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Acquisitions
9 Months Ended
Sep. 30, 2021
Business Combinations [Abstract]  
Acquisitions

4. Acquisitions

The Company’s acquisitions have been accounted for in accordance with ASC Topic 805, Business Combinations, and the resulting goodwill and other intangible assets were accounted for under ASC Topic 350, Goodwill and Other Intangible Assets. Under business combination accounting, the assets and liabilities are generally recognized at their fair values and the difference between the consideration transferred, excluding transaction costs, and the fair values of the assets and liabilities is recognized as goodwill. The results of each business acquisition are included on the Unaudited Condensed Consolidated Statements of Income from the date of the acquisition.

Management’s assessment of qualitative factors affecting goodwill for each acquisition includes estimates of market share at the date of purchase, ability to grow in the market, synergy with existing Company operations and the payor profile in the markets.

Armada Skilled Homecare

On August 1, 2021, we completed the acquisition of Armada Skilled Homecare of New Mexico LLC, Armada Hospice of New Mexico LLC and Armada Hospice of Santa Fe LLC (collectively, “Armada”) for approximately $29.8 million, including the amount of acquired excess cash held by Armada at the closing of the acquisition (approximately $0.7 million). The purchase of Armada was funded with the Company’s revolving credit facility. With the purchase of Armada, the Company expanded its home health and hospice services in the state of New Mexico. The related acquisition and integration costs were $0.3 million and $0.4 million for the three and nine months ended September 30, 2021, respectively. These costs were included in general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income and were expensed as incurred.

Based upon management’s valuations, which are preliminary and subject to completion of working capital adjustments, the fair values of the assets and liabilities acquired are as follows:

 

 

 

Total

(Amounts in Thousands)

 

Goodwill

 

$

28,479

 

Identifiable intangible assets

 

 

990

 

Cash

 

 

653

 

Property and equipment

 

 

40

 

Other assets

 

 

29

 

Accrued payroll

 

 

(400

)

Total purchase price

 

$

29,791

 

 

Identifiable intangible assets acquired included $0.6 million of non-competition agreements with estimated useful lives of five years and $0.4 million of indefinite lived state licenses. The preliminary estimated fair value of identifiable intangible assets was determined with the assistance of a valuation specialist, using Level 3 inputs as defined under ASC Topic 820. The fair value analysis and related valuations reflect the conclusions of management. All estimates, key assumptions, and forecasts were either provided by or reviewed by the Company. The goodwill and intangible assets acquired are deductible for tax purposes.

Queen City Hospice

On December 4, 2020, we completed the acquisition of Queen City Hospice, LLC and its affiliate Miracle City Hospice, LLC (together “Queen City Hospice”). The purchase price was approximately $194.8 million, including the amount of acquired excess cash held by Queen City Hospice at the closing of the acquisition (approximately $15.4 million). The purchase of Queen City Hospice was funded with the Company’s revolving credit facility and available cash. With the purchase of Queen City Hospice, the Company expanded its hospice services in the state of Ohio. The related acquisition costs were $0.2 million for the nine months ended September 30, 2021 and the integration costs were $0.4 million and $2.1 million for the three and nine months ended September 30, 2021, respectively. These costs were included in general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income and were expensed as incurred.

Based upon management’s valuations, which are preliminary and subject to completion of working capital adjustments, the fair values of the assets and liabilities acquired are as follows:

 

 

 

Total

(Amounts in Thousands)

 

Goodwill

 

$

169,302

 

Identifiable intangible assets

 

 

20,015

 

Cash

 

 

15,444

 

Accounts receivable

 

 

5,922

 

Property and equipment

 

 

759

 

Operating lease assets, net

 

 

3,028

 

Other assets

 

 

85

 

Accounts payable

 

 

(2,281

)

Accrued payroll

 

 

(1,555

)

Accrued expenses

 

 

(503

)

Government stimulus advances

 

 

(12,694

)

Long-term operating lease liabilities

 

 

(2,765

)

Total purchase price

 

$

194,757

 

 

Identifiable intangible assets acquired included $11.0 million in trade names and $1.5 million of non-competition agreements with estimated useful lives of fifteen years and five years, respectively, and $7.5 million of indefinite lived state licenses. The preliminary estimated fair value of identifiable intangible assets was determined with the assistance of a valuation specialist, using Level 3 inputs as defined under ASC Topic 820. The fair value analysis and related valuations reflect the conclusions of management. All estimates, key assumptions, and forecasts were either provided by or reviewed by the Company. The goodwill and intangible assets acquired are deductible for tax purposes.

County Homemakers

On November 1, 2020, we completed the acquisition of County Homemakers, Inc. (“County Homemakers”). The purchase price was 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). The purchase of County Homemakers was funded with the Company’s available cash. With the purchase of County Homemakers, the Company expanded its personal care services in the state of Pennsylvania. The related integration costs were $0.2 million for the nine months ended September 30, 2021. These costs were included in general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income and were expensed as incurred.

Based upon management’s valuations, which are preliminary and subject to completion of working capital adjustments, the fair values of the assets and liabilities acquired are as follows:

 

 

 

Total

(Amounts in Thousands)

 

Goodwill

 

$

13,475

 

Identifiable intangible assets

 

 

474

 

Cash

 

 

1,104

 

Accounts receivable

 

 

1,395

 

Property and equipment

 

 

52

 

Operating lease assets, net

 

 

485

 

Other assets

 

 

40

 

Accounts payable

 

 

(96

)

Accrued payroll

 

 

(586

)

Accrued expenses

 

 

(37

)

Long-term operating lease liabilities

 

 

(485

)

Total purchase price

 

$

15,821

 

 

Identifiable intangible assets acquired included approximately $0.3 million in state licenses and $0.1 million in trade names with estimated useful lives of eight years and one year, respectively. The preliminary estimated fair value of identifiable intangible assets was determined with the assistance of a valuation specialist, using Level 3 inputs as defined under ASC Topic 820. The fair value analysis and related valuations reflect the conclusions of management. All estimates, key assumptions, and forecasts were either provided by or reviewed by the Company. The goodwill and intangible assets acquired are deductible for tax purposes.

A Plus Health Care

On July 1, 2020, we completed the acquisition of A Plus Health Care, Inc. (“A Plus”). The purchase price was approximately $14.5 million, including the amount of acquired excess cash held by A Plus at the closing of the acquisition (approximately $2.8 million). The purchase of A Plus was funded with the Company’s available cash. With the purchase of A Plus, the Company expanded its personal care services in the state of Montana. The related integration costs were $0.1 million for the nine months ended September 30, 2021 and acquisition costs were $0.3 million for the three and nine months ended September 30, 2020. These costs were included in general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income and were expensed as incurred.

Based upon management’s final valuations, the fair values of the assets and liabilities acquired are as follows:

 

 

 

Total

(Amounts in Thousands)

 

Goodwill

 

$

9,732

 

Identifiable intangible assets

 

 

1,523

 

Cash

 

 

2,819

 

Accounts receivable

 

 

1,009

 

Operating lease assets, net

 

 

180

 

Other assets

 

 

26

 

Accounts payable

 

 

(34

)

Accrued expenses

 

 

(353

)

Accrued payroll

 

 

(275

)

Long-term operating lease liabilities

 

 

(100

)

Total purchase price

 

$

14,527

 

 

Identifiable intangible assets acquired included $1.4 million in trade names with an estimated useful life of fifteen years. The estimated fair value of identifiable intangible assets was determined with the assistance of a valuation specialist, using Level 3 inputs as defined under ASC Topic 820. The fair value analysis and related valuations reflect the conclusions of management. All estimates, key assumptions, and forecasts were either provided by or reviewed by the Company. The goodwill and intangible assets acquired are deductible for tax purposes.

 

SunLife Home Care

On December 1, 2020, we completed the acquisition of SunLife Home Care (“SunLife”) for approximately $1.7 million and recorded goodwill of $1.6 million. With the purchase of SunLife, the Company expanded its personal care services in the state of Arizona. Goodwill generated from the acquisition is primarily attributable to expected synergies with existing Company operations and the goodwill acquired is deductible for tax purposes.

The following table contains unaudited pro forma condensed consolidated income statement information of the Company for the three and nine months ended September 30, 2021 and 2020 as if each of the acquisitions of Armada, Queen City Hospice, County Homemakers and A Plus closed on January 1, 2020.

 

 

 

For the Three Months Ended September 30,

(Amounts in Thousands)

 

 

For the Nine Months Ended September 30,

(Amounts in Thousands)

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net service revenues

 

$

218,474

 

 

$

216,479

 

 

$

652,908

 

 

$

637,695

 

Operating income

 

 

17,613

 

 

 

14,458

 

 

 

48,135

 

 

 

39,331

 

Net income

 

 

11,832

 

 

 

10,586

 

 

 

33,341

 

 

 

29,930

 

Net income per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income per share

 

$

0.75

 

 

$

0.68

 

 

$

2.12

 

 

$

1.92

 

Diluted income per share

 

$

0.74

 

 

$

0.66

 

 

$

2.08

 

 

$

1.88

 

 

The pro forma disclosures in the table above include adjustments for amortization of intangible assets, tax expense and acquisition costs to reflect results that are more representative of the combined results of the transactions as if Armada, Queen City, Hospice, County Homemakers and A Plus had been acquired effective January 1, 2020. This pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have actually occurred. In addition, future results may vary significantly from the results reflected in the pro forma information. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, such as anticipated cost savings from operating synergies.