Addus HomeCare Corp 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2022. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our assessment under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2022. Under SEC Staff guidance, companies are permitted to exclude acquisitions from their first assessment of internal control over financial reporting which covers the period in which such acquisition was completed. We excluded JourneyCare Inc. (“JourneyCare”) and Apple Home HealthCare, LTD (“Apple Home”) each of which are wholly-owned subsidiaries, from our assessment of internal 52 Table of Contents control over financial reporting as of December 31, 2022 because they were acquired in purchase business combinations on February 1, 2022 and October 1, 2022, respectively. • JourneyCare represented 5% of our revenues and 11% of our operating income, respectively, for the year ended December 31, 2022. • Apple Home represented 0.24% of our revenues and 0.24% of our operating income, respectively, for the year ended December 31, 2022. The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report which appears within Part IV, Item 15—“Exhibits and Financial Statement Schedules.”. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION Not applicable. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 53 Table of Contents PART III Certain information required by Part III is omitted from this Annual Report on Form 10-K as we intend to file our definitive Proxy Statement for the 2022 Annual Meeting of Stockholders pursuant to Regulation 14A of the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report, and certain information included in the Proxy Statement is incorporated herein by reference. ITEM 10. DIRECTORS, EXECUTIVE OF FICERS AND CORPORATE GOVERNANCE The information required by this item is incorporated by reference to the 2023 Proxy Statement to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2022. We have adopted a Code of Business Conduct and Ethics (“Code of Conduct”) that is applicable to all of our employees, officers and members of our Board of Directors, and our subsidiaries. The Code of Conduct addresses, among other things, legal compliance, conflicts of interest, corporate opportunities, protection and proper use of Company assets, confidential and proprietary information, integrity of records, compliance with accounting principles and relations with government agencies. A copy of the current version of our Code of Conduct is available in the Investors—Corporate Governance section of our internet website located at www.addus.com. A copy of the Code of Conduct is also available in print, free of charge, to any stockholder who requests it by writing to Addus HomeCare Corporation, 6303 Cowboys Way, Suite 600, Frisco, TX 75034. We intend to post amendments to or waivers from, if any, our Code of Conduct at this location on our website, in each case to the extent such amendment or waiver would otherwise require the filing of a Current Report on Form 8-K pursuant to Item 5.05 thereof. ITEM 11. EXECUTI VE COMPENSATION The information required by this item is incorporated by reference to the 2023 Proxy Statement to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2022. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OW NERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference to the 2023 Proxy Statement to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2022. ITEM 13. CERTAIN RELATIONSHIPS AND RELATE D TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item is incorporated by reference to the 2023 Proxy Statement to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2022. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item is incorporated by reference to the 2023 Proxy Statement to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2022. 54 Table of Contents PAR T IV ITEM 15. EXHIBITS AND FINA NCIAL STATEMENT SCHEDULES (a) (1), (2) The Financial Statements listed on the index on page F-1 following are included herein. All schedules are omitted, either because they are not applicable or because the required information is shown in the financial statements or the notes thereto. (b) Exhibits EXHIBIT INDEX Incorporated by Reference Exhibit Number Description of Document Form File No. Date Filing Exhibit Number 3.1 Amended and Restated Certificate of Incorporation of Addus HomeCare Corporation dated as of October 27, 2009. 10-Q 001-34504 11/20/2009 3.1 3.2 Amended and Restated Bylaws of Addus HomeCare Corporation, as amended by the First Amendment to Amended and Restated Bylaws . 10-Q 001-34504 05/9/2013 3.2 4.1 Form of Common Stock Certificate. S-1 333-160634 10/2/2009 4.1 4.2 Description of Securities of Addus HomeCare Corporation Registered under Section 12 of the Exchange Act. 10-K 001-34504 8/10/2020 4.2 10.1* Separation and General Release Agreement, dated as of September 20, 2009, between Addus HealthCare, Inc. and W. Andrew Wright, III. S-1 333-160634 9/21/2009 10.1(b) 10.2* Addus HealthCare, Inc. Home Health and Home Care Division Vice President and Regional Director Bonus Plan. S-1 333-160634 7/17/2009 10.10 10.3* Addus HealthCare, Inc. Support Center Vice President and Department Director Bonus Plan. S-1 333-160634 7/17/2009 10.11 10.4* Addus Holding Corporation 2006 Stock Incentive Plan. S-1 333-160634 7/17/2009 10.12 10.5* Director Form of Non-Qualified Stock Option Certificate under the 2006 Stock Incentive Plan. S-1 333-160634 7/17/2009 10.13 10.6* Executive Form of Non-Qualified Stock Option Certificate under the 2006 Stock Incentive Plan. S-1 333-160634 7/17/2009 10.14 10.7 2009 Form of Indemnification Agreement. S-1 333-160634 7/17/2009 10.16 10.8 License Agreement for Horizon Homecare Software, dated March 24, 2006, between McKesson Information Solutions, LLC and Addus HealthCare, Inc. S-1 333-160634 8/26/2009 10.17 10.9 Contract Supplement to License Agreement No. C0608555, dated March 24, 2006. S-1 333-160634 8/26/2009 10.17(a) 10.10 Contract Supplement to License Agreement No. 00608555, dated March 28, 2006. S-1 333-160634 8/26/2009 10.17(b) 10.11 Amendment to License Agreement No. C0608555, dated March 28, 2006, between McKesson Information Solutions LLC and Addus HealthCare, Inc. S-1 333-160634 8/26/2009 10.17(c) 10.12* Form of Addus HomeCare Corporation 2009 Stock Incentive Plan. S-1 333-160634 9/21/2009 10.20 10.13* Form of Nonqualified Stock Option Award Agreement pursuant to the 2009 Stock Incentive Plan. S-1 333-160634 9/21/2009 10.20(a) 55 Table of Contents 10.14* Form of Restricted Stock Award Agreement pursuant to the 2009 Stock Incentive Plan. S-1 333-160634 9/21/2009 10.20(b) 10.15* The Executive Nonqualified “Excess” Plan Adoption Agreement, by Addus HealthCare, Inc., dated April 1, 2012. 8-K 001-34504 4/5/2012 99.1 10.16* The Executive Nonqualified Excess Plan Document. 8-K 001-34504 4/5/2012 99.2 10.17 Asset Purchase Agreement, dated as of February 7, 2013, by and among Addus HealthCare, Inc., its subsidiaries identified therein, LHC Group, Inc. and its subsidiaries identified therein. 8-K 001-34504 3/6/2013 99.1 10.18* Employment and Non-Competition Agreement, effective December 15, 2014, by and between Addus HealthCare, Inc. and Maxine Hochhauser. 8-K 001-34504 12/15/2014 99.1 10.19 Securities Purchase Agreement, dated as of April 24, 2015, by and among Addus HealthCare, Inc., Margaret Coffey, Carol Kolar, South Shore Home Health Service, Inc. and Acaring Home Care, LLC. 10-Q 001-34504 5/8/2015 10.1 10.20* Separation Agreement and General Release, dated as of March 18, 2016, by and between Addus HealthCare, Inc. and Inna Berkovich. 8-K 001-34504 03/23/2016 10.1 10.21* Separation Agreement and General Release, effective May 25, 2016, by and between Addus HealthCare, Inc. and Donald Klink. 8-K 001-34504 5/27/2016 99.1 10.22* Separation Agreement and General Release, dated as of March 1, 2016, by and between Addus HomeCare Corporation and Mark S. Heaney. 8-K 001-34504 3/2/2016 99.2 10.23* Severance Agreement and General Release, dated as of February 13, 2017, by and between Addus HomeCare Corporation and Maxine Hochhauser. 8-K 001-34504 1/18/2017 10.1 10.24 Credit Agreement, dated as of May 8, 2017, by and among Addus Healthcare, Inc., as the Borrower, the other parties from time to time a party thereto, and Capital One, National Association, as a Lender and Swing Lender and as Agent for all Lenders, Suntrust Bank, as Documentation Agent, Bank of the West, Compass Bank, Fifth Third Bank and JPMorgan Chase Bank, N.A., as Co-Syndication Agents, the other financial institutions party thereto, as Lenders, Capital One, National Association, Bank of the West, Compass Bank, Fifth Third Bank and JPMorgan Chase Bank, N.A. and Suntrust Robinson Humphrey as Joint Lead Arrangers and Capital One, National Association, as Sole Bookrunner. 10-Q 001-34504 5/9/2017 10.3 10.25* Addus HomeCare Corporation’s 2017 Omnibus Incentive Plan, effective as of April 27, 2017. 8-K 001-34504 6/16/2017 10.1 10.26* Form of Nonqualified Stock Option Award Agreement pursuant to the 2017 Omnibus Incentive Plan. 10-K 001-34504 3/14/2018 10.28 10.27* Form of Restricted Stock Award Agreement pursuant to the 2017 Omnibus Incentive Plan. 10-K 001-34504 3/14/2018 10.29 10.28* Amended and Restated Employment and Non-Competition Agreement, dated April 25, 2017, by and between Addus HealthCare, Inc. and Brenda Belger. 10-Q 001-34504 8/8/2017 10.7 10.29 * Transition Agreement and Release, effective as of August 14, 2017, by and between Addus HealthCare, Inc. and Brenda Belger. 8-K 001-34504 7/31/2017 10.1 10.30 Stock Purchase Agreement, dated February 27, 2018, by and among Addus Healthcare, Inc., Michael J. Merrell and Mary E. Merrell, 8-K 001-34504 3/5/2018 10.1 56 Table of Contents individually, Michael J. Merrell and Mary E. Merrell, as Trustees of the Merrell Revocable Trust UTA dated June 3, 2012, and Michael J. Merrell and Mary E. Merrell, as Trustees of the Ambercare Corporation Employee Stock Ownership Plan Trust. 10.31 Amended and Restated Credit Agreement by and among Addus HealthCare, Inc., as borrower, the Company, the other Credit Parties party thereto, the Lenders and L/C Issuers party thereto, and Capital One, National Association, as administrative agent. 10-Q 001-34504 8/11/2018 10.2 10.32* Second Amended and Restated Employment and Non-Competition Agreement, dated November 5, 2018, by and between Addus HealthCare, Inc. and R. Dirk Allison. 10-Q 001-34504 8/11/2018 10.3 10.33* Second Amended and Restated Employment and Non-Competition Agreement, dated November 5, 2018, by and between Addus HealthCare, Inc. and Brian Poff. 10-Q 001-34504 8/11/2018 10.4 10.34* Second Amended and Restated Employment and Non-Competition Agreement, dated November 5, 2018, by and between Addus HealthCare, Inc. and James Zoccoli. 10-Q 001-34504 8/11/2018 10.5 10.35* Second Amended and Restated Employment and Non-Competition Agreement, dated November 5, 2018, by and between Addus HealthCare, Inc. and Darby Anderson. 10-Q 001-34504 8/11/2018 10.6 10.36* Second Amended and Restated Employment and Non-Competition Agreement, dated November 5, 2018, by and between Addus HealthCare, Inc. and W. Bradley Bickham. 10-Q 001-34504 8/11/2018 10.7 10.37* Amended and Restated Employment and Non-Competition Agreement, dated November 5, 2018, by and between Addus HealthCare, Inc. and Laurie Manning. 10-Q 001-34504 8/11/2018 10.8 10.38 Amended and Restated Credit Agreement, dated as of October 31, 2018, by and among Addus HealthCare, Inc., as borrower, the Company, the other Credit Parties party thereto, the Lenders and L/C Issuers party thereto, and Capital One, National Association, as administrative agent. 10-Q 001-34504 11/8/2018 10.2 10.39* Employment and Non-Competition Agreement, effective April 29, 2019, by and between Addus HealthCare, Inc. and Sean Gaffney. 8-K 001-34504 4/8/2019 99.2 10.40* Employment and Non-Competition Agreement, effective November 7, 2019, by and between Addus HealthCare, Inc. and David Tucker. 10-K 001-34504 8/10/2020 10.40 10.41* Employment and Non-Competition Agreement, effective November 7, 2019, by and between Addus HealthCare, Inc. and Mike Wattenbarger. 10-K 001-34504 8/10/2020 10.41 10.42* Transition Agreement and Release, effective as of July 31, 2019, by and between Addus HealthCare, Inc. and James “Zeke” Zoccoli. 8-K 001-34504 7/24/2019 10.1 10.43 Equity Purchase Agreement, dated August 25, 2019, by and among Addus Healthcare, Inc., Hospice Partners of America, LLC, New Capital Partners II – HS, Inc., Senior Care Services, LLC, Eastside Partners II, L.P., and New Capital Partners II, LLC. S-3ASR 333-233600 9/3/2019 2.1 10.44 First Amendment to Amended and Restated Credit Agreement, dated as of September 12, 2019, by and among Addus HealthCare, Inc., as the Borrower, Addus HomeCare Corporation, other Credit Parties party thereto, Capital One, National Association, as administrative agent and as a Lender, and the other Lenders party thereto. 10-Q 001-34504 9/13/2019 10.1 57 Table of Contents 10.45 Unit Purchase Agreement, dated November 10, 2020, by and among Addus Healthcare, Inc., Queen City Hospice, LLC, Miracle City Hospice, LLC, and QCH Holdings LLC. 10-K 001-34504 3/1/2021 10.45 10.46 Amendment to Unit Purchase Agreement, dated December 3, 2020, by and among Addus Healthcare, Inc., Queen City Hospice, LLC, Miracle City Hospice, LLC, and QCH Holdings LLC. 10-K 001-34504 3/1/2021 10.46 10.47* Transition Agreement and Release, effective June 11, 2021, by and among Addus HealthCare, Inc. and Laurie Manning. 10-Q 001-34504 8/4/2021 10.1 10.48* Employment and Non-Competition Agreement, effective June 14, 2021, by and between Addus HealthCare, Inc. and Roberton James Stevenson. 10-Q 001-34504 8/4/2021 10.2 10.49** Second Amendment to Amended and Restated Credit Agreement, dated as of July 30, 2021, by and among Addus HealthCare, Inc., as the Borrower, Addus HomeCare Corporation, the other Credit Parties party thereto, Capital One, National Association, as administrative agent and as a Lender, and the other Lenders party thereto. 8-K 001-34504 8/4/2021 10.1 10.50* 2022 Form of Indemnification Agreement. 10-K 001-34504 2/25/2022 10.50 21.1 Subsidiaries of Addus HomeCare Corporation. 23.1 Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. 31.1 Certification of Chief Executive Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification 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 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Calculation Linkbase Document. 101.LAB Inline XBRL Taxonomy Label Linkbase Document. 101.PRE Inline XBRL Presentation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 104 Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101). * Management compensatory plan or arrangement ** Schedules and exhibits have been omitted pursuant to Item 601 of Regulation S-K. The Company hereby undertakes to furnish supplementally a copy of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission. 58 Table of Contents ITEM 16. FORM 10-K SUMMARY None. 59 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Addus HomeCare Corporation By: /s/ R. DIRK ALLISON R. Dirk Allison, Chief Executive Officer and Chairman of the Board Date: February 28, 2023 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated: Signature Title Date /s/ R. DIRK ALLISON R. Dirk Allison Chief Executive Officer and Chairman of the Board (Principal Executive Officer) February 28, 2023 /s/ BRIAN POFF Brian Poff Chief Financial Officer (Principal Financial and Accounting Officer) February 28, 2023 /s/ MICHAEL EARLEY Michael Earley Director February 28, 2023 /s/ MARK L. FIRST Mark L. First Director February 28, 2023 /s/ DARIN J. GORDON Darin J. Gordon Director February 28, 2023 /s/ ESTEBAN LÓPEZ, M.D. Esteban López, M.D. Director February 28, 2023 /s/ VERONICA HILL-MILBOURNE Director February 28, 2023 Veronica Hill-Milbourne /s/ JEAN RUSH Director February 28, 2023 Jean Rush /s/ SUSAN T. WEAVER, M.D., FACP Susan T. Weaver, M.D., FACP Director February 28, 2023 60 Table of Contents INDEX TO CONSOLIDATED FINANCIAL INFORMATION Page Report of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets F- 4 Consolidated Statements of Income F- 5 Consolidated Statements of Stockholders’ Equity F- 6 Consolidated Statements of Cash Flows F- 7 Notes to Consolidated Financial Statements F- 8 All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. F- 1 Table of Contents Report of Independent Regist ered Public Accounting Firm To the Board of Directors and Stockholders of Addus HomeCare Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Addus HomeCare Corporation and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. As described in Management’s Annual Report on Internal Control Over Financial Reporting, management has excluded JourneyCare Inc. (“JourneyCare”) and Apple Home HealthCare, LTD (“Apple Home”) from its assessment of internal control over financial reporting as of December 31, 2022, because they were acquired by the Company in purchase business combinations during 2022. We have also excluded JourneyCare and Apple Home from our audit of internal control over financial reporting. JourneyCare and Apple Home are wholly-owned subsidiaries whose total revenues and total operating income excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 5% and 0.24% of total revenues, respectively, and approximately 11% and 0.24% of total operating income, respectively, of the related consolidated financial statement amounts for the year ended December 31, 2022. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the F- 2 Table of Contents maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Accounts Receivable, Net of Allowances for Implicit Price Concessions As described in Note 1 to the consolidated financial statements, net service revenue is recognized at the amount that reflects the consideration the Company expects to receive in exchange for providing services directly to consumers. Amounts collected may be less than amounts billed due to implicit price concessions, resulting from client eligibility issues, insufficient or incomplete documentation, services at levels other than authorized, pricing differences and other reasons unrelated to credit risk. Management estimates the value of accounts receivable, net of allowances for implicit price concessions, based upon historical experience and other factors, including an aging of accounts receivable, evaluation of expected adjustments, past adjustments and collection experience in relation to amounts billed, current contract and reimbursement terms, shifts in payors and other relevant information. The evaluation of these historical and other factors involves complex, subjective judgments. Accounts receivable, net of allowances for implicit price concessions (before the allowance for doubtful accounts), were $127.1 million as of December 31, 2022. The principal considerations for our determination that performing procedures relating to the valuation of accounts receivable, net of allowances for implicit price concessions is a critical audit matter are (i) the significant judgment by management when developing the estimate of the valuation of accounts receivable, net of allowances for implicit price concessions and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the audit evidence obtained related to the estimate. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s estimate of the valuation of accounts receivable, net of implicit price concessions, including controls over the allowance for implicit price concessions. These procedures also included, among others (i) testing management’s process for developing the estimate of accounts receivable, net of allowances for implicit price concessions, (ii) evaluating the relevance and use of historical experience data as an input into the estimate, (iii) testing the completeness and accuracy of underlying historical collection data used in the estimate, (iv) testing, on a sample basis, the accuracy of revenue transactions and cash collections from the billing and collection data used in management’s estimate, (v) evaluating the historical accuracy of management’s estimate of the amount expected to be collected by comparing actual cash collections to the related accounts receivable, and (vi) performing a retrospective comparison of actual cash collected subsequent to year-end to evaluate the reasonableness of the prior year estimate. /s/ PricewaterhouseCoopers LLP Dallas, Texas February 28, 2023 We have served as the Company’s auditor since 2019. F- 3 Table of Contents ADDUS HOMECARE CORPORATION AND SUBSIDIARIES CONSOLIDATED B ALANCE SHEETS As of December 31, 2022 and 2021 (amounts and shares in thousands, except per share data) 2022 2021 Assets Current assets Cash $ 79,961 $ 168,895 Accounts receivable, net of allowances 125,501 136,955 Prepaid expenses and other current assets 17,345 18,491 Total current assets 222,807 324,341 Property and equipment, net of accumulated depreciation and amortization 21,182 18,483 Other assets Goodwill 582,837 504,392 Intangibles, net of accumulated amortization 72,188 64,321 Operating lease assets, net 38,980 36,048 Total other assets 694,005 604,761 Total assets $ 937,994 $ 947,585 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 22,092 $ 19,358 Accrued payroll 44,937 44,083 Accrued expenses 38,308 37,077 Government stimulus advances 12,912 4,173 Accrued workers’ compensation insurance 12,897 12,998 Total current liabilities 131,146 117,689 Long-term liabilities Long-term debt, less current portion, net of debt issuance costs 131,772 220,912 Long-term operating lease liabilities 35,479 32,859 Other long-term liabilities 6,057 1,781 Total long-term liabilities 173,308 255,552 Total liabilities $ 304,454 $ 373,241 Stockholders’ equity Common stock— $.001 par value; 40,000 authorized and 16,128 and 15,940 shares issued and outstanding as of December 31, 2022 and 2021, respectively $ 16 $ 16 Additional paid-in capital 393,208 380,037 Retained earnings 240,316 194,291 Total stockholders’ equity 633,540 574,344 Total liabilities and stockholders’ equity $ 937,994 $ 947,585 See accompanying Notes to Consolidated Financial Statements F- 4 Table of Contents ADDUS HOMECARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STAT EMENTS OF INCOME For the years ended December 31, 2022, 2021 and 2020 (amounts and shares in thousands, except per share data) For the Years Ended December 31, 2022 2021 2020 Net service revenues $ 951,120 $ 864,499 $ 764,775 Cost of service revenues 651,381 594,651 538,538 Gross profit 299,739 269,848 226,237 General and administrative expenses 216,942 189,418 169,679 Depreciation and amortization 14,060 14,494 12,051 Total operating expenses 231,002 203,912 181,730 Operating income 68,737 65,936 44,507 Interest income ( 341 ) ( 268 ) ( 624 ) Interest expense 8,907 5,806 3,189 Total interest expense, net 8,566 5,538 2,565 Income before income taxes 60,171 60,398 41,942 Income tax expense 14,146 15,272 8,809 Net income $ 46,025 $ 45,126 $ 33,133 Basic income per share $ 2.90 $ 2.87 $ 2.12 Diluted income per share $ 2.84 $ 2.81 $ 2.08 Weighted average number of common shares and potential common shares outstanding: Basic 15,861 15,737 15,596 Diluted 16,181 16,064 15,956 See accompanying Notes to Consolidated Financial Statements F- 5 Table of Contents ADDUS HOMECARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the years ended December 31, 2022, 2021 and 2020 (amounts and shares in thousands) Common Stock Additional Paid in Capital Retained Earnings Total Stockholders’ Equity Shares Amount Balance at January 1, 2020 15,617 15 359,545 116,032 475,592 Issuance of shares of common stock under restricted stock award agreements 88 - - - - Forfeiture of shares of common stock under restricted stock award agreements ( 6 ) - - - - Stock-based compensation - - 6,005 - 6,005 Shares issued for exercise of stock options 127 1 3,945 - 3,946 Net income - - - 33,133 33,133 Balance at December 31, 2020 15,826 $ 16 $ 369,495 $ 149,165 $ 518,676 Issuance of shares of common stock under restricted stock award agreements 89 - - - - Forfeiture of shares of common stock under restricted stock award agreements ( 7 ) - - - - Stock-based compensation - - 9,434 - 9,434 Shares issued for exercise of stock options 32 - 1,108 - 1,108 Net income - - - 45,126 45,126 Balance at December 31, 2021 15,940 $ 16 $ 380,037 $ 194,291 $ 574,344 Issuance of shares of common stock under restricted stock award agreements 129 — — — — Forfeiture of shares of common stock under restricted stock award agreements ( 4 ) — — — — Stock-based compensation — — 10,625 — 10,625 Shares issued for exercise of stock options 63 — 2,546 — 2,546 Net income — — — 46,025 46,025 Balance at December 31, 2022 16,128 $ 16 $ 393,208 $ 240,316 $ 633,540 See accompanying Notes to Consolidated Financial Statements F- 6 Table of Contents ADDUS HOMECARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEM ENTS OF CASH FLOWS For the years ended December 31, 2022, 2021 and 2020 (amounts in thousands) For the Years Ended December 31, 2022 2021 2020 Cash flows from operating activities: Net income $ 46,025 $ 45,126 $ 33,133 Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitions: Depreciation and amortization 14,060 14,494 12,051 Deferred income taxes 3,908 7,282 ( 4,652 ) Stock-based compensation 10,625 9,434 6,005 Amortization of debt issuance costs under the credit facility 860 804 737 Provision for credit losses 678 962 918 Impairment of assets 1,174 — 1,256 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 20,592 ( 3,916 ) 23,860 Prepaid expenses and other current assets 1,471 ( 8,599 ) ( 1,973 ) Government stimulus advances 8,739 ( 27,914 ) 19,393 Accounts payable 2,514 ( 4,810 ) 2,159 Accrued payroll ( 918 ) 7,888 5,228 Accrued expenses and other liabilities ( 4,618 ) ( 1,263 ) 11,296 Net cash provided by operating activities 105,110 39,488 109,411 Cash flows from investing activities: Business acquisition, net of cash acquired ( 98,290 ) ( 37,370 ) ( 207,660 ) Proceeds on disposal of businesses — — 255 Purchases of property and equipment ( 8,300 ) ( 4,645 ) ( 6,831 ) Net cash used in investing activities ( 106,590 ) ( 42,015 ) ( 214,236 ) Cash flows from financing activities: Proceeds from issuance of common stock, net of issuance costs — — — Borrowings on revolver — credit facility 47,000 46,395 135,000 Payments on revolver — credit facility ( 137,000 ) — — Payments on term loan — credit facility — ( 18,130 ) ( 735 ) Payments on financing lease obligations — — ( 22 ) Payments for debt issuance costs under the credit facility — ( 3,029 ) — Cash received from exercise of stock options 2,546 1,108 3,946 Net cash (used in) provided by financing activities ( 87,454 ) 26,344 138,189 Net change in cash ( 88,934 ) 23,817 33,364 Cash, at beginning of period 168,895 145,078 111,714 Cash, at end of period $ 79,961 $ 168,895 $ 145,078 Supplemental disclosures of cash flow information: Cash paid for interest $ 7,985 $ 5,094 $ 2,365 Cash paid for income taxes 1,483 17,820 10,590 Supplemental disclosures of non-cash investing and financing activities Leasehold improvements acquired through tenant allowances 295 — 5,161 Licensing fees included in Fixed assets 4,000 — — Tax benefit related to the amortization of tax goodwill in excess of book basis — 61 225 See accompanying Notes to Consolidated Financial Statements F- 7 Table of Contents ADDUS HOMECARE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. Significant Accounting Policies Basis of Presentation and Description of Business The Consolidated Financial Statements include the accounts of Addus HomeCare Corporation (“Holdings”) and its subsidiaries (together with Holdings, the “Company,” “we,” “us,” or “our”). The Company operates as a multi-state provider of three distinct but related business segments providing in-home services. In its personal care services segment, the Company provides non-medical assistance with activities of daily living, primarily to persons who are at increased risk of hospitalization or institutionalization, such as the elderly, chronically ill or disabled. In its hospice segment, the Company provides physical, emotional and spiritual care for people who are terminally ill as well as related services for their families. In its home health segment, the Company provides services that are primarily medical in nature to individuals who may require assistance during an illness or after hospitalization and include skilled nursing and physical, occupational and speech therapy. The Company’s payor clients include federal, state and local governmental agencies, managed care organizations, commercial insurers and private individuals. Principles of Consolidation All intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition Net service revenue is recognized at the amount that reflects the consideration the Company expects to receive in exchange for providing services directly to consumers. Receipts are from federal, state and local governmental agencies, managed care organizations, commercial insurers and private consumers for services rendered. The Company assesses the consumers’ ability to pay at the time of their admission based on the Company’s verification of the customer’s insurance coverage under the Medicare, Medicaid, and other commercial or managed care insurance programs. Laws and regulations governing the governmental programs in which the Company participates are complex and subject to interpretation. Net service revenues related to uninsured accounts, or self-pay, is recorded net of implicit price concessions estimated based on historical collection experience to reduce revenue to the estimated amount the Company expects to collect. Amounts collected from all sources may be less than amounts billed due to implicit price concessions, resulting from client eligibility issues, insufficient or incomplete documentation, services at levels other than authorized, pricing differences and other reasons unrelated to credit risk. The Company monitors our net service revenues and collections from these sources and records any necessary adjustment to net service revenues based upon management’s assessment of historical write offs and expected net collections, business and economic conditions, trends in federal, state and private employer healthcare coverage and other collection indicators. The initial estimate of net service revenues is determined by reducing the standard charge by any contractual adjustments, discounts and implicit price concessions. Subsequent changes to the estimate of net service revenues are generally recorded in the period of the change. Changes in estimates of implicit price concessions, discounts and contractual adjustments recognized during the year ended December 31, 2022 for performance obligations satisfied in years prior to 2022 resulted in an increase to net service revenue of approximately $ 8.8 million. Changes in estimates of implicit price concessions, discounts and contractual adjustments recognized during the year ended December 31, 2021 for performance obligations satisfied in years prior to 2021 resulted in an increase to net service revenue of approximately $ 5.7 million. Subsequent changes that are determined to be the result of an adverse change in the patient’s ability to pay are recorded as bad debt expense. Personal Care The majority of the Company’s net service revenues are generated from providing personal care services directly to consumers under contracts with state, local and other governmental agencies, managed care organizations, commercial insurers and private consumers. Generally, these contracts, which are negotiated based on current contracting practices as appropriate for the payor, establish the terms of a customer relationship and set the broad range of terms for services to be performed at a stated rate. However, the contracts do not give rise to rights and obligations until an order is placed with the Company. When an order is placed, it creates the performance obligation to provide a defined quantity of service hours, or authorized hours, per consumer. The Company satisfies its performance obligations over time, given that consumers simultaneously receive and consume the benefits provided by the Company as the services are performed. As the Company has a right to consideration from customers commensurate with the value provided to customers from the performance completed over a given invoice period, the Company has elected to use the practical expedient for measuring progress toward satisfaction of performance obligations and recognizes patient service revenue in the amount to which the Company has a right to invoice. F- 8 Table of Contents Hospice Revenue The Company generates net service revenues from providing hospice services to consumers who are terminally ill as well as related services for their families. Net service revenues are recognized as services are provided and costs for delivery of such services are incurred. The estimated payment rates are daily rates for each of the levels of care the Company delivers. Hospice companies are subject to two specific payment limit caps under the Medicare program each federal fiscal year, the inpatient cap and the aggregate cap. The inpatient cap limits the number of inpatient care days provided to no more than 20% of the total days of hospice care provided to Medicare patients for the year. If a hospice exceeds the number of allowable inpatient care days, the hospice must refund any amounts received for inpatient care that exceed the total of: (i) the product of the total reimbursement paid to the hospice for inpatient care multiplied by the ratio of the maximum number of allowable inpatient days to the actual number of inpatient care days furnished by the hospice to Medicare patients; and (ii) the product of the number of actual inpatient days in excess of the limitation multiplied by the routine home care rate. The aggregate cap, which is calculated each federal fiscal year, limits the amount of Medicare reimbursement a hospice may receive, based on the number of Medicare patients served. If a hospice’s Medicare payments exceed its aggregate cap, it must repay Medicare for the excess amount. In federal fiscal year 2023, the aggregate cap is $ 32,486.92 . For the years ended December 31, 2022 and 2021, the Company recorded a liability of $ 0.9 million and $ 0.3 million, respectively, related to the Medicare aggregate cap limit. Home Health Revenue The Company also generates net service revenues from providing home healthcare services directly to consumers mainly under contracts with Medicare and managed care organizations. Generally, these contracts, which are negotiated based on current contracting practices as appropriate for the payor, establish the terms of a relationship and set the broad range of terms for services to be performed on an episodic basis at a stated rate. Home health Medicare services were paid under the Medicare Home Health Prospective Payment System (“HHPPS”), for the years ended December 31, 2022 and 2021, which are based on 30-day periods of care as a unit of service. The HHPPS permits multiple, continuous periods per patient. Medicare payment rates for periods under HHPPS are determined through use of a case-mix classification system, the Patient-Driven Groupings Model (“PDGM”), which assigns patients to resource groups based on a patient’s clinical characteristics. The Company elects to use the same 30-day periods that Medicare recognizes as standard but accelerates revenue upon discharge to align with a patient’s episode length if less than the expected 30 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 revenue based on the number of days elapsed during a period of care within the reporting period. The Company satisfies its performance obligations as consumers receive and consume the benefits provided by the Company as the services are performed. As the Company has a right to consideration from Medicare commensurate with the services provided to customers from the performance completed over a given episodic period, the Company has elected to use the practical expedient for measuring progress toward satisfaction of performance obligations. Under this method recognizing revenue ratably over the episode based on beginning and ending dates is a reasonable proxy for the transfer of benefit of the service. Accounts Receivable and Allowances Accounts receivable is reduced to the amount expected to be collected in future periods for services rendered to customers prior to the balance sheet date. Management estimates the value of accounts receivable, net of allowances for implicit price concessions, based upon historical experience and other factors, including an aging of accounts receivable, evaluation of expected adjustments, past adjustments and collection experience in relation to amounts billed, current contract and reimbursement terms, shifts in payors and other relevant information. Collection of net service revenues the Company expects to receive is normally a function of providing complete and correct billing information to the payors within the various filing deadlines. The evaluation of these historical and other factors involves complex, subjective judgments impacting the determination of the implicit price concession assumption. In addition, the Company compares its cash collections to recorded net service revenues and evaluates its historical allowance, including implicit price concessions, based upon the ultimate resolution of the accounts receivable balance. Subsequent adjustments to accounts receivable determined to be the result of an adverse change in the payor’s ability to pay are recognized as provision for credit losses. The majority of what historically was classified as provision for credit losses under operating expenses is now treated as an implicit price concession factored into the determination of net service revenues discussed above. Our collection procedures include review of account aging and direct contact with our payors. We have historically not used collection agencies. An uncollectible amount is written off to the allowance account after reasonable collection efforts have been exhausted. As of December 31, 2022 and 2021, the allowance for credit losses balance was $ 1.6 m illion and $ 1.4 million, respectively, which is included in accounts receivable, net of allowances for credit losses on the Company’s Consolidated Balance Sheets. F- 9 Table of Contents Activity in the allowance for credit losses is as follows (in thousands): Allowance for credit losses Balance at beginning of period Additions/ charges Deductions (1) Balance at end of period Year ended December 31, 2022 Allowance for credit losses $ 1,433 678 477 $ 1,634 Year ended December 31, 2021 Allowance for credit losses $ 973 962 502 $ 1,433 Year ended December 31, 2020 Allowance for credit losses $ 962 918 907 $ 973 (1) Write-offs, net of recoveries Property and Equipment Property and equipment are recorded at cost and depreciated over the estimated useful lives of the related assets by use of the straight-line method. Maintenance and repairs are charged to expense as incurred. The estimated useful lives of the property and equipment are as follows: Computer equipment 3 - 5 years Furniture and equipment 5 - 7 years Transportation equipment 5 years Computer software 3 - 10 years Leasehold improvements Lesser of useful life or lease term Leases The Company recognizes a lease liability and a right-of-use (“ROU”) asset for all leases, including operating leases, with a term greater than twelve months on the balance sheet. We have historically entered into operating leases for local branches, our corporate headquarters and certain equipment. The Company’s current leases have expiration dates through 2031. Certain of our arrangements have free rent periods and/or escalating rent payment provisions. We recognize rent expense on a straight-line basis over the lease term. Certain of the Company’s leases include termination options and renewal options for periods ranging from one to five years . Renewal options generally are not considered in determining the lease term, and payments associated with the option years are excluded from lease payments unless we are reasonably certain to exercise the renewal option. The operating lease liabilities are calculated using the present value of lease payments. If available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement. Operating lease assets are valued based on the initial operating lease liabilities plus any prepaid rent, reduced by tenant improvement allowances. Operating lease assets are tested for impairment in the same manner as our long-lived assets. For the year ended December 31, 2022, the Company recorded $ 1.2 million in impairment charges on operating lease assets, included within general and administrative expenses, and no material impairment charges for the year ended December 31, 2021. For the year ended December 31, 2020, the Company sublet certain support center office space and incurred an impairment charge of approximately $ 1.0 million in operating lease assets, included within general and administrative expenses. See Note 2 for additional information related to leases. Goodwill and Intangible Assets Under business combination accounting, assets and liabilities are generally recognized at their fair values and the difference between the consideration transferred, excluding transaction costs, and the fair values of the assets and liabilities is recognized as goodwill. The Company’s significant identifiable intangible assets consist of customer and referral relationships, trade names and trademarks and state licenses. The Company uses various valuation techniques to determine initial fair value of its intangible assets, including relief-from-royalty, income approach, discounted cash flow analysis, and multi-period excess earnings, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Under these valuation approaches, we are required to make estimates and assumptions about future market growth and trends, forecasted revenue and costs, expected periods over which the assets will be utilized, appropriate discount rates and other variables. The Company estimates the fair values of the F- 10 Table of Contents trade names using the relief-from-royalty method, which requires assumptions such as the long-term growth rates of future revenues, the relief from royalty rate for such revenue, the tax rate and the discount rate. The Company estimates the fair value of existing indefinite-lived state licenses based on a blended approach of the replacement cost method and cost savings method, which involves estimating the total process costs and opportunity costs to obtain a license, by estimating future earnings before interest and taxes and applying an estimated discount rate, tax rate and time to obtain the license. The Company estimates the fair value of existing finite-lived state licenses based on a method of analyzing the definite revenue streams with the license and without the license, which involves estimating revenues and expenses, estimated time to build up to a current revenue base, which is market specific, and the non-licensed revenue allocation, revenue growth rates, discount rate and tax amortization benefits. The Company estimates the fair value of customer and referral relationships based on a multi-period excess earnings method, which involves identifying revenue streams associated with the assets, estimating the attrition rates based upon historical financial data, expenses and cash flows associated with the assets, contributory asset charges, rates of return for specific assets, growth rates, discount rate and tax amortization benefits. The Company estimates the fair value of non-competition agreements based on a method of analyzing the factors to compete and factors not to compete, which involves estimating historical financial data, forecasted financial statements, growth rates, tax amortization benefit, discount rate, review of factors to compete and factors not to compete as well as an assessment of the probability of successful competition for each non-competition agreement. As of December 31, 2022 and 2021, goodwill was $ 582.8 million and $ 504.4 million, respectively, included on the Company’s Consolidated Balance Sheets. The Company’s carrying value of goodwill is the excess of the purchase price over the fair value of the net assets acquired from various acquisitions. In accordance with Accounting Standards Codification (“ASC”) Topic 350, Goodwill and Other Intangible Assets , goodwill and intangible assets with indefinite useful lives are not amortized. The Company tests goodwill for impairment at the reporting unit level on an annual basis, as of October 1, or whenever potential impairment triggers occur, such as a significant change in business climate or regulatory changes that would indicate that an impairment may have occurred. The Company may elect to use a qualitative test to determine whether impairment has occurred, focused on various factors including macroeconomic conditions, market trends, specific reporting unit financial performance and other entity specific events, to determine if it is more likely than not that the fair value of a reporting unit exceeds its carrying value, including goodwill. The Company may also bypass the qualitative assessment and perform a quantitative test. Additionally, it is the Company’s policy to update the fair value calculation of our reporting units and perform the quantitative goodwill impairment test on a periodic basis. The quantitative goodwill impairment test involves comparing the fair value of a reporting unit with its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, then goodwill is not impaired. If the fair value of a reporting unit is less than its carrying value, then goodwill is impaired to the extent of the difference. For the years ended December 31, 2022, 2021 and 2020, the Company performed the quantitative analysis to evaluate whether an impairment occurred. Since quoted market prices for our reporting units are not available, the Company relies on widely accepted valuation techniques to determine fair value, including discounted cash flow and market multiple approaches, which capture both the future income potential of the reporting unit and the market behaviors and actions of market participants in the industry that includes the reporting unit. These types of models require us to make assumptions and estimates regarding future cash flows, industry-specific economic factors and the profitability of future business strategies. The discounted cash flow model uses a projection of estimated operating results and cash flows that are discounted using a weighted average cost of capital. The market multiple model estimates fair value based on market multiples of earnings before interest, taxes and depreciation and amortization. Under the discounted cash flow model, the projection uses management’s best estimates of economic and market conditions over the projected period for each reporting unit using significant assumptions such as revenue growth rates and the weighted-average cost of capital. Based on the totality of the information available, the Company concluded that it was more likely than not that the estimated fair values of our reporting units were greater than their carrying values. Consequently, the Company concluded that there were no impairments for the years ended December 31, 2022, 2021 or 2020. For the fiscal year 2022 impairment tests, the fair value of the reporting units exceeded their respective carrying values (commonly referred to as “headroom”) by at least 100 % in the personal care reporting unit, 75 % in the home health reporting unit, and 67 % in the hospice reporting unit. The Company bases its fair value estimates on assumptions management believes to be reasonable but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates. As of December 31, 2022 and 2021, intangibles, net of accumulated amortization, was $ 72.2 million and $ 64.3 million, respectively, included on the Company’s Consolidated Balance Sheets. The Company’s identifiable intangible assets consist of customer and referral relationships, trade names, trademarks, state licenses and non-competition agreements. Definite-lived intangible assets are amortized using straight-line and accelerated methods based upon the estimated useful lives of the respective assets, which range from one to twenty-five years , and assessed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Customer and referral relationships are amortized systematically over the periods of expected economic benefit, which range from five to ten years . The Company would recognize an impairment loss when the estimated future non-discounted cash flows associated with the intangible asset are less than the carrying value. An impairment charge would F- 11 Table of Contents then be recorded for the excess of the carrying value over the fair value. The Company estimates the fair value of these intangible assets using the income approach. In accordance with ASC Topic 350, Goodwill and Other Intangible Assets , intangible assets with indefinite useful lives are not amortized. We test intangible assets with indefinite useful lives for impairment at the reporting unit level on an annual basis, as of October 1, or whenever potential impairment triggers occur, such as a significant change in business climate or regulatory changes that would indicate that an impairment may have occurred. No impairment charge was recorded for the years ended December 31, 2022, 2021 or 2020 . Amortization of intangible assets is reported in the statement of income caption, “Depreciation and amortization” and not included in the income statement caption cost of service revenues. Debt Issuance Costs The Company amortizes debt issuance costs on a straight-line method over the term of the related debt. This method approximates the effective interest method. In accordance with ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs , the Company has classified the debt issuance costs as a direct deduction from the carrying amount of the related liability. Workers’ Compensation Program The Company’s workers’ compensation insurance program ha s a $ 0.4 mil lion deductible component. The Company recognizes its obligations associated with this program in the period the claim is incurred. The cost of both the claims reported and claims incurred but not reported, up to the deductible, have been accrued based on historical claims experience, industry statistics and an actuarial analysis. The future claims payments related to the workers’ compensation program are secured by letters of credit. These letters of credit tot aled $ 8.2 million at both December 31, 2022 and 2021. The Company monitors its claims quarterly and adjusts its reserves as necessary in the current period. These costs are recorded primarily as cost of services on the Consolidated Statements of Income. As of December 31, 2022 and 2021, the Company recorded $ 12.9 million and $ 13.0 million, respectively, in accrued workers’ compensation insurance on the Company’s Consolidated Balance Sheets. As of December 31, 2022 and 2021, the Company recorded $ 0.7 million and $ 1.6 million, respectively, in workers’ compensation insurance receivables. The workers’ compensation insurance receivable is included in prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets. Interest Expense Interest expense is reported in the Consolidated Statements of Income when incurred and consists of interest and unused credit line fees on the credit facility. Income Tax Expense The Company accounts for income taxes under the provisions of ASC Topic 740, Income Taxes. The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in its financial statements or tax returns. Deferred taxes, resulting from differences between the financial and tax basis of the Company’s assets and liabilities, are also adjusted for changes in tax rates and tax laws when changes are enacted. ASC Topic 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. ASC Topic 740 also prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. In addition, ASC Topic 740 provides guidance on derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. The Company recognizes interest and penalties accrued related to uncertain tax positions in interest expense and penalties within operating expenses on the Consolidated Statements of Income. Uncertain tax positions are immaterial for all periods presented. Stock-based Compensation The Company currently has one stock incentive plan, the 2017 Omnibus Incentive Plan (the “2017 Plan”), under which new grants of stock-based employee compensation are made. The Company accounts for stock-based compensation in accordance with ASC Topic 718, Stock Compensation . Compensation expense is recognized on a straight-line basis under the 2017 Plan over the vesting period of the equity awards based on the grant date fair value of the options and restricted stock awards. The Company utilizes the Black-Scholes Option Pricing Model to value the Company’s options. Forfeitures are recognized when they occur. Stock-based compensation expense was $ 10.6 million, $ 9.4 million and $ 6.0 million for the years ended December 31, 2022, 2021 and 2020 , respectively, included within general and administrative expenses on the Consolidated Statements of Income. F- 12 Table of Contents Diluted Net Income Per Common Share Diluted net income per common share, calculated on the treasury stock method, is based on the weighted average number of shares outstanding during the period. The Company’s outstanding securities that may potentially dilute the common stock are stock options and restricted stock awards. Included in the Company’s calculation of diluted earnings per share for the year ended December 31, 2022 were approximately 468,000 stock options outstanding, of which approximately 248,000 were dilutive. In addition, there were approximately 209,000 restricted stock awards outstanding, of which approximately 72,000 were dilutive for the year ended December 31, 2022. Included in the Company’s calculation of diluted earnings per share for the year ended December 31, 2021 were approximately 493,000 stock options outstanding, of which approximately 282,000 were dilutive. In addition, there were approximately 159,000 restricted stock awards outstanding, of which approximately 44,000 were dilutive for the year ended December 31, 2021. Included in the Company’s calculation of diluted earnings per share for the year ended December 31, 2020 were approximately 506,000 stock options outstanding, of which approximately 304,000 were dilutive. In addition, there were approximately 154,000 restricted stock awards outstanding, of which approximately 57,000 were dilutive for the year ended December 31, 2020 . Use of Estimates The financial statements are prepared by management in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) and include estimated amounts and certain disclosures based on assumptions about future events. The Company’s critical accounting estimates include the following areas: revenue recognition, goodwill and intangibles and business combinations and when required, the quantitative assessment of goodwill. Actual results could differ from those estimates. Fair Value Measurements The Company’s financial instruments consist of cash, accounts receivable, payables and debt. The carrying amounts reported on the Company’s Consolidated Balance Sheets for cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The carrying value of the Company’s long-term debt with variable interest rates approximates fair value based on instruments with similar terms using level 2 inputs as defined under ASC Topic 820, Fair Value Measurement . The Company applies fair value techniques on a non-recurring basis associated with valuing potential impairment losses related to goodwill, if required, and indefinite-lived intangible assets and also when determining the fair value of contingent consideration, if applicable. To determine the fair value in these situations, the Company uses Level 3 inputs, under ASC Topic 820 and defined as unobservable inputs in which little or no market data exists; therefore requiring an entity to develop its own assumptions, such as discounted cash flows, or if available, what a market participant would pay on the measurement date. The Company uses various valuation techniques to determine fair value of its intangible assets, including relief-from-royalty, income approach, discounted cash flow analysis, and multi-period excess earnings, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Under these valuation approaches, we are required to make estimates and assumptions about future market growth and trends, forecasted revenue and costs, expected periods over which the assets will be utilized, appropriate discount rates and other variables. Going Concern In connection with the preparation of the financial statements for the years ended December 31, 2022 and 2021 , the Company conducted an evaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to the entity’s ability to continue as a going concern within one year after the date of the issuance, of the financial statements. Based on the evaluation, we believe that cash flows from operations will be sufficient to meet our ongoing liquidity requirements for at least twelve months from the date of issuance. F- 13 Table of Contents Recently Adopted Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . ASU 2019-12 simplifies various aspects related to accounting for income taxes and removes certain exceptions to the general guidance in ASC 740. In addition, the ASU clarifies and amends existing guidance to improve consistent application of its requirements. The ASU was adopted as of January 1, 2021 and did no t have an impact on the Company’s results of operations or liquidity. In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance . ASU 2021-10 requires entities to disclose certain information about the nature of certain governmental assistance received, including the nature of the transaction and the related accounting policy, the financial statement line items impacted by the assistance, as well as the significant terms and conditions of the transactions. The ASU was adopted as of January 1, 2022 and did no t have a material impact on the Company’s results of operations or liquidity. Recently Issued Accounting Pronouncements In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, and other transactions subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. Therefore, it will be in effect for a limited time through December 31, 2024. The ASU can be adopted no later than December 1, 2024 with early adoption permitted. As discussed further in Note 7 and pursuant to the Second Amendment to Amended and Restated Credit Agreement, dated as of July 30, 2021, the Company’s Credit Agreement contains hardwired fallback language that contemplates a transition from LIBOR, specifically identifies the Secured Overnight Financing Rate (“SOFR”) as the replacement reference rate and details the mechanism for transition at LIBOR cessation, which is anticipated to occur on June 30, 2023. The transition to SOFR is not expected to have a material impact on the Company’s results of operations or liquidity. 2. Leases Amounts reported on the Company’s Consolidated Balance Sheets for operating leases were as follows: December 31, 2022 2021 (Amounts in Thousands) Operating lease assets, net $ 38,980 $ 36,048 Short-term operating lease liabilities (in accrued expenses ) 10,801 9,774 Long-term operating lease liabilities 35,479 32,859 Total operating lease liabilities $ 46,280 $ 42,633 Lease Costs Components of lease costs were reported in general and administrative expenses in the Company’s Consolidated Statements of Income as follows: For the Years Ended December 31, (Amounts in Thousands) 2022 2021 2020 Operating lease costs $ 11,354 $ 11,150 $ 9,197 Short-term lease costs 2,885 739 761 Total lease costs 14,239 11,889 9,958 Less: sublease income ( 951 ) ( 679 ) ( 323 ) Total lease costs, net $ 13,288 $ 11,210 $ 9,635 F- 14 Table of Contents Lease Term and Discount Rate Weighted average remaining lease terms and discount rates were as follows: December 31, 2022 2021 2020 Operating leases: Weighted average remaining lease term 5.82 6.39 6.97 Weighted average discount rate 3.98 % 3.91 % 4.18 % Maturity of Lease Liabilities Remaining operating lease payments as of December 31, 2022 were as follows: Operating Leases (Amounts in Thousands) Due in 12-month period ended December 31, 2023 $ 12,470 2024 10,340 2025 7,246 2026 5,602 2027 4,241 Thereafter 12,115 Total future minimum rental commitments 52,014 Less: Imputed interest ( 5,734 ) Total lease liabilities $ 46,280 Supplemental cash flows information For the Years Ended December 31, (Amounts in Thousands) 2022 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 13,015 $ 11,288 $ 8,769 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 14,746 $ 7,705 $ 25,807 Commencing on November 14, 2022 , the Company sublet a portion of its corporate headquarters space in Frisco, Texas to a third party under a two-year sublease term for a monthly base rent of $ 0.1 million. 3. Acqui sitions The Company’s acquisitions have been accounted for in accordance with ASC Topic 805, Business Combinations , and the resulting goodwill and other intangible assets were accounted for under ASC Topic 350, Goodwill and Other Intangible Assets . Under business combination accounting, the assets and liabilities are generally recognized at their fair values and the difference between the consideration transferred, excluding transaction costs, and the fair values of the assets and liabilities is recognized as goodwill. The results of each business acquisition are included on the Consolidated Statements of Income from the date of the acquisition. Management’s assessment of qualitative factors affecting goodwill for each acquisition includes estimates of market share at the date of purchase, ability to grow in the market, synergy with existing Company operations and the payor profile in the markets. JourneyCare On February 1, 2022, the Company completed the acquisition of the hospice and palliative operations of JourneyCare Inc. (“JourneyCare”). The purchase price was approximately $ 86.6 million, including the amount of acquired excess cash held by JourneyCare at the closing of the acquisition (approximately $ 0.4 million) plus the finalization of net working capital payable to seller F- 15 Table of Contents of $ 1.6 million. The JourneyCare acquisition was funded with a combination of a $ 35.0 million draw on the Company’s revolving credit facility and available cash. With the JourneyCare acquisition, the Company expanded its hospice services in the state of Illinois. The related acquisition and integration costs were $ 0.5 million and $ 4.3 million, respectively, for the year ended December 31, 2022. These costs are included in general and administrative expenses on the Consolidated Statements of Income and were expensed as incurred. Based upon management’s valuations, which are preliminary and subject to completion of working capital adjustments, the fair values of the assets and liabilities acquired are as follows: Total (Amounts in Thousands) Goodwill $ 69,446 Identifiable intangible assets 13,792 Cash 421 Accounts receivable 7,747 Property and equipment 1,194 Operating lease assets, net 3,728 Other assets 317 Accrued expenses ( 5,002 ) Accrued payroll ( 1,511 ) Long-term operating lease liabilities ( 3,537 ) Total purchase price $ 86,595 Identifiable intangible assets acquired included $ 9.0 million in a trade name and $ 4.8 million of indefinite-lived state licenses. The estimated fair value of identifiable intangible assets was determined with the assistance of a valuation specialist, using Level 3 inputs as defined under ASC Topic 820. The fair value analysis and related valuations reflect the conclusions of management. All estimates, key assumptions, and forecasts were either provided by or reviewed by the Company. The goodwill and intangible assets acquired are deductible for tax purposes. JourneyCare accounted for $ 47.2 million and $ 9.1 million of the Company ’s net service revenues and operating income for the year ended December 31, 2022. Armada Skilled Homecare On August 1, 2021, we completed the acquisition of Armada Skilled Homecare of New Mexico LLC, Armada Hospice of New Mexico LLC and Armada Hospice of Santa Fe LLC (collectively, “Armada”) for approximately $ 29.7 million, including the amount of acquired excess cash held by Armada at the closing of the acquisition (approximately $ 0.7 million). The purchase of Armada was funded with the Company’s revolving credit facility. With the purchase of Armada, the Company expanded its home health and hospice services in the state of New Mexico. The related acquisition and integration costs were $ 0.4 million and $ 0.5 million, respectively, for the year ended December 31, 2021. These costs are included in general and administrative expenses on the Consolidated Statements of Income and were expensed as incurred. Based upon management’s final valuations, the fair values of the assets and liabilities acquired are as follows: Total (Amounts in Thousands) Goodwill $ 28,287 Identifiable intangible assets 990 Cash 676 Property and equipment 40 Other assets 24 Accounts payable — Accrued payroll ( 361 ) Total purchase price $ 29,656 Identifiable intangible assets acquired included $ 0.6 million of non-competition agreements with estimated useful lives of five years and $ 0.4 million of indefinite-lived state licenses. The estimated fair value of identifiable intangible assets was determined with F- 16 Table of Contents the assistance of a valuation specialist, using Level 3 inputs as defined under ASC Topic 820. The fair value analysis and related valuations reflect the conclusions of management. All estimates, key assumptions, and forecasts were either provided by or reviewed by the Company. The goodwill and intangible assets acquired are deductible for tax purposes. Queen City Hospice On December 4, 2020, we completed the acquisition of Queen City Hospice, LLC and its affiliate Miracle City Hospice, LLC (together “Queen City Hospice”). The purchase price was approximately $ 194.8 million, including the amount of acquired excess cash held by Queen City Hospice at the closing of the acquisition (approximately $ 15.4 million). The purchase of Queen City Hospice was funded with the Company’s revolving credit facility and available cash. With the purchase of Queen City Hospice, the Company expanded its hospice services in the state of Ohio. The related acquisition costs were $ 1.8 million for the year ended December 31, 2021 . For the year ended December 31, 2021, integration costs were $ 2.2 million. These costs are included in general and administrative expenses on the Consolidated Statements of Income and were expensed as incurred. Based upon management’s final valuations, the fair values of the assets and liabilities are as follows: Total (Amounts in Thousands) Goodwill $ 169,338 Identifiable intangible assets 20,015 Cash 15,444 Accounts receivable 5,915 Property and equipment 759 Operating lease assets, net 3,028 Other assets 85 Accounts payable ( 2,285 ) Accrued payroll ( 1,555 ) Accrued expenses ( 528 ) Government stimulus advances ( 12,694 ) Long-term operating lease liabilities ( 2,765 ) Total purchase price $ 194,757 Identifiable intangible assets acquired included $ 11.0 million in trade names, $ 1.5 million of non-competition agreements with estimated useful lives of fifteen years and five years , respectively, and $ 7.5 million of indefinite lived state licenses. The estimated fair value of identifiable intangible assets was determined with the assistance of a valuation specialist, using Level 3 inputs as defined under ASC Topic 820. The fair value analysis and related valuations reflect the conclusions of management. All estimates, key assumptions, and forecasts were either provided by or reviewed by the Company. The goodwill and intangible assets acquired are deductible for tax purposes. County Homemakers On November 1, 2020, we completed the acquisition of County Homemakers. The purchase price was approximately $ 15.8 million, including the amount of acquired excess cash held by County Homemakers at the closing of the acquisition (approximately $ 1.1 million). The purchase of County Homemakers was funded with the Company’s available cash. With the purchase of County Homemakers, the Company expanded its personal care services in the state of Pennsylvania. The related integration and acquisition costs were $ 0.2 million and $ 0.3 million for the year ended December 31, 2020, respectively. These costs are included in general and administrative expenses on the Consolidated Statements of Income and were expensed as incurred. F- 17 Table of Contents Based upon management’s final valuations, the fair values of the assets and liabilities are as follows: Total (Amounts in Thousands) Goodwill $ 13,502 Identifiable intangible assets 474 Cash 1,104 Accounts receivable 1,357 Property and equipment 52 Operating lease assets, net 485 Other assets 40 Accounts payable ( 85 ) Accrued payroll ( 586 ) Accrued expenses ( 37 ) Long-term operating lease liabilities ( 485 ) Total purchase price $ 15,821 Identifiable intangible assets acquired included approximately $ 0.3 million in state licenses and $ 0.1 million in trade names with estimated useful lives of eight years and one year , respectively. The estimated fair value of identifiable intangible assets was determined with the assistance of a valuation specialist, using Level 3 inputs as defined under ASC Topic 820. The fair value analysis and related valuations reflect the conclusions of management. All estimates, key assumptions, and forecasts were either provided by or reviewed by the Company. The goodwill and intangible assets acquired are deductible for tax purposes. A Plus Health Care On July 1, 2020, we completed the acquisition of A Plus Health Care, Inc. (“A Plus”). The purchase price was approximately $ 14.5 million, including the amount of acquired excess cash held by A Plus at the closing of the acquisition (approximately $ 2.8 million). The purchase of A Plus was funded with the Company’s available cash. With the purchase of A Plus, the Company expanded its personal care services in the state of Montana. The related acquisition and integration costs were $ 0.4 million and $ 0.3 million, respectively, for the year ended December 31, 2020. These costs are included in general and administrative expenses on the Consolidated Statements of Income and were expensed as incurred. Based upon management’s final valuations, the fair values of the assets and liabilities are as follows: Total (Amounts in Thousands) Goodwill $ 9,732 Identifiable intangible assets 1,523 Cash 2,819 Accounts receivable 1,009 Operating lease assets, net 180 Other assets 26 Accounts payable ( 34 ) Accrued payroll ( 275 ) Accrued expenses ( 353 ) Long-term operating lease liabilities ( 100 ) Total purchase price $ 14,527 Identifiable intangible assets acquired included $ 1.4 million in trade names with an estimated useful life of fifteen years . The estimated fair value of identifiable intangible assets was determined with the assistance of a valuation specialist, using Level 3 inputs as defined under ASC Topic 820. The fair value analysis and related valuations reflect the conclusions of management. All estimates, key assumptions, and forecasts were either provided by or reviewed by the Company. The goodwill and intangible assets acquired are deductible for tax purposes. F- 18 Table of Contents Other Acquisitions On October 1, 2022 , we completed the acquisition of Apple Home HealthCare LTD (“Apple Home”) for approximately $ 12.7 million, with funding provided by drawing on the Company’s revolving credit facility. In addition to the initial consideration, the total purchase price also includes potential additional contingent consideration to the previous owners of Apple Home of up to approximately $ 2 million. The contingent consideration will vary based upon performance relative to certain agreed upon earnings targets in 2022 and 2023. With the purchase of Apple Home, the Company expanded clinical services for its home health segment in Illinois and recorded goodwill of $ 8.9 million. On October 1, 2021, we completed the acquisition of Summit Home Health, LLC (“Summit”) for approximately $ 8.1 million, with funding provided by available cash. With the purchase of Summit, we added clinical services to our home health segment in Illinois and recorded goodwill of $ 6.5 million. For the year ended December 31, 2022, the following table contains unaudited pro forma Consolidated Income Statement information of the Company as if the acquisition of JourneyCare closed on January 1, 2021. For the year ended December 31, 2021, the following table contains unaudited pro forma Consolidated Income Statement information of the Company as if the acquisition of Armada closed on January 1, 2020. For the year ended December 31, 2020, the following table contains unaudited pro forma Consolidated Income Statement information of the Company as if each of the acquisitions of Queen City Hospice, A Plus and County Homemakers closed on January 1, 2020. For the Years Ended December 31, (Amounts in Thousands, Unaudited) 2022 2021 2020 Net service revenues $ 956,333 $ 936,601 $ 831,290 Operating income from continuing operations 67,201 69,081 45,555 Net income from continuing operations 44,959 47,622 34,564 The pro forma disclosures in the table above include adjustments for amortization of intangible assets, tax expense and acquisition costs to reflect results that are more representative of the combined results of the transactions. This pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have actually occurred. In addition, future results may vary significantly from the results reflected in the pro forma information. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, such as anticipated cost savings from operating synergies. 4. Property and Equipment Property and equipment consisted of the following: December 31, 2022 2021 (Amounts in Thousands) Computer software $ 19,675 $ 13,541 Computer equipment 12,343 10,313 Leasehold improvements 10,746 9,712 Furniture and equipment 5,534 5,220 Transportation equipment 194 194 48,492 38,980 Less: accumulated depreciation and amortization ( 27,310 ) ( 20,497 ) $ 21,182 $ 18,483 Computer software includes $ 1.6 million and $ 1.5 million of internally developed software for the years ended December 31, 2022 and 2021, respectively. Depreciation and amortization expense totaled $ 6.8 million, $ 5.9 million and $ 5.0 million for the years ended December 31, 2022, 2021 and 2020 , respectively. F- 19 Table of Contents 5. Goodwill and Intangible Assets A summary of goodwill by segment and related adjustments is provided below: Goodwill Hospice Personal Care Home Health Total (Amounts In Thousands) Goodwill at December 31, 2020 $ 314,833 $ 152,448 $ 1,791 $ 469,072 Additions for acquisitions 13,370 115 21,579 35,064 Adjustments to previously recorded goodwill 131 125 — 256 Goodwill at December 31, 2021 328,334 152,688 23,370 504,392 Additions for acquisitions 69,446 — 8,910 78,356 Adjustments to previously recorded goodwill ( 52 ) — 141 89 Goodwill at December 31, 2022 $ 397,728 $ 152,688 $ 32,421 $ 582,837 In 2022, the Company recognized goodwill in the hospice segment of $ 69.4 million related to the acquisition of JourneyCare and $ 8.9 million with the acquisition of Apple Home in the home health segment. In connection with the acquisition of Armada in 2021, the Company recognized goodwill in its hospice and home health segments of $ 13.4 million and $ 15.0 million, respectively, and $ 6.5 million with the acquisition of Summit in 2021 in our home health segment. Goodwill adjustments to previously recorded goodwill are generally related to accounts receivable and accrued expenses based on the final valuations. See Note 3 to the Notes to Consolidated Financial Statements for additional information regarding the acquisitions made by the Company in 2021 and 2022. The Company’s identifiable intangible assets consist of customer and referral relationships, trade names and trademarks, non-competition agreements and state licenses. Amortization is computed using straight-line and accelerated methods based upon the estimated useful lives of the respective assets, which range from one to twenty-five years . Customer and referral relationships are amortized systematically over the periods of expected economic benefit, which range from five to ten years . Goodwill and certain state licenses are not amortized pursuant to ASC Topic 350. We test intangible assets with indefinite useful lives for impairment at the reporting unit level on an annual basis, as of October 1, or whenever potential impairment triggers occur, such as a significant change in business climate or regulatory changes that would indicate that an impairment may have occurred. The Company estimates the fair value of the reporting unit using both a discounted cash flow model as well as a market multiple model. The cash flow forecasts are adjusted by an appropriate discount rate based on the Company’s estimate of a market participant’s weighted-average cost of capital. These models are both based on the Company’s best estimate of future revenues and operating costs and are reconciled to the Company’s consolidated market capitalization, with consideration of the amount a potential acquirer would be required to pay, in the form of a control premium. The determination of fair value in the Company’s goodwill impairment analysis is based on an estimate of fair value for each reporting unit utilizing known and estimated inputs at the evaluation date. Some of those inputs include, but are not limited to, the most recent price of the Company’s common stock and fair value of long term debt, estimates of future revenue and expense growth, estimated market multiples, expected capital expenditures, income tax rates and cost of invested capital. Significant assumptions used in the analysis included a 9.5 % discount rate and long-term revenue growth rates that ranged from 3.5 % to 7 .0 %. For the fiscal year 2022 impairment test, the fair value of the reporting units exceeded their respective carrying values (commonly referred to as “headroom”) by at least 100 % in the personal care segment, by 75 % in the home health segment, and 67 % in the hospice segment. The Company did no t record any impairment charges for the years ended December 31, 2022, 2021 or 2020. F- 20 Table of Contents The carrying amount and accumulated amortization of each identifiable intangible asset category consisted of the following at December 31, 2022 and 2021: Customer and referral relationships Trade names and trademarks Non- competition agreements State Licenses Total (Amounts in Thousands) Intangible assets with indefinite lives $ — $ — $ — $ 27,108 $ 27,108 Intangible assets subject to amortization: Gross carrying amount 44,672 52,046 6,785 12,517 116,020 Accumulated amortization ( 38,088 ) ( 21,058 ) ( 4,785 ) ( 7,009 ) ( 70,940 ) Intangible assets subject to amortization, net 6,584 30,988 2,000 5,508 45,080 Net balance at December 31, 2022 $ 6,584 $ 30,988 $ 2,000 $ 32,616 $ 72,188 Intangible assets with indefinite lives $ — $ — $ — $ 21,124 $ 21,124 Intangible assets subject to amortization: Gross carrying amount 44,672 42,926 6,785 12,508 106,891 Accumulated amortization ( 36,342 ) ( 18,494 ) ( 3,831 ) ( 5,027 ) ( 63,694 ) Intangible assets subject to amortization, net 8,330 24,432 2,954 7,481 43,197 Net balance at December 31, 2021 $ 8,330 $ 24,432 $ 2,954 $ 28,605 $ 64,321 During the year ended December 31, 2022, the Company acquired indefinite-lived state licenses and trade names of $ 4.8 million and $ 9.0 million, respectively, related to the acquisition of JourneyCare. During the year ended December 31, 2022, the Company acquired indefinite lived state licenses and trade names of $ 1.2 million and $ 0.1 million, respectively, related to the acquisition of Apple Home. During the year ended December 31, 2021, the Company acquired indefinite lived state licenses and non-competition agreements of $ 0.4 million and $ 0.6 million, respectively, related to the acquisition of Armada. Amortization expense related to the identifiable intangible assets amounted to $ 7.2 million, $ 8.5 million and $ 7.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. The weighted average remaining useful life of identifiable intangible assets as of December 31, 2022 is 9.8 years. The estimated future intangible amortization expense is as follows: For the year ended December 31, Total (Amount in Thousands) 2023 $ 6,857 2024 6,534 2025 4,911 2026 4,287 2027 3,665 Thereafter 18,826 Total, intangible assets subject to amortization $ 45,080 F- 21 Table of Contents 6. Details of Certain Balance Sheet Accounts Prepaid expenses and other current assets consisted of the following: December 31, 2022 2021 (Amounts in Thousands) Income tax receivable $ — $ 7,556 Prepaid payroll 7,566 — Prepaid workers’ compensation and liability insurance 3,399 3,206 Workers’ compensation insurance receivable 666 1,559 Other 5,714 6,170 Total prepaid expenses and other current assets $ 17,345 $ 18,491 Accrued expenses consisted of the following: December 31, 2022 2021 (Amounts in Thousands) Current portion of operating lease liabilities $ 10,801 $ 9,774 Payor advances (1) 4,473 6,485 Accrued health insurance 5,152 5,200 Accrued professional fees 3,576 2,978 Accrued payroll taxes 3,525 1,872 Other 10,781 10,768 Total accrued expenses $ 38,308 $ 37,077 (1) Represents the deferred portion of payments received from payors for COVID-19 reimbursements which will be recognized as we incur specific COVID-19 related expenses (including expenses related to securing and maintaining adequate personnel) or will be returned to the extent such related expenses are not incurred. 7. Long-Term Debt Long-term debt consisted of the following: December 31, 2022 2021 (Amounts in Thousands) Revolving loan under the credit facility $ 134,853 $ 224,853 Term loan under the credit facility — — Less unamortized issuance costs ( 3,081 ) ( 3,941 ) Total 131,772 220,912 Less current maturities — — Long-term debt $ 131,772 $ 220,912 Amended and Restated Senior Secured Credit Facility On October 31, 2018, the Company entered into the Amended and Restated Credit Agreement, dated as of October 31, 2018, with certain lenders and Capital One, National Association, as a lender and as agent for all lenders, as amended by the First Amendment to Amended and Restated Credit Agreement, dated as of September 12, 2019, and as further amended by the Second Amendment to Amended and Restated Credit Agreement, dated as of July 30, 2021 (as amended, the “Credit Agreement”; as used throughout this Annual Report on Form 10-K, “credit facility” shall mean the credit facility evidenced by the Credit Agreement). The credit facility consists of a $ 600.0 million revolving credit facility and a $ 125.0 million incremental loan facility, which incremental loan facility may be for term loans or an increase to the revolving loan commitments. The maturity of this credit facility is July 30, 2026 . Interest on the credit facility may be payable at (x) the sum of (i) an applicable margin ranging from 0.75 % to 1.50 % based on the applicable senior net leverage ratio plus (ii) a base rate equal to the greatest of (a) the rate of interest last quoted by The Wall Street Journal as the “prime rate,” (b) the sum of the federal funds rate plus a margin of 0.50 % and (c) the sum of the adjusted LIBOR that would be applicable to a loan with an interest period of one month advanced on the applicable day (not to be less than 0.00 %) plus a F- 22 Table of Contents margin of 1.00 % or (y) the sum of (i) an applicable margin ranging from 1.75 % to 2.50 % based on the applicable senior net leverage ratio plus (ii) the offered rate per annum for similar dollar deposits for the applicable interest period that appears on Reuters Screen LIBOR01 Page (not to be less than zero). Swing loans may not be LIBOR loans. The Credit Agreement contains hardwired fallback language that contemplates a transition from LIBOR, specifically identifies the Secured Overnight Financing Rate (“SOFR”) as the replacement reference rate and details the mechanism for transition at LIBOR cessation, which is anticipated to occur on June 30, 2023. The transition to SOFR is not expected to have a material impact on the Company's results of operations or liquidity. Addus HealthCare, Inc. (“Addus HealthCare”) is the borrower, and its parent, Holdings, and substantially all of Holdings’ subsidiaries are guarantors under this credit facility, and it is collateralized by a first priority security interest in all of the Company’s and the other credit parties’ current and future tangible and intangible assets, including the shares of stock of the borrower and subsidiaries. The Credit Agreement contains affirmative and negative covenants customary for credit facilities of this type, including limitations on the Company with respect to liens, indebtedness, guaranties, investments, distributions, mergers and acquisitions and dispositions of assets. The availability of additional draws under this credit facility is conditioned, among other things, upon (after giving effect to such draws) the Total Net Leverage Ratio (as defined in the Credit Agreement) not exceeding 3.75 :1.00. In certain circumstances, in connection with a Material Acquisition (as defined in the Credit Agreement), the Company can elect to increase its Total Net Leverage Ratio compliance covenant to 4.25 :1.00 for the then current fiscal quarter and the three succeeding fiscal quarters. The Company pays a fee ranging from 0.20 % to 0.35 % based on the applicable senior net leverage ratio times the unused portion of the revolving loan portion of the credit facility. The Credit Agreement contains customary affirmative covenants regarding, among other things, the maintenance of records, compliance with laws, maintenance of permits, maintenance of insurance and property and payment of taxes. The Credit Agreement also contains certain customary financial covenants and negative covenants that, among other things, include a requirement to maintain a minimum Interest Coverage Ratio (as defined in the Credit Agreement), a requirement to stay below a maximum Total Net Leverage Ratio (as defined in the Credit Agreement) and a requirement to stay below a maximum permitted amount of capital expenditures. The Credit Agreement also contains restrictions on guarantees, indebtedness, liens, investments and loans, subject to customary carve outs, a restriction on dividends (provided that Addus HealthCare may make distributions to the Company in an amount that does not exceed $ 7.5 million in any year absent of an event of default, plus limited exceptions for tax and administrative distributions), a restriction on the ability to consummate acquisitions (without the consent of the lenders) under its credit facility subject to compliance with the Total Net Leverage Ratio (as defined in the Credit Agreement) thresholds, restrictions on mergers, dispositions of assets, and affiliate transactions, and restrictions on fundamental changes and lines of business. As of December 31, 2022, the Company was in compliance with all financial covenants under the Credit Agreement. The Company drew approximately $ 47.0 million under its credit facility to fund, in part, the JourneyCare and Apple Home acquisitions. At December 31, 2022, the Company had a total of $ 134.9 million of revolving loans, with an interest rate of 6.13 %, outstanding on its credit facility. After giving effect to the amount drawn on its credit facility, approximately $ 8.2 million of outstanding letters of credit and borrowing limits based on an advance multiple of Adjusted EBITDA (as defined in the Credit Agreement), the Company had $ 380.2 million of capacity and $ 237.2 million available for borrowing under its credit facility. The Company drew approximately $ 29.0 million under its credit facility to fund the acquisition of Armada on August 1, 2021. At December 31, 2021, the Company had a total of $ 224.9 million of revolving loans, with an interest rate of 2.10 %, outstanding on its credit facility. After giving effect to the amount drawn on its credit facility, approximately $ 8.2 million of outstanding letters of credit and borrowing limits based on an advance multiple of Adjusted EBITDA (as defined in the Credit Agreement), the Company had $ 376.6 million of capacity and $ 143.6 million available for borrowing under its credit facility. F- 23 Table of Contents 8. Income Taxes The current and deferred federal and state income tax provision from continuing operations, are comprised of the following: For the Years Ended December 31, (Amounts in Thousands) 2022 2021 2020 Current Federal $ 7,075 $ 4,603 $ 10,230 State 3,090 2,398 3,312 Deferred Federal 3,118 6,407 ( 3,690 ) State 863 1,864 ( 1,043 ) Provision for income taxes $ 14,146 $ 15,272 $ 8,809 The tax effects of certain temporary differences between the Company’s book and tax bases of assets and liabilities give rise to significant portions of the deferred income tax assets (liabilities) at December 31, 2022 and 2021. The deferred tax assets (liabilities) consisted of the following: For the Years Ended December 31, (Amounts in Thousands) 2022 2021 Deferred tax assets Long-term Accounts receivable allowances $ 18,515 $ 14,590 Operating lease liabilities 12,472 11,623 Accrued compensation 3,676 3,752 Accrued workers’ compensation 3,296 3,119 Transaction costs 2,056 1,803 Stock-based compensation 1,473 1,293 Government stimulus advances — 1,138 Restructuring costs 54 119 Other 1,420 793 Total long-term deferred tax assets 42,962 38,230 Deferred tax liabilities Long-term Goodwill and intangible assets ( 34,310 ) ( 26,097 ) Operating lease assets, net ( 10,323 ) ( 9,571 ) Property and equipment ( 3,123 ) ( 3,415 ) Insurance premiums ( 916 ) ( 876 ) Total long-term deferred tax liabilities ( 48,672 ) ( 39,959 ) Total net deferred tax (liabilities) assets $ ( 5,710 ) $ ( 1,729 ) Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers all available evidence in making this assessment. F- 24 Table of Contents A reconciliation for continuing operations of the statutory federal tax rate of 21.0 % to the effective income tax rate is summarized as follows: For the Years Ended December 31, 2022 2021 2020 Federal income tax at statutory rate 21.0 % 21.0 % 21.0 % State and local taxes, net of federal benefit 5.9 6.3 6.0 162(m) disallowance for executive compensation 3.2 3.5 6.0 Nondeductible penalties — 0.6 — Excess tax benefit ( 0.4 ) ( 2.0 ) ( 5.6 ) Jobs tax credits, net ( 5.1 ) ( 4.1 ) ( 5.1 ) Nondeductible permanent items — — 0.4 Federal/state return to provision ( 1.0 ) — ( 1.6 ) Other ( 0.1 ) ( 0.1 ) ( 0.1 ) Effective income tax rate 23.5 % 25.2 % 21.0 % The effective income tax rate was 23.5 %, 25.2 % and 21.0 % for the years ended December 31, 2022, 2021 and 2020, respectively. The difference between our federal statutory and effective income tax rates is principally due to the inclusion of state taxes and non-deductible compensation, offset by an excess tax benefit and the use of federal employment tax credits. The excess tax benefit is a discrete item, primarily related to the vesting of equity shares, which requires the Company to recognize the benefit fully in the period. The Company is subject to taxation in the jurisdictions in which it operates. The Company continues to remain subject to examination by U.S. federal authorities for the years 2019 through 2021 and for various state authorities for the years 2017 through 2021 . 9. Stock Options and Restricted Stock Awards The Board approved the 2017 Omnibus Incentive Plan (“the 2017 Plan”) as of April 27, 2017, which was approved by our shareholders on June 14, 2017. The 2017 Plan was intended to replace our existing incentive compensation plan, the 2009 Stock Incentive Plan (“the 2009 Plan”). All awards are now granted from the 2017 Plan. Outstanding awards under the 2009 Plan will continue to be governed by the 2009 Plan and the agreements under which they were granted. The 2017 Plan allows us to grant performance-based incentive awards and equity-based awards (each an “Award”) to eligible employees, directors and consultants in the form of Stock Options, Stock Appreciation Rights, Restricted Stock, Deferred Stock Units/Restricted Stock Units, Other Stock Units or Performance Awards. The Company’s Board believes that the 2017 Plan is necessary to continue the Company’s effectiveness in attracting, motivating and retaining employees, directors and consultants with appropriate experience and to increase the grantees’ alignment of interest with the Company’s shareholders. Under the 2017 Plan, Awards may be made in shares of our common stock. Subject to adjustment as provided by the terms of the 2017 Plan, the maximum aggregate number of shares of common stock with respect to which awards may be granted under the 2017 Plan will be 1,182,270 , less the number of shares subject to awards that are granted pursuant to the 2009 Plan after March 31, 2017. The aggregate awards granted during any calendar year to any single Participant cannot exceed (i) 500,000 shares subject to stock options or stock appreciation rights (“SARs”) or (ii) 300,000 shares subject to Awards denominated in shares of common stock (whether or not settled in common stock). These individual annual limitations are cumulative in that any shares of common stock or cash for which Awards are permitted to be granted to a Participant during a fiscal year are not covered by an Award in that fiscal year, the number of shares of common stock will automatically increase in the subsequent fiscal years during the term of the 2017 Plan until the earlier of the time the increase has been granted to the Participant, or the end of the third fiscal year following the year to which such increase relates. At December 31, 2022, there wer e 350,317 shares of c ommon stock available for future grant under the 2017 Plan. Any shares of common stock subject to an Award under the 2017 Plan that are forfeited, canceled, settled in cash or otherwise terminated without a distribution of shares to a Participant, or that are delivered by attestation or withheld by the Company in connection with an option exercise or the payment of any required income tax withholding upon an option exercise or the vesting of restricted stock, will be deemed available for Awards under the 2017 Plan. Additionally, any shares of common stock subject to an Award under the 2009 Plan that are forfeited, canceled, settled in cash or otherwise terminated without a distribution of shares to a participant, or that are delivered by attestation or withheld by the Company in connection with an option exercise or the payment of F- 25 Table of Contents any required income tax withholding upon an option exercise or the vesting of restricted stock, will be deemed available for Awards under the 2017 Plan. Stock options are awarded with a strike price equal to the fair market value based on the closing price of our common stock on the date of grant. Options granted typically vest over a service period ranging from three to four years and expire ten years from the date of grant. Restricted shares typically vest over a service period ranging from one to four years and expire ten years from date of grant. The exercise prices of stock options outstanding on December 31, 2022 range from $ 19.71 to $ 92.00 . Restricted stock awards are full-value awards. Stock Options A summary of stock option activity and weighted average exercise price for the year ended December 31, 2022 follows: Options (Amounts in Thousands) Weighted Average Exercise Price Outstanding, beginning of period 493 $ 41.77 Granted 38 88.42 Exercised ( 63 ) 40.55 Forfeited/Cancelled — — Outstanding, end of period 468 $ 45.72 The weighted-average estimated fair value of employee stock options granted was calculated using the Black-Scholes Option Pricing Model in 2022 and 2021. The Company did no t grant any stock options in 2020. The related assumptions follow: 2022 2021 2020 Grants Grants Grants Weighted average fair value $ 32.96 $ 32.71 $ — Risk-free discount rate 1.76 % - 2.86 % 0.65 % — Expected life 4.2 years 4.1 years — Dividend yield — — — Volatility 43 % 45 % — Stock option compensation expense totale d $ 1.2 million, $ 1.4 million and $ 2.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, there was $ 1.9 million of total unrecognized compensation cost that is expected to be recognized over a weighted average period of 2.3 years. The intrinsic value of vested and outstanding stock options was $ 24.1 million and $ 1.0 million, respectively, as of December 31, 2022. As of December 31, 2022 , there were 390,026 and 78,125 shares of stock options vested and unvested, respectively. The intrinsic value of stock options exercised during the years ended December 31, 2022, 2021 and 2020 was $ 3.5 million, $ 1.8 million and $ 7.5 million, respectively. F- 26 Table of Contents Restricted Stock Awards A summary of unvested restricted stock awards activity and weighted average grant date fair value for the year ended December 31, 2022 follows: Restricted Stock Awards (Amounts in Thousands) Weighted Average Grant Date Fair Value Unvested restricted stock awards, beginning of period 159 $ 104.91 Awarded 130 71.91 Vested ( 74 ) 95.73 Forfeited ( 5 ) 85.53 Unvested restricted stock awards, end of period 210 $ 88.22 The fair value of restricted stock awards that vested during the year ended December 31, 2022 was $ 5.4 million. Restricted stock award compensation expense totaled $ 9.4 million, $ 8.0 million and $ 4.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, there was $ 10.9 million of total unrecognized compensation cost that is expected to be recognized over a weighted average period o f 1.7 years. 10. Employee Benefit Plans The 401(k) retirement plan is a defined contribution plan that provides for matching contributions by the Company to all non-union employees. Matching contributions are discretionary and subject to change by management. Under the provisions of the 401(k) plan, employees can contribute up to the maximum percentage and limits allowable under the U.S. Revenue Code. The Company provided contributions totalin g $ 0.4 million, $ 0.4 million and $ 0.3 m illion for the years ended December 31, 2022, 2021 and 2020 , respectively. 11. Commitments and Contingencies Legal Proceedings From time to time, the Company is subject to legal and/or administrative proceedings incidental to its business. On June 2, 2021, the Company received a $ 6.5 million Request for Repayment from Palmetto, GBA, LLC (“Palmetto”), a Medicare administrative contractor, regarding Ambercare Hospice Inc. (“Ambercare”), our subsidiary that provides hospice services in New Mexico. In 2018, the Office of Audit Services (“OAS”), under the HHS Office of Inspector General, initiated a clinical review of certain hospice claims billed during a timeframe from January 1, 2016 to December 31, 2017. The OAS review concluded that certain payments to Ambercare for hospice services during the review period were made in error. The Company acquired Ambercare in May 2018 and has a contractual right to full indemnification from any potential losses from the OAS review through the terms of the Ambercare purchase agreement. The Company disputes the results of the OAS review and related asserted billing errors and is in the process of filing administrative appeals. At this stage, the Company cannot predict the ultimate outcome of the appeal process. It is the opinion of management that the outcome of pending legal and/or administrative proceedings will not have a material effect on the Company’s Consolidated Balance Sheets and Consolidated Statements of Income. Concentration of Cash The Company owns financial instruments that potentially subject the Company to significant concentrations of credit risk, including cash. The Company maintains cash with financial institutions which, at times, may exceed federally insured limits. The Company believes it is not exposed to any significant credit risk on cash. 12. Segment Information Operating segments are defined as components of a company that engage in business activities from which it may earn revenues and incur expenses, and for which separate financial information is available and is regularly reviewed by the Company’s chief operating decision makers, to assess the performance of the individual segments and make decisions about resources to be allocated to F- 27 Table of Contents the segments. The Company operates as a multi-state provider of three distinct but related business segments providing in-home services. In its personal care segment, the Company provides non-medical assistance with activities of daily living, primarily to persons who are at increased risk of hospitalization or institutionalization, such as the elderly, chronically ill or disabled. In its hospice segment, the Company provides physical, emotional and spiritual care for people who are terminally ill as well as related services for their families. In its home health segment, the Company provides services that are primarily medical in nature to individuals who may require assistance during an illness or after hospitalization and include skilled nursing and physical, occupational and speech therapy. The tables below set forth information about the Company’s reportable segments for the years ended December 31, 2022, 2021 and 2020 along with the items necessary to reconcile the segment information to the totals reported in the accompanying consolidated financial statements. Segment assets are not reviewed by the Company’s chief operating decision maker function and therefore are not disclosed below. Segment operating income consists of revenue generated by a segment, less the direct costs of service revenues and general and administrative expenses that are incurred directly by the segment. Unallocated general and administrative costs are those costs for functions performed in a centralized manner and therefore not attributable to a particular segment. These costs include accounting, finance, human resources, legal, information technology, corporate office support and facility costs and overall corporate management. For the Year Ended December 31, 2022 (Amounts in Thousands) Personal Care Hospice Home Health Total Net service revenues $ 706,507 $ 201,772 $ 42,841 $ 951,120 Cost of services revenues 520,617 100,956 29,808 651,381 Gross profit 185,890 100,816 13,033 299,739 General and administrative expenses 60,532 49,742 10,251 120,525 Segment operating income $ 125,358 $ 51,074 $ 2,782 $ 179,214 For the Year Ended December 31, 2021 (Amounts in Thousands) Personal Care Hospice Home Health Total Net service revenues $ 685,854 $ 152,253 $ 26,392 $ 864,499 Cost of services revenues 502,024 75,186 17,441 594,651 Gross profit 183,830 77,067 8,951 269,848 General and administrative expenses 61,565 34,632 5,713 101,910 Segment operating income $ 122,265 $ 42,435 $ 3,238 $ 167,938 For the Year Ended December 31, 2020 (Amounts in Thousands) Personal Care Hospice Home Health Total Net service revenues $ 647,233 $ 101,297 $ 16,245 $ 764,775 Cost of services revenues 480,191 47,197 11,150 538,538 Gross profit 167,042 54,100 5,095 226,237 General and administrative expenses 60,468 25,394 3,773 89,635 Segment operating income $ 106,574 $ 28,706 $ 1,322 $ 136,602 For the Years Ended December 31, (Amounts in Thousands) 2022 2021 2020 Segment reconciliation: Total segment operating income $ 179,214 $ 167,938 $ 136,602 Items not allocated at segment level: Other general and administrative expenses 96,417 87,508 80,044 Depreciation and amortization 14,060 14,494 12,051 Interest income ( 341 ) ( 268 ) ( 624 ) Interest expense 8,907 5,806 3,189 Income before income taxes $ 60,171 $ 60,398 $ 41,942 F- 28 Table of Contents 13. Significant Payors For 2022, 2021 and 2020, the Company’s revenue by payor type was as follows: Personal Care For the Years Ended December 31, 2022 2021 2020 Amount (in Thousands) % of Segment Net Service Revenues Amount (in Thousands) % of Segment Net Service Revenues Amount (in Thousands) % of Segment Net Service Revenues State, local and other governmental programs $ 348,234 49.3 % $ 338,325 49.3 % $ 324,670 50.2 % Managed care organizations 326,778 46.3 311,801 45.5 287,032 44.3 Private pay 18,301 2.6 19,991 2.9 20,398 3.2 Commercial insurance 7,689 1.1 9,820 1.4 9,991 1.5 Other 5,505 0.7 5,917 0.9 5,142 0.8 Total personal care segment net service revenues $ 706,507 100.0 % $ 685,854 100.0 % $ 647,233 100.0 % Hospice For the Years Ended December 31, 2022 2021 2020 Amount (in Thousands) % of Segment Net Service Revenues Amount (in Thousands) % of Segment Net Service Revenues Amount (in Thousands) % of Segment Net Service Revenues Medicare $ 183,407 90.9 % $ 142,086 93.3 % $ 94,068 92.9 % Managed care organizations 7,353 3.6 5,664 3.7 4,931 4.9 Other 11,012 5.5 4,503 3.0 2,298 2.2 Total hospice segment net service revenues $ 201,772 100.0 % $ 152,253 100.0 % $ 101,297 100.0 % Home Health For the Years Ended December 31, 2022 2021 2020 Amount (in Thousands) % of Segment Net Service Revenues Amount (in Thousands) % of Segment Net Service Revenues Amount (in Thousands) % of Segment Net Service Revenues Medicare $ 31,505 73.5 % $ 20,700 78.4 % $ 12,765 78.6 % Managed care organizations 8,698 20.3 4,457 16.9 3,188 19.6 Other 2,638 6.2 1,235 4.7 292 1.8 Total home health segment net service revenues $ 42,841 100.0 % $ 26,392 100.0 % $ 16,245 100.0 % F- 29 Table of Contents The Company derives a significant amount of its revenue from its operations in Illinois, New Mexico and New York. The percentages of segment revenue for each of these significant states for 2022, 2021 and 2020 were as follows: Personal Care For the Years Ended December 31, 2022 2021 2020 Amount (in Thousands) % of Segment Net Service Revenues Amount (in Thousands) % of Segment Net Service Revenues Amount (in Thousands) % of Segment Net Service Revenues Illinois $ 360,778 51.1 % $ 328,619 47.9 % $ 288,326 44.6 % New York 86,592 12.3 99,732 14.5 115,510 17.8 New Mexico 105,315 14.9 97,784 14.3 86,618 13.4 All other states 153,822 21.7 159,719 23.3 156,779 24.2 Total personal care segment net service revenues $ 706,507 100.0 % $ 685,854 100.0 % $ 647,233 100.0 % Hospice For the Years Ended December 31, 2022 2021 2020 Amount (in Thousands) % of Segment Net Service Revenues Amount (in Thousands) % of Segment Net Service Revenues Amount (in Thousands) % of Segment Net Service Revenues Ohio $ 70,503 35.0 % $ 61,415 40.3 % $ — — % New Mexico 30,722 15.2 36,063 23.7 42,648 42.1 Illinois 47,181 23.4 — — — — All other states 53,366 26.4 54,775 36.0 58,649 57.9 Total hospice segment net service revenues $ 201,772 100.0 % $ 152,253 100.0 % $ 101,297 100.0 % With the acquisition of Queen City Hospice in late 2020, the Company expanded its hospice services in the state of Ohio, and with the JourneyCare acquisition in 2022, the Company also expanded its hospice services in the state of Illinois. Home Health For the Years Ended December 31, 2022 2021 2020 Amount (in Thousands) % of Segment Net Service Revenues Amount (in Thousands) % of Segment Net Service Revenues Amount (in Thousands) % of Segment Net Service Revenues New Mexico $ 34,111 79.6 % $ 24,735 93.7 % $ 16,245 100.0 % Illinois 8,730 20.4 1,657 6.3 — — Total home health segment net service revenues $ 42,841 100.0 % $ 26,392 100.0 % $ 16,245 100.0 % With the acquisition of Summit in 2021, the Company expanded its home health services in the state of Illinois. A substantial portion of the Company’s revenue and accounts receivable are derived from services performed for state and local governmental agencies. We derive a significant amount of our net service revenues in Illinois, which represented 43.8 %, 38.2 % and 37.7 % of our net service revenues for the years ended December 31, 2022, 2021 and 2020, respectively. The Illinois Department on Aging, the largest payor program for the Company’s Illinois personal care operations, accounted for 20.7 %, 21.4 % and 23.0 % of the Company’s net service revenues for 2022, 2021 and 2020, respectively. The related receivables due from the Illinois Department on Aging represented 18.0 % and 16.1 % of the Company’s net accounts receivable at December 31, 2022 and 2021, respectively. In 2019, New York initiated a new Request For Offer (“RFO”) process to competitively procure CDPAP fiscal intermediaries. The Company was not selected in the initial RFO process. We submitted a formal protest in response to the selection process, which F- 30 Table of Contents was filed and accepted in March 2021. The New York fiscal year 2023 state budget, passed in April 2022, amends the current Fiscal Intermediary RFO process to authorize all fiscal intermediaries that submitted an RFO application and served at least 200 clients in New York City or 50 clients in other counties between January 1, 2020 and March 31, 2020 to contract with the New York State Department of Health and continue to operate in all counties contained in their application, if the fiscal intermediary submits an attestation and supporting information to the New York State Department of Health no later than November 29, 2022. The Company submitted an attestation on November 22, 2022. Under this provision, the Company is allowed to continue to contract with all of its current payors for CDPAP services, as of the contract award date, which is anticipated to be April 1, 2023. The Company continues to assess the future of its participation in this program. Given the current profitability of the program, the Company has suspended materially all of its new fee-for-service patient admissions through County Social Service Departments in the CDPAP program . The Company recognized approximat ely $ 39.2 million from the program for the year ended December 31, 2022. 14. Government Actions to Mitigate COVID-19’s Impact In March 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) outbreak a global pandemic. The COVID-19 pandemic continues to cause disruption in the economy, in terms of increased costs and disruptions in the labor market. Although vaccines and booster shots for the COVID-19 virus have become widely available in the United States, COVID-19 has continued to result in a significant number of hospitalizations, and the future course of the pandemic remains uncertain, particularly due to the spread of COVID-19 variants. We will continue to closely monitor the impact of COVID-19 on all aspects of our business, including the impacts to our employees, patients and suppliers. In recognition of the significant threat to the liquidity of financial markets posed by the COVID-19 pandemic, the Federal Reserve and Congress have taken dramatic actions to provide liquidity to businesses and the banking system in the United States. One of the primary sources of relief for healthcare providers is the CARES Act, which was expanded by the Paycheck Protection Program and Health Care Enhancement (“PPPHCE”) Act, and the Consolidated Appropriations Act (“CAA”). The American Rescue Plan Act of 2021 (“ARPA”), one relief package with numerous provisions that affect healthcare providers, was signed into law in March 2021. ARPA ARPA provides for $ 350 billion in relief funding for eligible state, local, territorial, and Tribal governments to mitigate the fiscal effects of the COVID-19 public health emergency. Additionally, the law provides for a 10 -percentage point increase in federal matching funds for Medicaid home and community-based services (“HCBS”) from April 1, 2021, through March 31, 2022, provided the state satisfied certain conditions. States are permitted to use the state funds equivalent to the additional federal funds through March 31, 2025. States must use the monies attributable to this matching fund increase to supplement, not supplant, their level of state spending for the implementation of activities enhanced under the Medicaid HCBS in effect as of April 1, 2021. HCBS spending plans for the additional matching funds vary by state, but common initiatives in which the Company is participating include those aimed at strengthening the provider workforce (e.g., efforts to recruit, retain, and train direct service providers). The Company is required to properly and fully document the use of such funds in reports to the state in which the funds originated. Funds may be subject to recoupment if not expended or if they are expended on non-approved uses. During the year ended December 31, 2021, the Company received state funding provided by the ARPA in aggregate amount of $ 1.0 million. The Company recorded revenue of $ 1.0 million and related costs of service revenue of $ 0.7 million for a state which met the revenue recognition criteria. During the twelve months ended December 31, 2022, the Company received state funding provided by the ARPA in an aggregate amount of $ 23.4 million. The Company recorded revenue of $ 1.9 million and related cost of service revenues of $ 1.5 million for certain states that met the revenue recognition criteria. The Company deferred the remaining $ 21.5 million, which was received from states with specific spending plans and reporting requirements. The Company utilized $ 8.6 million of these funds during the twelve months ended December 31 2022, primarily for caregivers and adding support to recruiting and retention efforts, $ 7.0 million included as a reduction of cost of service revenues and $ 1.6 million included as a reduction of general and administrative expenses in the Company’s Consolidated Statements of Income. As of December 31, 2022, the deferred portion of ARPA funding was $ 12.9 million, which is included within Government stimulus advances on the Company’s Consolidated Balance Sheets. Provider Relief Funds In addition, the CARES Act authorized funding to be distributed through the Provider Relief Fund to eligible providers, including public entities and Medicare- and/or Medicaid-enrolled providers. In November 2020, the Company received grants in an aggregate principal amount of $ 13.7 million from the Provider Relief Fund. The Company utilized $ 12.3 million remaining of these F- 31 Table of Contents funds during the year ended December 31, 2021 for healthcare related expenses, including retention payments, attributable to COVID-19 that were unreimbursed by other sources. The Company documented the use of such funds in 2021 in reports to the U.S. Department of Health and Human Services (“HHS”), as required, and submitted the reports to HHS prior to the deadline of March 31, 2022. During the year ended December 31, 2022, we submitted an unmodified audit report to HHS for 2021 in accordance with Generally Accepted Government Auditing Standards, as required for commercial organizations that received and expended total awards of $ 750,000 or more. Medicare sequester The CARES Act and related laws temporarily lifted the Medicare sequester which would have otherwise reduced payments to Medicare providers by 2 %, as required by the Budget Control Act of 2011, from May 1, 2020, through March 31, 2022. The sequestration payment adjustment was phased back in with a 1 % reduction beginning April 1, 2022, and returned to 2 % on July 1, 2022. These sequestration cuts have been extended through 2032. The ARPA increases the federal budget deficit in a manner that triggers an additional statutorily mandated sequestration under the Pay-As-You-Go Act of 2010 (“PAYGO Act”). As a result, an additional Medicare payment reduction of up to 4 % was required to take effect in January 2022. However, Congress delayed implementation of this payment reduction until 2025. In the hospice segment, Medicare sequester relief resulted in an increase in net service revenues of $ 1.4 million and $ 2.9 million for the years ended December 31, 2022 and 2021, respectively. In the home health segment, Medicare sequester relief resulted in an increase in net service revenues of $ 0.3 million and $ 0.5 million for the years ended December 31, 2022 and 2021, respectively Payroll tax deferral The CARES Act also provide s for certain federal income and other tax changes, including the deferral of the employer portion of Social Security payroll taxes through December 31, 2021. The payroll tax deferral requires that the deferred payroll taxes be paid over two years , with half of the eligible deferred amount required to be paid by December 31, 2021 and the other half by December 31, 2022. The Company received a cash benefit of approximately $ 7.1 million related to the deferral of employer payroll taxes for 2020 under the CARES Act, for the period April 2, 2020 through June 30, 2020. Effective July 1, 2020, the Company began paying its deferred portion of employer Social Security payroll taxes and repaid $ 4.1 million and $ 3.0 million as of December 31, 2022 and 2021 respectively. Government stimulus advances consisted of the following: December 31, 2022 2021 (Amounts in Thousands) Payroll tax deferral $ — $ 4,173 ARPA funds 12,912 — Total government stimulus advances $ 12,912 $ 4,173 F- 32