Almost Family (AFAM) 10-Q 2017 Q3 Quarterly report

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 September 29, 2017

OR

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

For the transition period from to

Commission file number  001-09848

ALMOST FAMILY, INC.

(Exact name of Registrant as specified in its charter)

Delaware	06-1153720
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

9510 Ormsby Station Road, Suite 300, Louisville, Kentucky 40223

(Address of principal executive offices)

(502) 891-1000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 ☒ 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 definition of “Large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer ☐	Accelerated filer ☒	Non-accelerated filer ☐	Smaller Reporting Company ☐
Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐              No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class of Common Stock    $0.10 par value

Shares outstanding at November 2, 2017   13,965,031

ALMOST FAMILY, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements.  Consolidated Financial Statements and Supplementary Data (unaudited except December 30, 2016 Consolidated Balance Sheet)	3
	Consolidated Balance Sheets as of September 29, 2017 and December 30, 2016	3
	Consolidated Statements of Income for the Three and Nine Month Periods Ended September 29, 2017 and September 30, 2016	4
	Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 29, 2017 and September 30, 2016	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	30
PART II.	OTHER INFORMATION	31
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	31

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

	(Unaudited)
	September 29, 2017		December 30, 2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	19,149	$	10,110
Accounts receivable - net		131,873		99,212
Prepaid expenses and other current assets		16,711		11,432
TOTAL CURRENT ASSETS		167,733		120,754
PROPERTY AND EQUIPMENT - NET		16,489		10,732
GOODWILL		390,552		305,476
OTHER INTANGIBLE ASSETS - NET		145,363		85,063
TRANSACTION DEPOSIT		—		128,930
ASSETS HELD FOR SALE		3,800		—
OTHER ASSETS		7,936		7,757
TOTAL ASSETS	$	731,873	$	658,712
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	19,218	$	12,122
Accrued other liabilities		50,693		39,728
TOTAL CURRENT LIABILITIES		69,911		51,850
LONG-TERM LIABILITIES:
Revolving credit facility		120,374		262,456
Deferred tax liabilities		26,769		21,145
Seller notes		12,761		12,500
Other liabilities		7,270		6,581
TOTAL LONG-TERM LIABILITIES		167,174		302,682
TOTAL LIABILITIES		237,085		354,532
NONCONTROLLING INTEREST - REDEEMABLE -
HEALTHCARE INNOVATIONS		2,256		2,256
STOCKHOLDERS’ EQUITY:
Preferred stock, par value $0.05; authorized 2,000 shares; none issued or outstanding		—		—
Common stock, par value $0.10; authorized 25,000; 14,133 and 10,504 issued and outstanding		1,414		1,051
Treasury stock, at cost, 169 and 117 shares		(5,825)		(3,258)
Additional paid-in capital		288,329		141,233
Retained earnings		174,962		163,763
Almost Family, Inc. stockholders' equity		458,880		302,789
Noncontrolling interests - nonredeemable		33,652		(865)
TOTAL STOCKHOLDERS’ EQUITY		492,532		301,924
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	731,873	$	658,712

See accompanying Notes to Consolidated Financial Statements.

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ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except per share data)

	Quarter ended				Nine months ended
	September 29, 2017		September 30, 2016		September 29, 2017		September 30, 2016
Net service revenues	$	194,302		160,421		596,347		470,114
Cost of service revenues (excluding depreciation and amortization)		103,777		86,074		314,097		251,998
Gross margin		90,525		74,347		282,250		218,116
General and administrative expenses:
Salaries and benefits		54,840		42,952		167,743		126,134
Other		23,631		18,029		72,252		55,974
Deal, transition and other costs		4,467		2,257		17,122		7,455
Total general and administrative expenses		82,938		63,238		257,117		189,563
Operating income		7,587		11,109		25,133		28,553
Interest expense, net		1,668		1,537		5,794		4,684
Income before noncontrolling interests and income taxes		5,919		9,572		19,339		23,869
Net income attributable to noncontrolling interests		561		1,012		2,046		689
Net income before income taxes		5,358		8,560		17,293		23,180
Income tax expense		2,188		3,194		5,713		9,120
Net income attributable to Almost Family, Inc.	$	3,170	$	5,366	$	11,580	$	14,060
Per share amounts-basic:
Average shares outstanding		13,731		10,172		13,385		10,150
Net income attributable to Almost Family, Inc.	$	0.23	$	0.53	$	0.87	$	1.39
Per share amounts-diluted:
Average shares outstanding		13,941		10,310		13,627		10,328
Net income attributable to Almost Family, Inc.	$	0.23	$	0.52	$	0.85	$	1.36

See accompanying Notes to Consolidated Financial Statements.

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ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

	Nine months ended
	September 29, 2017		September 30, 2016
Cash flows from operating activities:
Net income attributable to Almost Family, Inc.	$	11,580	$	14,060
Net income attributable to noncontrolling interests		2,046		689
Consolidated net income		13,626		14,749
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,924		2,813
Provision for uncollectible accounts		11,151		10,626
Stock-based compensation		2,094		2,013
Loan cost amortization		706		207
Deferred income taxes		5,624		6,081
		38,125		36,489
Change in certain net assets and liabilities, net of the effects of acquisitions:
Accounts receivable		(22,302)		(12,831)
Prepaid expenses and other current assets		(4,625)		(4,451)
Other assets		(875)		(620)
Accounts payable and accrued expenses		4,476		(3,302)
Net cash provided by operating activities		14,799		15,285
Cash flows from investing activities:
Capital expenditures		(5,346)		(4,364)
Transaction deposit		128,930		—
Acquisitions, net of cash acquired		(130,069)		(31,256)
Net cash used in investing activities		(6,485)		(35,620)
Cash flows from financing activities:
Credit facility borrowings		202,934		215,430
Credit facility repayments, net		(345,016)		(195,396)
Debt issuance fees		—		(102)
Proceeds from stock offering, net		143,908		—
Proceeds from stock option exercises		1,505		(9)
Purchase of common stock in connection with share awards		(2,567)		(484)
Tax impact of share awards		—		257
Principal payments on notes payable and capital leases		(39)		(56)
Net cash provided by financing activities		725		19,640
Net increase (decrease) in cash and cash equivalents		9,039		(695)
Cash and cash equivalents at beginning of period		10,110		7,522
Cash and cash equivalents at end of period	$	19,149	$	6,827

See accompanying Notes to Consolidated Financial Statements.

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ALMOST FAMILY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Unless otherwise indicated, all dollars and share amounts are in thousands, except per share data)

1.Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements for the quarters ended September 29, 2017 and September 30, 2016, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations.   Accordingly, the reader of this Form 10-Q is referred to Almost Family, Inc.’s (the “Company”) Annual Report on Form 10-K for the year ended December 30, 2016 for further information.  In the opinion of management of the Company, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position at September 29, 2017, and the results of operations and cash flows for the quarters ended September 29, 2017 and September 30, 2016.  The results of operations for the quarter ended September 29, 2017 are not necessarily indicative of the operating results for the year.

On the first day of fiscal 2017, the Company acquired an 80% controlling interest in the entity holding the home health and hospice assets of Community Health Systems, Inc. (NYSE: CYH) (“CHS-JV”).  Community Health Systems, Inc. ("CHS") is one of the largest publicly-traded hospital companies in the United States and a leading operator of general acute care hospitals in communities across the country.  CHS retained the remaining 20%. The purchase price of $128.9 million was funded through borrowings on the Company's revolving credit facility, which resulted in a deposit in the December 30, 2016 balance sheet.  The deposit was converted to purchase consideration at closing.  The borrowing was subsequently repaid with proceeds from the Company’s stock offering on January 25, 2017.  The final purchase price is subject to a working capital adjustment.  CHS-JV currently operates 76 home health and 15 hospice branch locations in 22 states.  With the completion of this transaction, the Company now operates 332 branches across 26 states.

Third quarter operating results for the Company’s home health, personal care, hospice and assessment business lines were adversely impacted by Hurricanes Irma and Harvey (the “Hurricanes”).  Due to the early warnings and evacuations related to these storms, the period of disruption started well in advance of each storm actually striking affected areas, while recovery periods were elongated.  The Hurricanes impacted the Company’s operations in Florida, Georgia and Texas, which are the source of approximately one quarter of revenue.  The impact of lost admissions, visits, assessments and revenue on operating income was approximately $3.3 million in the third quarter of 2017. 

Reclassification

Consistent with the terms of the Company’s revolving credit facility, the Company now classifies unused commitment (“Unused”) and Letter of Credit (“LOC”) fees as a part of interest expense.  Historically, such costs were included in General and administrative – Other.  Unused and LOC fees for prior periods were reclassified to interest expense for consistency.  Unused and LOC fees included in Interest expense for the quarter and nine months ended September 29, 2017 were $0.4 million and $1.0 million, respectively, while comparable prior year amounts were $0.1 million and $0.3 million, respectively. 

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

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Recently Adopted Accounting Pronouncements 

In the first quarter of 2017, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) ASU 2016-09, Compensation – Stock Compensation (“ASU 2016-09”).  Under the new guidance, the Company recognizes all excess tax benefits or losses, if applicable, related to stock-based compensation as a component of income taxes in its consolidated statement of income and as operating cash flow in its consolidated statement of cash flows (with other income tax cash flows).  Previous guidance required recognition as additional paid-in capital and classified those amounts as financing activity in the statement of cash flows.  As a result, net income and operating cash flows for the nine months ended September 29, 2017 include excess tax benefits of approximately $1.3 million.  Prior financial statements did not require adjustment under the new guidance.  The future impact of adopting this new standard on the Company’s financial statements will be dependent on the timing and intrinsic value of future share-based compensation award exercises.  The adoption of this standard will increase the volatility of the income tax provision in the Company’s results of operations. 

Recently Issued Accounting Pronouncements Not Yet Adopted

In January 2017, the FASB issued ASU 2017-01, Business Combinations (“Topic 805”), Clarifying the Definition of a Business (“ASU 2017-01”).  ASU 2017-01 changes the definition of a business in an effort to assist entities with evaluating whether a set of transferred assets and activities is a business.  The guidance will require an entity to evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, and thus is not a business combination.  The guidance is effective for annual and interim impairment tests performed for periods beginning after December 15, 2019.  The Company is currently evaluating the impact of ASU 2017-01.

In January 2017, the FASB issued ASU 2017-04, Intangible – Goodwill and Other, Simplifying the Test for Goodwill Impairment, (“ASU 2017-04”) that simplifies the measurement for goodwill impairment into a single step.  The guidance eliminates Step 2 of the goodwill impairment test that required a hypothetical purchase price allocation of an implied fair value of goodwill to measure a goodwill impairment charge.  Under the new guidance, entities failing Step 1 of the goodwill impairment test will always record an impairment charge based on the excess of a reporting unit’s carrying amount over it fair value.  ASU 2017-04 does not change Step 1 guidance.  The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods in those years.   Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017.  The Company is currently evaluating the impact of ASU 2017-04.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”).  ASU 2016-15 clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows.  It also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows.  ASU 2016-15 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years.  Early adoption is permitted.  The Company is currently evaluating the impact ASU 2016-15 will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”).  ASU 2016-02 requires lessees to recognize assets and liabilities on their balance sheet related to the rights and obligations created by most leases, while continuing to recognize expenses on their income statements over the lease term.  The ASU further requires disclosures designed to give financial statement users information regarding the amount, timing, and uncertainty of cash flows arising from leases.  The guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years.  Early adoption is permitted for all entities.  The Company is currently evaluating the impact ASU 2016-02 will have on its consolidated financial statements and associated disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”).  Topic 606 affects virtually all aspects of an entity’s revenue recognition, including determining the measurement of revenue and the timing of when it is recognized for the transfer of goods or services to customers.  Topic 606 is effective for annual reporting periods beginning after December 15, 2017.  The Company is continuing to evaluate Topic 606, but does not

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expect a material impact from the adoption of Topic 606 on its 2018 statement of financial position and results of operations.

Net (Income) Loss Attributable to Noncontrolling Interest

Noncontrolling interest represents the ownership interests of minority shareholders in operating results of the period.  The following details the minority shareholders’ interest that is excluded from the Consolidated Statements of Income.

	Three months ended				Nine months ended
	September 29, 2017		September 30, 2016		September 29, 2017		September 30, 2016
CHS-JV	$	699	$	—	$	2,518	$	—
Imperium		(108)		1,060		(381)		724
Other		(30)		(48)		(91)		(35)
Net income attributable to noncontrolling interests	$	561	$	1,012	$	2,046	$	689

2.Segment Data

In the first quarter of 2017, the Company redefined its reporting segments to include a) Home Health (“HH”), formerly Visiting Nurse, b) Other Home-Based Services (“OHBS”), which includes all other home care services outside of Home Health services and c) the Healthcare Innovations (“HCI”) segment.  The OHBS segment consists of the historical personal care operations plus hospice services.  Prior year segment information was reclassified to conform to the new segment definitions.  In management’s opinion, this approach provides investors clarity for the largest segment, Home Health, and best aligns with the Company’s internal decision-making processes as viewed by the chief operating decision maker.

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. 

Consistent with information given to the chief operating decision maker, the Company does not allocate certain expenses to the reportable segments.  The Company evaluates the performance of its business segments based on operating income.  Intercompany and intersegment transactions have been eliminated.

The HH segment provides skilled medical services in patients’ homes largely to enable recipients to reduce or avoid periods of hospitalization and/or nursing home care.  Approximately 95% of the HH segment revenues were generated from the Medicare program, while the balance is generated from Medicaid and private insurance programs. 

The OHBS segment includes traditional personal care services (generally provided by paraprofessional staff such as home health aides) which are generally of a custodial rather than skilled nature.  Personal care revenues are generated on an hourly basis and are primarily from Medicaid (approximately 80% of personal care revenues).  Hospice services are largely provided in patients’ homes and generally require specialized hospice nursing skills.  Hospice revenues are generated on a per diem basis and are primarily from Medicare (approximately 93% of hospice revenues).

The Company’s HCI business segment is used to report on the Company’s developmental activities outside its HH and OHBS businesses.  These activities are intended ultimately, whether directly or indirectly, to benefit the Company’s patients and payors through the enhanced provision of HH and OHBS.  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.

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	Quarter ended				Nine months ended
Consolidated	September 29, 2017		September 30, 2016		September 29, 2017		September 30, 2016
Net service revenues:
Home Health	$	141,434		108,138		440,962		327,899
Other Home-Based Services		46,378		41,975		138,495		121,871
Healthcare Innovations		6,490		10,308		16,890		20,344
		194,302		160,421		596,347		470,114
Operating income before corporate expenses:
Home Health		16,992		12,657		57,087		42,964
Other Home-Based Services		3,579		2,501		11,444		9,223
Healthcare Innovations		812		5,051		796		5,098
		21,383		20,209		69,327		57,285
Corporate expenses		9,329		6,843		27,072		21,277
Deal, transition and other costs		4,467		2,257		17,122		7,455
Operating income		7,587		11,109		25,133		28,553
Interest expense, net (1)		1,668		1,537		5,794		4,684
Net income - noncontrolling interests		561		1,012		2,046		689
Net income before income taxes	$	5,358	$	8,560	$	17,293	$	23,180

(1)  Allocation of interest for the quarter ended September 29, 2017 was $643, $204 and $154 to the HH, OHBS and HCI segments, respectively, and $384, $384, and $248 to the HH, OHBS and HCI segments, respectively, for the quarter ended  September 30, 2016.  Allocation of interest for the nine months ended September 29, 2017 was $2,274, $705 and $508 to the HH, OHBS and HCI segments, respectively, and $1,183, $1,183, and $960 to the HH, OHBS and HCI segments, respectively, for the nine months ended September 30, 2016. 

3.Goodwill and Other Intangible Assets

The Company conducts annual reviews of goodwill and other indefinite-lived intangible assets for impairment, or more frequently if circumstances indicate impairment may have occurred.  Other intangible assets consist of certificates of need and licenses, trade names and non-compete agreements.  Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. Licenses, provider numbers, certificates of need and trade names have indefinite lives and are reviewed at least annually for possible impairment, or whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.  The Company completed its most recent annual impairment test of goodwill and other indefinite-lived intangible assets as of December 30, 2016 and determined that no impairment existed.

The following table summarizes the activity related to goodwill and other intangible assets for 2017:

			Other Intangible Assets
			Certificates
			of Need and		Trade		Non-compete		Customer
	Goodwill		Licenses		Names		Agreements		Relationships		Total
Balances at December 30, 2016	$	305,476	$	51,432	$	23,323	$	620	$	9,688	$	85,063
Acquisitions		85,076		51,763		9,880		490		—		62,133
Assets held for sale		—		(1,290)		—		—		—		(1,290)
Amortization		—		—		—		(162)		(381)		(543)
Balances at September 29, 2017	$	390,552	$	101,905	$	33,203	$	948	$	9,307	$	145,363

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Acquisitions in the table primarily relate to the CHS-JV acquisition discussed further in Note 8, “Acquisitions.”

The following table summarizes the Company’s goodwill and other intangible assets at September 29, 2017 by segment:

			Other Intangible Assets
			Certificates
			of Need and		Trade		Non-compete		Customer
	Goodwill		Licenses		Names		Agreements		Relationships		Total
Home Health	$	278,034	$	97,725	$	23,078	$	500	$	—	$	121,303
Other Home-Based Services		75,869		4,180		5,195		56		—		9,431
Healthcare Innovations		36,649		—		4,930		392		9,307		14,629
September 29, 2017 balances	$	390,552	$	101,905	$	33,203	$	948	$	9,307	$	145,363

4.Revolving Credit Facility

The Company has a senior secured revolving credit facility with JPMorgan Chase Bank, N.A., as Administrative Agent, and certain other lenders (the “Facility”).  The Facility provides a credit line of up to $350 million with a maturity date of December 3, 2021, and an “accordion” feature providing for potential future expansion of the Facility up to $150 million of additional borrowings upon further request and approval by a lender or lenders willing to extend such borrowings.  The Facility allows for daily and short term (generally one month to one year) borrowings.  Daily borrowings bear interest at a varying rate equal to prime plus 1.25%, while short term borrowings bear interest at a varying rate equal to the London Interbank Offered Rate (“LIBOR”) plus a margin which varies from 1.50% to 2.75%, depending on the Company’s leverage ratio.  Interest expense also includes unused commitment fees related to total borrowing capacity, as well as letters of credit related fees.  The Facility is secured by substantially all assets and the assets and stock of the Company’s subsidiaries. The subsidiaries have also guaranteed the Facility.  Debt issuance costs of $4.7 million were capitalized in the fourth quarter of 2016 with the Facility and are being amortized to interest expense through December 2021.

Borrowings under the Facility are subject to various covenants, including a maximum leverage ratio for all calculation dates ending on or before December 31, 2017, of 4.0 times earnings before interest, taxes, depreciation and amortization, as adjusted (“EBITDA”) plus “Acquired EBITDA” from pro-forma acquisitions as defined.  The maximum leverage ratio steps down, to a maximum leverage ratio of 3.75 times EBITDA plus Acquired EBITDA for calculation dates after December 31, 2017, and on or before June 30, 2018, and to a maximum leverage ratio of 3.5 times EBITDA plus Acquired EBITDA for calculation dates on and after September 30, 2018.  Borrowings under the revolving credit facility may be used for general corporate purposes, including acquisitions. 

On December 30, 2016, the Company borrowed approximately $128.9 million from the Facility to finance the CHS-JV transaction, which was classified as a Transaction deposit and was included in revolving credit facility in the 2016 Consolidated Balance Sheet.  On December 31, 2016, the first day of the Company’s 2017 fiscal year, the Transaction deposit converted to purchase price with the closing of the CHS-JV acquisition.  On January 25, 2017, the Company sold 3.5 million shares of common stock for net proceeds of $143.9 million, after deducting the estimated underwriting discounts and commissions and offering expenses, which were used to repay obligations under the Facility. 

As of September 29, 2017, the Company was in compliance with the various financial covenants.  Application of the Facility’s borrowing formula as of September 29, 2017, would have permitted approximately $200.2 million to be used.  The Company had irrevocable letters of credit totaling $16.7 million in connection with its self-insurance programs. 

Effective interest rates on the Company’s borrowings under its revolving credit facilities were 3.60% and 3.50% for the quarters ended September 29, 2017 and September 30, 2016, respectively. 

5.Fair Value Measurements

The Company’s financial instruments consist of cash, accounts receivable, payables and debt instruments.  The carrying values of cash, accounts receivable and payables are considered representative of their respective fair values due to the short-term nature of these instruments.  The fair value of the Company’s debt instruments approximates their carrying

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values as substantially all of such debt instruments have rates which fluctuate with changes in market rates.  The Company does not have any assets or liabilities carried at fair value that are measured on a recurring basis.

6.Earnings per Common Share

A reconciliation of the weighted average shares outstanding used in the calculation of basic and diluted earnings per common share is as follows:

	Quarter ended		Nine months ended
	September 29, 2017	September 30, 2016	September 29, 2017	September 30, 2016
Basic weighted average outstanding shares	13,731	10,172	13,385	10,150
Add common equivalent shares representing shares issuable upon exercise of dilutive awards	210	138	242	178
Diluted weighted average number of shares	13,941	10,310	13,627	10,328
Anti-dilutive shares excluded from calculation	96	76	96	76

7.Commitments and Contingencies

Insurance Programs

The Company bears significant insurance risk under its large-deductible workers’ compensation insurance program and its self-insured employee health program.  Under the workers’ compensation insurance program, the Company bears risk up to $0.4 million per incident, after which stop-loss coverage is maintained.  The Company purchases stop-loss insurance for the employee health plan that places a specific limit, generally $0.3 million, on its exposure for any individual covered life.

Malpractice and general patient liability claims for incidents which may give rise to litigation have been asserted against the Company by various claimants.  The claims are in various stages of processing and some may ultimately be brought to trial.  The Company is aware of incidents that have occurred through September 29, 2017 that may result in the assertion of additional claims.  The Company currently carries professional and general liability insurance coverage (on a claims made basis) for this exposure with no deductible.  The Company also carries D&O coverage (also on a claims made basis) for potential claims against the Company’s directors and officers, including securities actions, with deductibles ranging from $0.2 million to $0.5 million per claim.

The Company records estimated liabilities for its insurance programs based on information provided by the third-party plan administrators, historical claims experience, the life cycle of claims, expected costs of claims incurred but not paid, and expected costs to settle unpaid claims.  The Company monitors its estimated insurance-related liabilities and recoveries, if any, on a monthly basis and records amounts due under insurance policies in other current assets, while recording the estimated carrier liability in other current liabilities.  As facts change, it may become necessary to make adjustments that could be material to the Company’s results of operations and financial condition.

Legal Proceedings

The Company is currently, and from time to time, subject to claims and suits arising in the ordinary course of its business, including claims for damages for personal injuries.  In the opinion of management, after discussions with legal counsel, the ultimate resolution of any of these ordinary course pending claims and legal proceedings will not have a material effect on the Company’s financial position or results of operations.

11

8.Acquisitions

CHS-JV Acquisition

The acquisition of CHS-JV closed on the Company’s first day of fiscal 2017.  As a result, the Company’s nine months ended September 29, 2017 included three full quarters of revenues, operating income before corporate expenses and deal and transaction costs of approximately $145.8 million, $24.0 million and $4.5 million, respectively.  Comparable unaudited pro forma year to date CHS-JV operating results for 2016 totaled revenue and operating income of $138.8 million and $9.8 million, respectively.  Unaudited pro forma information is for illustrative purposes only and may not be indicative of the results of operations that would have actually occurred if the transaction described had been completed as of the beginning of 2016.  In addition, future results may vary from the results reflected in such information. 

The following table summarizes the preliminary estimates of fair values of the assets acquired and liabilities assumed in the CHS-JV acquisition:

	Purchase
	Price Allocation
Accounts receivable, net	$	21,444
Prepaids and other assets		705
Property, plant & equipment		7,301
Goodwill		84,213
Intangibles		61,570
Assets acquired		175,233
Liabilities assumed		(14,262)
Non-controlling interest		(32,042)
Net assets acquired	$	128,929

Adjustments to the CHS-JV acquisition purchase price allocation are based on a management review, preliminary expert estimates, other developments and market factors.  Goodwill arising from the CHS-JV transaction is based upon expected contributions to the overall corporate strategy in addition to synergies and acquired workforce, which are not separable from goodwill.  Revenues and goodwill associated with this transaction are assigned to the Home Health and Other Home-Based Services segments.  Amortizable goodwill and intangibles acquired in the CHS-JV acquisition are expected to be tax deductible. 

Other Acquisitions

On July 14, 2017, the Company’s CHS-JV purchased assets of a Medicare-certified home health agency and related private duty company for Island Home Care in Key West, Florida.  The purchase price was $1.2 million, including a $0.3 million note payable to the seller.  Post-acquisition operating results are reported in the Company’s HH and OHBS segments.

During the third quarter of 2016, one of the Company’s HCI subsidiaries redeemed certain outstanding shares increasing the Company's ownership percentage to 72.0% from 61.5%. 

On June 18, 2016, the Company acquired certain home health agency assets primarily in Wisconsin, but also in Connecticut and Kentucky (collectively, the Wisconsin acquisition).  The purchase price of $6.1 million was funded through borrowings on the Company’s bank credit facility.  The post-acquisition operating results of these agencies are primarily reported in the Company’s OHBS segment.  No accounts receivable were acquired. 

On January 5, 2016, the Company acquired 100% of the equity of Long Term Solutions, Inc. (“LTS”).  LTS is a provider of in-home nursing assessments for the long-term care insurance industry.  LTS provides assessments in all 50 U.S. states and a number of foreign countries.  The purchase price of $37 million was funded through borrowings on the Company’s bank credit facility, seller notes and issuance of the Company’s common stock.  The Company expects goodwill from this transaction to be deductible for tax purposes.  Approximately 74% of LTS’s 2016 revenue was from two customers.  LTS’s post-acquisition operating results are reported in the Company’s HCI business segment.

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On January 5, 2016, the Company purchased the assets of a Medicare-certified home health agency owned by Bayonne Visiting Nurse Association (“Bayonne”) located in New Jersey.  The purchase price was $4.1 million.  Bayonne’s post-acquisition operating results are reported in the Company’s HH segment.

9.Income Taxes

The Company’s effective income tax rate for the nine month periods ended September 29, 2017 and September 30, 2016 was approximately 33.0% and 39.3%, respectively.  The lower effective income tax rate for the nine months of 2017 was due to a change in accounting rules for excess tax benefits or losses from the exercise of stock options and vesting of restricted shares.  Previously, accounting guidance called for this to be recorded to Additional paid-in capital.  Future periods with option exercises or restricted stock vesting will have a lower tax provision.   See Note 1 for additional discussion of the new accounting guidance.

Accounting principles generally accepted in the United States prescribe 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 had $4.3 million of unrecognized tax benefits at September 29, 2017, the total amount of which, if recognized, would affect the tax rate.  The Company includes the full amount of unrecognized tax benefits in other liabilities in the Consolidated Balance Sheets.  Additionally, the Company may from time to time be assessed interest and penalties by tax jurisdictions.  Any such assessments historically have been immaterial to the Company’s financial results and are classified as other general and administrative expenses in the consolidated statements of income.

10.Stockholders’ Equity

Stock Transaction

On January 19, 2017, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, pursuant to which the Company agreed to issue and sell to the Underwriters a total of 3.0 million shares of the Company’s common stock, par value $0.10 per share, plus an option to purchase up to 0.5 million additional shares of common stock (the “Offering”), in a registered public offering pursuant to the Company’s shelf registration statement on Form S-3 (Registration No. 333-204584).

On January 25, 2017, the Company sold 3.5 million shares of common stock at $44.50 per share under the shelf registration statement for gross proceeds of approximately $153.5 million.  Net proceeds were approximately $143.9 million after deducting the underwriting discounts and commissions and offering expenses. Proceeds from the Offering were used to repay obligations under the revolving credit facility, which increased credit available under the Facility from approximately $78.6 million at December 30, 2016 to approximately $204 million after the Offering.  Further, the Company incurred $0.4 million in professional fees related to the Offering that were recorded to additional paid-in capital.

11.Subsequent Events

Management has evaluated all events and transactions that occurred after September 29, 2017.  During this period, the Company had no material subsequent events requiring recognition in the consolidated financial statements. 

We expect to receive our annual ACO payment, estimated between $2.0 and $2.4 million, in the fourth quarter of 2017.

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

The Company

Almost Family, Inc. and subsidiaries (collectively “Almost Family”) is a leading national provider of home health and related services. In this report, the terms “Company,” “we,” “us” or “our” mean Almost Family, Inc. and all subsidiaries included in our consolidated financial statements.

Cautionary Statements - Forward Outlook and Risks

Certain statements contained in this quarterly report on Form 10-Q, including, without limitation, statements containing the words “believes,” “anticipates,” “intends,” “expects,” “assumes,” “trends” and similar expressions, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based upon our current plans, expectations and projections about future events.  However, such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  These factors include, among others, the following:

· general economic and business conditions;

· demographic changes;

· changes in, or failure to comply with, existing governmental regulations;

· legislative proposals for healthcare reform;

· changes in Medicare and Medicaid reimbursement levels;

· changes in laws and regulations with respect to Accountable Care Organizations;

· changes to the Medicare Shared Savings Programs;

· changes in the marketplace and regulatory environment for Health Risk Assessments;

· effects of competition in the markets in which we operate;

· liability and other claims asserted against us;

· potential audits and investigations by government and regulatory agencies, including the impact of any negative publicity or litigation;

· ability to attract and retain qualified personnel;

· availability and terms of capital;

· loss of significant contracts or reduction in revenues associated with major payor sources;

· ability of customers to pay for services;

· business disruption due to natural disasters or terrorist acts;

· ability to effectively integrate, manage and keep secure our information systems;

· ability to successfully integrate the operations of acquired businesses and achieve expected synergies and operating efficiencies from the acquisition, in each case within expected time-frames or at all;

· significant deterioration in economic conditions and significant market volatility;

· effect on liquidity of our financing arrangements; and

· changes in estimates and judgments associated with critical accounting policies and estimates.

For a detailed discussion of these and other factors that could cause our actual results to differ materially from the results contemplated by the forward-looking statements, please refer to Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 30, 2016 and this Form 10-Q.  The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report.  Except as required by law, we assume no responsibility for updating forward-looking statements to reflect unforeseen or other events after the date of this report.  We have provided a detailed discussion of risk factors in our Form 10-K and various filings with the Securities and Exchange Commission (“SEC”).  The reader is encouraged to review these risk factors and filings.

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Critical Accounting Policies

Refer to the “Critical Accounting Policies” section of Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K for the year ended December 30, 2016 for a detailed discussion of our critical accounting policies.  There have been no material changes to our critical accounting policies and estimates as described therein.

Operating Segments

In the first quarter in 2017, we redefined our reporting segments to include a) Home Health (“HH”) formerly Visiting Nurse, b) Other Home-Based Services (“OHBS”) which includes all other home care services outside of Home Health services and c) the Healthcare Innovations (“HCI”) segment.  Our OHBS segment consists of our historical personal care operations plus hospice services.  Prior year segment information has been reclassified to conform to our new segment definitions.  In our opinion, this approach provides investors clarity for the largest segment, Home Health, and best aligns with our internal decision-making processes as viewed by the chief operating decision maker.

Reportable segments have been identified based upon how we have organized the business by services provided to customers and how our chief operating decision maker manages the business and allocates resources, consistent with the criteria in ASC 280, Segment Reporting.  Consistent with information given to our chief operating decision maker, we do not allocate certain expenses to the reportable segments.  We evaluate the performance of our business segments based on operating income.  We eliminate intercompany and intersegment transactions.

Our HH segment provides skilled medical services in patients’ homes largely to enable recipients to reduce or avoid periods of hospitalization and/or nursing home care.  Approximately 95% of our HH segment revenues were generated from the Medicare program, while the balance was generated from Medicaid and private insurance programs.

Our OHBS segment includes traditional personal care services (generally provided by paraprofessional staff such as home health aides) which are generally of a custodial rather than skilled nature.  Personal care revenues are generated on an hourly basis and are primarily from Medicaid (approximately 80% of personal care revenues).  Hospice services are largely provided in patients’ homes and generally require specialized hospice nursing skills.  Hospice revenues are generated on a per diem basis and are primarily from Medicare (approximately 93% of hospice revenues).

Our HCI business segment is used to report on our developmental activities outside our HH and OHBS businesses.  These activities are intended ultimately, whether directly or indirectly, to benefit our patients and payors through the enhanced provision of HH and OHBS.  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.

The HCI segment includes: a) an ACO enablement company; b) an in-home assessment company serving the long-term care insurance industry and managed care organizations; and c) an investment in a population-health analytics company.

Certain general and administrative expenses incurred at the corporate level have not been allocated to the segments.

Recent Developments

Third quarter operating results for our home health, personal care, hospice and assessment business lines were adversely impacted by Hurricanes Irma and Harvey (the “Hurricanes”).  Due to the early warnings and evacuations related to these storms, the period of disruption started well in advance of each storm actually striking affected areas, while recovery period were elongated. The Hurricanes impacted our operations in Florida, Georgia and Texas, which are the source of approximately one quarter of our revenue.  The impact of lost admissions, visits, assessments and revenue on operating income was approximately $3.3 million in the third quarter of 2017.  Due to the proximity of these events to the end of the third quarter, we may have some residual hurricane effect on fourth quarter results. 

15

On July 14, 2017, the CHS-JV purchased assets of a Medicare-certified home health agency and related private duty company for Island Home Care in Key West, Florida.  The purchase price was $1.2 million.  Post-acquisition operating results are reported in the Company’s HH and OHBS segments.

On December 31, 2016, the first day of our 2017 fiscal year end, we acquired an 80% controlling interest in the entity holding the home health and hospice assets of Community Health Systems, Inc. (NYSE: CYH) (referred to herein as “CHS-JV”).  CHS-JV, a provider of skilled home health and hospice services, currently operates 76 home health and 15 hospice branch locations in 22 states.  With the completion of this transaction, Almost Family now operates 332 branches across 26 states.  The purchase price of $128 million was funded through borrowings on the Company's revolving credit facility.  We expect the transaction will add approximately $200 million in revenue annually.  Approximately 85% of CHS-JV revenue is reported in our HH segment and 15% (hospice) is reported in our OHBS segment.

2017 Common Stock Offering

On January 25, 2017, we sold 3.5 million shares of common stock at $44.50 per share for gross proceeds of approximately $153.5 million.  Total net proceeds, after underwriting discounts and commissions and our offering expenses, were approximately $143.9 million.  These proceeds were used to repay obligations under the revolving credit facility.

Health Care Reform Legislation and Medicare Regulations

The reader is encouraged to review our detailed discussion of Health Care Reform 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 discussion under “Government Regulation” in Part I, Item 1, “Business” and Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 30, 2016. 

On November 1, 2017, the Centers for Medicare and Medicaid Services (“CMS”) released the final rule for FY2018 home health reimbursement, which includes a 0.4% rate cut consisting of a 1.0% market basket update, a 0.97% case mix adjustment and sunset of the rural add-on provision.  Among other things, the rule finalizes proposals for the Home Health Value Based Purchasing (“HHVBP”) Model and the Home Health Quality Reporting Program (“HH QRP”).  CMS did not finalize the Home Health Groupings Model but instead elected to “further engage with stakeholders to move towards a system that shifts the focus from volume of services to a more patient –centered model”.  The FY2018 impact table included in the final rule suggests the final rule is in line with the preliminary rule published earlier this year.  On September 25, 2017, the Company submitted a comment letter to CMS which provides an alternative course of action that we believe better protects Medicare beneficiaries and their right to access appropriate and necessary home health service.  The comment letter to CMS entitled “CY 2018 Home Health Prospective Payment System Rate Update – September 2017” can be found on the Company’s website, along with a series of responses to various other stakeholder requests from the Senate Finance Committee, the House Ways and Means Committee and CMS dating to 2013 and including AFAM executive testimony before the Congress.

In January of 2017, CMS released a final rule revising the conditions of participation (“CoPs”) for home health agencies to participate in the Medicare and Medicaid programs.  The rule, originally effective July 13, 2017, and now deferred through the end of 2017, focuses on, among other things, care delivered to patients, an interdisciplinary view of patient care, greater flexibility in meeting quality of care standards and the elimination of certain unneeded procedural burdens on providers.  This new rule is not expected to have a significant impact on our result of operations or financial position.

On June 8, 2016, CMS announced the “Pre-Claim Review Demonstration of Home Health Services” which seeks to demonstrate that a review of selected documentation prior to payment of claims can decrease “improper payments because of insufficient documentation.”  According to CMS, the pre-claim review demonstration was designed to help educate Home Health Agencies on what documentation is required and encourage them to submit the correct documentation, while still allowing the HHA to begin providing services and receive initial payments prior to the pre-claim review decision.  The pre-claim review demonstration began in Illinois in 2016, but currently has been suspended.  Further expansion to Florida, Texas, Michigan and Massachusetts has also been delayed.  Currently, it is unclear as to when this demonstration program will be resumed, if ever.

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Seasonality

Our HH segment operations in Florida normally experience higher admissions during the first quarter and lower admissions during the third quarter than in the other quarters due to seasonal population fluctuations.  Year to date Florida operations generated approximately 20% of our 2017 revenue. 

In our HCI segment, first quarter assessment revenues are traditionally lower than the other quarters due to the seasonal nature of our Medicare Advantage plan customers, while the majority of our ACO Management revenues have historically been generated in the third quarter.

Further, our third quarter falls within the “Hurricane season” including the peak months of August and September.  Our operations may thus be subject to periods of unexpected disruption, which lower volumes and increase costs.

17

RESULTS OF OPERATIONS

THIRD QUARTER

Consolidated

(In thousands)

	Quarter ended
	September 29, 2017				September 30, 2016				Change
Consolidated	Amount		% Rev		Amount		% Rev		Amount		%
Net service revenues:
Home Health	$	141,434	72.8	%	$	108,138	67.4	%	$	33,296	30.8	%
Other Home-Based Services		46,378	23.9	%		41,975	26.2	%		4,403	10.5	%
Healthcare Innovations		6,490	3.3	%		10,308	6.4	%		(3,818)	(37.0)	%
		194,302	100.0	%		160,421	100.0	%		33,881	21.1	%
Operating income before corporate expenses:
Home Health		16,992	12.0	%		12,657	11.7	%		4,335	34.2	%
Other Home-Based Services		3,579	7.7	%		2,501	6.0	%		1,078	43.1	%
Healthcare Innovations		812	12.5	%		5,051	49.0	%		(4,239)	(83.9)	%
		21,383	11.0	%		20,209	12.6	%		1,174	5.8	%
Corporate expenses		9,329	4.8	%		6,843	4.3	%		2,486	36.3	%
Deal, transition and other costs		4,467	2.3	%		2,257	1.4	%		2,210	97.9	%
Operating income		7,587	3.9	%		11,109	6.9	%		(3,522)	(31.7)	%
Interest expense, net		1,668	0.9	%		1,537	1.0	%		131	8.5	%
Net income - noncontrolling interests		561	0.3	%		1,012	0.6	%		(451)	NM
Net income before income taxes	$	5,358	2.8	%	$	8,560	5.3	%	$	(3,202)	(37.4)	%
Adjusted EBITDA (1)	$	14,571	7.5	%	$	15,110	9.4	%	$	(539)	(3.6)	%
Adjusted net income (1)	$	5,944	3.1	%	$	6,781	4.2	%	$	(837)	(12.3)	%

(1)See Page 29 for GAAP reconciliation of Adjusted EBITDA and Adjusted net income attributable to Almost Family, Inc.

Each of our operating segments experienced prolonged disruption during the third quarter of 2017 as a result of the Hurricanes, with our Home Health segment operations in Florida being the largest affected. The Hurricanes reduced operating income by approximately $3.3 million, largely on lost volume.  Home Health segment net revenues increased 30.8% or $33.3 million to $141.4 million from $108.1 million in the prior year and episodic admissions grew by 35.6% to 28,148 from 20,751 as the CHS-JV acquisition more than offset the impact from the Hurricanes.Revenues from the Home Health facilities acquired in the CHS-JV acquisition were $40.4 million for the quarter ended September 29, 2017. 

Other Home-Based Care segment net revenues increased year over year by $4.4 million primarily as a result of the CHS-JV acquisition’s 15 hospice facilities.  Hospice revenues were $7.8 million for quarter ended September 29, 2017.

Healthcare Innovations segment net revenues and operating income were $6.5 million and $0.8 million in 2017 as compared to $10.3 million and $5.1 million in 2016 due to the timing of ACO payments versus 2016.  We expect to record ACO payments in the fourth quarter of 2017 ranging from $2.0 to $2.4 million. 

Refer to the individual segment discussions for further operating performance details.

Corporate expenses as a percentage of revenue increased to 4.8% in 2017 from 4.3% in 2016, primarily on higher information systems costs.  Deal, transition and other costs were $4.5 million, primarily as a result of the ongoing

18

conversion, training and implementation costs of our Home Health segment to the Homecare Homebase information system.  Such costs are expected to continue through the end of 2017. 

Our effective tax rate for the third quarter of 2017 and 2016 was 40.8% and 37.3%, respectively.   

Home Health

(In thousands, except for statistics)

	Quarter ended
	September 29, 2017				September 30, 2016				Change
	Amount		% Rev		Amount		% Rev		Amount			%
Net service revenues	$	141,434	100.0	%	$	108,138	100.0	%	$	33,296		30.8	%
Cost of service revenues		70,587	49.9	%		53,966	49.9	%		16,621		30.8	%
Gross margin		70,847	50.1	%		54,172	50.1	%		16,675		30.8	%
General and administrative expenses:
Salaries and benefits		40,051	28.3	%		30,968	28.6	%		9,083		29.3	%
Other		13,804	9.8	%		10,547	9.8	%		3,257		30.9	%
Total general and administrative expenses		53,855	38.1	%		41,515	38.4	%		12,340		29.7	%
Operating income before corporate expenses	$	16,992	12.0	%	$	12,657	11.7	%	$	4,335		34.2	%
Number of locations		241				168				73		43.5	%
All payors:
Admissions		38,314				25,788				12,526		48.6	%
Census		30,809				23,177				7,632		32.9	%
Visits		898,786				711,998				186,788		26.2	%
Cost per visit	$	79			$	76			$	3		3.6	%
G&A expense per census	$	1,748			$	1,791			$	(43)		(2.4)	%
Episodic:
Admissions		28,148				20,751				7,397		35.6	%
Census		23,466				18,045				5,421		30.0	%
Episodes		42,773				32,260				10,513		32.6	%
Visits		703,390				574,505				128,885		22.4	%
Revenue	$	119,617	84.6	%	$	94,709	87.6	%	$	24,908		26.3	%
Revenue per episode	$	2,797			$	2,936			$	(139)		(4.7)	%
Visits per episode		16.4				17.8				(1.4)		(7.7)	%
Non-episodic:											��
Admissions		10,166				5,037				5,129		101.8	%
Census		7,343				5,132				2,211		43.1	%
Visits		195,396				137,493				57,903		42.1	%
Revenue	$	21,817	15.4	%	$	13,429	12.4	%	$	8,388		62.5	%
Revenue per visit	$	112			$	98			$	14		14.3	%
Visits per admission		19.2				27.3				(8.1)		(29.6)	%

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Home Health segment net revenues increased $33.3 million to $141.4 million from $108.1 million in the prior year, as episodic admissions grew by 35.6% to 28,148 from 20,751, as a result of the CHS-JV.  Revenue from acquisitions more than offset a net effective 1% Medicare rate cut and the impact of the Hurricanes. 

The Company’s average wage rates increased by an approximately 2% annual cost of living adjustment for full-time staff effective January 1, 2017.

Gross margin as a percent of revenue remained consistent as a percentage of revenue as the 1% Medicare rate cut and increased cost per visit were offset by improved mix.  Cost per visit increased 3.6% due to a combination of increased wage rates, lower visit utilization and costs associated with the Homecare Homebase implementation. 

Total general and administrative expenses as a percent of revenue decreased 0.3% primarily due to synergies obtained from the Homecare Homebase implementation which more than offset the combined effects of the Medicare rate cut, increased wage rates and lower revenues from the Hurricanes. 

HH segment contribution increased $4.3 million, or 34.2%, to $17.0 million, from $12.7 million in the prior year period.

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Other Home-Based Services

(In thousands, except for statistics)

	Quarter ended
	September 29, 2017				September 30, 2016				Change
	Amount		% Rev		Amount		% Rev		Amount		%
Net service revenues	$	46,378	100.0	%	$	41,975	100.0	%	$	4,403	10.5	%
Cost of service revenues		30,541	65.9	%		29,278	69.8	%		1,263	4.3	%
Gross margin		15,837	34.1	%		12,697	30.2	%		3,140	24.7	%
General and administrative expenses:
Salaries and benefits		8,029	17.3	%		6,460	15.4	%		1,569	24.3	%
Other		4,229	9.1	%		3,736	8.9	%		493	13.2	%
Total general and administrative expenses		12,258	26.4	%		10,196	24.3	%		2,062	20.2	%
Operating income before corporate expenses	$	3,579	7.7	%	$	2,501	6.0	%	$	1,078	43.1	%
Personal Care:
Locations		75				80				(5)	(6.3)	%
Admissions		2,259				2,638				(379)	(14.4)	%
Census		12,475				14,092				(1,617)	(11.5)	%
Hours of service		1,783,018				1,953,224				(170,206)	(8.7)	%
Hours per patient per week		11.0				10.7				0.3	3.1	%
Revenue	$	38,572	83.2	%	$	41,688	99.3	%	$	(3,116)	(7.5)	%
Operating income	$	2,228			$	2,540			$	(312)	(12.3)	%
Revenue per hour	$	21.63			$	21.34			$	0.29	1.4	%
Cost per hour	$	13.30			$	13.39			$	(0.09)	(0.7)	%
Hospice:
Locations		16				1				15	NM
Admissions		680				33				647	NM
Census		492				22				470	NM
Length of stay		60				40				20	50.0	%
Revenue	$	7,807	16.8	%	$	287	0.7	%	$	7,520	NM
Operating income (loss)	$	1,351			$	(39)			$	1,390	NM
Revenue per day	$	169			$	142			$	27	19.0	%

Other Home-Based Services segment net revenues increased $4.4 million or 10.5% to $46.4 million in 2017 from $42.0 million, primarily as a result of the 15 hospice facilities acquired in the CHS-JV transaction.  Personal care revenues were down $3.1 million, or 7.5%, from prior year on lower volumes. 

Additionally, mix changes combined with rate cuts and increases in wages influenced by increases in statutory minimum wage rates in certain states negatively impacted our personal care margins. 

OHBS segment contribution increased $1.1 million as compared to the same period of last year.

21

Healthcare Innovations Segment

(In thousands, except for statistics)

	Quarter ended
	September 29, 2017				September 30, 2016				Change
	Amount		% Rev		Amount		% Rev		Amount		%
Net service revenues	$	6,490	100.0	%	$	10,308	100.0	%	$	(3,818)	(37.0)	%
Cost of service revenues		2,616	40.3	%		2,824	27.4	%		(208)	(7.4)	%
Gross margin		3,874	59.7	%		7,484	72.6	%		(3,610)	(48.2)	%
General and administrative expenses:
Salaries and benefits		1,726	26.6	%		1,477	14.3	%		249	16.9	%
Other		1,336	20.6	%		956	9.3	%		380	39.7	%
Total general and administrative expenses		3,062	47.2	%		2,433	23.6	%		629	25.9	%
Operating income before corporate expenses	$	812	12.5	%	$	5,051	49.0	%	$	(4,239)	(83.9)	%
ACO Management
Medicare ACO enrollees under management		141,556				121,881				19,675	16.1	%
ACOs under contract		15				14				1	7.1	%
Revenue	$	767	11.8	%	$	4,619	44.8	%	$	(3,852)	(83.4)	%
Operating loss	$	(386)			$	3,832			$	(4,218)	110.1	%
Assessment Services
Assessments		24,452				21,019				3,433	16.3	%
Revenue	$	5,723	88.2	%	$	5,689	55.2	%	$	34	0.6	%
Operating income	$	1,198			$	1,219			$	(21)	(1.7)	%

HCI segment net revenues and operating income were $6.5 million and $0.8 million in 2017 as compared to $10.3 million and $5.1 million in 2016, respectively, due to the timing of ACO payments versus 2016.  We expect to record ACO payments in the fourth quarter of 2017 ranging from $2.0 to $2.4 million.  Our operating results in the third quarter of 2016 included ACO payment revenue of $4.3 million. 

In our ACO Management business, the majority of our revenue is generally recognized in the third quarter each year when we realize our portion of the preceding year’s Medicare Shared Savings Program success fees from the ACO’s we help manage.  However, the shared savings payments have been delayed until the fourth quarter of 2017.  In contrast, our operating costs are recognized as incurred throughout the year.  Increases in enrollees under management and the number of ACO’s in the current period resulted in increased net service revenues.  The increases in our ACO operating costs in 2017 versus 2016 are related to our investments to secure and support additional ACO customers for future periods, as well as increases in enrollees under management and the number of ACO’s in the current period.

Assessment services revenue and operating income were largely consistent with the prior year, despite the disruption from Hurricane Irma.

22

RESULTS OF OPERATIONS

YEAR TO DATE

Consolidated

(In thousands)

	Nine months ended
	September 29, 2017				September 30, 2016				Change
Consolidated	Amount		% Rev		Amount		% Rev		Amount		%
Net service revenues:
Home Health	$	440,962	73.9	%	$	327,899	69.7	%	$	113,063	34.5	%
Other Home-Based Services		138,495	23.2	%		121,871	25.9	%		16,624	13.6	%
Healthcare Innovations		16,890	2.8	%		20,344	4.3	%		(3,454)	(17.0)	%
		596,347	100.0	%		470,114	100.0	%		126,233	26.9	%
Operating income before corporate expenses:
Home Health		57,087	12.9	%		42,964	13.1	%		14,123	32.9	%
Other Home-Based Services		11,444	8.3	%		9,223	7.6	%		2,221	24.1	%
Healthcare Innovations		796	4.7	%		5,098	25.1	%		(4,302)	NM
		69,327	11.6	%		57,285	12.2	%		12,042	21.0	%
Corporate expenses		27,072	4.5	%		21,277	4.5	%		5,795	27.2	%
Deal, transition and other costs		17,122	2.9	%		7,455	1.6	%		9,667	129.7	%
Operating income		25,133	4.2	%		28,553	6.1	%		(3,420)	(12.0)	%
Interest expense, net		5,794	1.0	%		4,684	1.0	%		1,110	23.7	%
Net income - noncontrolling interests		2,046	0.3	%		689	0.1	%		1,357	NM
Net income before income taxes	$	17,293	2.9	%	$	23,180	4.9	%	$	(5,887)	(25.4)	%
Adjusted EBITDA (1)	$	49,605	8.3	%	$	41,229	8.8	%	$	8,376	20.3	%
Adjusted net income (1)	$	20,870	3.5	%	$	18,570	4.0	%	$	2,300	12.4	%

(1)See Page 29 for GAAP reconciliation of Adjusted EBITDA and Adjusted net income attributable to Almost Family, Inc.

Each of our operating segments experienced prolonged disruption during the third quarter of 2017 as a result of the Hurricanes, with our Home Health segment operations in Florida being the largest affected. The Hurricanes reduced operating income by approximately $3.3 million, largely on lost volume.  Home Health segment net revenues increased 34.5% or $113.1 million to $441.0 million from $327.9 million in the prior year, as episodic admissions grew by 40.9% to 89,199 from 63,295, primarily due to the CHS-JV acquisition.Revenues from the Home Health facilities acquired in the CHS-JV acquisition were $125.2 million for 2017. 

Other Home-Based Care segment net revenues increased year over year by $16.6 million primarily as a result of the CHS-JV acquisition’s 15 hospice facilities.  Hospice revenues were $22.1 million for 2017.

Healthcare Innovations segment net revenues and operating income were $16.9 million and $0.8 million in 2017 as compared to $20.3 million and $5.1 million in 2016, respectively, due to the timing of ACO payments in 2017 versus 2016.  We expect to record ACO payments in the fourth quarter of 2017 ranging from $2.0 to $2.4 million. 

Refer to the individual segment discussions for further operating performance details.

Corporate expenses as a percentage of revenue are consistent with prior period at 4.5%.  Deal, transition and other costs were $17.1 million, primarily as a result of the CHS-JV acquisition as well as the conversion, training and

23

implementation costs of our Home Health segment conversion to the Homecare Homebase information system.  Such costs are expected to continue through the end of 2017.  Borrowings related to acquisitions and fees associated with our credit facility increased interest expense to $5.8 million from $4.7 million in the prior year period. 

Our effective tax rate for 2017 and 2016 was 33.0% and 39.3%, respectively.  The lower effective income tax rate for 2017 was due to a change in accounting rules for excess tax benefits from the exercise of stock options and vesting of restricted shares.  Under previous accounting rules these benefits were recorded in “additional paid-in capital” rather than in the current period tax provision.  Future periods with option exercises or restricted stock vesting will lower our tax provision in those periods.  Excluding such items, we continue to expect our effective tax rate for 2017 to be 39.5%.

Home Health

(In thousands, except for statistics)

	Nine months ended
	September 29, 2017				September 30, 2016				Change
	Amount		% Rev		Amount		% Rev		Amount		%
Net service revenues	$	440,962	100.0	%	$	327,899	100.0	%	$	113,063	34.5	%
Cost of service revenues		215,533	48.9	%		160,054	48.8	%		55,479	34.7	%
Gross margin		225,429	51.1	%		167,845	51.2	%		57,584	34.3	%
General and administrative expenses:
Salaries and benefits		123,563	28.0	%		91,377	27.9	%		32,186	35.2	%
Other		44,779	10.2	%		33,504	10.2	%		11,275	33.7	%
Total general and administrative expenses		168,342	38.2	%		124,881	38.1	%		43,461	34.8	%
Operating income before corporate expenses	$	57,087	12.9	%	$	42,964	13.1	%	$	14,123	32.9	%
Number of locations		241				168				73	43.5	%
All payors:
Admissions		119,499				81,630				37,869	46.4	%
Census		31,243				23,237				8,006	34.5	%
Visits		2,812,594				2,183,295				629,299	28.8	%
Cost per visit	$	77			$	73			$	3	4.5	%
G&A expense per census	$	5,388			$	5,374			$	14	0.3	%
Episodic:
Admissions		89,199				63,295				25,904	40.9	%
Census		23,959				17,917				6,042	33.7	%
Episodes		133,973				97,575				36,398	37.3	%
Visits		2,216,441				1,751,313				465,128	26.6	%
Revenue  (in thousands)	$	376,670	85.4	%	$	285,446	87.1	%	$	91,224	32.0	%
Revenue per episode	$	2,812			$	2,925			$	(114)	(3.9)	%
Visits per episode		16.5				17.9				(1.4)	(7.8)	%
Non-episodic:
Admissions		30,300				18,335				11,965	65.3	%
Census		7,284				5,320				1,964	36.9	%
Visits		596,153				431,982				164,171	38.0	%
Revenue  (in thousands)	$	64,292	14.6	%	$	42,453	12.9	%	$	21,839	51.4	%
Revenue per visit	$	108			$	98			$	10	9.7	%
Visits per admission		19.7				23.6				(3.9)	(16.5)	%

Home Health segment net revenues increased $113.1 million to $441.0 million from $327.9 million in the prior year and episodic admissions grew by 40.9% to 89,199 from 63,295 primarily due to the CHS-JV acquisition.  Excluding the

24

CHS-JV acquisition, episodic admissions grew 2.0%, which was reduced by the Hurricanes.  Volume growth was partially offset by a net effective 1% Medicare rate cut and the impact of the Hurricanes. 

The Company’s average wage rates increased by an approximately 2% annual cost of living adjustment for full-time staff effective January 1, 2017.

Gross margin as a percent of revenue declined 0.1% primarily as the 1.0% Medicare rate cut and increased wage rates slightly outpaced favorable changes in mix.  Cost per visit increased 4.5% due to a combination of increased wage rates, lower visit utilization and costs associated with the Homecare Homebase implementation. 

Total general and administrative expenses increased slightly, 0.1%, as a percent of revenue. 

Home Health segment contribution increased $14.1 million, or 32.9%, to $57.1 million, from $43.0 million in the prior year period.

Other Home-Based Services

(In thousands, except for statistics)

	Nine months ended
	September 29, 2017				September 30, 2016				Change
	Amount		% Rev		Amount		% Rev		Amount		%
Net service revenues	$	138,495	100.0	%	$	121,871	100.0	%	$	16,624	13.6	%
Cost of service revenues		91,120	65.8	%		84,097	69.0	%		7,023	8.4	%
Gross margin		47,375	34.2	%		37,774	31.0	%		9,601	25.4	%
General and administrative expenses:
Salaries and benefits		23,629	17.1	%		18,254	15.0	%		5,375	29.4	%
Other		12,302	8.9	%		10,297	8.4	%		2,005	19.5	%
Total general and administrative expenses		35,931	25.9	%		28,551	23.4	%		7,380	25.8	%
Operating income before corporate expenses	$	11,444	8.3	%	$	9,223	7.6	%	$	2,221	24.1	%
Personal Care:
Locations		75				80				(5)	(6.3)	%
Admissions		7,137				7,675				(538)	(7.0)	%
Census		12,669				13,177				(508)	(3.9)	%
Hours of service		5,425,767				5,659,370				(233,603)	(4.1)	%
Hours per patient per week		11.0				11.0				(0.0)	(0.3)	%
Revenue	$	116,374	84.0	%	$	121,075	99.3	%	$	(4,701)	(3.9)	%
Operating income	$	7,489			$	9,285			$	(1,796)	(19.3)	%
Revenue per hour	$	21.45			$	21.39			$	0.05	0.3	%
Cost per hour	$	13.15			$	13.39			$	(0.24)	(1.8)	%
Hospice:
Locations		16				1				15	NM
Admissions		2,188				82				2,106	NM
Census		482				21				461	NM
Length of stay		58				38				20	51.7	%
Revenue	$	22,122	16.0	%	$	796	0.7	%	$	21,326	NM
Operating income	$	3,955			$	(62)			$	4,017	NM
Revenue per day	$	168			$	141			$	27	19.0	%

25

Other Home-Based Services segment net revenues increased $16.6 million or 13.6% to $138.5 million in 2017 from $121.9 million, primarily as a result of the 15 hospice facilities acquired in the CHS-JV transaction.  Personal care revenues were down $4.7 million or 3.9% from prior year on lower volumes. 

Additionally, mix changes combined with rate cuts and increases in wages influenced by increases in statutory minimum wage rates in certain states negatively impacted our personal care margins. 

OHBS segment contribution increased $2.2 million as compared to the same period of last year.

Healthcare Innovations Segment

(In thousands, except for statistics)

	Nine months ended
	September 29, 2017				September 30, 2016				Change
	Amount		% Rev		Amount		% Rev		Amount		%
Net service revenues	$	16,890	100.0	%	$	20,344	100.0	%	$	(3,454)	(17.0)	%
Cost of service revenues		7,392	43.8	%		7,830	38.5	%		(438)	(5.6)	%
Gross margin		9,498	56.2	%		12,514	61.5	%		(3,016)	(24.1)	%
General and administrative expenses:
Salaries and benefits		5,136	30.4	%		4,762	23.4	%		374	7.9	%
Other		3,566	21.1	%		2,654	13.0	%		912	34.4	%
Total general and administrative expenses		8,702	51.5	%		7,416	36.5	%		1,286	17.3	%
Operating income before corporate expenses	$	796	4.7	%	$	5,098	25.1	%	$	(4,302)	(84.4)	%
ACO Management
Medicare ACO enrollees under management		141,556				121,881				19,675	16.1	%
ACOs under contract		15				14				1	7.1	%
Revenue	$	1,957	11.6	%	$	4,955	24.4	%	$	(2,998)	(60.5)	%
Operating (loss) income	$	(1,355)			$	2,961			$	(4,316)	145.8	%
Assessment Services
Assessments		61,948				56,414				5,534	9.8	%
Revenue	$	14,933	88.4	%	$	15,389	75.6	%	$	(456)	(3.0)	%
Operating income	$	2,151			$	2,137			$	14	0.7	%

HCI segment net revenues and operating income were $16.9 million and $0.8 million in 2017 as compared to $20.3 million and $5.1 million in 2016, respectively, due to the timing of ACO payments in 2017 versus 2016.  Our 2016 operating results included ACO payment revenue of $4.3 million.   

Assessment services revenue decreased in comparison to the prior year as a result of changes in the mix of assessments performed, while operating income as a percentage of revenue increased to 14.4% from 13.9% in the prior period.

26

Liquidity and Capital Resources

2017 Common Stock Offering

On January 25, 2017, we sold 3.5 million shares of common stock at $44.50 per share for gross proceeds of approximately $153.5 million.  Total net proceeds, after underwriting discounts and commissions and our offering expenses, were approximately $143.9 million.  These proceeds were used to repay obligations under the revolving credit facility.

Revolving Credit Facility

We have a senior secured revolving credit facility with JPMorgan Chase Bank, N.A., as Administrative Agent, and certain other lenders (the “Facility”).  The Facility provides a credit line of up to $350 million with a maturity date of December 3, 2021, and an “accordion” feature providing for potential future expansion of the Facility up to $150 million of additional borrowings upon our further request and approval by a lender or lenders willing to extend such borrowings.  Daily borrowings bear interest at a varying rate equal to prime plus 1.25%, while short term borrowings bear interest at a varying rate equal to the London Interbank Offered Rate (“LIBOR”) plus a margin which varies from 1.50% to 2.75%, depending on the Company’s leverage ratio.  Interest expense also includes unused commitment fees related to total borrowing capacity, as well as letters of credit related fees.  The Facility is secured by substantially all our assets and the assets and stock of our subsidiaries.  Debt issuance costs of $4.7 million were capitalized in the fourth quarter of 2016 with the Facility and are being amortized to interest expense through December 2021. 

Borrowings under the Facility are subject to various covenants, including a maximum leverage ratio for all calculation dates ending on or before December 31, 2017, of 4.0 times earnings before interest, taxes, depreciation and amortization, as adjusted (“EBITDA”) plus “Acquired EBITDA” from pro-forma acquisitions as defined.  The maximum leverage ratio steps down, to a maximum leverage ratio of 3.75 times EBITDA plus Acquired EBITDA for calculation dates after December 31, 2017, and on or before June 30, 2018, and to a maximum leverage ratio of 3.5 times EBITDA plus Acquired EBITDA for calculation dates on and after September 30, 2018.  Borrowings under the revolving credit facility may be used for general corporate purposes, including acquisitions.  A portion of the proceeds were used to repay all the outstanding obligations of our prior credit agreement. 

On December 30, 2016, we borrowed approximately $128.9 million from the Facility to finance the CHS-JV transaction, which was classified as a Transaction deposit and was included in revolving credit facility in the December 30, 2016 Consolidated Balance Sheet.  On December 31, 2016, the first day of the Company’s 2017 fiscal year, the Transaction deposit converted to purchase price with the closing of the CHS-JV acquisition.  On January 25, 2017, we sold 3,450 shares of common stock for net proceeds of $143.9 million, after deducting the underwriting discounts and commissions and our offering expenses, which were used to repay obligations under the Facility. 

As of September 29, 2017, we were in compliance with the various financial covenants.  Application of the Facility’s borrowing formula as of September 29, 2017, would have permitted approximately $200.2 million to be used.  We had irrevocable letters of credit totaling $16.7 million in connection with our self-insurance programs. 

The effective interest rates on our borrowings under the revolving credit facilities for the three-month periods ended September 29, 2017 and September 30, 2016 were 3.60% and 3.50%, respectively. 

We believe the Facility will be sufficient to fund our operating needs and expansion plans for at least the next year.  We will continue to evaluate additional capital, including possible debt and equity investments in the Company, to support a more rapid development of the business than would be possible with internal funds.

27

Cash Flows

Key elements to the Consolidated Statements of Cash Flows were:

	Nine months ended
Net Change in Cash and Cash Equivalents (in thousands)	September 29, 2017		September 30, 2016
Provided by (used in):
Operating activities	$	14,799	$	15,285
Investing activities		(6,485)		(35,620)
Financing activities		725		19,640
Net increase (decrease) in cash and cash equivalents	$	9,039	$	(695)

2017 Compared to 2016

Net cash provided by operating activities of $14.8 million resulted from current period net income of $11.6 million plus certain non-cash items, net of changes in accounts receivables and accounts payable and accrued expenses.  Accounts receivable days sales outstanding were 60 at the end of the third quarter of 2017, as compared to 57 days for the second quarter of 2017 and 53 days at the end of the fourth quarter of 2016.  Increases in days outstanding were driven by backlogs in final claims in our Home Health segment, largely related to our conversion to Homecare Homebase and legacy system run-out and to a lesser degree the timing of Hurricane Irma in Florida.

Cash used in investing activities was driven by capital expenditures largely related to our implementation of the Homecare Homebase information system. Cash used for the acquisition of the CHS-JV was offset by the reduction of the December 2016 transaction deposit. 

Cash provided by financing activities from the sale of common stock of $143.9 million was used to repay obligations under the revolving credit facility. 

2016 Compared to 2015

Net cash provided by operating activities resulted primarily from current period net income of $14.7 million plus certain non-cash items, net of changes in accounts receivable, accounts payable and accrued expenses.  Accounts receivable days sales outstanding, which were 53 at September 30, 2016 and 56 at October 2, 2015, decreased due to improved collections.

Cash used in investing activities was primarily due to our 2016 acquisitions:  June 19, 2016 – Wisconsin and January 5, 2016 - LTS and Bayonne.

Cash provided by financing activities resulted from $20.0 million of new borrowings on the revolving credit facility to fund acquisitions, partially offset by repayments from operating cash flow.

Impact of Inflation

We do not believe that inflation has had a material effect on income during the past several years.

Non-GAAP Financial Measures

The information provided in some of the tables use certain non-GAAP financial measures as defined under SEC rules.  In accordance with SEC rules, we have provided, in the supplemental information below, a reconciliation of those measures to the most directly comparable GAAP measures.

28

Adjusted Net Income

Adjusted net income attributable to Almost Family, Inc. (“Adjusted Net Income”) is not a measure of financial performance under accounting principles generally accepted in the United States of America (“US GAAP”). It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles. We believe the use of non-GAAP measures on a consolidated and business segment basis assists investors in understanding the ongoing operating performance by presenting comparable financial results between periods.  The non-GAAP information provided is used by us and may not be determined in a manner consistent with the methodologies used by other companies.

	Quarter ended				Nine months ended
(in thousands)	September 29, 2017		September 30, 2016		September 29, 2017		September 30, 2016
Net income attributable to Almost Family, Inc.	$	3,170	$	5,366	$	11,580	$	14,060
Addbacks:
Deal, transition and other costs, net of tax		2,774		1,415		9,290		4,510
Adjusted net income attributable to Almost Family, Inc.	$	5,944	$	6,781	$	20,870	$	18,570
Per share amounts-basic:
Average shares outstanding		13,731		10,172		13,385		10,150
Net income attributable to Almost Family, Inc.	$	0.23	$	0.53	$	0.87	$	1.39
Addbacks:
Deal, transition and other costs, net of tax		0.20		0.14		0.69		0.44
Adjusted net income attributable to Almost Family, Inc.	$	0.43	$	0.67	$	1.56	$	1.83
Per share amounts-diluted:
Average shares outstanding		13,941		10,310		13,627		10,328
Net income attributable to Almost Family, Inc.	$	0.23	$	0.52	$	0.85	$	1.36
Addbacks:
Deal, transition and other costs, net of tax		0.20		0.14		0.68		0.44
Adjusted net income attributable to Almost Family, Inc.	$	0.43	$	0.66	$	1.53	$	1.80

29

Adjusted EBITDA

Adjusted earnings before interest, income and franchise taxes, depreciation, amortization, amortization of stock-based compensation, and deal, transition and other (“Adjusted EBITDA”) is not a measure of financial performance under U.S. GAAP.  It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles.  The items excluded from Adjusted EBITDA are significant components in understanding and evaluating financial performance and liquidity.  Management routinely calculates and communicates Adjusted EBITDA and believes that it is useful to investors because it is commonly used as an analytical indicator within our industry to evaluate performance, measure leverage capacity and debt service ability, and to estimate current or prospective enterprise value. Adjusted EBITDA is used in certain covenants contained in our revolving credit facility.  The following table sets forth a reconciliation of net income to Adjusted EBITDA as of September 29, 2017:

	Quarter ended				Nine months ended
(in thousands)	September 29, 2017		September 30, 2016		September 29, 2017		September 30, 2016
Net income attributable to Almost Family, Inc.	$	3,170	$	5,366	$	11,580	$	14,060
Add back:
Net income attributable to noncontrolling interests		561		1,012		2,046		689
Interest expense, net		1,668		1,537		5,794		4,684
Income tax expense		2,188		3,194		5,713		9,120
Franchise taxes		230		182		697		454
Depreciation and amortization		1,607		950		4,559		2,754
Stock-based compensation		680		612		2,094		2,013
Deal, transition and other costs		4,467		2,257		17,122		7,455
Adjusted EBITDA	$	14,571	$	15,110	$	49,605	$	41,229

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Derivative Instruments

We have not used derivative instruments.

Market Risk of Financial Instruments

Our primary market risk exposure with regard to financial instruments is changes in interest rates on long-term obligations.

At September 29, 2017, a hypothetical 100 basis point increase in short-term interest rates would result in a reduction of approximately $1.2 million in our quarter pre-tax earnings.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures – As of September 29, 2017, the Company’s management, with participation of the Company’s Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e).  Based on that evaluation, the Chief Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 29, 2017. 

Changes in Internal Control Over Financial Reporting - There were no changes in the Company’s internal control over financial reporting during the third quarter of 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are subject to various legal actions arising in the ordinary course of our business, including claims for damages for personal injuries.  In our opinion, after discussion with legal counsel, the ultimate resolution of any of these pending ordinary course claims and legal proceedings will not have a material effect on our financial position or results of operations.  Refer to our Form 10-K for the year ended December 30, 2016 in Part I, Item 3. Legal Proceedings.

ITEM 1A. RISK FACTORS

Information regarding risk factors appears in our Form 10-K for the year ended December 30, 2016, under the heading “Special Caution Regarding Forward – Looking Statements” and in the Form 10-K Part I, Item 1A. Risk Factors.  There have been no material changes from the risk factors disclosed in our Form 10-K.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

31.1

Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 

31.2

Certifications of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 

32.1

Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 

32.2

Certifications of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 

101

Financial statements from the quarterly report on Form 10-Q of Almost Family, Inc. for the quarter ended September 29, 2017, filed on November 8, 2017, formatted in XBRL:  (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Cash Flows, and (iv) the Notes to Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ALMOST FAMILY, INC.
Date  November 8, 2017	By:	/s/ William B. Yarmuth William B. Yarmuth
		Chairman of the Board and Chief Executive Officer

By:	/s/ C. Steven Guenthner
	C. Steven Guenthner
	President and
	Principal Financial Officer

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