AdaptHealth Corp 8-K, filed Aug 11, 2021
AdaptHealth Corp. (AHCO)
About this 8-K
AdaptHealth Corp filed this 8-K on August 11, 2021, reporting on events of August 10, 2021.
Items reported
- Item 7.01: Regulation FD disclosure
- Item 8.01: Other events
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
CURRENT REPORT
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| Item 7.01 | Regulation FD Disclosure. |
On August 10, 2021, AdaptHealth Corp. (the “Company”) issued a press release announcing the offering of senior notes (the “Notes”) by its indirect subsidiary, AdaptHealth LLC (the “Issuer”). A copy of the Company’s press release is furnished as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.
In conjunction with the offering of the Notes, the Issuer issued a confidential preliminary offering memorandum dated August 11, 2021 (the “Offering Memorandum”). Certain information contained in the Offering Memorandum is furnished herewith as Exhibit 99.2 and is incorporated herein by reference.
The information in Exhibits 99.1 and 99.2 shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Notes in any state in which the offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state. The Notes have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any other jurisdiction. The Issuer may not offer or sell the Notes unless the offer or sale would qualify for a registration exemption under the Securities Act and applicable state securities laws.
The information contained herein and attached hereto shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise be subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act or the Exchange Act.
| Item 8.01 | Other Events. |
In connection with the offering of the Notes, the unaudited pro forma condensed combined financial information, and the related notes thereto, of AdaptHealth Corp. for the six months ended June 30, 2021 and 2020 and for the year ended December 31, 2020 are filed herewith as Exhibit 99.3 and are incorporated herein by reference.
| Item 9.01. | Financial Statements and Exhibits. |
(b) Pro Forma Financial Information.
| · | The unaudited pro forma condensed combined financial information, and the related notes thereto, of AdaptHealth Corp. for the six months ended June 30, 2021 and 2020 and for the year ended December 31, 2020 are incorporated herein by reference to Exhibit 99.3 to this Current Report on Form 8-K. |
Item 9.01. Financial Statements and Exhibits.
| 99.1 | Press Release, dated August 10, 2021 |
| 99.2 | Excerpt from AdaptHealth LLC’s confidential preliminary offering memorandum, dated August 11, 2021 |
| 99.3 | Unaudited pro forma condensed combined financial information, and the related notes thereto, of AdaptHealth Corp. for the six months ended June 30, 2021 and 2020 and for the year ended December 31, 2020 |
| 104 | The cover page from this Current Report on Form 8-K, formatted in Inline XBRL |
Forward-looking Statements
This Current Report on Form 8-K includes certain statements that are not historical facts but are forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “plan,” “predict,” “potential,” “seem,” “seek,” “future,” “outlook,” and similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, statements regarding projections, estimates and forecasts of revenue and other financial and performance metrics, projections of market opportunity and expectations, the Company’s acquisition pipeline and the impact of the coronavirus (COVID-19) pandemic and our response to it. These statements are based on various assumptions and on the current expectations of Company management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on, by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond the control of the Company.
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These forward-looking statements are subject to a number of risks and uncertainties, including the outcome of judicial and administrative proceedings to which the Company may become a party or governmental investigations to which the Company may become subject that could interrupt or limit the Company’s operations, result in adverse judgments, settlements or fines and create negative publicity; changes in the Company’s clients’ preferences, prospects and the competitive conditions prevailing in the healthcare sector; and the impact of the coronavirus (COVID-19) pandemic and the Company’s response to it. A further description of such risks and uncertainties can be found in the Company’s filings with the Securities and Exchange Commission. If the risks materialize or assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. There may be additional risks that the Company presently knows or that the Company currently believes are immaterial that could also cause actual results to differ from those contained in the forward-looking statements. In addition, forward-looking statements reflect the Company’s expectations, plans or forecasts of future events and views as of the date of this press release. The Company anticipates that subsequent events and developments will cause the Company’s assessments to change. However, while the Company may elect to update these forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing the Company’s assessments as of any date subsequent to the date of this press release. Accordingly, undue reliance should not be placed upon the forward-looking statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AdaptHealth Corp. | ||
| By: | /s/ Jason Clemens | |
| Jason Clemens | ||
| Chief Financial Officer | ||
Dated: August 11, 2021
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Exhibit 99.1
AdaptHealth Announces Proposed Offering of $550 Million Senior Notes Due 2030
Plymouth Meeting, PA – August 10, 2021– AdaptHealth Corp. (NASDAQ: AHCO) (“AdaptHealth” or the “Company”), a national leader in providing patient-centered, healthcare-at-home solutions including home medical equipment, medical supplies, and related services, announced today that its subsidiary, AdaptHealth LLC (the “Issuer”), has commenced, subject to market and other conditions, an offering of $550 million aggregate principal amount of senior notes due 2030 (the “senior notes”).
The senior notes will be guaranteed by certain of the Issuer’s current and future subsidiaries, as well as the Issuer’s direct parent, AdaptHealth Intermediate Holdco LLC, on a senior unsecured basis.
The senior notes and related guarantees are being offered only to investors who are reasonably believed to be “qualified institutional buyers” in reliance on the exemption from registration set forth in Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. persons in reliance on the exemption from registration set forth in Regulation S under the Securities Act. The senior notes and the related guarantees have not been registered under the Securities Act, or the securities laws of any state or other jurisdiction, and may not be offered or sold in the United States without registration or an applicable exemption from the Securities Act and applicable state securities or blue sky laws and foreign securities laws.
The Company intends to use the net proceeds from the offering (i) to repay the outstanding principal amount under the 12% promissory notes held by affiliates of Assured Investment Management LLC (f/k/a BlueMountain Capital Management, LLC), (ii) to repay amounts outstanding under the Company’s revolving credit facility, (iii) to pay related fees and expenses, and (iv) for general corporate purposes, which may include future acquisitions and other business opportunities, corporate expenditures and working capital.
This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of senior notes in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
About AdaptHealth Corp.
AdaptHealth is a national leader in providing patient-centered, healthcare-at-home solutions including home medical equipment, medical supplies, and related services. AdaptHealth provides a full suite of medical products and solutions designed to help patients manage chronic conditions in the home, adapt to life and thrive. Product and services offerings include (i) sleep therapy equipment, supplies and related services (including CPAP and bi PAP services) to individuals suffering from obstructive sleep apnea, (ii) medical devices and supplies to patients for the treatment of diabetes (including continuous glucose monitors and insulin pumps), (iii) home medical equipment (HME) to patients discharged from acute care and other facilities, (iv) oxygen and related chronic therapy services in the home, and (v) other HME medical devices and supplies on behalf of chronically ill patients with wound care, urological, incontinence, ostomy and nutritional supply needs. The Company is proud to partner with an extensive and highly diversified network of referral sources, including acute care hospitals, sleep labs, pulmonologists, skilled nursing facilities, and clinics. AdaptHealth services beneficiaries of Medicare, Medicaid and commercial insurance payors. AdaptHealth services approximately 3.3 million patients annually in all 50 states through its network of 678 locations in 47 states.
Forward-Looking Statements
This press release includes certain statements that are not historical facts but are forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “plan,” “predict,” “potential,” “seem,” “seek,” “future,” “outlook,” and similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, statements regarding projections, estimates and forecasts of revenue and other financial and performance metrics and projections of market opportunity and expectations and the Company’s acquisition pipeline. These statements are based on various assumptions and on the current expectations of AdaptHealth management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on, by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond the control of the Company.
These forward-looking statements are subject to a number of risks and uncertainties, including the outcome of judicial and administrative proceedings to which the Company may become a party or governmental investigations to which the Company may become subject that could interrupt or limit the Company’s operations, result in adverse judgments, settlements or fines and create negative publicity; changes in the Company’s clients’ preferences, prospects and the competitive conditions prevailing in the healthcare sector; and the impact of the coronavirus (COVID-19) pandemic and the Company’s response to it. A further description of such risks and uncertainties can be found in the Company’s filings with the Securities and Exchange Commission from time to time. If the risks materialize or assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. There may be additional risks that the Company presently knows or that the Company currently believes are immaterial that could also cause actual results to differ from those contained in the forward-looking statements. In addition, forward-looking statements reflect the Company’s expectations, plans or forecasts of future events and views as of the date of this press release. The Company anticipates that subsequent events and developments will cause the Company’s assessments to change. However, while the Company may elect to update these forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing the Company’s assessments as of any date subsequent to the date of this press release. Accordingly, undue reliance should not be placed upon the forward-looking statements.
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Contacts
AdaptHealth Corp.
Jason Clemens, CFA
Chief Financial Officer
(484) 301-6599
jclemens@adapthealth.com
Anton Hie
Vice President, Investor Relations
(615) 887-4012
anton.hie@adapthealth.com
The Equity Group Inc.
Devin Sullivan
Senior Vice President
(212) 836-9608
dsullivan@equityny.com
Kalle Ahl, CFA
Vice President
(212) 836-9614
kahl@equityny.com
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Exhibit 99.2
Excerpts from AdaptHealth LLC’s Confidential Preliminary Offering Memorandum dated August 11, 2021.
Non-GAAP financial measures
We refer to the terms EBITDA, Adjusted EBITDA, Adjusted EBITDA (pro forma, as adjusted) and Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted) (each as defined in “Summary—Summary historical and pro forma financial data”) in various places in this offering memorandum. These are supplemental financial measures that are not prepared in accordance with GAAP. Any analysis of non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP.
The SEC has adopted rules to regulate the use in filings with the SEC and in public disclosures and press releases of “non-GAAP financial measures,” such as EBITDA, Adjusted EBITDA, Adjusted EBITDA less Patient Equipment Capex, Adjusted EBITDA (pro forma, as adjusted) and Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted) and the ratios related thereto. These measures are derived on the basis of methodologies other than in accordance with GAAP. These rules govern the manner in which non-GAAP financial measures are publicly presented and require, among other things:
| · | a presentation with equal or greater prominence of the most comparable financial measure or measures calculated and presented in accordance with GAAP; and |
| · | a statement disclosing the purposes for which the registrant’s management uses the non-GAAP financial measure. |
The rules prohibit, among other things:
| · | the exclusion of charges or liabilities that require, or will require, cash settlement or would have required cash settlement, absent an ability to settle in another manner, from a non-GAAP liquidity measure; and |
| · | the adjustment of a non-GAAP performance measure to eliminate or smooth items identified as non-recurring, infrequent or unusual, when the nature of the charge or gain is such that it has occurred in the past two years or is reasonably likely to recur within the next two years. |
The non-GAAP financial measures presented in this offering memorandum may not comply with the SEC rules governing the presentation of non-GAAP financial measures. For example, some of the adjustments to EBITDA which comprise Adjusted EBITDA, Adjusted EBITDA (pro forma, as adjusted) and Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted) as presented in this offering memorandum would not be allowed under Regulation S-X. In addition, our measurements of EBITDA, Adjusted EBITDA, Adjusted EBITDA (pro forma, as adjusted) and Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted) may not be comparable to those of other companies. Please see “Summary—Summary historical and pro forma financial data” for a discussion of our use of EBITDA, Adjusted EBITDA, Adjusted EBITDA (pro forma, as adjusted) and Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted) in this offering memorandum, including the reasons that we believe this information is useful to management and to investors and a reconciliation of EBITDA, Adjusted EBITDA, Adjusted EBITDA (pro forma, as adjusted) and Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted) to the most closely comparable financial measure calculated in accordance with GAAP.
1
Recent developments
Credit Agreement amendment
At or prior to the closing of this offering, we intend to enter into an amendment to the Credit Agreement (the “Second Amendment”) to, among other things, permit (i) the incurrence of indebtedness in connection with the issuance of the notes offered hereby and (ii) the prepayment of the Preferred Notes. See “Use of proceeds.” As of the date hereof, we have received the requisite consent of the lenders for the Second Amendment.
2
Summary historical and pro forma financial data
The following table presents AdaptHealth’s summary historical and pro forma financial data and operating statistics. The consolidated statements of operations and cash flows for the years ended December 31, 2020 and 2019 and the consolidated balance sheets as of December 31, 2020 and 2019 have been derived from our audited consolidated financial statements incorporated by reference in this offering memorandum. The consolidated statements of operations and cash flows for the year ended December 31, 2018 and the consolidated balance sheet as of December 31, 2018 have been derived from our audited consolidated financial statements not included or incorporated by reference in this offering memorandum.
The summary consolidated statements of operations and cash flows for the six months ended June 30, 2021 and 2020 and the consolidated balance sheet as of June 30, 2021 have been derived from our unaudited condensed consolidated financial statements incorporated by reference in this offering memorandum. Our unaudited condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, include all adjustments (consisting only of normal recurring accruals) necessary for a fair statement of the financial position and results of operations as of the dates and for the periods indicated. The summary unaudited pro forma consolidated statement of operations for the twelve months ended June 30, 2021 gives pro forma effect to the Transactions as if they had occurred on January 1, 2020. The summary unaudited pro forma financial data for the twelve months ended June 30, 2021 have been derived by adding our pro forma consolidated statement of operations data for the year ended December 31, 2020 to our pro forma consolidated statements of operations data for the six months ended June 30, 2021 and deducting our pro forma consolidated statements of operations data for the six months ended June 30, 2020. The consolidated balance sheet as of June 30, 2020 is not included or incorporated by reference into this offering memorandum.
The Issuer is an indirect subsidiary of AdaptHealth and the sole differences between the consolidated financial results of AdaptHealth and its subsidiaries (including the Issuer, AdaptHealth Intermediate and AdaptHealth Holdings), on the one hand, and the consolidated financial results of the Issuer and its subsidiaries on a standalone basis, on the other hand, relate to (A) prior to January 1, 2021, the minority interest held in AdaptHealth Holdings by the holders of the AdaptHealth Units, (B) the Preferred Notes and the Put/Call Agreement, which are obligations of AdaptHealth Holdings (and not obligations of the Issuer) and (C) the deferred income taxes related to the investment in AdaptHealth Holdings and the liability related to the Tax Receivable Agreement. Pursuant to the requirements of the Credit Facilities, AdaptHealth, AdaptHealth Holdings and AdaptHealth Intermediate may not own any assets other than the equity interests of their subsidiaries. Accordingly, all cash of AdaptHealth, AdaptHealth Holdings and AdaptHealth Intermediate is contributed to, or held for the benefit of, the Issuer, and the consolidated assets, equity accounts and liabilities of the Issuer do not materially differ from the consolidated assets, equity accounts and liabilities of AdaptHealth, AdaptHealth Holdings and AdaptHealth Intermediate.
For more information about the Company’s restatement of its financial statements, see “Basis of presentation—Restatement of previously issued consolidated financial statements and unaudited quarterly condensed consolidated financial information.”
| Historical | Pro forma | |||||||||||||||||||||||
Year ended December 31, | Six months ended June 30, | Twelve months ended June 30, | ||||||||||||||||||||||
| Consolidated statements of operations data: | 2018 | 2019 | 2020 | 2020 | 2021 | 2021 | ||||||||||||||||||
| (in thousands) | (audited) | (unaudited) | ||||||||||||||||||||||
| Net revenue | $ | 345,278 | $ | 529,644 | $ | 1,056,389 | $ | 423,555 | $ | 1,099,136 | $ | 2,170,186 | ||||||||||||
| Grant income | — | — | 14,277 | — | — | 22,334 | ||||||||||||||||||
| Costs and expenses | ||||||||||||||||||||||||
| Cost of net revenue (1) | 293,384 | 440,705 | 898,601 | 366,048 | 887,418 | 1,774,000 | ||||||||||||||||||
| General and administrative expenses | 18,069 | 56,493 | 89,346 | 31,439 | 99,578 | 177,273 | ||||||||||||||||||
| Depreciation and amortization, excluding patient equipment depreciation | 2,734 | 3,068 | 11,373 | 2,278 | 31,324 | 69,319 | ||||||||||||||||||
| Total costs and expenses | 314,187 | 500,266 | 999,320 | 399,765 | 1,018,320 | 2,020,592 | ||||||||||||||||||
| Operating income | 31,091 | 29,378 | 71,346 | 23,790 | 80,816 | 171,928 | ||||||||||||||||||
| Interest expense, net | 7,453 | 39,304 | 41,430 | 15,420 | 45,332 | 89,605 | ||||||||||||||||||
| Loss on extinguishment of debt, net | 1,399 | 2,121 | 5,316 | — | 11,949 | 17,265 | ||||||||||||||||||
| Change in fair value of contingent consideration common shares liability | — | 2,483 | 98,717 | 16,325 | (24,044 | ) | 58,348 | |||||||||||||||||
| Change in fair value of warrant liability | — | 7,650 | 135,368 | 35,446 | (40,622 | ) | 59,300 | |||||||||||||||||
| Other income (loss), net | — | (318 | ) | (3,444 | ) | (1,991 | ) | 1,150 | (350 | ) | ||||||||||||||
| Income (loss) before income taxes | 22,239 | (21,862 | ) | (206,041 | ) | (41,410 | ) | 87,051 | (52,240 | ) | ||||||||||||||
| Income tax expense (benefit) | (2,098 | ) | 739 | (11,955 | ) | 185 | 10,635 | 164 | ||||||||||||||||
| Net income (loss) | 24,337 | (22,601 | ) | (194,086 | ) | (41,595 | ) | 76,416 | (52,404 | ) | ||||||||||||||
| Income (loss) attributable to noncontrolling interests | 1,077 | (1,260 | ) | (32,454 | ) | (11,514 | ) | 1,275 | (11,735 | ) | ||||||||||||||
| Net income (loss) attributable to AdaptHealth Corp. | $ | 23,260 | $ | (21,341 | ) | $ | (161,632 | ) | $ | (30,081 | ) | $ | 75,141 | $ | (40,669 | ) | ||||||||
| Consolidated statements of cash flows data: | ||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Net cash provided by operating activities | $ | 68,427 | $ | 60,418 | $ | 195,634 | $ | 111,008 | $ | 147,624 | ||||||||||||||
| Net cash used in investing activities | (96,284 | ) | (84,870 | ) | (815,703 | ) | (117,332 | ) | (1,372,027 | ) | ||||||||||||||
| Net cash provided by financing activities | 48,768 | 76,144 | 643,153 | 40,033 | 1,302,630 | |||||||||||||||||||
| Balance sheet data (as of period end): | ||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | 25,186 | $ | 76,878 | $ | 99,962 | $ | 178,189 | ||||||||||||||||
| Total assets | 368,957 | 546,538 | 1,813,472 | 4,687,665 | ||||||||||||||||||||
| Total liabilities | 266,188 | 612,321 | 1,532,627 | 2,793,622 | ||||||||||||||||||||
| Total long-term debt, including current portion | 134,185 | 396,833 | 784,714 | 1,873,076 | ||||||||||||||||||||
| Total secured debt, including long-term debt and capital lease obligations | 155,996 | 278,292 | 326,587 | 999,221 | ||||||||||||||||||||
| Total stockholders’ equity (deficit) / members’ equity (deficit) | 102,769 | (65,783 | ) | 280,845 | 1,894,043 | |||||||||||||||||||
| Other financial data: | ||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| EBITDA(2) | $ | 77,569 | $ | 80,009 | $ | (82,166 | ) | $ | 9,124 | $ | 243,382 | $ | 273,593 | |||||||||||
| Adjusted EBITDA(2) | 84,447 | 123,021 | 205,619 | 73,094 | 251,566 | 514,412 | ||||||||||||||||||
| Adjusted EBITDA less Patient Equipment Capex(2) | 45,083 | 75,600 | 142,483 | 48,059 | 160,783 | 317,170 | ||||||||||||||||||
| Adjusted EBITDA (pro forma, as adjusted)(2) | 645,512 | |||||||||||||||||||||||
| Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted)(2) | 448,270 | |||||||||||||||||||||||
Pro forma, as adjusted financial data(3): | Pro forma, as June 30, 2021 | |||
| (in thousands, except ratios) | ||||
| Total debt | $ | 2,224,221 | ||
| Net debt(4) | $ | 1,887,310 | ||
| Interest expense(5) | $ | 118,480 | ||
| Ratio of Adjusted EBITDA (pro forma, as adjusted) to interest expense(6) | 5.4x | |||
| Ratio of total debt to Adjusted EBITDA (pro forma, as adjusted)(7) | 3.4x | |||
| Ratio of total net debt to Adjusted EBITDA (pro forma, as adjusted)(8) | 2.9x | |||
(1) Includes patient equipment depreciation of $45,143 in 2018, $59,499 in 2019 and $71,072 in 2020, $32,836 in the six months ended June 30, 2020, $79,675 in the six months ended June 30, 2021 and $166,909 in the pro forma for the twelve months ended June 30, 2021.
(2) The following table reconciles net income (loss) attributable to AdaptHealth Corp., the most directly comparable GAAP measure, to EBITDA, Adjusted EBITDA, Adjusted EBITDA (pro forma, as adjusted) and Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted).
Management believes the presentation of these measures is relevant and useful because it allows investors to view our performance in a manner similar to the method management uses, adjusted for items management believes makes it easier to compare its results with other companies that have different financing and capital structures. EBITDA, Adjusted EBITDA, Adjusted EBITDA (pro forma, as adjusted) and Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted), as management defines them, may not be comparable to EBITDA, Adjusted EBITDA, Adjusted EBITDA (pro forma, as adjusted), Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted) or similarly titled measurements used by other companies. Items added into our calculation of EBITDA, Adjusted EBITDA, Adjusted EBITDA (pro forma, as adjusted) and Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted) that will not occur on a continuing basis may have associated cash payments. EBITDA, Adjusted EBITDA, Adjusted EBITDA (pro forma, as adjusted) and Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted) should be viewed in conjunction with measurements that are computed in accordance with GAAP. A reconciliation of EBITDA, Adjusted EBITDA, Adjusted EBITDA (pro forma, as adjusted) and Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted) to net income (loss) attributable to AdaptHealth Corp., the most closely comparable financial measure calculated in accordance with GAAP, is set forth in the table below.
As noted in the introductory paragraphs, the summary historical and pro forma financial data set forth in this “—Summary historical and pro forma financial data” section, including EBITDA, Adjusted EBITDA, Adjusted EBITDA (pro forma, as adjusted) and Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted) and related ratios, are for AdaptHealth, and not for the Issuer and its subsidiaries. See “Basis of presentation.”
In addition, certain limitations under the covenants in the indenture that will govern the notes, as well as in the Credit Facilities, are based on ratios that are calculated by reference to measures similar to EBITDA, Adjusted EBITDA, Adjusted EBITDA (pro forma, as adjusted) and Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted) and such ratios may be similar to the ratios presented in the table above. However, such measures are not identical to EBITDA, Adjusted EBITDA, Adjusted EBITDA (pro forma, as adjusted) and Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted) as we define it in this offering memorandum, and such ratios are not identical to the ratios presented in the table above. If we do not meet the applicable ratio requirement at the applicable time, such covenants would prohibit us from incurring debt, making restricted payments or investments or taking certain other actions, other than, in some cases, pursuant to specified exceptions. See “Description of other indebtedness” and “Description of notes.”
EBITDA, Adjusted EBITDA, Adjusted EBITDA (pro forma, as adjusted) and Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted) and the related ratios presented in the table above are not calculated or presented in accordance with GAAP. As a result, these financial measures have limitations as analytical and comparative tools, and you should not consider these items in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
| · | they do not reflect all of our cash expenditures or future requirements for capital expenditures or contractual commitments; |
| · | they do not reflect changes in, or cash requirements for, working capital needs; |
| · | they do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on indebtedness; |
| · | they do not reflect income tax expense or the cash requirements to pay taxes; and |
| · | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often be replaced in the future, and EBITDA, Adjusted EBITDA, Adjusted EBITDA (pro forma, as adjusted) and Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted) do not reflect any cash requirements for such replacements. |
| Historical | Pro Forma | |||||||||||||||||||||||
Year ended December 31, | Six months ended June 30, | Twelve months ended June 30, | ||||||||||||||||||||||
| Non-GAAP reconciliation: | 2018 | 2019 | 2020 | 2020 | 2021 | 2021 | ||||||||||||||||||
| (in thousands) | (audited) | (unaudited) | ||||||||||||||||||||||
| Net income (loss) attributable to AdaptHealth Corp. | $ | 23,260 | $ | (21,341 | ) | $ | (161,632 | ) | $ | (30,081 | ) | $ | 75,141 | $ | (40,669 | ) | ||||||||
| Income (loss) attributable to noncontrolling interest | 1,077 | (1,260 | ) | (32,454 | ) | (11,514 | ) | 1,275 | (11,735 | ) | ||||||||||||||
| Interest expense – Excluding change in fair value of interest rate swaps | 8,000 | 27,878 | 41,430 | 15,420 | 45,332 | 89,605 | ||||||||||||||||||
| Interest expense (income) – Change in fair value of interest rate swaps | (547 | ) | 11,426 | — | — | — | — | |||||||||||||||||
| Income tax expense (benefit) | (2,098 | ) | 739 | (11,955 | ) | 185 | 10,635 | 164 | ||||||||||||||||
| Depreciation and amortization, including patient equipment depreciation | 47,877 | 62,567 | 82,445 | 35,114 | 110,999 | 236,228 | ||||||||||||||||||
| EBITDA | $ | 77,569 | $ | 80,009 | $ | (82,166 | ) | $ | 9,124 | $ | 243,382 | $ | 273,593 | |||||||||||
| Loss on extinguishment of debt, net(a) | 1,399 | 2,121 | 5,316 | — | 11,949 | 17,265 | ||||||||||||||||||
| Equity-based compensation expense(b) | 884 | 11,070 | 18,670 | 5,467 | 16,029 | 38,052 | ||||||||||||||||||
| Transaction costs(c) | 2,514 | 15,984 | 26,573 | 6,399 | 39,954 | 60,128 | ||||||||||||||||||
| Severance(d) | 1,920 | 2,301 | 5,596 | 2,324 | 1,533 | 4,805 | ||||||||||||||||||
| Change in fair value of contingent consideration common shares liability(e) | — | 2,483 | 98,717 | 16,325 | (24,044 | ) | 58,348 | |||||||||||||||||
| Change in fair value of warrant liability(f) | — | 7,650 | 135,368 | 35,446 | (40,622 | ) | 59,300 | |||||||||||||||||
| Other non-recurring (income) expense(g) | 161 | 1,403 | (2,455 | ) | (1,991 | ) | 3,385 | 2,921 | ||||||||||||||||
| Adjusted EBITDA | $ | 84,447 | $ | 123,021 | $ | 205,619 | $ | 73,094 | $ | 251,566 | $ | 514,412 | ||||||||||||
| AeroCare pro forma cost savings(h) | 38,000 | |||||||||||||||||||||||
| Pro forma Adjusted EBITDA and cost savings related to acquisitions(i) | 93,100 | |||||||||||||||||||||||
| Adjusted EBITDA (pro forma, as adjusted) | $ | 645,512 | ||||||||||||||||||||||
| Less: Patient equipment capex(j) | (39,364 | ) | (47,421 | ) | (63,136 | ) | (25,035 | ) | (90,783 | ) | (197,242 | ) | ||||||||||||
| Adjusted EBITDA less Patient Equipment Capex | 45,083 | 75,600 | 142,483 | 48,059 | 160,783 | |||||||||||||||||||
| Adjusted EBITDA less Patient Equipment Capex (pro forma, as adjusted) | $ | 448,270 | ||||||||||||||||||||||
(a) Represents write offs of deferred financing costs related to refinancing of debt, and prepayment penalty expense for early debt payoff offset by gain on debt extinguishment in 2018.
(b) Represents equity-based compensation expense to employees and non-employee directors. The higher expense in 2021 is due to overall increased equity-compensation grant activity in the period, as well as expense resulting from accelerated vesting of certain awards in that period, including accelerated vesting of certain awards in connection with the separation of the Company’s former Co-CEO. The higher expense in 2020 is due to a full year of expense for awards granted in late 2019, and overall increased equity-compensation grant activity in 2020. The 2019 period includes expense resulting from accelerated vesting and modification of certain awards in that period.
(c) Represents transaction costs related to acquisitions, the 2019 Recapitalization, and the Business Combination.
(d) Represents severance costs related to acquisition integration and internal AdaptHealth restructuring and workforce reduction activities.
(e) Represents a non-cash charge or gain for the change in the estimated fair value of contingent consideration common shares issuable as part of the Business Combination.
(f) Represents a non-cash charge or gain for the change in the estimated fair value of the Company’s warrants.
(g) The six months ended June 30, 2021 includes $1.5 million of expenses related to legal and other costs associated with the separation of the Company’s former Co-CEO, $0.9 million of expenses associated with legal settlements for employee and other matters, $1.0 million of expenses associated with lease terminations, a $0.3 million charge for the increase in the fair value of a contingent consideration liability related to an acquisition, and $0.2 million of other non-recurring charges, offset by a gain of $0.5 million for the receipt of earnout proceeds in connection with the sale of an investment. The six months ended June 30, 2020 includes $2.9 million of reductions in the fair value of contingent consideration liabilities related to acquisitions, a $0.6 million gain related to the sale of an investment, offset by a $1.5 million expense related to a transition services agreement executed in connection with an acquisition completed in 2020. The year ended December 31, 2020 includes $4.2 million of net reductions in the fair value of contingent consideration liabilities related to acquisitions, a $0.6 million gain in connection with the sale of a cost method investment, offset by a $1.5 million expense related to a transition services agreement executed in connection with an acquisition completed in 2020 and $0.8 million of other non-recurring expenses.
(h) Represents the estimated impact of annualized pre-tax cost savings associated with initiatives being implemented by management following the completion of the AeroCare Acquisition, primarily from centralization, scale and efficiency improvements in revenue cycle management, branch locations, general and administrative, and vendor cost savings. We expect to incur approximately $20 million in costs to achieve these cost savings, which are expected to be fully realized by 2022.
(i) Represents $88.4 million in Adjusted EBITDA from acquisitions completed by AdaptHealth and $4.7 million in Adjusted EBITDA from acquisitions completed by AeroCare, in each case since July 1, 2020 and including twelve months of Adjusted EBITDA as well as expected cost synergies related to such acquisitions. Such figures are unaudited and have not been reviewed by AdaptHealth’s or AeroCare’s independent auditors. Neither AdaptHealth nor AeroCare has historically experienced significant seasonality in its respective business.
(j) Represents the value of the patient equipment received during the respective period without regard to whether the equipment is purchased or financed through lease transactions.
(3) Represents financial measures for the twelve months ended June 30, 2021, on a pro forma, as adjusted basis.
(4) Net debt as of June 30, 2021 represents total debt on a pro forma, as adjusted basis, less cash and cash equivalents on a pro forma, as adjusted basis of $336.9 million.
(5) Represents interest expense for the twelve months ended June 30, 2021, calculated on a pro forma, as adjusted basis. Each one eighth percent increase or decrease in the interest rates governing our indebtedness would result in an approximately $1.0 million change in annual interest expense on our indebtedness.
(6) The ratio of Adjusted EBITDA (pro forma, as adjusted) to interest expense is determined by dividing Adjusted EBITDA (pro forma, as adjusted) by interest expense on a pro forma, as adjusted basis.
(7) The ratio of total debt to Adjusted EBITDA (pro forma, as adjusted) is determined by dividing total debt on a pro forma, as adjusted basis by Adjusted EBITDA (pro forma, as adjusted).
(8) The ratio of total net debt to Adjusted EBITDA (pro forma, as adjusted) is determined by dividing total net debt on a pro forma, as adjusted basis by Adjusted EBITDA (pro forma, as adjusted).
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION OF ADAPTHEALTH CORP.
The following unaudited pro forma condensed combined financial information presents the unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2021 and 2020, and the year ended December 31, 2020 based upon the combined historical financial statements of AdaptHealth Corp. (“AdaptHealth”), Solara Medical Supplies, LLC (“Solara”) and AeroCare Holdings, Inc. and its subsidiaries (“AeroCare”), after giving effect to AdaptHealth’s acquisition of Solara on July 1, 2020 (the “Solara Acquisition”), and AdaptHealth’s acquisition of AeroCare on February 1, 2021 (the “AeroCare Acquisition”), and related adjustments described in the accompanying notes. An unaudited pro forma condensed combined balance sheet as of June 30, 2021 is not included in this filing since the accounting for the Solara Acquisition and the AeroCare Acquisition is already reflected in AdaptHealth’s previously filed historical consolidated balance sheet as of such date.
The unaudited pro forma condensed combined statements of operations for the the six months ended June 30, 2021 and 2020, and for the year ended December 31, 2020, give pro forma effect to the Solara Acquisition and the AeroCare Acquisition as if they had occurred on January 1, 2020.
The unaudited pro forma condensed combined financial information should be read in conjunction with the following:
| · | the audited historical financial statements of AdaptHealth and the notes thereto as included in the Form 10-K/A filed on April 30, 2021; |
| · | the unaudited historical financial statements of AdaptHealth and the notes thereto as included in the Form 10-Q filed on August 6, 2021; |
| · | the unaudited historical financial statements of Solara and the notes thereto as included in the Form 8-K filed on December 14, 2020; and; |
| · | the audited historical financial statements of AeroCare and the notes thereto as included in the Form 8-K/A filed on June 29, 2021. |
The unaudited pro forma condensed combined financial information is provided for informational purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the Solara Acquisition and the AeroCare Acquisition had been completed as of the dates set forth above, nor is it indicative of the future results of the combined company. The unaudited pro forma condensed combined financial information also does not give effect to the potential impact of any anticipated synergies, operating efficiencies or cost savings resulting from favorable vendor pricing had AdaptHealth owned Solara and AeroCare in the periods indicated above, or any integration costs and benefits from restructuring plans.
ADAPTHEALTH CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2021
| AdaptHealth | Aerocare | Pro Forma | AdaptHealth | |||||||||||||||||
| (in thousands, except per share data) | Historical | Reclassified (1) | Adjustments | Note 3 | Pro-Forma | |||||||||||||||
| Net revenue | $ | 1,099,136 | $ | 65,808 | $ | - | $ | 1,164,944 | ||||||||||||
| Costs and expenses: | ||||||||||||||||||||
| Cost of net revenue | 887,418 | 52,536 | - | 939,954 | ||||||||||||||||
| General and administrative expenses | 99,578 | 16,120 | (7,519 | ) | (a) | 108,179 | ||||||||||||||
| Depreciation and amortization, excluding patient equipment depreciation | 31,324 | 664 | 3,479 | (b) | 35,467 | |||||||||||||||
| Total costs and expenses | 1,018,320 | 69,320 | (4,040 | ) | 1,083,600 | |||||||||||||||
| Operating income (loss) | 80,816 | (3,512 | ) | 4,040 | 81,344 | |||||||||||||||
| Interest expense, net | 45,332 | 3,739 | (2,871 | ) | (c) | 46,200 | ||||||||||||||
| Loss on extinguishment of debt, net | 11,949 | - | - | 11,949 | ||||||||||||||||
| Change in fair value of contingent consideration common shares liability | (24,044 | ) | - | - | (24,044 | ) | ||||||||||||||
| Change in fair value of warrant liability | (40,622 | ) | - | - | (40,622 | ) | ||||||||||||||
| Other income, net | 1,150 | (34 | ) | - | 1,116 | |||||||||||||||
| Income (loss) before income taxes | 87,051 | (7,217 | ) | 6,911 | 86,745 | |||||||||||||||
| Income tax expense (benefit) | 10,635 | 2,381 | (2,418 | ) | (d) | 10,598 | ||||||||||||||
| Net income (loss) | 76,416 | (9,598 | ) | 9,329 | 76,147 | |||||||||||||||
| Income (loss) attributable to noncontrolling interests | 1,275 | - | - | 1,275 | ||||||||||||||||
| Net income (loss) attributable to AdaptHealth Corp. | $ | 75,141 | $ | (9,598 | ) | $ | 9,329 | $ | 74,872 | |||||||||||
| Net income (loss) per common share: | ||||||||||||||||||||
| Basic | $ | 0.56 | $ | 0.57 | ||||||||||||||||
| Diluted | $ | 0.06 | $ | 0.10 | ||||||||||||||||
| Weighted average shares outstanding for net income (loss) attributable to AdaptHealth Corp.: | ||||||||||||||||||||
| Basic | 120,438 | 11,879 | (e) | 132,317 | ||||||||||||||||
| Diluted | 127,720 | 11,879 | (e) | 139,599 | ||||||||||||||||
(1) Refer to Note 2 for reclassification of AeroCare historical information.
| ADAPTHEALTH CORP. | |||||||||||||
| UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS | |||||||||||||
| FOR THE YEAR ENDED DECEMBER 31, 2020 | |||||||||||||
| AdaptHealth | Solara | AeroCare | Pro Forma | AdaptHealth | |||||||||||||||||
| (in thousands, except per share data) | Historical | Reclassified (1) | Reclassified (1) | Adjustments | Note 3 | Pro-Forma | |||||||||||||||
| Net revenue | $ | 1,056,389 | $ | 83,155 | $ | 695,189 | $ | - | $ | 1,834,733 | |||||||||||
| Grant income | $ | 14,277 | $ | - | $ | 8,057 | 22,334 | ||||||||||||||
| Costs and expenses: | |||||||||||||||||||||
| Cost of net revenue | 898,601 | 70,834 | 574,093 | - | 1,543,528 | ||||||||||||||||
| General and administrative expenses | 89,346 | 17,998 | 21,143 | (15,129 | ) | (f) | 113,358 | ||||||||||||||
| Depreciation and amortization, excluding patient equipment depreciation | 11,373 | 3,587 | 8,307 | 42,121 | (g) | 65,388 | |||||||||||||||
| Total costs and expenses | 999,320 | 92,419 | 603,543 | 26,992 | 1,722,274 | ||||||||||||||||
| Operating income (loss) | 71,346 | (9,264 | ) | 99,703 | (26,992 | ) | 134,793 | ||||||||||||||
| Interest expense, net | 41,430 | 7,367 | 15,301 | 11,907 | (h) | 76,005 | |||||||||||||||
| Loss on extinguishment of debt, net | 5,316 | - | - | - | 5,316 | ||||||||||||||||
| Change in fair value of contingent consideration common shares liability | 98,717 | - | - | - | 98,717 | ||||||||||||||||
| Change in fair value of warrant liability | 135,368 | - | - | - | 135,368 | ||||||||||||||||
| Other income, net | (3,444 | ) | - | (255 | ) | - | (3,699 | ) | |||||||||||||
| Income (loss) before income taxes | (206,041 | ) | (16,631 | ) | 84,657 | (38,899 | ) | (176,914 | ) | ||||||||||||
| Income tax expense | (11,955 | ) | - | 20,833 | (19,143 | ) | (i) | (10,265 | ) | ||||||||||||
| Net income (loss) | (194,086 | ) | (16,631 | ) | 63,824 | (19,756 | ) | (166,649 | ) | ||||||||||||
| Income attributable to noncontrolling interests | (32,454 | ) | - | - | 9,338 | (j) | (23,116 | ) | |||||||||||||
| Net income (loss) attributable to AdaptHealth Corp. | $ | (161,632 | ) | $ | (16,631 | ) | $ | 63,824 | $ | (29,094 | ) | $ | (143,533 | ) | |||||||
| Net income (loss) per common share: | |||||||||||||||||||||
| Basic and diluted | $ | (3.08 | ) | $ | (1.55 | ) | |||||||||||||||
| Weighted average shares outstanding for net income (loss) attributable to AdaptHealth Corp.: | |||||||||||||||||||||
| Basic and diluted | 52,488 | - | - | 39,838 | (k) | 92,326 | |||||||||||||||
| (1) Refer to Note 2 for reclassification of Solara and AeroCare historical information. | |||||||||||||
ADAPTHEALTH CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2020
| AdaptHealth | Solara | Aerocare | Pro Forma | AdaptHealth | |||||||||||||||||
| (in thousands, except per share data) | Historical | Reclassified (1) | Reclassified (1) | Adjustments | Note 3 | Pro-Forma | |||||||||||||||
| Net revenue | $ | 423,555 | $ | 83,155 | $ | 322,781 | $ | - | $ | 829,491 | |||||||||||
| Costs and expenses: | |||||||||||||||||||||
| Cost of net revenue | 366,048 | 70,834 | 272,600 | - | 709,482 | ||||||||||||||||
| General and administrative expenses | 31,439 | 17,998 | 9,956 | (15,129 | ) | (f) | 44,264 | ||||||||||||||
| Depreciation and amortization, excluding patient equipment depreciation | 2,278 | 3,587 | 4,148 | 21,523 | (l) | 31,536 | |||||||||||||||
| Total costs and expenses | 399,765 | 92,419 | 286,704 | 6,394 | 785,282 | ||||||||||||||||
| Operating income (loss) | 23,790 | (9,264 | ) | 36,077 | (6,394 | ) | 44,209 | ||||||||||||||
| Interest expense, net | 15,420 | 7,367 | 7,986 | 1,827 | (m) | 32,600 | |||||||||||||||
| Loss on extinguishment of debt, net | - | - | - | - | - | ||||||||||||||||
| Change in fair value of contingent consideration common shares liability | 16,325 | - | - | - | 16,325 | ||||||||||||||||
| Change in fair value of warrant liability | 35,446 | - | - | - | 35,446 | ||||||||||||||||
| Other income, net | (1,991 | ) | - | (242 | ) | - | (2,233 | ) | |||||||||||||
| Income (loss) before income taxes | (41,410 | ) | (16,631 | ) | 28,333 | (8,221 | ) | (37,929 | ) | ||||||||||||
| Income tax expense (benefit) | 185 | - | 4,585 | (4,601 | ) | (i) | 169 | ||||||||||||||
| Net income (loss) | (41,595 | ) | (16,631 | ) | 23,748 | (3,620 | ) | (38,098 | ) | ||||||||||||
| Income (loss) attributable to noncontrolling interests | (11,514 | ) | - | - | 1,408 | (10,106 | ) | ||||||||||||||
| Net income (loss) attributable to AdaptHealth Corp. | $ | (30,081 | ) | $ | (16,631 | ) | $ | 23,748 | $ | (5,028 | ) | $ | (27,992 | ) | |||||||
| Net income (loss) per common share: | |||||||||||||||||||||
| Basic | $ | (0.70 | ) | $ | (0.30 | ) | |||||||||||||||
| Diluted | $ | (0.70 | ) | $ | (0.30 | ) | |||||||||||||||
| Weighted average shares outstanding for net income (loss) attributable to AdaptHealth Corp.: | |||||||||||||||||||||
| Basic | 43,242 | 48,724 | (k) | 91,966 | |||||||||||||||||
| Diluted | 43,242 | 48,724 | (k) | 91,966 | |||||||||||||||||
| (1) | Refer to Note 2 for reclassification of Solara and AeroCare historical information. |
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1—General Information
Basis of presentation
The historical financial information has been adjusted in the unaudited pro forma condensed combined financial information to give effect to events that reflect the GAAP accounting for the Solara Acquisition and the AeroCare Acquisition (collectively, the “Acquisitions”), and are prepared to illustrate the estimated effects of the Acquisitions to the Company’s audited and unaudited historical consolidated financial statements.
AdaptHealth’s historical results reflect AdaptHealth’s unaudited consolidated statement of operations for the six months ended June 30, 2021 and 2020 and audited consolidated statement of operations for the year ended December 31, 2020. Solara’s historical results reflect Solara’s unaudited consolidated statement of operations for the six months ended June 30, 2020. AeroCare’s historical results reflect AeroCare’s unaudited consolidated statements of income for the month ended January 31, 2021 and the six months ended June 30, 2020, and audited consolidated statement of income for the year ended December 31, 2020.
Description of the Solara Acquisition
On July 1, 2020, AdaptHealth acquired 100% of the equity interests of Solara. Solara is an independent distributor of continuous glucose monitors (“CGM”) in the United States and offers a comprehensive suite of direct-to-patient diabetes management supplies to patients throughout the country, including CGMs, insulin pumps and other diabetic supplies. AdaptHealth allocated the consideration paid to the estimated fair values of the net assets acquired on a provisional basis, including $12.1 million to cash, $46.3 million to accounts receivable, $14.4 million to inventory, $3.5 million to equipment and other fixed assets, $85.7 million to identifiable intangible assets (consisting of $60.0 million of payor contracts and $25.7 million of tradenames), $325.1 million to goodwill, $28.8 million to accounts payable and accrued expenses, and $2.9 million of net liabilities to other working capital accounts. The Solara Acquisition also included a contingent payment based on certain conditions after closing, which was determined to have an acquisition date fair value of $1.3 million which was recorded as a contingent liability in connection with AdaptHealth’s acquisition accounting for Solara. Based on the outcome of such conditions, AdaptHealth paid $1.4 million during the year ended December 31, 2020 to satisfy such contingent liability.
Description of the AeroCare Acquisition
On February 1, 2021, AdaptHealth acquired 100% of the equity interests of AeroCare. AeroCare is a leading national technology-enabled respiratory and home medical equipment distribution platform in the United States and offers a comprehensive suite of direct-to-patient equipment and services including CPAP and BiPAP machines, oxygen concentrators, home ventilators, and other durable medical equipment products.
The total consideration consisted of (i) a cash payment of approximately $1.1 billion at closing, (ii) the issuance of 13,992,615 shares of AdaptHealth’s Class A Common Stock at closing, (iii) the issuance of 130,474.73 shares of AdaptHealth’s Series C Convertible Preferred Stock at closing, and (iv) the issuance of 3,959,892 options to purchase shares of AdaptHealth’s Class A Common Stock in the future, which had a weighted-average exercise price of $6.24 per share and a weighted-average remaining exercise period of approximately seven years from the date of closing. The Series C Convertible Preferred Stock liquidation preference was limited to its par value of $0.0001 per share. The Series C Convertible Preferred Stock participated equally and ratably on an as-converted basis with the holders of AdaptHealth’s Class A Common Stock in all potential cash dividends paid on the Class A Common Stock. The Series C Convertible Preferred Stock was non-voting. On March 3, 2021, AdaptHealth’s stockholders approved, for purposes of complying with Nasdaq Listing Rule 5635, the issuance of shares of AdaptHealth’s Class A Common Stock, representing equal to or greater than 20% of the outstanding common stock or voting power of AdaptHealth issuable upon conversion of the Series C Convertible Preferred Stock issued to the former equityholders of AeroCare, by removal of the conversion restriction that prohibited such conversion of Series C Convertible Preferred Stock. Following the receipt of the approval of AdaptHealth’s stockholders, the holders were able to elect to convert, and AdaptHealth was able to elect to effect a mandatory conversion of, each share of Series C Convertible Preferred Stock into 100 shares of AdaptHealth’s Class A Common Stock (subject to certain anti-dilution adjustments). AdaptHealth elected to effect a mandatory conversion of the Series C Convertible Preferred Stock, and the conversion of such shares of Series C Convertible Preferred Stock to 13,047,473 shares of AdaptHealth’s Class A Common Stock occurred on March 18, 2021. AdaptHealth allocated the consideration paid to the estimated fair values of the net assets acquired on a provisional basis, including $27.7 million to cash, $75.9 million to accounts receivable, $27.6 million to inventory, $163.5 million to equipment and other fixed assets, $138.2 million to identifiable intangible assets (consisting of $70.0 million of contractual rental agreements and $68.2 million of tradenames), $2.1 billion to goodwill, $82.7 million to accounts payable and accrued expenses, $63.7 million to deferred tax liabilities, and $20.9 million of net liabilities to other working capital accounts. Management of AdaptHealth will finalize the measurement of the separately identifiable assets acquired and the liabilities assumed at the acquisition date in accordance with the requirements of FASB ASC Topic 805, Business Combinations, as soon as practicable but no later than one year from the acquisition date.
Basis of the Pro Forma Presentation
Upon consummation of the Solara Acquisition and the AeroCare Acquisition, Solara and AeroCare have adopted AdaptHealth’s accounting policies.
Note 2—Reclassifications to Historical Financial Information of AeroCare and Solara
Certain balances and transactions presented in the historical financial statements of AeroCare and Solara included within the unaudited pro forma condensed combined financial information have been reclassified to conform to the presentation of the financial statements of AdaptHealth as indicated in the tables below.
| AeroCare Statement of Income Reclassifications for the Month Ended January 31, 2021 | ||||||||||||
| (in thousands) | As per Internal Financial Statements | Reclassifications | As Reclassified | |||||||||
| Costs and expenses: | ||||||||||||
| Cost of net revenue | $ | 25,784 | $ | 26,752 | $ | 52,536 | ||||||
| General and administrative expenses | $ | - | $ | 16,120 | $ | 16,120 | ||||||
| Selling, general and administrative expenses | $ | 43,169 | $ | (43,169 | ) | $ | - | |||||
| Interest expense (income) | $ | 3,740 | $ | (1 | ) | $ | 3,739 | |||||
| Other income | $ | (332 | ) | $ | 298 | $ | (34 | ) | ||||
| AeroCare Statement of Income Reclassifications for the Twelve Months Ended December 31, 2020 | ||||||||||||
| As per | As | |||||||||||
| (in thousands) | Financial Statements | Reclassifications | Reclassified | |||||||||
| Costs and expenses: | ||||||||||||
| Cost of net revenue | $ | 278,939 | $ | 295,154 | $ | 574,093 | ||||||
| General and administrative expenses | $ | - | $ | 21,143 | $ | 21,143 | ||||||
| Selling, general, and administrative expenses | $ | 319,693 | $ | (319,693 | ) | $ | - | |||||
| Interest expense (income) | $ | 15,329 | $ | (28 | ) | $ | 15,301 | |||||
| Other income | $ | (3,679 | ) | $ | 3,424 | $ | (255 | ) | ||||
| AeroCare Statement of Income Reclassifications for the Six Months Ended June 30, 2020 | ||||||||||||
| (in thousands) | As per Internal Financial Statements | Reclassifications | As Reclassified | |||||||||
| Costs and expenses: | ||||||||||||
| Cost of net revenue | $ | 132,129 | $ | 140,471 | $ | 272,600 | ||||||
| General and administrative expenses | $ | - | $ | 9,956 | $ | 9,956 | ||||||
| Selling, general, and administrative expenses | $ | 151,949 | $ | (151,949 | ) | $ | - | |||||
| Interest expense (income) | $ | 8,003 | $ | (17 | ) | $ | 7,986 | |||||
| Other income | $ | (1,781 | ) | $ | 1,539 | $ | (242 | ) | ||||
Solara Statement of Operations Reclassifications for the Six Months Ended June 30, 2020
| As per | |||||||||
| (in thousands) | Financial Statements | Reclassifications | As Reclassified | ||||||
| Net revenue | $ | 84,878 | $ | (1,723 | ) | $ | 83,155 | ||
| Costs and expenses: | |||||||||
| Cost of Sales | $ | 53,013 | $ | 17,821 | $ | 70,834 | |||
| General and administrative expenses | $ | - | $ | 17,998 | $ | 17,998 | |||
| Depreciation and amortization, excluding patient equipment depreciation | $ | - | $ | 3,587 | $ | 3,587 | |||
| Selling, general and administrative expenses | $ | 41,190 | $ | (41,190 | ) | $ | - | ||
| Interest expense (income) | $ | 7,369 | $ | (2 | ) | $ | 7,367 | ||
| Other income | $ | (63 | ) | $ | 63 | $ | - | ||
Note 3—Pro Forma Adjustments
Adjustments to the Unaudited Pro Forma Condensed Combined Statements of Operations
The pro forma adjustments included in the unaudited pro forma condensed combined statements of operations for the three-month periods ended June 30, 2021 and 2020, and for the year ended December 31, 2020 are as follows:
| (a) | Represents the elimination of AeroCare’s historical transaction costs relating to the AeroCare Acquisition. |
| (b) | Represents the elimination of AeroCare’s historical intangible amortization expense of less than $0.1 million, and increase of $3.5 million to reflect estimated amortization expense associated with the estimated identifiable intangible assets related to AdaptHealth’s acquisition accounting for the AeroCare Acquisition. |
| (c) | Represents the elimination of AeroCare’s historical interest expense of $3.7 million, and increase of $0.8 million to reflect estimated incremental interest expense associated with AdaptHealth’s issuance of unsecured senior notes and senior secured borrowings in order to partially fund the cash portion of the purchase consideration in connection with the AeroCare Acquisition. |
| (d) | Represents adjustment to eliminate the historical tax expense of AdaptHealth and AeroCare and to record the estimated tax provision of the combined entities on a pro forma basis using a pro forma effective tax rate. However, the effective tax rate of the combined company could be different depending on post-acquisition activities. |
| (e) | Represents adjustment to the AdaptHealth historical weighted average basic and diluted common shares outstanding to include incremental shares issued in connection with the AeroCare Acquisition. |
| (f) | Represents the elimination of Solara’s historical transaction costs relating to the Solara Acquisition. |
| (g) | Represents the following adjustments: (1) elimination of Solara’s historical intangible amortization expense of $3.3 million; (2) elimination of AeroCare’s historical intangible amortization expense of $0.7 million; (3) increase of $4.3 million to reflect estimated amortization expense associated with the estimated identifiable intangible assets related to AdaptHealth’s acquisition accounting for the Solara Acquisition, and (4) increase of $41.8 million to reflect estimated amortization expense associated with the estimated identifiable intangible assets related to AdaptHealth’s acquisition accounting for the AeroCare Acquisition. |
| (h) | Represents the following adjustments: (1) elimination of Solara’s historical interest expense of $7.4 million, (2) elimination of AeroCare’s historical interest expense of $15.3 million, and (3) increase of $34.6 million to reflect estimated incremental interest expense associated with AdaptHealth’s issuance of the unsecured senior notes and senior secured borrowings in order to partially fund the cash portion of the purchase consideration in connection with the AeroCare Acquisition. |
| (i) | Represents adjustment to eliminate the historical tax expense of AdaptHealth, Solara and AeroCare and to record the estimated tax provision of the combined entities on a pro forma basis using a pro forma effective tax rate. However, the effective tax rate of the combined company could be different depending on post-acquisition activities. |
| (j) | Represents the pro forma adjustment to the noncontrolling interest resulting from the Solara Acquisition and the AeroCare Acquisition. |
| (k) | Represents adjustment to the AdaptHealth historical weighted average basic and diluted common shares outstanding to include incremental shares issued in connection with the AeroCare Acquisition, and the shares issued in connection with the Solara Acquisition and related equity financing. |
| (l) | Represents the following adjustments: (1) elimination of Solara’s historical intangible amortization expense of $3.3 million; (2) elimination of AeroCare’s historical intangible amortization expense of $0.4 million; (3) increase of $4.3 million to reflect estimated amortization expense associated with the estimated identifiable intangible assets related to AdaptHealth’s acquisition accounting for the Solara Acquisition, and (4) increase of $20.9 million to reflect estimated amortization expense associated with the estimated identifiable intangible assets related to AdaptHealth’s acquisition accounting for the AeroCare Acquisition. |
| (m) | Represents the following adjustments: (1) elimination of Solara’s historical interest expense of $7.4 million, (2) elimination of AeroCare’s historical interest expense of $8.0 million, and (3) increase of $17.2 million to reflect estimated incremental interest expense associated with AdaptHealth’s issuance of the unsecured senior notes and senior secured borrowings in order to partially fund the cash portion of the purchase consideration in connection with the AeroCare Acquisition. |