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, 2023. 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, 2023. 56 Table of Contents 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 Coastal Nursecare of Florida, Inc. (“CareStaff”) and American Home Care, LLC, a Tennessee limited liability company (“AHC”), and its subsidiaries, Homecare, LLC, a Tennessee limited liability company (“Homecare”), Tennessee Valley Home Care, LLC (d/b/a Tennessee Quality Care – Home Health), a Tennessee limited liability company (“TQC – Home Health”), and Tri-County Home Health and Hospice, LLC (d/b/a Tennessee Quality Care - Hospice), a Tennessee limited liability company (“TQC – Hospice”, and collectively with AHC, Homecare, and TQC – Home Health “Tennessee Quality Care”) each of which are wholly-owned subsidiaries, from our assessment of internal control over financial reporting as of December 31, 2023 because they were acquired in purchase business combinations on January 1, 2023 and August 1, 2023, respectively. • CareStaff represented 0.2% of our revenues and 0.4% of our operating income, respectively, for the year ended December 31, 2023. • Tennessee Quality Care represented 1.5% of our revenues and 3.3% of our operating income, respectively, for the year ended December 31, 2023. The effectiveness of our internal control over financial reporting as of December 31, 2023 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, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION Not applicable. Without limiting the generality of the foregoing, during the quarter ended December 31, 2023, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements, as such terms are defined in Item 408 of Regulation S-K. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 57 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 2023 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 2024 Proxy Statement to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2023. 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 2024 Proxy Statement to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2023. 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 2024 Proxy Statement to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2023. ITEM 13. CERTAIN RELATIONSHIPS AND RELATE D TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item is incorporated by reference to the 2024 Proxy Statement to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2023. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item is incorporated by reference to the 2024 Proxy Statement to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2023. 58 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* Addus Holding Corporation 2006 Stock Incentive Plan. S-1 333-160634 7/17/2009 10.12 10.2* Director Form of Non-Qualified Stock Option Certificate under the 2006 Stock Incentive Plan. S-1 333-160634 7/17/2009 10.13 10.3* Executive Form of Non-Qualified Stock Option Certificate under the 2006 Stock Incentive Plan. S-1 333-160634 7/17/2009 10.14 10. 4 2009 Form of Indemnification Agreement. S-1 333-160634 7/17/2009 10.16 10.5* Form of Addus HomeCare Corporation 2009 Stock Incentive Plan. S-1 333-160634 9/21/2009 10.20 10.6* Form of Nonqualified Stock Option Award Agreement pursuant to the 2009 Stock Incentive Plan. S-1 333-160634 9/21/2009 10.20(a) 10.7* Form of Restricted Stock Award Agreement pursuant to the 2009 Stock Incentive Plan. S-1 333-160634 9/21/2009 10.20(b) 10.8 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 10.9 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 10.10* Addus HomeCare Corporation’s 2017 Omnibus Incentive Plan, effective as of April 27, 2017. 8-K 001-34504 6/16/2017 10.1 59 Table of Contents 10.11* Form of Nonqualified Stock Option Award Agreement pursuant to the 2017 Omnibus Incentive Plan. 10-K 001-34504 3/14/2018 10.28 10.12* Form of Restricted Stock Award Agreement pursuant to the 2017 Omnibus Incentive Plan. 10-K 001-34504 3/14/2018 10.29 10.13 Stock Purchase Agreement, dated February 27, 2018, by and among Addus Healthcare, Inc., Michael J. Merrell and Mary E. Merrell, 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. 8-K 001-34504 3/5/2018 10.1 10.14 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 10.15* 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 10.16* 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 10.17* 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 10.18* 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 10.19 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 10.20* 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 10.21* 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 10.22* 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 10.23 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 10.24 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 60 Table of Contents 10.25 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 10.26 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 10.27* 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 10.28** 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 10.29* 2022 Form of Indemnification Agreement. 10-K 001-34504 2/25/2022 10.50 10.30* Amended and Restated Employment and Non-Competition Agreement, effective March 1, 2022, by and between Addus HealthCare, Inc. and Monica Raines . 10-Q 001-34504 5/23/2022 10.1 10.31* Employment and Non-Competition Agreement, effective April 20, 2022, by and between Addus HealthCare, Inc. and Cliff Blessing. 10-Q 001-34504 8/2/2022 10.1 10.32 Third Amendment to Amended and Restated Credit Agreement, dated as of April 26, 2023, 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. 10-Q 001-34504 5/2/2023 10.1 10.33* Addus HomeCare Corporation Amended and Restated 2017 Omnibus Incentive Plan. 10-Q 001-34504 8/1/2023 10.1 10.34** Membership Interests Purchase Agreement, dated June 28, 2023, by and among Addus HealthCare, Inc., HHH Newco Holdings, LLC, American Health Companies, LLC, American Home Care, LLC, Homecare, LLC, Tennessee Valley Home Care, LLC, and Tri-County Home Health and Hospice, LLC. 10-Q 001-34504 8/1/2023 10.1 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. 97.1*** Addus Homecare Corporation Compensation Recoupment Policy 61 Table of Contents 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. ***Filed herewith ITEM 16. FORM 10-K SUMMARY None. 62 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 27, 2024 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 27, 2024 /s/ BRIAN POFF Brian Poff Chief Financial Officer (Principal Financial and Accounting Officer) February 27, 2024 /s/ HEATHER DIXON Heather Dixon Director February 27, 2024 /s/ MICHAEL EARLEY Michael Earley Director February 27, 2024 /s/ MARK L. FIRST Mark L. First Director February 27, 2024 /s/ DARIN J. GORDON Darin J. Gordon Director February 27, 2024 /s/ ESTEBAN LÓPEZ, M.D. Esteban López, M.D. Director February 27, 2024 /s/ VERONICA HILL-MILBOURNE Director February 27, 2024 Veronica Hill-Milbourne /s/ JEAN RUSH Director February 27, 2024 Jean Rush /s/ SUSAN T. WEAVER, M.D., FACP Susan T. Weaver, M.D., FACP Director February 27, 2024 63 Table of Contents INDEX TO CONSOLIDATED FINANCIAL INFORMATION Page Report of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets F- 5 Consolidated Statements of Income F- 6 Consolidated Statements of Stockholders’ Equity F- 7 Consolidated Statements of Cash Flows F- 8 Notes to Consolidated Financial Statements F- 9 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 Regi stered 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, 2023 and 2022, 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, 2023, 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, 2023, 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 the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 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, 2023, 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 Coastal Nursecare of Florida, Inc. (“CareStaff”) and American Home Care, LLC, a Tennessee limited liability company (“AHC”), and its subsidiaries, Homecare, LLC, a Tennessee limited liability company (“Homecare”), Tennessee Valley Home Care, LLC (d/b/a Tennessee Quality Care – Home Health), a Tennessee limited liability company (“TQC – Home Health”), and Tri-County Home Health and Hospice, LLC (d/b/a Tennessee Quality Care - Hospice), a Tennessee limited liability company (“TQC – Hospice”, and collectively with AHC, Homecare, and TQC – Home Health “Tennessee Quality Care”), from its assessment of internal control over financial reporting as of December 31, 2023, because they were acquired by the Company in purchase business combinations during 2023. We have also excluded Carestaff and Tennessee Quality Care from our audit of internal control over financial reporting. Carestaff and Tennessee Quality Care 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 0.2% and 1.5% of total revenues, respectively, and approximately 0.4% and 3.3% of total operating income, respectively, of the related consolidated financial statement amounts for the year ended December 31, 2023. F- 2 Table of Contents 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 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 matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 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 credit losses) were $117.8 million as of December 31, 2023. 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 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 audit evidence 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 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 management’s estimate; (iii) testing the completeness and accuracy of underlying historical collection data used as an input into management’s estimate; (iv) testing, on a sample basis, the accuracy of revenue transactions and cash collections from the billing and collection data used as an input into the estimate; (v) evaluating the historical accuracy of management’s estimate of the amount expected to be collected by performing a retrospective comparison of actual cash collections to the related accounts receivable; and (vi) performing a comparison of the remaining uncollected accounts receivable balance as of a date subsequent to year end, to expected future cash collections based on the Company's historical collection patterns. F- 3 Table of Contents Goodwill Impairment Assessment – Hospice Reporting Unit As described in Notes 1 and 5 to the consolidated financial statements, the Company’s goodwill balance was $663.0 million as of December 31, 2023, and the goodwill associated with the Hospice reporting unit was $432.8 million. Management 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 goodwill impairment test involves comparing the fair value of a reporting unit with its carrying value, including goodwill. Management estimated the fair value of the Hospice reporting unit using the discounted cash flow and market multiple approaches. These types of models require management 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 (EBITDA). 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, operating margins, and the weighted-average cost of capital. The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Hospice reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the Hospice reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the revenue growth rates, operating margins, and the weighted-average cost of capital used in the discounted cash flow model, and the market multiples of EBITDA used in the market multiple model; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. 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 goodwill impairment assessment, including controls over the valuation of the Hospice reporting unit. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the Hospice reporting unit; (ii) evaluating the appropriateness of the discounted cash flow model and market multiple model used by management; (iii) testing the completeness and accuracy of underlying data used by management in the discounted cash flow model and market multiple model; and (iv) evaluating the reasonableness of the significant assumptions used by management related to the revenue growth rates, operating margins, and the weighted-average cost of capital used in the discounted cash flow model and the market multiples of EBITDA used in the market multiple model. Evaluating management’s assumptions related to the revenue growth rates and operating margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Hospice reporting unit; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the discounted cash flow model and market multiples model, and the reasonableness of the weighted-average cost of capital and market multiples of EBITDA significant assumptions. /s/ PricewaterhouseCoopers LLP Dallas, Texas February 27, 2024 We have served as the Company’s auditor since 2019. F- 4 Table of Contents ADDUS HOMECARE CORPORATION AND SUBSIDIARIES CONSOLIDATED B ALANCE SHEETS As of December 31, 2023 and 2022 (amounts and shares in thousands, except per share data) 2023 2022 Assets Current assets Cash $ 64,791 $ 79,961 Accounts receivable, net of allowances for credit losses 115,499 125,501 Prepaid expenses and other current assets 19,714 17,345 Total current assets 200,004 222,807 Property and equipment, net of accumulated depreciation and amortization 24,011 21,182 Other assets Goodwill 662,995 582,837 Intangibles, net of accumulated amortization 91,983 72,188 Operating lease assets, net 45,433 38,980 Total other assets 800,411 694,005 Total assets $ 1,024,426 $ 937,994 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 26,183 $ 22,092 Accrued payroll 56,551 44,937 Accrued expenses 33,236 27,507 Operating lease liabilities, current portion 11,339 10,801 Government stimulus advances 5,765 12,912 Accrued workers’ compensation insurance 12,043 12,897 Total current liabilities 145,117 131,146 Long-term liabilities Long-term debt, net of debt issuance costs 124,132 131,772 Long-term operating lease liabilities 39,711 35,479 Other long-term liabilities 8,772 6,057 Total long-term liabilities 172,615 173,308 Total liabilities $ 317,732 $ 304,454 Stockholders’ equity Common stock—$ .001 par value; 40,000 authorized and 16,227 and 16,128 shares issued and outstanding as of December 31, 2023 and 2022, respectively $ 16 $ 16 Additional paid-in capital 403,846 393,208 Retained earnings 302,832 240,316 Total stockholders’ equity 706,694 633,540 Total liabilities and stockholders’ equity $ 1,024,426 $ 937,994 See accompanying Notes to Consolidated Financial Statements F- 5 Table of Contents ADDUS HOMECARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STAT EMENTS OF INCOME For the years ended December 31, 2023, 2022 and 2021 (amounts and shares in thousands, except per share data) For the Years Ended December 31, 2023 2022 2021 Net service revenues $ 1,058,651 $ 951,120 $ 864,499 Cost of service revenues 718,775 651,381 594,651 Gross profit 339,876 299,739 269,848 General and administrative expenses 234,794 216,942 189,418 Depreciation and amortization 14,126 14,060 14,494 Total operating expenses 248,920 231,002 203,912 Operating income 90,956 68,737 65,936 Interest income ( 1,476 ) ( 341 ) ( 268 ) Interest expense 11,106 8,907 5,806 Total interest expense, net 9,630 8,566 5,538 Income before income taxes 81,326 60,171 60,398 Income tax expense 18,810 14,146 15,272 Net income $ 62,516 $ 46,025 $ 45,126 Net income per common share Basic net income per share $ 3.91 $ 2.90 $ 2.87 Diluted net income per share $ 3.83 $ 2.84 $ 2.81 Weighted average number of common shares and potential common shares outstanding: Basic 15,996 15,861 15,737 Diluted 16,311 16,181 16,064 See accompanying Notes to Consolidated Financial Statements F- 6 Table of Contents ADDUS HOMECARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the years ended December 31, 2023, 2022 and 2021 (amounts and shares in thousands) Common Stock Additional Paid in Capital Retained Earnings Total Stockholders’ Equity Shares Amount Balance at January 1, 2021 15,826 16 369,495 149,165 518,676 Issuance of shares of common stock under restricted stock award agreements 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 Issuance of shares of common stock under restricted stock award agreements 86 — — — — Stock-based compensation — — 10,319 — 10,319 Shares issued for exercise of stock options 13 — 319 — 319 Net income — — — 62,516 62,516 Balance at December 31, 2023 16,227 $ 16 $ 403,846 $ 302,832 $ 706,694 See accompanying Notes to Consolidated Financial Statements F- 7 Table of Contents ADDUS HOMECARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEM ENTS OF CASH FLOWS For the years ended December 31, 2023, 2022 and 2021 (amounts in thousands) For the Years Ended December 31, 2023 2022 2021 Cash flows from operating activities: Net income $ 62,516 $ 46,025 $ 45,126 Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitions: Depreciation and amortization 14,126 14,060 14,494 Deferred income taxes 2,819 3,908 7,282 Stock-based compensation 10,319 10,625 9,434 Amortization of debt issuance costs under the credit facility 860 860 804 Provision for credit losses 731 678 962 Impairment of operating lease assets 13 1,174 — Gain on termination of operating leases ( 23 ) — — Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 15,666 20,592 ( 3,916 ) Prepaid expenses and other current assets ( 3,113 ) 1,471 ( 8,599 ) Government stimulus advances ( 7,577 ) 8,739 ( 27,914 ) Accounts payable 2,025 2,514 ( 4,810 ) Accrued payroll 9,176 ( 918 ) 7,888 Accrued expenses and other liabilities 4,709 ( 4,618 ) ( 1,263 ) Net cash provided by operating activities 112,247 105,110 39,488 Cash flows from investing activities: Business acquisition, net of cash acquired ( 109,797 ) ( 98,290 ) ( 37,370 ) Purchases of property and equipment ( 9,454 ) ( 8,300 ) ( 4,645 ) Proceeds on disposal of property and equipment 15 — — Net cash used in investing activities ( 119,236 ) ( 106,590 ) ( 42,015 ) Cash flows from financing activities: Borrowings on revolver — credit facility 110,000 47,000 46,395 Payments on revolver — credit facility ( 118,500 ) ( 137,000 ) — Payments on term loan — credit facility — — ( 18,130 ) Payments for debt issuance costs under the credit facility — — ( 3,029 ) Cash received from exercise of stock options 319 2,546 1,108 Net cash (used in) provided by financing activities ( 8,181 ) ( 87,454 ) 26,344 Net change in cash ( 15,170 ) ( 88,934 ) 23,817 Cash, at beginning of period 79,961 168,895 145,078 Cash, at end of period $ 64,791 $ 79,961 $ 168,895 Supplemental disclosures of cash flow information: Cash paid for interest $ 10,254 $ 7,985 $ 5,094 Cash paid for income taxes 14,985 1,483 17,820 Supplemental disclosures of non-cash investing and financing activities Leasehold improvements acquired through tenant allowances — 295 — Licensing fees included in Fixed assets 4,000 4,000 — Tax benefit related to the amortization of tax goodwill in excess of book basis — — 61 See accompanying Notes to Consolidated Financial Statements F- 8 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. 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- 9 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 2024, the aggregate cap is $ 33,494.01 . For the years ended December 31, 2023 and 2022, the Company recorded a liability of $ 0.8 million and $ 0.9 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 are paid under the Medicare Home Health Prospective Payment System (“HHPPS”), which is 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, 2023 and 2022, the allowance for credit losses balance was $ 2.3 m illion and $ 1.6 million, respectively, which is included in accounts receivable, net of allowances for credit losses on the Company’s Consolidated Balance Sheets. F- 10 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, 2023 Allowance for credit losses $ 1,634 731 55 $ 2,310 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 (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 years ended December 31, 2023 and 2022 , the Company recorded $ 13,000 and $ 1.2 million, respectively, in impairment charges on operating lease assets, included within general administrative expenses. For the year ended December 31, 2021, the Company recorded no material impairment charges. F- 11 Table of Contents 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 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, 2023 and 2022, goodwill was $ 663.0 million and $ 582.8 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, 2023, 2022 and 2021, 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, operating margins 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, 2023, 2022 or 2021. 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. F- 12 Table of Contents As of December 31, 2023 and 2022, intangibles, net of accumulated amortization, was $ 92.0 million and $ 72.2 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 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, 2023, 2022 or 2021 . 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 $ 8.0 million and $ 8.2 million at December 31, 2023 and 2022, respectively. 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, 2023 and 2022, the Company recorded $ 12.0 million and $ 12.9 million, respectively, in accrued workers’ compensation insurance on the Company’s Consolidated Balance Sheets. As of December 31, 2023 and 2022, the Company recorded $ 0.6 million and $ 0.7 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. F- 13 Table of Contents Stock-based Compensation The Company currently has one stock incentive plan, the Amended and Restated 2017 Omnibus Incentive Plan (the “A&R 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 A&R 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 $ 10.3 million, $ 10.6 million and $ 9.4 million for the years ended December 31, 2023, 2022 and 2021 , respectively, included within general and administrative expenses on the Consolidated Statements of Income. 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, 2023 were approximately 455,000 stock options outstanding, of which approximately 234,000 were dilutive. In addition, there were approximately 201,000 restricted stock awards outstanding, of which approximately 82,000 were dilutive for the year ended December 31, 2023. 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 210,000 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 . 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. F- 14 Table of Contents Going Concern In connection with the preparation of the financial statements for the years ended December 31, 2023 and 2022 , 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. Recently Adopted Accounting Pronouncements In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update 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. In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU was adopted prospectively on January 1, 2023 . The additional disclosures required did no t have a material impact on our consolidated financial statements. 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 the London Inter-Bank Offered Rate (“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 was in effect for a limited time through December 31, 2022. The ASU could be adopted no later than December 1, 2022 with early adoption permitted. As discussed further in Note 8 and pursuant to the Third Amendment to Amended and Restated Credit Agreement dated as of April 26, 2023, the Company amended its credit facility to replace LIBOR with the secured overnight financing rate as administered by the Federal Reserve Bank of New York (“SOFR”) as the benchmark reference rate for loans under its credit facility. The transition to SOFR did not and is no t expected to have a material impact on the Company’s results of operations or liquidity. Recently Issued Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, which expands reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in the ASU require, among other things, disclosure of significant segment expenses that are regularly provided to an entity's chief operating decision maker (“CODM”) and a description of other segment items (the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss) by reportable segment, as well as disclosure of the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Annual disclosures are required for fiscal years beginning after December 15, 2023 and interim disclosures are required for periods within fiscal years beginning after December 15, 2024. Retrospective application is required, and early adoption is permitted. These requirements will result in expanded disclosures. In December 2023, the FASB issued ASU 2023-09, Improvement to Income Tax Disclosures, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, may be applied prospectively or retrospectively, and allows for early adoption . These requirements are no t expected to have an impact on the Company's financial statements and will expand income tax disclosures. F- 15 Table of Contents 2. Leases Amounts reported on the Company’s Consolidated Balance Sheets for operating leases were as follows: December 31, 2023 2022 (Amounts in Thousands) Operating lease assets, net $ 45,433 $ 38,980 Short-term operating lease liabilities (in accrued expenses ) 11,339 10,801 Long-term operating lease liabilities 39,711 35,479 Total operating lease liabilities $ 51,050 $ 46,280 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) 2023 2022 2021 Operating lease costs $ 13,026 $ 11,354 $ 11,150 Short-term lease costs 1,147 2,885 739 Total lease costs 14,173 14,239 11,889 Less: sublease income ( 2,770 ) ( 951 ) ( 679 ) Total lease costs, net $ 11,403 $ 13,288 $ 11,210 Lease Term and Discount Rate Weighted average remaining lease terms and discount rates were as follows: December 31, 2023 2022 2021 Operating leases: Weighted average remaining lease term 6.26 5.82 6.39 Weighted average discount rate 5.47 % 3.98 % 3.91 % Maturity of Lease Liabilities Remaining operating lease payments as of December 31, 2023 were as follows: Operating Leases (Amounts in Thousands) Due in 12-month period ended December 31, 2024 $ 13,809 2025 10,580 2026 8,284 2027 6,101 2028 5,274 Thereafter 17,154 Total future minimum rental commitments 61,202 Less: Imputed interest ( 10,152 ) Total lease liabilities $ 51,050 F- 16 Table of Contents Supplemental Cash Flow Information For the Years Ended December 31, (Amounts in Thousands) 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 14,396 $ 13,015 $ 11,288 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 17,221 $ 14,746 $ 7,705 The Company sublet a portion of its corporate headquarters space in Frisco, Texas in November 2022 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. Tennessee Quality Care On August 1, 2023, the Company completed the acquisition of Tennessee Quality Care . The purchase price was approximately $ 111.2 million, including the amount of acquired excess cash held by Tennessee Quality Care at the closing of the acquisition (approximately $ 2.4 million), and is subject to the completion of working capital and related adjustments. The Tennessee Quality Care acquisition was funded with a combination of a $ 110.0 million draw on the Company ’s revolving credit facility and available cash. With the purchase of Tennessee Quality Care, the Company expanded its services within its hospice and home health segments to Tennessee. The related acquisition and integration costs were $ 2.1 million and $ 1.0 million, respectively, for the year ended December 31, 2023. The se 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 $ 79,346 Identifiable intangible assets 26,740 Cash 2,357 Accounts receivable 5,940 Property and equipment 307 Operating lease assets, net 194 Other assets 200 Accrued expenses ( 1,407 ) Accrued payroll ( 2,368 ) Long-term operating lease liabilities ( 80 ) Total purchase price $ 111,229 F- 17 Table of Contents Identifiable intangible assets acquired includ ed $ 7.5 million in a trade name and $ 19.2 million of indefinite-lived state licenses. The preliminary estimated fair value of identifiable intangible assets was determined with the assistance of a valuation specialist, using Level 3 inputs as defined under ASC Topic 820. The fair value analysis and related valuations reflect the conclusions of management. All estimates, key assumptions, and forecasts were either provided by or reviewed by the Company. The goodwill and intangible assets acquired are deductible for tax purposes. The Tennessee Quality Care acquisition accounte d for $ 16.3 million of net service revenues and $ 3.0 million of operating income for the year ended December 31, 2023. JourneyCare On February 1, 2022, the Company completed the acquisition of the hospice and palliative operations of 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 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 to patients 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 of net service revenues and $ 9.1 million of 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. F- 18 Table of Contents 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 yea rs and $ 0.4 million of indefinite-lived state licenses. Th e 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. Other Acquisitions On January 1, 2023, we completed the acquisition of CareStaff for approximately $ 1.0 million, with funding provided by available cash. With the purchase of CareStaff, the Company expanded its personal care services segment in Florida and recorded goodwill of $ 0.6 mill ion. On October 1, 2022 , we completed the acquisition of Apple Home for approximately $ 12.7 million, with funding provided by drawing on the Company’s revolving credit facility. The additional contingent consideration of up to approximately $ 2 million was settled without further payment. 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, 2023, the following table contains unaudited pro forma Consolidated Income Statement information of the Company as if the acquisition of Tennessee Quality Care closed on January 1, 2022. 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 Years Ended December 31, (Amounts in Thousands, Unaudited) 2023 2022 2021 Net service revenues $ 1,084,759 $ 991,566 $ 936,601 Operating income from continuing operations 96,679 73,353 69,081 Net income from continuing operations 65,436 46,270 47,622 Net income per common share Basic income per share $ 4.09 $ 2.92 $ 3.03 Diluted income per share $ 4.01 $ 2.86 $ 2.96 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. F- 19 Table of Contents 4. Property and Equipment Property and equipment consisted of the following: December 31, 2023 2022 (Amounts in Thousands) Computer software $ 23,936 $ 19,675 Computer equipment 10,430 12,343 Leasehold improvements 11,110 10,746 Furniture and equipment 5,758 5,534 Transportation equipment 258 194 51,492 48,492 Less: accumulated depreciation and amortization ( 27,481 ) ( 27,310 ) $ 24,011 $ 21,182 Computer software includes $ 1.6 million of internally developed software for both years ended December 31, 2023 and 2022 . Depreciation and amortization expense totaled $ 6.9 million, $ 6.8 million and $ 5.9 million for the years ended December 31, 2023, 2022 and 2021 , respectively. 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, 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 Additions for acquisitions 35,071 601 44,274 79,946 Adjustments to previously recorded goodwill — ( 13 ) 225 212 Goodwill at December 31, 2023 $ 432,799 $ 153,276 $ 76,920 $ 662,995 In 2023, the Company recognized goodwill in the hospice and home health segments of $ 35.0 million and $ 44.3 million, respectively, related to the acquisition of Tennessee Quality Care and $ 0.6 million related to the acquisition of CareStaff in the personal care services segment. In connection with the acquisition of JourneyCare in 2022, the Company recognized goodwill in its hospice segment of $ 69.4 million and $ 8.9 million with the acquisition of Apple Home in 2022 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 2022 and 2023. 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 . F- 20 Table of Contents 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 c apital. Significant assumptions used in the analysis included a 10.0 % discount rate and long-term revenue growth rates that ranged from 3.5 % to 5.8 %. The Company did no t record any impairment charges for the years ended December 31, 2023, 2022 or 2021. The carrying amount and accumulated amortization of each identifiable intangible asset category consisted of the following at December 31, 2023 and 2022: December 31, 2023 December 31, 2022 (Amounts in Thousands) (Amounts in Thousands) Estimated Useful Life Gross carrying value Accumulated amortization Net carrying value Gross carrying value Accumulated amortization Net carrying value Customer and referral relationships 5 - 10 years $ 44,672 $ ( 39,566 ) $ 5,106 $ 44,672 $ ( 38,088 ) $ 6,584 Trade names and trademarks 1 - 20 years 59,566 ( 23,857 ) 35,709 52,046 ( 21,058 ) 30,988 Non-competition agreement 3 - 5 years 6,785 ( 5,601 ) 1,184 6,785 ( 4,785 ) 2,000 State Licenses 6 - 10 years 12,671 ( 9,015 ) 3,656 12,517 ( 7,009 ) 5,508 State Licenses Indefinite 46,328 — 46,328 27,108 — 27,108 Total intangible assets $ 170,022 $ ( 78,039 ) $ 91,983 $ 143,128 $ ( 70,940 ) $ 72,188 During the year ended December 31, 2023, the Company acquired indefinite-lived state licenses and a trade name of $ 7.6 million and $ 2.1 million, respectively, in its hospice segment related to the acquisition of Tennessee Quality Care. The Company also acquired indefinite-lived state licenses and trade name of $ 11.6 million and $ 5.4 million, respectively, in its home health segment in connection with the Tennessee Quality Care acquisition. 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. Amortization expense related to the identifiable intangible assets amounted to $ 7.1 million, $ 7.2 million and $ 8.5 million for the years ended December 31, 2023, 2022 and 2021, respectively. The weighted average remaining useful life of identifiable intangible assets as of December 31, 2023 is 10.23 years. F- 21 Table of Contents The estimated future intangible amortization expense is as follows: For the year ended December 31, Total (Amount in Thousands) 2024 $ 7,047 2025 5,424 2026 4,800 2027 4,178 2028 3,285 Thereafter 20,921 Total, intangible assets subject to amortization $ 45,655 6. Details of Certain Balance Sheet Accounts Prepaid expenses and other current assets consisted of the following: December 31, 2023 2022 (Amounts in Thousands) Prepaid payroll $ 8,735 $ 7,566 Prepaid workers’ compensation and liability insurance 3,696 3,399 Prepaid licensing fees 4,481 3,722 Workers’ compensation insurance receivable 577 666 Other 2,225 1,992 Total prepaid expenses and other current assets $ 19,714 $ 17,345 Accrued expenses consisted of the following: December 31, 2023 2022 (Amounts in Thousands) Accrued health benefits $ 7,400 $ 5,152 Payor advances (1) 1,218 4,473 Accrued professional fees 7,304 3,576 Accrued payroll and other taxes 8,572 6,175 Other 8,742 8,131 Total accrued expenses $ 33,236 $ 27,507 (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, 2023 2022 (Amounts in Thousands) Revolving loan under the credit facility $ 126,353 $ 134,853 Term loan under the credit facility — — Less unamortized issuance costs ( 2,221 ) ( 3,081 ) Total 124,132 131,772 Less current maturities — — Long-term debt $ 124,132 $ 131,772 F- 22 Table of Contents Amended and Restated Senior Secured Credit Facility On October 31, 2018, the Company entered into the Amended and Restated Credit Agreement, 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, as further amended by the Second Amendment to Amended and Restated Credit Agreement, dated as of July 30, 2021, and as further amended by the Third Amendment to Amended and Restated Credit Agreement, dated as of April 26, 2023 (as described below, the “Third Amendment”) (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 . On April 26, 2023, the Company entered into the Third Amendment to replace LIBOR with SOFR as the benchmark reference rate for loans under its credit facility. The Third Amendment did not amend any other terms of the Credit Agreement. The transition to SOFR did not and is not expected to have a material impact on the Company’s results of operations or liquidity. 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 Term SOFR (as published by the CME Group Benchmark Administrative Limited) for an interest period of one month for such applicable day plus 0.10 % (not to be less than 0.00 %), plus a 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 rate per annum equal to the sum of Term SOFR (as published by the CME Group Benchmark Administrative Limited) for the applicable interest period plus 0.10 % (not to be less than zero ). Swing loans may not be SOFR loans. 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, 2023, the Company was in compliance with all financial covenants under the Credit Agreement. During the twelve months ended December 31, 2023 , the Company drew approximately $ 110.0 million under its credit facility to fund, in part, the Tennessee Quality Care acquisition. At December 31, 2023, the Company had a total of $ 126.4 million of revolving loans, with an interest rate of 7.21 %, outstanding on its credit facility. After giving effect to the amount drawn on its credit facility, approximately $ 8.0 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 $ 470.0 million of capacity and $ 335.6 million available for borrowing under its credit facility. F- 23 Table of Contents During the twelve months ended December 31, 2022, 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. 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) 2023 2022 2021 Current Federal $ 11,839 $ 7,075 $ 4,603 State 4,139 3,090 2,398 Deferred Federal 2,306 3,118 6,407 State 526 863 1,864 Provision for income taxes $ 18,810 $ 14,146 $ 15,272 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, 2023 and 2022. The deferred tax assets (liabilities) consisted of the following: For the Years Ended December 31, (Amounts in Thousands) 2023 2022 Deferred tax assets Long-term Accounts receivable allowances $ 21,480 $ 18,515 Operating lease liabilities 13,562 12,472 Accrued compensation 4,957 3,676 Accrued workers’ compensation 3,046 3,296 Transaction costs 2,390 2,056 Stock-based compensation 1,456 1,473 Net operating loss 87 — Restructuring costs 26 54 Other 2,908 1,420 Total long-term deferred tax assets 49,912 42,962 Deferred tax liabilities Long-term Goodwill and intangible assets ( 42,980 ) ( 34,310 ) Operating lease assets, net ( 11,650 ) ( 10,323 ) Property and equipment ( 2,829 ) ( 3,123 ) Insurance premiums ( 982 ) ( 916 ) Total long-term deferred tax liabilities ( 58,441 ) ( 48,672 ) Total net deferred tax (liabilities) assets $ ( 8,529 ) $ ( 5,710 ) 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, 2023 2022 2021 Federal income tax at statutory rate 21.0 % 21.0 % 21.0 % State and local taxes, net of federal benefit 5.6 5.9 6.3 162(m) disallowance for executive compensation 2.2 3.2 3.5 Nondeductible penalties 0.1 — 0.6 Excess tax benefit ( 0.5 ) ( 0.4 ) ( 2.0 ) Jobs tax credits, net ( 4.0 ) ( 5.1 ) ( 4.1 ) Nondeductible permanent items 0.1 — — Federal/state return to provision ( 1.3 ) ( 1.0 ) — Other ( 0.1 ) ( 0.1 ) ( 0.1 ) Effective income tax rate 23.1 % 23.5 % 25.2 % The effective income tax rate was 23.1 %, 23.5 % and 25.2 % for the years ended December 31, 2023, 2022 and 2021, respectively. The difference between our federal statutory and effective income tax rates was principally due to the inclusion of state taxes and non-deductible compensation, partially offset by an excess tax benefit and the use of federal employment tax credits. The excess tax expense/benefit is a discrete item, related to the vesting of equity shares, which requires the Company to recognize the expense or 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 2020 through 2022 and for various state authorities for the years 2018 through 2022 . 9. Stock Options and Restricted Stock Awards The Board approved the A&R 2017 Plan as of April 13, 2023 and our shareholders approved it as of June 14, 2023. The A&R 2017 Plan amended and restated our 2017 Omnibus Incentive Plan (the “2017 Plan”), which in turn was intended to replace our 2009 Stock Incentive Plan (the “2009 Plan”). All awards are now granted from the A&R 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 A&R 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 (“SARs”), Restricted Stock Restricted Stock Units, Performance Awards and Other Stock Unit Awards. The Board believes that the A&R 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 A&R 2017 Plan, Awards may be made in shares of our common stock. Subject to adjustment as provided by the terms of the A&R 2017 Plan, the maximum aggregate number of shares of common stock with respect to which awards may be granted under the A&R 2017 Plan is 864,215 , comprised of 274,215 shares (the number of shares that were available for issuance under the 2017 Plan as of April 13, 2023) and 590,000 shares (the number of shares newly authorized by the Company’s shareholders upon their approval of the A&R 2017 Plan).. The aggregate awards granted during any calendar year to any single Participant cannot exceed 500,000 shares subject to stock options or SARs. 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 (such shortfall, the “Shortfall Amount”), the number of shares of common stock (or amount of cash, as the case may be) will automatically increase in the subsequent fiscal years during the term of the A&R 2017 Plan until the earlier of the time when the Shortfall Amount has been granted to the Participant, or the end of the third fiscal year following the year to which such Shortfall Amount relates. At December 31, 2023, there wer e 854,003 shares of c ommon stock available for future grant under the A&R 2017 Plan. F- 25 Table of Contents Awards made under the 2017 Plan (and the 2009 Plan) that are forfeited, canceled, settled in cash or otherwise terminated without a distribution of shares to a Participant will be deemed available for Awards under the A&R 2017 Plan; provided, that the A&R 2017 Plan explicitly prohibits shares withheld for payment of taxes for awards, the exercise price for appreciation awards, shares acquired with the proceeds of appreciation awards, and shares from stock settled SARs from being added back to the share reserve. Stock options are awarded with an exercise 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. Stock options are awarded with an exercise 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, 2023 range from $ 19.71 to $ 92.00 . Restricted stock awards are full-value awards. Stock Options A summary of stock option activity for the year ended December 31, 2023 follows: Options (Amounts in Thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Terms (Years) Outstanding, beginning of period 468 $ 45.72 5.2 Granted — — Exercised ( 13 ) 24.38 Forfeited/Cancelled — — Outstanding, end of period 455 $ 46.33 4.3 Exercisable, end of period 415 $ 42.21 4.0 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 2023. The related assumptions follow: 2023 2022 2021 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 $ 0.9 million, $ 1.2 million and $ 1.4 million for the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023 , there was $ 1.0 million of total unrecognized compensation cost that is expected to be recognized over a weighted average period of 2.0 years. The intrinsic value of exercisable and outstanding stock options was $ 21.0 million and $ 21.2 million, respectively, as of December 31, 2023. As of December 31, 2023 , there were 415,000 and 40,000 shares of stock options vested and unvested, respectively. The intrinsic value of stock options exercised during the years ended December 31, 2023, 2022 and 2021 was $ 0.8 million, $ 3.5 million and $ 1.8 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, 2023 follows: Restricted Stock Awards (Amounts in Thousands) Weighted Average Grant Date Fair Value Unvested restricted stock awards, beginning of period 210 $ 88.22 Awarded 87 103.24 Vested ( 95 ) 89.92 Forfeited ( 1 ) 84.00 Unvested restricted stock awards, end of period 201 $ 93.93 The fair value of restricted stock awards that vested during the year ended December 31, 2023 was $ 9.9 million. Restricted stock award compensation expense totaled $ 9.4 million, $ 9.4 million and $ 8.0 million for the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, there was $ 10.4 million of total unrecognized compensation cost that is expected to be recognized over a weighted average period of 1.4 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 $ 0.6 million, $ 0.4 million and $ 0.4 m illion for the years ended December 31, 2023, 2022 and 2021 , 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. 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 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. F- 27 Table of Contents The tables below set forth information about the Company’s reportable segments for the years ended December 31, 2023, 2022 and 2021 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, 2023 (Amounts in Thousands) Personal Care Hospice Home Health Total Net service revenues $ 794,718 $ 207,155 $ 56,778 $ 1,058,651 Cost of services revenues 572,807 110,219 35,749 718,775 Gross profit 221,911 96,936 21,029 339,876 General and administrative expenses 64,382 52,083 14,017 130,482 Segment operating income $ 157,529 $ 44,853 $ 7,012 $ 209,394 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 Years Ended December 31, (Amounts in Thousands) 2023 2022 2021 Segment reconciliation: Total segment operating income $ 209,394 $ 179,214 $ 167,938 Items not allocated at segment level: Other general and administrative expenses 104,312 96,417 87,508 Depreciation and amortization 14,126 14,060 14,494 Interest income ( 1,476 ) ( 341 ) ( 268 ) Interest expense 11,106 8,907 5,806 Income before income taxes $ 81,326 $ 60,171 $ 60,398 F- 28 Table of Contents 13. Significant Payors For 2023, 2022 and 2021, the Company’s revenue by payor type was as follows: Personal Care For the Years Ended December 31, 2023 2022 2021 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 $ 400,753 50.4 % $ 348,234 49.3 % $ 338,325 49.3 % Managed care organizations 367,557 46.2 326,778 46.3 311,801 45.5 Private pay 16,268 2.0 18,301 2.6 19,991 2.9 Commercial insurance 6,321 0.8 7,689 1.1 9,820 1.4 Other 3,819 0.6 5,505 0.7 5,917 0.9 Total personal care segment net service revenues $ 794,718 100.0 % $ 706,507 100.0 % $ 685,854 100.0 % Hospice For the Years Ended December 31, 2023 2022 2021 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 $ 186,317 89.9 % $ 183,407 90.9 % $ 142,086 93.3 % Managed care organizations 7,037 3.4 7,353 3.6 5,664 3.7 Other 13,801 6.7 11,012 5.5 4,503 3.0 Total hospice segment net service revenues $ 207,155 100.0 % $ 201,772 100.0 % $ 152,253 100.0 % Home Health For the Years Ended December 31, 2023 2022 2021 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 $ 41,078 72.3 % $ 31,505 73.5 % $ 20,700 78.4 % Managed care organizations 12,613 22.2 8,698 20.3 4,457 16.9 Other 3,087 5.5 2,638 6.2 1,235 4.7 Total home health segment net service revenues $ 56,778 100.0 % $ 42,841 100.0 % $ 26,392 100.0 % 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 2023, 2022 and 2021 were as follows: Personal Care For the Years Ended December 31, 2023 2022 2021 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 $ 411,081 51.7 % $ 360,778 51.1 % $ 328,619 47.9 % New York 92,469 11.6 86,592 12.3 99,732 14.5 New Mexico 115,986 14.6 105,315 14.9 97,784 14.3 All other states 175,182 22.1 153,822 21.7 159,719 23.3 Total personal care segment net service revenues $ 794,718 100.0 % $ 706,507 100.0 % $ 685,854 100.0 % Hospice For the Years Ended December 31, 2023 2022 2021 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 $ 74,871 36.1 % $ 70,503 35.0 % $ 61,415 40.3 % New Mexico 30,782 14.9 30,722 15.2 36,063 23.7 Illinois 47,247 22.8 47,181 23.4 — — All other states 54,255 26.2 53,366 26.4 54,775 36.0 Total hospice segment net service revenues $ 207,155 100.0 % $ 201,772 100.0 % $ 152,253 100.0 % With the acquisition of JourneyCare in 2022, the Company expanded its hospice services to patients in the state of Illinois. Home Health For the Years Ended December 31, 2023 2022 2021 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 $ 32,949 58.0 % $ 34,111 79.6 % $ 24,735 93.7 % Illinois 12,851 22.6 8,730 20.4 1,657 6.3 Tennessee 10,978 19.4 — — — — Total home health segment net service revenues $ 56,778 100.0 % $ 42,841 100.0 % $ 26,392 100.0 % With the acquisition of Tennessee Quality Care in 2023, the Company expanded its home health services to patients in the state of Tennessee. A substantial portion of the Company’s revenue and accounts receivable is derived from services performed for state and local governmental agencies. We derive a significant amount of our net service revenues in Illinois, which represented 44.5 %, 43.8 % and 38.2 % of our net service revenues for the years ended December 31, 2023, 2022 and 2021, respectively. The Illinois Department on Aging, the largest payor program for the Company’s Illinois personal care operations, accounted for 20.9 %, 20.7 % and 21.4 % of the Company’s net service revenues for 2023, 2022 and 2021, respectively. The related receivables due from the Illinois Department on Aging represented 25.8 % and 18.0 % of the Company’s net accounts receivable at December 31, 2023 and 2022, respectively. F- 30 Table of Contents In 2019, New York initiated a new 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 was filed and accepted in March 2021. The New York fiscal year 2023 state budget, passed in April 2022, amended the 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 submitted 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, which allowed the Company to continue its CDPAP fiscal intermediary operations. However, the Company decided at that time to suspend materially all of its new fee-for-service patient admissions in the CDPAP through County Social Service Departments. On June 6, 2023, the New York State Department of Health notified the Company that it had received a contract award. Under this contract, the Company is providing services to all current payors and has resumed new fee-for-service patient admissions through County Social Service Departments in the CDPAP. The CDPAP continues to be targeted for changes by New York governmental authorities, however. For example, the governor’s most recent update on the state budget contained proposals that could adversely affect the Company’s ability to participate in the CDPAP. The Company recognized approximat ely $ 40.7 million from the program for the year ended December 31, 2023. 14. Government Actions to Mitigate COVID-19’s Impact The acute phase of the COVID-19 pandemic has faded, but the future course of COVID-19 remains uncertain. 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 took dramatic actions to provide liquidity to businesses and the banking system in the United States, including relief for healthcare providers in the CARES Act, which was expanded by the Paycheck Protection Program and Health Care Enhancement (“PPPHCE”) Act, and the Consolidated Appropriations Act (“CAA”), as well as the ARPA. ARPA The 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. The Company received state funding provided by the ARPA in an aggregate amount of $ 3.7 million and $ 23.4 million for the years ended December 31, 2023 and 2022, respectively. The Company recorded revenue of $ 0.3 million and $ 1.9 million and related cost of service revenues of $ 0.1 million and $ 1.5 million for certain states that met the revenue recognition criteria for the years ended December 31, 2023 and 2022, respectively. The Company deferred the remaining $ 3.4 million and $ 21.5 million for the years ended December 31, 2023 and 2022, respectively, which was received from states with specific spending plans and reporting requirements. The Company utilized $ 10.5 million and $ 8.6 million of these funds during the years ended December 31, 2023 and 2022, respectively, primarily for caregivers and adding support to recruiting and retention efforts. The deferred portion of ARPA funding was $ 5.8 million and $ 12.9 million as of December 31, 2023 and 2022, respectively, which is included within Government stimulus advances on the Company’s Consolidated Balance Sheets. F- 31 Table of Contents 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 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, 2023, we submitted an unmodified audit report to HHS for 2022 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 April 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 $ 0.0 million and $ 1.4 million for the years ended December 31, 2023 and 2022, respectively. In the home health segment, Medicare sequester relief resulted in an increase in net service revenues of $ 0.0 million and $ 0.3 million for the years ended December 31, 2023 and 2022, 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 re paid $ 4.1 mill ion and $ 3.0 million as of December 31, 2022 and 2021 respectively. F- 32