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 ~~June 30, 2019~~March 31, 2020



☐	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: 001-33989

LHC Group, Inc

(Exact name of registrant as specified in its charter)



Delaware		71-0918189
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

901 Hugh Wallis Road South

Lafayette, LA 70508

(Address of principal executive offices including zip code)

(337) 233-1307

(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, par value of $0.01	LHCG	NASDAQ Global Select 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 ý 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý 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.

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 ý

Number of shares of common stock, par value $0.01, outstanding as of ~~August 6, 2019: 31,508,180~~May 5, 2020: 31,588,641 shares.

LHC GROUP, INC.

INDEX



		~~Page~~
Part I. Financial Information			Page
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets — ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019			4
Condensed Consolidated Statements of Income — Three ended March 31, 2020 and ~~six months ended June 30,~~ 2019 ~~and 2018~~			5
Condensed Consolidated Statements of Changes in Equity — Three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~			6
Condensed Consolidated Statements of Cash Flows — ~~Six~~Three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~			87
Notes to Condensed Consolidated Financial Statements			98
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2623
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		3932
Item 4.	Controls and Procedures		3932
Part II. Other Information
Item 1.	Legal Proceedings		4034
Item 1A.	Risk Factors		4034
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		4035
Item 6.	Exhibits		4136
Signatures			4237

PART I — FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

LHC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

(Unaudited)


	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
ASSETS
Current assets:
Cash	$	26,737		$	49,363		$	8,308		$	31,672
Receivables:
Patient accounts receivable	272,941			252,592			351,763			284,962
Other receivables	6,153			6,658			11,984			10,832
Amounts due from governmental entities	1,018			830
Total receivables	280,112			260,080			363,747			295,794
Prepaid income taxes	4,511			11,788			14,189			9,652
Prepaid expenses	25,134			24,775			33,032			21,304
Other current assets	21,310			20,899			20,217			21,852
Total current assets	357,804			366,905			439,493			380,274
Property, building and equipment, net of accumulated depreciation of $62,354 and $55,253, respectively	80,088			79,563
Property, building and equipment, net of accumulated depreciation of $73,963 and $69,441, respectively							107,622			97,908
Goodwill	1,188,227			1,161,717			1,234,191			1,219,972
Intangible assets, net of accumulated amortization of $15,854 and $15,176, respectively	296,716			297,379
Intangible assets, net of accumulated amortization of $16,748 and $16,431, respectively							310,870			305,556
Assets held for sale	2,500			2,850			2,500			2,500
Operating lease right of use asset	84,638			—			96,078			95,452
Other assets	19,882			20,301			21,528			38,633
Total assets	$	2,029,855		$	1,928,715		$	2,212,282		$	2,140,295
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities	$	79,038		$	77,135		$	75,215		$	83,572
Salaries, wages, and benefits payable	81,645			84,254			108,337			85,631
Self-insurance reserves	32,570			32,776			33,482			31,188
Current operating lease liabilities	26,453			—			33,444			28,701
Current portion of long-term debt	—			7,773
Amounts due to governmental entities	5,065			4,174			1,931			1,880
Total current liabilities	224,771			206,112			252,409			230,972
Deferred income taxes	46,919			43,306			64,865			60,498
Income taxes payable	4,671			4,297			6,165			3,867
Revolving credit facility	230,000			235,000			298,071			253,000
Long term notes payable	—			930
Operating lease payable	59,980			—			65,396			69,556
Total liabilities	566,341			489,645			686,906			617,893
Noncontrolling interest — redeemable	15,467			14,596			19,431			15,151
Commitments and contingencies
Stockholders’ equity:
LHC Group, Inc. stockholders’ equity:
Preferred stock – $0.01 par value; 5,000,000 shares authorized; none issued or outstanding	—			—			—			—
Common stock — $0.01 par value; 60,000,000 shares authorized in 2019 and 2018; 35,837,779 and 35,636,414 shares issued in 2019 and 2018, respectively	358			356
Treasury stock — 5,052,927 and 4,958,721 shares at cost, respectively	(57,893		)	(49,374		)
Common stock — $0.01 par value; 60,000,000 shares authorized; 36,297,106 and 36,129,280 shares issued, and 31,100,826 and 30,992,390 shares outstanding, respectively							363			361
Treasury stock — 5,196,280 and 5,136,890 shares at cost, respectively							(67,182		)	(60,060		)
Additional paid-in capital	941,923			937,968			951,330			949,321
Retained earnings	471,831			427,975			545,725			523,701
Total LHC Group, Inc. stockholders’ equity	1,356,219			1,316,925			1,430,236			1,413,323
Noncontrolling interest — non-redeemable	91,828			107,549			75,709			93,928
Total equity	1,448,047			1,424,474
Total liabilities and equity	$	2,029,855		$	1,928,715
Total stockholders' equity							1,505,945			1,507,251
Total liabilities and stockholders' equity							$	2,212,282		$	2,140,295

See accompanying ~~notes~~Notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

LHC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
Net service revenue	$	517,842		$	502,024		$	1,020,427		$	793,078		$	512,871		$	502,585
Cost of service revenue	325,860			321,004			646,852			509,622
Cost of service revenue (excluding depreciation and amortization)													321,202			320,992
Gross margin	191,982			181,020			373,575			283,456			191,669			181,593
General and administrative expenses	148,584			149,214			293,805			241,245			157,866			145,221
Other intangible impairment charge	1,018			778			7,337			778
Impairment of intangibles and other													—			6,319
Operating income	42,380			31,028			72,433			41,433			33,803			30,053
Interest expense	(2,885		)	(3,202		)	(5,937		)	(4,652		)	(2,768		)	(3,052		)
Income before income taxes and noncontrolling interest	39,495			27,826			66,496			36,781			31,035			27,001
Income tax expense	9,557			7,170			13,157			8,147			3,359			3,600
Net income	29,938			20,656			53,339			28,634			27,676			23,401
Less net income attributable to noncontrolling interests	4,938			3,859			9,483			6,842			5,652			4,545
Net income attributable to LHC Group, Inc.’s common stockholders	$	25,000		$	16,797		$	43,856		$	21,792		$	22,024		$	18,856

Earnings per share:
Basic	$	0.81		$	0.55		$	1.42		$	0.90		$	0.71		$	0.61
Diluted	$	0.80		$	0.55		$	1.41		$	0.89		$	0.70		$	0.60
Weighted average shares outstanding:
Basic	30,960			30,498			30,899			24,179			31,020			30,837
Diluted	31,201			30,742			31,188			24,403			31,303			31,187

See accompanying ~~notes~~Notes to the ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

LHC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands, except share data)

(Unaudited)


	Common Stock							Additional Paid-In Capital			Retained Earnings		Noncontrolling Interest Non Redeemable			Total Equity			For the Three Months Ended March 31, 2020
	Issued			Treasury															Common Stock							Additional Paid-In Capital			Retained Earnings		Noncontrolling Interest Non Redeemable			Total Equity
	Amount		Shares	Amount			Shares												Issued			Treasury
Balance as of December 31, 2018	$	356	35,636,414	$	(49,374	)	4,958,721	$	937,968		$	427,975	$	107,549		$	1,424,474
Net income (1)	—		—	—			—	—			18,856		1,686			20,542
																			Amount		Shares	Amount			Shares	Additional Paid-In Capital			Retained Earnings		Noncontrolling Interest Non Redeemable			Total Equity
																			$	361	36,129,280	$	(60,060	)	5,136,890
																			—		—	—			—
Acquired noncontrolling interest	—		—	—			—	—			—		820			820			—		—	—			—	—			—		2,880			2,880
Noncontrolling interest distributions	—		—	—			—	—			—		(6,799		)	(6,799		)	—		—	—			—	—			—		(2,093		)	(2,093		)
NCI acquired, net of sales	—		—	—			—	—			—		(18,000		)	(18,000		)
Purchase of additional controlling interest																			—		—	—			—	(2,470		)	—		(21,105		)	(23,575		)
Nonvested stock compensation	—		—	—			—	1,804			—		—			1,804			—		—	—			—	3,680			—		—			3,680
Restricted share grants	2		174,562	—			—	—			—		—			2
Issuance of vested stock																			2		163,163	—			—	—			—		—			2
Treasury shares redeemed to pay income tax	—		—	(7,577		)	85,509	(115		)	—		—			(7,692		)	—		—	(7,122		)	59,390	189			—		—			(6,933		)
Issuance of common stock under Employee Stock Purchase Plan	—		5,357	—			—	478			—		—			478			—		4,663	—			—	610			—		—			610
Balance as of March 31, 2019	$	358	35,816,333	$	(56,951	)	5,044,230	$	940,135		$	446,831	$	85,256		$	1,415,629
Net income (1)	—		—	—			—	—			25,000		1,897			26,897
Acquired noncontrolling interest	—		—	—			—	—			—		6,170			6,170
Noncontrolling interest distributions	—		—	—			—	—			—		(2,026		)	(2,026		)
NCI acquired, net of sales	—		—	—			—	(1,283		)	—		531			(752		)
Nonvested stock compensation	—		—	—			—	2,588			—		—			2,588
Restricted share grants	—		17,145	—			—	—			—		—			—
Treasury shares redeemed to pay income tax	—		—	(942		)	8,697	30			—		—			(912		)
Issuance of common stock under Employee Stock Purchase Plan	—		4,301	—			—	453			—		—			453
Balance as of June 30, 2019	$	358	35,837,779	$	(57,893	)	5,052,927	$	941,923		$	471,831	$	91,828		$	1,448,047
Balance as of March 31, 2020																			$	363	36,297,106	$	(67,182	)	5,196,280	$	951,330		$	545,725	$	75,709		$	1,505,945

(1) Net income excludes net income attributable to noncontrolling interest-redeemable of $3.0 million and $5.9 million during the three and six months ended June 30, 2019, respectively. Noncontrolling interest-redeemable is reflected outside of permanent equity on the condensed consolidated balance sheets.



	For the Three Months Ended March 31, 2019
	Common Stock							Additional Paid-In Capital			Retained Earnings		Noncontrolling Interest Non Redeemable			Total Equity
	Issued			Treasury
	Amount		Shares	Amount			Shares
Balance as of December 31, 2018	$	358	35,835,348	$	(49,373	)	5,029,429	$	937,965		$	427,975	$	107,549		$	1,424,474
Net income	—		—	—			—	—			18,856		1,686			20,542
Acquired noncontrolling interest	—		—	—			—	—			—		820			820
Noncontrolling interest distributions	—		—	—			—	—			—		(6,799		)	(6,799		)
Purchase of additional controlling interest	—		—	—			—	—			—		(18,000		)	(18,000		)
Nonvested stock compensation	—		—	—			—	1,804			—		—			1,804
Issuance of vested stock	2		174,562	—			—	—			—		—			2
Treasury shares redeemed to pay income tax	—		—	(6,726		)	61,465	(115		)	—		—			(6,841		)
Exercise of options	1		44,387	(851		)	24,044	—			—		—			(850		)
Issuance of common stock under Employee Stock Purchase Plan	—		5,357	—			—	478			—		—			478
Balance as of March 31, 2019	$	361	36,059,654	$	(56,950	)	5,114,938	$	940,132		$	446,831	$	85,256		$	1,415,630

See ~~Note 8 of the~~accompanying Notes to Condensed Consolidated Financial Statements.

Common Stock Additional
Paid-In
Capital Retained
Earnings Noncontrolling
Interest Non
Redeemable Total
Equity
Issued Treasury
Amount Shares Amount Shares
Balance as of December 31, 2017 $ 226
22,640,046
$ (42,249 ) 4,890,504
$ 126,490
$ 364,401
$ 57,723
$ 506,591
Net income (1)
—
—
—
—
—
4,995
597
$ 5,592
Acquired noncontrolling interest —
—
—
—
—
—
1,235
1,235
Noncontrolling interest distributions —
—
—
—
—
—
(615 ) (615 )
Sale of noncontrolling interest —
—
—
—
(2,029 ) —
5,583
3,554
Purchase of additional controlling interest —
—
—
—
(44 ) —
(12 ) (56 )
Nonvested stock compensation —
—
—
—
1,601
—
—
1,601
Issuance of vested stock 2
165,567
—
—
(2 ) —
—
—
Treasury shares redeemed to pay income tax —
—
(3,467 ) 56,772
—
—
—
(3,467 )
Issuance of common stock under Employee Stock Purchase Plan —
5,534
—
—
332
—
—
332
Balance as of March 31, 2018 $ 228
22,811,147
$ (45,716 ) 4,947,276
$ 126,348
$ 369,396
$ 64,511
$ 514,767
Net income (1)
—
—
—
—
—
16,797
1,390
18,187
Acquired noncontrolling interest —
—
—
—
—
—
35,239
35,239
Noncontrolling interest distributions —
—
—
—
—
—
(504 ) (504 )
Sale of noncontrolling interest —
—
—
—
(591 ) —
—
(591 )
Nonvested stock compensation —
—
—
—
2,318
—
—
2,318
Issuance of vested stock —
10,818
—
—
—
—
—
—
Treasury shares redeemed to pay income tax —
—
(628 ) 6,389
—
—
—
(628 )
Merger consideration 127
12,765,288
—
—
795,278
—
—
795,405
Issuance of common stock under Employee Stock Purchase Plan —
5,171
—
—
302
—
—
302
Balance as of June 30, 2018 $ 355
35,592,424
$ (46,344 ) 4,953,665
$ 923,655
$ 386,193
$ 100,636
$ 1,364,495


~~(1)~~	Net income excludes net income attributable to noncontrolling interest-redeemable of $2.5 million and $4.9 million during the three and six months ending June 30, 2018, respectively. Noncontrolling interest-redeemable is reflected outside of permanent equity on the condensed consolidated balance sheets. See Note 8 of the Notes to Condensed Consolidated Financial Statements.

LHC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

Six Months Ended
June 30,
2019 2018
Operating activities:
Net income $ 53,339
$ 28,634
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization expense 8,400
7,548
Amortization of operating lease right of use asset 15,528
—
Stock-based compensation expense 4,392
3,919
Deferred income taxes 4,821
1,714
Loss (gain) on disposal of assets 312
(126 )
Impairment of intangibles and other 7,337
778
Changes in operating assets and liabilities, net of acquisitions:

Receivables (22,704 ) (18,897 )
Prepaid expenses and other assets (324 ) (6,521 )
Prepaid income taxes 5,063
4,624
Accounts payable and accrued expenses (18,735 ) 8,729
Income taxes payable 374
—
Net amounts due to/from governmental entities 528
(704 )
Net cash provided by operating activities 58,331
29,698
Investing activities:

Purchases of property, building and equipment (7,599 ) (13,760 )
Cash acquired from business combination, net of cash paid (20,431 ) 13,086
Net cash used in investing activities (28,030 ) (674 )
Financing activities:

Proceeds from line of credit 25,000
270,084
Payments on line of credit (30,000 ) (278,884 )
Proceeds from employee stock purchase plan 931
634
Payments on debt (7,650 ) 135
Payments on deferred financing fees —
(1,881 )
Noncontrolling interest distributions (13,857 ) (5,763 )
Withholding taxes paid on stock-based compensation (8,519 ) (4,095 )
Purchase of additional controlling interest (18,748 ) (55 )
Exercise of options (84 ) —
Sale of noncontrolling interest —
3,322
Net cash (used in) financing activities (52,927 ) (16,503 )
Change in cash (22,626 ) 12,521
Cash at beginning of period 49,363
2,849
Cash at end of period $ 26,737
$ 15,370
Supplemental disclosures of cash flow information:

Interest paid $ 4,038
$ 3,112
Income taxes paid $ 4,042
$ 2,139

~~Non-cash operating activity:~~ ~~The Company recorded $98.1 million in operating lease right of use assets in exchange for lease obligations.~~

~~Non-cash investing activity:~~ ~~The Company accrued $1.0 million for capital expenditures primarily related to the home office expansion project at the six months ended June 30, 2019.~~



	Three Months Ended March 31,
	2020			2019
Operating activities:
Net income	$	27,676		$	23,401
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	5,133			4,202
Amortization of operating lease right of use asset	8,512			7,399
Stock-based compensation expense	3,680			1,804
Deferred income taxes	4,367			1,578
Amortization of operating leases	(13		)	—
Loss on disposal of assets	47			56
Impairment of intangibles and other	—			6,319
Changes in operating assets and liabilities, net of acquisitions:
Receivables	(67,470		)	(16,284		)
Prepaid expenses	(11,728		)	(1,069		)
Other assets	2,268			1,539
Prepaid income taxes	(4,537		)	1,883
Accounts payable and accrued expenses	(11,159		)	(10,413		)
Salaries, wages, and benefits payable	24,826			16,169
Operating lease liabilities	(8,415		)	(5,285		)
Income taxes payable	2,298			184
Net amounts due to/from governmental entities	51			(55		)
Net cash (used in) provided by operating activities	(24,464		)	31,428
Investing activities:
Purchases of property, building and equipment	(13,502		)	(2,801		)
Proceeds from sale of property, building and equipment	1,149			—
Cash received (paid) for acquisitions	3,125			(1,413		)
Net cash used in investing activities	(9,228		)	(4,214		)
Financing activities:
Proceeds from line of credit	188,728			17,000
Payments on line of credit	(143,657		)	(13,000		)
Proceeds from employee stock purchase plan	610			478
Payments on debt	—			(7,650		)
Noncontrolling interest distributions	(4,874		)	(9,194		)
Withholding taxes paid on stock-based compensation	(7,064		)	(7,577		)
Purchase of additional controlling interest	(23,575		)	(18,000		)
Exercise of vested awards and stock options	160			(114		)
Net cash provided by (used in) financing activities	10,328			(38,057		)
Change in cash	(23,364		)	(10,843		)
Cash at beginning of period	31,672			49,363
Cash at end of period	$	8,308		$	38,520
Supplemental disclosures of cash flow information:
Interest paid	$	2,830		$	2,855
Income taxes paid	$	1,269		$	318
Non-Cash Operating Activity:
Operating right of use assets in exchange for lease obligations	$	9,041		$	91,174
Non-Cash Investing Activity:
Accrued capital expenditures	$	2,226		$	4,600

See accompanying ~~notes~~Notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

LHC GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Significant Events

Organization

LHC Group, Inc. (the “Company”) is a health care provider specializing in the post-acute continuum of care. The Company provides services through five segments: home health, ~~services,~~ hospice, ~~services,~~ home and community-based services, facility-based services, the latter primarily through long-term acute care hospitals (“LTACHs”), and healthcare innovations services ("HCI").

On April 1, 2018, the Company completed a "merger of equals" business combination (the "Merger") with Almost Family, Inc. ("Almost Family"). As a result, the financial results of the Company for the three and six month periods in 2019 include the operating results of Almost Family, while the financial results of the Company with the addition of Almost Family start to be reflected during the second quarter of 2018. See Note 3 to Condensed Consolidated Financial Statements.

As of ~~June 30, 2019,~~March 31, 2020, the Company, through its wholly- and majority-owned subsidiaries, equity joint ventures, controlled affiliates, and management agreements operated ~~760~~820 service locations in 35 states within the continental United States and the District of Columbia.

COVID-19

The effects of the worldwide pandemic caused by the outbreak of SARS-CoV-2 (“COVID-19”) have impacted our business. For example, the Company has experienced increased costs associated with obtaining personal protective equipment and other medical supplies in an effort to protect the safety and well-being of the Company's clinicians and patients across the country. Additionally, the emergence of stay-at-home and physical distancing orders and other restrictions on movement and economic activity intended to reduce the spread of COVID-19 during the second half of March 2020 have required us to alter our clinical, operational, and business processes. Taken together, however, as further described in this Quarterly Report on Form 10-Q, the net impact of COVID-19 was not material to the results of operations during the three months ended March 31, 2020.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated balance sheets as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, and the related unaudited condensed consolidated statements of income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ condensed consolidated statements of changes in equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ condensed consolidated statements of cash flows for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ and related notes (collectively, these financial statements are referred to as the "interim financial statements" and together with the related notes are referred to herein as the “interim financial information”) have been prepared by the Company. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been included. Operating results for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019.~~2020.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from the interim financial information presented. This report should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (the ~~"2018~~"2019 Form 10-K"). The ~~2018~~2019 Form 10-K was filed with the Securities and Exchange Commission (the “SEC”) on February ~~28, 2019,~~27, 2020, and includes information and disclosures not included herein.

~~Reclassification~~Immaterial Correction of an Error

During the three months ended March 31, 2020, the Company increased the reported number of common shares issued by 44,387 and decreased the reported number of treasury shares by 24,044 for the three months ended March 31, 2019 due to the exclusion of reporting the number of common shares issued as a result of the exercise of certain outstanding stock options and the number of treasury shares redeemed to pay income tax associated with such stock option exercises. For further details of this noted item, see Note 2 of the Notes to Consolidated Financial Statements in the 2019 10K filed with the SEC on February 27, 2020.

The Company has ~~reclassified certain amounts relating to its prior year results to conform to its current period presentation. These reclassifications~~evaluated the effects both qualitatively and quantitatively, and concluded that they did not have ~~not changed~~a material impact on previously issued financial statements for the ~~results of operations of prior years.~~three months ended March 31, 2019.

2. Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of

the financial statements, and the reported revenue and expenses during the reporting period. Actual results could differ from those estimates.

Critical Accounting Policies

The Company’s most critical accounting policies relate to revenue recognition.

Net Service Revenue

Net service revenue from contracts with customers is recognized in the period the performance obligations are satisfied under the Company's contracts by transferring the requested services to patients in amounts that reflect the consideration to which is expected to be received in exchange for providing patient care, which is the transaction price allocated to the services provided in accordance with Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) andASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (collectively, "ASC 606").

Net service revenue is reported at the amount that reflects the consideration the Company expects to receive in exchange for providing services. Receipts are from Medicare, Medicaid, and other commercial or managed care insurance programs for services rendered, are subject to adjustment based upon implicit price concessions for retroactive revenue adjustments by third-

party payors, settlements of audits, and claims reviews. The estimated uncollectible amounts due from these payors are considered implicit price concessions that are a direct reduction to net service revenue. The Company assesses the patient's ability to pay for their healthcare services at the time of patient admission based on the Company's verification of the patient's insurance coverage under the Medicare, Medicaid, and other commercial or managed care insurance programs. Medicare contributes to the net service revenue of the Company’s home health, hospice, facility-based, and healthcare innovations services. Medicaid and other payors contribute to the net service revenue of all of the Company's segments.

~~Performance obligations are determined based on the nature of the services provided by the Company. The majority of the Company's~~recognized as performance obligations are ~~to provide~~satisfied, which can vary depending on the type of services ~~to patients~~provided. The performance obligation is the delivery of patient care in accordance with the requested services outlined in physicians' orders, which are based on ~~medical necessity and the bundle of services to be provided to achieve the~~specific goals ~~established in the contract, while the healthcare innovations segment's~~for each patient.

The performance obligations are largely to provide care, assessments and management services under various customer contracts. Revenue for performance obligations that are satisfied over time is recognized based on actual charges incurredassociated with contracts in relation to total expected charges over the measurement period of the performance obligation, which depicts the transfer of services and related benefits received by the patient and customers over the term of the contract to satisfy the obligations. The Company measures the satisfaction of the performance obligations as services are provided.

~~The Company's performance obligations relate to contracts with a~~ duration of less than one ~~year. Therefore, the Company has elected to apply~~year; therefore, the optional exemption provided by ASC 606 ~~- Revenue Recognition, and is~~was elected resulting in the Company not being required to disclose the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied atas of the end of the reporting period. ~~Any~~The Company's unsatisfied or partially unsatisfied performance obligations atare primarily completed when the patients are discharged and typically occur within days or weeks of the end of ~~a reporting period are generally completed prior to~~ the ~~patient being discharged.~~period.

The Company determines the transaction price ~~for the majority of its performance obligations~~ based on gross charges for services provided, reduced by estimates for explicit and implicit price concessions. Explicit price concessions include contractual adjustments provided to patients and third-party payors. Implicit price concessions include discounts provided to self-pay, uninsured patients or other payors, adjustments resulting from regulatory reviews, audits, billing reviews and other matters. Subsequent changes to the estimate of the transaction price are recorded as adjustments to net service revenue in the period of change. Subsequent changes that are determined to be the result of an adverse change in the patient's ability to pay (i.e. change in credit risk) are recorded as a provision for doubtful accounts within general and administrative expenses.

Explicit price concessions are recorded for the difference between our standard rates and the contracted rates to be realized from patients, third-party payors and ~~implicit price concessions. The Company determines estimates of explicit~~others for services provided.

Implicit price concessions ~~principally contractual adjustments based on established agreements with~~are recorded for self-pay, uninsured patients and other payors ~~and implicit price concessions~~by major payor class based on historical collection ~~experience. Estimates~~experience and current economic conditions, representing the difference between amounts billed and amounts expected to be collected. The Company assesses the ability to collect for the healthcare services provided at the time of ~~explicit~~patient admission based on the verification of the patient's insurance coverage under Medicare, Medicaid, and ~~implicit~~other commercial or managed care insurance programs.

Amounts due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid), include variable consideration for retroactive revenue adjustments due to settlements of audits and reviews. The Company has determined estimates for price concessions ~~are periodically reviewed~~related to ~~ensure they encompass~~regulatory reviews based on historical experience and success rates in the ~~Company's current contract terms, are reflective of the Company's current patient mix,~~claim appeals and ~~are indicative of the Company's historic collections to ensure net service revenue is recognized at the expected transaction price. As a result, revenue~~adjudication process. Revenue is recorded inat amounts ~~equal~~estimated to ~~expected cash receipts~~be realizable for services ~~when rendered.~~provided.

The following table sets forth the percentage of net service revenue earned by category of payor for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
Home health:
Medicare	70.8	%	72.9	%	71.1	%	72.3	%	68.2	%	71.3	%
Managed Care, Commercial, and Other	29.2		27.1		28.9		27.7		31.8		28.7
	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Hospice:
Medicare	92.9	%	91.1	%	92.7	%	91.7	%	92.0	%	92.4	%
Managed Care, Commercial, and Other	7.1		8.9		7.3		8.3		8.0		7.6
	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Home and Community-Based Services:
Medicaid	24.3	%	24.7	%	24.7	%	23.1	%	20.6	%	25.1	%
Managed Care, Commercial, and Other	75.7		75.3		75.3		76.9		79.4		74.9
	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Facility-Based Services:
Medicare	53.0	%	58.7	%	55.2	%	61.4	%	54.8	%	57.4	%
Managed Care, Commercial, and Other	47.0		41.3		44.8		38.6		45.2		42.6
	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
HCI:
Medicare	23.5	%	26.7	%	22.8	%	26.7	%	24.6	%	22.2	%
Managed Care, Commercial, and Other	76.5		73.3		77.2		73.3		75.4		77.8
	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Medicare

The ~~Company's home health, hospice,~~following describes the payment models in effect during the three months ended March 31, 2020. Such payment models have been subject to temporary adjustments made by the Centers for Medicare and ~~facility-based segments recognize revenue under their respective~~Medicaid Services ("CMS") in response to COVID-19 pandemic as described elsewhere by this Quarterly Report on Form 10-Q.

Home Health Services

Effective January 1, 2020, the Patient Driven Groupings Model ("PDGM") became the new payment model for services provided to Medicare ~~programs, which are discussed in more detail below.~~

~~The home health segment's Medicare~~ patients with dates of service on or after the effective date, including certain Medicare Advantage ~~patients, are~~patients. PDGM was implemented by CMS. Under PDGM, the initial certification of Medicare patient eligibility, plan of care, and comprehensive assessment is for a 60-day episode of care; however, unlike the former Medicare prospective payment system ("PPS"), where each 60-day episode of care could not be final billed until the episode was completed, PDGM provides for each 30-day period within the episode of care to be final billed upon completion.

As a result of PDGM, the Company now completes its final billing after each 30-day period instead of the form 60-day period under PPS. For each 30-day period, the patient is classified into one of ~~153~~432 home health resource groups prior to receiving services. ~~Based on~~Each 30-day period is placed into a subgroup falling under the patient’s home health resource group, the Company is entitled to receive a standard prospective Medicare payment for delivering care over a 60-day period referred to as an episode. The Company elects to use the same 60-day lengthfollowing categories: (i) timing being early or late, (ii) admission source being community or institutional, (iii) one of episode that Medicare recognizes as standard but accelerates revenue upon discharge to align with a patient's episode length, if less than the expected 60 days, which depicts the transfer of services and related benefits received by the patient over the term of the contract necessary to satisfy the obligations. The Company recognizes revenue12 clinical groupings based on the ~~number~~patient's principal diagnosis, (iv) functional impairment level of ~~days elapsed during an episode~~low, medium, or high, and (v) a co-morbidity adjustment of ~~care within~~none, low, or high based on the ~~reporting period.~~patient's secondary diagnoses.

~~Final payments~~Each 30-day period payment from Medicare ~~will reflect~~reflects base payment adjustments for case-mix, ~~and~~ geographic wage differences, and a 2% sequestration reduction. In addition, ~~final~~ payments may reflect one of ~~four~~three retroactive adjustments to the total reimbursement: (a) an outlier payment if the patient’s care was unusually costly; (b) a low utilization adjustment ifwhereby the number of visits ~~was fewer than five;~~is dependent on the clinical grouping; and/or (c) a partial payment if the patient transferred to another provider or from another provider before completing the ~~episode; or (d) a payment adjustment based upon the level of therapy services required.~~episode. The retroactive adjustments outlined above are recognized in net service revenue when the event causing the adjustment occurs and during the period in which the services are provided to the patient. The Company reviews these adjustments to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustments is subsequently resolved. Net service revenue and related patient accounts receivable are recorded at amounts estimated to be realized from Medicare for services rendered.

Hospice

The ~~Company's hospice services segment is reimbursed by Medicare under a per diem~~Company records revenue on an accrual basis based upon the date of service at amounts equal to the estimated payment ~~system based on the daily needs determined for patients' basis.~~rates. The ~~hospice segment~~Company receives ~~one~~1 of ~~four~~4 predetermined daily rates based upon the level of care provided by the Company, ~~furnishes. Each~~which can be routine care, general inpatient care, continuous home care, and respite care. There are two separate payment rates for routine care: payment for the first 60 days of care and care beyond 60 days. In addition to the two routine rates, the Company may also receive a service intensity add-on ("SIA"). The SIA is based on visits made in the last seven days of life by a registered nurse or medical social worker for patients in a routine level of ~~care is contingent upon the patient's medical necessity and is a separate and distinct~~care.

The performance obligation ~~which depicts~~is the ~~transfer~~delivery of hospice services ~~and related benefits received by~~to the patient, ~~over~~as determined by a physician, each day the ~~term of the contract~~patient is on hospice care.

Adjustments to ~~satisfy such obligations.~~Medicare revenue are made from regulatory reviews, audits, billing reviews and other matters. The Company ~~records net service revenue for hospice services~~estimates the impact of these adjustments based on ~~the promulgated per diem rate over time as services are provided, in satisfaction of performance obligation.~~

our historical experience.

Hospice payments are subject to variable consideration through an inpatient cap and an overall Medicare payment cap. The inpatient cap relates to individual programs receiving more than 20% of their total Medicare reimbursement from inpatient care services, and the overall Medicare payment cap relates to individual programs receiving reimbursements in excess of a “cap amount,” determined by Medicare to be payment equal to ~~six~~12 months of hospice care for the aggregate base of hospice patients, indexed for inflation. The determination for each cap is made annually based on the 12-month period ending on October 31 of each year. The Company monitors its limits on a provider-by-provider basis and records an estimate of its liability for reimbursements received in excess of the cap amount, if any, in the reporting period. ~~The Company reviews these estimates to ensure that it~~

Facility-Based Services

Gross revenue is ~~probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustments is subsequently resolved.~~

~~The Company's facility-based~~recorded as services ~~segment is reimbursed primarily by Medicare for services~~are provided under the ~~long-term acute care hospital ("LTACH")~~LTACH prospective payment system. Each patient is assigned a long-term care diagnosis-related group. The Company is paid a predetermined fixed amount intended to reflect the average cost of treating a Medicare LTACH patient classified in that particular long-term care diagnosis-related group. For selected LTACH patients, the amount may be further adjusted based on length-of-stay and facility-specific costs, as well as in instances where a patient is discharged and subsequently re-admitted, among other factors. The Company calculates the adjustment based on a historical average of these types of adjustments for LTACH claims paid. Similar to other Medicare prospective payment systems, the rate is also adjusted for geographic wage differences. Net service revenue adjustments resulting from reviews and audits of Medicare cost report settlements are considered implicit price concessions for LTACHs and are measured at expected value. ~~The Company reviews these estimates to ensure that it is probable that a significant reversal in the amount~~

Non-Medicare Revenues

Other sources of ~~LTACH services cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustments is subsequently resolved. Net~~net service revenue for the Company’s LTACH services that are satisfied over time is recognized based on actual charges incurred in relation to total expected charges, which depicts the transfer of services and related benefits received by the customer over the service period to satisfy the obligations.

~~Non-Medicare Revenues~~

~~Each~~all segments fall into Medicaid, managed care or other payors of the Company's segments recognize revenue from various non-Medicare payor sources. Revenue from these payor sources are derived from services provided under a per visit, per hour or per unit basis, per assessment or per member per month basis. Such fee for service revenues are calculated and recorded using payor-specific or patient-specific fee schedulesservices. Medicaid reimbursement is based on ~~the contracted rates in~~a predetermined fee schedule applied to each ~~underlying third party payor or services agreement or out of network rates, as applicable. Net~~ service provided. Therefore, revenue is recognized for Medicaid services as ~~such~~ services are provided based on this fee schedule. The Company's managed care and ~~costs for delivery~~other payors reimburse the Company based upon a predetermined fee schedule or an episodic basis, depending on the terms of ~~such~~the applicable contract. Accordingly, the Company recognizes revenue from managed care and other payors as services are ~~incurred.~~provided, such costs are incurred, and estimates of expected payments are known for each different payor, thus the Company's revenue is recorded at the estimated transaction price.

Contingent Service Revenues

The ~~Company’s Healthcare Innovations ("HCI")~~HCI segment provides strategic health management services to ~~Accountable~~Affordable Care Organizations ~~(“ACOs”~~("ACOs") that have been approved to participate in the Medicare Shared Savings Program ~~(“MSSP”~~("MSSP"). The HCI segment ~~maintains~~has service agreements with ACOs that provide for sharing of MSSP payments received by the ACO, if any. ACOs are legal entities that contract with ~~Centers for Medicare and Medicaid Services ("CMS")~~CMS to provide services to the Medicare fee-for-service population for a specified annual period with the goal of providing better care for the individual, improving health for populations and lowering costs. ACOs share savings with CMS to the extent that the actual costs of serving assigned beneficiaries are below certain trended benchmarks of such beneficiaries and certain quality performance measures are achieved. The generation of shared savings is the performance obligation of each ACO, which only become certain upon the final issuance of unembargoed calculations by CMS, generally in the third quarter of each ~~calendar~~ year. As of June 30, 2019, no net service revenue was recognized related to potential MSSP payments for savings generated for the program periods that ended December 31, 2018, if any, as it remains unclear as to if performance obligations have been met by any ACO served by the HCI segment.

Patient Accounts Receivable

The Company reports patient accounts receivable ~~net of estimates of variable consideration and implicit~~from services rendered at their estimated transaction price, ~~concessions. Accounts~~which includes price concessions based on the amounts expected to be due from payors. The Company's patient accounts receivable ~~are~~is uncollateralized and primarily consist of amounts due from Medicare, Medicaid, other third-party payors, and to a lesser degree patients. The ~~Company establishes allowances for explicit and implicit price concessions to reduce the carrying amount of such receivables to their estimated net realizable value. The~~ credit risk ~~associated with receivables~~ from other payors is limited due to the significance of Medicare as the primary payor. The Company believes the credit risk associated with its Medicare accounts ~~which have historically exceeded 50% of its patient accounts receivable,~~ is limited due to (i) the historical collection rate from Medicare

and (ii) the fact that Medicare is a U.S. government payor. The Company does not

believe that there are any other significant concentrations ~~of receivables~~ from any particular payor that would subject it to any significant credit risk in the collection of patient accounts receivable.

The amount of the provision for implicit price concessions is based upon the Company's assessment of historical and expected net collections, business and economic conditions, and trends in government reimbursement. Uncollectible accounts are written off when the Company has determined that the account will not be collected.

A portion of the estimated Medicare ~~prospective payment~~PDGM system reimbursement from each submitted home nursing episode is received in the form of a request for anticipated payment (“RAP”). For a standard 60-day episode of care, the Company will submit two RAPs, one for the first 30-day period and a second for the next 30-day period. The Company submits a RAP for ~~60%~~20% of the estimated reimbursement for each of the ~~initial episode~~30-day periods at the start of care. ~~The full amount~~A final bill is submitted at the end of ~~the episode is billed after the episode has been completed.~~each 30-day period. If a final bill is not submitted within the greater of 120 days from the start of the ~~episode,~~30-day period, or 60 days from the date the RAP was paid, any RAP received for that ~~episode~~30-day period will be recouped by Medicare from any other Medicare claims in process for that particular provider. The RAP and final claim must then be resubmitted. ~~For subsequent episodes of care contiguous with the first episode for a particular patient, the Company submits a RAP for 50% of the estimated reimbursement.~~

The Company’s services to the Medicare population are paid at prospectively set amounts that can be determined at the time services are rendered. The Company’s Medicaid reimbursements are based on a predetermined fee schedule applied to each individual service it provides. The Company’s managed care contracts and other in or out of network payors provide for payments based upon a predetermined fee schedule or an episodic basis. The Company is able to calculate actual amounts to be received at the patient level and to adjust the gross charges down to the actual amount at the time of billing. This negates the need to record an estimated explicit price concessions when reporting net service revenue for each reporting period.

~~Other Significant Accounting Policies~~

Earnings Per Share

Basic per share information is computed by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding during the period, under the treasury stock method. Diluted per share information is also computed using the treasury stock method, by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding plus potentially dilutive shares.

The following table sets forth shares used in the computation of basic and diluted per share information and, with respect to the data provided for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 (amounts in thousands).:


	Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended March 31,
	2019	2018	2019	2018	2020	2019
Weighted average number of shares outstanding for basic per share calculation	30,960	30,498	30,899	24,179	31,020	30,837
Effect of dilutive potential shares:
Nonvested stock	241	244	289	224	283	350
Adjusted weighted average shares for diluted per share calculation	31,201	30,742	31,188	24,403	31,303	31,187
Anti-dilutive shares	13	20	153	236	120	141

Recently Adopted ~~Accounting Pronouncements~~

In February 2016, the FASB issued ASU No. 2016-02, Leases, ("ASU 2016-02"), as modified by ASUs 2018-01, 2018-10, 2018-11 and 2018-20 (collectively, ASU 2016-02), which requires lessees to recognize leases with terms exceeding 12 months on the Company's Consolidated Balance Sheet. Qualifying leases were classified as finance or operating right-of-use ("ROU") assets and lease liabilities. The new standard was effective for the Company on January 1, 2019. ASU 2016-02 provides a number of optional practical expedients in transition and the Company (a) elected the 'package of practical expedients', which permitted the Company not to reassess under the new standard the Company's prior conclusions about lease identification, lease classification and initial direct costs, (b) elected all the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company, and (c) elected all the new standard's available transition practical expedients.

Adoption of this standard increased total assets and total liabilities by $84.6 million, primarily for the Company's operating leased office space for locations in each segment. The adoption did not change the Company's leasing activities. ASU 2016-02 also provides practical expedients for an entity's ongoing accounting. The Company elected the short-term recognition exemption for certain medical devices and storage space leases that qualify, which means it did not recognize ROU assets or lease liabilities, including not recognizing ROU assets or lease liabilities for existing short-term leases of these assets in transition. See Note 9 of the Notes to Condensed Consolidated Financial Statements.

~~Recently Issued~~ Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. This ASU iswas effective for annual and interim periods in fiscal years beginning after December 15, 2019, and did not have a significant impact to the Company.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments which amends Financial Instruments - Credit Losses ("Topic 326"). ASU 2016-13 provides guidance for measuring credit losses on financial instruments. Early adoption is permitted. The amendments in this ASU should be applied retrospectively. This ASU was effective for annual and interim periods in fiscal years beginning after December 15, 2019, and did not ~~expected~~have a significant impact to ~~significantly impact~~ the ~~company.~~Company.

3. Acquisitions and Joint Venture Activities

~~The Merger~~

On April 1, 2018, the Company completed the Merger with Almost Family. At the effective time of the Merger on April 1, 2018, each outstanding share of common stock of Almost Family, other than certain canceled shares, was converted into the right to receive 0.9150 shares of the Company’s common stock and cash in lieu of any fractional shares of any Company common stock that Almost Family shareholders would otherwise have been entitled to receive. As a result, the Company issued approximately 12.8 million shares of its common stock to former stockholders of Almost Family, while also converting outstanding employee share awards, which resulted in total merger consideration of approximately $795.4 million.

The Company was determined to be the accounting acquirer in the Merger. The Company's final valuation analysis of identifiable assets and liabilities assumed for the Merger in accordance with the requirements of ASC Topic 805, Business Combinations, are presented in the table below (amounts in thousands):

Merger consideration
Stock $ 795,412
Fair value of total consideration transferred
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents 16,547
Patient accounts receivable 88,234
Prepaid income taxes 47
Prepaid expenses and other current assets 11,490
Property and equipment 11,144
Trade names 76,090
Certificates of needs/licenses 76,505
Customer relationships 13,970
Assets held for sale 2,500
Deferred income taxes 4,821
Accounts payable (43,027 )
Accrued other liabilities (57,243 )
Seller notes payable (12,145 )
NCI - Redeemable (8,034 )
Long term income taxes payable (3,786 )
Line of credit (106,800 )
NCI - Nonredeemable (36,609 )
Other assets and (liabilities), net (178 )
Total identifiable assets and liabilities 33,526
Goodwill $ 761,886

Acquisitions

The Company acquired the majority-ownership of ~~ten~~6 home health agencies, 3 hospice agencies, and ~~five hospice~~4 home and community-based agencies during the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. The total aggregate purchase price for these transactions was ~~$23.5 million, of which $20.4 million was paid in cash.~~$13.9 million. The purchase prices were determined based on the Company’s analysis of comparable acquisitions and the target market’s potential future cash flows.

The Company funded these acquisitions in 2019 by paying cash consideration of $16.4 million. During the three months ended March 31, 2020, the Company received $3.1 million from an equity joint venture partnership for the partner's noncontrolling interest for one of the Company's acquired home health and hospice agencies. The total cash consideration includes adjustments for assets acquired and liabilities assumed.

Goodwill generated from the acquisitions was recognized based on the expected contributions of each acquisition to the overall corporate strategy. The Company expects its portion of goodwill to be fully tax deductible. The acquisitions were accounted for under the acquisition method of accounting. Accordingly, the accompanying interim financial information includes the results of operations of the acquired entities from the date of acquisition.

The following table summarizes ~~the aggregate consideration paid for the acquisitions and~~ the amounts of the assets acquired and liabilities assumed at the acquisition dates, as well as their fair value at the acquisition dates and the noncontrolling interest acquired during the ~~six~~three months ended ~~June 30, 2019:~~March 31, 2020:


Consideration
Cash	$	20,431
Fair value of total consideration transferred
Recognized amounts of identifiable assets acquired and liabilities assumed:
Trade name	3,480			$	1,944
Certificates of need/licenses	2,864			3,584
Other assets and (liabilities), net	(3,021		)	(407		)
Total identifiable assets	3,323			$	5,121

Noncontrolling interest	6,990			$	6,388
Goodwill, including noncontrolling interest of $5,359	$	24,098
Goodwill, including noncontrolling interest of $4,660				$	14,614

Trade names, certificates of need and licenses are indefinite-lived assets and, therefore, not subject to amortization. Acquired trade names that are not being used actively are amortized over the estimated useful life on the straight line basis. Trade names are valued using the relief from royalty method, a form of the income approach. Certificates of need are valued using the replacement cost approach based on registration fees and opportunity costs. Licenses are valued based on the estimated direct costs associated with recreating the asset, including opportunity costs based on an income approach. In the case of states with a moratorium in place, the licenses are valued using the multi-period excess earnings method.

~~The other identifiable assets include customer relationships that are amortized over 20.0 years. Customer relationships were valued using the multi-period excess earnings method.~~ Noncontrolling interest is ~~valued~~recorded at fair value.

Joint Venture Activities

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, the Company ~~acquired~~purchased a portion of the ~~minority ownership interests associated with certain agencies previously operated within three~~noncontrolling membership interest in one of ~~its~~our equity joint ~~ventures, whereby such agencies became wholly-owned subsidiaries~~venture partnerships, which prior to the purchase was classified as a nonredeemable noncontrolling interest in permanent equity. As a result of the ~~Company. The total~~purchase, the Company retained its controlling financial interests in the joint venture partnership and the noncontrolling interest of our partner will continue to be classified as a nonredeemable noncontrolling interest in permanent equity. Total consideration for ~~the~~this noncontrolling interest purchase ~~of such ownership interests~~ was ~~$18.7 million, which was paid in cash. These transactions were accounted for as equity transactions.~~$23.6 million.

During the six months ended June 30, 2019, the Company sold minority ownership interests associated with two home health agencies. The total consideration for the sale of such ownership interests was $3.5 million. The transaction was accounted for as an equity transaction.

4. Goodwill and Intangibles

The changes in recorded goodwill and intangible assets by reporting unit for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 were as follows (amounts in thousands):


	Home health reporting unit			Hospice reporting unit			Home and community-based services reporting unit			Facility-based reporting unit			HCI reporting unit			Total			Home health reporting unit			Hospice reporting unit			Home and community-based services reporting unit			Facility-based reporting unit			HCI reporting unit			Total
Goodwill
Balance as of December 31, 2018	$	822,602		$	118,583		$	165,583		$	14,194		$	40,755		$	1,161,717
Goodwill:
Balance as of December 31, 2019																			$	867,924		$	128,875		$	166,629		$	15,682		$	40,862		$	1,219,972
Acquisitions	13,113			5,626			—			—			—			18,739			7,254			2,700			—			—			—			9,954
Noncontrolling interests	3,826			1,533			—			—			—			5,359			2,863			1,797			—			—			—			4,660
Adjustments and disposals	595			1,215			495			—			107			2,412			(79		)	(316		)	—			—			—			(395		)
Balance as of June 30, 2019	$	840,136		$	126,957		$	166,078		$	14,194		$	40,862		$	1,188,227
Intangible assets
Balance as of December 31, 2018	$	215,382		$	37,010		$	23,948		$	4,147		$	16,892		$	297,379
Balance as of March 31, 2020																			$	877,962		$	133,056		$	166,629		$	15,682		$	40,862		$	1,234,191
Intangible assets:
Balance as of December 31, 2019																			$	219,872		$	40,590		$	24,096		$	5,317		$	15,681		$	305,556
Acquisitions	4,981			1,750			—			—			—			6,731			4,700			930			—			—			—			5,630
Adjustments and disposals	(7,719		)	1,633			—			—			(630		)	(6,716		)
Amortization	(308		)	(51		)	(2		)	(26		)	(291		)	(678		)	(137		)	(23		)	(10		)	(1		)	(145		)	(316		)
Balance as of June 30, 2019	$	212,336		$	40,342		$	23,946		$	4,121		$	15,971		$	296,716
Balance as of March 31, 2020																			$	224,435		$	41,497		$	24,086		$	5,316		$	15,536		$	310,870

The allocation of goodwill from acquisitions purchased during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 for each reporting unit is preliminary and subject to change once the valuation analysis required by ASC 805, Business Combinations is finalized.

In assigning fair value acquired in acquisitions as required by ASC 805, Business Combinations, the Company had assigned fair value to Certificates of need or license moratoria, as applicable, in certain states. During the six months ended June 30, 2019, the Company recorded $6.0 million of moratoria impairment as a result of the Centers for Medicare and Medicaid Services (“CMS”) action to remove all federal moratoria with regard to Medicare provider enrollment. Additionally, the Company recorded $1.3 million of disposals of intangible assets, which consist of licenses and Certificates of needs, due to the closure of underperforming locations. The disposal and impairment were classified in impairment of intangibles and other on the Company's consolidated statements of income.

The following tables summarize the changes in intangible assets during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (amounts in thousands):


	2019			2018			2020			2019
Indefinite-lived intangible assets:
Trade Names	$	159,632		$	156,049		$	165,417		$	163,499
Certificates of Need/Licenses	124,751			128,577			133,273			129,689
Net Total	$	284,383		$	284,626		$	298,690		$	293,188

Definite-lived intangible assets:
Trade Names
Gross carrying amount	$	10,127		$	10,127		$	10,209		$	10,182
Accumulated amortization	(9,087		)	(8,817		)	(9,303		)	(9,229		)
Net total	$	1,040		$	1,310		$	906		$	953
Non-compete agreements
Gross carrying amount	$	6,238		$	5,980		$	6,897		$	6,795
Accumulated amortization	(5,846		)	(5,729		)	(6,089		)	(5,991		)
Net total	$	392		$	251		$	808		$	804
Customer relationships
Gross carrying amount	$	11,822		$	11,822		$	11,822		$	11,822
Accumulated amortization	(921		)	(630		)	(1,356		)	(1,211		)
Net total	$	10,901		$	11,192		$	10,466		$	10,611
Total definite-lived intangible assets
Gross carrying amount	$	28,187		$	27,929		$	28,928		$	28,799
Accumulated amortization	(15,854		)	(15,176		)	(16,748		)	(16,431		)
Net total	$	12,333		$	12,753		$	12,180		$	12,368

Total intangible assets:
Gross carrying amount	$	312,570		$	312,555		$	327,618		$	321,987
Accumulated amortization	(15,854		)	(15,176		)	(16,748		)	(16,431		)
Net total	$	296,716		$	297,379		$	310,870		$	305,556

Remaining useful lives for trade names, customer relationships, and non-compete agreements were ~~8.3, 18.8~~9.5, 18.0, and ~~2.5~~2.7 years, respectively, at ~~June 30, 2019.~~March 31, 2020. Similar periods at December 31, ~~2018~~2019 were ~~8.8, 19.3,~~9.8, 18.2, and 2.8 years for trade names, customer relationships, and non-compete agreements, respectively. Amortization expense was $0.3 million and $0.4 million during the three months ended March 31, 2020 and 2019, respectively. Amortization expense was recorded in general and administrative expenses.

5. Debt

Credit Facility

On March 30, 2018, the Company entered into a Credit Agreement with JPMorgan Chase Bank, N.A., which was effective on April 2, 2018 (the "Credit Agreement"). The Credit Agreement provides a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $500.0 million, which includes an additional $200.0 million accordion expansion feature, and a letter of credit sub-limit equal to $50.0 million. The expiration date of the Credit Agreement is March 30, ~~2023.~~2023. The Company’s obligations under the Credit Agreement are secured by substantially all of the assets of the Company and its wholly-owned subsidiaries (subject to customary exclusions), which assets include the Company’s equity ownership of its wholly-owned subsidiaries and its equity ownership in joint venture entities. The Company’s wholly-owned subsidiaries also guarantee the obligations of the Company under the Credit Agreement.

Revolving loans under the Credit Agreement bear interest at, as selected by the Company, either a (a) Base Rate, which is defined as a fluctuating rate per annum equal to the highest of (1) the Federal Funds Rate in effect on such day plus 0.5% (2) the Prime Rate in effect on such day and (3) the Eurodollar Rate for a one month interest period on such day plus 1.5%, plus

a margin ranging from 0.50% to 1.25% per annum or (b) Eurodollar rate plus a margin ranging from 1.50% to 2.25% per

annum, with pricing varying based on the Company's quarterly consolidated Leverage Ratio. Swing line loans bear interest at the Base Rate. The Company is limited to 15 Eurodollar borrowings outstanding at any time. The Company is required to pay a commitment fee for the unused commitments at rates ranging from 0.20% to 0.35% per annum depending upon the Company’s quarterly consolidated Leverage Ratio. The Base Rate as of ~~June 30, 2019~~March 31, 2020 was ~~6.25%~~4.00% and the LIBOR rate was ~~4.19%~~2.69%. As of ~~June 30, 2019,~~March 31, 2020, the effective interest rate on outstanding borrowings under the New Credit Agreement was ~~4.19%~~3.29%.

As of ~~June 30, 2019,~~March 31, 2020, the Company had ~~$230.0~~$298.1 million drawn, letters of credit issued in the amount of ~~$22.3~~$24.9 million, and ~~$247.7~~$177.0 million of remaining borrowing capacity available under the ~~New~~ Credit Agreement. At December 31, ~~2018,~~2019, the Company had ~~$235.0~~$253.0 million drawn and letters of credit issued in the amount of ~~$30.4~~$28.4 million under the Credit Facility.

Under the terms of the Credit Agreement, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Credit Agreement permits the Company to make certain restricted payments, such as purchasing shares of its stock, within certain parameters, provided the Company maintains compliance with those financial ratios and covenants after giving effect to such restricted payments. The Company was in compliance with its debt covenants under the Credit Agreement at ~~June 30, 2019.~~March 31, 2020.

6. Stockholder’s Equity

Equity Based Awards

The 2018 Incentive Plan is administered by the Compensation Committee of the Company’s Board of Directors. The total number of shares of the Company's common stock originally reserved were 2,210,544 shares ~~of our common stock~~ and a total of ~~2,030,629~~1,879,169 shares are currently available for issuance. A variety of discretionary awards for employees, officers, directors, and consultants are authorized under the 2018 Incentive Plan, including incentive or non-qualified stock options and restricted stock, restricted stock units and performance-based awards. All awards must be evidenced by a written award certificate which will include the provisions specified by the Compensation Committee of the Board of Directors. The Compensation Committee determines the exercise price for stock options, which cannot be less than the fair market value of the Company’s common stock as of the date of grant.

Almost Family had Stock and Incentive Compensation Plans that provided for stock awards of the Company's common stock to employees, non-employee directors, or independent contractors. Almost Family issued restricted shares and/or option awards to employees and non-employee directors. Under the change of control provisions of the Almost Family plans, all outstanding restricted stock, performance restricted stock, and options became non-forfeitable in conjunction with the Merger.

Share Based Compensation

Nonvested Stock

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, the Company granted ~~10,800 and 3,600~~9,900 nonvested shares of common stock to independent directors ~~and members of the Transitional Advisory Council, respectively~~ under the Second Amended and Restated 2005 Non-Employee Directors Compensation Plan. The shares vest 100% on the one year anniversary date. During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, one ~~new~~retired director was granted ~~3,500~~775 nonvested shares of common stock under the Second Amended and Restated 2005 Non-Employee Directors Compensation Plan, which shares vest ~~33%~~100% at ~~the grant date, then 33% on each of the first two anniversaries of~~ the grant date.

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, employees and a consultant were granted ~~141,945~~108,710 and 10,890 shares, respectively, of nonvested shares of common stock pursuant to the 2018 Incentive Plan. The shares vest over a period of five years, conditioned on continued ~~employment.~~employment and in accordance with consulting agreement. The fair value of nonvested shares of common stock is determined based on the closing trading price of the Company’s common stock on the grant date. The weighted average grant date fair value of nonvested shares of common stock granted during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 was ~~$68.81.~~$123.01.

The following table represents the share grants activity for the ~~six~~three months ended ~~June 30, 2019:~~March 31, 2020:


	Restricted stock				Options				Restricted stock				Options
	Number of shares		Weighted average grant date fair value		Number of shares		Weighted average grant date fair value		Number of shares		Weighted average grant date fair value		Number of shares	Weighted average grant date fair value
Share grants outstanding as of December 31, 2018	574,285		$	49.68	161,807		$	38.08
Share grants outstanding as of December 31, 2019									534,331		$	71.01	98,756	$	40.71
Granted	159,845		$	109.29	—		$	—	130,275		123.01		—	—
Vested or exercised	(191,707	)	$	43.71	(47,680	)	$	35.55	(163,923	)	121.65		—	—
Share grants outstanding as of June 30, 2019	542,423		$	68.81	114,127		$	39.59
Share grants outstanding as of March 31, 2020									500,683		$	87.67	98,756	$	40.71

As of ~~June 30, 2019,~~March 31, 2020, there was ~~$28.1~~$40.0 million of total unrecognized compensation cost related to nonvested shares of common stock granted. That cost is expected to be recognized over the weighted average period of ~~3.27~~3.40 years. The Company records compensation expense related to nonvested stock awards at the grant date for shares of common stock that are awarded fully

vested, and over the vesting term on a ~~straight line~~straight-line basis for shares of common stock that vest over time. The Company estimates forfeitures at the time of grant and revises the estimate in subsequent periods if actual forfeitures ~~differ.~~differ to ensure that total compensation expense recognized is at least equal to the value of vested awards. The Company recorded ~~$2.6~~$3.7 million and ~~$4.4~~$1.8 million of compensation expense related to nonvested stock grants for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~respectively. The Company recorded $2.3 million and $3.9 million of compensation expense related to nonvested stock grants for the three and six months ended June 30, 2018,~~ respectively.

Employee Stock Purchase Plan

In 2006, the Company adopted the Employee Stock Purchase Plan whereby eligible employees may purchase the Company’s common stock at 95% of the market price on the last day of the calendar quarter. There were 250,000 shares of common stock initially reserved for the plan. In 2013, the Company adopted the Amended and Restated Employee Stock Purchase Plan, which reserved an additional 250,000 shares of common stock to the plan.

The table below details the shares of common stock issued during ~~2019:~~2020:

Number of
shares

Per share
price
Shares available as of December 31, 2018 152,344

Shares issued during the three months ended March 31, 2019 5,357
$ 89.19
Shares issued during the three months ended June 30, 2019 4,301
$ 105.36
Shares available as of June 30, 2019 142,686

Treasury Stock

In conjunction with the vesting of the nonvested shares of common stock or the exercise of stock options, recipients incur personal income tax obligations. The Company allows the recipients to turn in shares of common stock to satisfy minimum tax obligations. During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, the Company redeemed ~~66,181~~59,390 shares of common stock valued at ~~$7.3~~$7.1 million, related to share vesting tax obligations. ~~In addition, the Company redeemed 25,542 shares of common stock valued at $1.1 million, related to the exercise of options.~~ Such shares are held as treasury stock and are available for reissuance by the Company.

Additionally, shares were submitted by employees in lieu of exercise price that would have otherwise been due on exercise of stock options, which shares are held in treasury stock and are available for reissuance by the Company.

7. Commitments and Contingencies

Contingencies

~~Regulatory Matters~~

The Company provides services in a highly regulated industry and is a party to various proceedings and regulatory and other governmental and internal audits and investigations in the ordinary course of business (including audits by Zone Program Integrity Contractors ("ZPICs") and Recovery Audit Contractors ("RACs") and investigations resulting from the Company's obligation to self-report suspected violations of law). Management cannot predict the ultimate outcome of any regulatory and other governmental and internal audits and investigations. While such audits and investigations are the subject of administrative appeals, the appeals process, even if successful, may take several years to resolve. The Department of Justice, CMS, or other federal and state enforcement and regulatory agencies may conduct additional investigations related to the Company's businesses. These audits and investigations have caused and could potentially continue to cause delays in collections, recoupments from governmental payors. Currently, the Company has recorded $16.9 million in other assets, which are due from government payors related to the disputed finding of pending appeals of ZPIC audits. Additionally, these audits may subject the Company to sanctions, damages, extrapolation of damage findings, additional recoupments, fines, and other penalties (some of which may not be covered by insurance), which may, either individually or in the aggregate, have a material adverse effect on the Company's business and financial condition.

~~Merger Related Litigation~~

On January 18, 2018, Jordan Rosenblatt, a purported shareholder of Almost Family filed a complaint for violations of the Securities Exchange Act of 1934 in the United States District Court for the Western District of Kentucky, styled Rosenblatt v. Almost Family, Inc., et al., Case No. 3:18-cv-40-TBR (the “Rosenblatt Action”). The Rosenblatt Action was filed against the Company, Almost Family, Almost Family’s board of directors, and Merger Sub. The complaint in the Rosenblatt Action (“Rosenblatt Complaint”) ~~asserts,~~asserted, among other things, that the Form S-4 Registration Statement (“Registration Statement”) filed on December 21, 2017 in connection with the Merger contained false and misleading statements with respect to the Merger. ~~The Rosenblatt Action sought, among other things, an injunction enjoining the Merger from closing and an award of attorneys’ fees and costs.~~

In addition to the Rosenblatt Action, two additional complaints were filed against Almost Family in the United States District Court for the District of Delaware (the "Delaware Actions") alleging similar violations as the Rosenblatt Action. These Delaware Actions also sought, among other things, to enjoin both the vote of the Almost Family stockholders with respect to the Merger and the closing of the Merger, monetary damages, and an award of attorneys’ fees and costs from Almost Family.

On February 22, 2018, plaintiffs in the Delaware Actions moved for a preliminary injunction to enjoin the merger of Almost Family and Merger Sub. Then, on March 2, 2018, the Delaware Actions were transferred to the United States District Court for the Western District of Kentucky. Shortly thereafter, on March 12, 2018, Almost Family, the Company, and Merger Sub opposed the plaintiffs’ motion for a preliminary injunction, and the court heard oral argument on the plaintiffs’ motion for a preliminary injunction on March 19, 2018. On March 22, 2018, the court denied plaintiffs’ motion for preliminary injunction.

The next day, on March 23, 2018, one of the plaintiffs in the Delaware Actions moved to consolidate the Delaware Actions with the Rosenblatt Action and for the appointment of a lead plaintiff. On December 19, 2018, the Court granted the motion to consolidate, appointed Leonard Stein, a purported Almost Family shareholder, as the Lead Plaintiff, and approved Stein's selection of Lead Counsel.

On February 1, 2019, Lead Plaintiff filed his Consolidated Amended Class Action Complaint (the "Consolidated Complaint"). The Consolidated Complaint ~~asserts~~asserted claims against Almost Family, the Company and Almost Family's board of directors for violations of Section 14(a) of the 1934 Act in connection with the dissemination of the Company's and Almost Family's Proxy Statement concerning the Merger, and ~~asserts~~asserted breach of fiduciary duty claims and claims for violations of Section 20(a) of the 1934 Act against Almost Family's former board of directors. ~~The Consolidated Complaint seeks, among other things, monetary damages and an award of attorneys' fees and costs.~~ On ~~April 12, 2019,~~February 11, 2020, the ~~Company moved~~court granted the Company's motion to dismiss and the ~~Consolidated Complaint and filed a~~Company's motion to strike ~~an affidavit attached~~and dismissed Lead Plaintiff's federal claims with prejudice and state law claims without prejudice.

On March 12, 2020, Lead Plaintiff appealed the court's decision to the ~~Consolidated Complaint.~~United States Court of Appeals for the Sixth Circuit. On April 17, 2020, Lead Plaintiff ~~opposed~~moved to voluntarily dismiss his appeal, and on April 23, 2020, the ~~Company's motions on May 28, 2019,~~United States Court of Appeals for the Sixth Circuit granted Lead Plaintiff's motion and dismissed the ~~Company submitted reply briefs in support of its motions on June 19, 2019. The Company's motions are currently pending before~~appeal, and thus the ~~court.~~

~~We believe that the claims asserted in these lawsuits are entirely without merit and intend to defend these lawsuits vigorously.~~

~~Other Litigation~~case is now terminated.

We are involved in various ~~other~~ legal proceedings arising in the ordinary course of business. Although the results of litigation cannot be predicted with certainty, we believe the outcome of pending litigation will not have a material adverse effect, after considering the effect of our insurance coverage, on our consolidated financial information.

Legal fees related to all legal matters are expensed as incurred.

Joint Venture Buy/Sell Provisions

Most of the Company’s joint ventures include a buy/sell option that grants to the Company and its joint venture partners the right to require the other joint venture party to either purchase all of the exercising member’s membership interests or sell to the exercising member all of the non-exercising member’s membership interest, at the non-exercising member’s option, within 30 days of the receipt of notice of the exercise of the buy/sell option. In some instances, the purchase price is based on a multiple of the historical or future earnings before income taxes and depreciation and amortization of the equity joint venture at the time the buy/sell option is exercised. In other instances, the buy/sell purchase price will be negotiated by the partners and subject to a fair market valuation process. The Company has not received notice from any joint venture partners of their intent to exercise the terms of the buy/sell agreement nor has the Company notified any joint venture partners of its intent to exercise the terms of the buy/sell agreement.

Compliance

The laws and regulations governing the Company’s operations, along with the terms of participation in various government programs, regulate how the Company does business, the services offered and its interactions with patients and the public. These laws and regulations, and their interpretations, are subject to frequent change. Changes in existing laws or regulations, or their interpretations, or the enactment of new laws or regulations could materially and adversely affect the Company’s operations and financial condition.

The Company is subject to various routine and non-routine governmental reviews, audits and investigations. In recent years, federal and state civil and criminal enforcement agencies have heightened and coordinated their oversight efforts related to the health care industry, including referral practices, cost reporting, billing practices, joint ventures and other financial relationships among health care providers. Violation of the laws governing the Company’s operations, or changes in the interpretation of those laws, could result in the imposition of fines, civil or criminal penalties and/or termination of the Company’s rights to participate in federal and state-sponsored programs and suspension or revocation of the Company’s licenses. The Company believes that it is in material compliance with all applicable laws and regulations.

8. Noncontrolling interests

The Company classifies noncontrolling interests of its joint venture parties based upon a review of the legal provisions governing the redemption of such interests. In each of the Company’s joint ventures, those provisions are embodied within the joint venture’s operating agreement. For joint ventures with operating agreement provisions that establish an obligation for the Company to purchase the ~~third party~~third-party partners’ noncontrolling interests other than as a result of events that lead to a liquidation of the joint venture, such noncontrolling interests are classified as redeemable noncontrolling interests in temporary equity.

For joint ventures with operating agreement provisions that establish an obligation that the Company purchase the third party partners’ noncontrolling interests, but which obligation is triggered by events that lead to a liquidation of the joint venture, such noncontrolling interests are classified as nonredeemable noncontrolling interests in permanent equity. Additionally, for joint ventures with operating agreement provisions that do not establish an obligation for the Company to purchase the ~~third party~~third-party partners’ noncontrolling interests (e.g., where the Company has the option, but not the obligation, to purchase the ~~third party~~third-party partners’ noncontrolling interests), such noncontrolling interests are classified as nonredeemable noncontrolling interests in permanent equity.

The Company’s equity joint ventures that are classified as redeemable noncontrolling interests are subject to operating agreement provisions that require the Company to purchase the noncontrolling partner’s interest upon the occurrence of certain triggering events, which are defined as the bankruptcy of the partner or the partner’s exclusion from the Medicare or Medicaid programs. These triggering events and the related repurchase provisions are specific to each redeemable equity joint venture, since the triggering of a repurchase obligation for any one redeemable noncontrolling interest in an equity joint venture does not necessarily impact any of the other redeemable noncontrolling interests in other equity joint ventures. Upon the occurrence of a triggering event requiring the purchase of a redeemable noncontrolling interest, the Company would be required to purchase the noncontrolling partner’s interest based upon a valuation methodology set forth in the applicable joint venture agreement.

Redeemable noncontrolling interests and nonredeemable noncontrolling interests are initially recorded at their fair value as of the closing date of the transaction establishing the joint venture. Such fair values are determined using various accepted valuation methods, including the income approach, the market approach, the cost approach, and a combination of one or more of these approaches. A number of facts and circumstances concerning the operation of the joint venture are evaluated for each transaction, including (but not limited to) the ability to choose management, control over acquiring or liquidating assets, and controlling the joint venture’s strategy and direction, in order to determine the fair value of the noncontrolling interest.

Based upon the Company’s evaluation of the redemption provisions concerning redeemable noncontrolling interests as of ~~June 30, 2019,~~March 31, 2020, the Company determined in accordance with authoritative accounting guidance that it was not probable that an event otherwise requiring redemption of any redeemable noncontrolling interest would occur (i.e., the date for such event was not set or such event is not certain to occur). Therefore, none of the redeemable noncontrolling interests were identified as mandatorily redeemable interests at such times, and the Company did not record any values in respect of any mandatorily redeemable interests.

Subsequent to the closing date of the transaction establishing the joint venture, the Company records adjustments to the carrying amounts of noncontrolling interests during each reporting period to reflect (a) comprehensive income (loss) attributed to each noncontrolling interest, which is calculated by multiplying the noncontrolling interest percentage by the comprehensive income (loss) of the joint venture’s operations, (b) dividends paid to the noncontrolling interest partner, and (c) any other transactions that increase or decrease the Company’s ownership interest in each joint venture, as a result of which the Company retains its controlling interest. If the Company determines that, based upon its analysis as of the end of each reporting period in accordance with authoritative accounting guidance, that it is not probable that an event would occur to otherwise require the redemption of a redeemable noncontrolling interest (i.e., the date for such event is not set or such event is not certain to occur), then the Company does not adjust the recorded amount of such redeemable noncontrolling interest.

The carrying amount of each redeemable equity instrument presented in temporary equity for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 is not less than the initial amount reported for each instrument.

The following table summarizes the activity of noncontrolling interest-redeemable for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 (amounts in thousands):


Balance as of December 31, 2018	$	14,596
Balance as of December 31, 2019				$	15,151
Net income attributable to noncontrolling interest-redeemable	5,900			3,553
Noncontrolling interest-redeemable distributions	(5,029		)	(2,781		)
Balance as of June 30, 2019	$	15,467
Acquired noncontrolling interest-redeemable				3,508
Balance as of March 31, 2020				$	19,431

9. Leases

The Company adopted ASU 2016-02 on January 1, 2019, which resulted in the recognition of a right to use asset and liability for certain operating leases on the Company's Consolidated Balance Sheets at January 1, 2019. The Company determines if a contract contains a lease at inception date. The Company's leases are operating leases, primarily for office and office equipment, that expire at various dates over the next nine years. The office leases have renewal options for periods ranging from one to five years. As it is not reasonably certain these renewal options will be exercised, the options were not considered in the lease term, and payments associated with the option years are excluded from lease payments. The office leases also generally have termination options, which allow for early termination of the lease; however, as the exercise of such

options is not reasonably certain, the options were not considered in determining the lease term; payments for the full lease term are included in the lease payments. Additionally, the leases do not contain any material residual value guarantees.

Payments due under operating leases include fixed and variable payments. These variable payments for the Company's office leases can include operating expenses, utilities, property taxes, insurance, common area maintenance, and other facility-related expense. Additionally, any leases with terms less than one year were not recognized as operating lease right of use assets or payables for short term leases in accordance with the election of ‘package of practical expedient’ under ASU 2016-02 and recognizes operating lease right of use assets and operating lease ~~liabilities~~payable based on the present value of the future minimum lease payments at the lease commencement date. The Company's leases do not provide implicit rates. Therefore, the Company used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. ~~Lease expense is recognized on a straight-line basis over~~

During the ~~lease term.~~

~~The Company's~~three months ended March 31, 2020 and 2019, the Company incurred operating lease ~~obligations relate to office leases, which have remaining lease terms up to nine years. Some lease obligations include options to extend the leases based on individual lease agreements~~costs of $12.1 million and ~~may include options to terminate the leases within one year. The Company elected the 'package~~$12.4 million, respectively. There were no costs associated with impairments of ~~practical expedient', which permitted the Company to not recognize the~~ operating lease right of use assets or liabilities for short term leases, which are those leases with a term of twelve months or less at the lease commencement date. Expenses associated with lease expense was $13.3 million and $25.7 million for the three and six months ended June 30, 2019, respectively.assets.

Information related to the Company's operating lease right of use assets and related lease liabilities for the office leases were as follows (amounts in thousands):


				For the Three Months Ended March 31,
	Six Months Ended June 30, 2019			2020			2019
Cash paid for operating lease liabilities	$	7,325		$	9,587		$	6,775
Right-of-use assets obtained in exchange for new operating lease liabilities	$	98,070		$	9,041		$	91,174

				As of March 31,
				2020			2019
Weighted-average remaining lease term	4.44			4.42			4.63
Weighted-average discount rate	4.83		%	4.69		%	4.75		%

Maturities of operating lease liabilities as of ~~June 30, 2019~~March 31, 2020 were as follows (amounts in thousands):


Year ending December 31,
2019 (remaining)	$	13,419
Month ending March 31,
2020	25,133			$	26,310
2021	19,367			29,523
2022	11,697			20,421
2023 (and thereafter)	17,253
2023				13,209
2024				7,665
Thereafter				12,000
Total future minimum lease payments	86,869			109,128
Less imputed interest	(436		)
Less: Imputed interest				(10,288		)
Total	$	86,433		$	98,840

10. Fair Value of Financial Instruments

The carrying amounts of the Company’s cash, receivables, accounts payable and accrued liabilities approximate their fair values because of their short maturity. The estimated fair value of intangible assets acquired was calculated using level 3 inputs based on the present value of anticipated future benefits. For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, the carrying value of the Company’s long-term debt approximates fair value, as the interest rates approximate current rates.

11. Segment Information

The Company's reporting segments include (1) home health services, (2) hospice services, (3) home and community-based services, (4) facility-based services, and (5) ~~healthcare innovations (“HCI”).~~HCI. The accounting policies of the segments are the same as those described in the summary of significant accounting policies, as described in Note 2 of the Notes to Condensed Consolidated Financial Statements.

Reportable segments have been identified based upon how management has organized the business by services provided to customers and how the chief operating decision maker manages the business and allocates resources, consistent with the criteria in ASC 280, Segment Reporting.

The following tables summarize the Company’s segment information for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (amounts in thousands):


	Three Months Ended June 30, 2019																		Three Months Ended March 31, 2020
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI			Total			Home health services			Hospice services			Home and community-based services			Facility-based services			HCI			Total
Net service revenue	$	375,253		$	55,057		$	52,414		$	27,975		$	7,143		$	517,842		$	367,821		$	60,531		$	48,464		$	29,681		$	6,374		$	512,871
Cost of service revenue	230,545			34,858			39,505			17,572			3,380			325,860			220,440			38,034			38,453			20,342			3,933			321,202
General and administrative expenses	108,958			15,096			11,213			9,335			3,982			148,584			116,023			16,626			11,459			10,380			3,378			157,866
Other intangible impairment charge	748			270			—			—			—			1,018
Operating income (loss)	35,002			4,833			1,696			1,068			(219		)	42,380			31,358			5,871			(1,448		)	(1,041		)	(937		)	33,803
Interest expense	(2,023		)	(323		)	(284		)	(170		)	(85		)	(2,885		)	(1,900		)	(303		)	(266		)	(219		)	(80		)	(2,768		)
Income (loss) before income taxes and noncontrolling interest	32,979			4,510			1,412			898			(304		)	39,495			29,458			5,568			(1,714		)	(1,260		)	(1,017		)	31,035
Income tax expense (benefit)	8,070			1,581			(171		)	148			(71		)	9,557			3,289			608			(206		)	(199		)	(133		)	3,359
Net income (loss)	24,909			2,929			1,583			750			(233		)	29,938			26,169			4,960			(1,508		)	(1,061		)	(884		)	27,676
Less net income (loss) attributable to non controlling interests	3,948			898			(267		)	365			(6		)	4,938			4,606			967			(155		)	243			(9		)	5,652
Net income (loss) attributable to LHC Group, Inc.'s common stockholder	$	20,961		$	2,031		$	1,850		$	385		$	(227	)	$	25,000		$	21,563		$	3,993		$	(1,353	)	$	(1,304	)	$	(875	)	$	22,024
Total assets	$	1,407,221		$	234,789		$	240,746		$	77,686		$	69,413		$	2,029,855		$	1,548,224		$	251,354		$	252,846		$	90,791		$	69,067		$	2,212,282



	Three Months Ended March 31, 2019
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI			Total
Net service revenue	$	363,035		$	51,736		$	51,785		$	27,701		$	8,328		$	502,585
Cost of service revenue	226,123			33,176			39,855			17,732			4,106			320,992
General and administrative expenses	104,839			14,853			10,982			9,177			5,370			145,221
Other intangible impairment charge	6,318			1			—			—			—			6,319
Operating income (loss)	25,755			3,706			948			792			(1,148		)	30,053
Interest expense	(2,138		)	(343		)	(301		)	(180		)	(90		)	(3,052		)
Income (loss) before income taxes and noncontrolling interest	23,617			3,363			647			612			(1,238		)	27,001
Income tax expense (benefit)	3,208			446			151			5			(210		)	3,600
Net income (loss)	20,409			2,917			496			607			(1,028		)	23,401
Less net income (loss) attributable to noncontrolling interests	3,780			601			(310		)	481			(7		)	4,545
Net income (loss) attributable to LHC Group, Inc.'s common stockholders	$	16,629		$	2,316		$	806		$	126		$	(1,021	)	$	18,856
Total assets	$	1,421,000		$	220,347		$	226,991		$	79,257		$	66,262		$	2,013,857

Three Months Ended June 30, 2018
Home health services
Hospice services
Home and community-based services
Facility-based services
HCI
Total
Net service revenue $ 360,276
$ 50,554
$ 52,753
$ 28,304
$ 10,137
$ 502,024
Cost of service revenue 223,490
32,998
39,682
19,307
5,527
321,004
General and administrative expenses 105,674
15,108
12,444
10,601
5,387
149,214
Other intangible impairment charge 291
—
—
487
—
778
Operating income (loss) 30,821
2,448
627
(2,091 ) (777 ) 31,028
Interest expense (2,256 ) (473 ) (158 ) (159 ) (156 ) (3,202 )
Income (loss) before income taxes and noncontrolling interest 28,565
1,975
469
(2,250 ) (933 ) 27,826
Income tax expense (benefit) 7,091
483
139
(313 ) (230 ) 7,170
Net income (loss) 21,474
1,492
330
(1,937 ) (703 ) 20,656
Less net income (loss) attributable to noncontrolling interests 3,810
412
(90 ) (207 ) (66 ) 3,859
Net income (loss) attributable to LHC Group, Inc.'s common stockholders $ 17,664
$ 1,080
$ 420
$ (1,730 ) $ (637 ) $ 16,797
Total assets $ 1,306,773
$ 189,447
$ 255,456
$ 66,665
$ 63,329
$ 1,881,670

Six Months Ended June 30, 2019
Home health services
Hospice services
Home and community-based services
Facility-based services
HCI
Total
Net service revenue $ 738,288

$ 106,793

$ 104,199

$ 55,676

$ 15,471

$ 1,020,427
Cost of service revenue 456,668

68,034

79,360

35,304

7,486

646,852
General and administrative expenses 213,797

29,949

22,195

18,512

9,352

293,805
Other intangible impairment charge 7,066
271
—
—
—
7,337
Operating income (loss) 60,757

8,539

2,644

1,860

(1,367 )
72,433
Interest expense (4,161 ) (666 ) (585 ) (350 ) (175 ) (5,937 )
Income (loss) before income taxes and noncontrolling interest 56,596
7,873
2,059
1,510
(1,542 ) 66,496
Income tax expense (benefit) 11,278
2,027
(20 ) 153
(281 ) 13,157
Net income (loss) 45,318
5,846
2,079
1,357
(1,261 ) 53,339
Less net income (loss) attributable to non controlling interests 7,728
1,499
(577 ) 846
(13 ) 9,483
Net income (loss) attributable to LHC Group, Inc.'s common stockholder $ 37,590
$ 4,347
$ 2,656
$ 511
$ (1,248 ) $ 43,856

Six Months Ended June 30, 2018
Home health services
Hospice services
Home and community-based services
Facility-based services
HCI
Total
Net service revenue $ 564,463

$ 93,180

$ 66,844

$ 58,454

$ 10,137

$ 793,078
Cost of service revenue 353,651

61,016

50,472

38,956

5,527

509,622
General and administrative expenses 171,963

28,406

15,742

19,747

5,387

241,245
Other intangible impairment charge 291
—
—
487
—
778
Operating income 38,558

3,758

630

(736 )
(777 )
41,433
Interest expense (3,344 ) (690 ) (229 ) (232 ) (157 ) (4,652 )
Income (loss) before income taxes and noncontrolling interest 35,214
3,068
401
(968 ) (934 ) 36,781
Income tax expense (benefit) 7,814
594
124
(155 ) (230 ) 8,147
Net income (loss) 27,400
2,474
277
(813 ) (704 ) 28,634
Less net income (loss) attributable to noncontrolling interests 6,047
829
(69 ) 101
(66 ) 6,842
Net income (loss) attributable to LHC Group, Inc.'s common stockholders $ 21,353
$ 1,645
$ 346
$ (914 ) $ (638 ) $ 21,792

12. Income Taxes

The effective tax rate for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ benefited from ~~$2.6~~$1.2 million ~~and $0.9 million, respectively,~~ of excess tax benefits associated with stock-based compensation arrangements and $2.2 million ($4.3 million and $2.1 million, as further described below) associated with increased tax benefits associated with the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). For the three months ended March 31, 2019, the effective tax rate benefited from $2.4 million of excess tax benefits associated with stock-based compensation arrangements.

In response to the COVID-19 pandemic, the CARES Act was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act"). Corporate taxpayers may carryback net operating losses ("NOLs") originating during 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019, or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act. In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The effective tax rate for the three months ended March 31, 2020 benefited from a $4.3 million impact from the enactment of the CARES Act. There was no material impact to our net deferred tax assets as of March 31, 2020.

U.S. GAAP prescribes a recognition threshold and measurement attribute for the accounting and financial statement disclosure of tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step requires the Company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step requires the Company to recognize in the financial statements each tax position that meets the more likely than not criteria, measured at the amount of benefit that has a greater than 50% likelihood of being realized. The Company’s unrecognized tax benefits would affect the tax rate, if recognized. The

Company includes the full amount of unrecognized tax benefits in other noncurrent liabilities in the Company's Condensed Consolidated Balance Sheets. The Company anticipates it is reasonably possible an increase or decrease in the amount of unrecognized tax benefits could be made in the next twelve months. However, the Company does not presently anticipate that any increase or decrease in unrecognized tax benefits will be material to the consolidated financial statements. The impact of the CARES Act increased unrecognized tax benefits by $2.1 million, which also had an impact on the Company's effective tax rate for the three months ended March 31, 2020. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company recognized ~~$4.7~~$6.2 million and ~~$4.3~~$3.9 million, respectively, in unrecognized tax benefits.

13. Subsequent Event

At March 31, 2020, management was aware that under the CARES Act, the following portions of the CARES Act would provide additional cash to the Company; however, the terms and conditions of each were not know until April 2020.

•

$100 billion Provider Relief Fund. Provides funds to health care providers who provide or provided diagnoses, testing, or care for individuals with possible or actual cases of COVID-19, with payments to be used to prevent, prepare for, and respond to COVID-19, and shall reimburse us for health care related expense or lost revenues attributable to COVID-19. As of May 5, 2020, the Company received $87.5 million of the Provider Relief Fund.


•	CMS's Accelerated and Advance Payments Program ("AAPP"). Provides financial hardship relief to Medicare providers impacted by the COVID-19 pandemic in order to provide necessary funds when there is a disruption in claims submission and/or claims processing. As of May 5, 2020, the Company received $307.6 million of accelerated and advance payments.


•	Suspension of the 2% sequestration payment adjustment. CMS suspended the 2% sequestration on patient claims with dates of services from May 1 through December 31, 2020 to provide for additional funding to providers.


•	Waiver of the application of site-neutral payment. Under Section 1886(m)(6)(A)(i) of the Act for LTACH admissions that are completed in response to the public health emergency ("PHE") and occur during the COVID-19 PHE period,

the claims processing systems will be updated to pay all LTACH cases admitted during the COVID-19 PHE period at the LTACH PPS standard federal rate, effective for claims with an admission date occurring on or after January 27, 2020 through the end of the PHE period.


•	Delayed payment of employer portion of social security tax.Provides relief for companies from paying for the 2020 employer portion of social security tax with 50% of the payments delayed to be paid by December 31, 2021 and the second 50% to be paid by December 31, 2022.

The Company anticipates that all AAPP funds received by the Company will begin to become due 120 days after the Company's receipt of such funds. Thereafter, the AAPP funds that the Company received will be automatically recouped from amounts otherwise payable to the Company, until all such funds have been completely repaid. Additionally, the funds the Company received by the Provider Relief Fund could be potentially subject to repayment if those funds are not fully utilized to address the lost revenues and/or increased costs associated with the Company's direct efforts associated with COVID-19.

Management concluded that the above portions of the CARES Act that directly impact the Company were a Type II subsequent event under ASC 855 and will be accounted for during the three months ended June 30, 2020, as the terms and conditions of such payments were not known at March 31, 2020.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain statements, including the potential future impact of COVID-19 on our results of operations and liquidity, the potential impact of actions we have taken to mitigate the impact of COVID-19, the expected benefit of the CARES Act on our liquidity, and information that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to future plans and strategies, anticipated events or trends, future financial performance, and expectations and beliefs concerning matters that are not historical facts or that necessarily depend upon future events. The words “may,” “should,” “could,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions are intended to identify forward-looking statements. Specifically, this report contains, among others, forward-looking statements about:

our expectations regarding financial condition or results of operations for periods after ~~June 30, 2019;~~March 31, 2020;

our critical accounting policies;

our business strategies and our ability to grow our business;

our participation in the Medicare and Medicaid programs;

the reimbursement levels of Medicare and other third-party ~~payors;~~payors, including changes in reimbursement resulting from regulatory changes;

the prompt receipt of payments from Medicare and other third-party payors;

our future sources of and needs for liquidity and capital resources;

the effect of any regulatory changes or anticipated regulatory changes;

the effect of any changes in market rates on our operations and cash flows;

our ability to obtain financing;

our ability to make payments as they become due;

the outcomes of various routine and non-routine governmental reviews, audits and investigations;

our expansion strategy, the successful integration of recent acquisitions and, if necessary, the ability to relocate or restructure our current facilities;

the value of our proprietary technology;

the impact of legal proceedings;

our insurance coverage;

our competitors and our competitive advantages;

our ability to attract and retain valuable employees;

the price of our stock;

our compliance with environmental, health and safety laws and regulations;

our compliance with health care laws and regulations;

our compliance with Securities and Exchange Commission laws and regulations and Sarbanes-Oxley requirements;

the impact of federal and state government regulation on our business; and

the impact of changes in future interpretations of fraud, anti-kickback, or other laws.

The forward-looking statements included in this report reflect our current views about future events, are based on assumptions, and are subject to known and unknown risks and uncertainties. Many important factors could cause actual results or achievements to differ materially from any future results or achievements expressed in or implied by our forward-looking statements. Many of the factors that will determine future events or achievements are beyond our ability to control or predict. Important factors that could cause actual results or achievements to differ materially from the results or achievements reflected in our forward-looking statements include, among other things, the factors discussed in the Part II, Item 1A. “Risk Factors,” included in this report and in our other filings with the SEC, including our ~~2018~~2019 Form 10-K, as updated by our subsequent filings with the SEC. This report should be read in conjunction with the ~~2018~~2019 Form 10-K, and all of our other filings made with the SEC through the date of this report, including quarterly reports on Form 10-Q and current reports on Form 8-K.

The forward-looking statements contained in this report reflect our views and assumptions only as of the date this report is filed with the SEC. Except as required by law, we assume no responsibility for updating any forward-looking statements.

We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

You should read this report, the information incorporated by reference into this report, and the documents filed as exhibits to this report completely and with the understanding that our actual future results or achievements may differ materially from what we expect or anticipate.

Unless the context otherwise requires, “we,” “us,” “our,” and the “Company” refer to LHC Group, Inc. and its consolidated subsidiaries.

OVERVIEW

General

We provide quality, cost-effective post-acute health care services to our patients. As of ~~June 30, 2019,~~March 31, 2020, we have ~~760~~820 service providers in 35 states within the continental United States and the District of Columbia. Our services are classified into five segments: (1) home health services, (2) hospice services, (3) home and community-based services, (4) facility-based services primarily offered through our long-term acute care hospitals (“LTACHs”), and (5) healthcare innovations services ("HCI"). We

intend to increase the number of service providers within each of our segments that we operate through continued acquisitions, joint ventures, and organic development.

Our home health service locations offer a wide range of services, including skilled nursing, medically-oriented social services, and physical, occupational, and speech therapy. As of ~~June 30, 2019,~~March 31, 2020, we operated ~~539~~556 home health services locations, of which ~~289~~349 are wholly-owned, ~~243~~203 are majority-owned through equity joint ventures, ~~three~~two are under license lease arrangements, and the operations of the remaining ~~four~~two locations are only managed by us.

Our hospices provide end-of-life care to patients with terminal illnesses through interdisciplinary teams of physicians, nurses, home health aides, counselors, and volunteers. We offer a wide range of services, including pain and symptom management, emotional and spiritual support, inpatient and respite care, homemaker services, and counseling. As of ~~June 30, 2019,~~March 31, 2020, we operated ~~104~~112 hospice locations, of which 5453 are wholly-owned, 4857 are majority-owned through equity joint ventures, and two are under license lease arrangements.

Through our home and community-based services segment, services are performed by skilled nursing and paraprofessional personnel, and include assistance with activities of daily living to the elderly, chronically ill, and disabled patients. As of ~~June 30, 2019,~~March 31, 2020, we operated 80111 home and community-based services locations, of which 7097 are wholly-owned and ~~ten~~14 are majority-owned through equity joint ventures.

We provide facility-based services principally through our LTACHs. As of ~~June 30, 2019,~~March 31, 2020, we operated 11 LTACHs with 1213 locations, all but ~~two~~three of which are located within host hospitals. We also operate one skilled nursing facility, two pharmacies, a family health center, a rural health clinic, and ~~nine~~13 therapy clinics. Of these 31 facility-based services locations, 1620 are wholly-owned, and ~~nine~~11 are majority-owned through equity joint ventures.

Our HCI segment reports on our developmental activities outside its other business segments. The HCI segment includes (a) Imperium Health Management, LLC, an ACO enablement company, (b) Long Term Solutions, Inc., an in-home assessment company serving the long-term care insurance industry, and (c) certain assets operated by Advanced Care House Calls, which provides primary medical care for patients with chronic and acute illnesses who have difficulty traveling to a doctor’s office. These activities are intended ultimately, whether directly or indirectly, to benefit our patients and/or payors through the enhanced provision of services in our other segments. The activities all share a common goal of improving patient experiences and quality outcomes, while lowering costs. They include, but are not limited to, items such as: technology, information, population health management, risk-sharing, care-coordination and transitions, clinical advancements, enhanced patient engagement and informed clinical decision and technology enabled in-home clinical assessments. We have 1210 HCI locations, of which 11nine are wholly-owned and one is majority-owned through an equity joint venture.

The Joint Commission is a nationwide commission that establishes standards relating to the physical plant, administration, quality of patient care, and operation of medical staffs of health care organizations. Currently, Joint Commission accreditation of home nursing and hospice agencies is voluntary. However, some managed care organizations use Joint Commission accreditation as a credentialing standard for regional and state contracts. As of ~~June 30, 2019,~~March 31, 2020, the Joint Commission had accredited ~~479~~476 of our ~~539~~556 home health services locations and 8886 of our ~~104~~112 hospice agencies. Those not yet accredited are working towards achieving this accreditation. As we acquire companies, we apply for accreditation 12 to 18 months after completing the acquisition.

The percentage of net service revenue contributed from each reporting segment for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ was as follows:

Three Months Ended June 30, Six Months Ended
June 30,
Reporting segment 2019 2018 2019 2018
Home health services 72.5 % 71.8 % 72.4 % 71.2 %
Hospice services 10.6
10.1
10.4
11.7
Home and community-based services 10.1
10.5
10.2
8.4
Facility-based services 5.4
5.6
5.5
7.4
Healthcare innovations services 1.4
2.0
1.5
1.3
100.0 % 100.0 % 100.0 % 100.0 %



	Three Months Ended March 31,
Reporting segment	2020		2019
Home health services	71.7	%	72.2	%
Hospice services	11.8		10.3
Home and community-based services	9.5		10.3
Facility-based services	5.8		5.5
Healthcare innovations services	1.2		1.7
	100.0	%	100.0	%

Recent Developments

The reader is encouraged to review our detailed discussion of health care legislation and Medicare regulations in the similarly titled section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” along with the discussions in Part I, Item 1, “Business; Government Regulation” and in Part I, Item 1A, “Risk Factors” in our ~~2018~~2019 Form 10-K.

~~Home~~Coronavirus and Coronavirus Aid, Relief, and Economic Security Act

The COVID-19 outbreak has adversely impacted economic activity and conditions worldwide, including workforces, liquidity, capital markets, consumer behavior, supply chains, and macroeconomic conditions. After the declaration of a national emergency in the United States on March 13, 2020, Governors in most states in which we operate instituted stay-at-home policies that remain in place. However, each of the states have deemed healthcare services an essential business allowing us to continue to deliver healthcare services to our patients. We have implemented contingency planning policies; whereby most employees in our home offices located in Louisiana and Kentucky are working remotely in compliance with CDC recommendations and federal and state governmental orders. We have invested in technology and equipment that allows our remote workforce to provide continued and seamless functionality to our clinicians who continue to care for our patients on service.

We are taking precautions to protect the safety and well-being of our employees by purchasing and delivering additional supplies of personal protection equipment to our clinicians across the country. We convened a multi-discipline COVID-19 task force comprised of our company's leaders that continually communicate to our clinicians and other employees changes in policies and procedures.

We continually review and adjust to changes to adapt to the current environment associated with COVID-19. We remain fully functional and continue to provide our patients with critical services during the pandemic. In addition, we currently plan to continue to execute on our strategic business plans.

In response to COVID-19, the U.S. Government enacted the CARES Act on March 27, 2020. Certain aspects of the CARES Act directly impacted us by:

Providing funding under the $100 billion Provider Relief Fund. Funds were submitted to health care providers who provide or provided diagnoses, testing, or care for individuals with possible or actual cases of COVID-19. The payments received under the Provider Relief Fund are subject to certain terms and conditions. Payments are to be used to prevent, prepare for, and respond to COVID-19, and shall reimburse us for health care related expense or lost revenues attributable to COVID-19. As of May 5, 2020, we have received $87.5 million of the Provider Relief Fund.

Providing funding under CMS's Accelerated and Advance Payments Program (AAPP). This extended financial hardship relief to Medicare providers impacted by the COVID-19 pandemic in order to provide necessary funds when there is a disruption in claims submission and/or claims processing. As of May 5, 2020, we received $307.6 million of accelerated and advance payments.

Suspending the 2% sequestration payment adjustment for patient claims with dates of services from May 1 through December 31, 2020.

Providing a waiver of the application of site-neutral payment rate under Section 1886(m)(6)(A)(i) of the Act for those LTACH admissions that are in response to the public health emergency ("PHE") and occurs during the COVID-19 PHE period. The claims processing systems will be updated to pay all LTACH cases admitted during the COVID-19 PHE period at the LTACH PPS standard federal rate, effective for claims with an admission date occurring on or after January 27, 2020 through the end of the PHE period.

Delaying payment of the employer portion of social security tax for 2020, which will be due in 50% increments, with the first due by December 31, 2021 and the second 50% due by December 31, 2022.

We anticipate that all AAPP funds received by us will begin to become due 120 days after our receipt of such funds. Thereafter, the AAPP funds that we received will be automatically recouped from amounts otherwise payable to us, until all such funds have been completely repaid. Additionally, the funds we received by the Provider Relief Fund could be potentially subject to repayment if those funds are not fully utilized to address the lost revenue and/or increased costs associated with our direct efforts associated with COVID-19.

While during the three months ended March 31, 2020, we did not experience a material decline in the demand for our services nor a disruption in our ability to continue to provide services to our patients, there is no guarantee that we won’t experience such a decrease in demand or service disruption in the future as a result of COVID-19. The rapid development and fluidity of this situation makes it difficult to predict the ultimate impact of COVID-19 on our business and operations. Nevertheless,

COVID-19 presents a material uncertainty which could materially impact our business and results of operations in the future. See Part II, Item 1A of this Quarterly Report on Form 10-Q for an update to our risk factors related to the COVID-19 pandemic.

Hospice

On ~~July 11, 2019, CMS issued a proposed rule Medicare reimbursements for certain home health service rendered during fiscal year 2020. Beginning on January 1,~~April 10, 2020, CMS ~~will implement~~released the Patient Driven Groupings Model ("PDGM") prospective payment system, as mandated by the Bipartisan Budget Act of 2018. Under PDGM, the initial certification of Medicare patient eligibility, plan of care, and comprehensive assessment will remain valid for 60-day episodes of care, but payments for Medicare home health services will be made based upon 30-day payment periods. The national, standardized 30-day Medicare payment amount will be $1,791.73, resulting in a 1.3% increase in payments. The rule implements the 1.5% Medicare home health payment update mandated by the Bipartisan Budget Act of 2018, offset by a 0.2% decrease due to the rural add-on. The proposed rule also adjusts case-mix weights, which implements the removal of therapy thresholds for payments. For Medicare payments associated with low utilization payment adjustments ("LUPAs") under PDGM, the threshold will vary for a 30-day period depending on the PDGM payment group. The 30-day payment amounts will be for 30-day periods of care beginning on and after January 1, 2020. There will be a transition period for home health episodes that span the implementation date of January 1, 2020, whereby payments for those services rendered during those episodes will be made under the national, standardized 60-day episode payments. CMS will also reduce the RAP payments from 50% to 20% for existing home health providers. The elimination of RAP payments is proposed for fiscal year ~~2021.~~

The proposed rule also includes the public reporting of Total Performance Score ("TPS") and TPS percentile ranking for each home health agency in the nine model states that qualifies for a payment adjustment under the Home Health Value-Based Purchasing model for fiscal year 2020.

~~Hospice~~

~~On July 31, 2019, CMS issued a final rule, which would~~2021 to update the ~~hospice~~ wage index, 2.6% update on payment rates, and cap ~~amount for~~amount. The rule also proposed to sunset the Service Intensity Add-On budget neutrality factor. CMS will apply a 5% cap on any decrease in a geographic area’s wage index value from fiscal year 2020. ~~CMS~~No such cap will be applied in fiscal year 2022. The hospice payment update is ~~proposing a net 2.6% market basket update, which is calculated from~~based on the ~~2020~~inpatient hospital market basket ~~update of 3.0%~~percentage increase, which is currently estimated at 3%, ~~reduced by multifactor productivity adjustment, as mandated by the~~less an Affordable Care Act ~~of 0.4 percentage points. CMS~~mandated productivity adjustment, which is ~~also proposing~~currently estimated at 0.4%. This results in an estimated 2.6% increase to ~~adjust payments for Continuous Home Care, Inpatient Respite Care, and General Inpatient Care to approximate costs in a budget neutral manner, which will result in a 2.7% decrease in~~the payment rates. Based on these estimates, the following are the proposed fiscal year 2021 base payment rates for ~~Routine Home Care to achieve budget neutrality. Also, 2020~~various level of care, payment rates for hospice ~~cap amount~~providers not complying with the hospice quality reporting requirements will be ~~$29,964.98. CMS finalized~~2% lower than the ~~removal of the one year wage index lag and will use the current year's wage index to geographically wage adjust hospice payments, and changes to the Hospice Election Statement.~~values referenced below:

The following table shows the proposed fiscal year 2021 hospice Medicare payment rates, ~~for fiscal year 2020,~~ which will begin on October 1, ~~2019~~2020 and will end September 30, ~~2020:~~2021:


Description	Rate per patient day		Rate per patient day
Routine Home Care days 1-60	$	194.50	$	199.34
Routine Home Care days 60+	$	153.72	$	157.56
Continuous Home Care	$	1,395.63	$	1,430.64
Full rate = 24 hours of care
$58.15 = hourly rate
$59.61 = hourly rate
Inpatient Respite Care	$	450.10	$	461.48
General Inpatient Care	$	1,021.25	$	1,046.55

~~Facility-Based~~

~~On August 2, 2019,~~ CMS issued a final rule for the fiscal year 2020 Long-Term Care Hospital Prospective Payment System ("LTACH-PPS"). Overall, CMS expects LTACH-PPS payments to increase by approximately 1.0%, which reflects the continued statutory implementationis proposing an aggregate cap value of ~~the revised LTACH-PPS payments. LTACH-PPS payments~~$30,743.86 for fiscal year ~~2020 for discharges paid using the standard LTACH payment rate are expected~~2021, compared to ~~increase by 2.7% after accounting for the proposed annual standard Federal rate update~~$29,964.78 for fiscal year ~~2020 of 2.5%, an estimated decrease in outlier payments of 0.2%, and other factors.~~

LTACH-PPS payments for cases continuing to transition to the site neutral payment rates are expected to decrease by approximately 5.9%. This accounts for the LTACH site neutral payment rate cases that will continue be paid a blended payment rate as the rolling statutory transition period ends for LTACH discharges occurring in cost reporting periods beginning in fiscal year 2020, and other changes.

~~Seasonality~~

Our home health segment, hospice segment, and LTACHs normally experience higher admissions during the first quarter and lower admissions during the third quarter than in the other quarters due to seasonal fluctuations. Further, our third quarter falls within the "hurricane season" including the peak months of August and September, which could have an adverse effect on our agencies located in the Gulf South and along the Atlantic Coast. Our operations may thus be subject to periods of unexpected disruption, which may lower volumes and increase costs.2020.

RESULTS OF OPERATIONS

Three months ended ~~June 30, 2019~~March 31, 2020 compared to three months ended ~~June 30, 2018~~March 31, 2019

Summary consolidated financial information

The following table summarizes our consolidated results of operations for the three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (amounts in thousands, except percentages, which are percentages of consolidated net service revenue, unless indicated otherwise):


	2019							2018						Increase (Decrease)			2020							2019						Increase (Decrease)
Net service revenue	$	517,842						$	502,024					$	15,818		$	512,871						$	502,585					$	10,286
Cost of service revenue	325,860			62.9	%			321,004			63.9	%		4,856			321,202			62.6	%			320,992			63.9	%		210
General and administrative expenses	148,584			28.7				149,214			29.7			(630		)	157,866			30.8				145,221			28.9			12,645
Other intangible impairment charge	1,018							778						240			—							6,319						(6,319		)
Interest expense	(2,885		)					(3,202		)				(317		)	(2,768		)					(3,052		)				(284		)
Income tax expense	9,557			28.2		(1	)	7,170			27.1		(1)	2,387			3,359			26.8		(1	)	3,600			26.7		(1)	(241		)
Net income attributable to noncontrolling interests	4,938							3,859						1,079			5,652							4,545						1,107
Net income attributable to LHC Group, Inc.’s common stockholders	$	25,000						$	16,797					$	8,203		$	22,024						$	18,856					$	3,168

(1) Effective tax rate as a percentage of income from continuing operations attributable to our common stockholders, excluding the excess tax benefits realized of $1.2 million and $2.4 million during the three months ended March 31, 2020 and 2019, respectively. The effective tax rate for the three months ended March 31, 2020 also benefited from a $2.2 million impact from the enactment of the CARES Act.


~~(1)~~	Effective tax rate as a percentage of income from continuing operations attributable to our common stockholders, excluding the excess tax benefits realized during each of the three months ended June 30, 2019 and 2018, of $0.2 million.

Net service revenue

The following table sets forth each of our segment’s revenue growth or loss, admissions, census, episodes, patient days, and billable hours for the three months ended ~~June 30, 2019~~March 31, 2020 and the related change from the same period in ~~2018~~2019 (amounts in thousands, except admissions, census, episode data, patient days and billable hours, which are actual amounts; net service revenue excludes implicit price concessions):


Three Months Ended June 30, 2019
The below data for the three months ended March 31, 2020 was impacted by the COVID-19 pandemic.															The below data for the three months ended March 31, 2020 was impacted by the COVID-19 pandemic.
	Same Store(1)		De Novo(2)		Organic(3)		Organic Growth (Loss) %		Acquired(4)		Total		Total Growth (Loss) %			Organic (1)		Organic Growth (Loss) %		Acquired (2)		Total		Total Growth (Loss) %
Home health services
Revenue	$	229,457	$	—	$	229,457	6.6	%	$	149,812	$	379,269	3.6	%		$	353,084	(2.5	)%	$	20,398	$	373,482	1.5	%
Revenue Medicare	$	153,558	$	—	$	153,558	4.7		$	113,105	$	266,663	2.3			$	238,672	(6.3	)	$	13,734	$	252,406	(2.7	)
Admissions	56,264		—		56,264		9.1		38,934		95,198		1.4			98,816		7.1		9,366		108,182		15.5
Medicare Admissions	32,847		—		32,847		1.9		24,544		57,391		(2.7	)		55,187		(2.4	)	4,693		59,880		4.2
Average Census	47,263		—		47,263		4.6		29,875		77,138		0.6			73,208		(1.5	)	3,770		76,978		1.7
Average Medicare Census	29,875		—		29,875		(0.6	)	19,952		49,827		(2.8	)		43,876		(9.4	)	2,217		46,093		(6.7	)
Home Health Episodes	55,614		—		55,614		0.2		38,210		93,824		(2.9	)		85,857		(3.3	)	4,370		90,227		(0.8	)
Hospice services(3)																				—
Revenue	$	45,862	$	—	$	45,862	9.5		$	10,604	$	56,466	10.4			$	56,378	7.8		$	3,791	$	60,169	13.9
Revenue Medicare	$	42,380	$	—	$	42,380	12.3		$	9,571	$	51,951	12.8			$	51,767	8.0		$	3,590	$	55,357	14.7
Admissions	3,666		—		3,666		9.6		971		4,637		2.4			4,567		0.2		493		5,060		10.3
Medicare Admissions	3,279		—		3,279		11.2		852		4,131		4.8			4,076		—		452		4,528		10.5
Average Census	3,394		—		3,394		10.7		676		4,070		11.0			4,023		8.4		267		4,290		14.4
Average Medicare Census	3,140		—		3,140		10.5		620		3,760		11.1			3,745		9.7		251		3,996		15.9
Patient days	309,004		—		309,004		10.8		61,403		370,407		11.0			365,996		9.7		24,373		390,369		15.7
Home and community-based services
Revenue	$	14,315	$	—	$	14,315	(0.4	)	$	39,467	$	53,782	—			$	49,645	(6.3	)	$	679	$	50,324	(5.5	)
Billable hours	567,677		—		567,677		23.1		1,725,042		2,292,719		2.9			1,973,715		(12.6	)	20,028		1,993,743		(12.2	)
Facility-based services
LTACHs
Revenue	$	25,367	$	—	$	25,367	(8.4	)	$	—	$	25,367	(9.7	)		$	27,320	8.1		$	—	$	27,320	8.1
Patient days	19,970		—		19,970		(6.3	)	—		19,970		(7.7	)		20,161		2.7		—		20,161		2.7
Other facility-based services
Revenue	$	2,994	$	—	$	2,994	328.7		$	—	$	2,994	328.7			$	2,967	(3.2	)	$	—	$	2,967	(3.2	)
HCI
Revenue	$	—	$	—	$	—	—		$	7,242	$	7,242	(28.6	)		$	6,661	(20.9	)	$	—	$	6,661	(20.9	)
Consolidated
Revenue	$	317,995	$	—	$	317,995	6.1		$	207,125	$	525,120	3.0			$	496,055	(1.0	)	$	24,868	$	520,923	2.0


~~(1)~~	~~Same store — location that has been in service with us for greater than 12 months.~~


~~(2)~~	~~De Novo — internally developed location that has been in service with us for 12 months or less.~~


~~(3)~~	~~Organic — combination of same store and de novo.~~


~~(4)~~	Acquired — purchased location that has been in service with us for 12 months or less, including all legacy Almost Family locations for the period after April 1, 2018. Almost Family locations remain counted as acquired locations due to continued system integrations, which will be completed by the end of 2019.

(1) Organic ~~growth is primarily generated by population growth~~- combination of same store, a location that has been in ~~areas covered by mature agencies, agencies five years old~~service with us for greater than 12 months, and de novo, an internally developed location that has been in service for 12 months or ~~older, and by increased market share~~less.

(2) Acquired - purchased location that has been in ~~acquired and developing agencies. Historically, acquired agencies have the highest growth~~service with us 12 months or less.

The decrease in ~~admissions and average census~~revenue in the ~~first 24 months after acquisition, and have~~HCI segment was due to the ~~highest contribution to organic growth, measured as a percentage~~sale of ~~growth, in the second full year of operation after the acquisition.~~

~~Revenue and patient days decreased in our LTACHs~~Ingenious Health business during the three months ended ~~June 30, 2019 due to the closures of two LTACHs during the latter part of 2018.~~March 31, 2019.

The following table sets forth the reconciliation of total revenue disclosed above, which excludes implicit price concession, to net service revenue recognized for the three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (amounts in ~~thousands)~~thousands, except percentages, which are percentages of consolidated revenue):


	Three Months Ended June 30,								Three Months Ended March 31,
	2019		% of Net Service Revenue		2018		% of Net Service Revenue		2020		% of Net Service Revenue		2019		% of Net Service Revenue
Revenue	$	525,120			$	509,742			$	520,923			$	510,937
Less: Implicit price concession	7,278		1.4	%	7,718		1.5	%	8,052		1.5	%	8,352		1.6	%
Net service revenue	$	517,842			$	502,024			$	512,871			$	502,585

Cost of service revenue

The following table summarizes cost of service revenue (amounts in thousands, except percentages, which are percentages of the segment’s respective net service revenue):


	Three Months Ended June 30,								Three Months Ended March 31,
	2019				2018				2020				2019
Home health services
Salaries, wages and benefits	$	211,297	56.3	%	$	204,828	56.9	%	$	199,606	54.3	%	$	207,160	57.1	%
Transportation	10,991		2.9		11,527		3.2		9,805		2.7		10,603		2.9
Supplies and services	8,257		2.2		7,135		2.0		11,029		3.0		8,360		2.3
Total	$	230,545	61.4	%	$	223,490	62.1	%	$	220,440	60.0	%	$	226,123	62.3	%
Hospice services
Salaries, wages and benefits	$	25,109	45.6	%	$	24,069	47.6	%	$	27,013	44.6	%	$	23,998	46.4	%
Transportation	1,906		3.5		1,872		3.7		1,940		3.2		1,762		3.4
Supplies and services	7,843		14.2		7,057		14.0		9,081		15.0		7,416		14.3
Total	$	34,858	63.3	%	$	32,998	65.3	%	$	38,034	62.8	%	$	33,176	64.1	%
Home and community-based services
Salaries, wages and benefits	$	38,637	73.7	%	$	38,947	73.8	%	$	37,493	77.4	%	$	39,094	75.5	%
Transportation	566		1.1		549		1.0		490		1.0		536		1.0
Supplies and services	302		0.6		186		0.4		470		1.0		225		0.4
Total	$	39,505	75.4	%	$	39,682	75.2	%	$	38,453	79.4	%	$	39,855	76.9	%
Facility-based services
Salaries, wages and benefits	$	12,214	43.7	%	$	13,706	48.4	%	$	14,378	48.4	%	$	12,180	44.0	%
Transportation	80		0.3		69		0.2		36		0.1		63		0.2
Supplies and services	5,278		18.9		5,532		19.5		5,928		20.0		5,489		19.8
Total	$	17,572	62.9	%	$	19,307	68.1	%	$	20,342	68.5	%	$	17,732	64.0	%
HCI
Salaries, wages and benefits	$	3,275	45.8	%	$	5,344	52.7	%	$	3,743	58.7	%	$	3,745	45.0	%
Transportation	97		1.4		163		1.6		92		1.4		134		1.6
Supplies and services	8		0.1		20		0.2		98		1.5		227		2.7
Total	$	3,380	47.3	%	5,527		54.5	%	$	3,933	61.6	%	$	4,106	49.3	%
Consolidated
Total	$	325,860	62.9	%	$	321,004	63.9	%	$	321,202	62.6	%	$	320,992	63.9	%

Consolidated cost of service revenue ~~increased $4.9 million from 2018 to 2019, but~~improved as a percentage of net service revenue ~~decreased~~by 1.3% from 63.9% in 2019 to ~~62.9%.~~62.6% in 2020. The improvement ~~from 2018~~was primarily due to ~~2019 primarily was~~ the result of ~~an improvement in~~related to cost containment efforts within our home health and hospice segments ~~which was the result~~due to streamlining of ~~our ability to continue to experience synergies associated with~~leadership within each respective segment as we completed the integration of ~~AFAM locations. This was~~Almost Family during 2019 and PDGM related cost mitigation efforts within the home health segment during 2020. These improvements were slightly offset by ~~a decrease in the~~increases within our home and community-based, facility-based services, and HCI segments primarily due to ~~closures of two LTACHs and one HCI location~~lower net service revenue during the ~~latter part~~three months ended March 31, 2020 compared to the three months ended March 31, 2019 within those segments. Finally, we also had increased costs within each of ~~2018.~~our segments associated with increased supplies and services costs related to our COVID-19 response that started during the second half of March 2020.

General and administrative expenses

The following table summarizes general and administrative expenses (amounts in thousands, except percentages, which are percentages of the segment’s respective net service revenue):


	Three Months Ended June 30,								Three Months Ended March 31,
	2019				2018				2020				2019
Home health services
General and administrative	$	106,549	28.4	%	$	103,350	28.7	%	$	113,022	30.7	%	$	102,436	28.2	%
Depreciation and amortization	2,409		0.6		2,324		0.6		3,001		0.8		2,403		0.7
Total	$	108,958	29.0	%	$	105,674	29.3	%	$	116,023	31.5	%	$	104,839	28.9	%
Hospice services
General and administrative	$	14,666	26.6	%	$	14,478	28.6	%	$	16,111	26.6	%	$	14,427	27.9	%
Depreciation and amortization	430		0.8		630		1.2		515		0.9		426		0.8
Total	$	15,096	27.4	%	$	15,108	29.8	%	$	16,626	27.5	%	$	14,853	28.7	%
Home and community-based services
General and administrative	$	10,895	20.8	%	$	12,248	23.2	%	$	11,068	22.8	%	$	10,672	20.6	%
Depreciation and amortization	318		0.6		196		0.4		391		0.8		310		0.6
Total	$	11,213	21.4	%	$	12,444	23.6	%	$	11,459	23.6	%	$	10,982	21.2	%
Facility-based services
General and administrative	$	8,566	30.6	%	$	9,874	34.9	%	$	9,449	31.8	%	$	8,420	30.4	%
Depreciation and amortization	769		2.7		727		2.6		931		3.1		757		2.7
Total	$	9,335	33.3	%	$	10,601	37.5	%	$	10,380	34.9	%	$	9,177	33.1	%
HCI
General and administrative	$	3,710	51.9	%	5,009		49.4	%	$	3,083	48.4	%	$	5,064	60.8	%
Depreciation and amortization	272		3.8		378		3.7		295		4.6		306		3.7
Total	$	3,982	55.7	%	5,387		53.1	%	$	3,378	53.0	%	$	5,370	64.5	%
Consolidated
Total	$	148,584	28.7	%	$	149,214	29.7	%	$	157,866	30.8	%	$	145,221	28.9	%

Consolidated general and administrative expenses ~~decreased $0.6 million from 2018 to 2019 and improved~~increased as a percentage of net service revenue from ~~29.7%~~28.9% in 2019 to ~~28.7%, respectively.~~30.8% in 2020. The ~~overall improvement was primarily due to a realization of staffing efficiencies associated with our continued integration of AFAM locations~~increase in general and ~~the overall closure of two LTACH locations and one HCI location during the latter part of 2018.~~

~~Six months ended June 30, 2019 compared to six months ended June 30, 2018~~

~~Summary consolidated financial information~~

The following table summarizes our consolidated results of operations for the six months ended June 30, 2019 and 2018 (amounts in thousands, except percentages which are percentages of consolidated net service revenue, unless indicated otherwise):

2019 2018
Increase
(Decrease)
Net service revenue $ 1,020,427
$ 793,078
$ 227,349
Cost of service revenue 646,852
63.4 % 509,622
64.3 % 137,230
General and administrative expenses 293,805
28.8
241,245
30.4
52,560
Other intangible impairment charge 7,337
778
6,559
Interest expense (5,937 ) (4,652 ) 1,285
Income tax expense 13,157
28.2
(1 ) 8,147
27.5
(1) 5,010
Net income attributable to noncontrolling interests 9,483
6,842
2,641
Net income attributable to LHC Group, Inc.’s common stockholders $ 43,856

$ 21,792
$ 22,064


~~(1)~~	Effective tax rate as a percentage of income from continuing operations attributable to our common stockholders, excluding the excess tax benefits realized during the six months ended June 30, 2019 and 2018, of $2.6 million and $0.9 million, respectively.

~~Net service revenue~~

The following table sets forth each of our segment’s revenue growth or loss, admissions, census, episodes, patient days, and billable hours for the six months ended June 30, 2019 and the related change from the same period in 2018 (amounts in thousands, except admissions, census, episode data, patient days and billable hours, which are actual amounts; net service revenue excludes implicit price concessions):

Six Months Ended June 30, 2019

Same
Store(1)

De
Novo(2)
Organic(3)
Organic
Growth
(Loss) %
Acquired (4) Total
Total
Growth
(Loss) %
Home health services
Revenue $ 444,834
$ —
$ 444,834
6.8 % $ 302,542
$ 747,376
30.3 %
Revenue Medicare $ 296,253
$ —
$ 296,253
3.2
$ 229,705
$ 525,958
29.2
Admissions 112,569
—
112,569
7.4
78,819
191,388
30.2
Medicare Admissions 66,030
—
66,030
1.0
50,254
116,284
26.3
Average Census 46,989
—
46,989
4.3
29,936
76,925
0.3
Average Medicare Census 29,818
—
29,818
(1.2 ) 20,100
49,918
(2.7 )
Home Health Episodes 108,767
—
108,767
(0.2 ) 76,028
184,795
22.5
Hospice services

Revenue $ 89,395
$ —
$ 89,395
7.8
$ 19,918
$ 109,313
15.7
Revenue Medicare $ 82,261
$ —
$ 82,261
8.8
$ 17,966
$ 100,227
17.0
Admissions 7,358
—
7,358
7.9
1,867
9,225
7.5
Medicare Admissions 6,569
—
6,569
9.1
1,659
8,228
9.8
Average Census 3,282
—
3,282
7.0
629
3,911
6.7
Average Medicare Census 3,026
—
3,026
6.5
579
3,605
6.5
Patient days 593,906
—
593,906
8.8
113,969
707,875
14.8
Home and community-based services

Revenue $ 28,543
$ —
$ 28,543
(0.5 ) $ 78,472
$ 107,015
57.2
Billable hours 1,118,625
—
1,118,625
19.0
3,445,989
4,564,614
68.6
Facility-based services

LTACHs

Revenue $ 50,634
$ —
$ 50,634
(6.8 ) $ —
$ 50,634
(9.3 )
Patient days 39,606
—
39,606
(7.3 ) —
39,606
(9.7 )
Other facility-based services

Revenue $ 6,059
$ —
$ 6,059
63.8
$ —
$ 6,059
63.8
HCI

Revenue $ —
$ —
$ —
—
$ 15,660
$ 15,660
54.5
Consolidated

Revenue $ 619,465
$ —
$ 619,465
5.7
$ 416,592
$ 1,036,057
28.6


~~(1)~~	~~Same store — location that has been in service with us for greater than 12 months.~~


~~(2)~~	~~De Novo — internally developed location that has been in service with us for 12 months or less.~~


~~(3)~~	~~Organic — combination of same store and de novo.~~


~~(4)~~	Acquired — purchased location that has been in service with us for 12 months or less, including all legacy Almost Family locations for the period after April 1, 2018. Almost Family locations remain counted as acquired locations due to continued system integrations, which will be completed by the end of 2019.

Organic growth is primarily generated by population growth in areas covered by mature agencies, agencies five years old or older, and by increased market share in acquired and developing agencies. Historically, acquired agencies have the highest growth in admissions and average census in the first 24 months after acquisition, and have the highest contribution to organic growth, measured as a percentage of growth, in the second full year of operation after the acquisition.

~~Revenue and patient days decreased in our LTACHs during the six months ended June 30, 2019 due to the closures of two LTACHs during the latter part of 2018.~~

The following table sets forth the reconciliation of total revenue disclosed above, which excludes implicit price concession, to net service revenue recognized for the six months ended June 30, 2019 and 2018 (amounts in thousands):

Six Months Ended
June 30,
2019 % of Net Service Revenue 2018 % of Net Service Revenue
Revenue $ 1,036,057
$ 805,722

Less: Implicit price concession 15,630
1.5 % 12,644
1.6 %
Net service revenue $ 1,020,427
$ 793,078

~~Cost of service revenue~~

~~The following table summarizes cost of service revenue (amounts in thousands, except percentages, which are percentages of the segment’s respective net service revenue):~~

Six Months Ended
June 30,
2019 2018
Home health services
Salaries, wages and benefits $ 418,456
56.7 % $ 323,495
56.9 %
Transportation 21,594
2.9
18,033
3.2
Supplies and services 16,618
2.3
12,123
2.0
Total $ 456,668
61.9 % $ 353,651
62.1 %
Hospice services
Salaries, wages and benefits $ 49,107
46.0 % $ 44,558
47.6 %
Transportation 3,668
3.4
3,496
3.7
Supplies and services 15,259
14.3
12,962
14.0
Total $ 68,034
63.7 % $ 61,016
65.3 %
Home and community-based services
Salaries, wages and benefits $ 77,731
74.6 % $ 49,594
73.8 %
Transportation 1,102
1.1
639
1.0
Supplies and services 527
0.5
239
0.4
Total $ 79,360
76.2 % $ 50,472
75.2 %
Facility-based services
Salaries, wages and benefits $ 24,394
43.8 % $ 27,362
48.4 %
Transportation 143
0.3
148
0.2
Supplies and services 10,767
19.3
11,446
19.5
Total $ 35,304
63.4 % $ 38,956
68.1 %
HCI
Salaries, wages and benefits $ 7,019
45.4 % $ 5,344
52.7 %
Transportation 231
1.5
163
1.6
Supplies and services 236
1.5
20
0.2
Total $ 7,486
48.4 % $ 5,527
54.5 %
Consolidated
Total $ 646,852
63.4 % $ 509,622
64.3 %

~~Consolidated cost of service revenue increased $137.2 million from 2018 to 2019, but~~administrative expenses as a percentage of net service revenue ~~decreased from 64.3% to 63.4%. The primary reason for the dollar increase~~ was ~~directly attributable to the exclusion~~a result of ~~three months ended March 31, 2018 for AFAM locations as the Merger occurred on April 1, 2018 and their results were not consolidated with our results until April 1, 2018. This was offset by the~~a decrease in ~~facility-based services due~~our home health revenue per episode stemming from PDGM and COVID-19. The increase from 2019 to 2020 primarily related to costs associated with the ~~closure~~completion of ~~two LTACH locations.~~

~~General~~certain acquisitions during latter part of 2019 and 2020 and additional administrative ~~expenses~~

~~The following table summarizes general and administrative expenses (amounts in thousands, except percentages, which are percentages of the segment’s respective net service revenue):~~

Six Months Ended June 30,
2019 2018
Home health services
General and administrative $ 208,985
28.3 % $ 167,492
29.7 %
Depreciation and amortization 4,812
0.7
4,471
0.8
Total $ 213,797
29.0 % $ 171,963
30.5 %
Hospice services
General and administrative $ 29,093
27.2 % $ 27,278
29.3 %
Depreciation and amortization 856
0.8
1,128
1.2
Total $ 29,949
28.0 % $ 28,406
30.5 %
Home and community-based services
General and administrative $ 21,567
20.7 % $ 15,435
23.1 %
Depreciation and amortization 628
0.6
307
0.5
Total $ 22,195
21.3 % $ 15,742
23.6 %
Facility-based services
General and administrative $ 16,987
30.5 % $ 18,483
31.6 %
Depreciation and amortization 1,525
2.7
1,264
2.2
Total $ 18,512
33.2 % $ 19,747
33.8 %
HCI
General and administrative $ 8,773
56.7 % $ 5,009
49.4 %
Depreciation and amortization 579
3.7
378
3.7
Total $ 9,352
60.4 % $ 5,387
53.1 %
Consolidated
Total $ 293,805
28.8 % $ 241,245
30.4 %

~~Consolidated general and administrative expenses increased $52.6 million, but improved~~costs incurred as a ~~percentage of net service revenue from 30.4% to 28.8% in 2019. The increase was the~~ result of ~~the Merger and the exclusion of such expenses until April 1, 2018, which is when the Merger was completed.~~COVID-19.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our principal source of liquidity for operating activities is the collection of patient accounts receivable, most of which are collected from governmental and ~~third party~~third-party commercial payors. We also have the ability to obtain additional liquidity, if necessary, through our credit facility, which provides for aggregate borrowings, including outstanding letters of credit.

The following table summarizes changes in cash (amounts in thousands):


	Six Months Ended June 30,						Three months ended March 31,
	2019			2018			2020			2019
Net cash provided by (used in):
Operating activities	$	58,331		$	29,698		$	(24,464	)	$	31,428
Investing activities	(28,030		)	(674		)	(9,228		)	(4,214		)
Financing activities	(52,927		)	(16,503		)	10,328			(38,057		)
Change in cash	$	(22,626	)	$	12,521		$	(23,364	)	$	(10,843	)
Cash at beginning of period	49,363			2,849			31,672			49,363
Cash at end of period	$	26,737		$	15,370		$	8,308		$	38,520

~~Net~~From 2019 to 2020, our use of cash ~~provided~~increased by $12.5 million, primarily due to our operating and financing activity changes from 2019 to 2020. Cash flows used for operating activities increased from 2019 to 2020 as a result of the impact of the implementation of PDGM as cash collections were slower in the three months ended March 31, 2020 as our payors converted to the new payment methodology; increases in prepaid medical supplies resulting for the increasing needs of personal protective equipment associated with the requirements associated with COVID-19; and increases in salaries, wages and benefits associated with the increased needs associated with COVID-19 occurred during March of 2020. Our cash flows from financing activities offset the cash flows used in our operating activities primarily due to net proceeds from our line of credit primarily use to ~~an increase in net income offset by~~cover the ~~timing~~increased costs associated with COVID-19 and the use of ~~funding~~our Swing Line availability associated with our line of credit to meet our payroll ~~disbursements.~~

~~Net cash used in investing activities changed due to cash payments used in acquisitions purchased during 2019.~~

Net cash used in financing activities changed due to payments of $18.7 million for the purchase of additional ownership interests in three of our equity joint ventures, an increase of distributions to our equity joint venture partners, and increased payments of debt.needs.

Indebtedness

On March 30, 2018, we entered into a Credit Agreement with JPMorgan Chase Bank, N.A., which was effective on April 2, 2018 (the "Credit Agreement"). The Credit Agreement provides a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $500.0 million, which includes an additional $200.0 million accordion expansion feature, and a letter of credit sub-limit equal to $50.0 million. The expiration date of the Credit Agreement is March 30, 2023. Our obligations under the Credit Agreement are secured by substantially all of the assets of the Company and its wholly-owned subsidiaries, which assets include the Company’s equity ownership of its wholly-owned subsidiaries and its equity ownership in joint venture entities. Our wholly-owned subsidiaries also guarantee the obligations of the Company under the Credit Agreement.

Revolving loans under the Credit Agreement bear interest at, as selected by us, either a (a) Base Rate, which is defined as a fluctuating rate per annum equal to the highest of (1) the Federal Funds Rate in effect on such day plus 0.5%, (2) the Prime Rate in effect on such day, and (3) the Eurodollar Rate for a one month interest period on such day plus 1.5%, plus a margin ranging from 0.50% to 1.25% per annum or (b) Eurodollar rate plus a margin ranging from 1.50% to 2.25% per annum. Swing line loans bear interest at the Base Rate. We are limited to 15 Eurodollar borrowings outstanding at the same time. We are required to pay a commitment fee for the unused commitments at rates ranging from 0.20% to 0.35% per annum depending upon our consolidated Leverage Ratio, as defined in the Credit Agreement. The Base Rate as of ~~June 30, 2019~~March 31, 2020 was ~~6.25%~~4.00% and the LIBOR rate was ~~4.19%~~2.69%. As of ~~June 30, 2019,~~March 31, 2020, the effective interest rates on our borrowings under the Credit Agreement was ~~4.19%~~3.29%.

As of ~~June 30, 2019,~~March 31, 2020, we had ~~$230.0~~$298.1 million drawn and letters of credit outstanding in the amount of ~~$22.3~~$24.9 million under the Credit Agreement, and had approximately ~~$247.7~~$177.0 million of remaining borrowing capacity available under the Credit Agreement. At December 31, ~~2018,~~2019, we had ~~$235.0~~$253.0 million drawn and letters of credit outstanding in the amount of ~~$30.4~~$28.4 million under ~~our Prior~~the Credit Facility.

Under the Credit Agreement with JPMorgan Chase Bank, N.A., a letter of credit fee shall be equal to the applicable Eurodollar rate on the average daily amount of the letter of credit exposure. The agent’s standard up-front fee and other customary administrative charges will also be due upon issuance of the letter of credit along with a renewal fee on each anniversary date of such issuance while the letter of credit is outstanding. Borrowings accrue interest under the Credit Agreement at either the Base Rate or the Eurodollar rate, and are subject to the applicable margins set forth below:



Leverage Ratio	Eurodollar Margin		Base Rate Margin		Commitment Fee Rate
≤1.00:1.00	1.50	%	0.50	%	0.200	%
>1.00:1.00 ≤ 2.00:1.00	1.75	%	0.75	%	0.250	%
>2.00:1.00 ≤ 3.00:1.00	2.00	%	1.00	%	0.300	%
>3.00:1.00	2.25	%	1.25	%	0.350	%

Our Credit Agreement contains customary affirmative, negative and financial covenants, which are subject to customary carve-outs, thresholds, and materiality qualifiers. The Credit Facility allows us to make certain restricted payments within certain parameters provided we maintain compliance with those financial ratios and covenants after giving effect to such restricted payments or, in the case of repurchasing shares of its stock, so long as such repurchases are within certain specified baskets.

Our Credit Agreement also contains customary events of default, which are subject to customary carve-outs, thresholds, and materiality qualifiers. These include bankruptcy and other insolvency events, cross-defaults to other debt agreements, a change in control involving us or any subsidiary guarantor, and the failure to comply with certain covenants.

At ~~June 30, 2019,~~March 31, 2020, we were in compliance with all debt covenants.

Contingencies

For a discussion of contingencies, see Note 7 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.

Off-Balance Sheet Arrangements

We do not currently have any off-balance sheet arrangements with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in these relationships.

Critical Accounting Policies

For a discussion of critical accounting policies, see Note 2 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference. For a full description of the Company's other critical accounting policies, see Note 2 of the Notes to Consolidated Financial Statements in the 2019 Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our exposure to market risk relates to changes in interest rates for borrowings under our credit facility. Our letter of credit fees and interest accrued on our debt borrowings are subject to the applicable Eurodollar or Base Rate. A hypothetical basis point increase in interest rates on the average daily amounts outstanding under the credit facility would have increased interest expense by ~~$1.2~~$0.7 million for the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We ~~maintain~~established disclosure controls and procedures ~~(as defined in Rule 13a-15(e)~~which are designed to provide reasonable assurance of ~~the Exchange Act) that are designed~~achieving their objectives and to ensure that information ~~that we are~~ required to ~~disclose~~be disclosed in ~~our~~its reports filed ~~or submitted~~ under the Securities Exchange Act of 1934 as amended (the “Exchange Act”) is recorded, processed, summarized, disclosed and reported within the time periods specified in the SEC’s rules and ~~forms and that such~~forms. This information is also accumulated and communicated to our management ~~including our Chief Executive Officer~~ and ~~Chief Financial Officer, as appropriate,~~Board of Directors to allow timely decisions regarding required disclosure. ~~Our management,~~

In connection with the preparation of this Quarterly Report on Form 10-Q, as of March 31, 2020, under the supervision and with the participation of ~~our Chief Executive Officer~~management, including the principal executive officer and ~~Chief Financial Officer, evaluated~~principal financial officer, management conducted an evaluation of the effectiveness of the ~~design~~disclosure controls and ~~operation of~~procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act.

Based on this evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2020, the end of the period covered by this ~~report.~~

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 (as defined in Rule 13a-15(e) of the Exchange Act) were effective as of June 30, 2019.Quarterly Report.

Changes in Internal Controls Over Financial Reporting

~~There have~~We, including the principal executive officer and principal financial officer, do not ~~been any changes in~~expect that our disclosure controls or our internal ~~control~~controls over financial reporting ~~as such term is defined in Rule 13a-15(f)~~will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the ~~Exchange Act, during~~inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the ~~quarterly~~realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls’ effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and, based on an evaluation of the controls and procedures, the principal executive officer and principal financial officer concluded the disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2020, the end of the period ~~ended June 30, 2019 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.~~covered by this Quarterly Report.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

For a discussion of legal proceedings, see Note 7 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.

ITEM 1A. RISK FACTORS.

Important risk factors that could materially affect the Company’s business, financial condition or results of operations ~~and financial performance, or that could cause results or events to differ from current expectations,~~in future periods are described in Part I, Item ~~1A.,~~1A, “Risk Factors” of our ~~2018~~2019 Form 10-K. Those risk factors are supplemented by those discussed under “Management’s Discussion and Analysis Of Financial Condition And Results Of Operations” in Part I, Item 2 of this Quarterly Report. Other than the risk factors set forth below, there have been no material changes in the Company’s risk factors from those in Part I, Item 1A, “Risk Factors” of our 2019 Form 10-K.

Our business, financial condition and results of operations may be materially adversely affected by the COVID-19 pandemic.

The COVID-19 pandemic has adversely impacted economic activity and conditions worldwide, including workforces, liquidity, capital markets, consumer behavior, supply chains, and macroeconomic conditions. The full extent to which the COVID-19 outbreak will impact our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact. We may face decreased demand for our services, interruption in the provision of our services, and increased costs of services. All of which could have a material and adverse impact on our business, results of operations and financial condition.

While we did not experience a significant decrease in the demand for our services during the first quarter of 2020, there is no guarantee that we will not experience decreased demand related to the COVID-19 pandemic in future periods. The majority of the Company’s revenues are derived from the provision of home health and hospice services. Demand for home health services could be significantly diminished due to heightened anxiety among our patients regarding the risk of exposure to COVID-19 as a result of home health visits. Additionally, many of our patients are prescribed home health services after discharge from the hospital or after other surgeries and medical procedures. Most local and state governments have imposed limits on the provision of certain healthcare and we believe many members of the communities we serve are avoiding health care visits and procedures. These additional factors could reduce demand for our home health services.

Our ability to provide services to our patients depends first and foremost on the health and safety of our skilled nurses, home health aides, and therapists. While we have taken significant precautions to enable our health care providers to continue to safely provide our important services to our patients during the pandemic, we could experience interruptions in our ability to continue to provide these services. For example, if we are unable to obtain the necessary personal protective equipment to ensure the safety of our employees due to a shortage of supplies or otherwise, if there is a reduction in our available healthcare providers due to concerns around COVID-19 related risks or if our healthcare providers were to contract COVID-19, our ability to provide services to our patients may be significantly interrupted or suspended.

In addition to a number of factors that could adversely impact demand for our services and our ability to provide services to our patients, we may experience increased cost of care and reduced reimbursements as a result of COVID-19. In particular, we have already experienced higher costs due to the higher utilization and cost of personal protective equipment as well as increased purchasing of other medical supplies, cleaning, and sanitization materials. If our patients suffer from increased incidence of and complications from illnesses, including COVID-19, our costs of providing care for our patients would increase. We may also face reduced reimbursement for our services through Medicare and commercial health care plans in the event that such plans do not adjust patient and other qualifications to address changes related to COVID-19.

In compliance with state and local stay-at-home orders issued in connection with COVID-19, a number of our employees have transitioned to working from home. While we have implemented and maintain a cybersecurity program designed to protect our IT and data systems from attacks, more of our employees are working from locations where our cybersecurity program may be less effective and IT security may be less robust. The risk of a disruption or breach of our operational systems, or the compromise of the data processed in connection with our operations, has increased as attempted attacks have advanced in sophistication and number around the world. If any of our systems are damaged, fail to function properly, or otherwise become unavailable, we may incur substantial costs to repair or replace them and may experience loss or corruption of critical data and

interruptions or delays in our ability to perform critical functions, which could adversely affect our business and results of operations. A significant failure, compromise, breach, or interruption in our systems, which may result from problems such as malware, computer viruses, hacking attempts, or other third-party malfeasance, could result in a disruption of our operations, patient dissatisfaction, damage to our reputation, and a loss of patients or revenues. Efforts by us and our vendors to develop, implement, and maintain security measures, including malware and anti-virus software and controls, may not be successful in preventing these events from occurring, and any network and information systems-related events could require us to expend significant resources to remedy such event. In the future, we may be required to expend additional resources to continue to enhance our information security measures and/or to investigate and remediate information security vulnerabilities.

The extent to which the COVID-19 pandemic impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity, and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures. The COVID-19 pandemic also may have the effect of heightening other risks disclosed in the Risk Factors section included in our Annual Report on Form 10-K for the year ended December 31, 2019, such as, but not limited to, those related to competition, supply chain interruptions, and labor availability and cost.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 6. EXHIBITS.



3.1	Amended and Restated Certificate of Incorporation of LHC Group, Inc. (previously filed as an Exhibit 3.1 to LHC Group’s Form 8-K filed on April 2, 2018).

3.2	Bylaws of LHC Group, Inc. as amended on December 31, 2007 (previously filed as Exhibit 3.2 to LHC Group’s Form 10-Q filed on May 9, 2008).

4.1	Specimen Stock Certificate of LHC Group’s Common Stock, par value $0.01 per share (previously filed as Exhibit 4.1 to LHC Group’s Form S-1/ A (File No. 333-120792) filed on February 14, 2005).

~~10.1~~	~~Amended and Restated Employment Agreement between Donald D. Stelly and LHC Group, Inc. dated June 1, 2019.~~

~~10.2~~	~~Employment Agreement between Tricia Nguyen, MD and LHC Group, Inc. dated July 1, 2019.~~

31.1	Certification of Keith G. Myers, Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Joshua L. Proffitt, Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*	Certification of Chief Executive Officer and Chief Financial Officer of LHC Group, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH	XBRL Schema Document

101.CAL	XBRL Calculation Linkbase Document

101.DEF	XBRL Definition Linkbase Document

101.LAB	XBRL Label Linkbase Document

101.PRE	XBRL Presentation Linkbase Document

Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). Users of this data are advised pursuant to Rule 406T of Regulation S-T that the interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise not subject to liability under these sections. The financial information contained in the XBRL-related documents is “unaudited” or “unreviewed.”

***This exhibit is furnished to the SEC as an accompanying document and is not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, and the document will not be deemed incorporated by reference into any filing under the Securities Act of 1933.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		LHC GROUP, INC.
		(Registrant)

Date: ~~August~~May 8, ~~2019~~2020		/s/ Joshua L. Proffitt
		Joshua L. Proffitt
		Chief Financial Officer (Principal financial officer)

4237



Merger consideration
Stock	$	795,412
Fair value of total consideration transferred
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	16,547
Patient accounts receivable	88,234
Prepaid income taxes	47
Prepaid expenses and other current assets	11,490
Property and equipment	11,144
Trade names	76,090
Certificates of needs/licenses	76,505
Customer relationships	13,970
Assets held for sale	2,500
Deferred income taxes	4,821
Accounts payable	(43,027		)
Accrued other liabilities	(57,243		)
Seller notes payable	(12,145		)
NCI - Redeemable	(8,034		)
Long term income taxes payable	(3,786		)
Line of credit	(106,800		)
NCI - Nonredeemable	(36,609		)
Other assets and (liabilities), net	(178		)
Total identifiable assets and liabilities	33,526
Goodwill	$	761,886



	Number of shares	Per share price
Shares available as of December 31, 2018	152,344
Shares issued during the three months ended March 31, 2019	5,357	$	89.19
Shares issued during the three months ended June 30, 2019	4,301	$	105.36
Shares available as of June 30, 2019	142,686



	Three Months Ended June 30, 2018
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI			Total
Net service revenue	$	360,276		$	50,554		$	52,753		$	28,304		$	10,137		$	502,024
Cost of service revenue	223,490			32,998			39,682			19,307			5,527			321,004
General and administrative expenses	105,674			15,108			12,444			10,601			5,387			149,214
Other intangible impairment charge	291			—			—			487			—			778
Operating income (loss)	30,821			2,448			627			(2,091		)	(777		)	31,028
Interest expense	(2,256		)	(473		)	(158		)	(159		)	(156		)	(3,202		)
Income (loss) before income taxes and noncontrolling interest	28,565			1,975			469			(2,250		)	(933		)	27,826
Income tax expense (benefit)	7,091			483			139			(313		)	(230		)	7,170
Net income (loss)	21,474			1,492			330			(1,937		)	(703		)	20,656
Less net income (loss) attributable to noncontrolling interests	3,810			412			(90		)	(207		)	(66		)	3,859
Net income (loss) attributable to LHC Group, Inc.'s common stockholders	$	17,664		$	1,080		$	420		$	(1,730	)	$	(637	)	$	16,797
Total assets	$	1,306,773		$	189,447		$	255,456		$	66,665		$	63,329		$	1,881,670



	Six Months Ended June 30, 2019
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI			Total
Net service revenue	$	738,288		$	106,793		$	104,199		$	55,676		$	15,471		$	1,020,427
Cost of service revenue	456,668			68,034			79,360			35,304			7,486			646,852
General and administrative expenses	213,797			29,949			22,195			18,512			9,352			293,805
Other intangible impairment charge	7,066			271			—			—			—			7,337
Operating income (loss)	60,757			8,539			2,644			1,860			(1,367		)	72,433
Interest expense	(4,161		)	(666		)	(585		)	(350		)	(175		)	(5,937		)
Income (loss) before income taxes and noncontrolling interest	56,596			7,873			2,059			1,510			(1,542		)	66,496
Income tax expense (benefit)	11,278			2,027			(20		)	153			(281		)	13,157
Net income (loss)	45,318			5,846			2,079			1,357			(1,261		)	53,339
Less net income (loss) attributable to non controlling interests	7,728			1,499			(577		)	846			(13		)	9,483
Net income (loss) attributable to LHC Group, Inc.'s common stockholder	$	37,590		$	4,347		$	2,656		$	511		$	(1,248	)	$	43,856



	Six Months Ended June 30, 2018
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI			Total
Net service revenue	$	564,463		$	93,180		$	66,844		$	58,454		$	10,137		$	793,078
Cost of service revenue	353,651			61,016			50,472			38,956			5,527			509,622
General and administrative expenses	171,963			28,406			15,742			19,747			5,387			241,245
Other intangible impairment charge	291			—			—			487			—			778
Operating income	38,558			3,758			630			(736		)	(777		)	41,433
Interest expense	(3,344		)	(690		)	(229		)	(232		)	(157		)	(4,652		)
Income (loss) before income taxes and noncontrolling interest	35,214			3,068			401			(968		)	(934		)	36,781
Income tax expense (benefit)	7,814			594			124			(155		)	(230		)	8,147
Net income (loss)	27,400			2,474			277			(813		)	(704		)	28,634
Less net income (loss) attributable to noncontrolling interests	6,047			829			(69		)	101			(66		)	6,842
Net income (loss) attributable to LHC Group, Inc.'s common stockholders	$	21,353		$	1,645		$	346		$	(914	)	$	(638	)	$	21,792

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Emerging growth company