UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2020

OR

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

For the transition period from                  to                 

Commission file number 001-34504

ADDUS HOMECARE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	20-5340172
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
6303 Cowboys Way, Suite 600 Frisco, TX	75034
(Address of principal executive offices)	(Zip Code)

(469) 535-8200

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	ADUS	The Nasdaq Global Market

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

None

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

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

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

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
Emerging Growth Company	☐

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

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

As of July 31, 2020, Addus HomeCare Corporation had 15,664,952 shares of Common Stock outstanding.

ADDUS HOMECARE CORPORATION

FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION	3
Item 1. Financial Statements (Unaudited)	3
Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019	3
Condensed Consolidated Statements of Income For the Three Months Ended March 31, 2020 and 2019	4
Condensed Consolidated Statement of Stockholders’ Equity For the Three Months Ended March 31, 2020 and 2019	5
Condensed Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2020 and 2019	6
Notes to Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3. Quantitative and Qualitative Disclosures About Market Risk	32
Item 4. Controls and Procedures	32
PART II. OTHER INFORMATION	33
Item 1. Legal Proceedings	33
Item 1A. Risk Factors	33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3. Defaults Upon Senior Securities	33
Item 4. Mine Safety Disclosures	33
Item 5. Other Information	33
Item 6. Exhibits	34

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of March 31, 2020 and December 31, 2019

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

(Unaudited)

	March 31, 2020		December 31, 2019
Assets
Current assets
Cash	$	130,463	$	111,714
Accounts receivable, net		141,083		149,680
Prepaid expenses and other current assets		6,505		7,993
Total current assets		278,051		269,387
Property and equipment, net of accumulated depreciation and amortization		13,791		12,156
Other assets
Goodwill		275,364		275,368
Intangibles, net of accumulated amortization		55,304		57,079
Deferred tax assets, net		1,606		1,647
Operating lease assets, net		20,703		21,111
Total other assets		352,977		355,205
Total assets	$	644,819	$	636,748
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	17,561	$	19,641
Accrued payroll		29,476		30,587
Accrued expenses		22,116		22,429
Accrued workers’ compensation insurance		14,497		14,143
Current portion of long-term debt		956		728
Total current liabilities		84,606		87,528
Long-term liabilities
Long-term debt, less current portion, net of debt issuance costs		59,112		59,164
Long-term operating lease liabilities		13,638		14,301
Other long-term liabilities		655		163
Total long-term liabilities		73,405		73,628
Total liabilities	$	158,011	$	161,156
Stockholders’ equity
Common stock—$.001 par value; 40,000 authorized and 15,660 and 15,617 shares    issued and outstanding as of March 31, 2020 and December 31, 2019, respectively	$	16	$	15
Additional paid-in capital		362,102		359,545
Retained earnings		124,690		116,032
Total stockholders’ equity		486,808		475,592
Total liabilities and stockholders’ equity	$	644,819	$	636,748

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

3

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the Three Months Ended March 31, 2020 and 2019

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

(Unaudited)

	For the Three Months Ended March 31,
	2020			2019
Net service revenues	$	190,216		$	138,507
Cost of service revenues		134,381			101,680
Gross profit		55,835			36,827
General and administrative expenses		42,287			29,257
Depreciation and amortization		2,887			2,074
Total operating expenses		45,174			31,331
Operating income		10,661			5,496
Interest income		(334	)		(215	)
Interest expense		908			618
Total interest expense, net		574			403
Income before income taxes		10,087			5,093
Income tax expense		1,429			797
Net income	$	8,658		$	4,296
Net income per common share
Basic income per share	$	0.56		$	0.33
Diluted income per share	$	0.54		$	0.32
Weighted average number of common shares and potential common    shares outstanding:
Basic		15,519			12,995
Diluted		15,907			13,381

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

4

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31, 2020 and 2019

(Amounts and Shares in Thousands)

(Unaudited)

	Common Stock					Additional Paid-in		Retained		Total Stockholders’
	Shares			Amount		Capital		Earnings		Equity
Balance at January 1, 2020		15,617		$	15	$	359,545	$	116,032	$	475,592
Forfeiture of shares of common stock under    restricted stock award agreements		(5	)		—		—		—		—
Stock-based compensation		—			—		1,407		—		1,407
Shares issued for exercise of stock options		48			1		1,150		—		1,151
Net income		—			—		—		8,658		8,658
Balance at March 31, 2020		15,660		$	16	$	362,102	$	124,690	$	486,808
Balance at January 1, 2019		13,126		$	13	$	177,683	$	90,795	$	268,491
Issuance of shares of common stock under    restricted stock award agreements		52			—		—		—		—
Stock-based compensation		—			—		1,233		—		1,233
Net income		—			—		—		4,296		4,296
Balance at March 31, 2019		13,178		$	13	$	178,916	$	95,091	$	274,020

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

5

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2020 and 2019

(Amounts in Thousands)

(Unaudited)

	For the Three Months
	Ended March 31,
	2020			2019
Cash flows from operating activities:
Net income	$	8,658		$	4,296
Adjustments to reconcile net income to net cash provided by (used in) operating    activities, net of acquisitions:
Depreciation and amortization		2,887			2,074
Deferred income taxes		42			(60	)
Stock-based compensation		1,407			1,233
Amortization of debt issuance costs under the credit facility		186			161
Provision for doubtful accounts		224			57
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		8,777			(12,242	)
Prepaid expenses and other current assets		973			2,494
Accounts payable		(1,976	)		(689	)
Accrued expenses and other long-term liabilities		(736	)		(521	)
Net cash provided by (used in) operating activities		20,442			(3,197	)
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired		(87	)		—
Purchases of property and equipment		(2,747	)		(1,006	)
Net cash used in investing activities		(2,834	)		(1,006	)
Cash flows from financing activities:
Payments on financing lease obligations		(10	)		(33	)
Cash received from exercise of stock options		1,151			—
Net cash provided by (used in) financing activities		1,141			(33	)
Net change in cash		18,749			(4,236	)
Cash, at beginning of period		111,714			70,406
Cash, at end of period	$	130,463		$	66,170
Supplemental disclosures of cash flow information:
Cash paid for interest	$	731		$	723
Cash paid for income taxes		1,954			1,082

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

6

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

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

Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements and related notes have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for Quarterly Reports on Form 10-Q. The accompanying balance sheet as of December 31, 2019 has been derived from the Company’s audited financial statements for the year ended December 31, 2019 previously filed with the SEC. Accordingly, these financial statements do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements and should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2019 included in our Annual Report on Form 10-K, which includes information and disclosures not included herein.

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

Principles of Consolidation

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

2. Summary of Significant Accounting Policies

Estimates

The financial statements are prepared by management in conformity with GAAP and include estimated amounts and certain disclosures based on assumptions about future events. The Company’s critical accounting estimates include revenue recognition, accounts receivable and allowances and goodwill and intangible assets. Actual results could differ from those estimates.

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.

As of March 31, 2020 and 2019, dilutive stock options outstanding were approximately 585,000 and 685,000, respectively, and dilutive restricted stock awards outstanding were approximately 77,000 and 83,000, respectively

Included in the Company’s calculation of diluted earnings per share for the three months ended March 31, 2020, dilutive stock options outstanding were approximately 311,000. In addition, dilutive restricted stock awards outstanding were 84,000 for the three months ended March 31, 2020.

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

7

Recently Adopted 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. We have reviewed our provision for doubtful accounts process as required by ASU 2016-13. Management estimates allowances on accounts receivable based upon historical experience and other factors, including an aging of accounts receivable, evaluation of expected adjustments, past adjustments and collection experience in relation to amounts billed, current contract and reimbursement terms, shifts in payors and other current relevant information. The Company recorded $0.2 million of provision for doubtful accounts for three months ended March 31, 2020. Allowance for doubtful accounts was $0.8 million and $1.0 million as of March 31, 2020 and December 31, 2019, respectively. Adoption of the new standard did not have a significant impact on our results of operations or liquidity.

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). Adoption of the new standard did not have a significant impact on our results of operations or liquidity.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s 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. Adoption of the new standard did not have a significant impact on our results of operations or liquidity.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 intends to simplify various aspects related to accounting for income taxes and removes certain exceptions to the general guidance in ASC 740. In addition, the ASU clarifies and amends existing guidance to improve consistent application of its requirements. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. Adoption of the new standard is not expected to have an impact on our results of operations or liquidity.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, and other transactions subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. Therefore, it will be in effect for a limited time through December 31, 2022. The ASU can be adopted no later than December 1, 2022 with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance.

3. Revision of Previously Issued Financial Statements

In connection with management finalizing their financial reporting close process for the year ended December 31, 2019, management identified certain immaterial errors impacting the current period and previous periods dating back to periods prior to 2017, including interim periods within those years. Specifically, management determined there were certain errors in the information utilized to accurately estimate the implicit price concessions necessary to reduce net service revenues to the amount expected to be collected. Accordingly, management determined that our accounts receivable allowance was understated. The correction reflects the impact on the Company’s income tax provision and related accounts as a result of correcting for the error as discussed above. Additionally, the Company identified and corrected other immaterial unrelated income tax items impacting deferred tax assets and other immaterial items.

Management evaluated the impact of the errors on all previously issued financial statements and concluded such previously issued financial statements were not materially misstated; however, to reflect such corrections in the quarter ended December 31, 2019 financial statements would materially misstate the 2019 fiscal year. Accordingly, management revised previously issued financial statements to correct for the impact of the errors. The Company’s consolidated financial statements have been revised from the amounts previously reported to correct these immaterial errors as shown in the tables below and are reflected throughout the financial statements and related notes, as applicable.

8

The Consolidated Statements of Income has been revised to reflect the correction for the three months ended March 31, 2019 as follows (amounts in thousands, except per share data):

	For the Three Months Ended March 31, 2019
	As
	Previously					As
	Reported		Revision			Revised
Net service revenues	$	139,254	$	(747	)	$	138,507
Gross profit		37,574		(747	)		36,827
Operating income		6,243		(747	)		5,496
Income before income taxes		5,840		(747	)		5,093
Income tax expense		978		(181	)		797
Net income	$	4,862	$	(566	)	$	4,296
Basic income per share	$	0.37	$	(0.04	)	$	0.33
Diluted income per share	$	0.36	$	(0.04	)	$	0.32

The cumulative effect of the adjustments on all prior periods decreased retained earnings as of January 1, 2019 and March 31, 2019 as reflected below (amounts in thousands):

	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
Revision		—		—		—		(7,042	)		(7,042	)
Balance at January 1, 2019, as revised		13,126	$	13	$	177,683	$	90,795		$	268,491
Balance at March 31, 2019		13,178	$	13	$	178,916	$	102,699		$	281,628
Revision		—		—		—		(7,608	)		(7,608	)
Balance at March 31, 2019, as revised		13,178	$	13	$	178,916	$	95,091		$	274,020

Additionally, the Consolidated Statement of Cash Flows has been revised to reflect the correction for the three months ended March 31, 2019 as follows (amounts in thousands):

	For the Three Months Ended March 31, 2019
	As
	Previously						As
	Reported			Revision			Revised
Net income	$	4,862		$	(566	)	$	4,296
Deferred income taxes		121			(181	)		(60	)
Accounts receivable		(12,989	)		747			(12,242	)
Net cash provided by operating activities	$	(3,197	)	$	—		$	(3,197	)

4. Leases

We have historically entered into operating leases for local branches, our corporate headquarters and certain equipment. The Company’s current leases have expiration dates through 2026. Certain of our arrangements have free rent periods and/or escalating rent payment provisions. We recognize rent expense on a straight-line basis over the lease term. Certain of the Company’s leases include termination options and renewal options for periods ranging from one to five years. 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.

9

Amounts reported in the Company’s Unaudited Condensed Consolidated Balance Sheets as of March 31, 2020 and Audited Consolidated Balance Sheets as of December 31, 2019 for our operating leases were as follows:

	March 31, 2020		December 31, 2019
	(Amounts in Thousands)
Operating lease assets, net	$	20,703	$	21,111
Short-term operating lease liabilities (in accrued expenses)		7,425		7,234
Long-term operating lease liabilities		13,638		14,301
Total operating lease liabilities	$	21,063	$	21,535

Lease 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)
	2020		2019
Operating lease costs	$	2,118	$	1,646
Short-term lease costs		266		64
Total lease cost	$	2,384	$	1,710

Lease Term and Discount Rate

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

	March 31, 2020			December 31, 2019
Operating leases:
Weighted average remaining lease term		3.29			3.42
Weighted average discount rate		5.05	%		5.14	%

Maturity of Lease Liabilities

A summary of our remaining operating lease payments as of March 31, 2020 were as follows:

	Operating Leases
	(Amounts in Thousands)
Due in the 12-month period ended March 31,
2021	$	8,117
2022		6,818
2023		4,160
2024		2,323
2025		1,382
Thereafter		158
Total future minimum rental commitments		22,958
Less: Imputed interest		(1,895	)
Total lease liabilities	$	21,063

Supplemental cash flows information

	For the Three Months Ended March 31, (Amounts in Thousands)
	2020		2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,171	$	1,639
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		1,439		801

10

Financing Leases

Some of our financing leases include provisions to purchase the asset at the conclusion of the lease. Financing leases were not material as of March 31, 2020 and December 31, 2019.

5. Acquisitions

The Company’s acquisitions have been accounted for in accordance with ASC Topic 805, Business Combinations, and the resulting goodwill and other intangible assets were accounted for under ASC Topic 350, Goodwill and Other Intangible Assets. Under business combination accounting, the assets and liabilities are generally recognized at their fair values and the difference between the consideration transferred, excluding transaction costs, and the fair values of the assets and liabilities is recognized as goodwill. The results of each business acquisition are included on the Unaudited Condensed Consolidated Statements of Income from the date of the acquisition.

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

Hospice Partners

On October 1, 2019, the Company completed the acquisition of the assets of Hospice Partners of America, LLC (“Hospice Partners”). The purchase price was approximately $135.6 million. The purchase of Hospice Partners was funded through a portion of the net proceeds of our public offering of an aggregate 2,300,000 shares of common stock, par value $0.001 per share, including 300,000 shares of common stock sold pursuant to the exercise in full by the underwriters of their option to purchase additional shares at a public offering price of $79.50 per share, which the Company completed on September 9, 2019 (the “Public Offering”). With the purchase of Hospice Partners, we expanded our hospice operations through 21 locations in Idaho, Kansas, Missouri, Oregon, Texas and Virginia. The related acquisition costs were $0.1 million for the three months ended March 31, 2020 and integration costs were $0.8 million for the three months ended March 31, 2020. These costs were included in general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income and were expensed as incurred.

Based upon management’s valuations, which are preliminary and subject to completion of working capital adjustments, the fair values of the assets and liabilities are as follows:

	Total (Amounts in Thousands)
Goodwill	$	112,283
Identifiable intangible assets		18,090
Cash		5,705
Property and equipment		164
Accounts receivable		6,788
Operating lease assets, net		2,425
Other assets		632
Accounts payable		(1,631	)
Accrued expenses		(4,625	)
Accrued payroll		(1,108	)
Deferred tax liability		(1,540	)
Long-term operating lease liabilities		(1,615	)
Total purchase price	$	135,568

Identifiable intangible assets acquired consist of $9.5 million in trade names with estimated useful lives of fifteen years, $2.5 million in non-competition agreements with estimated useful lives of three to five years and $6.1 million of 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 fair value analysis and related valuations reflect the conclusions of management. All estimates, key assumptions, and forecasts were either provided by or reviewed by the Company. The goodwill and intangible assets acquired are deductible for tax purposes.

The Hospice Partners acquisition accounted for $14.2 million of net service revenues and $3.1 million of operating income for the three months ended March 31, 2020.

Alliance Home Health Care

On August 1, 2019, the Company completed the acquisition of all of the assets of Alliance Home Health Care (“Alliance”). The purchase price was approximately $23.5 million. The purchase of Alliance was funded through the Company’s revolving credit facility and available cash. With the purchase of Alliance, the Company expanded its personal care, home health and hospice operations in the state of New Mexico. The related integration costs were $0.1 million for the three months ended March 31, 2020. These costs were included in general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income and were expensed as incurred.

11

Based upon management’s final valuations, the fair values of the assets and liabilities are as follows:

Total