EX-99.2 22 a19-22526_2ex99d2.htm EX-99.2

Exhibit 99.2

 

UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL INFORMATION OF DFB

 

The following unaudited pro forma condensed combined information presents the unaudited pro forma condensed combined balance sheet as of September 30, 2019 and the unaudited pro forma condensed combined statements of operations for nine months ended September 30, 2019 and the year ended December 31, 2018 based upon the combined historical financial statements of DFB Acquisitions Corp., a Delaware corporation (“DFB”) and AdaptHealth Holdings LLC, a Delaware limited liability company (“AdaptHealth Holdings”), after giving effect to the series of transactions in connection with the approval and adoption of the Merger Agreement, dated as of July 8, 2019 (as amended on October 15, 2019) by and among DFB, AdaptHealth Holdings,  BM AH Holdings, LLC, a Delaware limited liability company (the “BM Blocker”), Access Point Medical, Inc., a Delaware corporation (the “A Blocker” and, together with the BM Blocker, the “Blockers”), DFB Merger Sub LLC, a Delaware limited liability company (“Merger Sub”), AH Representative LLC, a Delaware limited liability company (the “Company Unitholders’ Representative”), solely for purposes of Section 7.20 thereof, the BlueMountain Foinaven Master Fund L.P., a Cayman Islands exempted limited partnership, BMSP L.P., a Delaware limited partnership, and BlueMountain Fursan Fund L.P., a Cayman Islands exempted limited partnership (collectively, “BM Blocker Sellers”) and, solely for purposes of Section 7.21 thereof, Clifton Bay Offshore Investments L.P., a British Virgin Islands limited partnership (the “A Blocker Seller” and together with the BM Blocker Sellers, the “Blocker Sellers”),  pursuant to which DFB acquired 56% of the economic and voting interests of AdaptHealth Holdings (collectively, the “Business Combination”) and related adjustments described in the accompanying notes. Under applicable accounting standards, AdaptHealth Holdings will be the accounting acquirer in the Business Combination, which will be treated as a reverse recapitalization. The accounting guidance for business combinations, FASB Accounting Standards Codification (ASC) 805, provides that in identifying the acquiring entity in a transaction effected through an exchange of equity interests, all pertinent facts and circumstances must be considered, including: the relative voting rights of the stockholders of the constituent companies in the combined company, the existence of a large minority voting interest in the combined entity if no other owner or organized group of owners has a significant voting interest, the composition of the board of directors and senior management of the combined company, the relative size of each company and the terms of the exchange of equity securities in the transaction, including payment of any premium.

 

The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2019 and for the fiscal year ended December 31, 2018 give pro forma effect to the Business Combination as if it had occurred on January 1, 2018. The unaudited pro forma condensed combined balance sheet as of September 30, 2019 gives pro forma effect to the Business Combination as if it was completed on September 30, 2019. Additionally, the unaudited pro forma condensed combined statement of operations for the fiscal year ended December 31, 2018 gives pro forma effect to the acquisitions by AdaptHealth Holdings of PPS HME Holdings LLC (“PPS”) on May 17, 2018, Verus Healthcare, Inc. (“Verus”) on May 17, 2018, Home Medical Express Inc. (“HMEI”) on July 31, 2018 and Gould’s Discount Medical (“Gould’s”) on January 2, 2019, as if they had occurred on January 1, 2018.

 

The unaudited pro forma condensed combined financial information should be read in conjunction with the audited and unaudited historical financial statements of each of DFB, AdaptHealth Holdings, PPS and Verus and the notes thereto, as well as the disclosures contained in the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of DFB” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of AdaptHealth,” included or incorporated by reference elsewhere in this Current Report on Form 8-K.

 

The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2018 do not give effect to the impact on total costs and expenses of cost savings and synergies resulting from the favorable vendor pricing in the pre-acquisition period of entities acquired by AdaptHealth Holdings. These pre-acquisition cost savings and synergies are estimated at $2.3 million on a pro forma basis for the year ended December 31, 2018. These synergies are effective starting the date of each acquisition and therefore are captured in the results for the period ended September 30, 2019.

 

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

 


 

Business Combination had been completed as of the dates set forth above, nor is it indicative of the future results or financial position 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 that may result from the Business Combination, any integration costs or tax deductibility of transaction costs. Furthermore, the unaudited pro forma condensed combined statements of operations do not include certain nonrecurring charges and the related tax effects which result directly from the Business Combination as described in the notes to the unaudited pro forma condensed combined financial information.

 

2


 

DFB HEALTHCARE ACQUISITIONS CORP.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

September 30, 2019

 

(in thousands)

 

DFB
Reclassified(1)

 

AdaptHealth
Historical

 

Pro Forma
Adjustments

 

Note 4

 

Pro Forma
Combined

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

622

 

$

8,823

 

$

50,783

 

(a)

 

$

60,228

 

Accounts receivable, net

 

 

73,670

 

 

 

 

73,670

 

Inventory

 

 

14,234

 

 

 

 

14,234

 

Prepaid and other current assets

 

125

 

6,350

 

 

 

 

6,475

 

Total current assets

 

747

 

103,077

 

50,783

 

 

 

154,607

 

Equipment and other fixed assets, net

 

 

66,706

 

 

 

 

66,706

 

Goodwill

 

 

245,346

 

 

 

 

245,346

 

Cash and marketable securities held in Trust Account

 

255,880

 

 

(255,880

)

(b)

 

 

Other assets

 

 

5,893

 

 

 

 

5,893

 

Deferred tax asset

 

 

6,965

 

26,422

 

(c)

 

33,387

 

Total assets

 

$

256,627

 

$

427,987

 

$

(178,675

)

 

 

$

505,939

 

Liabilities and Stockholders’/Members’ Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

3,154

 

$

90,456

 

$

(5,436

)

(d)

 

$

88,174

 

Current portion of capital lease obligations

 

 

21,656

 

 

 

 

21,656

 

Current portion of long-term debt

 

 

8,894

 

 

 

 

8,894

 

Deferred revenue

 

 

9,097

 

 

 

 

9,097

 

Other liabilities

 

44

 

8,609

 

 

 

 

8,653

 

Total current liabilities

 

3,198

 

138,712

 

(5,436

)

 

 

136,474

 

Long-term debt, less current portion

 

 

410,538

 

(35,000

)

(f)

 

375,538

 

Capital lease obligations, less current portion

 

 

236

 

 

 

 

236

 

Other long-term liabilities

 

7,875

 

15,199

 

(7,875

)

(d)

 

20,292

 

 

 

 

 

 

 

5,093

 

(e)

 

 

 

Total liabilities

 

11,073

 

564,685

 

(43,218

)

 

 

532,540

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’/members’ equity (deficit)

 

245,554

 

(139,561

)

(113,108

)

(g)

 

(7,115

)

Total stockholders’/members’ equity (deficit) attributable to AdaptHealth Holdings LLC

 

245,554

 

(139,561

)

(113,108

)

 

 

(7,115

)

Noncontrolling interest in subsidiaries

 

 

2,863

 

(22,349

)

(g)

 

(19,486

)

Total stockholders’/members’ equity (deficit)

 

245,554

 

(136,698

)

(135,457

)

 

 

(26,601

)

Total Liabilities and Stockholders’/Members’ Equity (Deficit)

 

$

256,627

 

$

427,987

 

$

(178,675

)

 

 

$

505,939

 

 


(1)                                 Refer to Note 2 for reclassification of DFB historical information.

 

3


 

DFB HEALTHCARE ACQUISITIONS CORP.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

 

(in thousands except share and per share
amounts)

 

DFB
Reclassified(1)

 

AdaptHealth
Pro
Forma(2)

 

Pro Forma
Adjustments

 

Note 4

 

Pro Forma
Combined

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Revenue, net of contractual allowances and discounts

 

$

 

$

400,958

 

$

 

 

 

$

400,958

 

Provision for doubtful accounts

 

 

(20,855

)

 

 

 

(20,855

)

Net revenue less provision for doubtful accounts

 

 

380,103

 

 

 

 

380,103

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of net revenue

 

 

316,790

 

 

 

 

316,790

 

General and administrative expenses

 

3,436

 

23,590

 

(7,627

)

(h)

 

19,399

 

Depreciation, excluding patient equipment depreciation

 

 

2,439

 

 

 

 

2,439

 

Total costs and expenses

 

3,436

 

342,819

 

(7,627

)

 

 

338,628

 

Operating (loss) income

 

(3,436

)

37,284

 

7,627

 

 

 

41,475

 

Interest (income) expense

 

(4,314

)

31,651

 

(1,151

)

(i)

 

26,186

 

Loss on extinguishment of debt, net

 

 

2,121

 

(2,121

)

(j)

 

 

Income before income taxes

 

878

 

3,512

 

10,899

 

 

 

15,289

 

Income tax expense

 

874

 

5,444

 

(4,191

)

(k)

 

2,127

 

Net income

 

4

 

(1,932

)

15,090

 

 

 

13,162

 

Income attributable to noncontrolling interest

 

 

1,336

 

6,139

 

(l)

 

7,475

 

Net income attributable to AdaptHealth Corp.

 

$

4

 

$

(3,268

)

$

8,951

 

 

 

$

5,687

 

Weighted average common shares outstanding—basic and diluted

 

25,000,000

 

 

 

15,296,166

 

(m)

 

40,296,166

 

Net income attributable to AdaptHealth Corp. per share—basic and diluted

 

0.13

 

 

 

 

 

 

 

0.14

 

Weighted average founder shares outstanding—basic and diluted

 

6,250,000

 

 

 

(6,250,000

)

(n)

 

 

Net income attributable to founder share holders per share—basic and diluted

 

(0.53

)

 

 

 

 

 

 

 

 


(1)                                 Refer to Note 2 for reclassification of DFB historical information.

 

(2)                                 Refer to Note 3 for reclassification of AdaptHealth historical information.

 

4


 

DFB HEALTHCARE ACQUISITIONS CORP.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2018

 

(in thousands except share and per share
amounts)

 

DFB
Reclassified(1)

 

AdaptHealth
Pro
Forma(2)

 

Pro Forma
Adjustments

 

Note 4

 

Pro Forma
Combined

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Revenue, net of contractual allowances and discounts

 

$

 

$

469,233

 

$

 

 

 

$

469,233

 

Provision for doubtful accounts

 

 

(26,053

)

 

 

 

(26,053

)

Net revenue less provision for doubtful accounts

 

 

443,180

 

 

 

 

443,180

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of net revenue

 

 

389,421

 

 

 

 

 

389,421

 

General and administrative expenses

 

1,234

 

15,633

 

(500

)

(h)

 

16,367

 

Depreciation, excluding patient equipment depreciation

 

 

5,253

 

 

 

 

5,253

 

Total costs and expenses

 

1,234

 

410,307

 

(500

)

 

 

411,041

 

Operating (loss) income

 

(1,234

)

32,873

 

500

 

 

 

32,139

 

Interest expense

 

(4,150

)

7,827

 

(1,534

)

(i)

 

2,143

 

Loss on extinguishment of debt, net

 

 

1,399

 

(1,399

)

(j)

 

 

Income before income taxes

 

2,916

 

23,647

 

3,433

 

 

 

29,996

 

Income tax expense (benefit)

 

830

 

(3,100

)

6,443

 

(k)

 

4,173

 

Net income

 

2,086

 

26,747

 

(3,010

)

 

 

25,823

 

Income attributable to noncontrolling interest

 

 

1,077

 

12,724

 

(l)

 

13,801

 

Net income attributable to AdaptHealth Corp.

 

$

2,086

 

$

25,670

 

$

(15,734

)

 

 

$

12,022

 

Weighted average common shares outstanding—basic and diluted

 

25,000,000

 

 

 

15,296,166

 

(m)

 

40,296,166

 

Net income attributable to AdaptHealth Corp. per share—basic and diluted

 

0.11

 

 

 

 

 

 

 

0.30

 

Weighted average founder shares outstanding—basic and diluted

 

6,250,000

 

 

 

(6,250,000

)

(n)

 

 

Net income attributable to founder share holders per share—basic and diluted

 

(0.13

)

 

 

 

 

 

 

 

 


(1)                                 Refer to Note 2 for reclassification of DFB historical information.

 

(2)                                 Refer to Note 3 for reclassification of AdaptHealth historical information.

 

5


 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

Note 1—Description of the Business Combination

 

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 are (1) directly attributable to the Business Combination, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined results. The pro forma adjustments are prepared to illustrate the estimated effect of the Business Combination and certain other adjustments.

 

DFB’s historical results reflect the audited consolidated statement of income for the year ended December 31, 2018, unaudited condensed consolidated balance sheet as of September 30, 2019 and unaudited condensed consolidated statement of income for the nine months ended September 30, 2019 under GAAP. AdaptHealth Holdings’ historical results reflect AdaptHealth Holdings’ audited consolidated statement of operations for the year ended December 31, 2018, unaudited condensed consolidated balance sheet as of September 30, 2019 and unaudited condensed consolidated statement of operations for the nine months ended September 30, 2019 under GAAP.

 

Description of the Business Combination

 

On July 8, 2019, DFB, Merger Sub, AdaptHealth Holdings, the Blocker Companies, AdaptHealth Holdings Unitholders’ Representative named therein and, solely for the purposes specified therein, the Blocker Sellers entered into the Merger Agreement, pursuant to which the parties undertook a series of transactions at the Closing that resulted in AdaptHealth Holdings becoming a partially owned subsidiary of DFB. On October 15, 2019, the parties entered into the Merger Agreement Amendment to, among other things, remove the minimum cash closing condition, adding a new condition to the Closing with respect to the absence, since the date of the Merger Agreement Amendment, of the commencement of a material investigation or action against AdaptHealth Holdings by certain healthcare regulatory authorities, and amend and restate the forms of certain of the Related Agreements. The completion of the Business Combination (the “Closing”) occurred on November 8, 2019. After completion of the Business Combination, the combined company now operates under the name AdaptHealth Corp.

 

To effect the Business Combination, the parties executed the following steps:

 

·                  the merger of each of the Blocker Companies with and into DFB, with DFB surviving;

 

·                  the merger of Merger Sub with and into AdaptHealth Holdings, with AdaptHealth Holdings surviving; and

 

·                  the contribution by DFB to AdaptHealth Holdings of all of its available funds in exchange for equity interests in AdaptHealth Holdings.

 

The following table represents the structure of the combined company upon the Closing of the Business Combination:

 

6


 

 

Upon the Closing of the Business Combination, the former owners of AdaptHealth Holdings hold approximately 49% of the economic interest in AdaptHealth Corp. and the former stockholders of DFB hold the remaining approximately 51% of the economic interests in AdaptHealth Corp., both in the form of shares of the AdaptHealth Corp.’s Class A Common Stock, par value $0.0001 per share (“Class A Common Stock”). AdaptHealth Corp owns approximately 56% of the combined company with the remaining 44% owned by the former owners of AdaptHealth Holdings in the form of common units representing limited liability company interests in AdaptHealth Holdings from and after the Closing (“New AdaptHealth Units”). Under applicable accounting standards, AdaptHealth Holdings is the accounting acquirer in the Business Combination, which was treated as a reverse recapitalization. Accordingly, for accounting purposes, the Business Combination is treated as the equivalent of AdaptHealth Holdings issuing stock for the net assets of DFB, accompanied by a recapitalization. Net assets of DFB will be stated at historical costs, with no goodwill or intangible assets recorded.

 

Following the Closing of the Business Combination, the combined results of DFB and AdaptHealth Holdings will be consolidated with the holders of Class A Common Stock owning an approximately 56% direct controlling interest and the holders of New AdaptHealth Units owning an approximately 44% direct noncontrolling economic interest shown as noncontrolling interest in the financial statements of the combined entity. The approximately 44% direct noncontrolling economic interest in AdaptHealth Holdings held by the current owners of AdaptHealth Holdings noted above is in the form of New AdaptHealth Units and are exchangeable on a one-to-one basis for Class A Common Stock. The approximately 44% direct noncontrolling economic interest will continue to decrease as New AdaptHealth Units are exchanged for shares of Class A Common Stock.

 

The following table sets forth the net assets of DFB:

 

(in thousands)

 

 

 

Current assets

 

$

747

 

Cash held in trust

 

255,880

 

Current liabilities

 

(3,198

)

Other long-term liabilities

 

(7,875

)

Net assets acquired

 

$

245,554

 

 

7


 

Sources and Uses (in thousands)

 

Sources

 

 

 

Uses

 

 

 

DFB Cash

 

$

255,880

 

Cash to balance sheet(2)

 

$

50,783

 

PIPE(1)

 

125,000

 

SPAC redemptions

 

213,665

 

 

 

 

 

Legacy AdaptHealth redemptions(3)

 

20,000

 

 

 

 

 

Debt repayment(4)

 

78,500

 

 

 

 

 

Deal expenses(5)

 

17,932

 

Total Sources

 

$

380,880

 

Total Uses

 

$

380,880

 

 


(1)                                 Represents the issuance, in a private placement consummated concurrently with the Closing, of 12,500,000 shares of Class A Common Stock.

 

(2)                                 Represents remaining cash that will be used to fund operations and working capital needs of the Company after the closing of the Business Combination.

 

(3)                                 Represents cash that was used to fund redemptions made by legacy AdaptHealth Holdings investors.

 

(4)                                 Represents the amount of debt that the combined company paid down upon closing of the Business Combination.

 

(5)                                 Represents the amount of deal expenses incurred in connection with the Closing of the Business Combination.

 

Basis of the Pro Forma Presentation

 

Upon consummation of the Business Combination, DFB adopted AdaptHealth Holdings’ accounting policies. AdaptHealth Holdings may identify differences between the accounting policies among the companies, that when conformed, could have a material impact on the consolidated financial statements of the combined entity.

 

Note 2—Reclassifications to Historical Financial Information of DFB

 

Certain balances and transactions presented in the historical financial statements of DFB included within the unaudited pro forma condensed combined financial information have been reclassified to conform to the presentation of financial statements of AdaptHealth Holdings as indicated in the tables below.

 

DFB Balance Sheet Reclassifications at September 30, 2019

 

(in thousands)

 

As per
Financial
Statements

 

Reclassifications

 

As
Reclassified

 

Assets

 

 

 

 

 

 

 

Accounts payable

 

$

29

 

$

(29

)

$

 

Accrued expenses

 

3,125

 

(3,125

)

 

Accounts payable and accrued expenses

 

 

3,154

 

3,154

 

Other liabilities

 

 

44

 

44

 

Franchise tax payable

 

44

 

(44

)

 

Deferred underwriting commissions

 

7,875

 

(7,875

)

 

Other long-term liabilities

 

 

7,875

 

7,875

 

 

8


 

DFB Statement of Operations Reclassifications for the Nine Months Ended September 30, 2019

 

(in thousands)

 

As per
Financial
Statements

 

Reclassifications

 

As
Reclassified

 

General and administrative expenses

 

$

3,286

 

$

150

 

$

3,436

 

State franchise taxes

 

150

 

(150

)

 

 

DFB Statement of Operations Reclassification for the Year Ended December 31, 2018

 

(in thousands)

 

As per
Financial
Statements

 

Reclassifications

 

As
Reclassified

 

General and administrative expenses

 

$

1,036

 

$

198

 

$

1,234

 

State franchise taxes

 

198

 

(198

)

 

 

Note 3—Reclassifications and Adjustments to Historical Information of AdaptHealth

 

(a)  Pro forma financial statement of operations of AdaptHealth

 

The following table provides the pro forma statement of operations of AdaptHealth Holdings for the nine months ended September 30, 2019.

 

9


 

ADAPTHEALTH PRO FORMA FINANCIAL STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

 

(in thousands)

 

AdaptHealth
Historical

 

Pro Forma
Adjustments

 

AdaptHealth
Pro Forma

 

Revenue:

 

 

 

 

 

 

 

Revenue, net of contractual allowances and discounts

 

$

400,958

 

$

 

$

400,958

 

Provision for doubtful accounts

 

(20,855

)

 

(20,855

)

Net revenue less provision for doubtful accounts

 

380,103

 

 

380,103

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of net revenue

 

317,174

 

(384

)(1)

316,790

 

General and administrative expenses

 

31,508

 

(7,918

)(1)

23,590

 

Depreciation, excluding patient equipment depreciation

 

2,439

 

 

2,439

 

Total costs and expenses

 

351,121

 

(8,302

)

342,819

 

Operating income

 

28,982

 

8,302

 

37,284

 

Interest expense (2)

 

31,651

 

 

31,651

 

Loss on extinguishment of debt, net

 

2,121

 

 

2,121

 

(Loss) income before income taxes

 

(4,790

)

8,302

 

3,512

 

Income tax expense

 

5,444

 

 

5,444

 

Net (loss) income

 

(10,234

)

8,302

 

(1,932

)

Income attributable to noncontrolling interest

 

1,336

 

 

1,336

 

Net (loss) income attributable to AdaptHealth Corp.

 

$

(11,570

)

$

8,302

 

$

(3,268

)

 


(1)                                 Represents the elimination of non-recurring transaction costs specifically incurred by AdaptHealth for various acquisitions in the period.

 

(2)                                 Interest expense includes a non-cash expense of $12.4 million representing the change in fair value of AdaptHealth Holdings’ interest rate swaps.

 

10


 

The following table provides the pro forma statement of operations of AdaptHealth Holdings for year the ended December 31, 2018 as if PPS, Verus, HMEI and Gould’s had been acquired on January 1, 2018. PPS and Verus were acquired by AdaptHealth Holdings on May 18, 2018. HMEI and Gould’s were acquired by AdaptHealth Holdings on July 31, 2018 and January 2, 2019, respectively. The pro forma results do not include any anticipated cost synergies or other effects of the planned integration of PPS, Verus, HMEI and Gould’s, which are estimated to be $2.3 million on a pro forma basis for the year ended December 31, 2018.

 

11


 

ADAPTHEALTH PRO FORMA FINANCIAL STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2018

 

(in thousands)

 

AdaptHealth
Historical

 

PPS
Reclassified(1)

 

Verus
Reclassified(2)

 

HMEI
Historical

 

Gould’s
Historical

 

Pro Forma
Adjustments

 

AdaptHealth
Pro Forma

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue, net of contractual allowances and discounts

 

$

361,054

 

$

32,841

 

$

31,211

 

$

10,770

 

$

33,357

 

$

 

$

469,233

 

Provision for doubtful accounts

 

(15,776

)

(3,716

)

(4,866

)

(1,652

)

(43

)

 

(26,053

)

Net revenue less provision for doubtful accounts

 

345,278

 

29,125

 

26,345

 

9,118

 

33,314

 

 

443,180

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of net revenue

 

293,384

 

34,283

 

31,192

 

8,562

 

28,124

 

(6,124

)(3)

389,421

 

General and administrative expenses

 

18,069

 

 

 

 

 

(2,436

)(3)

15,633

 

Depreciation, excluding patient equipment depreciation

 

2,734

 

816

 

1,332

 

7

 

364

 

 

5,253

 

Total costs and expenses

 

314,187

 

35,099

 

32,524

 

8,569

 

28,488

 

(8,560

)

410,307

 

Operating income (loss)

 

31,091

 

(5,974

)

(6,179

)

549

 

4,826

 

8,560

 

32,873

 

Interest expense (income)

 

7,453

 

 

272

 

115

 

(13

)

 

7,827

 

Loss on extinguishment of debt, net

 

1,399

 

 

 

 

 

 

1,399

 

Income (loss) before income taxes

 

22,239

 

(5,974

)

(6,451

)

434

 

4,839

 

8,560

 

23,647

 

Income tax (benefit) expense

 

(2,098

)

 

(1,593

)

 

$

591

 

 

(3,100

)

Net income (loss)

 

24,337

 

(5,974

)

(4,858

)

434

 

4,248

 

8,560

 

26,747

 

Income attributable to noncontrolling interest

 

1,077

 

 

 

 

 

 

1,077

 

Net income (loss) attributable to AdaptHealth Corp.

 

$

23,260

 

$

(5,974

)

$

(4,858

)

$

434

 

$

4,248

 

$

8,560

 

$

25,670

 

 


(1)                                  Refer to Note 3(b) for reclassification of PPS historical information.

 

(2)                                  Refer to Note 3(c) for reclassification of Verus historical information.

 

(3)                                  Represents the elimination of non-recurring transaction costs specifically incurred by AdaptHealth, PPS and Verus in connection with the business combinations.

 

12


 

(b)  Reclassifications and adjustments to historical information of PPS

 

Certain balances and transactions presented in the historical financial statements of PPS included within the unaudited pro forma condensed combined financial information have been reclassified to conform to the presentation of financial statements of AdaptHealth Holdings as indicated in the table below.

 

PPS Statement of Operations Reclassifications for the Period January 1, 2018 through May 17, 2018

 

(in thousands)

 

As per
Financial
Statements

 

Reclassifications

 

As
Reclassified

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of net revenue

 

$

 

$

34,283

 

$

34,283

 

Depreciation, excluding patient equipment depreciation

 

 

816

 

816

 

Cost of goods sold

 

7,736

 

(7,736

)

 

Salaries, labor and benefits

 

14,426

 

(14,426

)

 

Depreciation

 

4,761

 

(4,761

)

 

Amortization

 

567

 

(567

)

 

Rent and occupancy expenses

 

1,484

 

(1,484

)

 

Other operating expenses

 

6,169

 

(6,169

)

 

Other expense (income)

 

(44

)

44

 

 

 

(c)  Reclassifications and adjustments to historical information of Verus

 

Certain balances and transactions presented in the historical financial statements of Verus included within the unaudited pro forma condensed combined financial information have been reclassified to conform to the presentation of financial statements of AdaptHealth Holdings as indicated in the table below.

 

Verus Statement of Operations Reclassifications for the Period January 1, 2018 through May 17, 2018

 

(in thousands)

 

As per
Financial
Statements

 

Reclassifications

 

As
Reclassified

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of net revenue

 

$

15,483

 

$

15,709

 

$

31,192

 

Operating expenses

 

17,012

 

(17,012

)

 

Depreciation, excluding patient equipment depreciation

 

 

1,332

 

1,332

 

Loss on disposal of equipment

 

29

 

(29

)

 

 

Note 4—Pro Forma Adjustments

 

Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet (in thousands)

 

The pro forma adjustments included in the unaudited pro forma condensed combined balance sheet as of September 30, 2019 are as follows:

 

a)                                     See Note 1—Sources and Uses for impact of the Business Combination on the cash balance, which resulted in net cash of $50,783 to the balance sheet of the combined entity.

 

b)                                     See Note 1—Sources and Uses for the release of the restricted investments and cash held in the Trust Account upon consummation of the Business Combination to fund the Closing.

 

c)                                      Represents adjustments to reflect applicable deferred tax. The deferred taxes are primarily related to the difference between the financial statement and tax basis in the investment in AdaptHealth Holdings. This basis difference primarily results from the Business Combination where DFB

 

13


 

recorded a carryover basis on all assets for financial accounting purposes and a fair value step-up on a portion of the assets for income tax purposes. The $26,422 adjustment related to the deferred tax asset is assuming: (1) the GAAP balance sheet as of September 30, 2019 adjusted for the pro forma entries described herein, (2) estimated tax basis as of September 30, 2019 adjusted for the pro forma entries described herein, (3) a valuation allowance of $32,891, (4) a constant federal income tax rate of 21.0% and a state tax rate of 4.0%, and (5) no material changes in tax law. The recorded valuation allowance relates to a portion of DFB’s tax basis in excess of GAAP basis in its investment in AdaptHealth Holdings for which DFB believes it is not more likely than not that it will realize a tax benefit in the future.

 

d)                                     Represents the payment of $5,436 of accrued transaction expenses and $7,875 of deferred underwriting costs incurred as part of DFB’s initial public offering and committed to be paid in connection with the Closing of the Business Combination.

 

e)                                      Upon the completion of the Business Combination, DFB will be a party to a tax receivable agreement. Under the terms of that agreement, DFB generally will be required to pay to the Non-Blocker AdaptHealth Members 85% of the applicable cash savings, if any, in U.S. federal and state income tax that DFB is deemed to realize in certain circumstances as a result of certain tax attributes that are created as a result of (i) the sales of their AdaptHealth Holdings Common Units for shares of Class A common stock or the cash equivalent thereof and (ii) tax benefits attributable to payments made under this tax receivable agreement. Additionally, DFB generally will be required to pay to the owners of each of the Blocker Companies 85% of the amount of cash savings, if any, that DFB is deemed to realize as a result of any tax attributes of the Blocker Companies which are inherited by DFB in the Blocker Mergers. In both instances, DFB generally will retain the benefit of the remaining 15% of the applicable tax savings.

 

The $5,093 adjustment related to the tax receivable agreement and the exchange agreement liability assume: (1) $20 million of cash redemptions by legacy AdaptHealth Holdings investors, (2) a share price equal to $10.00 per share, (3) a constant federal income tax rate of 21.0% and a state tax rate of 4.0%, (4) no material changes in tax law, (5) the ability to utilize tax attributes and (6) future tax receivable agreement and exchange agreement payments.

 

The adjustments to the tax receivable agreement have been recorded as an adjustment to stockholder equity as these adjustments arise from an equity transaction of the combined company.

 

DFB anticipates that it will account for the income tax effects resulting from future taxable exchanges of AdaptHealth Holdings Common Units by Non-Blocker AdaptHealth Members for shares of Class A Common Stock or the cash equivalent thereof by recognizing an increase in deferred tax assets, based on enacted tax rates at the date of each exchange. Further, DFB will evaluate the likelihood that DFB will realize the benefit represented by the deferred tax asset, and, to the extent that DFB estimates that it is more likely than not that DFB will not realize the benefit, DFB will reduce the carrying amount of the deferred tax asset with a valuation allowance.

 

f)                                       In connection with the Closing of the Business Combination, the following debt-related transactions took place:

 

(in thousands)

 

Long-term
Debt

 

Retirement of pre-combination promissory note(1)

 

$

(100,000

)

Reinstatement of pre-combination promissory note(1)

 

100,000

 

Repayment on historical AdaptHealth Holdings long-term debt(2)

 

(78,500

)

Exchange of AdaptHealth Holdings equity for debt(3)

 

43,500

 

Total

 

$

(35,000

)

 

14


 


(1)                                 At the date of the Business Combination, the $100,000 promissory note was cancelled and immediately reinstated under substantially the same terms as the pre-combination promissory note.

 

(2)                                 Proceeds from the Business Combination will be used to fund future acquisitions, repay debt or for other corporate purposes. Given there are no probable acquisitions at this time, the pro formas show that a portion of proceeds were used to repay debt in a manner where it can be redrawn when a future acquisition becomes available.

 

(3)                                 Represents promissory notes issued by AdaptHealth Holdings in favor of BlueMountain in exchange for AdaptHealth Holdings Common Units.

 

g)                                      The following table represents the impact of the Business Combination on the number of shares of Class A Common Stock and Class B Common Stock and represents the total equity section based on actual redemptions by DFB stockholders:

 

(in thousands except share data)

 

Total Equity
(100%)

 

Noncontrolling
Interest (44%)

 

Controlling
Interest (56%)

 

Historical AdaptHealth Holdings members’ equity

 

$

(139,561

)

$

(61,407

)

$

(78,154

)

Historical DFB stockholders’ equity

 

245,554

 

108,044

 

137,510

 

Exchange of AdaptHealth Holdings equity for debt

 

(43,500

)

(19,140

)

(24,360

)

PIPE

 

125,000

 

55,000

 

70,000

 

SPAC redemptions

 

(213,665

)

(94,013

)

(119,652

)

Legacy AdaptHealth redemptions

 

(20,000

)

(8,800

)

(11,200

)

Payment of transaction costs

 

(4,621

)

(2,033

)

(2,588

)

Total stockholders’ equity/members’ equity

 

(50,793

)

(22,349

)

(28,444

)

Noncontrolling interest in subsidiaries

 

2,863

 

2,863

 

 

Subtotal

 

(47,930

)

(19,486

)

(28,444

)

Deferred taxes, net of tax receivable agreement

 

21,329

 

 

21,329

 

Total equity

 

$

(26,601

)

$

(19,486

)

$

(7,115

)

 

 

 

Total Shares

 

Shares of Class B

 

 

 

Shares of Class A

 

 

 

Legacy AdaptHealth Holdings shareholders

 

51,937,500

 

32,113,799

 

 

 

19,823,701

 

 

 

Legacy DFB stockholders

 

20,472,465

 

 

 

 

20,472,465

 

 

 

 

 

72,409,965

 

32,113,799

 

44

%

40,296,166

 

56

%

 

Adjustments to the Unaudited Pro Forma Condensed Combined Statements of Operations

 

The pro forma adjustments included in the unaudited pro forma condensed combined statement of operations for the nine month period ended September 30, 2019 and for the fiscal year ended December 31, 2018 are as follows:

 

h)                                     Represents the elimination of non-recurring transaction costs specifically incurred by DFB and AdaptHealth Holdings as part of the Business Combination.

 

i)                                         Represents adjustments to interest expense for debt-related transactions that took place in connection with the Closing of the Business Combination. The pro forma adjustments reflect a reduction in interest expense of $5,066 and $6,754 for the nine months ended September 30, 2019 and the twelve months ended December 31, 2018, respectively, due to a $50,000 paydown on the historical AdaptHealth Holdings term loan and a $28,500 paydown on the historical AdaptHealth holdings revolver with an interest rate of 4.41% for both periods and incremental interest expense

 

15


 

of $3,915 and $5,220 for the nine months ended September 30, 2019 and the twelve months ended December 31, 2018, respectively, on the $43,500 of promissory notes from the exchange of AdaptHealth Holdings equity for debt at a fixed interest rate of 12% for both periods.

 

j)                                        Represents the elimination of non-recurring losses on extinguishments of debt as part of the Business Combination.

 

k)                                     Adjustment to eliminate the historical tax expense (benefit) of DFB and AdaptHealth Holdings and to record the tax provisions of the combined entities on a pro forma basis using a pro forma effective tax rate of 25% for both periods, which was applied to the income attributable to the controlling interest as the income attributable to the non-controlling interest is pass-through income. However, the effective tax rate of the combined company could be different depending on post-Business Combination activities.

 

l)                                         Represents the pro forma adjustment to the noncontrolling interest in the Business Combination.

 

(in thousands)

 

For The Nine
Months Ended
September 30,
2019

 

For The Year
Ended
December 31,
2018

 

Pro forma income before taxes

 

$

15,289

 

$

29,996

 

Less: income attributable to legacy AdaptHealth noncontrolling interest

 

(1,336

)

(1,077

)

Net pro forma income before taxes

 

13,953

 

28,919

 

Noncontrolling interest pro forma adjustment (at 44%)

 

6,139

 

12,724

 

Add: income attributable to legacy AdaptHealth noncontrolling interest

 

1,336

 

1,077

 

Pro forma income attributable to noncontrolling interest

 

$

7,475

 

$

13,801

 

 

m)                                 As a result of the Business Combination, the pro forma basic and diluted number of shares are reflective of 40,296,166 shares of Class A Common Stock outstanding. Given that conversion of the Class B Common Stock would result in no change to EPS on a pro forma diluted basis, the 32,113,799 shares of Class B Common Stock are not included in the diluted number of shares. Additionally, on a pro forma basis, there are 12,666,666 warrants outstanding with a strike price of $11.50, which have been excluded as these instruments would be anti-dilutive to pro forma EPS.

 

n)                                     Adjustment is to reflect the number of founder shares that will be entitled to share in earnings on an equivalent basis after the closing of the Business Combination as such a separate founder share EPS calculation is not needed on pro forma basis.

 

16