false2021Q10001303313December 31us-gaap:ServiceMemberus-gaap:ServiceMember00013033132021-01-012021-03-31xbrli:shares00013033132021-05-04iso4217:USD00013033132021-03-3100013033132020-12-31iso4217:USDxbrli:shares00013033132020-01-012020-03-310001303313us-gaap:CommonStockMember2020-12-310001303313us-gaap:TreasuryStockMember2020-12-310001303313us-gaap:AdditionalPaidInCapitalMember2020-12-310001303313us-gaap:RetainedEarningsMember2020-12-310001303313us-gaap:NoncontrollingInterestMember2020-12-310001303313us-gaap:RetainedEarningsMember2021-01-012021-03-310001303313us-gaap:NoncontrollingInterestMember2021-01-012021-03-310001303313us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001303313us-gaap:CommonStockMember2021-01-012021-03-310001303313us-gaap:TreasuryStockMember2021-01-012021-03-310001303313us-gaap:CommonStockMember2021-03-310001303313us-gaap:TreasuryStockMember2021-03-310001303313us-gaap:AdditionalPaidInCapitalMember2021-03-310001303313us-gaap:RetainedEarningsMember2021-03-310001303313us-gaap:NoncontrollingInterestMember2021-03-310001303313us-gaap:CommonStockMember2019-12-310001303313us-gaap:TreasuryStockMember2019-12-310001303313us-gaap:AdditionalPaidInCapitalMember2019-12-310001303313us-gaap:RetainedEarningsMember2019-12-310001303313us-gaap:NoncontrollingInterestMember2019-12-3100013033132019-12-310001303313us-gaap:RetainedEarningsMember2020-01-012020-03-310001303313us-gaap:NoncontrollingInterestMember2020-01-012020-03-310001303313us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310001303313us-gaap:CommonStockMember2020-01-012020-03-310001303313us-gaap:TreasuryStockMember2020-01-012020-03-310001303313us-gaap:CommonStockMember2020-03-310001303313us-gaap:TreasuryStockMember2020-03-310001303313us-gaap:AdditionalPaidInCapitalMember2020-03-310001303313us-gaap:RetainedEarningsMember2020-03-310001303313us-gaap:NoncontrollingInterestMember2020-03-3100013033132020-03-31lhcg:segmentlhcg:Locationlhcg:State0001303313lhcg:SequestrationPaymentAdjustmentMember2021-01-012021-03-310001303313lhcg:SuspensionOfLTACHMember2021-01-012021-03-310001303313lhcg:DueFromLegislationMember2021-03-310001303313lhcg:DueFromLegislationMemberus-gaap:OtherCurrentLiabilitiesMember2021-03-310001303313lhcg:DueFromLegislationMemberus-gaap:OtherNoncurrentLiabilitiesMember2021-03-31xbrli:pure0001303313lhcg:MedicareMemberlhcg:HomehealthservicesMember2021-01-012021-03-310001303313lhcg:MedicareMemberlhcg:HomehealthservicesMember2020-01-012020-03-310001303313lhcg:ManagedCareCommercialandOtherMemberlhcg:HomehealthservicesMember2021-01-012021-03-310001303313lhcg:ManagedCareCommercialandOtherMemberlhcg:HomehealthservicesMember2020-01-012020-03-310001303313lhcg:HomehealthservicesMember2021-01-012021-03-310001303313lhcg:HomehealthservicesMember2020-01-012020-03-310001303313lhcg:MedicareMemberlhcg:HospiceEntityMember2021-01-012021-03-310001303313lhcg:MedicareMemberlhcg:HospiceEntityMember2020-01-012020-03-310001303313lhcg:ManagedCareCommercialandOtherMemberlhcg:HospiceEntityMember2021-01-012021-03-310001303313lhcg:ManagedCareCommercialandOtherMemberlhcg:HospiceEntityMember2020-01-012020-03-310001303313lhcg:HospiceEntityMember2021-01-012021-03-310001303313lhcg:HospiceEntityMember2020-01-012020-03-310001303313lhcg:HomeAndCommunityBasedServicesMemberlhcg:MedicaidMember2021-01-012021-03-310001303313lhcg:HomeAndCommunityBasedServicesMemberlhcg:MedicaidMember2020-01-012020-03-310001303313lhcg:ManagedCareCommercialandOtherMemberlhcg:HomeAndCommunityBasedServicesMember2021-01-012021-03-310001303313lhcg:ManagedCareCommercialandOtherMemberlhcg:HomeAndCommunityBasedServicesMember2020-01-012020-03-310001303313lhcg:HomeAndCommunityBasedServicesMember2021-01-012021-03-310001303313lhcg:HomeAndCommunityBasedServicesMember2020-01-012020-03-310001303313lhcg:FacilityBasedServicesMemberlhcg:MedicareMember2021-01-012021-03-310001303313lhcg:FacilityBasedServicesMemberlhcg:MedicareMember2020-01-012020-03-310001303313lhcg:FacilityBasedServicesMemberlhcg:ManagedCareCommercialandOtherMember2021-01-012021-03-310001303313lhcg:FacilityBasedServicesMemberlhcg:ManagedCareCommercialandOtherMember2020-01-012020-03-310001303313lhcg:FacilityBasedServicesMember2021-01-012021-03-310001303313lhcg:FacilityBasedServicesMember2020-01-012020-03-310001303313lhcg:HealthcareInnovationsMemberlhcg:MedicareMember2021-01-012021-03-310001303313lhcg:HealthcareInnovationsMemberlhcg:MedicareMember2020-01-012020-03-310001303313lhcg:HealthcareInnovationsMemberlhcg:ManagedCareCommercialandOtherMember2021-01-012021-03-310001303313lhcg:HealthcareInnovationsMemberlhcg:ManagedCareCommercialandOtherMember2020-01-012020-03-310001303313lhcg:HealthcareInnovationsMember2021-01-012021-03-310001303313lhcg:HealthcareInnovationsMember2020-01-012020-03-3100013033132020-01-012020-04-30lhcg:Grouplhcg:PeriodicRate0001303313lhcg:HospiceFacilityMember2021-03-310001303313lhcg:PharmacyMember2021-03-310001303313us-gaap:DiscontinuedOperationsDisposedOfBySaleMemberlhcg:HomeHealthAgenciesMember2021-01-012021-03-310001303313lhcg:HealthAgencySecondTransactionMember2021-01-012021-03-310001303313us-gaap:DiscontinuedOperationsDisposedOfBySaleMemberlhcg:HealthAgencySecondTransactionMember2021-01-012021-03-310001303313lhcg:HomehealthservicesMember2020-12-310001303313lhcg:HospiceEntityMember2020-12-310001303313lhcg:HomeAndCommunityBasedServicesMember2020-12-310001303313lhcg:FacilityBasedServicesMember2020-12-310001303313lhcg:HealthcareInnovationsMember2020-12-310001303313lhcg:HomehealthservicesMember2021-03-310001303313lhcg:HospiceEntityMember2021-03-310001303313lhcg:HomeAndCommunityBasedServicesMember2021-03-310001303313lhcg:FacilityBasedServicesMember2021-03-310001303313lhcg:HealthcareInnovationsMember2021-03-310001303313lhcg:CertificateOfNeedMember2021-03-310001303313us-gaap:TradeNamesMember2021-03-310001303313us-gaap:TradeNamesMember2020-12-310001303313us-gaap:LicensingAgreementsMember2021-03-310001303313us-gaap:LicensingAgreementsMember2020-12-310001303313us-gaap:TradeNamesMember2021-03-310001303313us-gaap:TradeNamesMember2020-12-310001303313us-gaap:NoncompeteAgreementsMember2021-03-310001303313us-gaap:NoncompeteAgreementsMember2020-12-310001303313us-gaap:CustomerRelationshipsMember2021-03-310001303313us-gaap:CustomerRelationshipsMember2020-12-310001303313us-gaap:TradeNamesMember2021-01-012021-03-310001303313us-gaap:CustomerRelationshipsMember2021-01-012021-03-310001303313us-gaap:NoncompeteAgreementsMember2021-01-012021-03-310001303313us-gaap:TradeNamesMember2020-01-012020-12-310001303313us-gaap:CustomerRelationshipsMember2020-01-012020-12-310001303313us-gaap:NoncompeteAgreementsMember2020-01-012020-12-3100013033132018-04-020001303313us-gaap:FederalFundsEffectiveSwapRateMember2018-04-022018-04-020001303313us-gaap:EurodollarMember2018-04-022018-04-020001303313srt:MinimumMemberus-gaap:BaseRateMember2018-04-022018-04-020001303313srt:MaximumMemberus-gaap:BaseRateMember2018-04-022018-04-020001303313srt:MinimumMemberus-gaap:EurodollarMember2018-04-022018-04-020001303313srt:MaximumMemberus-gaap:EurodollarMember2018-04-022018-04-02lhcg:Instrument0001303313srt:MinimumMember2018-04-022018-04-020001303313srt:MaximumMember2018-04-022018-04-020001303313us-gaap:BaseRateMember2021-01-012021-03-310001303313us-gaap:LondonInterbankOfferedRateLIBORMember2021-01-012021-03-310001303313lhcg:A2018LongTermIncentivePlanMember2018-12-310001303313srt:DirectorMemberlhcg:SecondAmendedandRestated2005NonEmployeeDirectorsCompensationPlanMember2021-01-012021-03-310001303313lhcg:SecondAmendedandRestated2005NonEmployeeDirectorsCompensationPlanMember2021-01-012021-03-310001303313lhcg:A2018LongTermIncentivePlanMemberlhcg:EmployeeMember2021-01-012021-03-310001303313lhcg:ConsultantsMemberlhcg:A2018LongTermIncentivePlanMember2021-01-012021-03-310001303313us-gaap:RestrictedStockMember2020-12-310001303313us-gaap:EmployeeStockOptionMember2020-12-310001303313us-gaap:RestrictedStockMember2021-01-012021-03-310001303313us-gaap:EmployeeStockOptionMember2021-01-012021-03-310001303313us-gaap:RestrictedStockMember2021-03-310001303313us-gaap:EmployeeStockOptionMember2021-03-3100013033132006-01-012006-12-3100013033132006-12-3100013033132013-01-012013-12-310001303313lhcg:EmployeeMember2021-01-012021-03-310001303313lhcg:HomehealthservicesMember2020-03-310001303313lhcg:HospiceEntityMember2020-03-310001303313lhcg:HomeAndCommunityBasedServicesMember2020-03-310001303313lhcg:FacilityBasedServicesMember2020-03-310001303313lhcg:HealthcareInnovationsMember2020-03-31
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________
FORM 10-Q
______________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-33989
LHC Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 71-0918189
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
901 Hugh Wallis Road South
Lafayette, LA 70508
(Address of principal executive offices including zip code)
(337233-1307
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value of $0.01LHCGNASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Table of Contents
Large accelerated filer  ý Accelerated filer 
Non-accelerated filer   Smaller reporting company   
Emerging growth company


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ý
Number of shares of common stock, par value $0.01, outstanding as of May 4, 2021: 31,666,163 shares.


Table of Contents
LHC GROUP, INC.
INDEX
 
Part I. Financial InformationPage
Item 1.
Condensed Consolidated Balance Sheets — March 31, 2021 and December 31, 2020
Condensed Consolidated Statements of Income — Three months ended March 31, 2021 and 2020
Condensed Consolidated Statements of Changes in Equity — Three months ended March 31, 2021 and 2020
Condensed Consolidated Statements of Cash Flows — Three months ended March 31, 2021 and 2020
Item 2.
Item 3.
Item 4.
Part II. Other Information
Item 1.
Item 1A.
Item 2.
Item 6.
3

Table of Contents
PART I — FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data) (Unaudited)
March 31, 2021December 31, 2020
ASSETS
Current assets:
Cash$292,317 $286,569 
Receivables:
Patient accounts receivable331,715 301,209 
Other receivables9,821 11,522 
Amounts due from governmental entities223  
Total receivables341,759 312,731 
Prepaid expenses26,038 22,058 
Other current assets23,561 25,664 
Total current assets683,675 647,022 
Property, building and equipment, net of accumulated depreciation of $86,521 and $82,721, respectively
139,663 138,366 
Goodwill1,259,127 1,259,147 
Intangible assets, net of accumulated amortization of $17,963 and $17,659, respectively
314,532 315,355 
Assets held for sale3,137 1,900 
Operating lease right of use asset101,193 100,046 
Other assets21,527 21,518 
Total assets$2,522,854 $2,483,354 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities$63,975 $64,864 
Salaries, wages, and benefits payable110,327 88,666 
Self-insurance reserves33,893 35,103 
 Income tax payable22,382 21,464 
Government stimulus advance93,257 93,257 
Contract liabilities - deferred revenue317,962 317,962 
Current operating lease liabilities32,627 32,676 
Amounts due to governmental entities1,164 1,516 
Current liabilities - deferred employer payroll tax25,928 25,928 
Total current liabilities701,515 681,436 
Deferred income taxes54,954 47,237 
Income taxes payable6,404 6,203 
Revolving credit facility 20,000 
Other long term liabilities25,928 25,928 
Long-term operating lease liabilities71,431 70,275 
                                   Total liabilities860,232 851,079 
Noncontrolling interest — redeemable17,939 18,921 
Commitments and contingencies
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 shares authorized; 36,507,148 and 36,355,497 shares issued, and 31,240,270 and 31,139,840 shares outstanding, respectively
365 364 
Treasury stock — 5,266,878 and 5,215,657 shares at cost, respectively
(78,552)(69,011)
Additional paid-in capital966,201 962,120 
Retained earnings669,956 635,297 
Total LHC Group, Inc. stockholders’ equity1,557,970 1,528,770 
Noncontrolling interest — non-redeemable86,713 84,584 
Total stockholders' equity1,644,683 1,613,354 
Total liabilities and stockholders' equity$2,522,854 $2,483,354 
See accompanying Notes to Condensed Consolidated Financial Statements.
4

Table of Contents
LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
 
 Three Months Ended
March 31,
 20212020
Net service revenue$524,835 $512,871 
Cost of service revenue (excluding depreciation and amortization)310,272 321,202 
Gross margin214,563 191,669 
General and administrative expenses163,249 157,866 
Impairment of intangibles and other177  
Operating income51,137 33,803 
Interest expense(263)(2,768)
Income before income taxes and noncontrolling interest50,874 31,035 
Income tax expense9,441 3,359 
Net income41,433 27,676 
Less net income attributable to noncontrolling interests6,774 5,652 
Net income attributable to LHC Group, Inc.’s common stockholders$34,659 $22,024 
Earnings per share:
Basic$1.11 $0.71 
Diluted$1.10 $0.70 
Weighted average shares outstanding:
Basic31,165 31,020 
Diluted31,432 31,303 
 










See accompanying Notes to the Condensed Consolidated Financial Statements.

5

Table of Contents
LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in thousands, except share data)
(Unaudited)
 
For the Three Months Ended March 31, 2021
 Common StockAdditional
Paid-In
Capital
Retained
Earnings
Noncontrolling
Interest Non
Redeemable
Total
Equity
IssuedTreasury
AmountSharesAmountShares
Balance as of December 31, 2020$364 36,355,497 $(69,011)5,215,657 $962,120 $635,297 $84,584 $1,613,354 
Net income (1)— — — — — 34,659 4,469 39,128 
Noncontrolling interest distributions— — — — — — (2,417)(2,417)
Purchase of additional controlling interest— — — — (81)— (61)(142)
Sale of noncontrolling interest— — — — — — 138 138 
Nonvested stock compensation— — — — 3,513 — — 3,513 
Issuance of vested stock1 148,447 — — — — — 1 
Treasury shares redeemed to pay income tax— — (9,541)51,221 — — — (9,541)
Issuance of common stock under Employee Stock Purchase Plan— 3,204 — — 649 — — 649 
Balance as of March 31, 2021$365 36,507,148 $(78,552)5,266,878 $966,201 $669,956 $86,713 $1,644,683 

(1) Net income excludes net income attributable to noncontrolling interest-redeemable of $2.3 million during the three months ended March 31, 2021. Noncontrolling interest-redeemable is reflected outside of permanent equity on the condensed consolidated balance sheets. See Note 8 of the Notes to Condensed Consolidated Financial Statements.

For the Three Months Ended March 31, 2020
 Common StockAdditional
Paid-In
Capital
Retained
Earnings
Noncontrolling
Interest Non
Redeemable
Total
Equity
IssuedTreasury
AmountSharesAmountShares
Balance as of December 31, 2019$361 36,129,280 $(60,060)5,136,890 $949,321 $523,701 $93,928 $1,507,251 
Net income (1)— — — — — 22,024 2,099 24,123 
Acquired noncontrolling interest— — — — — — 2,880 2,880 
Noncontrolling interest distributions— — — — — — (2,093)(2,093)
Purchase of additional controlling interest— — — — (2,470)— (21,105)(23,575)
Nonvested stock compensation— — — — 3,680 — — 3,680 
Issuance of vested stock2 163,163 — — — — — 2 
Treasury shares redeemed to pay income tax— — (7,122)59,390 189 — — (6,933)
Issuance of common stock under Employee Stock Purchase Plan— 4,663 — — 610 — — 610 
Balance as of March 31, 2020$363 36,297,106 $(67,182)5,196,280 $951,330 $545,725 $75,709 $1,505,945 
 
(1) Net income excludes net income attributable to noncontrolling interest-redeemable of $3.6 million during the three months ended March 31, 2020. Noncontrolling interest-redeemable is reflected outside of permanent equity on the condensed consolidated balance sheets. See Note 8 of the Notes to Condensed Consolidated Financial Statements.


See accompanying Notes to Condensed Consolidated Financial Statements.

6


LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands) (Unaudited)
 Three Months Ended 
 March 31,
 20212020
Operating activities:
Net income$41,433 $27,676 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense4,999 5,133 
Amortization of operating lease right of use asset8,918 8,512 
Stock-based compensation expense3,513 3,680 
Deferred income taxes7,717 4,367 
Amortization of operating leases (13)
Loss on disposal of assets31 47 
    Impairment of intangibles and other177  
Changes in operating assets and liabilities, net of acquisitions:
Receivables(28,805)(67,470)
Prepaid expenses(3,980)(11,728)
Other assets1,627 2,268 
Prepaid income taxes (4,537)
Accounts payable and accrued expenses(2,894)(11,159)
Salaries, wages, and benefits payable20,451 24,826 
Operating lease liabilities(8,925)(8,415)
Income taxes payable1,119 2,298 
Net amounts due to/from governmental entities(575)51 
Net cash provided by (used in) operating activities44,806 (24,464)
Investing activities:
Purchases of property, building and equipment(4,849)(13,502)
Proceeds from sale of property, building and equipment45 1,149 
Cash received (paid) for acquisitions 3,125 
Proceeds from sale of an entity200  
Net cash used in investing activities(4,604)(9,228)
Financing activities:
Proceeds from line of credit 188,728 
Payments on line of credit(20,000)(143,657)
Proceeds from employee stock purchase plan649 610 
Noncontrolling interest distributions(5,704)(4,874)
Withholding taxes paid on stock-based compensation(9,541)(7,064)
Purchase of additional controlling interest(142)(23,575)
Exercise of vested awards and stock options 160 
Sale of noncontrolling interest284  
Net cash (used in) provided by financing activities(34,454)10,328 
Change in cash5,748 (23,364)
Cash at beginning of period286,569 31,672 
Cash at end of period$292,317 $8,308 
Supplemental disclosures of cash flow information:
Interest paid$495 $2,830 
Income taxes paid$621 $1,269 
Non-Cash Operating Activity:
Operating right of use assets in exchange for lease obligations$11,748 $9,041 
Non-Cash Investing Activity:
Accrued capital expenditures$1,973 $2,226 



See accompanying Notes to Condensed Consolidated Financial Statements.


Table of Contents
LHC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Significant Events
Organization
LHC Group, Inc. (the “Company”) is a health care provider specializing in the post-acute continuum of care. The Company provides services through five segments: home health, hospice, home and community-based services, facility-based services, the latter primarily through long-term acute care hospitals (“LTACHs”), and healthcare innovations services ("HCI").
As of March 31, 2021, the Company, through its wholly- and majority-owned subsidiaries, equity joint ventures, controlled affiliates, and management agreements operated 829 service locations in 35 states within the continental United States and the District of Columbia.
COVID-19 Update
SARS-CoV-2 ("COVID-19") continues to spread and various responses related to stay-at-home restrictions, travel restrictions, and other public health and safety measures continue to evolve. We communicate with our clinicians and other employees all updated policies and procedures as we monitor changes related to the pandemic. Policies and procedures related to social distancing and cleaning procedures remain in place as the safety of our patients and employees are vital. The effects of COVID-19 continue to materially impact our business.  As a result, operating results for the three months ended March 31, 2021 may not be indicative of the results that may be expected for the year ending December 31, 2021, and operating results for the three months ended March 31, 2021 may not be directly comparable to operating results for the three months ended March 31, 2020.
CARES Act
In response to COVID-19, the U.S. Government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") on March 27, 2020. The CARES Act was passed to provide $100 billion of Provider Relief Funds for distribution to eligible providers who provided diagnoses, testing, or care for individuals with a possible or actual case of COVID-19, specifically to reimburse providers for health care related expenses related to the prevention of the spread of COVID-19, preparations for treating cases of COVID-19 positive patients, and for lost revenues attributable to COVID-19. The CARES Act also provided financial hardship relief to Medicare providers impacted by the COVID-19 pandemic in order to provide necessary funds when there is a disruption in Medicare claims submission and/or Medicare claims processing by distributing funds through the Accelerated and Advanced Payments Program ("AAPP").
In addition, the CARES Act suspended the 2% sequestration payment adjustments on Medicare patient claims with dates of service from May 1 through December 31, 2020, suspended the application of site-neutral payment for LTACH admissions that were admitted during the Public Health Emergency ("PHE"), and delayed payment of the employer portion of social security tax. On April 14, 2021, Congress passed legislation to continue the suspension of sequestration payment adjustments of Medicare patient claims through December 31, 2021.
Provider Relief Fund
As of March 31, 2021, the Company had $93.3 million in payments from the Provider Relief Fund. The Company intends to return these funds to the government and has recorded a short-term liability of $93.3 million in government stimulus advance in our condensed consolidated balance sheets.
AAPP
As of March 31, 2021, the Company had $318.0 million of accelerated payments under the AAPP, which was recorded in contract liabilities - deferred revenue in our condensed consolidated balance sheets in accordance with Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("Topic 606"). On October 1, 2020, the repayment and recoupment terms for AAPP funds were amended by the Continuing Appropriations Act, 2021 and Other Extensions Act, which provides that recoupment will begin one year from the date the AAPP funds were received. Under these revised terms, recoupment of AAPP will occur under a tiered approach. Beginning in the second quarter of 2021 and continuing for 11 months, CMS will recoup 25% of Medicare payments otherwise owed to the Company. If any amount of AAPP funds that we received from CMS remain unpaid after the initial 11 month period, CMS will recoup 50% of Medicare payments otherwise
9

Table of Contents
owed to the Company during the following six months. Interest will begin accruing on any amount of the AAPP funds that we received from CMS that remain unpaid following those recoupment periods. CMS will issue a repayment letter to the Company for any such outstanding amounts, which must be paid in full within 30 days from the date of the letter. The Company intends to repay the full amount before any interest accrues.
Other
During the three months ended March 31, 2021, the Company recognized $6.4 million of net service revenue due to the suspension of the 2% sequestration payment adjustment. During the three months ended March 31, 2021, the Company recognized $8.9 million of net service revenue due to the suspension of LTACH site-neutral payments. As of March 31, 2021, the Company deferred $51.8 million of employer social security taxes, $25.9 million of which was recorded in current liabilities - deferred employer payroll tax and $25.9 million of which was recorded in other long term liabilities on our condensed consolidated balance sheets.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, the related unaudited condensed consolidated statements of income for the three months ended March 31, 2021 and 2020, the unaudited condensed consolidated statements of changes in equity for the three months ended March 31, 2021 and 2020, the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020, and related notes (collectively, these financial statements are referred to as the "interim financial statements" and together with the related notes are referred to herein as the “interim financial information”) have been prepared by the Company. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been included. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from the interim financial information presented. This report should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K"). The 2020 Form 10-K was filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2021, and includes information and disclosures not included herein.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported revenue and expenses during the reporting period. Actual results could differ from those estimates.
Critical Accounting Policies
The Company’s most critical accounting policies relate to revenue recognition.
Net Service Revenue
Net service revenue from contracts with customers is recognized in the period the performance obligations are satisfied under the Company's contracts by transferring the requested services to patients in amounts that reflect the consideration to which is expected to be received in exchange for providing patient care, which is the transaction price allocated to the services provided in accordance with Topic 606 and ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (collectively, "ASC 606").
Net service revenue is recognized as performance obligations are satisfied, which can vary depending on the type of services provided. The performance obligation is the delivery of patient care in accordance with the requested services outlined in physicians' orders, which are based on specific goals for each patient.
The performance obligations are associated with contracts in duration of less than one year; therefore, the optional exemption provided by ASC 606 was elected resulting in the Company not being required to disclose the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. The Company's unsatisfied or partially unsatisfied performance obligations are primarily completed when the patients are discharged and typically occur within days or weeks of the end of the period.
10

Table of Contents
The Company determines the transaction price based on gross charges for services provided, reduced by estimates for explicit and implicit price concessions. Explicit price concessions include contractual adjustments provided to patients and third-party payors. Implicit price concessions include discounts provided to self-pay, uninsured patients or other payors, adjustments resulting from regulatory reviews, audits, billing reviews and other matters. Subsequent changes to the estimate of the transaction price are recorded as adjustments to net service revenue in the period of change. Subsequent changes that are determined to be the result of an adverse change in the patient's ability to pay (i.e. change in credit risk) are recorded as a provision for doubtful accounts within general and administrative expenses.
Explicit price concessions are recorded for the difference between our standard rates and the contracted rates to be realized from patients, third-party payors and others for services provided.
Implicit price concessions are recorded for self-pay, uninsured patients and other payors by major payor class based on historical collection experience and current economic conditions, representing the difference between amounts billed and amounts expected to be collected. The Company assesses the ability to collect for the healthcare services provided at the time of patient admission based on the verification of the patient's insurance coverage under Medicare, Medicaid, and other commercial or managed care insurance programs.
Amounts due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid), include variable consideration for retroactive revenue adjustments due to settlements of audits and reviews. The Company has determined estimates for price concessions related to regulatory reviews based on historical experience and success rates in the claim appeals and adjudication process. Revenue is recorded at amounts estimated to be realizable for services provided.
The following table sets forth the percentage of net service revenue earned by category of payor for the three months ended March 31, 2021 and 2020:
 
 Three Months Ended  
 March 31,
20212020
Home health:
Medicare64.1 %68.2 %
Managed Care, Commercial, and Other35.9 31.8 
100.0 %100.0 %
Hospice:
Medicare94.1 %92.0 %
Managed Care, Commercial, and Other5.9 8.0 
100.0 %100.0 %
Home and community-based services:
Medicaid29.2 %20.6 %
Managed Care, Commercial, and Other70.8 79.4 
100.0 %100.0 %
Facility-based services:
Medicare52.7 %54.8 %
Managed Care, Commercial, and Other47.3 45.2 
100.0 %100.0 %
HCI:
Medicare21.3 %24.6 %
Managed Care, Commercial, and Other78.7 75.4 
100.0 %100.0 %
Medicare
The following describes the payment models in effect during the three months ended March 31, 2021. Such payment models have been subject to temporary adjustments made by CMS in response to COVID-19 pandemic as described elsewhere in this Quarterly Report on Form 10-Q. The 2% sequestration reduction adjustment was suspended for patient claims with dates of service that began May 1, 2020 through December 31, 2021.
11

Table of Contents
Home Health Services
The Company records revenue as services are provided under the Patient Driven Groupings Model ("PDGM"). For each 30-day period, the patient is classified into one of 432 home health resource groups prior to receiving services. Each 30-day period is placed into a subgroup falling under the following categories: (i) timing being early or late, (ii) admission source being community or institutional, (iii) one of 12 clinical groupings based on the patient's principal diagnosis, (iv) functional impairment level of low, medium, or high, and (v) a co-morbidity adjustment of none, low, or high based on the patient's secondary diagnoses.
Each 30-day period payment from Medicare reflects base payment adjustments for case-mix and geographic wage differences. In addition, payments may reflect one of three retroactive adjustments to the total reimbursement: (a) an outlier payment if the patient’s care was unusually costly; (b) a low utilization adjustment whereby the number of visits is dependent on the clinical grouping; and/or (c) a partial payment if the patient transferred to another provider or from another provider before completing the episode. The retroactive adjustments outlined above are recognized in net service revenue when the event causing the adjustment occurs and during the period in which the services are provided to the patient. The Company reviews these adjustments to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustments is subsequently resolved. Net service revenue and related patient accounts receivable are recorded at amounts estimated to be realized from Medicare for services rendered.
Hospice
The Company records revenue based upon the date of service at amounts equal to the estimated payment rates. The Company receives one of four predetermined daily rates based upon the level of care provided by the Company, which can be routine care, general inpatient care, continuous home care, and respite care. There are two separate payment rates for routine care: payment for the first 60 days of care and care beyond 60 days. In addition to the two routine rates, the Company may also receive a service intensity add-on ("SIA"). The SIA is based on visits made in the last seven days of life by a registered nurse or medical social worker for patients in a routine level of care.
The performance obligation is the delivery of hospice services to the patient, as determined by a physician, each day the patient is on hospice care.
Adjustments to Medicare revenue are made from regulatory reviews, audits, billing reviews and other matters. The Company estimates the impact of these adjustments based on our historical experience.
Hospice payments are subject to variable consideration through an inpatient cap and an overall Medicare payment cap. The inpatient cap relates to individual programs receiving more than 20% of their total Medicare reimbursement from inpatient care services, and the overall Medicare payment cap relates to individual programs receiving reimbursements in excess of a “cap amount,” determined by Medicare to be payment equal to 12 months of hospice care for the aggregate base of hospice patients, indexed for inflation. The determination for each cap is made annually based on the 12-month period ending on September 30 of each year. The Company monitors its limits on a provider-by-provider basis and records an estimate of its liability for reimbursements received in excess of the cap amount, if any, in the reporting period.
Facility-Based Services
Gross revenue is recorded as services are provided under the LTACH prospective payment system. Each patient is assigned a long-term care diagnosis-related group. The Company is paid a predetermined fixed amount intended to reflect the average cost of treating a Medicare LTACH patient classified in that particular long-term care diagnosis-related group. For selected LTACH patients, the amount may be further adjusted based on length-of-stay and facility-specific costs, as well as in instances where a patient is discharged and subsequently re-admitted, among other factors. The Company calculates the adjustment based on a historical average of these types of adjustments for LTACH claims paid. Similar to other Medicare prospective payment systems, the rate is also adjusted for geographic wage differences. Net service revenue adjustments resulting from reviews and audits of Medicare cost report settlements are considered implicit price concessions for LTACHs and are measured at expected value.
Non-Medicare Revenues
Other sources of net service revenue for all segments fall into Medicaid, managed care or other payors of the Company's services. Medicaid reimbursement is based on a predetermined fee schedule applied to each service provided. Therefore, revenue is recognized for Medicaid services as services are provided based on this fee schedule. The Company's managed care and other payors reimburse the Company based upon a predetermined fee schedule or an episodic basis, depending on the terms of the applicable contract. Accordingly, the Company recognizes revenue from managed care and other payors as services are provided, such costs are incurred, and estimates of expected payments are known for each different payor, thus the Company's revenue is recorded at the estimated transaction price.
12

Table of Contents
Contingent Service Revenues
The HCI segment provides strategic health management services to Accountable Care Organizations ("ACOs") that have been approved to participate in the Medicare Shared Savings Program ("MSSP"). The HCI segment has service agreements with ACOs that provide for sharing of MSSP payments received by the ACO, if any. ACOs are legal entities that contract with CMS to provide services to the Medicare fee-for-service population for a specified annual period with the goal of providing better care for the individual, improving health for populations and lowering costs. ACOs share savings with CMS to the extent that the actual costs of serving assigned beneficiaries are below certain trended benchmarks of such beneficiaries and certain quality performance measures are achieved. The generation of shared savings is the performance obligation of each ACO, which only become certain upon the final issuance of unembargoed calculations by CMS, generally in the third quarter of each year.
Patient Accounts Receivable
The Company reports patient accounts receivable from services rendered at their estimated transaction price, which includes price concessions based on the amounts expected to be due from payors. The Company's patient accounts receivable is uncollateralized and primarily consist of amounts due from Medicare, Medicaid, other third-party payors, and to a lesser degree patients. The credit risk from other payors is limited due to the significance of Medicare as the primary payor. The Company believes the credit risk associated with its Medicare accounts is limited due to (i) the historical collection rate from Medicare and (ii) the fact that Medicare is a U.S. government payor. The Company does not believe that there are any other significant concentrations from any particular payor that would subject it to any significant credit risk in the collection of patient accounts receivable.
    
Earnings Per Share
Basic per share information is computed by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding during the period, under the treasury stock method. Diluted per share information is also computed using the treasury stock method, by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding plus potentially dilutive shares.
The following table sets forth shares used in the computation of basic and diluted per share information and, with respect to the data provided for the three months ended March 31, 2021 and 2020 (amounts in thousands):  
 Three Months Ended  
 March 31,
 20212020
Weighted average number of shares outstanding for basic per share calculation31,165 31,020 
Effect of dilutive potential shares:
Nonvested stock267 283 
Adjusted weighted average shares for diluted per share calculation31,432 31,303 
Anti-dilutive shares120 120 

Assets Held for Sale

As of March 31, 2021, the Company's assets held for sale was $3.1 million, which consisted of property and fixed assets of one hospice facility in Knoxville, Tennessee and one pharmacy operation in Lafayette, Louisiana.

During the three months ended March 31, 2021, the Company entered into an Asset Purchase Agreement with a buyer concerning the sale of one pharmacy operation located in Lafayette, Louisiana. The sale occurred during the second quarter of 2021 for a purchase price of $1.2 million.

Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Simplifications to accounting for income taxes, which removes certain exceptions to the general principles of Topic 740 and adds guidance to reduce complexity in accounting for income taxes. The Company adopted the new guidance effective January 1, 2021. The adoption of the new guidance did not have a material impact to the Company.
13

Table of Contents
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the transition away from reference rates expected to be discontinued to alternative reference rates. The pronouncement is effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. The Company is currently evaluating the impact of this standard on the Company's consolidated financial statements.
3. Divestiture and Joint Venture Activities
Divestiture
During the three months ended March 31, 2021, the Company sold its controlling membership interests in a home health agency previously operated as an equity joint venture. The total consideration for this controlling interest sale was $0.2 million. The transaction was accounted for as a loss on the sale of an entity and recorded in general and administrative expenses.
Joint Venture Activities
During the three months ended March 31, 2021, the Company purchased the noncontrolling membership interest in one of our equity joint venture partnerships, whereby the agency became a wholly-owned subsidiary of the Company. The total consideration for this noncontrolling interest purchase was $0.1 million. The transaction was accounted for as an equity transaction.
During the three months ended March 31, 2021, the Company sold a noncontrolling membership interest in a home health agency previously operated as an equity joint venture. The total consideration for this noncontrolling interest sale was $0.3 million. The transaction was accounted for as an equity transaction.

4. Goodwill and Intangibles
The changes in recorded goodwill and intangible assets by reporting unit for the three months ended March 31, 2021 were as follows (amounts in thousands):  
Home health reporting unitHospice
reporting
unit
Home and community-based services
reporting
 unit
Facility-based
reporting
 unit
HCI reporting unitTotal
Goodwill:
Balance as of December 31, 2020$884,000 $151,742 $166,773 $15,770 $40,862 $1,259,147 
Disposals(20)    (20)
Balance as of March 31, 2021$883,980 $151,742 $166,773 $15,770 $40,862 $1,259,127 
Intangible assets:
Balance as of December 31, 2020$226,004 $44,732 $24,208 $5,311 $15,100 $315,355 
Amortization(117)(38)(2)(2)(145)(304)
Disposals(519)    (519)
Balance as of March 31, 2021$225,368 $44,694 $24,206 $5,309 $14,955 $314,532 
The Company did record an impairment of $0.2 million related to the closure of underperforming locations. The amount of disposal of goodwill was determined using prices of comparable business in the market and the amount of disposal of the Medicare license was its carrying value at the time of closure. This was recorded in impairment of intangibles and other on the company's consolidated statements of income. In addition, the Company divested a Certificate of Need of $0.4 million, which was accounted for as a loss on the sale of an entity and recorded in general and administrative expenses.
The following tables summarize the changes in intangible assets during the three months ended March 31, 2021 and December 31, 2020 (amounts in thousands): 
14

Table of Contents
20212020
Indefinite-lived intangible assets:
   Trade names$168,699 $168,700 
   Certificates of Need/Licenses134,494 135,013 
   Net total$303,193 $303,713 
Definite-lived intangible assets:
   Trade names
      Gross carrying amount$10,212 $10,212 
      Accumulated amortization(9,514)(9,480)
      Net total$698 $732 
   Non-compete agreements
      Gross carrying amount$7,267 $7,267 
      Accumulated amortization(6,512)(6,387)
      Net total$755 $880 
   Customer relationships
      Gross carrying amount$11,823 $11,822 
      Accumulated amortization(1,937)(1,792)
      Net total$9,886 $10,030 
   Total definite-lived intangible assets
      Gross carrying amount$29,302 $29,301 
      Accumulated amortization(17,963)(17,659)
      Net total$11,339 $11,642 
Total intangible assets:
   Gross carrying amount$332,495 $333,014 
   Accumulated amortization(17,963)(17,659)
   Net total$314,532 $315,355 
         
Remaining useful lives for trade names, customer relationships, and non-compete agreements were 8.5, 17.0, and 2.9 years, respectively, at March 31, 2021. Similar periods at December 31, 2020 were 8.8, 17.3, and 2.9 years for trade names, customer relationships, and non-compete agreements, respectively. Amortization expense was $0.3 million for each of the three months ended March 31, 2021 and 2020, respectively. Amortization expense was recorded in general and administrative expenses.

5. Debt
Credit Facility
On March 30, 2018, the Company entered into a Credit Agreement with JPMorgan Chase Bank, N.A., which was effective on April 2, 2018 (the "Credit Agreement"). The Credit Agreement provides a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $500.0 million, which includes an additional $200.0 million accordion expansion feature, and a letter of credit sub-limit equal to $50.0 million. The expiration date of the Credit Agreement is March 30, 2023. The Company’s obligations under the Credit Agreement are secured by substantially all of the assets of the Company and its wholly-owned subsidiaries (subject to customary exclusions), which assets include the Company’s equity ownership of its wholly-owned subsidiaries and its equity ownership in joint venture entities. The Company’s wholly-owned subsidiaries also guarantee the obligations of the Company under the Credit Agreement. 
Revolving loans under the Credit Agreement bear interest at, as selected by the Company, either a (a) Base Rate, which is defined as a fluctuating rate per annum equal to the highest of (1) the Federal Funds Rate in effect on such day plus 0.5% (2) the Prime Rate in effect on such day and (3) the Eurodollar Rate for a one month interest period on such day plus 1.5%, plus a margin ranging from 0.50% to 1.25% per annum or (b) Eurodollar rate plus a margin ranging from 1.50% to 2.25% per
15

Table of Contents
annum, with pricing varying based on the Company's quarterly consolidated Leverage Ratio. Swing line loans bear interest at the Base Rate. The Company is limited to 15 Eurodollar borrowings outstanding at any time. The Company is required to pay a commitment fee for the unused commitments at rates ranging from 0.20% to 0.35% per annum depending upon the Company’s quarterly consolidated Leverage Ratio. The Base Rate as of March 31, 2021 was 4.00% and the LIBOR rate was 1.88%.
On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, announced its intention to cease the publication of LIBOR settings for 1-month, 3-month, 6-month, and 12-month LIBOR borrowings immediately on June 30, 2023. The announcement did not identify any successor administrator.
As of March 31, 2021, the Company had letters of credit issued in the amount of $25.4 million, and $474.6 million of remaining borrowing capacity available under the Credit Agreement. At December 31, 2020, the Company had $20.0 million drawn and letters of credit issued in the amount of $25.4 million under the Credit Facility.
Under the terms of the Credit Agreement, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Credit Agreement permits the Company to make certain restricted payments, such as purchasing shares of its stock, within certain parameters, provided the Company maintains compliance with those financial ratios and covenants after giving effect to such restricted payments. The Company was in compliance with its debt covenants under the Credit Agreement at March 31, 2021.
6. Stockholder’s Equity
Equity Based Awards
The 2018 Incentive Plan is administered by the Compensation Committee of the Company’s Board of Directors. The total number of shares of the Company's common stock originally reserved were 2,210,544 shares and a total of 1,754,704 shares are currently available for issuance. A variety of discretionary awards for employees, officers, directors, and consultants are authorized under the 2018 Incentive Plan, including incentive or non-qualified stock options and restricted stock, restricted stock units and performance-based awards. All awards must be evidenced by a written award certificate which will include the provisions specified by the Compensation Committee of the Board of Directors. The Compensation Committee determines the exercise price for stock options, which cannot be less than the fair market value of the Company’s common stock as of the date of grant.
Share Based Compensation
Nonvested Stock
During the three months ended March 31, 2021, the Company granted 7,200 nonvested shares of common stock to independent directors under the Second Amended and Restated 2005 Non-Employee Directors Compensation Plan. The shares vest 100% on the one year anniversary date.
During the three months ended March 31, 2021, employees and a consultant were granted 105,560 and 5,735 shares, respectively, of nonvested shares of common stock pursuant to the 2018 Incentive Plan. The shares vest over a period of five years, conditioned on continued employment and in accordance with the consulting agreement. The fair value of nonvested shares of common stock is determined based on the closing trading price of the Company’s common stock on the grant date.
The following table represents the share grants activity for the three months ended March 31, 2021: 
Restricted stockOptions
Number of
shares
Weighted
average grant
date fair value
Number of sharesWeighted
average grant
date fair value
Share grants outstanding as of December 31, 2020469,631 $89.69 74,235 $42.07 
Granted118,495 185.00   
Vested or exercised(146,645)185.61   
Share grants outstanding as of March 31, 2021441,481 $119.64 74,235 $42.07 
As of March 31, 2021, there was $48.4 million of total unrecognized compensation cost related to nonvested shares of common stock granted. That cost is expected to be recognized over the weighted average period of 3.33 years. The Company records compensation expense related to nonvested stock awards at the grant date for shares of common stock that are awarded fully vested, and over the vesting term on a straight-line basis for shares of common stock that vest over time. The Company estimates forfeitures at the time of grant and revises the estimate in subsequent periods if actual forfeitures differ to ensure that total compensation expense recognized is at least equal to the value of vested awards. The Company recorded $3.5 million and
16

Table of Contents
$3.7 million of compensation expense related to nonvested stock grants for the three months ended March 31, 2021 and 2020, respectively.
Employee Stock Purchase Plan
In 2006, the Company adopted the Employee Stock Purchase Plan whereby eligible employees may purchase the Company’s common stock at 95% of the market price on the last day of the calendar quarter. There were 250,000 shares of common stock initially reserved for the plan. In 2013, the Company adopted the Amended and Restated Employee Stock Purchase Plan, which reserved an additional 250,000 shares of common stock to the plan.
The table below details the shares of common stock issued during 2021: 
Number of
shares
Per share
price
Shares available as of December 31, 2020118,136 
Shares issued during the three months ended March 31, 20213,204 $202.66 
Shares available as of March 31, 2021114,932 
Treasury Stock
In conjunction with the vesting of the nonvested shares of common stock or the exercise of stock options, recipients incur personal income tax obligations. The Company allows the recipients to turn in shares of common stock to satisfy minimum tax obligations. During the three months ended March 31, 2021, the Company redeemed 51,221 shares of common stock valued at $9.5 million, related to share vesting tax obligations. Such shares are held as treasury stock and are available for reissuance by the Company.
7. Commitments and Contingencies
Contingencies
The Company provides services in a highly regulated industry and is a party to various proceedings and regulatory and other governmental and internal audits and investigations in the ordinary course of business (including audits by Zone Program Integrity Contractors ("ZPICs") and Recovery Audit Contractors ("RACs") and investigations resulting from the Company's obligation to self-report suspected violations of law). Management cannot predict the ultimate outcome of any regulatory and other governmental and internal audits and investigations. While such audits and investigations are the subject of administrative appeals, the appeals process, even if successful, may take several years to resolve. The Department of Justice, CMS, or other federal and state enforcement and regulatory agencies may conduct additional investigations related to the Company's businesses. These audits and investigations have caused and could potentially continue to cause delays in collections, recoupments from governmental payors. Currently, the Company has recorded $16.9 million in other assets, which are due from government payors related to the disputed finding of pending appeals of ZPIC audits. Additionally, these audits may subject the Company to sanctions, damages, extrapolation of damage findings, additional recoupments, fines, and other penalties (some of which may not be covered by insurance), which may, either individually or in the aggregate, have a material adverse effect on the Company's business and financial condition.
We are involved in various legal proceedings arising in the ordinary course of business. Although the results of litigation cannot be predicted with certainty, we believe the outcome of pending litigation will not have a material adverse effect, after considering the effect of our insurance coverage, on our consolidated financial information.
Legal fees related to all legal matters are expensed as incurred.
Joint Venture Buy/Sell Provisions
Most of the Company’s joint ventures include a buy/sell option that grants to the Company and its joint venture partners the right to require the other joint venture party to either purchase all of the exercising member’s membership interests or sell to the exercising member all of the non-exercising member’s membership interest, at the non-exercising member’s option, within 30 days of the receipt of notice of the exercise of the buy/sell option. In some instances, the purchase price is based on a multiple of the historical or future earnings before income taxes and depreciation and amortization of the equity joint venture at the time the buy/sell option is exercised. In other instances, the buy/sell purchase price will be negotiated by the partners and subject to a fair market valuation process. The Company has not received notice from any joint venture partners of their intent to exercise the terms of the buy/sell agreement nor has the Company notified any joint venture partners of its intent to exercise the terms of the buy/sell agreement.
17

Table of Contents
Compliance
The laws and regulations governing the Company’s operations, along with the terms of participation in various government programs, regulate how the Company does business, the services offered and its interactions with patients and the public. These laws and regulations, and their interpretations, are subject to frequent change. Changes in existing laws or regulations, or their interpretations, or the enactment of new laws or regulations could materially and adversely affect the Company’s operations and financial condition.
The Company is subject to various routine and non-routine governmental reviews, audits and investigations. In recent years, federal and state civil and criminal enforcement agencies have heightened and coordinated their oversight efforts related to the health care industry, including referral practices, cost reporting, billing practices, joint ventures and other financial relationships among health care providers. Violation of the laws governing the Company’s operations, or changes in the interpretation of those laws, could result in the imposition of fines, civil or criminal penalties and/or termination of the Company’s rights to participate in federal and state-sponsored programs and suspension or revocation of the Company’s licenses. The Company believes that it is in material compliance with all applicable laws and regulations.
8. Noncontrolling interests
The Company classifies noncontrolling interests of its joint venture parties based upon a review of the legal provisions governing the redemption of such interests. In each of the Company’s joint ventures, those provisions are embodied within the joint venture’s operating agreement. For joint ventures with operating agreement provisions that establish an obligation for the Company to purchase the third-party partners’ noncontrolling interests other than as a result of events that lead to a liquidation of the joint venture, such noncontrolling interests are classified as redeemable noncontrolling interests in temporary equity. For joint ventures with operating agreement provisions that establish an obligation that the Company purchase the third party partners’ noncontrolling interests, but which obligation is triggered by events that lead to a liquidation of the joint venture, such noncontrolling interests are classified as nonredeemable noncontrolling interests in permanent equity. Additionally, for joint ventures with operating agreement provisions that do not establish an obligation for the Company to purchase the third-party partners’ noncontrolling interests (e.g., where the Company has the option, but not the obligation, to purchase the third-party partners’ noncontrolling interests), such noncontrolling interests are classified as nonredeemable noncontrolling interests in permanent equity.
The Company’s equity joint ventures that are classified as redeemable noncontrolling interests are subject to operating agreement provisions that require the Company to purchase the noncontrolling partner’s interest upon the occurrence of certain triggering events, which are defined as the bankruptcy of the partner or the partner’s exclusion from the Medicare or Medicaid programs. These triggering events and the related repurchase provisions are specific to each redeemable equity joint venture, since the triggering of a repurchase obligation for any one redeemable noncontrolling interest in an equity joint venture does not necessarily impact any of the other redeemable noncontrolling interests in other equity joint ventures. Upon the occurrence of a triggering event requiring the purchase of a redeemable noncontrolling interest, the Company would be required to purchase the noncontrolling partner’s interest based upon a valuation methodology set forth in the applicable joint venture agreement.
Redeemable noncontrolling interests and nonredeemable noncontrolling interests are initially recorded at their fair value as of the closing date of the transaction establishing the joint venture. Such fair values are determined using various accepted valuation methods, including the income approach, the market approach, the cost approach, and a combination of one or more of these approaches. A number of facts and circumstances concerning the operation of the joint venture are evaluated for each transaction, including (but not limited to) the ability to choose management, control over acquiring or liquidating assets, and controlling the joint venture’s strategy and direction, in order to determine the fair value of the noncontrolling interest.
Based upon the Company’s evaluation of the redemption provisions concerning redeemable noncontrolling interests as of March 31, 2021, the Company determined in accordance with authoritative accounting guidance that it was not probable that an event otherwise requiring redemption of any redeemable noncontrolling interest would occur (i.e., the date for such event was not set or such event is not certain to occur). Therefore, none of the redeemable noncontrolling interests were identified as mandatorily redeemable interests at such times, and the Company did not record any values in respect of any mandatorily redeemable interests.
Subsequent to the closing date of the transaction establishing the joint venture, the Company records adjustments to the carrying amounts of noncontrolling interests during each reporting period to reflect (a) comprehensive income (loss) attributed to each noncontrolling interest, which is calculated by multiplying the noncontrolling interest percentage by the comprehensive income (loss) of the joint venture’s operations, (b) dividends paid to the noncontrolling interest partner, and (c) any other transactions that increase or decrease the Company’s ownership interest in each joint venture, as a result of which the Company retains its controlling interest. If the Company determines that, based upon its analysis as of the end of each reporting period in accordance with authoritative accounting guidance, that it is not probable that an event would occur to otherwise require the
18

Table of Contents
redemption of a redeemable noncontrolling interest (i.e., the date for such event is not set or such event is not certain to occur), then the Company does not adjust the recorded amount of such redeemable noncontrolling interest.
The carrying amount of each redeemable equity instrument presented in temporary equity for the three months ended March 31, 2021 is not less than the initial amount reported for each instrument.
The following table summarizes the activity of noncontrolling interest-redeemable for the three months ended March 31, 2021 (amounts in thousands):
Balance as of December 31, 2020$18,921 
Net income attributable to noncontrolling interest-redeemable2,305 
Noncontrolling interest-redeemable distributions(3,287)
Balance as of March 31, 2021$17,939 

9. Leases

The Company determines if a contract contains a lease at inception date. The Company's leases are operating leases, primarily for office and office equipment, that expire at various dates over the next five years. The facility based leases have renewal options for periods ranging from one to nine years. As it is not reasonably certain these renewal options will be exercised, the options were not considered in the lease term, and payments associated with the option years are excluded from lease payments.

Payments due under operating leases include fixed and variable payments. These variable payments for the Company's office leases can include operating expenses, utilities, property taxes, insurance, common area maintenance, and other facility-related expense. Additionally, any leases with terms less than one year were not recognized as operating lease right of use assets or payables for short term leases in accordance with the election of ‘package of practical expedient’ under ASU 2016-02.

The Company recognizes operating lease right of use assets and operating lease payable based on the present value of the future minimum lease payments at the lease commencement date. The Company's leases do not provide implicit rates. Therefore, the Company used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. As of March 31, 2021, the weighted-average remaining lease term was 4.10 and weighted-average discount rate was 4.42%.

The following table summarizes the operating lease right of use assets and related lease payables in our condensed consolidated balance sheets at March 31, 2021 and December 31, 2020 (amounts in thousands):
March 31, 2021December 31, 2020
Operating lease right of use asset101,193 100,046 
Current operating lease liabilities32,627 32,676 
Long-term operating lease liabilities71,431 70,275 

The components of lease costs for operating leases for the three months ended March 31, 2021 and 2020 were as follows (amounts in thousands):
Three months ended March 31,
20212020
Operating lease cost $12,190 $11,348 
Short-term lease cost855 760 
Variable lease cost1,013 982 
Total lease costs$14,058 $13,090 

Maturities of operating lease liabilities as of March 31, 2021 were as follows (amounts in thousands):

19

Table of Contents
Month ending March 31,
2021$28,148 
202230,115 
202321,877 
202414,296 
Thereafter19,168 
  Total future minimum lease payments113,604 
Less: Imputed interest(9,546)
  Total$104,058 

10. Fair Value of Financial Instruments
The carrying amounts of the Company’s cash, receivables, accounts payable and accrued liabilities approximate their fair values because of their short maturity.
11. Segment Information
The Company's reporting segments include (1) home health services, (2) hospice services, (3) home and community-based services, (4) facility-based services, and (5) HCI.  The accounting policies of the segments are the same as those described in the summary of significant accounting policies, as described in Note 2 of the Notes to Condensed Consolidated Financial Statements.
Reportable segments have been identified based upon how management has organized the business by services provided to customers and how the chief operating decision maker manages the business and allocates resources, consistent with the criteria in ASC 280, Segment Reporting.
The following tables summarize the Company’s segment information for the three months ended March 31, 2021 and 2020 (amounts in thousands):
 Three Months Ended March 31, 2021
 Home health servicesHospice servicesHome and community-based servicesFacility-based servicesHCITotal
Net service revenue$373,828 $62,734 $49,125 $33,369 $5,779 $524,835 
Cost of service revenue (excluding depreciation and amortization)212,373 38,570 34,872 21,175 3,282 310,272 
General and administrative expenses119,397 18,127 11,529 11,257 2,939 163,249 
Impairment of intangibles and other177     177 
Operating income (loss)41,881 6,037 2,724 937 (442)51,137 
Interest expense(182)(36)(24)(14)(7)(263)
Income (loss) before income taxes and noncontrolling interest41,699 6,001 2,700 923 (449)50,874 
Income tax expense (benefit)7,890 1,067 518 57 (91)9,441 
Net income (loss)33,809 4,934 2,182 866 (358)41,433 
Less net income (loss) attributable to non controlling interests4,849 1,015 279 657 (26)6,774 
Net income (loss) attributable to LHC Group, Inc.'s common stockholder$28,960 $3,919 $1,903 $209 $(332)$34,659 
Total assets$1,785,486 $308,009 $262,538 $97,692 $69,129 $2,522,854 
 
20

Table of Contents
 Three Months Ended March 31, 2020
 Home health servicesHospice servicesHome and community-based servicesFacility-based servicesHCITotal
Net service revenue$367,821 $60,531 $48,464 $29,681 $6,374 $512,871 
Cost of service revenue (excluding depreciation and amortization)220,440 38,034 38,453 20,342 3,933 321,202 
General and administrative expenses116,023 16,626 11,459 10,380 3,378 157,866 
Operating income (loss)31,358 5,871 (1,448)(1,041)(937)33,803 
Interest expense(1,900)(303)(266)(219)(80)(2,768)
Income (loss) before income taxes and noncontrolling interest29,458 5,568 (