What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-25 compared with 2024-02-27 · 114 added, 170 removed, 438 unchanged (39% of the section changed)

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Locations at period end

(1) The Company defines adjusted EBITDA as earnings before interest expense, other non-operating income, taxes, depreciation, amortization, acquisition expense, stock-based compensation expense, restructure expenses and other non-recurring costs and loss on the sale of assets and retroactive rate increases from New York.

The Company defined adjusted EBITDA to exclude net COVID expenses arising from the pandemic from the second quarter of 2020 to the first quarter of 2021.

(1) The Company defines adjusted EBITDA as earnings before interest expense, other non-operating income, taxes, depreciation, amortization, acquisition expense, stock-based compensation expense, restructure and other non-recurring costs, gain or loss on the sale of assets, impairment of operating lease assets, retroactive rate increases from New York and the retroactive impact from collective bargaining negotiations.

Adjusted EBITDA is a performance measure used by management that is not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”).

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In addition to our organic growth, we have grown through acquisitions that have expanded our presence in current markets, with the goal of having all three levels of in-home care in our markets, or facilitating our entry into new markets where in-home care has been moving to managed care organizations.

On February 1, 2022, we completed the acquisition of the 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).

The JourneyCare acquisition was funded with a combination of a $35.0 million draw on the Company’s revolving credit facility and available cash.

With the JourneyCare acquisition, the Company expanded its hospice services in the state of Illinois.

On October 1, 2022, we completed the acquisition of Apple Home for $12.7 million, with funding provided by drawing on the Company’s revolving credit facility.

With the purchase of Apple Home, the Company expanded clinical services for its home health segment to Illinois.

On January 1, 2023, we completed the acquisition of CareStaff for approximately $1.0 million, with funding provided by available cash.

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On August 1, 2023, we completed the acquisition of Tennessee Quality Care for approximately $111.2 million, with funding primarily provided by drawing on the Company’s revolving credit facility.

The purchase price is subject to the completion of working capital and related adjustments.

With the purchase of Tennessee Quality Care, the Company expanded its services within its hospice and home health segment to Tennessee.

On March 9, 2024, we completed our acquisition of the operations of Upstate for $0.4 million, with funding provided by available cash.

With the purchase of Upstate, the Company expanded its personal care services segment in South Carolina.

On December 2, 2024, we completed the Gentiva Acquisition for approximately $353.6 million, with funding primarily provided by drawing on the Company’s revolving credit facility and a portion of the net proceeds of the Company’s public offering of common stock.

The purchase price is subject to the completion of working capital and related adjustments.

With the Gentiva Acquisition, the Company expanded its services within its personal care services segment in Arizona, Arkansas, California and North Carolina, and entered the market in Missouri and Texas.

The home health segment also was expanded in Tennessee.

Effective May 20, 2024, we entered into a definitive asset purchase agreement to sell all of our New York operations (the “New York Asset Sale”).

The Company entered into a consulting agreement with the purchaser, as the transfer of clients and caregivers and payment for assets pursuant to the New York Asset Sale is occurring over time as regulatory approvals are received, coordination of the transfer of clients and caregivers occurs, and the change of control takes place.

In connection with this transaction, the Company will cease operations in New York.

In October 2024, the Company qualified for sale consideration of the New York Asset Sale.

As a result, the Company has deconsolidated the results of its New York operations and recorded a gain on divestiture of $3.7 million.

The New York Asset Sale purchase price of up to $23.0 million includes an initial payment of $4.6 million, $6.9 million paid pro rata as a deferred payment as caregivers are transferred and 50% in the form of contingent consideration for the Company’s Consumer Directed Personal Assistance Program (“CDPAP”) business.

Revenue by Payor and Significant States

Our payor clients are principally federal, state and local governmental agencies and managed care organizations.

The federal, state and local programs under which the agencies operate are subject to legislative and budgetary changes and other risks that can influence reimbursement rates.

The federal, state and local programs under which the agencies operate are subject to legislative, administrative and budgetary changes and other risks that can influence reimbursement rates.

We are experiencing a transition of business from government payors to managed care organizations, which we believe aligns with our emphasis on coordinated care and the reduction of the need for acute care.

Medicare advantage revenue is included within Medicare.

For the years ended December 31, 2024, 2023 and 2022, our revenue by payor and significant states by segment were as follows:

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service revenues

With the acquisition of CareStaff in 2023, the Company expanded its personal care services to consumers in the state of Florida.

With the acquisition of Upstate and the Gentiva Acquisition in 2024, the Company expanded its personal care services to consumers in the state of Arizona, Arkansas, California, Missouri, North Carolina, South Carolina and Texas.

(in Thousands)

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service revenues

With the acquisition of JourneyCare in 2022, the Company expanded its hospice services to patients in the state of Illinois, and with the acquisition of Tennessee Quality Care in 2023, the Company also expanded its hospice services to patients in the state of Tennessee.

With the acquisition of Tennessee Quality Care in 2023, the Company expanded its hospice services to patients in the state of Tennessee and with the acquisition of JourneyCare in 2022, the Company also expanded its hospice services to patients in the state of Illinois.

(in Thousands)

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service revenues

With the acquisition of Tennessee Quality Care in 2023, the Company also expanded its home health services to patients in the state of Tennessee.

With the Gentiva Acquisition, the Company expanded its home health services to patients in the state of Tennessee.

With the acquisition of Tennessee Quality Care in 2023, the Company expanded its home health services to patients in the state of Tennessee.

We derive a significant amount of our net service revenues in Illinois, which represented 43.7% and 44.5% of our net service revenues for the years ended December 31, 2024 and 2023, respectively.

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Changes in Illinois Reimbursement

On November 26, 2019, the City of Chicago voted to approve increases in the Chicago minimum wage to $14 per hour beginning July 1, 2020 and to $15 per hour beginning July 1, 2021.

In each subsequent year, the City is required to raise the wage based on the lower of the increases in the Consumer Price Index (“CPI”) or 2.5% subject to a cap and other requirements.

On July 1, 2023, the rate was adjusted to $15.80.

The Illinois fiscal year 2022 budget included an increase in hourly rates for in-home care services to $24.96, to be effective January 1, 2022.

On July 12, 2021, in connection with the temporary increase in federal funding for Medicaid HCBS authorized by the ARPA, the State of Illinois submitted its Initial Spending Plan and Narrative to CMS for approval.

That plan included the acceleration by two months of the rate increase to $24.96 from January 1, 2022, to November 1, 2021.

The Company recognized $3.6 million related to the rate increase for the year ended December 31, 2021.

The Illinois fiscal year 2023 budget included an increase of hourly rates for in-home care services to $25.66, to be effective January 1, 2023.

This increase offsets the $0.40 increase in Chicago minimum wage that occurred on July 1, 2022.

In addition, CMS approved a waiver amendment proposal submitted by the Illinois Department of Healthcare and Family Services with regard to its Persons who are Elderly program, further increasing in-home care rates to $26.92, effective March 1, 2023.

The City of Chicago requires the Chicago minimum wage to be adjusted annually based on increases in the Consumer Price Index (“CPI”), subject to a cap and other requirements.

On July 1, 2024, the rate was adjusted to $16.20 based on the increase in the CPI.

The Illinois Medicaid omnibus legislation passed in June 2023 included an increase in hourly rates for in-home care services to $28.07, which took effect on January 1, 2024, and required a minimum wage rate of $17.00 per hour.

Our business will benefit from the rate increases noted above as planned for 2024, but there is no assurance that there will be additional offsetting rate increases in Illinois for fiscal years beyond fiscal year 2024, and our financial performance will be adversely impacted for any periods in which an additional offsetting reimbursement rate increase is not in effect.

CMS approved an amendment to the Illinois HCBS waiver for Persons who are Elderly, which included the rate increase for in-home care services to $28.07, effective January 1, 2024.

The Illinois fiscal year 2025 budget includes an increase in hourly rates for in-home care services to $29.63, effective January 1, 2025, and required a minimum wage of $18.00 per hour for direct service workers.

CMS approved an amendment to Illinois’ Persons who are Elderly waiver program that included this rate increase, effective January 1, 2025.

Our business will benefit from the rate increases noted above as planned for 2025, but there is no assurance that there will be additional rate increases in Illinois for fiscal years beyond fiscal year 2025 to offset increases to minimum wage, and our financial performance will be adversely impacted for any periods in which an additional offsetting reimbursement rate increase is not in effect.

Changes in Medicare and Medicaid Reimbursement

Hospice services provided to Medicare beneficiaries are paid under the Medicare Hospice Prospective Payment System, under which CMS sets a daily rate for each day a patient is enrolled in the hospice benefit.

CMS updates these rates each federal fiscal year.

The daily rate depends on the level of care provided to a patient (routine home care, continuous home care, inpatient respite care, or general inpatient care).

Daily rates are adjusted for factors such as area wage levels.

CMS updates hospice payment rates each federal fiscal year.

Effective October 1, 2024, CMS increased hospice payment rates by 2.9%.

This reflects a 3.4% market basket increase and a negative 0.5 percentage point productivity adjustment.

Hospices that do not satisfy quality reporting requirements will be subject to a 4-percentage point reduction to the market basket update.

Overall payments made by Medicare to each hospice provider number are subject to an inpatient cap and an aggregate cap, which is set each federal fiscal year.

The inpatient cap limits the number of days of inpatient care to no more than 20% of total patient care days.

The aggregate cap, which limits the total Medicare reimbursement that a hospice may receive based on an annual per-beneficiary cap amount and the number of Medicare patients served, was updated to $33,494.01 for federal fiscal year 2024.

Hospices that do not satisfy quality reporting requirements are subject to a 4-percentage point reduction to the market basket update.

Overall payments made by Medicare to each hospice provider number are subject to an inpatient cap and an aggregate cap.

The inpatient cap limits the number of days of inpatient care for which Medicare will pay to no more than 20% of total patient care days.

Days in excess of the limitation are paid at the routine home care rate.

The aggregate cap, which is set each federal fiscal year, limits the total Medicare reimbursement that a hospice may receive in a cap year (typically the federal fiscal year), based on an annual per-beneficiary cap amount and the number of Medicare patients served.

The aggregate cap was updated to $34,465.34 for federal fiscal year 2025.

If a hospice’s Medicare payments exceed its inpatient or aggregate caps, it must repay Medicare the excess amount.

Home health services provided to Medicare beneficiaries are paid under the Medicare Home Health Prospective Payment System (“HHPPS”), which uses national, standardized 30-day period payment rates for periods of care that meet a certain threshold of home health visits (periods of care that do not meet the visit threshold are paid a per-visit payment rate for providing care).

Although payment is made for each 30-day period, the HHPPS permits continuous 60-day certification periods through which beneficiaries are verified as eligible for the home health benefit.

The daily home health payment rate is adjusted for case-mix and area wage levels.

CMS uses the PDGM as the case-mix classification model to place periods of care into payment categories, classifying patients based on clinical characteristics and their resource needs.

CMS uses the Patient-Driven Groupings Model (“PDGM”) as the case-mix classification model to place periods of care into payment categories, classifying patients based on clinical characteristics and their resource needs.

An outlier adjustment may be paid for periods of care where costs exceed a specific threshold amount.

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For calendar year 2025, CMS estimates that Medicare payments to home health agencies will increase by 0.5%.

This is based on a home health payment update percentage of 3.0, which reflects a 3.3% market basket update reduced by a productivity adjustment of negative 0.3 percentage points, and an estimated 2.6% decrease associated with the transition to the PDGM, among other changes.

This is based on a home health payment update percentage of 2.7%, which reflects a 3.2% market basket update, reduced by a productivity adjustment of 0.5 percentage points and an estimated 1.8% decrease associated with the transition to the PDGM, among other changes.

Home health providers that do not comply with quality data reporting requirements are subject to a 2-percentage point reduction to their market basket update.

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Failure to submit the NOA within five calendar days from the start of care will result in a reduction to the 30-day period payment amount for each day from the start of care date until the date the NOA is submitted.

Under the Home Health Value-Based Purchasing (“HHVBP”) Model, home health agencies receive increases or decreases to their Medicare fee-for-service payments of up to 5% based on performance against specific quality measures relative to the performance of other home health providers.

Under the nationwide Home Health Value-Based Purchasing (“HHVBP”) Model, home health agencies receive increases or decreases to their Medicare fee-for-service payments of up to 5% based on performance against specific quality measures relative to the performance of other home health providers.

Data collected in each performance year will impact Medicare payments two years later.

In certain states, payment of claims may be impacted by the Review Choice Demonstration for Home Health Services, a program intended to identify and prevent fraud, reduce the number of Medicare appeals and improve provider compliance with Medicare program requirements.

The program currently applies to home health agencies in certain states, including Illinois, Ohio, Oklahoma, North Carolina, Florida and Texas.

Providers in states subject to the Review Choice Demonstration may initially select from the following claims review and approval processes:

pre-claim review, post-payment review or a minimal post-payment review with a 25% payment reduction.

Home health agencies that maintain high compliance levels will be eligible for additional options that may be less burdensome.

We are currently unable to predict what impact, if any, this program may have on our result of operations or financial position.

The IMPACT Act required HHS, together with MedPAC, to consider and propose a unified payment system for post-acute care services provided by home health agencies, inpatient rehabilitation facilities, skilled nursing facilities, and long-term care hospitals.

A unified post-acute care payment system would pay post-acute care providers under a single framework according to a patient’s characteristics, rather than based on the post-acute care setting where the patient receives treatment.

As required under the statute, CMS and the HHS Office of the Assistant Secretary for Planning and Evaluation issued a report in July 2022 presenting a prototype for a unified post-acute care payment model, and MedPAC submitted a report to Congress in June 2023 evaluating a prototype design.

Although both CMS and MedPAC concluded that designing a unified payment system is feasible, CMS noted that universal implementation of a unified payment system would require congressional action and MedPAC cautioned that implementation would be complex.

Due to the agency resources required to implement a unified model, MedPAC noted that CMS may consider smaller-scale site-neutral policies to address some of the overlap in patients treated in different settings and highlighted that recent changes to various post-acute care payment systems address some of the concerns underlying the push for a unified model.

New York Consumer Directed Personal Assistance Program (“CDPAP”)

The CDPAP is a self-directed care alternative program that allows eligible individuals who need help with activities of daily living or skilled nursing services to choose their caregivers.

We provide support services as a CDPAP fiscal intermediary.

The Company recognized approximately $40.7 million in revenue from the program for the year ended December 31, 2023.

In 2019, New York initiated a new RFO process to competitively procure CDPAP fiscal intermediaries.

On February 11, 2021, the NYSDOH announced its initial selection of entities to enter into contracts as a Lead Fiscal Intermediary.

The Company was not one of the selected entities in the initial RFO process.

The Company submitted a formal protest in response to this selection process, which was filed and accepted on March 19, 2021.

In April 2022, the New York legislature passed the fiscal year 2023 state budget, which amended the 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, but that were not initially awarded a contract, to contract with the New York State Department of Health.

These fiscal intermediaries were permitted to continue operating in all counties contained in their RFO application, provided they 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 through County Social Service Departments in the CDPAP.

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.

CMS Proposed Rule:

The program is currently limited to home health agencies in Illinois, Ohio, Oklahoma, North Carolina, Florida and Texas.

Providers in states subject to the Review Choice Demonstration for Home Health Services may initially select either pre-claim review or post-payment review.

Home health agencies that maintain high compliance levels are eligible for additional options that may be less burdensome.

This program has not had a material impact on our results of operations or financial position.

CMS Final Rule:

“ Ensuring Access to Medicaid Services ”

In May 2023, CMS published a proposed rule, intended to improve access to services for Medicaid beneficiaries, that includes provisions related to HCBS payments.

Specifically, in an effort to address workforce shortages, the proposed rule would (if finalized in its proposed form) require that a minimum of 80% of Medicaid payments in a state for home health aide, personal care services and some similar services be spent on compensation to direct care workers, in addition to related payment transparency requirements.

CMS has proposed allowing states four years to implement changes required by a final rule.

The ultimate impact of the 80% requirement, if finalized as proposed, could be adverse for periods after implementation, but other aspects of the rule could also benefit our business by improving access to services, depending on the policies ultimately set forth in any final rule.

The comment period for the proposed rule ended July 1, 2023.

The Company filed a comment letter on the proposed rule before this deadline, as did many other organizations, states and stakeholders.

On January 26, 2024, CMS sent a final rule to the Office of Management and Budget (OMB) for review and clearance.

The contents of the final rule are unknown at this time, and the final rule may be significantly different than the proposed rule.

OMB review is the last step in the process prior to release of the regulation in the Federal Register.

The final rule’s timetable on the OMB website projects a release by April 2024.

COVID-19 Update

The federal public health emergency declared by HHS as a result of the COVID-19 pandemic expired May 11, 2023.

Compared to earlier periods, the number of COVID-19 infections and related hospitalizations has significantly declined.

However, we may be more vulnerable to the effects of COVID-19 than other businesses due to the nature of our consumers and patients and the physical proximity required by our operations.

For the years ended December 31, 2023 and 2022, COVID-19-related expenses in our personal care segment were approximately $2.8 million and $4.5 million, respectively.

COVID-19 related expenses are included in cost of service revenue on the Consolidated Statements of Income.

Additionally, we recognized revenue of $1.6 million and $4.3 million attributable to temporary rate increases from certain payors in our personal care segment for the years ended December 31, 2023 and 2022, respectively.

For the years ended December 31, 2023 and 2022, COVID-19-related expenses in our hospice segment were approximately $0.1 million and $0.2 million, respectively.

As the labor market continues to be tight and unemployment remains at low levels, we expect the competition for new caregivers, including skilled healthcare staff to be significant.

To the extent that we continue to experience a shortage of caregivers, it may hinder our ability to attract and retain sufficient caregivers to meet the continuing demand for both our non-clinical and clinical services.

The ongoing staffing challenges may also continue to result in increased labor costs to satisfy our staffing requirements.

In May 2024, CMS finalized a rule intended to improve access to services and quality of care for Medicaid beneficiaries across fee-for-service and managed care delivery systems.

The final rule includes significant provisions related to HCBS, including the “80/20” or “payment adequacy” requirement, which will require states to ensure that at least 80% of all Medicaid payments a provider receives for homemaker, home health aide, and personal care services, less certain excluded costs, under specified programs are spent on total compensation (including benefits) for direct care workers furnishing these services, rather than administrative overhead or profit, subject to limited exceptions.

States are required to ensure compliance with the 80/20 requirement by mid-2030.

The final rule includes several other measures intended to promote transparency and enhance quality and access to services, including a variety of reporting requirements for states.

Given the very long implementation period and the likelihood of further changes as a result of litigation, administration and congressional changes, further rule-making and state changes in response to the final rule, it is premature to predict the ultimate impact of the final rule on our business.

Potential Developments

Home care and other healthcare providers may be significantly impacted by changes to the Medicaid program, including changes resulting from legislation and administrative actions at the federal and state levels.

Federal actions may impact funding for, or the structure of, the Medicaid program and may shape provider reimbursement rates, eligibility and coverage policies and other aspects of state Medicaid programs.

Currently, the federal government pays a percentage match for state Medicaid expenditures that varies by state and other factors, with no pre-set limit on federal spending.

However, some members of Congress and the presidential administration have raised, and Congress may in the future adopt, proposals intended to reduce Medicaid expenditures such as restructuring the Medicaid program to give states a “block grant” or fixed amount of overall funding for their respective Medicaid programs or to impose spending caps such as per Medicaid beneficiary limits on federal contributions.

Reductions in federal funding or changes to the federal funding formula for Medicaid could have a significant impact, particularly in states that expanded Medicaid under the ACA and especially if federal contributions for Medicaid expansion populations decrease and states are unable to offset the reductions.

In addition, some states use or have applied to use Medicaid waivers granted by CMS to implement the ACA’s Medicaid expansion provisions, impose different eligibility or enrollment restrictions or otherwise implement programs that vary from federal standards.

Some of these program variations may reduce the number of current and/or future Medicaid enrollees.

The outcome of the 2024 federal elections, affecting both the executive and legislative branches, increases regulatory uncertainty and the potential for significant policy changes.

President Trump has issued executive orders that impact or may impact the healthcare industry, including an order establishing a presidential advisory commission focused on restructuring and streamlining government agencies and reducing or eliminating regulations and federal government programs and other expenditures.

Further, some members of Congress and the presidential administration have raised potential measures intended to accelerate the shift from traditional Medicare to Medicare Advantage or eliminating some or all of the consumer protections established by the ACA.

Components of our Statements of Income

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Our effective income tax rate was 25.9% and 23.1% for the years ended December 31, 2024 and 2023, respectively.

The difference between our federal statutory and effective income tax rates was principally due to the inclusion of state taxes, non-deductible compensation, excess tax expense/benefit and the use of federal employment tax credits.

The difference between our federal statutory and effective income tax rates was principally due to the inclusion of state taxes, non-deductible compensation, and non-deductible permanent items, partially offset by the use of federal employment tax credits.

Results of Operations

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Net service revenue increased by $61.9 million, $21.0 million and $13.0 million in our personal care, hospice and home health segments, respectively, for the year ended December 31, 2024, compared to 2023.

Net service revenue increased due to a 8.2% increase in revenues per billable hour and a 4.2% increase in billable hours for the year ended December 31, 2023 in our personal care segment compared to 2022.

Net service revenue in our personal care segment increased due to a 5.2% increase in revenues per billable hour and a 2.1% increase in billable hours for the year ended December 31, 2024 compared to 2023.

The increase in our hospice segment revenue was primarily due to an increase in average daily census and revenue per patient day, mainly attributed to the acquisition of Tennessee Quality Care on August 1, 2023.

The increase in our home health segment is primarily due to the full-year effect in 2023 of the acquisition of Apple Home on October 1, 2022 and the acquisition of Tennessee Quality Care on August 1, 2023.

The increase in our home health segment is primarily due to the full-year effect in 2024 of the acquisition of Tennessee Quality Care on August 1, 2023.

Gross profit, expressed as a percentage of net service revenues, increased to 32.5% for the year ended December 31, 2024, from 32.1% in 2023.

The increase was primarily attributable to the increase in gross profit percentage in our personal care and home health segments of 1.6% and 6.6%, respectively, offset by a decline in our hospice segment of 3.2%.

The home health increase was primarily attributable to the Tennessee Quality Care acquisition on August 1, 2023.

The increase was primarily attributable to the increase in gross profit percentage in our personal care and hospice segments of 0.4% and 0.2%, respectively, offset by a marginal decline in our home health segment of 0.2%.

General and administrative expenses increased to $258.8 million for the year ended December 31, 2024 compared to $234.8 million in 2023.

The increase in general and administrative expenses was primarily due to acquisitions that resulted in an increase in administrative employee wages, taxes and benefit costs of $16.3 million.

General and administrative expenses, expressed as a percentage of net service revenues, decreased to 22.2% for 2023, from 22.8% in 2022.

Depreciation and amortization were $14.1 million for each of the years ended December 31, 2023 and 2022.

Total interest expense, net increased to $9.6 million from $8.6 million for the year ended December 31, 2023 compared to 2022.

The increase in interest expense was primarily due to higher average outstanding borrowings from additional borrowings used to fund acquisitions and increased interest rates under our credit facility for the year ended December 31, 2023 compared to 2022.

The increase in general and administrative expenses was primarily due to the full-year effect of the Tennessee Quality Care acquisition that resulted in an increase in administrative employee wages, taxes and benefit costs of $11.7 million.

General and administrative expenses, expressed as a percentage of net service revenues, slightly increased to 22.4% for 2024, from 22.2% in 2023.

Depreciation and amortization decreased to $13.5 million for the year ended December 31, 2024 from $14.1 million in 2023, primarily due to the decrease of intangible asset amortization related to accelerated amortization and the reduction in amortization expense of tradenames, which were fully amortized, partially offset by the full-year effect in 2024 of our fiscal year 2023 acquisitions and fiscal year 2024 acquisitions.

Total interest expense, net decreased to $7.7 million from $11.1 million for the year ended December 31, 2024 compared to 2023.

The decrease in interest expense was primarily due to decreased amounts held under our credit facility for the year ended December 31, 2024 compared to 2023.

Interest income increased $2.9 million due to an increase in cash investment into interest bearing accounts from the Company’s public offering of common stock.

All of our income is from domestic sources.

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The effective income tax rate was 25.9% and 23.1% for the years ended December 31, 2024 and 2023, respectively.

Our lower effective income tax rate in 2023 was principally due to the inclusion of state taxes and non-deductible compensation, partially offset by excess tax benefit and the use of federal employment tax credits.

For the years ended December 31, 2023 and 2022, the state tax rates were 5.6% and 6.0%, respectively.

Our higher effective income tax rate in 2024 was due to the increase of non-deductible compensation and non-deductible permanent items, as well as lower benefit from the use of federal employment tax credits.

For the years ended December 31, 2024 and 2023, the non-deductible compensation, non-deductible permanent items, and federal employment tax credits were 0.8% and (1.7)%, respectively.

Results of Operations – Segments

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We define the same store base to include those stores open for at least 52 full weeks.

This measure highlights the performance of existing stores, while excluding the impact of acquisitions, new store openings and closures, and ARPA associated revenue from this calculation.

(4) 2022 same store growth reflects the change in year-over-year revenue for the same store base.

We define the same store base to include those stores open for at least 52 full weeks.

This measure highlights the performance of existing stores, while excluding the impact of acquisitions, new store openings and closures, the New York CDPAP and ARPA associated revenue from this calculation.

This measure highlights the performance of existing stores, while excluding the impact of acquisitions, new store openings and closures, and American Rescue Plan Act of 2021 associated revenue from this calculation.

* Management deems these metrics to be key performance indicators.

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These measures may not be comparable to similarly-titled performance indicators used by other companies.

The personal care segment derives a significant amount of net service revenues from operations in Illinois, which represented 51.7% and 51.1% of our net service revenues for the years ended December 31, 2023 and 2022, respectively.

The personal care segment derives a significant amount of its net service revenues from operations in Illinois, which represented 38.2% and 38.8% of our net service revenues for the years ended December 31, 2024 and 2023, respectively.

One payor client, the Illinois Department on Aging, accounted for 21.0% and 20.9% of net service revenues for the years ended December 31, 2024 and 2023, respectively.

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Managed care organizations accounted for 44.0% and 46.2% of net service revenues for the years ended December 31, 2024 and 2023, respectively, with commercial insurance, private pay and other payors accounting for the remainder of net service revenues.

Net service revenues increased by 12.5% for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of an increase in revenues per billable hour of 8.2%, mainly attributed to rate increases discussed above.

Gross profit, expressed as a percentage of net service revenues, increased from 26.3% for the year ended December 31, 2022 to 27.9% for the year ended December 31, 2023 due to a decrease of 1.1% in direct payroll expense as a percentage of net service revenues.

Net service revenues increased by 7.8% for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily as a result of an increase in revenues per billable hour of 5.2%, mainly attributed to the rate increases discussed above.

Gross profit, expressed as a percentage of net service revenues, increased from 27.9% for the year ended December 31, 2023 to 28.3% for the year ended December 31, 2024 due to an increase in the reimbursement rate.

The personal care segment’s general and administrative expenses primarily consist of administrative employee wages, taxes and benefit costs, rent, information technology and office expenses.

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Our hospice segment principally provides routine care.

Net service revenues from Medicare accounted for 89.9% and 90.9% and Medicare Advantage accounted for 3.4% and 3.6% for the years ended December 31, 2023 and 2022, respectively.

Net service revenues increased by $5.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to increases in average daily census and revenue per patient day, mainly attributed to the organic growth and the acquisitions of the operations of Tennessee Quality Care on August 1, 2023 and JourneyCare on February 1, 2022.

Gross profit, expressed as a percentage of net service revenues, was 46.8% and 50.0% for the years ended December 31, 2023 and 2022, respectively.

The decrease in gross profit as a percentage of net service revenues was mainly attributed to higher direct employee wages, taxes and benefit costs of $6.4 million.

Net service revenues from Medicare accounted for 91.2% and 89.9% and managed care organizations accounted for 3.3% and 3.4% for the years ended December 31, 2024 and 2023, respectively.

Net service revenues increased by $21.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to increases in average daily census and revenue per patient day, mainly attributed to the organic growth and the acquisition of the operations of Tennessee Quality Care on August 1, 2023.

Gross profit, expressed as a percentage of net service revenues, was relatively consistent at 47.0% and 46.8% for the years ended December 31, 2024 and 2023, respectively.

The hospice segment’s general and administrative expenses primarily consist of administrative employee wages, taxes and benefit costs, rent, information technology and office expenses.

General and administrative expenses, expressed as a percentage of net service revenues, was 24.3% and 25.1% for the years ended December 31, 2024 and 2023, respectively.

The increase in general and administrative expenses was primarily due to acquisitions that resulted in a $2.4 million increase in administrative employee wages for the year ended December 31, 2023.

The decrease in general and administrative expenses was primarily due to more efficient operations for administrative employees for the year ended December 31, 2024.

Home Health Segment

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Net service revenues increased by $13.0 million for the year ended December 31, 2024 compared to 2023.

Total visits increased for the year ended December 31, 2023, mainly attributed to the acquisition of Tennessee Quality Care on August 1, 2023 and the full-year effect in 2023 of the acquisition of Apple Home on October 1, 2022.

Gross profit, expressed as a percentage of net service revenues, was 37.0% and 30.4% for the years ended December 31, 2023 and 2022, respectively.

The increase in gross profit as a percentage of net service revenues was due to a decrease of 6.6% in direct payroll expense as a percentage of net service revenues.

Total visits increased for the year ended December 31, 2023, mainly attributed to the full-year effect of the acquisition of Tennessee Quality Care on August 1, 2023.

Gross profit, expressed as a percentage of net service revenues, was relatively consistent at 36.8% and 37.0% for the years ended December 31, 2024 and 2023, respectively.

The home health segment’s general and administrative expenses consist of administrative employee wages, taxes and benefit costs, rent, information technology and office expenses.

General and administrative expenses, expressed as a percentage of net service revenues, was 24.7% and 23.9% for the years ended December 31, 2023 and 2022, respectively.

The increase in general and administrative expenses was primarily due to acquisitions that resulted in a $3.1 million increase in administrative employee wages, taxes and benefit costs and a $0.3 million increase in rent expenses for the year ended December 31, 2023.

General and administrative expenses, expressed as a percentage of net service revenues, were 25.5% and 24.7% for the years ended December 31, 2024 and 2023, respectively.

The increase in general and administrative expenses was primarily due to increases in administrative employee wages, taxes and benefit costs for the year ended December 31, 2024.

Non-GAAP Financial Measures

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GAAP and a reconciliation of this non-GAAP measure included within this Annual Report on Form 10-K should be carefully evaluated.

We define Adjusted EBITDA as earnings before interest expense, other non-operating income, taxes, depreciation, amortization, acquisition expenses, stock-based compensation expense, restructure expenses and other non-recurring costs, loss on the sale of assets and retroactive rate increases from New York.

The Company defined adjusted EBITDA to exclude net COVID expenses arising from the pandemic from the second quarter of 2020 to the first quarter of 2021.

We define Adjusted EBITDA as earnings before interest expense, other non-operating income, taxes, depreciation, amortization, acquisition expenses, stock-based compensation expense, restructure expenses and other non-recurring costs, gain or loss on the sale of assets, impairment of operating lease assets, retroactive rate increases from New York and the retroactive impact from collective bargaining negotiations.

Adjusted EBITDA is a performance measure used by management that is not calculated in accordance with GAAP.

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• Adjusted EBITDA does not reflect any restructure expense and other non-recurring costs;

• Adjusted EBITDA does not reflect any net COVID-19 expense arising from the pandemic from the second quarter of 2020 to the first quarter of 2021;

• other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

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Restructure expense and other related costs

COVID-19 expense, net (b)

(Gain) loss on sale of assets

Impairment of operating lease assets

Gain on sale of assets

Adjusted EBITDA*

(a) The selected historical Consolidated Statements of Income data for the fiscal years ended December 31, 2024, 2023 and 2022, were derived from our audited Consolidated Financial Statements.

(b) Excludes net COVID expenses arising from the pandemic from the second quarter of 2020 to the first quarter of 2021.

* Management deems Adjusted EBITDA to be a key performance indicator.

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Cash flows from operating activities represent the inflow of cash from our payor clients and the outflow of cash for payroll and payroll taxes, operating expenses, interest and taxes.

We drew approximately $110.0 million on the revolver portion of our credit facility to fund, in part, the purchase price paid in connection with the Tennessee Quality Care acquisition, and repaid $118.5 million under our revolving credit facility in 2023.

We drew approximately $233.0 million on the revolver portion of our credit facility to fund, in part, the purchase price paid in connection with the Gentiva Acquisition and repaid $136.4 million under our revolving credit facility in 2024.

At December 31, 2024, we had a total of $223.0 million in revolving loans, with an interest rate of 6.34% outstanding on our credit facility.

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At December 31, 2023, we had a total of $126.4 million of revolving loans, with an interest rate of 7.21%.

During the year ended December 31, 2022, the Company drew approximately $47.0 million on the revolver portion of its credit facility to fund, in part, the Journey Care and Apple Home acquisitions on February 1, 2022 and October 1, 2022, respectively.

During the year ended December 31, 2023, the Company drew approximately $110.0 million on the revolver portion of its credit facility to fund, in part, the Tennessee Quality Care acquisition.

Our credit facility requires us to maintain a total net leverage ratio not exceeding 3.75:1.00.

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The maturity of the credit facility is July 30, 2028.

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 the London Inter-Bank Offered Rate (“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 not expected to have a material impact on the Company’s results of operations or liquidity.

See Note 9, Long-Term Debt, to the Notes to Consolidated Financial Statements for additional details of our long-term debt.

Current Macroeconomic Conditions and COVID-19 Relief Funding

Economic conditions in the United States continue to be challenging in various respects.

For example, the United States economy continues to experience significant inflationary pressures, elevated interest rates, challenging labor market conditions, and disruptions to supply networks.

Any resulting economic downturn would pose a risk to states’ revenues, which in turn could affect our reimbursements and collections received for services rendered.

Depending on the severity and length of any potential economic downturn, states could face significant fiscal challenges and revise their revenue forecasts and adjust their budgets, and sales tax collections and income tax withholdings could be depressed in fiscal year 2023 (which began July 1 in most states), and, potentially, future fiscal years.

In this regard, Illinois, New Mexico and New York, our top three personal care markets, previously revised revenue estimates downward for the 2022 fiscal year as the result of earlier negative economic conditions arising from the pandemic.

Also, in response to reduced revenues, the state of New York authorized the issuance of short-term bonds and implemented uniform reductions to Medicaid payments, applicable to home health and personal care services (hospice services were exempt).

These reductions took effect for dates of service on or after April 2, 2020, and were eliminated effective April 1, 2022.

COVID-19 Provider Relief Fund

In response to the COVID-19 pandemic, the federal government took various measures intended to assist healthcare providers, including authorizing several forms of financial relief.

One of the primary sources of relief for eligible healthcare providers was the Provider Relief Fund, distributions from which were intended to compensate healthcare providers for lost revenues and healthcare related expenses incurred in response to the COVID-19 pandemic.

Recipients were not required to repay funding received, provided that they attested to and complied with certain terms and conditions.

In November 2020, the Company received grants in an aggregate principal amount of $13.7 million from the Provider Relief Fund, for which we had previously applied.

The Company utilized the remaining $12.3 million 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.

We were required to properly and fully document the use of such funds in reports to HHS.

The Company documented the use of such funds in reports to HHS, as required, and submitted the reports to HHS prior to the deadline of March 31, 2022.

During the year ended December 31, 2022, we submitted an unmodified audit report to HHS in accordance with Generally Accepted Government Auditing Standards, as required for commercial organizations that received and expended total awards of $750,000 or more.

Payroll tax deferral

The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) also provides for certain federal income and other tax changes, including allowing for the deferral of the employer portion of Social Security payroll taxes through December 31, 2020.

The payroll tax deferral requires that the deferred payroll taxes be paid over two years, with half of the eligible deferred amount required to be paid by December 31, 2021 and the other half by December 31, 2022.

The Company received a cash benefit of approximately $7.1 million related to the deferral of employer payroll taxes for 2020 under the CARES Act, for the period April 2, 2020 through June 30, 2020.

Effective July 1, 2020, the Company began paying its deferred portion of employer Social Security payroll taxes and repaid $4.1 million and $3.0 million as of December 31, 2022 and 2021, respectively.

Public Offering

On June 28, 2024, the Company completed a public offering of an aggregate 1,725,000 shares of common stock, par value $0.001 per share, including 225,000 shares of common stock sold pursuant to the exercise in full by the underwriters of their option to purchase additional shares, at a public offering price of $108.00 per share (the “Public Offering”).

The Company received net proceeds of approximately $175.6 million, after deducting underwriting discounts and estimated offering expenses of approximately $10.7 million.

The Company used approximately $81.4 million from the net proceeds of the Public Offering for the repayment of indebtedness outstanding under its credit facility and may use any remaining net proceeds of the Public Offering for general corporate purposes, including the Gentiva Acquisition and any future acquisitions or investments.

The Public Offering resulted in an increase to additional paid in capital of approximately $175.6 million on the Company’s Consolidated Balance Sheet at December 31, 2024.

Current Macroeconomic Conditions and American Rescue Plan Act of 2021 Relief Funding

Economic conditions in the United States continue to be challenging in certain respects.

For example, the United States economy continues to experience inflationary pressures, elevated interest rates and challenging labor market conditions.

Any economic downturn would pose a risk to states’ revenues, which in turn could affect our reimbursements and collections received for services rendered.

Depending on the severity and length of any potential economic downturn as well as the extent of any federal support, states could face significant fiscal challenges and revise their revenue forecasts and adjust their budgets, and sales tax collections and income tax withholdings could be depressed.

ARPA Spending Plans

The ARPA became law on March 11, 2021 and 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.

The American Rescue Plan Act of 2021 (“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 provided for a 10-percentage point increase in federal matching funds for Medicaid 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 are generally permitted to use the state funds equivalent to the additional federal funds through March 31, 2025, but CMS has granted extensions to several states.

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.

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The Company received state funding provided by the ARPA in an aggregate amount of $15.7 million and $3.7 million for the years ended December 31, 2024 and 2023, 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, which was received from states with specific spending plans and reporting requirements, for the years ended December 31, 2023 and 2022, respectively.

The Company utilized $10.2 million and $10.5 million of these funds during the years ended December 31, 2024 and 2023, respectively, primarily for caregivers and adding support to recruiting and retention efforts.

The deferred portion of ARPA funding was $11.2 million and $5.8 million for the years ended December 31, 2024 and 2023, respectively, which is included within Government stimulus advances on the Company’s Consolidated Balance Sheets.

Medicare sequester

The CARES Act and related legislation also include other provisions offering financial relief, including, for example, temporarily suspending the Medicare sequester, which would have otherwise reduced payments to Medicare providers by 2% as required by the Budget Control Act of 2011.

The sequestration adjustment resumed with a 1% reduction beginning April 1, 2022, and a 2% reduction beginning July 1, 2022.

These sequestration cuts have been extended through April 2032.

In our 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 our 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.

However, the ARPA increased the federal budget deficit in a manner that triggers an additional statutorily mandated sequestration under the PAYGO Act.

As a result, an additional Medicare payment reduction of up to 4% was required to take effect in January 2022.

However, Congress has delayed implementation of this payment reduction until 2025.

We cannot currently determine if, or to what extent, our business, results of operations, financial condition or liquidity will ultimately be impacted by mandated sequestration triggers under the PAYGO Act, or if or when the mandated sequestration will occur.

Further, we anticipate that the federal deficit will continue to place pressure on government healthcare programs, and it is possible that future deficit reduction legislation will impose additional Medicare spending reductions.

The following table summarizes historical changes in our cash flows for the years ended December 31, 2024, 2023 and 2022:

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Net cash (used in) provided by financing activities

Net cash provided by operating activities was $112.2 million for the year ended December 31, 2023, compared to $105.1 million in 2022 primarily due to the timing of receipts on accounts receivable and the timing of government stimulus funds.

The changes in accounts receivable were primarily related to the growth in revenue and a decrease in days sales outstanding (“DSO”) during the year ended December 31, 2023 compared to 2022, as described below.

Net cash provided by operating activities was $116.4 million for the year ended December 31, 2024, compared to $112.2 million in 2023 primarily due to the increase in net income offset by a decrease in cash flows from changes in operating assets and liabilities.

The changes in accounts receivable were primarily related to the growth in revenue during the year ended December 31, 2024 compared to 2023, as described below.

The related receivables due from the Illinois Department on Aging represented 21.7% and 25.8% of net accounts receivable at December 31, 2024 and 2023, respectively.

Net cash used in investing activities was $354.6 million for the year ended December 31, 2024, compared to $119.2 million for the year ended December 31, 2023.

Our investing activities for the year ended December 31, 2024 primarily consisted of $0.4 million for the acquisition of Upstate, $353.5 million for the Gentiva Acquisition, $6.1 million in purchases of property and equipment related to technology infrastructure, offset by $5.4 million in proceeds received on the sale of our New York business.

Our investing activities for the year ended December 31, 2023 consisted of $1.0 million primarily for the acquisition of CareStaff, $111.2 million for the acquisition of Tennessee Quality Care and $9.4 million in purchases of property and equipment primarily related to technology infrastructure.

Our investing activities for the year ended December 31, 2022 primarily consisted of $86.6 million primarily for the acquisition of JourneyCare, $12.7 million for the acquisition of Apple Home and $8.3 million in purchases of property and equipment primarily related to technology infrastructure.

Net cash used in financing activities was $8.2 million for the year ended December 31, 2023 compared to $87.4 million for the year ended December 31, 2022.

Our financing activities for the year ended December 31, 2023 included borrowings of $110.0 million on the revolver portion of our credit facility to fund two acquisitions and the payment of $118.5 million of our revolving loans.

Net cash provided by financing activities was $272.3 million for the year ended December 31, 2024 compared to net cash used in $8.2 million for the year ended December 31, 2023.

Our financing activities for the year ended December 31, 2024 included borrowings of $233.0 million on the revolver portion of our credit facility to fund the Gentiva Acquisition, $175.6 million in net proceeds received from the Public Offering and cash received from the exercise of stock options of $3.4 million, offset by $136.4 million payment on the revolver portion of our credit facility and cash paid for debt issuance costs of $3.4 million.

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Gross accounts receivable as of December 31, 2024 and 2023 were $126.4 million and $117.8 million, respectively.

Outstanding accounts receivable, net of the allowance for credit losses, decreased by $10.0 million as of December 31, 2023 compared to December 31, 2022.

The open receivable balance from the Illinois Department on Aging, the largest payor program for the Company’s Illinois personal care operation, increased by $7.3 million from $22.5 million as of December 31, 2022 to $29.8 million as of December 31, 2023.

Outstanding accounts receivable, net of the allowance for credit losses, increased by $7.4 million as of December 31, 2024 compared to December 31, 2023.

The open receivable balance from the Illinois Department on Aging, the largest payor program for the Company’s Illinois personal care operation, decreased by $3.1 million from $29.8 million as of December 31, 2023 to $26.7 million as of December 31, 2024.

Our collection procedures include review of account aging and direct contact with our payors.

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We calculate our DSO by taking the accounts receivable outstanding, net of the allowance for credit losses, divided by the net service revenues for the last quarter, multiplied by the number of days in that quarter.

Our DSOs were 39 days and 45 days at December 31, 2023 and 2022, respectively.

Our DSOs were 39 days at each of December 31, 2024 and 2023.

The DSOs for our largest payor, the Illinois Department on Aging, at December 31, 2024 and 2023 were 40 days and 50 days, respectively.

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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, 2024 and 2023, goodwill was $970.6 million and $663.0 million, respectively, included in our Consolidated Balance Sheets.

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Consequently, we concluded that there were no impairments for the years ended December 31, 2024 , 2023 or 2022.

For the fiscal year 2023 impairment tests, the fair value of the reporting units exceeded their respective carrying values (commonly referred to as “headroom”) by at least 100% in the personal care and in the home health reporting unit, and 20% in the hospice reporting unit.

The headroom percentage for the hospice reporting unit decreased as compared to the prior year primarily due to the result of labor shortages with rising costs adding pressure to gross margin and patient volumes have not rebounded as quickly following the acute phase of the COVID-19 pandemic as previously anticipated.

We performed a sensitivity analysis on this reporting unit and determined that a more than 1.2% increase to the weighted- average cost of capital, the most sensitive assumption used in the estimate, would result in the fair value being lower than the carrying value.

The Company bases its fair value estimates on assumptions management believes to be reasonable but which are unpredictable and inherently uncertain.

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As described in Note 9 to the Notes to Consolidated Financial Statements, interest on borrowings under the revolving loan are variable.

The calculated interest payable amounts use actual rates available through January 2024 and assumes the January rates of 7.21%, respectively, for all future interest payable on the revolving loans.

The calculated interest payable amounts use actual rates available through January 2024 and assumes the January rates of 6.34%, for all future interest payable on the revolving loans.

See Note 9, Long-Term Debt, to the Notes to Consolidated Financial Statements for additional details of our long-term debt.

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See Note 2, Leases, to the Notes to Consolidated Financial Statements for additional details of our leases.

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.

The sublease expired in January 2025.

As the result, the Company recorded $5.0 million in impairment charges on operating lease assets, included within general administrative expenses.

Of the $5.0 million in impairment charges on operating lease assets recorded, $2.2 million in exit charges was included.

Impact of Inflation

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis