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, 2022

OR

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

For the transition period from                  to                 

Commission file number 001-34504

ADDUS HOMECARE CORPORATION

(Exact name of registrant as specified in its charter)

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

(469) 535-8200

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

As of April 26, 2022, Addus HomeCare Corporation had 16,071,408 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, 2022 and December 31, 2021	3
Condensed Consolidated Statements of Income For the Three Months Ended March 31, 2022 and 2021	4
Condensed Consolidated Statement of Stockholders’ Equity For the Three Months Ended March 31, 2022 and 2021	5
Condensed Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2022 and 2021	6
Notes to Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	31
Item 4. Controls and Procedures	31
PART II. OTHER INFORMATION	32
Item 1. Legal Proceedings	32
Item 1A. Risk Factors	32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3. Defaults Upon Senior Securities	32
Item 4. Mine Safety Disclosures	32
Item 5. Other Information	32
Item 6. Exhibits	33

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ADDUS HOMECARE CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of March 31, 2022 and December 31, 2021

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

(Unaudited)

	March 31, 2022		December 31, 2021
Assets
Current assets
Cash	$	124,763	$	168,895
Accounts receivable, net of allowances		136,808		136,955
Prepaid expenses and other current assets		14,658		18,491
Total current assets		276,229		324,341
Property and equipment, net of accumulated depreciation and amortization		19,073		18,483
Other assets
Goodwill		574,086		504,392
Intangibles, net of accumulated amortization		76,300		64,321
Operating lease assets, net		41,523		36,048
Total other assets		691,909		604,761
Total assets	$	987,211	$	947,585
Liabilities and stockholders' equity
Current liabilities
Accounts payable	$	21,004	$	19,358
Accrued payroll		27,720		44,083
Accrued expenses		38,820		37,077
Government stimulus advances		4,173		4,173
Accrued workers' compensation insurance		12,640		12,998
Total current liabilities		104,357		117,689
Long-term liabilities
Long-term debt, less current portion, net of debt issuance costs		256,127		220,912
Long-term operating lease liabilities		39,049		32,859
Other long-term liabilities		1,900		1,781
Total long-term liabilities		297,076		255,552
Total liabilities	$	401,433	$	373,241
Stockholders' equity
Common stock—$.001 par value; 40,000 authorized and 16,068 and 15,940 shares    issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	$	16	$	16
Additional paid-in capital		383,001		380,037
Retained earnings		202,761		194,291
Total stockholders' equity		585,778		574,344
Total liabilities and stockholders' equity	$	987,211	$	947,585

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, 2022 and 2021

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

(Unaudited)

	For the Three Months Ended March 31,
	2022			2021
Net service revenues	$	226,634		$	205,302
Cost of service revenues		156,448			144,105
Gross profit		70,186			61,197
General and administrative expenses		53,152			45,426
Depreciation and amortization		3,521			3,601
Total operating expenses		56,673			49,027
Operating income		13,513			12,170
Interest income		(58	)		(22	)
Interest expense		1,820			1,216
Total interest expense, net		1,762			1,194
Income before income taxes		11,751			10,976
Income tax expense		3,281			2,082
Net income	$	8,470		$	8,894
Net income per common share
Basic income per share	$	0.54		$	0.57
Diluted income per share	$	0.53		$	0.55
Weighted average number of common shares and potential common    shares outstanding:
Basic		15,811			15,694
Diluted		16,079			16,069

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, 2022 and 2021

(Amounts and Shares in Thousands)

(Unaudited)

	For the Three Months Ended March 31, 2022
	Common Stock				Additional Paid-in		Retained		Total Stockholders'
	Shares		Amount		Capital		Earnings		Equity
Balance at January 1, 2022		15,940	$	16	$	380,037	$	194,291	$	574,344
Issuance of shares of common stock under    restricted stock award agreements		115		—		—		—		—
Stock-based compensation		—		—		2,485		—		2,485
Shares issued for exercise of stock options		13		—		479		—		479
Net income		—		—		—		8,470		8,470
Balance at March 31, 2022		16,068	$	16	$	383,001	$	202,761	$	585,778
	For the Three Months Ended March 31, 2021
	Common Stock				Additional Paid-in		Retained		Total Stockholders'
	Shares		Amount		Capital		Earnings		Equity
Balance at January 1, 2021		15,826	$	16	$	369,495	$	149,165	$	518,676
Issuance of shares of common stock under    restricted stock award agreements		75		—		—		—		—
Stock-based compensation		—		—		2,239		—		2,239
Shares issued for exercise of stock options		2		—		101		—		101
Net income		—		—		—		8,894		8,894
Balance at March 31, 2021		15,903	$	16	$	371,835	$	158,059	$	529,910

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, 2022 and 2021

(Amounts in Thousands)

(Unaudited)

	For the Three Months
	Ended March 31,
	2022			2021
Cash flows from operating activities:
Net income	$	8,470		$	8,894
Adjustments to reconcile net income to net cash provided by (used in) operating    activities, net of acquisitions:
Depreciation and amortization		3,521			3,601
Deferred income taxes		126			165
Stock-based compensation		2,485			2,239
Amortization of debt issuance costs under the credit facility		215			184
Provision for doubtful accounts		158			252
Impairment of operating lease assets		1,174			—
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		7,121			(6,397	)
Prepaid expenses and other current assets		4,161			(1,007	)
Government stimulus advances		—			(11,719	)
Accounts payable		1,386			(290	)
Accrued payroll		(17,443	)		(15,313	)
Accrued expenses and other long-term liabilities		(5,391	)		1,025
Net cash provided by (used in) operating activities		5,983			(18,366	)
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired		(84,490	)		—
Purchases of property and equipment		(1,104	)		(1,021	)
Net cash used in investing activities		(85,594	)		(1,021	)
Cash flows from financing activities:
Payments on term loan — credit facility		—			(245	)
Borrowings on revolver — credit facility		35,000			—
Cash received from exercise of stock options		479			101
Net cash provided by (used in) financing activities		35,479			(144	)
Net change in cash		(44,132	)		(19,531	)
Cash, at beginning of period		168,895			145,078
Cash, at end of period	$	124,763		$	125,547
Supplemental disclosures of cash flow information:
Cash paid for interest	$	1,619		$	1,174

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, 2021 has been derived from the Company’s audited financial statements for the year ended December 31, 2021 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, 2021 included in our Annual Report on Form 10-K, which includes information and disclosures not included herein.

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

Principles of Consolidation

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

2. Summary of Significant Accounting Policies

Estimates

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

Computation of Weighted Average Shares

The following table sets forth the computation of basic and diluted common shares for the three months ended March 31, 2022 and 2021:

	For the Three Months Ended March 31,
	(Amounts in thousands)
	2022		2021
Weighted average number of shares outstanding for basic per share calculation		15,811		15,694
Effect of dilutive potential shares:
Stock options		235		311
Restricted stock awards		33		64
Adjusted weighted average shares for diluted per share calculation		16,079		16,069
Anti-dilutive shares:
Stock options		92		—
Restricted stock awards		77		75

7

Recently Adopted Accounting Pronouncements

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. ASU 2021-10 requires entities to disclose certain information about the nature of certain governmental assistance received, including the nature of the transaction and the related accounting policy, the financial statement line items impacted by the assistance, as well as the significant terms and conditions of the transactions. The ASU was adopted as of January 1, 2022 and did not have an impact on the Company’s results of operations or liquidity.

Recently Issued Accounting Pronouncements

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. On July 30, 2021, the Company entered into the Second Amendment to the Credit Agreement as discussed further in Note 8. The Credit Agreement contains hardwired fallback language that contemplates a transition from LIBOR, specifically identifies the secured overnight financing rate (“SOFR”) as the replacement reference rate and details the mechanism for transition at LIBOR cessation, which is anticipated to occur on June 30, 2023. The transition to SOFR is not expected to have a material impact on the Company’s results of operations or liquidity.

3. Leases

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

	March 31, 2022		December 31, 2021
	(Amounts in Thousands)
Operating lease assets, net	$	41,523	$	36,048
Short-term operating lease liabilities (in accrued expenses)		10,766		9,774
Long-term operating lease liabilities		39,049		32,859
Total operating lease liabilities	$	49,815	$	42,633

Lease Costs

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

	For the Three Months Ended March 31, (Amounts in Thousands)
	2022			2021
Operating lease costs	$	2,801		$	2,777
Short-term lease costs		751			181
Total lease costs		3,552			2,958
Less: sublease income		(177	)		(151	)
Total lease costs, net	$	3,375		$	2,807

Lease Term and Discount Rate

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

	March 31, 2022			December 31, 2021
Operating leases:
Weighted average remaining lease term		6.27			6.39
Weighted average discount rate		3.80	%		3.91	%

8

Maturity of Lease Liabilities

Remaining operating lease payments as of March 31, 2022 were as follows:

	Operating Leases
	(Amounts in Thousands)
Due in the 12-month period ended March 31,
2023	$	12,329
2024		10,706
2025		8,476
2026		5,493
2027		4,574
Thereafter		14,748
Total future minimum rental commitments		56,326
Less: Imputed interest		(6,511	)
Total lease liabilities	$	49,815

Supplemental cash flows information

	For the Three Months Ended March 31,
	(Amounts in Thousands)
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,194	$	2,517
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	9,199	$	2,675

4. 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.

JourneyCare

On February 1, 2022, we completed the acquisition of the operations of JourneyCare Inc. (“JourneyCare”). The purchase price was approximately $85.0 million, including the amount of acquired excess cash held by JourneyCare at the closing of the acquisition (approximately $0.5 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 the state of Illinois. The related acquisition and integration costs were $0.3 million and $1.8 million, respectively, for the three months ended March 31, 2022. These costs were included in general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income and were expensed as incurred.

9

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

	Total (Amounts in Thousands)
Goodwill	$	70,153
Identifiable intangible assets		13,792
Cash		500
Accounts receivable		7,080
Operating lease assets, net		3,728
Other assets		280
Property and equipment		1,194
Accrued expenses		(6,714	)
Accrued payroll		(1,486	)
Long-term operating lease liabilities		(3,537	)
Total purchase price	$	84,990

Identifiable intangible assets acquired included $9.0 million in a trade name and $4.8 million of indefinite lived state licenses. The preliminary estimated fair value of identifiable intangible assets was determined with the assistance of a valuation specialist, using Level 3 inputs as defined under ASC Topic 820. 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 JourneyCare acquisition accounted for $9.5 million of net service revenues and $2.0 million of operating income for the three months ended March 31, 2022.

The following table contains unaudited pro forma condensed consolidated income statement information of the Company for the three months ended March 31, 2022 as if the JourneyCare acquisition closed on January 1, 2021.

	For the Three Months Ended March 31, (Amounts in Thousands)
	2022		2021
Net service revenues	$	231,847	$	219,920
Operating income		12,240		10,936
Net income		7,629		7,894
Net income per common share
Basic income per share	$	0.48	$	0.50
Diluted income per share	$	0.47	$	0.49

The pro forma disclosures in the table above include adjustments for amortization of intangible assets, tax expense and acquisition costs to reflect results that are more representative of the combined results of the transactions as if the operations of JourneyCare had been acquired effective January 1, 2021. This pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have actually occurred. In addition, future results may vary significantly from the results reflected in the pro forma information. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, such as anticipated cost savings from operating synergies.

10

5. Goodwill and Intangible Assets

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

	Hospice			Personal Care		Home Health			Total
	(Amounts in Thousands)
Goodwill as of December 31, 2021	$	328,334		$	152,688	$	23,370		$	504,392
Additions for acquisitions		70,153			—		—			70,153
Adjustments to previously recorded goodwill		(113	)		—		(346	)		(459	)
Goodwill as of March 31, 2022	$	398,374		$	152,688	$	23,024		$	574,086

In connection with the JourneyCare acquisition, the Company recognized goodwill in its hospice segment of $70.2 million, during the three months ended March 31, 2022. See Note 4 for additional information regarding the acquisition.

The Company’s identifiable intangible assets consist of customer and referral relationships, trade names and trademarks, non-competition agreements and state licenses. Amortization is computed using straight-line and accelerated methods based upon the estimated useful lives of the respective assets, which range from five to twenty-five years. Customer and referral relationships are amortized systematically over the periods of expected economic benefit, which range from five to ten years.

The carrying amount and accumulated amortization of each identifiable intangible asset category consisted of the following as of March 31, 2022:

	Customer and referral relationships			Trade names and trademarks			Non- competition agreements			State Licenses			Total
	(Amounts in Thousands)
Intangible assets with indefinite lives	$	—		$	—		$	—		$	25,901		$	25,901
Intangible assets subject to amortization:
Gross carrying amount		44,672			51,941			6,785			12,508			115,906
Accumulated amortization		(36,779	)		(19,126	)		(4,081	)		(5,521	)		(65,507	)
Intangible assets subject to amortization, net		7,893			32,815			2,704			6,987