LHC Group Announces Third Quarter 2018 Financial Results

Company Release - 10/31/2018 5:15 PM ET

Affirms Guidance and Expectations for 12% to 15% Adjusted Earnings Accretion from Almost Family Acquisition in 2018

LAFAYETTE, La., Oct. 31, 2018 (GLOBE NEWSWIRE) -- LHC Group, Inc. (NASDAQ: LHCG) announced its financial results for the three and nine months ended September 30, 2018.

Financial Results for the Third Quarter of 2018

  • Net service revenue increased 88.0% to $507.0 million compared with $269.7 million in the third quarter of 2017. Net service revenue prior to implicit price concession increased 88.4% to $514.1 million compared with $272.9 million in the third quarter of 2017.
  • Net income attributable to LHC Group’s common stockholders was $21.2 million, a 94.7% increase from $10.9 million in the third quarter of 2017. Net income attributable to LHC Group’s common stockholders per diluted share was $0.68, an increase of 11.5% from $0.61 in the third quarter of 2017, on a 72.6% increase in weighted average diluted shares outstanding as well as the effect of costs and expenses described within the adjusted results below.
  • Adjusted net income attributable to LHC Group’s common stockholders was $29.5 million, up 156% from $11.5 million in the third quarter of 2017.  Adjusted net income attributable to LHC Group’s common stockholders per diluted share was $0.95, a 48.4% increase from $0.64 in the third quarter of 2017. (1)
  • Adjusted results for the third quarter of 2018 exclude transaction and other transition related costs, expenses related to certain closures and relocations and the excess tax benefit due to the exercise of stock options related to the Almost Family acquisition in the aggregate amount of $8.3 million after tax, or $0.27 per diluted share.
  • The Company’s Healthcare Innovations segment recorded $3.7 million in revenue related to the Medicare Shared Savings Program for the plan year ended December 31, 2017, in which the Company participates through multiple Accountable Care Organizations (ACO’s). This represents an increase of $1.2 million over the $2.5 million in revenue that was recorded in 2017 for the plan year ended December 31, 2016.

(1) See “Reconciliation of Non-GAAP Measures – Adjusted net income attributable to LHC Group” to GAAP results on page 11.

Operational and Strategic Highlights

  • LHC Group quality and patient satisfaction results continue to exceed the national average with 98% of its same store locations having CMS Quality Star ratings of four stars or greater.
  • Total growth in home health admissions was 94.1%; organic growth was 9.7%.
  • Total growth in home health revenue was 83.4%; organic growth was 9.3%.
  • Total growth in hospice admissions was 32.5%; organic growth was 5.1%.
  • Our number of ACO’s under Company management for the year ended December 31, 2018 increased to 30 ACO’s covering 460,000 Medicare lives from 16 in 2017 which covered 140,000 Medicare lives.

Commenting on the results, Keith G. Myers, LHC Group’s Chairman and Chief Executive Officer, said, “LHC Group’s strong performance continues to resonate across the industry with growing recognition by hospitals, payors and other stakeholders of the crucial role we play in the homes and communities of the patients and families we are privileged to serve. The organic growth we have generated to date in 2018 demonstrates the fruits of our commitment to quality, efficiency, and clinical outcomes across a national in-home healthcare platform. We have extended this same commitment to pursuing new growth opportunities as well, with the completion of the $800 million acquisition of Almost Family, five new joint ventures, and other select acquisitions in 2018. With such a strong foundation of diversified growth, we expect continued disciplined deployment of capital to accelerate our earnings growth for years to come.

“LHC Group is uniquely positioned to thrive in both the industry’s present environment and in the future as we shift to value-based reimbursement. Our unique positioning is enhanced by a growing number of hospitals and health systems that recognize the inherent value of our business model and our ability to create high-performing post-acute networks for them. The experience we have gained through the ownership of one of the nation’s largest Accountable Care Organization management companies is also a considerable and virtually unmatched asset that increases our appeal to payors, hospitals and other risk-bearing entities.”

Fiscal Year 2018 Guidance
The Company re-affirmed its guidance for fiscal year 2018 issued on May 2, 2018. Net service revenue is expected to be in a range of $1.81 billion to $1.86 billion, and adjusted earnings per diluted share is expected to be in a range of $3.45 to $3.55. The guidance assumes the following:

  • The Company expects to achieve a total of $25 million in pre-tax synergies in connection with the Almost Family transaction, with $8 million to $12 million realized in 2018 (of which approximately $6.6 million has been realized through the third quarter of 2018); 
  • An estimated effective tax rate of 28% to 29%, which reflects the positive impact from passage of the Tax Cuts and Jobs Act of 2017; and
  • Weighted average diluted shares of approximately 28.0 million for the full year of 2018.

The Company’s guidance ranges do not take into account the impact of future reimbursement changes, if any, future acquisitions, if made, de novo locations, if opened, location closures, if any, or future legal expenses, if necessary. The adjusted earnings guidance for 2018 is presented on a non-GAAP basis, as it does not include the impact of transaction related costs, integration related expenses or other expenses related to the acquisition of Almost Family or other acquisitions. Given the difficulty in predicting the future amount and timing of these expenses, the Company cannot reasonably provide a full reconciliation of its fiscal year 2018 adjusted earnings per share guidance to GAAP earnings per share.

Commenting on the 2018 outlook, Joshua L. Proffitt, LHC Group’s Chief Financial Officer, added, “We are experiencing an unprecedented year of growth. Our industry leading quality scores combined with our disciplined go-to-market strategies are generating strong same-store admissions growth, and our inorganic growth will continue to be fueled by the benefits from the Almost Family acquisition, contributions from other acquisitions completed in 2018 as well as those currently under consideration in a very robust pipeline. The combination of these different growth levers and the success to date in integrating the Almost Family operations give us the confidence that we will achieve the 12% to 15% adjusted earnings accretion from the Almost Family acquisition in 2018 and continue to experience accelerated revenue and earnings growth well into the future.” 

Conference Call
LHC Group will host a conference call on Thursday, November 1, 2018, at 11:00 a.m. Eastern time to discuss its third quarter 2018 results. The toll-free number to call for this interactive teleconference is (866) 393‑1608 (international callers: (973) 890-8327). A telephonic replay of the conference call will be available through midnight on November 8, 2018, by dialing (855) 859‑2056 (international callers: (404) 537-3406) and entering confirmation number 5649718.

A live broadcast of LHC Group’s conference call will be available on the Investor Relations section of the Company’s website, www.LHCgroup.com. A one-year online replay will be available approximately an hour following the conclusion of the live broadcast.

About LHC Group, Inc.
LHC Group, Inc. is a national provider of in-home healthcare services and innovations, providing quality, value-based healthcare to patients primarily within the comfort and privacy of their home or place of residence. LHC Group’s services cover a wide range of healthcare needs for patients and families dealing with illness, injury, or chronic conditions. The company’s 32,000 employees deliver home health, hospice, home and community based services, and facility-based care from more than 780 locations in communities in 36 states. Through its healthcare innovations business, LHC Group drives increased utilization of home healthcare and enhances patient and caregiver engagement. LHC Group is the preferred in-home healthcare partner for 330 leading hospitals around the country.

Forward-looking Statements
This press release contains “forward-looking statements” (as defined in the Securities Litigation Reform Act of 1995) regarding, among other things, future events or the future financial performance of the Company, or anticipated benefits of the transaction. Words such as “anticipate,” “expect,” “project,” “intend,” “believe,” “will,” “estimates,” “may,” “could,” “should” and words and terms of similar substance used in connection with any discussion of future plans, actions or events identify forward-looking statements. Forward-looking statements contained in this press release include, but are not limited to: our 2018 revenue and earnings guidance, statements about the benefits of the acquisition, including anticipated earnings accretion, synergies and cost savings and the timing thereof; the Company’s plans, objectives, expectations, projections and intentions; and other statements relating to the transaction that are not historical facts. Forward-looking statements are based on information currently available to the Company and involve estimates, expectations and projections. Investors are cautioned that all such forward-looking statements are subject to risks and uncertainties, and important factors could cause actual events or results to differ materially from those indicated by such forward-looking statements. With respect to the acquisition, these risks, uncertainties and factors include, but are not limited to: the risk that the businesses will not be integrated successfully; the risk that the cost savings, synergies and growth from the transaction may not be fully realized or may take longer to realize than expected; the diversion of management time on integration-related issues; and the risk that costs associated with the integration of the businesses are higher than anticipated. With respect to the Company’s  businesses, these risks, uncertainties and factors include, but are not limited to: changes in, or failure to comply with, existing government regulations that impact the Company’s businesses; legislative proposals for healthcare reform; the impact of changes in future interpretations of fraud, anti-kickback, or other laws; changes in Medicare and Medicaid reimbursement levels; changes in laws and regulations with respect to Accountable Care Organizations; changes in the marketplace and regulatory environment for Health Risk Assessments; decrease in demand for the Company’s services; the potential impact of the transaction on relationships with customers, joint venture and other partners, competitors, management and other employees, including the loss of significant contracts or reduction in revenues associated with major payor sources; ability of customers to pay for services; risks related to any current or future litigation proceedings; potential audits and investigations by government and regulatory agencies, including the impact of any negative publicity or litigation; the ability to attract new customers and retain existing customers in the manner anticipated; the ability to hire and retain key personnel; increased competition from other entities offering similar services as offered by the  Company; reliance on and integration of information technology systems; ability to protect intellectual property rights; impact of security breaches, cyber-attacks or fraudulent activity on the Company’s reputation; the risks associated with assumptions the parties make in connection with the parties’ critical accounting estimates and legal proceedings; the risks associated with the Company’s expansion strategy, the successful integration of recent acquisitions, and if necessary, the ability to relocate or restructure current facilities; and the potential impact of an economic downturn or effects of tax assessments or tax positions taken, risks related to goodwill and other intangible asset impairment, tax adjustments, anticipated tax rates, benefit or retirement plan costs, or other regulatory compliance costs.

Many of these risks, uncertainties and assumptions are beyond the Company’s ability to control or predict. Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. Furthermore, forward-looking statements speak only as of the information currently available to the Company on the date they are made, and the Company does not undertake any obligation to update publicly or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this press release. The Company does not give any assurance (1) that the Company will achieve its guidance or expectations, or (2) concerning any result or the timing thereof. All subsequent written and oral forward-looking statements concerning the transaction or other matters and attributable to the Company or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above.


LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)

 September 30, December 31,
 20182017
 (Unaudited)  
ASSETS   
Current assets:   
Cash$56,973  $2,849 
Receivables:   
Patient accounts receivable258,254  161,898 
Other receivables9,929  3,163 
Amounts due from governmental entities830  830 
Total receivables269,013  165,891 
Prepaid income taxes  7,006 
Prepaid expenses23,058  13,042 
Other current assets18,139  12,177 
Total current assets367,183  200,965 
Property, building and equipment, net of accumulated depreciation of $52,804 and $43,565, respectively66,315  46,453 
Goodwill1,152,232  392,601 
Intangible assets, net of accumulated amortization of $14,789 and $13,041, respectively301,411  134,610 
Assets held for sale2,850   
Other assets20,773  19,073 
Total assets$1,910,764  $793,702 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable and other accrued liabilities$63,741  $39,750 
Salaries, wages, and benefits payable113,430  44,747 
Self-insurance reserve33,456  12,450 
Income tax payable877    
Current portion of long-term debt12,552  286 
Amounts due to governmental entities4,508  5,019 
Total current liabilities228,564  102,252 
Deferred income taxes25,184  27,466 
Income taxes payable2,596   
Revolving credit facility242,000  144,000 
Long term notes payable989   
Total liabilities499,333  273,718 
Noncontrolling interest — redeemable14,737  13,393 
Stockholders’ equity:   
LHC Group, Inc. stockholders’ equity:   
Preferred stock – $0.01 par value; 5,000,000 shares authorized; none issued or outstanding   
Common stock — $0.01 par value; 60,000,000 and 40,000,000 shares authorized in 2018 and 2017, respectively; 35,632,076 and 22,640,046 shares issued in 2018 and 2017, respectively356  226 
Treasury stock —  4,958,423 and 4,890,504 shares at cost, respectively(48,968) (42,249)
Additional paid-in capital935,158  126,490 
Retained earnings407,423  364,401 
Total LHC Group, Inc. stockholders’ equity1,293,969  448,868 
Noncontrolling interest — non-redeemable102,725  57,723 
Total equity1,396,694  506,591 
Total liabilities and equity$1,910,764  $793,702 
 


LHC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)
(Unaudited)

 Three Months Ended
 September 30,
 Nine Months Ended
September 30,
 2018 2017 2018(1) 2017
Net service revenue$507,043  $269,678  $1,300,121  $771,462 
Cost of service revenue322,196  172,856  831,818  488,384 
Gross margin184,847  96,822  468,303  283,078 
General and administrative expenses149,917  75,492  391,940  221,054 
Operating income34,930  21,330  76,363  62,024 
Interest expense(3,264) (995) (7,916) (2,615)
Income before income taxes and noncontrolling interest31,666  20,335  68,447  59,409 
Income tax expense6,685  7,445  14,832  20,410 
Net income24,981  12,890  53,615  38,999 
Less net income attributable to noncontrolling interests3,751  1,984  10,593  7,321 
Net income attributable to LHC Group, Inc.’s common stockholders$21,230  $10,906  $43,022  $31,678 
Earnings per share attributable to LHC Group, Inc.'s common stockholders:       
Basic$0.69  $0.61  $1.63  $1.79 
Diluted$0.68  $0.61  $1.61  $1.77 
Weighted average shares outstanding:       
Basic30,750,227  17,740,818  26,393,337  17,704,561 
Diluted31,083,815  18,010,522  26,640,774  17,931,700 

(1) Certain acquired employee salaries that were previously classified in costs of service revenue for the second quarter of 2018 were reclassified into general and administrative expenses for the three and nine months ended September 30, 2018 to align with the Company’s historical presentation of such job functions as employee roles were clarified during the payroll integration process. 


LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)

 Nine Months Ended
September 30,
 2018 2017
Operating activities:   
Net income$53,615  $38,999 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization expense11,986  9,680 
Stock-based compensation expense7,336  4,522 
Deferred income taxes2,915  6,245 
(Loss) gain on disposal of assets4  (23)
Impairment of intangibles and other1,123  81 
Changes in operating assets and liabilities, net of acquisitions:   
Receivables(5,693) (11,331)
Prepaid expenses and other assets(7,489) (3,859)
Prepaid income taxes9,710  (4,879)
Accounts payable and accrued expenses13,862  26,038 
Income taxes payable(313) (3,499)
Net amounts due to/from governmental entities(722) (279)
Net cash provided by operating activities86,334  61,695 
Investing activities:   
Purchases of property, building and equipment(18,889) (7,944)
Cash acquired from business combination, net of cash paid9,070  (61,247)
Net cash used in investing activities(9,819) (69,191)
Financing activities:   
Proceeds from line of credit292,084  63,000 
Payments on line of credit(300,884) (31,000)
Proceeds from employee stock purchase plan1,015  776 
Payments on debt(196) (192)
Payments on deferred financing fees(1,881)  
Noncontrolling interest distributions(8,720) (8,406)
Withholding taxes paid on stock-based compensation(6,719) (3,091)
Purchase of additional controlling interest(412) (184)
Sale of noncontrolling interest3,322  251 
Net cash (used in) provided by financing activities(22,391) 21,154 
Change in cash54,124  13,658 
Cash at beginning of period2,849  3,264 
Cash at end of period$56,973  $16,922 
Supplemental disclosures of cash flow information:   
Interest paid$6,127  $2,694 
Income taxes paid$2,929  $22,376 



LHC GROUP, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Amounts in thousands)
(Unaudited)

 Three Months Ended September 30, 2018
 Home health
services
 Hospice
services
 Home and
community-
based
services
 Facility-
based
services
 HCI Total
Net service revenue$360,000  $52,962  $  52,773  $27,891  $13,417  $507,043 
Cost of service revenue222,765  34,540   39,860  20,146  4,885  322,196 
General and administrative expenses105,457  14,685   12,922  9,823  7,030  149,917 
Operating income (loss)31,778  3,737   (9) (2,078) 1,502  34,930 
Interest expense(2,284) (491)  (163) (163) (163) (3,264)
Income (loss) before income taxes and noncontrolling interest29,494  3,246   (172) (2,241) 1,339  31,666 
Income tax expense (benefit)6,209  774   (74) (541 317  6,685 
Net income (loss)23,285  2,472   (98) (1,700) 1,022  24,981 
Less net income (loss) attributable to noncontrolling interests3,425  386   (87) 27    3,751 
Net income (loss) attributable to LHC Group, Inc.’s common stockholders$19,860  $2,086  $(11) $(1,727) $1,022  $21,230 
Total assets$1,316,792  $203,921  $246,963  $61,089  $81,999  $1,910,764 


 Three Months Ended September 30, 2017
 Home health
services
 Hospice
services
 Home and
community-
based
services
 Facility-
based
services
 HCI Total
Net service revenue$196,317  $41,057  $  12,116  $20,188  $  $269,678 
Cost of service revenue123,204  27,441   8,971  13,240    172,856 
General and administrative expenses56,000  11,276   2,387  5,829    75,492 
Operating income17,113  2,340   758  1,119    21,330 
Interest expense(746) (149)  (50) (50)   (995)
Income before income taxes and noncontrolling interest16,367  2,191   708  1,069    20,335 
Income tax expense5,703  931   338  473    7,445 
Net income10,664  1,260   370  596    12,890 
Less net income (loss) attributable to noncontrolling interests1,759  273   (21) (27   1,984 
Net income attributable to LHC Group, Inc.’s common stockholders$8,905  $987  $391  $623  $  $10,906 
Total assets$515,562  $156,296  $44,621  $48,574  $  $765,053 



LHC GROUP, INC. AND SUBSIDIARIES
SEGMENT INFORMATION (Continued)
(Amounts in thousands)
(Unaudited)

 Nine Months Ended
 September 30, 2018
 Home
health
services
 Hospice
services
 Home and
community-
based
services
 Facility-
based
services
 HCI Total
Net service revenue$924,463  $146,142  $119,617  $86,345  $23,554  $1,300,121 
Cost of service revenue576,416  95,557   90,331  59,102  10,412  831,818 
General and administrative expenses277,711  43,090   28,664  30,058  12,417  391,940 
Operating income70,336  7,495   622  (2,815) 725  76,363 
Interest expense(5,627) (1,181)  (393) (395) (320) (7,916)
Income (loss) before income taxes and noncontrolling interest64,709  6,314   229  (3,210) 405  68,447 
Income tax expense (benefit)14,022  1,368   50  (695 87  14,832 
Net income (loss)50,687  4,946   179  (2,515) 318  53,615 
Less net income (loss) attributable to noncontrolling interests 9,472   1,215     (157)   129   (66)  10,593 
Net income (loss) attributable to LHC Group, Inc.’s common stockholders$41,215  $3,731  $336  $(2,644) $384  $43,022 


 Nine Months Ended
 September 30, 2017
 Home
health
services
 Hospice
services
 Home and
community-
based
services
 Facility-
based
services
 HCI Total
Net service revenue$569,384  $114,856  $  33,403  $53,819  $  $771,462 
Cost of service revenue352,896  75,187   24,905  35,396    488,384 
General and administrative expenses165,192  32,425   6,957  16,480    221,054 
Operating income51,296  7,244   1,541  1,943    62,024 
Interest expense(1,961) (393)  (130) (131)   (2,615)
Income before income taxes and noncontrolling interest49,335  6,851   1,411  1,812    59,409 
Income tax expense16,712  2,439   602  657    20,410 
Net income32,623  4,412   809  1,155    38,999 
Less net income (loss) attributable to noncontrolling interests 6,053   1,038   (7)  237      7,321 
Net income attributable to LHC Group, Inc.’s common stockholders$26,570  $3,374  $816  $918  $  $31,678 



LHC GROUP, INC. AND SUBSIDIARIES
SELECT CONSOLIDATED KEY STATISTICAL AND FINANCIAL DATA
(Unaudited)

 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2018 2017
 2018 2017
     
Key Data:
 
    
Home-Health Services:    
Locations 565   320   565   320 
Acquired 2   8   256   40 
De novo           
Divested/Consolidated (5)  (2)  (10)  (5)
Total new admissions 92,643   47,727   239,671   142,448 
Medicare new admissions 57,118   29,848   149,158   89,432 
Average daily census 75,479   43,239   76,080   42,677 
Average Medicare daily census 49,948   29,511   50,768   29,374 
Medicare completed and billed episodes 90,536   54,003   241,226   158,762 
Average Medicare case mix for completed
  and billed Medicare episodes
 1.10   1.10   1.10   1.09 
Average reimbursement per completed
  and billed Medicare episodes
$2,968  $2,797  $2,929  $2,765 
Total visits 2,471,979   1,429,024   6,472,307   4,208,020 
Total Medicare visits 1,662,610   981,756   4,375,408   2,912,092 
Average visits per completed
  and billed Medicare episodes
 18.4   18.3   18.1   18.3 
Organic growth:(1)    
Net revenue 9.3%  10.3%  9.1%  10.3%
Net Medicare revenue 4.6%  4.9%  4.8%  5.6%
Total new admissions 9.7%  6.2%  7.9%  9.7%
Medicare new admissions 4.6%  1.7%  4.9%  5.5%
Average daily census 2.9%  3.7%  2.8%  4.0%
Average Medicare daily census -0.9%  -1.2%  -0.9%  -0.7%
Medicare completed and billed episodes 0.7%  2.0%  1.0%  1.2%
     
Home and Community-Based Services:    
Locations 80   12   80   12 
Acquired    1   64   1 
De novo       4    
Divested/Consolidated           
Average daily census 14,455   1,933   14,511   1,785 
Billable hours 2,284,980   421,629   4,991,594   1,174,409 
Revenue per billable hour$23.41  $28.81  $24.35  $28.79 
     
Hospice-Based Services:    
Locations 104   92   104   92 
Acquired 1   6   16   27 
De novo           
Divested/Consolidated (3)  (1)  (3)  (1)
Admissions 4,557   3,438   13,139   9,714 
Average daily census 3,804   3,109   3,540   2,987 
Patient days 346,153   286,002   962,839   815,361 
Average revenue per patient day$155  $144  $154  $143 
     
Facility-Based Services:    
Long-term Acute Care     
Locations 12   15   12   15 
Acquired    6      6 
Divested/Consolidated       (2)   
Patient days 21,617   14,642   62,654   41,449 
Average revenue per patient day$1,183  $1,248  $1,300  $1,143 
Occupancy rate 76.6%  68.3%  74.3%  74.8%

 (1) Organic growth is calculated as the sum of same store plus de novo for the period divided by total from the same period in the prior year.


LHC GROUP, INC. AND SUBSIDIARIES
RECONCILIATION OF REVENUE AFTER ADOPTION OF ASU 2014-09
(Amounts in thousands, Unaudited)

 Three Months Ended
September 30,

 Nine Months Ended
September 30,
 2018 2017  2018  2017
Net Service Revenue, pre-adoption$  514,118 $  272,872 $  1,319,840 $  779,700
Less: Implicit price concession (1)   7,075    3,194    19,719    8,238
Net Service Revenue, post-adoption$  507,043 $  269,678 $  1,300,121 $  771,462
            

RECONCILIATION OF ADJUSTED NET INCOME ATTRIBUTABLE TO LHC GROUP, INC.
(Amounts in thousands, Unaudited)

 Three Months Ended
September 30,

 Nine Months Ended
September 30,
 2018 2017 2018 2017
Net income attributable to LHC Group, Inc.’s common stockholders$21,230 $10,906 $43,022 $31,678
Add (net of tax):    
AFAM and other acquisition expenses (2) 7,118    19,289  
Closures/relocations (3) 2,335  129  4,799  129
Excess tax benefit (4) (1,200)   (1,200) 
Income tax effect of adjustments to income (5)     689  
CHRISTUS Health JV costs   483    483
Adjusted net income attributable to
  LHC Group, Inc.’s common stockholders
$29,483 $11,518 $66,599 $32,290
            

RECONCILIATION OF ADJUSTED NET INCOME
ATTRIBUTABLE TO LHC GROUP, INC. PER DILUTED SHARE
 (Unaudited)

 Three Months Ended
September 30,

 Nine Months Ended
September 30,
 2018 2017
 2018 2017
Net income attributable to LHC Group, Inc.’s common stockholders$0.68 $0.61 $1.61 $1.77
Add (net of tax):      
AFAM and other acquisition expenses (2) 0.23    0.72 
Closures/relocations (3) 0.08  0.01  0.18  0.01
Excess tax benefit (4) (0.04)   (0.05) 
Income tax effect of adjustments to income (5)     0.03  
CHRISTUS Health JV costs   0.02    0.02
Adjusted net income attributable to
    LHC Group, Inc.’s common stockholders
$0.95 $0.64 $2.49 $1.80

(1) All amounts previously classified as provision for bad debts are now classified as implicit price concessions in determining the transaction price of the Company's net service revenue.
(2) Transition and integration costs associated with the acquisition of Almost Family ($9.9 million pre-tax in the three months ended September 30, 2018 and $27.1 million in the nine months ended September 30, 2018).
(3) Expenses associated with the closure or consolidation of two home health agencies, three hospice agencies and two hospice inpatient units along with costs associated with the relocation of two long-term acute care hospitals. ($3.3 million pre-tax in the three months ended September 30, 2018 and $6.8 million in the nine months ended September 30, 2018)
(4) Tax benefit due to the exercise of stock options related to the Almost Family acquisition.
(5) The year-to-date effective tax rate was 25.6% as excess tax benefits exceeded the impact of certain deal and transaction costs that are not deductible related to the acquisitions. We continue to anticipate a normalized effective tax rate of 28% to 29% and have used that tax rate in the presentation of adjusted net income attributable to LHC Group and adjusted net income attributable to LHC Group per diluted share.

We have included certain financial measures in this press release, including adjusted net income attributable to LHC Group and adjusted net income attributable to LHC Group per diluted share, which are “non-GAAP financial measures” as defined under the rules and regulations promulgated by the SEC. We define adjusted net income attributable to LHC Group as net income attributable to LHC Group adjusted for the AFAM acquisition and other closure costs. We define adjusted net income attributable to LHC Group per diluted share as net income attributable to LHC Group adjusted for the AFAM acquisition and other closure costs divided by weighted average diluted shares outstanding.

Adjusted net income attributable to LHC Group and adjusted net income attributable to LHC Group per diluted share are supplemental measures of our performance and are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”). Adjusted net income attributable to LHC Group and adjusted net income attributable to LHC Group per diluted share are not measures of our financial performance under GAAP and should not be considered as alternatives to net income attributable to LHC Group, net income attributable to LHC Group per diluted share or any other performance measures derived in accordance with GAAP. Our measurements of adjusted net income attributable to LHC Group and adjusted net income attributable to LHC Group per diluted share may not be comparable to similarly titled measures of other companies. We have included information concerning adjusted net income attributable to LHC Group and adjusted net income attributable to LHC Group per diluted share in this press release because we believe that such information is used by certain investors as measures of a company’s historical performance. We believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of issuers of equity securities, many of which present adjusted net income and adjusted net income per diluted share when reporting their results. Our presentation of adjusted net income attributable to LHC Group and adjusted net income attributable to LHC Group per diluted share should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

Contact:    Eric Elliott
                  Senior Vice President of Finance
                  (337) 233-1307
                  eric.elliott@lhcgroup.com

LHC Group

Source: LHC Group
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