ADDUS HOMECARE CORPORATION
You should read the following discussion together with our unaudited condensed
consolidated financial statements and the related notes included elsewhere in
this quarterly report on Form 10-Q. This discussion contains forward-looking
statements about our business and operations. Statements that are predictive in
nature, that depend upon or refer to future events or conditions or that include
words like "believes," "belief," "expects," "plans," "anticipates," "intends,"
"projects," "estimates," "may," "might," "would," "should" and similar
expressions are intended to be forward-looking statements as defined by the
Private Securities Litigation Reform Act of 1995. These statements are based on
the beliefs and assumptions of our management based on information currently
available to management. Such forward-looking statements are subject to risks,
uncertainties and other important factors that could cause actual results and
the timing of certain events to differ materially from future results expressed
or implied by such forward-looking statements. These risks and uncertainties
include, but are not limited to, the future impact to our business with respect
to developments related to the COVID-19 pandemic, including, without limitation,
the impact of government regulation and stimulus measures, including the
Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), Paycheck
Protection Program and Health Care Enhancement Act ("PPPHCE Act"), the
Consolidated Appropriations Act, 2021 ("CAA"), the COVID-Related Tax Relief Act
of 2020, the American Rescue Plan of 2021 ("ARPA") and other stimulus
legislation, as well as the six-point COVID-19 plan announced by the current
Presidential administration, along with the related uncertainties regarding the
implementation of such stimulus measures and any future stimulus measures
related to COVID-19; increased expenses related to personal protective equipment
("PPE"), labor, supply chain, or other expenditures; workforce disruptions and
supply shortages and disruptions; changes in operational and reimbursement
processes and payment structures at the state or federal levels; changes in
Medicaid, Medicare, other government program and managed care organizations
policies and payment rates; changes in, or our failure to comply with, existing,
federal and state laws or regulations, or our failure to comply with new
government laws or regulations on a timely basis; competition in the healthcare
industry; the geographical concentration of our operations; changes in the case
mix of consumers and payment methodologies; operational changes resulting from
the assumption by managed care organizations of responsibility for managing and
paying for our services to consumers; the nature and success of future financial
and/or delivery system reforms; changes in estimates and judgments associated
with critical accounting policies; our ability to maintain or establish new
referral sources; our ability to renew significant agreements or groups of
agreements; our ability to attract and retain qualified personnel; federal, city
and state minimum wage pressure, including any failure of Illinois or any other
governmental entity to enact a minimum wage offset and/or the timing of any such
enactment; changes in payments and covered services due to the overall economic
conditions, including economic and business conditions resulting from the
COVID-19 pandemic, and deficit spending by federal and state governments; cost
containment initiatives undertaken by state and other third-party payors; our
ability to access financing through the capital and credit markets; our ability
to meet debt service requirements and comply with covenants in debt agreements;
business disruptions due to natural disasters, acts of terrorism, pandemics,
riots, civil insurrection or social unrest, looting, protests, strikes or street
demonstrations; our ability to integrate and manage our information systems; our
ability to prevent cyber-attacks or security breaches to protect our computer
systems and confidential consumer data; our expectations regarding the size and
growth of the market for our services; the acceptance of privatized social
services; our expectations regarding changes in reimbursement rates; eligibility
standards and limits on services imposed by state governmental agencies; the
potential for litigation; discretionary determinations by government officials;
our ability to successfully implement our business model to grow our business;
our ability to continue identifying, pursuing, consummating and integrating
acquisition opportunities and expand into new geographic markets; the impact of
acquisitions and dispositions on our business, including the potential inability
to realize the benefits of the acquisition of Queen City Hospice, LLC and its
affiliate Miracle City Hospice, LLC (together "Queen City Hospice "); the
potential impact of the discontinuation or modification of LIBOR; the
effectiveness, quality and cost of our services; our ability to successfully
execute our growth strategy; changes in tax rates, including, without
limitation, increases in the corporate tax rate; the impact of public health
emergencies; the impact of inclement weather or natural disasters; and various
other matters, many of which are beyond our control. In addition, these
forward-looking statements are subject to the risk factors set forth in Part I,
Item 1A of our Annual Report on Form 10-K for the period ended December 31,
2020 , filed with the SEC on March 1, 2021 . You should carefully review all of
these factors. Moreover, our business may be materially adversely affected by
factors that are not currently known to us, by factors that we currently
consider immaterial or by factors that are not specific to us, such as general
economic conditions. These forward-looking statements were based on information,
plans and estimates at the date of this report, and we assume no obligation to
update any forward-looking statements to reflect changes in underlying
assumptions or factors, new information, future events or other changes, except
as may be required by law.
Overview
We are a home care services provider operating in three segments: personal care,
hospice and home health. Our services are principally provided in-home under
agreements with federal, state and local government agencies, managed care
organizations, commercial insurers and private individuals. Our consumers are
predominantly "dual eligible," meaning they are eligible to receive both
Medicare and Medicaid benefits. Managed care revenues accounted for 36.7% and
38.0% of our net service revenues during the three months ended September 30,
2021 and 2020, respectively, and 37.3% and 38.5% of our net service revenues
during the nine months ended September 30, 2021 and 2020, respectively.
22--------------------------------------------------------------------------------
Table of Contents
A summary of our financial results for the three and nine months ended
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2021 2020 2021 2020
(Amounts in Thousands) (Amounts in Thousands)
Net service revenues $ 216,662 $ 193,987 $ 639,857 $ 568,779
Net income $ 11,577 $ 9,119 $ 32,068 $ 24,684
As of September 30, 2021 , we provided our services in 22 states through 207
offices. For the nine months ended September 30, 2021 and 2020, we served
approximately 64,000 and 59,000 discrete individuals, respectively. Our personal
care segment also includes staffing services, with clients including assisted
living facilities, nursing homes and hospice facilities.
COVID-19 Pandemic Update
COVID-19, the disease caused by a novel coronavirus, continues to be widespread throughoutthe United States and other parts of the world. Governments and public health officials continue to recommend and mandate certain precautions to mitigate the spread of the virus. The number of cases of COVID-19 decreased inthe United States as vaccines became widely available, and a significant number of restrictions related to the COVID-19 pandemic inthe United States have been eliminated or relaxed as the result of such decrease. In connection with the decrease in the number of COVID-19 cases and the change of restrictions inthe United States , economic conditions inthe United States have significantly improved during 2021. However, during the third quarter of 2021, the number of COVID-19 case and deaths increased inthe United States due in part to the emergence of a new variant of the novel coronavirus that causes COVID-19, as well as low vaccination rates in many parts of the country. In response, various governmental authorities and private businesses inthe United States continued to implement, or reinstituted, certain mitigation strategies, such as masking and vaccine requirements. The rate of new cases and deaths inthe United States are currently decreasing again but longer-term trends are unknown. InSeptember 2021 ,President Biden announced a six-point plan for responding to the COVID-19 pandemic. Part of this plan provides that theOccupational Safety and Health Administration ("OSHA") will develop a rule which will require all employers with 100 or more employees to require their workforce to be fully vaccinated against COVID-19 (or, alternatively, to provide a negative COVID-19 test result on a weekly basis). The employer mandate has not yet gone into effect and further details, including any proposedOSHA rules, have not been released. Some states have also imposed or have plans to impose vaccine mandates, particularly in healthcare settings. In addition, CMS is expected to issue an emergency regulation requiring COVID-19 vaccination of staff within all Medicare and Medicaid-certified facilities. CMS has indicated that compliance with the vaccine mandate will be a condition of participation in the Medicare and Medicaid programs. The exact scope and other details of theOSHA and CMS mandates are not yet known, but we expect that these rules will impact our home health and hospice segments. We are monitoring developments related to these plans as information becomes available to assess how these plans, including any national or state vaccine mandates, may impact our workforce in personal care, home health, hospice and our corporate support centers. While the Company has not mandated vaccines for our employees, we have developed a multistep program in order to strongly encourage our employees to get the COVID-19 vaccine, which includes offering a vaccine stipend and prizes as well as creating educational and motivational leadership communication. We are actively engaged in an effort to track vaccination rates among caregivers and to continue to improve those rates. However, it is difficult to predict the future impact of the pandemic or the six-point COVID-19 plan and state vaccine mandates on economic conditions inthe United States and our business at this time. 23
--------------------------------------------------------------------------------
Table of Contents
For the three and nine months endedSeptember 30, 2021 , COVID-19-related expenses in our personal care segment were approximately$1.3 million and$14.6 million , respectively, which were offset by$0.4 million and$11.7 million , respectively, related to the utilization of a portion of the funds received from theProvider Relief Fund inNovember 2020 and are included in cost of service revenues on the Condensed Consolidated Statements of Income. As ofSeptember 30, 2021 , the Company deferred the recognition of the remainingProvider Relief Fund of approximately$0.5 million , which will be recognized as we incur specific expenses related to the pandemic, or we anticipate will be returned, to the extent COVID-19-related expenses are not incurred, byDecember 31, 2021 . Additionally, we recognized revenue of$1.3 million and$6.1 million attributable to temporary rate increases from certain payors in our personal care segment for the three and nine months endedSeptember 30, 2021 , respectively. For the nine months endedSeptember 30, 2021 , COVID-19-related expenses in our hospice segment were approximately$1.9 million , which were offset by$1.9 million , related to the utilization of a portion of the funds received from theQueen City Hospice Provider Relief Fund and included in cost of service revenues on the Condensed Consolidated Statements of Income. As ofSeptember 30, 2021 , the Company deferred the recognition of$6.7 million of payments received from payors for COVID-19 reimbursement, included within accrued expenses, which will be recognized as we incur specific expenses related to the pandemic, such as expenses related to acquiring additional PPE, or will be returned to the extent COVID-19-related expenses are not incurred. We are not able to reasonably predict the total costs we will incur related to the COVID-19 pandemic, and such costs could be substantial. As the labor market continues to be tight and unemployment has declined in comparison to earlier levels, the competition for new caregivers has increased, which will continue to impact our ability to attract and retain new caregivers. In addition, the competition for skilled healthcare staff has increased significantly, which continues to impact our ability to attract and retain qualified skilled healthcare staff. To the extent that we continue to have lower unemployment levels inthe United States and shortages of caregivers and skilled healthcare staff, it may continue to hinder our ability to attract and retain sufficient caregivers and skilled healthcare staff to meet the continuing demand for both our non-clinical and clinical services. The increased staffing challenges may also result in increased labor cost to satisfy our staffing requirements. Federal and state agencies continue to issue regulations and guidance related to the COVID-19 pandemic, and the public health situation continues to evolve, and, therefore, we cannot currently predict with certainty the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted. We will continue to assess the impact and consequences of COVID-19 and government responses to the pandemic, including the enactment and implementation of the CARES Act, the PPPHCE Act, the CAA, the ARPA and other stimulus legislation, as well as the implementation of the President's six-point COVID-19 plan and any federal and state vaccine mandates, on our business, results of operations, financial condition and cash flows. Given the dynamic nature of these circumstances, the related financial effect cannot be reasonably estimated at this time but is not expected to materially adversely impact our business. See Part I, Item 1A-"Risk Factors - The COVID-19 pandemic could negatively affect our operations, business and financial condition, and our liquidity could also be negatively impacted, particularly if theU.S. economy remains unstable for a significant amount of time" of our Annual Report on Form 10-K for the period endedDecember 31, 2020 , filed with theSEC onMarch 1, 2021 .
See "Liquidity and Capital Resources" below for additional information regarding funds received related to COVID-19 relief.
Acquisitions
In addition to our organic growth, we have grown through acquisitions that have expanded our presence in current markets, with the goal of having all three levels of home care in additional markets, or facilitating our entry into new markets where in-home care has been moving to managed care organizations. OnJuly 1, 2020 , we completed the acquisition ofA Plus Health Care, Inc. ("A Plus") for approximately$14.5 million , including the amount of excess cash held by A Plus at the closing of the acquisition (approximately$2.8 million ), with funding provided by available cash. With the purchase of A Plus, we expanded our personal care services in the state ofMontana . OnNovember 1, 2020 , we completed the acquisition ofCounty Homemakers, Inc. ("County Homemakers") for approximately$15.8 million , including the amount of acquired excess cash held by County Homemakers at the closing of the acquisition (approximately$1.1 million ), with funding provided by available cash. With the purchase of County Homemakers, we expanded our personal care services in the state ofPennsylvania . OnDecember 4, 2020 , we completed the acquisition ofQueen City Hospice for approximately$194.8 million , including the amount of acquired excess cash held byQueen City Hospice at the closing of the acquisition (approximately$15.4 million ). With the purchase ofQueen City Hospice , we expanded our hospice services in the state ofOhio . Additionally, onDecember 1, 2020 , we completed the acquisition of SunLife Home Care ("SunLife") for approximately$1.7 million . With the purchase of SunLife, we expanded our personal care services in the state ofArizona . We funded these acquisitions through a combination of our revolving credit facility and available cash. OnAugust 1, 2021 , we completed the acquisition ofArmada Skilled Homecare of New Mexico LLC ,Armada Hospice of New Mexico LLC andArmada Hospice of Santa Fe LLC (collectively, "Armada") for approximately$29.8 million , including the amount of acquired excess 24
--------------------------------------------------------------------------------
Table of Contents
cash held by Armada at the closing of the acquisition (approximately
OnOctober 1, 2021 , we completed the acquisition ofSummit Home Health, LLC ("Summit") for approximately$8.1 million , with funding provided by available cash. With the purchase of Summit, we added clinical services to our home health segment inIllinois .
Revenue by Payor and Significant States
Our payor clients are principally federal, state and local governmental agencies and managed care organizations. The federal, state and local programs under which the agencies operate are subject to legislative, budgetary and other risks that can influence reimbursement rates. We are experiencing a transition of business from government payors to managed care organizations, which we believe aligns with our emphasis on coordinated care and the reduction of the need for acute care.
For the three and nine months ended
Personal Care
For the Three Months Ended September 30 , For
the Nine Months Ended
2021 2020 2021 2020
% of % of % of % of
Segment Segment Segment Segment
Amount Net Service Amount Net Service Amount Net Service Amount Net Service
(in Thousands) Revenues (in Thousands) Revenues (in Thousands) Revenues (in Thousands) Revenues
State, local and other
government programs $ 83,821 49.5 % $ 85,344 51.5 % $ 253,052 49.5 %$ 242,751 50.3 % Managed care organizations 76,890 45.3 71,700 43.2 231,211 45.3 213,087 44.1 Private pay 4,934 2.9 5,193 3.1 14,883 2.9 15,449 3.2 Commercial insurance 2,459 1.4 2,498 1.5 7,481 1.5 7,468 1.5 Other 1,505 0.9 1,181 0.7 4,117 0.8 4,094 0.9
Total personal care segment net
service revenues $ 169,609 100.0 %$ 165,916 100.0 % $ 510,744 100.0 %$ 482,849 100.0 %Illinois $ 81,959 48.3 % $ 74,448 44.9 % $ 240,131 47.0 %$ 215,047 44.6 %New York 24,127 14.2 28,381 17.1 77,237 15.1 87,463 18.1New Mexico 24,214 14.3 21,878 13.2 73,291 14.3 64,402 13.3 All other states 39,309 23.2 41,209 24.8 120,085 23.6 115,937 24.0
Total personal care segment net
service revenues $ 169,609 100.0 %$ 165,916 100.0 % $ 510,744 100.0 %$ 482,849 100.0 % Hospice For the Three Months Ended September 30, For the
Nine Months Ended
2021 2020 2021 2020
% of % of % of % of
Segment Segment Segment Segment
Amount Net Service Amount Net Service Amount Net Service Amount Net Service
(in Thousands) Revenues (in Thousands) Revenues (in Thousands) Revenues (in Thousands) Revenues
Medicare $ 36,278 92.8 % $ 22,404 93.4 % $ 104,715 93.4 % $ 68,372 92.8 %
Managed care organizations 1,514 3.9 1,130 4.7 4,396 3.9 3,710 5.0
Other 1,303 3.3 452 1.9 2,987 2.7 1,641 2.2
Total hospice segment net
service revenues $ 39,095 100.0 % $ 23,986 100.0 % $ 112,098 100.0 % $ 73,723 100.0 %
Ohio $ 15,868 40.6 % $ - - % $ 44,676 39.8 % $ - - %
New Mexico 9,268 23.7 10,979 45.8 27,216 24.3 33,431 45.3
All other states 13,959 35.7 13,007 54.2 40,206 35.9 40,292 54.7
Total hospice segment net
service revenues $ 39,095 100.0 % $ 23,986 100.0 % $ 112,098 100.0 % $ 73,723 100.0 %
25
--------------------------------------------------------------------------------
Table of Contents
With the acquisition of
Home Health For the Three Months EndedSeptember 30 , For
the Nine Months Ended
2021 2020 2021 2020
% of % of % of % of
Segment Segment Segment Segment
Amount Net Service Amount Net Service Amount Net Service Amount Net Service
(in Thousands) Revenues (in Thousands) Revenues (in Thousands) Revenues (in Thousands) Revenues
Medicare $ 6,372 80.1 % $ 3,188 78.0 % $ 13,699 80.5 % $ 9,667 79.2 %
Managed care organizations 1,218 15.3 829 20.3 2,838 16.7 2,325 19.0
Other 368 4.6 68 1.7 478 2.8 215 1.8
Total home health segment
net service revenues $ 7,958 100.0 % $ 4,085 100.0 % $ 17,015 100.0 % $ 12,207 100.0 %
New Mexico $ 7,958 100.0 % $ 4,085 100.0 % $ 17,015 100.0 % $ 12,207 100.0 %Total home health segment
net service revenues $ 7,958 100.0 % $ 4,085 100.0 % $ 17,015 100.0 %$ 12,207 100.0 % We derive a significant amount of our net service revenues inIllinois , which represented 37.8% and 38.5% of our net service revenues for the three months endedSeptember 30, 2021 and 2020, respectively, and accounted for 37.5% and 37.8% of our net service revenues for the nine months endedSeptember 30, 2021 and 2020, respectively. A significant amount of our net service revenues are derived from one payor client, theIllinois Department on Aging , the largest payor program for ourIllinois personal care operations, which accounted for 21.3% and 22.9% of our net service revenues for the three months endedSeptember 30, 2021 and 2020, respectively, and accounted for 21.4% and 23.1% of the Company's net service revenues for the nine months endedSeptember 30, 2021 and 2020, respectively. OnNovember 26, 2019 , theCity of Chicago voted to approve additional increases in theChicago minimum wage to$14 per hour beginningJuly 1, 2020 and to$15 per hour beginningJuly 1, 2021 . EffectiveJanuary 1, 2021 , the state ofIllinois fiscal year 2021 budget increased in-home care rates through the Community Care Program by 7.1%, to$23.40 from$21.84 . However, the rate increase was delayed and did not take effect untilApril 1, 2021 , as a result of on-going state revenue declines due to COVID-19 and the failure of theNovember 2020 referendum to revise theIllinois income tax code. OnJune 29, 2021 , the Governor announced the authorization of bonus payments to providers in an amount equivalent to the rate increase for services delivered fromJanuary 1, 2021 toMarch 31, 2021 for state reimbursed hours of care. The bonus payment of$3.0 million was recognized as net service revenues during the three months endedJune 30, 2021 , and was received inSeptember 2021 . OnJune 17, 2021 , the Governor ofIllinois signed the fiscal year 2022 budget, which funds an increase of in-home care rates to$24.96 effectiveJanuary 1, 2022 . OnJuly 12, 2021 , theState of Illinois submitted its Initial Illinois Spending Plan and Narrative for Home and Community Based Services investments as part of the ARPA. Included in that plan is the acceleration of the rate increase to$24.96 fromJanuary 1, 2022 , toNovember 1, 2021 , for which the state appears confident that it will receive approval during the fourth quarter of 2021. Our business will benefit from the rate increases noted above as planned for 2022, but there is no assurance that additional offsetting rate increases will be adopted inIllinois for fiscal years beyond fiscal year 2022, and our financial performance will be adversely impacted for any periods in which an additional offsetting reimbursement rate increase is not in effect.
Impact of Changes in Medicare and Medicaid Reimbursement
Home health services provided to Medicare beneficiaries are paid under the
Medicare Home Health Prospective Payment System ("HHPPS"). CMS updates the HHPPS
payment rates each calendar year. Effective calendar year 2021, HHPPS rates
increased by 2.0%, which reflects a 2.3% market basket update, reduced by a
multifactor productivity adjustment of 0.3 percentage points. CMS expects
Medicare payments to home health agencies in 2021 to increase in the aggregate
by 1.9% after accounting for a 0.1 percentage point decrease in payments to home
health agencies due to changes in the rural add-on percentages mandated by the
Bipartisan Budget Act of 2018. Home health providers that do not comply with
quality data reporting requirements are subject to a 2 percentage point
reduction to their market basket update.
Historically, CMS paid home health providers 50% to 60% of anticipated payment
at the beginning of a patient's care episode through a request for anticipated
payment ("RAP"). However, to address potential program integrity risks, CMS has
phased out RAP payments. In calendar year 2021, CMS will not provide any
up-front payments in response to a RAP but will continue to require home health
providers to submit streamlined RAPs as notice that a beneficiary is under a
home health period of care. In calendar year 2022, CMS will replace the RAP with
a "Notice of Admission."
26
--------------------------------------------------------------------------------
Table of Contents Hospice Hospice services provided to Medicare beneficiaries are paid under the Medicare Hospice Prospective Payment System, under which CMS sets a daily rate for each day a patient is enrolled in the hospice benefit. CMS updates these rates each federal fiscal year. EffectiveOctober 1, 2021 , CMS increased hospice payment rates by 2.0%. This reflects a 2.7% market basket increase reduced by a productivity adjustment of 0.7 percentage points. Additionally, the aggregate cap, which limits the total Medicare reimbursement that a hospice may receive based on an annual per-beneficiary cap amount and the number of Medicare patients served, was updated to$31,297.61 for federal fiscal year 2022. If a hospice's Medicare payments exceed its aggregate cap, it must repay Medicare the excess amount. Hospices that do not satisfy quality reporting requirements are subject to a 2 percentage point reduction to the market basket update.
New York CDPAP
OnFebruary 11, 2021 , the state ofNew York announced its initial selection of parties to enter into contracts as a Lead Fiscal Intermediary under its previously announced Request for Offer ("RFO") process related to itsConsumer Directed Personal Assistance Program ("CDPAP"), in which the Company currently participates as a provider. The Company was not one of the selected entities in the initial RFO process. The announcement followed an extended RFO process first begun in 2019, with responses originally due inFebruary 2020 . The Company has submitted a formal protest in response to the selection process, which was filed and accepted onMarch 19, 2021 . The Company has not yet received a response to the formal protest. Based on its current run rate, the Company estimates it will receive$44 million and$3 million in revenue and operating income, respectively, from the program for the year endedDecember 31, 2021 . The Company continues to explore its options, including appeals, other arrangements under which the Company may continue to provide these services, and expense reductions to minimize any potential final impact of the RFO process. TheNew York fiscal year 2022 state budget included a provision to add additional fiscal intermediaries (one or two entities per county with specified population sizes, plus entities that meet various other requirements) to those awarded contracts as a Lead Fiscal Intermediary under the initial RFO process, based on the scoring of the original RFO. As scoring of RFOs was not publicly released, it is unknown at this time if the Company's score ranked high enough to qualify for these additional awards. The Company has submitted a response to the survey issued by theNew York Department of Health to determine the additional contract awards.The New York Department of Health has published an anticipated contract start date for all awards to be no earlier thanNovember 1, 2021 . No later than the contract start date, we will be required to transition patients within the CDPAP to a fiscal intermediary that has been awarded a contract and cease providing services to those patients. We continue to consider other arrangements and to pursue our protest of the award. Given the uncertainty surrounding the program, the Company has suspended materially all of its new patient admissions under the New York CDPAP program.
Components of our Statements of Income
Net Service Revenues
We generate net service revenues by providing our services directly to consumers and primarily on an hourly basis in our personal care segment, on a daily basis in our hospice segment and on an episodic basis in our home health segment. We receive payment for providing such services from our payor clients, including federal, state and local governmental agencies, managed care organizations, commercial insurers and private pay consumers. In our personal care segment, net service revenues are principally provided based on authorized hours, determined by the relevant agency, at an hourly rate, which is either contractual or fixed by legislation, and are recognized at the time services are rendered. In our hospice segment, net service revenues are provided based on daily rates for each of the levels of care and are recognized as services are provided. In our home health segment, net service revenues are based on an episodic basis at a stated rate and recognized based on the number of days elapsed during a period of care within the reporting period. We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record revenues.
Cost of Service Revenues
We incur direct care wages, payroll taxes and benefit-related costs in
connection with providing our services. We also provide workers' compensation
and general liability coverage for our employees. Employees are also reimbursed
for their travel time and related travel costs in certain instances.
27--------------------------------------------------------------------------------
Table of Contents
General and Administrative Expenses
Our general and administrative expenses include our costs for operating our network of local agencies and our administrative offices. Our agency expenses consist of costs for supervisory personnel, our community care supervisors and office administrative costs. Personnel costs include wages, payroll taxes and employee benefits. Facility costs include rents, utilities, and postage, telephone and office expenses. Our corporate and support center expenses include costs for accounting, information systems, human resources, billing and collections, contracting, marketing and executive leadership. These expenses consist of compensation, including stock-based compensation, payroll taxes, employee benefits, legal, accounting and other professional fees, travel, general insurance, rents, provision for doubtful accounts and related facility costs. Expenses related to streamlining our operations such as costs related to terminated employees, termination of professional services relationships, other contract termination costs and asset write-offs are also included in general and administrative expenses.
Depreciation and Amortization Expenses
Depreciable assets consist principally of furniture and equipment, network administration and telephone equipment, and operating system software. Depreciable and leasehold assets are depreciated or amortized on a straight-line method over their useful lives or, if less and if applicable, their lease terms. We amortize our intangible assets with finite lives, consisting of customer and referral relationships, trade names, trademarks and non-competition agreements, using straight line or accelerated methods based upon their estimated useful lives. Interest Expense
Interest expense is reported when incurred and principally consists of interest and unused credit line fees on the credit facility.
Income Tax Expense
All of our income is from domestic sources. We incur state and local taxes in states in which we operate. For the three and nine months endedSeptember 30, 2021 and 2020, the federal statutory rate was 21.0%. The effective income tax rate was 26.6% and 23.6% for the three months endedSeptember 30, 2021 and 2020, respectively. The effective income tax rate was 24.7% and 20.5% for the nine months endedSeptember 30, 2021 and 2020, respectively. The difference between our federal statutory and effective income tax rates is due to the inclusion of state taxes, non-deductible compensation, excess tax benefit and the use of federal employment tax credits. 28
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
