare to each hospice provider number are subject to an inpatient cap and an aggregate cap, which is set each federal fiscal year. The inpatient cap limits the number of days of inpatient care to no more than 20% of total patient care days. The aggregate cap, which limits the total Medicare reimbursement that a hospice may receive based on an annual per-beneficiary cap amount and the number of Medicare patients served, was updated to $32,486.92 for federal fiscal year 2023. If a hospice’s Medicare payments exceed its inpatient or aggregate caps, it must repay Medicare the excess amount.

### New York Consumer Directed Personal Assistance Program (“CDPAP”)

The CDPAP is a self-directed care alternative program that allows eligible individuals who need help with activities of daily living or skilled nursing services to choose their caregivers. We provide support services as a CDPAP fiscal intermediary.

In April 2022, the New York legislature passed the fiscal year 2023 state budget, which amended the Fiscal Intermediary Request For Offer (“RFO”) process to authorize all fiscal intermediaries that submitted an RFO application and served at least 200 clients in New York City or 50 clients in other counties between January 1, 2020, and March 31, 2020, but that were not initially awarded a contract, to contract with the New York State Department of Health. These fiscal intermediaries are permitted to continue operating in all counties contained in their RFO application, provided they submitted an attestation and supporting information to the NYSDOH no later than November 29, 2022. The Company submitted an attestation on November 22, 2022. For the fiscal intermediaries whose attestation and supporting information meet all requirements, the NYSDOH will issue award letters on the contract award date, which was anticipated to be April 1, 2023. However, the New York State Department of Health has not yet awarded these contracts. Any fiscal intermediary that does not receive an award letter must cease fiscal intermediary operations. The Company continues to assess the future of its participation in this program. Given the current profitability of the program, the Company has suspended materially all of its new fee-for-service patient admissions through County Social Service Departments in the CDPAP program.

### HHS Proposed Rule: “Assuring Access to Medicaid Services”

On April 27, 2023, HHS introduced a proposed rule titled “Assuring Access to Medicaid Services.” The proposed rule has a stated goal

of improving access to services for Medicaid beneficiaries. As part of this proposed rule, HHS is proposing that state Medicaid agencies provide assurances that a minimum of 80% of Medicaid payments for personal care and similar services be spent on compensation to direct care workers. The proposed rule would allow states four years to implement changes required by a final rule, with extended time specified for managed care delivery systems. The proposed rule is subject to comment and specifically requests comments on the 80% threshold, related definitions and the implementation period. The ultimate impact of any final rule, which could be adverse for periods after implementation, but could also benefit our business by improving access to services, depends on the requirements set forth in any final rule.

### Components of our Statements of Income

#### Net Service Revenues

We generate net service revenues by providing our services directly to consumers and primarily on an hourly basis in our personal care segment, on a daily basis in our hospice segment and on an episodic basis in our home health segment. We receive payment for providing such services from our private consumers and payors, including federal, state and local governmental agencies, managed care organizations and commercial insurers.

In our personal care segment, net service revenues are principally provided based on authorized hours, determined by the relevant agency, at an hourly rate, which is either contractual or fixed by legislation, and are recognized at the time services are rendered. In our hospice segment, net service revenues are provided based on daily rates for each of the levels of care and are recognized as services are provided. In our home health segment, net service revenues are based on an episodic basis at a stated rate and recognized based on the number of days elapsed during a period of care within the reporting period. We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record revenues.

#### Cost of Service Revenues

We incur direct care wages, payroll taxes and benefit-related costs in connection with providing our services. We also provide workers’ compensation and general liability coverage for our employees. Employees are also reimbursed for their travel time and related travel costs in certain instances.

#### General and Administrative Expenses

Our general and administrative expenses include our costs for operating our network of local agencies and our administrative offices. Our agency expenses consist of costs for supervisory personnel, our community care supervisors and office administrative costs. Personnel costs include wages, payroll taxes and employee benefits. Facility costs include rents, utilities, and postage, telephone and office expenses. Our corporate and support center expenses include costs for accounting, information systems, human resources, billing and collections, contracting, marketing and executive leadership. These expenses consist of compensation, including stock-based compensation, payroll taxes, employee benefits, legal, accounting and other professional fees, travel, general insurance, rents, provision for doubtful accounts and related facility costs. Expenses related to streamlining our operations such as costs related to terminated employees, termination of professional services relationships, other contract termination costs and asset write-offs are also included in general and administrative expenses.

#### Depreciation and Amortization Expenses

Depreciable assets consist principally of furniture and equipment, network administration and telephone equipment and operating system software. Depreciable and leasehold assets are depreciated or amortized on a straight-line method over their useful lives or, if less and if applicable, their lease terms. We amortize our intangible assets with finite lives, consisting of customer and referral relationships, trade names, trademarks and non-competition agreements, using straight line or accelerated methods based upon their estimated useful lives.

#### Interest Expense

Interest expense is reported when incurred and principally consists of interest and unused credit line fees on the credit facility.

#### Income Tax Expense

All of our income is from domestic sources. We incur state and local taxes in states in which we operate. The effective income tax rate was 22.0% and 27.9% for the three months ended March 31, 2023 and 2022, respectively, compared to our federal statutory rate of 21%. The difference between our federal statutory and effective income tax rates was principally due to the inclusion of state taxes, non-deductible compensation, excess tax expense/benefit and the use of federal employment tax credits.

### Results of Operations — Consolidated

#### Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

The following table sets forth our unaudited condensed consolidated results of operations.

*(Amounts in Thousands, Except Percentages)*

|  | For the Three Months Ended March 31, 2023 Amount | % Of Net Service Revenues | 2022 Amount | % Of Net Service Revenues | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net service revenues | $251,599 | 100.0% | $226,634 | 100.0% | $24,965 | 11.0% |
| Cost of service revenues | 173,184 | 68.8 | 156,448 | 69.0 | 16,736 | 10.7 |
| Gross profit | 78,415 | 31.2 | 70,186 | 31.0 | 8,229 | 11.7 |
| General and administrative expenses | 56,360 | 22.4 | 53,152 | 23.5 | 3,208 | 6.0 |
| Depreciation and amortization | 3,447 | 1.4 | 3,521 | 1.5 | (74) | (2.1) |
| Total operating expenses | 59,807 | 23.8 | 56,673 | 25.0 | 3,134 | 5.5 |
| Operating income | 18,608 | 7.4 | 13,513 | 6.0 | 5,095 | 37.7 |
| Interest income | (106) | — | (58) | — | (48) | 82.8 |
| Interest expense | 2,461 | 1.0 | 1,820 | 0.8 | 641 | 35.2 |
| Total interest expense, net | 2,355 | 0.9 | 1,762 | 0.8 | 593 | 33.7 |
| Income before income taxes | 16,253 | 6.5 | 11,751 | 5.2 | 4,502 | 38.3 |
| Income tax expense | 3,578 | 1.4 | 3,281 | 1.5 | 297 | 9.1 |
| Net income | $12,675 | 5.0% | $8,470 | 3.7% | $4,205 | 49.6% |

Net service revenues increased by 11.0% to $251.6 million for the three months ended March 31, 2023 compared to $226.6 million for the three months ended March 31, 2022. Revenue increased by $1.4 million in our hospice segment and by $3.2 million in our home health segment during the three months ended March 31, 2023, compared to the same period in 2022. The increase in our hospice segment revenue was due to organic growth and the acquisition of the operations of JourneyCare on February 1, 2022.

Gross profit, expressed as a percentage of net service revenues, increased to 31.2% for the three months ended March 31, 2023, compared to 31.0% for the same period in 2022 due to growth in our higher margin hospice segment.

General and administrative expenses increased to $56.4 million for the three months ended March 31, 2023, as compared to $53.2 million for the three months ended March 31, 2022. The increase in general and administrative expenses was primarily due to an increase in administrative employee wage, bonus, tax and benefit costs of $4.4 million, offset by a decrease in acquisition related expense of $1.5 million. General and administrative expenses, expressed as a percentage of net service revenues decreased to 22.4% for the three months ended March 31, 2023, from 23.5% for the three months ended March 31, 2022.

Interest expense increased to $2.5 million for the three months ended March 31, 2023 from $1.8 million for the three months ended March 31, 2022. The increase in interest expense was primarily due to increased interest rates under our credit facility for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The weighted average interest rate was 6.28% and 2.15% for the three months ended March 31, 2023 and 2022, respectively.

All of our income is from domestic sources. We incur state and local taxes in states in which we operate. The effective income tax rate was 22.0% and 27.9% for the three months ended March 31, 2023 and 2022, respectively. The difference between the federal statutory and our effective income tax rates was principally due to the inclusion of state taxes, non-deductible compensation, excess tax expense/benefit and the use of federal employment tax credits.

### Results of Operations – Segments

The following tables and related analysis summarize our operating results and business metrics by segment:

### Personal Care Segment

*(Amounts in Thousands, Except Percentages)*

| Operating Results | For the Three Months Ended March 31, 2023 Amount | % of Segment Net Service Revenues | 2022 Amount | % of Segment Net Service Revenues | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net service revenues | $190,032 | 100.0% | $169,632 | 100.0% | $20,400 | 12.0% |
| Cost of services revenues | 138,383 | 72.8 | 126,291 | 74.4 | 12,092 | 9.6 |
| Gross profit | 51,649 | 27.2 | 43,341 | 25.6 | 8,308 | 19.2 |
| General and administrative expenses | 15,935 | 8.4 | 15,004 | 8.9 | 931 | 6.2 |
| Segment operating income | $35,714 | 18.8% | $28,337 | 16.7% | $7,377 | 26.0% |
| **Business Metrics (Actual Numbers, Except Billable Hours in Thousands)** |  |  |  |  |  |  |
| Locations at period end | 157 |  | 162 |  |  |  |
| Average billable census \* (1) | 38,363 |  | 36,582 |  | 1,781 | 4.9% |
| Billable hours \* (2) | 7,592 |  | 7,101 |  | 491 | 6.9 |
| Average billable hours per census per month \* (2) | 65.8 |  | 64.4 |  | 1.4 | 2.2 |
| Billable hours per business day \* (2) | 116,805 |  | 110,951 |  | 5,854 | 5.3 |
| Revenues per billable hour \* (2) | $24.98 |  | $23.64 |  | $1.34 | 5.7% |
| Same store growth revenue % \* (3) | 11.4% |  | 0.9% |  |  |  |

(1) Average billable census is the number of unique clients receiving a billable service during the year and is the total census divided by months in operation during the period.

(2) Billable hours is the total number of hours served to clients during the period. Average billable hours per census per month is billable hours divided by average billable census. Billable hours per day is total billable hours divided by the number of business days in the period. Revenues per billable hour is revenue, attributed to billable bonus hours, divided by billable hours.

(3) Same store growth reflects the change in year-over-year revenue for the same store base. We define the same store base to include those stores open for at least 52 full weeks. This measure highlights the performance of existing stores, while excluding the impact of acquisitions, new store openings and closures, the New York CDPAP program and ARPA associated revenue from this calculation.

\* Management deems these metrics to be key performance indicators. Management uses these metrics to monitor our performance, both in our existing operations and acquisitions. Many of these metrics serve as the basis of reported revenues and assessment of these provide direct correlation to the results of operations from period to period and facilitate comparison with the results of our peers. Historical trends established in these metrics can be used to evaluate current operating results, identify trends affecting our business, determine the allocation of resources and assess the quality and potential variability of our cash flows and earnings. We believe they are useful to investors in evaluating and understanding our business but should not be used solely in assessing the Company’s performance. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein to fully evaluate and understand the business as a whole. These measures may not be comparable to similarly titled performance indicators used by other companies.

The personal care segment derives a significant amount of its net service revenues from operations in Illinois, which represented 39.1% and 37.4% of our net service revenues for the three months ended March 31, 2023 and 2022, respectively. One payor, the Illinois Department on Aging, accounted for 21.5% and 20.7% of net service revenues for the three months ended March 31, 2023 and 2022, respectively.

Net service revenues from state, local and other governmental programs accounted for 50.1% and 49.5% of net service revenues for the three months ended March 31, 2023 and 2022, respectively. Managed care organizations accounted for 46.3% and 45.6% of net service revenues for the three months ended March 31, 2023 and 2022, respectively, with commercial insurance, private pay and other payors accounting for the remainder of net service revenues.

Net service revenues increased by 12.0% for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. Net service revenues included a 5.7% increase in revenues per billable hour for the three months ended March 31, 2023, mainly attributed to rate increases discussed above, as compared to the three months ended March 31, 2022. The Company experienced an increase in New York net service revenues of $0.5 million for the three months ended March 31, 2023, primarily driven by an increase in participation in the New York CDPAP program as discussed above, compared to 2022. Gross profit, expressed as a percentage of net service revenues, increased to 27.2% for the three months ended March 31, 2023 from 25.6% for the three months ended March 31, 2022. This increase was primarily due to decreases in direct payroll and benefits expenses as a percentage of net service revenues of 1.0% for the three months ended March 31, 2023.

The personal care segment’s general and administrative expenses primarily consist of administrative employee wages, taxes and benefit costs, rent, information technology and office expenses. General and administrative expenses, expressed as a percentage of net service revenues, was 8.4% and 8.9% for the three months ended March 31, 2023 and 2022, respectively.

### Hospice Segment

*(Amounts in Thousands, Except Percentages)*

| Operating Results | For the Three Months Ended March 31, 2023 Amount | % of Segment Net Service Revenues | 2022 Amount | % of Segment Net Service Revenues | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net service revenues | $49,082 | 100.0% | $47,727 | 100.0% | $1,355 | 2.8% |
| Cost of services revenues | 27,267 | 55.6 | 23,441 | 49.1 | 3,826 | 16.3 |
| Gross profit | 21,815 | 44.4 | 24,286 | 50.9 | (2,471) | (10.2) |
| General and administrative expenses | 13,015 | 26.5 | 11,712 | 24.6 | 1,303 | 11.1 |
| Segment operating income | $8,800 | 17.9% | $12,574 | 26.3% | $(3,774) | (30.0)% |
| **Business Metrics (Actual Numbers)** |  |  |  |  |  |  |
| Locations at period end | 33 |  | 33 |  |  |  |
| Admissions \* (1) | 3,324 |  | 3,315 |  | 9 | 0.3% |
| Average daily census \* (2) | 3,195 |  | 3,320 |  | (125) | (3.8) |
| Average discharge length of stay \* (3) | 88 |  | 84 |  | 4 | 4.8 |
| Patient days \* (4) | 287,551 |  | 275,488 |  | 12,063 | 4.4 |
| Revenue per patient day \* (5) | $176.22 |  | $173.24 |  | $2.98 | 1.7% |
| Organic growth |  |  |  |  |  |  |
| - Revenue \* (6) | 2.6% |  | 4.4% |  |  |  |
| - Average daily census \* (6) | 1.5% |  | 7.0% |  |  |  |

(1) Represents referral process and new patients on service during the period.

(2) Average daily census is total patient days divided by the number of days in the period.

(3) Average length of stay is the average number of days a patient is on service, calculated upon discharge, and is total patient days divided by total discharges in the period.

(4) Patient days is days of service for all patients in the period.

(5) Revenue per patient day is hospice revenue divided by the number of patient days in the period.

(6) Revenue organic growth and average daily census organic growth reflect the change in year-over-year revenue and average daily census for the same store base. We define the same store base to include those stores open for at least 52 full weeks. These measures highlight the performance of existing stores, while excluding the impact of acquisitions, new store openings and closures.

\* Management deems these metrics to be key performance indicators. Management uses these metrics to monitor our performance, both in our existing operations and acquisitions. Many of these metrics serve as the basis of reported revenues and assessment of these provide direct correlation to the results of operations from period to period and facilitate comparison with the results of our peers. Historical trends established in these metrics can be used to evaluate current operating results, identify trends affecting our business, determine the allocation of resources and assess the quality and potential variability of our cash flows and earnings. We believe they are useful to investors in evaluating and understanding our business but should not be used solely in assessing the Company’s performance. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein to fully evaluate and understand the business as a whole. These measures may not be comparable to similarly titled performance indicators used by other companies.

The hospice segment generates net service revenues by providing care to patients with a life expectancy of six months or less, as well as related services for their families. Hospice offers four levels of care, as defined by Medicare, to meet the varying needs of patients and their families. The four levels of hospice include routine home care, continuous home care, general inpatient care and respite care. Our hospice segment principally provides routine home care and continuous home care services, and with the JourneyCare acquisition, expanded into providing general inpatient care services. In our hospice segment, net service revenues from Medicare accounted for 90.7% and 91.1% for the three months ended March 31, 2023 and 2022, respectively. Net service revenues from managed care organizations accounted for 3.4% and 3.6% for the three months ended March 31, 2023 and 2022, respectively.

Net service revenues increased by $1.4 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily attributed to organic growth and the acquisition of the operations of JourneyCare on February 1, 2022.

Gross profit, expressed as a percentage of net service revenues was 44.4% and 50.9% for the three months ended March 31, 2023 and 2022, respectively. For the three months ended March 31, 2023, the decrease was mainly attributed to increases in direct employee wage, tax and benefit costs.

The hospice segment’s general and administrative expenses primarily consist of administrative employee wage, tax and benefit costs, rent, information technology and office expenses. General and administrative expenses, expressed as a percentage of net service revenues was 26.5% and 24.6% for the three months ended March 31, 2023 and 2022, respectively. The increase in general and administrative expenses was primarily due to a $1.2 million increase in administrative employee wage, tax and benefit costs for the three months ended March 31, 2023.

### Home Health Segment

*(Amounts in Thousands, Except Percentages)*

| Operating Results | For the Three Months Ended March 31, 2023 Amount | % of Segment Net Service Revenues | 2022 Amount | % of Segment Net Service Revenues | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net service revenues | $12,485 | 100.0% | $9,275 | 100.0% | $3,210 | 34.6% |
| Cost of services revenues | 7,534 | 60.3 | 6,716 | 72.4 | 818 | 12.2 |
| Gross profit | 4,951 | 39.7 | 2,559 | 27.6 | 2,392 | 93.5 |
| General and administrative expenses | 2,879 | 23.1 | 2,359 | 25.4 | 520 | 22.1 |
| Segment operating income | $2,072 | 16.6% | $200 | 2.2% | $1,872 | 936.0% |
| **Business Metrics (Actual Numbers)** |  |  |  |  |  |  |
| Locations at period end | 13 |  | 12 |  |  |  |
| New admissions \* (1) | 3,893 |  | 3,336 |  | 557 | 16.7% |
| Recertifications \* (2) | 1,549 |  | 1,316 |  | 233 | 17.7 |
| Total volume \* (3) | 5,442 |  | 4,652 |  | 790 | 17.0 |
| Visits \* (4) | 77,828 |  | 65,213 |  | 12,615 | 19.3% |
| Organic growth |  |  |  |  |  |  |
| - Revenue \* (5) | 13.8% |  | (0.5)% |  |  |  |
| - Admissions \* (5) | (3.6)% |  | 2.4% |  |  |  |

27

(1) Represents new patients during the period.

(2) A home health certification period is an episode of care that begins with a start of care visit and continues for 60 days. If at the end of the initial episode of care, the patient continues to require home health services, a recertification is required. This represents the number of recertifications during the period.

(3) Total volume is total admissions and total recertifications in the period.

(4) Represents number of services to patients in the period.

(5) Revenue organic growth and admissions organic growth reflect the change in year-over-year revenue and admissions for the same store base. We define the same store base to include those stores open for at least 52 full weeks. These measures highlight the performance of existing stores, while excluding the impact of acquisitions, new store openings and closures.

\* Management deems these metrics to be key performance indicators. Management uses these metrics to monitor our performance, both in our existing operations and acquisitions. Many of these metrics serve as the basis of reported revenues and assessment of these provide direct correlation to the results of operations from period to period and facilitate comparison with the results of our peers. Historical trends established in these metrics can be used to evaluate current operating results, identify trends affecting our business, determine the allocation of resources and assess the quality and potential variability of our cash flows and earnings. We believe they are useful to investors in evaluating and understanding our business but should not be used solely in assessing the Company’s performance. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein to fully evaluate and understand the business as a whole. These measures may not be comparable to similarly titled performance indicators used by other companies.

The home health segment generates net service revenues by providing home health services on a short-term, intermittent or episodic basis to individuals, generally to treat an illness or injury. Net service revenues from Medicare accounted for 74.2% and 73.4%, managed care organizations accounted for 20.3% and 20.5% and other accounted for 5.5% and 6.1% for the three months ended March 31, 2023 and 2022, respectively. Home health services provided to Medicare beneficiaries are paid under the Medicare Home Health Prospective Payment System, which uses national, standardized 30-day period payment rates for periods of care. CMS uses the PDGM as the case-mix classification model to place periods of care into payment categories, classifying patients based on clinical characteristics. An outlier adjustment may be paid for periods of care in which costs exceed a specific threshold amount.

Net service revenues increased by $3.2 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. Total visits increased for the three months ended March 31, 2023, mainly attributed to the acquisition of Apple Home HealthCare on October 1, 2022.

Gross profit, expressed as a percentage of net service revenues was 39.7% and 27.6% for the three months ended March 31, 2023 and 2022, respectively. For the three months ended March 31, 2023, the increase was primarily due to an increase in net service revenues compared to the three months ended March 31, 2022. Cost of services revenues for the three months ended March 31, 2023 increased compared to the corresponding period in 2022, due to an increase in direct employee wage, tax and benefit costs.

The home health segment’s general and administrative expenses primarily consist of administrative employee wage, tax and benefit costs, rent, information technology and office expenses. General and administrative expenses, expressed as a percentage of net service revenues was 23.1% and 25.4% for the three months ended March 31, 2023 and 2022, respectively. General and administrative expenses for the three months ended March 31, 2023 increased compared to the corresponding period in 2022, primarily due to an increase in administrative employee wage, tax and benefit costs of $ 0.4 million for the three months ended March 31, 2023.

### Liquidity and Capital Resources

### Overview

Our primary sources of liquidity are cash on hand and cash from operations and borrowings under our credit facility. At March 31, 2023 and December 31, 2022, we had cash balances of $73.5 million and $80.0 million, respectively. At March 31, 2023, we had a $600.0 million revolving credit facility and a $125.0 million incremental loan facility, which may be for term loans or an increase to the revolving loan commitments. The maturity of this credit facility is July 30, 2026.

During the three months ended March 31, 2023, we used approximately $1.0 million in cash to fund the CareStaff acquisition and repaid $23.5 million under our revolving credit facility. As of March 31, 2023, we had a total of $111.4 million in revolving loans, with an interest rate of 6.59% outstanding on our credit facility and after giving effect to the amount drawn on our credit facility, approximately $8.0 million of outstanding letters of credit and borrowing limits based on an advance multiple of adjusted EBITDA (as defined in the Credit Agreement), we had $395.1 million of capacity and $275.7 million available for borrowing under our credit facility. At December 31, 2022, we had a total of $134.9 million revolving credit loans, with an interest rate of 6.13%, outstanding on our credit facility.

Our credit facility requires us to maintain a total net leverage ratio not exceeding 3.75:1.00. At March 31, 2023, we were in compliance with our financial covenants under the Credit Agreement. Although we believe our liquidity position remains strong, we can provide no assurance that we will remain in compliance with the covenants in our Credit Agreement, and in the future, it may prove necessary to seek an amendment with the bank lending group under our credit facility. Additionally, there can be no assurance that we will be able to raise additional funds on terms acceptable to us, if at all.

See Note 7 to the Notes to Condensed Consolidated Financial Statements, *Long-Term Debt*, for additional details of our long-term debt.

### COVID-19 Pandemic

As a result of the COVID-19 pandemic, federal and state governments have passed legislation, promulgated regulations, and taken other administrative actions intended to assist healthcare providers in providing care to COVID-19 patients and other patients during the public health emergency. These temporary measures include relief from Medicare conditions of participation requirements for healthcare providers, relaxation of licensure requirements for healthcare professionals, relaxation of privacy restrictions for telehealth remote communications, promoting use of telehealth by expanding the scope of services for which Medicare reimbursement is available, and limited waivers of fraud and abuse laws for activities related to COVID-19 during the emergency period. The current federal public health emergency declaration expires May 11, 2023, and the Biden administration has indicated that it will not be extended.

#### ARPA Spending Plans

The ARPA, which became law on March 11, 2021, provided for $350 billion in relief funding for eligible state, local, territorial and tribal governments to mitigate the fiscal effects of the COVID-19 public health emergency. Additionally, the law provided for a 10 percentage point increase in federal matching funds for Medicaid HCBS from April 1, 2021, through March 31, 2022, provided the state satisfied certain conditions. States are permitted to use the state funds equivalent to the additional federal funds through March 31, 2025. States must use the monies attributable to this matching fund increase to supplement, not supplant, their level of state spending for the implementation of activities enhanced under the Medicaid HCBS in effect as of April 1, 2021.

HCBS spending plans for the additional matching funds vary by state, but common initiatives in which the Company is participating include those aimed at strengthening the provider workforce (e.g., efforts to recruit, retain, and train direct service providers). The Company is required to properly and fully document the use of such funds in reports to the state in which the funds originated. Funds may be subject to recoupment if not expended or if they are expended on non-approved uses. During the three months ended March 31, 2023, the Company received state funding provided by the ARPA in an aggregate amount of $0.4 million. The Company did not record revenue and related costs of service revenue during the three months ended March 31, 2023, because revenue recognition criteria were not met. The Company deferred the remaining $11.0 million, which was received from states with specific spending plans and reporting requirements. The Company utilized $2.4 million of these funds during the three months ended March 31, 2023, primarily for caregivers and adding support to recruiting and retention efforts, included as a reduction of cost of service revenues in the Company’s Consolidated Statements of Income. As of March 31, 2023, the deferred portion of ARPA funding of $11.0 million is included within Government stimulus advances on the Company’s Unaudited Condensed Consolidated Balance Sheets.

#### Medicare sequester

The CARES Act and related legislation temporarily lifted the Medicare sequester that would have otherwise reduced payments to Medicare providers by 2% as required by the Budget Control Act of 2011, from May 1, 2020 through March 31, 2022. The sequestration payment adjustment was phased back in, returning to a 2% reduction on July 1, 2022. These sequestration cuts have been extended through the first six months of 2032.

In our hospice segment, Medicare sequester relief resulted in an increase in net service revenues of $0.0 million and $0.9 million for the three months ended March 31, 2023 and 2022, respectively. In our home health segment, Medicare sequester relief resulted in an increase in net service revenues of $0.0 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively.

The ARPA increases the federal budget deficit in a manner that triggers an additional statutorily mandated sequestration under the PAYGO Act. As a result, an additional Medicare payment reduction of up to 4% was required to take effect in January 2022. However, Congress has delayed implementation of this payment reduction until 2025. We cannot currently determine if, or to what extent, our business, results of operations, financial condition or liquidity will ultimately be impacted by mandated sequestration triggers under the PAYGO Act, or if or when the mandated sequestration will occur.

See Note 6 to the Notes to Condensed Consolidated Financial Statements, *COVID-19 Pandemic*, for additional details of the COVID-19 pandemic.

### Cash Flows

The following table summarizes changes in our cash flows:

*(Amounts in Thousands)*

|  | For the Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $18,799 | $5,983 |
| Net cash used in investing activities | (1,742) | (85,594) |
| Net cash (used in) provided by financing activities | (23,475) | 35,479 |

#### Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Cash flows from operating activities represent the inflow of cash from our payors and the outflow of cash for payroll and payroll taxes, operating expenses, interest and taxes. Net cash provided by operating activities was $18.8 million for the three months ended March 31, 2023, compared to net cash used in operating activities of $5.9 million for the same period in 2022. The increase in cash provided by operations was primarily due to the timing of receipts on accounts receivable and the timing of government stimulus funds. The changes in accounts receivable were primarily related to the growth in revenue offset by a decrease in days sales outstanding (“DSO”) during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The related receivables due from the Illinois Department on Aging represented 21.5% and 16.1% of the Company’s net accounts receivable at March 31, 2023 and March 31, 2022, respectively.

Net cash used in investing activities for the three months ended March 31, 2023, primarily consisted of $1.0 million of net cash used for the Carestaff acquisition and $0.7 million of cash used for property and equipment purchases, primarily related to our ongoing investments in technology infrastructure fixed assets. Net cash used in investing activities for the three months ended March 31, 2022 primarily consisted of $84.5 million of net cash used for the JourneyCare acquisition and $1.1 million of cash used for property and equipment purchases.

Net cash used in financing activities for the three months ended March 31, 2023, primarily consisted of a $23.5 million payment on the revolver portion of our credit facility. Net cash provided by financing activities for the three months ended March 31, 2022 primarily consisted of $35.0 million of borrowings under our credit facility to partially fund the JourneyCare acquisition.

### Outstanding Accounts Receivable

Gross accounts receivable as of March 31, 2023 and December 31, 2022 were approximately $126.7 million and $127.1 million, respectively. Outstanding accounts receivable, net of allowance for credit losses, decreased by $0.1 million as of March 31, 2023 as compared to December 31, 2022. Accounts receivable for the Illinois Department on Aging increased approximately $0.1 million during the quarter ended March 31, 2023. Our collection procedures include review of account aging and direct contact with our payors. We have historically not used collection agencies. An uncollectible amount is written off to the allowance account after reasonable collection efforts have been exhausted.

We calculate our DSO by taking the trade accounts receivable outstanding, net of allowance for credit losses for doubtful accounts, divided by the net service revenues for the last quarter, multiplied by the number of days in that quarter. Our DSOs were 44 days and 45 days at March 31, 2023 and December 31, 2022, respectively. The DSOs for our largest payor, the Illinois Department on Aging, were 44 days and 42 days at March 31, 2023 and December 31, 2022, respectively.

### Off-Balance Sheet Arrangements

As of March 31, 2023, we did not have any off-balance sheet guarantees or arrangements with unconsolidated entities.

### Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates previously disclosed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” set forth in Part II, Item 7 of our Annual Report on Form 10-K for the period ended December 31, 2022, filed on February 28, 2023.

### Recently Issued Accounting Pronouncements

Refer to Note 2 to the Notes to Condensed Consolidated Financial Statements (Unaudited) for further discussion.

## Market risk

As filed, 286 characters.

We are exposed to market risk associated with changes in interest rates on our variable rate long-term debt. As of March 31, 2023, we had available borrowing capacity of approximately $275.7 million on our credit facility, all of such borrowings were subject to variable interest rates.

## Controls and procedures

As filed, 2,149 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2023.

### Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 623 characters.

Investing in our common stock involves a high degree of risk. You should carefully consider the risk factors discussed under the caption “Risk Factors” set forth in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2022, filed on February 28, 2022. There have been no material changes to the risk factors previously disclosed under the caption “Risk Factors” in our Annual Report on Form 10-K. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

Filed May 2, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-016717. Last ingested by Listed: Oct 24, 2026, 15:08 ET. No prices; not investment advice.