LHC Group Announces Third Quarter 2018 Financial Results

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

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

Financial Results for the Third Quarter of 2018

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

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

Operational and Strategic Highlights

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

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

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

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

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

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

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

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

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

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

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

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

LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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_{⁽¹⁾ Certain acquired employee salaries that were previously classified in costs of service revenue for the second quarter of 2018 were reclassified into general and administrative expenses for the three and nine months ended September 30, 2018 to align with the Company’s historical presentation of such job functions as employee roles were clarified during the payroll integration process.} 

LHC GROUP, INC. AND SUBSIDIARIES
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LHC GROUP, INC. AND SUBSIDIARIES
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LHC GROUP, INC. AND SUBSIDIARIES
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LHC GROUP, INC. AND SUBSIDIARIES
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 ⁽¹⁾ _{Organic growth is calculated as the sum of same store plus de novo for the period divided by total from the same period in the prior year.}

LHC GROUP, INC. AND SUBSIDIARIES
RECONCILIATION OF REVENUE AFTER ADOPTION OF ASU 2014-09
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RECONCILIATION OF ADJUSTED NET INCOME ATTRIBUTABLE TO LHC GROUP, INC.
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RECONCILIATION OF ADJUSTED NET INCOME
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⁽¹⁾ _{All amounts previously classified as provision for bad debts are now classified as implicit price concessions in determining the transaction price of the Company's net service revenue.}
⁽²⁾ _{Transition and integration costs associated with the acquisition of Almost Family ($9.9 million pre-tax in the three months ended September 30, 2018 and $27.1 million in the nine months ended September 30, 2018).}
⁽³⁾ _{Expenses associated with the closure or consolidation of two home health agencies, three hospice agencies and two hospice inpatient units along with costs associated with the relocation of two long-term acute care hospitals. ($3.3 million pre-tax in the three months ended September 30, 2018 and $6.8 million in the nine months ended September 30, 2018)}
⁽⁴⁾ _{Tax benefit due to the exercise of stock options related to the Almost Family acquisition.}
⁽⁵⁾ _{The year-to-date effective tax rate was 25.6% as excess tax benefits exceeded the impact of certain deal and transaction costs that are not deductible related to the acquisitions. We continue to anticipate a normalized effective tax rate of 28% to 29% and have used that tax rate in the presentation of adjusted net income attributable to LHC Group and adjusted net income attributable to LHC Group per diluted share.}

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

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

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