Press Release

LHC Group Announces Second Quarter 2018 Financial Results

August 1, 2018

Affirms 2018 Guidance and Remains on Track with Merger Integration and Synergies

LAFAYETTE, La.--(BUSINESS WIRE)--Aug. 1, 2018-- LHC Group, Inc. (NASDAQ: LHCG) announced its financial results for the three and six months ended June 30, 2018.

Financial Results for the Second Quarter of 2018

  • Net service revenue increased 95.0% to a record $502.0 million compared with $257.5 million in the second quarter of 2017.
  • Net income attributable to LHC Group’s common stockholders was $16.8 million, a 48.7% increase from $11.3 million in the second quarter of 2017. Net income attributable to LHC Group’s common stockholders per diluted share was $0.55, a decrease of 12.7% from $0.63 in the second quarter of 2017, on a 71.1% increase in weighted average diluted shares outstanding as well as the effect of costs and expenses described within our adjusted results below.
  • Adjusted net income attributable to LHC Group’s common stockholders was $25.8 million, up 128.3% from $11.3 million in the second quarter of 2017. Adjusted net income attributable to LHC Group’s common stockholders per diluted share was $0.84, a 33.3% increase from $0.63 in the second quarter of 2017. (1)
  • Adjusted results for the second quarter of 2018 exclude transaction and other transition related costs, expenses related to certain closures and relocations and the income tax effect of adjustments to income due to certain deal and transaction costs that are not deductible, in the aggregate amount of $9.0 million after tax, or $0.29 per diluted share.
  • On April 1, 2018, closed on the Almost Family merger. The transaction integration and synergies remain on track resulting in 12% to 15% accretion from the merger for fiscal year 2018.
(1) See “Reconciliation of Non-GAAP Measures – Adjusted net income attributable to LHC Group” to GAAP results on page 10.
 

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 98.0%; organic growth was 7.9%.
  • Total growth in home health revenue was 88.6%; organic growth was 9.0%.
  • Total growth in hospice admissions was 40.4%; organic growth was 2.5%.
  • On May 1, 2018, completed a joint venture with St. Mary’s Health Network to purchase and share ownership of St. Mary’s Home Care Service in Reno, Nevada, followed by a similar agreement on August 1, 2018, for St. Mary’s Hospice, also in Reno, Nevada.
  • On August 1, 2018, completed a joint venture with Capital Region Medical Center in Jefferson City, Missouri, to purchase and share ownership of Capital Region Home Health.

Commenting on the results, Keith G. Myers, LHC Group’s Chairman and Chief Executive Officer, said, “We are very pleased with our strong growth for the second quarter and with the progress we are making in post-merger integration of Almost Family locations as we deploy the same company-wide commitment to quality, growth and efficiency that has led to industry leading performance and to decades of experience in partnering with hospitals and health systems. Our results to date demonstrate that the integration is on track and that our overall growth strategy is delivering on multiple fronts. The opportunities for growth across all service lines are as strong as ever as we continue to leverage our scale, clinical and operational expertise and national in-home healthcare platform to deliver measurable value for partners, payers and, most importantly, for the patients, families and communities we are privileged to serve.”

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 $2 million has been realized through the second 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.

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, 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 merger or other acquisitions. Given the difficulty in predicting the future amount and timing of merger related 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, “The full year is unfolding much like we anticipated with a combination of strong organic and adjusted earnings growth driven by high quality service, realization of transaction synergies and improved operations. We are pleased with the size and quality of our acquisition pipeline and expect that we will build on the pace we have set through the balance of the year as we continue to demonstrate the value proposition we are uniquely positioned to deliver with our national in-home healthcare platform.”

Conference Call

LHC Group will host a conference call on Thursday, August 2, 2018, at 11:00 a.m. Eastern time to discuss its second 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 August 9, 2018, by dialing (855) 859-2056 (international callers: (404) 537-3406) and entering confirmation number 3998663.

A live broadcast of LHC Group’s conference call will be available under 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 approximately 30,000 employees deliver home health, hospice, home and community based services, and facility-based services from approximately 780 locations in communities in 37 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 76 health systems, consisting of 337 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 merger, 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 merger, 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)

 
June 30,

2018

Dec. 31,

2017

(Unaudited)
ASSETS
Current assets:
Cash $ 15,370 $ 2,849
Receivables:
Patient accounts receivable 280,490 161,898
Other receivables 7,647 3,163
Amounts due from governmental entities   830     830  
Total receivables 288,967 165,891
Prepaid income taxes 5,086 7,006
Prepaid expenses 23,713 13,042
Other current assets  

17,300

    12,177  
Total current assets

350,436

200,965

Property, building and equipment, net of accumulated depreciation of $49,173 and $43,565, respectively

64,898 46,453
Goodwill 1,118,777 392,601
Intangible assets, net of accumulated amortization of $14,094 and $13,041, respectively 325,137 134,610
Assets held for sale 2,850
Other assets   19,572     19,073  
Total assets $

1,881,670

  $ 793,702  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities $

76,800

$ 39,750
Salaries, wages, and benefits payable 99,881 44,747
Self-insurance reserve 26,332 12,450
Current portion of long-term debt 12,617 286
Amounts due to governmental entities   4,375     5,019  
Total current liabilities

220,005

102,252
Deferred income taxes 34,022 27,466

Income taxes payable

3,851
Revolving credit facility 242,000 144,000
Long term notes payable   265  
Total liabilities

500,143

273,718
Noncontrolling interest – redeemable 17,032 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; 35,592,424 and 22,640,046 shares issued in 2018 and 2017, respectively

355 226
Treasury stock – 4,953,665 and 4,890,504 shares at cost, respectively (46,344 ) (42,249 )
Additional paid-in capital 923,655 126,490
Retained earnings   386,193     364,401  
Total LHC Group, Inc. stockholders’ equity 1,263,859 448,868
Noncontrolling interest – non-redeemable   100,636     57,723  
Total equity   1,364,495     506,591  
Total liabilities and equity $

1,881,670

  $ 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

June 30,

Six Months Ended

June 30,

2018   2017 2018   2017
Net service revenue $ 502,024 $ 257,535 $ 793,078 $ 501,784
Cost of service revenue   329,646     161,158     518,264     315,528  
Gross margin 172,378 96,377 274,814 186,256
General and administrative expenses   141,350     73,552     233,381     145,563  
Operating income 31,028 22,825 41,433 40,693
Interest expense   (3,202 )   (840 )   (4,652 )   (1,620 )

Income before income taxes and noncontrolling interest

27,826 21,985 36,781 39,073
Income tax expense   7,170     7,792     8,147     12,965  
Net income 20,656 14,193 28,634 26,108

Less net income attributable to noncontrolling interests

 

  3,859     2,889     6,842     5,337  
Net income attributable to LHC Group, Inc.’s common stockholders $ 16,797   $ 11,304   $ 21,792   $ 20,771  
 
Earnings per share attributable to LHC Group, Inc.’s common stockholders:
Basic $ 0.55   $ 0.64   $ 0.90   $ 1.17  
Diluted $ 0.55   $ 0.63   $ 0.89   $ 1.16  
 
Weighted average shares outstanding:
Basic 30,497,501 17,728,567 24,178,781 17,686,134
Diluted 30,742,293 17,964,387 24,403,310 17,911,723
 

 

LHC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 
Six Months Ended

June 30,

2018   2017
 
Operating activities:
Net income $ 28,634 $ 26,108
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 7,548 6,348
Stock-based compensation expense 3,919 3,077
Deferred income taxes 1,714 2,522
(Loss) gain on disposal of assets (126 ) 154
Impairment of intangibles 778
Changes in operating assets and liabilities, net of acquisitions:
Receivables (18,897 ) (1,926 )
Prepaid expenses and other assets

(6,521

) (2,329 )
Prepaid income taxes 4,624 (3,296 )
Accounts payable and accrued expenses

8,729

15,119
Income taxes payable (3,499 )
Net amounts due to/from governmental entities   (704 )   498  
Net cash provided by operating activities 29,698 42,776
 
Investing activities:
Purchases of property, building and equipment (13,760 ) (5,341 )

Cash acquired from business combination, net of cash paid

13,086

Advanced payments on acquisitions     (523 )
Net cash used in investing activities (674 ) (28,568 )
 
Financing activities:
Proceeds from line of credit 270,084 19,000
Payments on line of credit (278,884 ) (22,000 )
Proceeds from employee stock purchase plan 634 469
Payments on debt 135 (129 )
Payment on deferred financing fees (1,881 )
Noncontrolling interest distributions (5,763 ) (5,167 )
Withholding taxes paid on stock-based compensation (4,095 ) (2,744 )
Purchase of additional controlling interest (55 ) (184 )
Sale of noncontrolling interest   3,322     251  
Net cash used in financing activities   (16,503 )   (10,504 )
Change in cash 12,521 3,704
Cash at beginning of period   2,849     3,264  
Cash at end of period $ 15,370   $ 6,968  
 
Supplemental disclosures of cash flow information:
Interest paid $ 3,112   $ 1,762  
Income taxes paid $ 2,139   $ 17,320  
 

 

LHC GROUP, INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(Amounts in thousands)

(Unaudited)

 
Three Months Ended June 30, 2018

Home
Health
Services

 

Hospice
Services

 

Home and
Community-
Based
Services

 

Facility-
Based
Services

  HCI   Total
Net service revenue $ 360,276 $ 50,554 $ 52,753 $ 28,304 $ 10,137 $ 502,024
Cost of service revenue 230,293 33,493 40,349 19,307 6,204 329,646
General and administrative expenses   99,162     14,613     11,777     11,088     4,710     141,350  
Operating income 30,821 2,448 627 (2,091 ) (777 ) 31,028
Interest expense   (2,256 )   (473 )   (158 )   (159 )   (156 )   (3,202 )
Income (loss) before income taxes and noncontrolling interests 28,565 1,975 469 (2,250 ) (933 ) 27,826
Income tax expense (benefit)   7,091     483     139     (313 )   (230 )   7,170  
Net income (loss) 21,474 1,492 330 (1,937 ) (703 ) 20,656
Less net income attributable to noncontrolling interests   3,810     412     (90 )   (207 )   (66 )   3,859  

Net income (loss) attributable to LHC Group, Inc.’s common stockholders

$ 17,664   $ 1,080   $ 420   $ (1,730 ) $ (637 ) $ 16,797  
Total assets $

1,306,773

  $

189,447

  $

255,456

  $

66,665

  $

63,329

  $

1,881,670

 
 
 
Three Months Ended June 30, 2017

Home
Health
Services

 

Hospice
Services

 

Home and
Community-
Based
Services

 

Facility-
Based
Services

  HCI   Total
Net service revenue $ 192,409 $ 37,851 $ 10,746 $ 16,529 $ ─ $ 257,535
Cost of service revenue 117,606 24,473 7,986 11,093 161,158
General and administrative expenses   55,268     10,743     2,261     5,280     73,552  
Operating income 19,535 2,635 499 156 22,825
Interest expense   (630 )   (126 )   (42 )   (42 )   (840 )
Income from continuing operations before income taxes and noncontrolling interests 18,905 2,509 457 114 21,985
Income tax expense   6,757     849     180     6     7,792  
Net income 12,148 1,660 277 108 14,193
Less net income attributable to noncontrolling interests   2,266     480     5     138     2,889  

Net income (loss) attributable to LHC Group, Inc.’s common stockholders

$ 9,882   $ 1,180   $ 272   $ (30 ) $ ─ $ 11,304  
Total assets $ 466,308   $ 138,519   $ 33,292   $ 34,547   $ ─ $ 672,666  
 

 

LHC GROUP, INC. AND SUBSIDIARIES

SEGMENT INFORMATION (Continued)

(Amounts in thousands)

(Unaudited)

 
Six Months Ended June 30, 2018

Home
Health
Services

 

Hospice
Services

 

Home and
Community-
Based
Services

 

Facility-
Based
Services

  HCI   Total
Net service revenue $ 564,463 $ 93,180 $ 66,844 $ 58,454 $ 10,137 $ 793,078
Cost of service revenue 360,453 61,512 51,139 38,956 6,204 518,264
General and administrative expenses   165,452     27,910     15,075     20,234     4,710     233,381  
Operating income 38,558 3,758 630 (736 ) (777 ) 41,433
Interest expense   (3,343 )   (690 )   (230 )   (232 )   (157 )   (4,652 )
Income (loss) before income taxes and noncontrolling interest 35,215 3,068 400 (968 ) (934 ) 36,781
Income tax expense (benefit)   7,813     594     124     (154 )   (230 )   8,147  
Net income (loss) 27,402 2,474 276 (814 ) (704 ) 28,634
Less net income attributable to noncontrolling interests   6,047     829     (70 )   102     (66 )   6,842  

Net income (loss) attributable to LHC Group, Inc.’s common stockholders

$ 21,355   $ 1,645   $ 346   $ (916 ) $ (638 ) $ 21,792  
 
 
Six Months Ended June 30, 2017

Home
Health
Services

 

Hospice
Services

 

Home and
Community-
Based
Services

 

Facility-
Based
Services

  HCI   Total
Net service revenue $ 373,067 $ 73,799 $ 21,287 $ 33,631 $ ─ $ 501,784
Cost of service revenue 229,692 47,746 15,934 22,156 315,528
General and administrative expenses   109,190     21,149     4,572     10,652     145,563  
Operating income 34,185 4,904 781 823 40,693
Interest expense   (1,215 )   (243 )   (81 )   (81 )   (1,620 )
Income from continuing operations before income taxes and noncontrolling interest 32,970 4,661 700 742 39,073
Income tax expense   11,010     1,508     263     184     12,965  
Net income 21,960 3,153 437 558 26,108
Less net income attributable to noncontrolling interests   4,294     766     13     264     5,337  

Net income attributable to LHC Group, Inc.’s common stockholders

$ 17,666   $ 2,387   $ 424   $ 294   $ ─ $ 20,771  
 

   

LHC GROUP, INC. AND SUBSIDIARIES

SELECT CONSOLIDATED KEY STATISTICAL AND FINANCIAL DATA

(Unaudited)

 
Three Months Ended

June 30,

Six Months Ended

June 30,

2018   2017 2018   2017
Key Data:
Home-Health Services:
Locations 568 315 568 315
Acquired 253 12 254 23
De novo
Divested/Consolidated (4 ) (2 ) (5 ) (3 )
Total new admissions 93,905 47,436 147,028 94,721
Medicare new admissions 59,012 29,765 92,040 59,584
Average daily census 76,708 43,143 76,516 42,397
Average Medicare daily census 51,279 29,554 51,290 29,306
Medicare completed and billed episodes 96,370 53,238 150,690 104,999

Average Medicare case mix for completed and billed Medicare episodes

1.10 1.09 1.10 1.08

Average reimbursement per completed and billed Medicare episodes

$ 2,975 $ 2,787 $ 2,925 $ 2,753
Total visits 2,505,210 1,418,908 4,000,328 2,726,906
Total Medicare visits 1,703,373 980,033 2,712,798 1,900,591

Average visits per completed and billed Medicare episodes

17.7 18.4 18.0 18.4
Organic growth:(1)
Net revenue 9.0 % 11.9 % 9.0 % 9.9 %
Net Medicare revenue 5.1 % 6.4 % 4.9 % 5.6 %
Total new admissions 7.9 % 10.4 % 7.2 % 11.0 %
Medicare new admissions 5.4 % 6.4 % 4.8 % 7.0 %
Average daily census 2.3 % 4.9 % 2.9 % 4.5 %
Average Medicare daily census -1.0 % -0.1 % -0.8 % -0.6 %
Medicare completed and billed episodes 2.4 % -0.8 % 1.0 % 0.3 %
 
Home and Community-Based Services:
Locations 80 11 80 11
Acquired 64 64
De novo 4
Divested/Consolidated
Average daily census 14,557 1,746 14,528 1,712
Billable hours 2,227,831 381,107 2,706,614 752,780
Revenue per billable hour $ 24.13 $ 28.46 $ 25.15 $ 28.78
 
Hospice-Based Services:
Locations 106 87 106 87
Acquired 15 13 15 21
De novo
Divested/Consolidated
Admissions 4,528 3,224 8,582 6,276
Average daily census 3,659 3,029 3,399 2,926
Patient days 332,978 275,630 615,198 529,548
Average revenue per patient day $ 154 $ 140 $ 154 $ 142
 
Facility-Based Services:

Long-term Acute Care

Locations 12 8 12 8
Acquired
Divested/Consolidated (2 ) (2 )
Patient days 19,983 13,075 41,037 26,807
Average revenue per patient day $ 1,386 $ 1,083 $ 1,361 $ 1,085
Occupancy rate 69.7 % 76.4 % 70.2 % 78.8 %
(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 June 30, Six Months Ended June 30,
2018   2017 2018   2017
Net Service Revenue, pre-adoption $ 509,742 $ 260,210 $ 805,722 $ 506,828
Less: Implicit price concession(1)   7,718   2,675   12,644   5,044
Net Service Revenue, post-adoption $ 502,024 $ 257,535 $ 793,078 $ 501,784
 
   

RECONCILIATION OF ADJUSTED NET INCOME

ATTRIBUTABLE TO LHC GROUP, INC.

(Amounts in thousands, Unaudited)

 
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 2018   2017
Net income attributable to LHC Group, Inc.’s common stockholders $ 16,797 $ 11,304 $ 21,792 $ 20,771
Add (net of tax):
AFAM merger/acquisition expenses(2) 5,860 12,171
Closures/relocations(3) 2,464 2,464
Income tax effect of adjustments to income(4)   689   689

Adjusted net income attributable to LHC Group, Inc.’s common stockholders

$ 25,810 $ 11,304 $ 37,116 $ 20,771
 
   

RECONCILIATION OF ADJUSTED NET INCOME

ATTRIBUTABLE TO LHC GROUP, INC. PER DILUTED SHARE

(Unaudited)

 
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 2018   2017
Net income attributable to LHC Group, Inc.’s common stockholders $ 0.55 $ 0.63 $ 0.89 $ 1.16
Add (net of tax):
AFAM merger/acquisition expenses(2) 0.19 0.50
Closures/relocations(3) 0.08 0.11
Income tax effect of adjustments to income(4)   0.02   0.02

Adjusted net income attributable to LHC Group, Inc.’s common stockholders

$ 0.84 $ 0.63 $ 1.52 $ 1.16
 
(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) Transaction expenses and transition costs associated with the merger between LHC Group and Almost Family ($8.4 million pre-tax).
(3)

Expenses associated with the closure, relocation or consolidation of four home health agencies and two long-term acute care hospitals. Costs include $1.5 million for intangibles impairment and lease termination charges ($3.5 million pre-tax).

(4) Effective tax rate increased to 29.9% due to certain deal and transaction costs that are not deductible related to the merger. We continue to anticipate a normalized effective tax rate of 28% to 29% and have used that 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 merger/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 merger/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.

Source: LHC Group, Inc.

LHC Group, Inc.
Eric Elliott, 337-233-1307
Senior Vice President of Finance
eric.elliott@lhcgroup.com