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 September 30, 2022, the Company, through its wholly- and majority-owned subsidiaries, equity joint ventures, controlled affiliates, and management agreements operated 942 service locations in 37 states within the continental United States and the District of Columbia.
LHC Group, Inc. and UnitedHealth Group Incorporated Merger
On March 28, 2022, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with UnitedHealth Group Incorporated ("Parent") and Lightning Merger Sub Inc., a wholly owned subsidiary of Parent ("Merger Sub"), pursuant to which Merger Sub will be merged with and into the Company (the "Merger"), with the Company surviving the Merger as a wholly owned subsidiary of Parent. At a Special Meeting of Stockholders held on June 21, 2022, the stockholders of the Company approved the Merger. The parties to the Merger continue to work toward the expected consummation of the Merger prior to the end of 2022; however, such consummation remains subject to the satisfaction of the remaining closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
COVID-19 Update
SARS-CoV-2 ("COVID-19") continues to cause disruption in the economy, in terms of increased costs and disruptions in the labor market. The impact of COVID-19 is lessened as vaccines have become available in the United States; however, we continue to see periodic increases in the number of cases due to the spread of COVID-19 variants. The effects of COVID-19 continue to materially impact our business. As a result, operating results for the three and nine months ended September 30, 2022 may not be indicative of the results that may be expected for the year ending December 31, 2022, and operating results for the three and nine months ended September 30, 2022 may not be directly comparable to operating results for the three and nine months ended September 30, 2021.
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 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 ("CAAP").
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 the 2% sequestration payment adjustments on Medicare patient claims with dates of service through December 31, 2021. On December 10, 2021, the Protecting Medicare and American Farmers from Sequester Cut Act legislation passed, which continued the suspension of the sequestration payment adjustments for Medicare patient claims with dates of service through March 31, 2022. Medicare patient claims with dates of service between April 1 through June 30, 2022 had a 1% sequestration adjustment and Medicare patient claims with dates of service that began on July 1, 2022 had a 2% sequestration adjustment. On October 13, 2022, the U.S. Department of Health and Human Services extended the PHE until January 11, 2023.
CAAP
As of December 31, 2021, the Company had $106.5 million of accelerated payments under the CAAP, 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 CAAP 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 CAAP funds were received. Under these revised terms,
recoupment of CAAP will occur under a tiered approach. The repayment terms began one year starting from the date the CAAP funds were issued and continued for 11 months, with CMS recouping the initial 25% of Medicare payments otherwise owed to the Company.
If any amount of CAAP funds that we received from CMS remains unpaid after the initial 11 month period, CMS recoups 50% of Medicare payments otherwise owed to the Company during the following six months. Interest will begin accruing on any amount of the CAAP 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. During the nine months ended September 30, 2022, $101.6 million was recouped by CMS and $4.8 million of contract liabilities - deferred revenue remains on our condensed consolidated balance sheets as of September 30, 2022.
Other
The Company recognized the following amounts of net service revenue due to the suspension of the 2% sequestration payment adjustment and suspension of LTACH site-neutral payments (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Suspension of 2% sequestration payment adjustment | | $ | — | | | $ | 6,811 | | | $ | 9,952 | | | $ | 19,665 | |
| Suspension of LTACH site-neutral payment | | 4,918 | | | 5,749 | | | 17,070 | | | 18,230 | |
As of September 30, 2022, the Company deferred $26.8 million of employer social security taxes, which was recorded in current liabilities - deferred employer payroll tax on our condensed consolidated balance sheets.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, the related unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2022 and 2021, the unaudited condensed consolidated statements of stockholders' equity for the three and nine months ended September 30, 2022 and 2021, the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021, 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 and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
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, 2021 (the "2021 Form 10-K"), which was filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2022, as amended by Amendment No. 1 filed on Form 10-K/A filed by the Company on April 27, 2022 (the "Form 10-K Amendment"). The 2021 Form 10-K and Form 10-K Amendment include 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.
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.
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 and nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended
September 30, | | Nine months ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Home health: | | | | | | | |
| Medicare | 59.7 | % | | 62.1 | % | | 59.4 | % | | 62.8 | % |
| Managed Care, Commercial, and Other | 40.3 | | | 37.9 | | | 40.6 | | | 37.2 | |
| 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Hospice: | | | | | | | |
| Medicare | 92.7 | % | | 94.6 | % | | 92.8 | % | | 94.3 | % |
| Managed Care, Commercial, and Other | 7.3 | | | 5.4 | | | 7.2 | | | 5.7 | |
| 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Home and community-based services: | | | | | | | |
| Medicaid | 38.3 | % | | 32.1 | % | | 36.8 | % | | 31.1 | % |
| Managed Care, Commercial, and Other | 61.7 | | | 67.9 | | | 63.2 | | | 68.9 | |
| 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Facility-based services: | | | | | | | |
| Medicare | 53.0 | % | | 45.8 | % | | 53.0 | % | | 49.5 | % |
| Managed Care, Commercial, and Other | 47.0 | | | 54.2 | | | 47.0 | | | 50.5 | |
| 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| HCI: | | | | | | | |
| Medicare | 2.8 | % | | 6.0 | % | | 5.4 | % | | 11.4 | % |
| Managed Care, Commercial, and Other | 97.2 | | | 94.0 | | | 94.6 | | | 88.6 | |
| 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Medicare
The following describes the payment models in effect during the nine months ended September 30, 2022. Such payment models were 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 through March 31, 2022. Medicare patient claims with dates of service between April 1 through June 30, 2022 had a 1% sequestration payment adjustment. Medicare patient claims with dates of service beginning July 1, 2022 had the full 2% sequestration payment adjustment.
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.
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. During the nine months ended September 30, 2022 and 2021, the Company recorded in its HCI segment $15.6 million and $12.1 million, respectively, related to 2021 and 2020 ACO respective service periods, as certain ACOs served by the HCI segment received a MSSP payment from CMS confirming the performance obligation has been met.
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 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 and nine months ended September 30, 2022 and 2021 (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended
September 30, | | Nine months ended
September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Weighted average number of shares outstanding for basic per share calculation | 30,565 | | | 31,238 | | | 30,527 | | | 31,205 | |
| Effect of dilutive potential shares: | | | | | | | |
| Nonvested stock | 141 | | | 196 | | | 112 | | | 217 | |
| Adjusted weighted average shares for diluted per share calculation | 30,706 | | | 31,434 | | | 30,639 | | | 31,422 | |
| Anti-dilutive shares | 87 | | | 6 | | | 264 | | | 118 | |
Investments
During the nine months ended September 30, 2022, the Company invested $15.0 million and became a minority owner in a post-acute management services company, invested $0.1 million in Jumpstart Nova Fund, LP, and invested $0.2 million in LHCC Aging Innovations Fund I, LP. During the nine months ended September 30, 2021, the Company invested $10.0 million and became a minority owner in a healthcare analytics company and invested $0.1 million in Jumpstart Nova Fund, LP. These investments are recorded in other assets in our condensed consolidated balance sheets. These investments were accounted for under the cost method of accounting as the Company does not have the ability to exercise significant influence in connection with its minority ownership positions.
3. Acquisitions
On September 1, 2021, the Company purchased Heart of Hospice. During the nine months ended September 30, 2022, the Company recorded a decrease in patient accounts receivable of $1.5 million due to information obtained that related to facts and circumstances that existed at the time of acquisition; therefore, it was an adjustment to the provisional amounts previously recognized.
On November 1, 2021, the Company purchased Brookdale Health Care Services' agencies from the recently formed home health, hospice, and outpatient therapy venture between HCA Healthcare and Brookdale Senior Living. The Company's net working capital adjustment was finalized during the nine months ended September 30, 2022 for $3.1 million and recorded in accordance with ASC Topic 805, Business Combinations, as an increase to the consideration transferred. In addition, amounts due to government entities was reduced by $3.2 million to reflect payments made for prior years' hospice cap liability.
On May 1, 2022, the Company purchased the majority ownership of a home health agency from Archbold Medical Center, which included two locations in Georgia. Total consideration for the acquisition was $3.7 million. The purchase price was determined based on the Company's analysis of comparable acquisitions and the target market's potential future cash flows.
Goodwill generated from the acquisitions was recognized based on the expected contributions of each acquisition to the overall corporate strategy. The Company expects its portion of goodwill to be fully tax deductible. The acquisitions were accounted for under the acquisition method of accounting. Accordingly, the accompanying financial information includes the results of operations of the acquired entities from the date of acquisition.
The following table summarizes the preliminary amounts of the assets acquired and liabilities assumed at their acquisition date, as well as their fair value at the acquisition date and the noncontrolling interest acquired during the nine months ended September 30, 2022 (amounts in thousands):
| | | | | | | | |
| Consideration | | |
| Cash | | $ | 2,570 | |
| Fair value of total consideration transferred | | |
| Recognized amounts of identifiable assets acquired and liabilities assumed: | | |
| Trade name | | $ | 453 | |
| Certificates of need/licenses | | 357 |
| Other liabilities | | (227) | |
| Total identifiable assets and liabilities | | $ | 583 | |
| | |
| Noncontrolling interest | | $ | 707 | |
Goodwill, including noncontrolling interest of $504 | | $ | 2,694 | |
Trade names and certificates of need/licenses are indefinite-lived assets and, therefore, not subject to amortization. Acquired trade names that are not being used actively are amortized over the estimated useful life on the straight line basis. Trade names are valued using the relief from royalty method, a form of the income approach. Certificates of need are valued using the replacement cost approach based on registration fees and opportunity costs. Licenses are valued based on the estimated direct costs associated with recreating the asset, including opportunity costs based on an income approach. In the case of states with a moratorium in place, the licenses are valued using the multi-period excess earnings method. Noncontrolling interest is recorded at fair value.
4. Goodwill and Intangibles
The changes in recorded goodwill and intangible assets by reporting unit for the nine months ended September 30, 2022 were as follows (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Home health reporting unit | | Hospice
reporting
unit | | Home and community-based services
reporting
unit | | Facility-based
reporting
unit | | HCI reporting unit | | Total |
| Goodwill: | | | | | | | | | | | |
| Balance as of December 31, 2021 | $ | 968,435 | | | $ | 556,332 | | | $ | 167,027 | | | $ | 15,770 | | | $ | 40,862 | | | $ | 1,748,426 | |
| Net working capital adjustments | — | | | 1,440 | | | — | | | — | | | — | | | 1,440 | |
| Acquisitions | 2,190 | | | — | | | — | | | — | | | — | | | 2,190 | |
| Noncontrolling interests | 504 | | | — | | | — | | | — | | | — | | | 504 | |
| Disposals | (440) | | | (1,460) | | | (240) | | | — | | | — | | | (2,140) | |
| Balance as of September 30, 2022 | $ | 970,689 | | | $ | 556,312 | | | $ | 166,787 | | | $ | 15,770 | | | $ | 40,862 | | | $ | 1,750,420 | |
| Intangible assets: | | | | | | | | | | | |
| Balance as of December 31, 2021 | $ | 237,979 | | | $ | 117,340 | | | $ | 24,245 | | | $ | 5,919 | | | $ | 14,519 | | | $ | 400,002 | |
| Acquisitions | 1,010 | | | — | | | — | | | — | | | — | | | 1,010 | |
| Amortization | (1,589) | | | (1,346) | | | (8) | | | (334) | | | (436) | | | (3,713) | |
| Disposals | (491) | | | (1,217) | | | (282) | | | — | | | — | | | (1,990) | |
| Balance as of September 30, 2022 | $ | 236,909 | | | $ | 114,777 | | | $ | 23,955 | | | $ | 5,585 | | | $ | 14,083 | | | $ | 395,309 | |
The Company did record impairments of goodwill and intangible assets related to the closure of underperforming locations. Goodwill impairment of $2.1 million and Medicare licenses/Certificate of need impairment of $2.0 million were recorded during the nine months ended September 30, 2022. Goodwill impairment of $0.02 million and Medicare licenses impairment of $0.9 million were recorded during the nine months ended September 30, 2021. This was recorded in impairment of intangibles and other on the Company's condensed consolidated statements of income. The amount of disposal of goodwill was determined using prices of comparable businesses in the market. The amount of disposal of the Medicare licenses/Certificate of need was its carrying value at the time of closure.
The following tables summarize the changes in intangible assets during the nine months ended September 30, 2022 and December 31, 2021 (amounts in thousands):
| | | | | | | | | | | |
| 2022 | | 2021 |
| Indefinite-lived intangible assets: | | | |
| Trade names | $ | 208,160 | | | $ | 207,780 | |
| Certificates of need/licenses | 172,395 | | | 173,955 | |
| Net total | $ | 380,555 | | | $ | 381,735 | |
| | | |
| Definite-lived intangible assets: | | | |
| Trade names | | | |
| Gross carrying amount | $ | 11,273 | | | $ | 11,073 | |
| Accumulated amortization | (10,559) | | | (9,606) | |
| Net total | $ | 714 | | | $ | 1,467 | |
| Non-compete agreements | | | |
| Gross carrying amount | $ | 14,524 | | | $ | 14,524 | |
| Accumulated amortization | (9,495) | | | (7,172) | |
| Net total | $ | 5,029 | | | $ | 7,352 | |
| Customer relationships | | | |
| Gross carrying amount | $ | 11,822 | | | $ | 11,822 | |
| Accumulated amortization | (2,811) | | | (2,374) | |
| Net total | $ | 9,011 | | | $ | 9,448 | |
| Total definite-lived intangible assets | | | |
| Gross carrying amount | $ | 37,619 | | | $ | 37,419 | |
| Accumulated amortization | (22,865) | | | (19,152) | |
| Net total | $ | 14,754 | | | $ | 18,267 | |
| | | |
| Total intangible assets: | | | |
| Gross carrying amount | $ | 418,174 | | | $ | 419,154 | |
| Accumulated amortization | (22,865) | | | (19,152) | |
| Net total | $ | 395,309 | | | $ | 400,002 | |
Remaining useful lives for trade names, customer relationships, and non-compete agreements were 7.0, 15.5, and 4.2 years, respectively, at September 30, 2022. Similar periods at December 31, 2021 were 7.8, 16.3, and 4.9 years for trade names, customer relationships, and non-compete agreements, respectively. Amortization expense was $1.0 million and $0.4 million for the three months ended September 30, 2022 and 2021 and $3.7 million and $1.0 million for the nine months ended September 30, 2022 and 2021. Amortization expense was recorded in general and administrative expenses.
5. Debt
Credit Facility
On August 3, 2021, the Company entered into an Amended and Restated Senior Credit Facility (the "2021 Amended Credit Agreement"), which provided a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $800.0 million, which included an additional $500.0 million accordion expansion, and a letter of credit sub-limit equal to $75.0 million. On December 31, 2021, the aggregate commitment was increased to a maximum borrowing limit of $1.0 billion, with an additional $300.0 million accordion expansion. The expiration date of the 2021 Amended Credit Agreement is August 3, 2026.
The Company’s obligations under the 2021 Amended 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 2021 Amended Credit Agreement.
Revolving loans under the 2021 Amended Credit Agreement bear interest, as selected by the Company, at either (i) the prevailing London Interbank Offered Rate ("LIBOR") (with interest periods of one, three or six months at the Company's option) plus a spread of 1.25% to 2.0% based on the Company's quarterly consolidated Leverage Ratio or (ii) the prevailing prime or base rate plus a spread of 0.25% to 1.00% 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 0.15% to 0.30% per annum depending upon the Company’s quarterly consolidated Leverage Ratio. The Base Rate as of September 30, 2022 was 7.25% and the LIBOR rate was 5.13%. As of September 30, 2022, the effective interest rate on outstanding borrowings under the 2021 Amended Credit Agreement was 4.98%.
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. JPMorgan Chase Bank, N.A will transition our 2021 Amended Credit Agreement to an alternate rate to CME Term SOFR Reference Rate ("SOFR"), which is administered by CME Group Benchmark Administration Ltd ("CME"). Due to the differences observed between LIBOR rates and SOFR published rates, JPMorgan Chase Bank, N.A. will use a credit spread adjustment ("CSA") in order to minimize value transfer and leave the existing margin applicable to our 2021 Amended Credit Agreement. The CSA used by JPMorgan Chase Bank, N.A. is based on the average of the differences between LIBOR and SOFR over a 12-month period and will be added to SOFR.
As of September 30, 2022, the Company had $738.0 million drawn, letters of credit issued in the amount of $24.3 million, and $237.7 million of remaining borrowing capacity available under the 2021 Amended Credit Agreement. At December 31, 2021, the Company had $661.2 million drawn and letters of credit issued in the amount of $24.3 million under the 2021 Amended Credit Agreement.
Under the terms of the 2021 Amended Credit Agreement, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The 2021 Amended 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 2021 Amended Credit Agreement at September 30, 2022.
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 1,544,734 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
Independent directors are granted shares of common stock under the Second Amended and Restated 2005 Non-Employee Directors Compensation Plan. During the nine months ended September 30, 2022, the Company granted 8,800 nonvested shares of common stock to independent directors, which shares will vest 100% on the one year anniversary date.
During the nine months ended September 30, 2022, employees and a consultant were granted 182,310 and 10,935 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 nine months ended September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Restricted stock | | Options |
| Number of shares | | Weighted
average grant
date fair value | | Number of shares | | Weighted
average grant
date fair value |
| Share grants outstanding as of December 31, 2021 | 415,816 | | | $ | 122.40 | | | 74,235 | | | $ | 42.07 | |
| Granted | 202,045 | | | 139.64 | | | — | | | — | |
| Vested or exercised | (162,749) | | | 143.35 | | | (13,986) | | | 31.27 | |
| Share grants outstanding as of September 30, 2022 | 455,112 | | | $ | 134.44 | | | 60,249 | | | $ | 43.05 | |
As of September 30, 2022, there was $49.6 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 3.25 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 $15.3 million and $11.7 million of compensation expense related to nonvested stock grants for the nine months ended September 30, 2022 and 2021, 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 2022:
| | | | | | | | | | | |
| Number of
shares | | Per share
price |
| Shares available as of December 31, 2021 | 104,344 | | | |
| Shares issued during the three months ended March 31, 2022 | 5,353 | | | $ | 130.37 | |
| Shares issued during the three months ended June 30, 2022 | 3,342 | | | $ | 160.17 | |
| Shares issued during the three months ended September 30, 2022 | 4,104 | | | $ | 147.95 | |
| | | |
| Shares available as of September 30, 2022 | 91,545 | | | |
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 nine months ended September 30, 2022, the Company redeemed 28,802 shares of common stock valued at $5.0 million, related to share vesting tax obligations. Such shares are held as treasury stock and are available for reissuance by the Company. Additionally, 5,268 shares were forfeited for terminated employees. Such shares are held in treasury stock and are available for reissuance by the Company.
In addition, the Company redeemed 6,249 shares of common stock valued at $0.2 million, related to the exercise of options.
Stock Repurchase
On December 6, 2021, the Company's Board of Directors approved a share repurchase program authorizing purchases up to $250.0 million of the Company's common stock. The Company may purchase common stock in open market transactions, block or privately negotiated transactions, and may from time to time purchase shares pursuant to a trading plan in accordance with Rule 10b5-1 and Rule 10b-18 under the Exchange Act or by any combination of such methods, in each case subject to compliance with all SEC rules and other legal requirements. The number of shares to be purchased and the timing of the purchases are based on a variety of factors, including, but not limited to, the level of cash balances, credit availability, debt covenant restrictions, general business conditions, the market price of our stock and the availability of alternative investment opportunities. No time limit was set for completion of repurchases under the new authorization, and the program may be suspended or discontinued at any time.
The Company uses the cost method to account for the repurchase of common stock. During the nine months ended September 30, 2022, the Company repurchased 190,622 shares from the open market under its Stock Repurchase plan at an aggregate cost of $25.5 million.
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"), Unified Program Integrity Contractors ("UPICs"), 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. The Company recorded $12.0 million and $16.9 million in its condensed consolidated balance sheets in other assets as of September 30, 2022 and December 31, 2021, respectively, 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.
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 September 30, 2022, 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 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 nine months ended September 30, 2022 is not less than the initial amount reported for each instrument.
The following table summarizes the activity of noncontrolling interest-redeemable for the nine months ended September 30, 2022 (amounts in thousands):
| | | | | |
| Balance as of December 31, 2021 | $ | 17,501 | |
| Net income attributable to noncontrolling interest-redeemable | 6,991 | |
| Noncontrolling interest-redeemable distributions | (7,514) | |
| |
| |
| Balance as of September 30, 2022 | $ | 16,978 | |
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 September 30, 2022, the weighted-average remaining lease term was 3.63 years and weighted-average discount rate was 4.11%.
The following table summarizes the operating lease right of use assets and related lease payables in our condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021 (amounts in thousands):
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| Operating lease right of use asset | | $ | 108,975 | | | $ | 113,399 | |
| Current operating lease liabilities | | 36,998 | | | 37,630 | |
| Long-term operating lease liabilities | | 74,992 | | | 78,688 | |
The components of lease costs for operating leases for the three and nine months ended September 30, 2022 and 2021 were as follows (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Operating lease cost | $ | 14,033 | | | $ | 12,791 | | | $ | 42,800 | | | $ | 37,096 | |
| Short-term lease cost | 908 | | | 927 | | | 2,712 | | | 2,697 | |
| Variable lease cost | 1,246 | | | 997 | | | 3,350 | | | 3,058 | |
| Total lease costs | $ | 16,187 | | | $ | 14,715 | | | $ | 48,862 | | | $ | 42,851 | |
Maturities of operating lease liabilities as of September 30, 2022 were as follows (amounts in thousands):
| | | | | | | | |
| Month ending September 30, | | |
| 2022 | | $ | 11,073 | |
| 2023 | | 38,472 | |
| 2024 | | 29,629 | |
| 2025 | | 21,006 | |
| Thereafter | | 20,224 | |
| Total future minimum lease payments | | 120,404 | |
| Less: Imputed interest | | (8,414) | |
| Total | | $ | 111,990 | |
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.
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 and nine months ended September 30, 2022 and 2021 (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2022 |
| | Home health services | | Hospice services | | Home and community-based services | | Facility-based services | | HCI | | Total |
| Net service revenue | $ | 373,335 | | | $ | 103,799 | | | $ | 47,978 | | | $ | 31,441 | | | $ | 20,360 | | | $ | 576,913 | |
| Cost of service revenue (excluding depreciation and amortization) | 217,790 | | | 68,951 | | | 35,727 | | | 22,549 | | | 2,755 | | | 347,772 | |
| General and administrative expenses | 126,052 | | | 32,384 | | | 11,893 | | | 12,098 | | | 6,624 | | | 189,051 | |
| Impairment of intangibles and other | — | | | 1,590 | | | 469 | | | — | | | — | | | 2,059 | |
| Operating income (loss) | 29,493 | | | 874 | | | (111) | | | (3,206) | | | 10,981 | | | 38,031 | |
| Interest expense | (6,347) | | | (1,356) | | | (808) | | | (362) | | | (180) | | | (9,053) | |
| Income (loss) before income taxes and noncontrolling interest | 23,146 | | | (482) | | | (919) | | | (3,568) | | | 10,801 | | | 28,978 | |
| Income tax expense (benefit) | 5,723 | | | (439) | | | (165) | | | (927) | | | 2,774 | | | 6,966 | |
| Net income (loss) | 17,423 | | | (43) | | | (754) | | | (2,641) | | | 8,027 | | | 22,012 | |
| Less net income (loss) attributable to non controlling interests | 3,838 | | | 1,269 | | | (125) | | | (439) | | | 160 | | | 4,703 | |
| Net income (loss) attributable to LHC Group, Inc.'s common stockholder | $ | 13,585 | | | $ | (1,312) | | | $ | (629) | | | $ | (2,202) | | | $ | 7,867 | | | $ | 17,309 | |
| Total assets | $ | 1,717,209 | | | $ | 798,668 | | | $ | 238,082 | | | $ | 80,223 | | | $ | 79,972 | | | $ | 2,914,154 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2021 |
| | Home health services | | Hospice services | | Home and community-based services | | Facility-based services | | HCI | | Total |
| Net service revenue | $ | 386,699 | | | $ | 82,653 | | | $ | 45,800 | | | $ | 32,415 | | | $ | 17,884 | | | $ | 565,451 | |
| Cost of service revenue (excluding depreciation and amortization) | 230,839 | | | 51,631 | | | 34,386 | | | 23,725 | | | 3,281 | | | 343,862 | |
| General and administrative expenses | 126,695 | | | 22,548 | | | 11,764 | | | 11,050 | | | 4,387 | | | 176,444 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Operating income (loss) | 29,165 | | | 8,474 | | | (350) | | | (2,360) | | | 10,216 | | | 45,145 | |
| Interest expense | (811) | | | (139) | | | (109) | | | (54) | | | (22) | | | (1,135) | |
| Income (loss) before income taxes and noncontrolling interest | 28,354 | | | 8,335 | | | (459) | | | (2,414) | | | 10,194 | | | 44,010 | |
| Income tax expense (benefit) | 6,407 | | | 1,874 | | | (99) | | | (554) | | | 2,522 | | | 10,150 | |
| Net income (loss) | 21,947 | | | 6,461 | | | (360) | | | (1,860) | | | 7,672 | | | 33,860 | |
| Less net income (loss) attributable to noncontrolling interests | 5,157 | | | 1,085 | | | 77 | | | (187) | | | (6) | | | 6,126 | |
| Net income (loss) attributable to LHC Group, Inc.'s common stockholders | $ | 16,790 | | | $ | 5,376 | | | $ | (437) | | | $ | (1,673) | | | $ | 7,678 | | | $ | 27,734 | |
| Total assets | $ | 1,632,670 | | | $ | 681,954 | | | $ | 239,452 | | | $ | 83,276 | | | $ | 75,334 | | | $ | 2,712,686 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | Nine months ended September 30, 2022 |
| | Home health services | | Hospice services | | Home and community-based services | | Facility-based services | | HCI | | Total |
| Net service revenue | $ | 1,154,009 | | | $ | 308,322 | | | $ | 137,036 | | | $ | 94,289 | | | $ | 30,945 | | | $ | 1,724,601 | |
| Cost of service revenue (excluding depreciation and amortization) | 674,508 | | | 202,864 | | | 96,470 | | | 69,584 | | | 8,667 | | | 1,052,093 | |
| General and administrative expenses | 387,482 | | | 97,152 | | | 35,755 | | | 35,737 | | | 13,674 | | | 569,800 | |
| Impairment of intangibles and other | 930 | | | 2,677 | | | 523 | | | — | | | — | | | 4,130 | |
| Operating income (loss) | 91,089 | | | 5,629 | | | 4,288 | | | (11,032) | | | 8,604 | | | 98,578 | |
| Interest expense | (13,805) | | | (2,803) | | | (1,785) | | | (851) | | | (387) | | | (19,631) | |
| Income (loss) before income taxes and noncontrolling interest | 77,284 | | | 2,826 | | | 2,503 | | | (11,883) | | | 8,217 | | | 78,947 | |
| Income tax expense (benefit) | 17,057 | | | (3) | | | 680 | | | (2,849) | | | 2,129 | | | 17,014 | |
| Net income (loss) | 60,227 | | | 2,829 | | | 1,823 | | | (9,034) | | | 6,088 | | | 61,933 | |
| Less net income (loss) attributable to non controlling interests | 12,758 | | | 2,837 | | | (74) | | | (1,085) | | | 150 | | | 14,586 | |
| Net income (loss) attributable to LHC Group, Inc.'s common stockholder | $ | 47,469 | | | $ | (8) | | | $ | 1,897 | | | $ | (7,949) | | | $ | 5,938 | | | $ | 47,347 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | Nine months ended September 30, 2021 |
| | Home health services | | Hospice services | | Home and community-based services | | Facility-based services | | HCI | | Total |
| Net service revenue | $ | 1,157,061 | | | $ | 209,191 | | | $ | 143,332 | | | $ | 96,814 | | | $ | 29,795 | | | $ | 1,636,193 | |
| Cost of service revenue (excluding depreciation and amortization) | 663,137 | | | 129,848 | | | 103,941 | | | 65,360 | | | 9,720 | | | 972,006 | |
| General and administrative expenses | 369,337 | | | 58,789 | | | 35,216 | | | 33,213 | | | 10,199 | | | 506,754 | |
| Impairment of intangibles and other | 937 | | | — | | | — | | | — | | | — | | | 937 | |
| Operating income (loss) | 123,650 | | | 20,554 | | | 4,175 | | | (1,759) | | | 9,876 | | | 156,496 | |
| Interest expense | (1,099) | | | (195) | | | (143) | | | (73) | | | (31) | | | (1,541) | |
| Income (loss) before income taxes and noncontrolling interest | 122,551 | | | 20,359 | | | 4,032 | | | (1,832) | | | 9,845 | | | 154,955 | |
| Income tax expense (benefit) | 26,003 | | | 4,221 | | | 889 | | | (649) | | | 2,445 | | | 32,909 | |
| Net income (loss) | 96,548 | | | 16,138 | | | 3,143 | | | (1,183) | | | 7,400 | | | 122,046 | |
| Less net income (loss) attributable to non controlling interests | 17,506 | | | 3,308 | | | 441 | | | 792 | | | (37) | | | 22,010 | |
| Net income (loss) attributable to LHC Group, Inc.'s common stockholder | $ | 79,042 | | | $ | 12,830 | | | $ | 2,702 | | | $ | (1,975) | | | $ | 7,437 | | | $ | 100,036 | |
12. Income Taxes
The effective tax rate for the nine months ended September 30, 2022 and 2021 benefited from $0.9 million and $2.4 million, respectively, of excess tax benefits associated with stock-based compensation arrangements.
U.S. GAAP prescribes a recognition threshold and measurement attribute for the accounting and financial statement disclosure of tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step requires the Company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step requires the Company to recognize in the financial statements
each tax position that meets the more likely than not criteria, measured at the amount of benefit that has a greater than 50% likelihood of being realized. The Company’s unrecognized tax benefits would affect the tax rate, if recognized. The Company includes the full amount of unrecognized tax benefits in income taxes payable in noncurrent liabilities in the Company's condensed consolidated balance sheets. The Company anticipates it is reasonably possible an increase or decrease in the amount of unrecognized tax benefits could be made in the next twelve months. However, the Company does not presently anticipate that any increase or decrease in unrecognized tax benefits will be material to the consolidated financial statements. As of September 30, 2022 and December 31, 2021, the Company recognized $8.0 million and $7.3 million, respectively, in unrecognized tax benefits.
13. Subsequent Event
On October 1, 2022, the Company purchased three wholly-owned home health agencies. Total consideration for the acquisition was $18.5 million.