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Acquisitions
9 Months Ended
Sep. 30, 2019
Business Combinations [Abstract]  
Acquisitions

5. Acquisitions

Alliance Home Health Care

On August 1, 2019, the Company completed the acquisition of all of the assets of Alliance Home Health Care (“Alliance”). The purchase price was approximately $23.5 million. The purchase of Alliance was funded through the Company’s revolving credit facility. With the purchase of Alliance, the Company expanded its personal care, home health and hospice operations in the state of New Mexico. The related acquisition costs of $0.3 million for the three and nine months ended September 30, 2019 were included in general and administrative expenses on the Condensed Consolidated Statements of Income and were expensed as incurred. The results of Alliance are included on the Condensed Consolidated Statements of Income from the date of the acquisition.

The Company’s acquisition of Alliance has 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. The acquisition was recorded at its fair value as of August 1, 2019. Under business combination accounting, the Alliance purchase price was allocated to Alliance’s net tangible and identifiable intangible assets based on their estimated fair values. Based upon management’s valuation, which is preliminary and subject to completion of working capital adjustments, the total purchase price has been allocated as follows:

 

 

 

Total

(Amounts in

Thousands)

 

Goodwill

 

$

15,973

 

Identifiable intangible assets

 

 

5,422

 

Cash

 

 

1,172

 

Accounts receivable

 

 

1,936

 

Other assets

 

 

95

 

Accounts payable

 

 

(296

)

Other liabilities

 

 

(844

)

Total purchase price allocation

 

$

23,458

 

 

Management’s assessment of qualitative factors affecting goodwill for Alliance 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 market.

Identifiable intangible assets acquired consist of $1.1 million in state licenses, with an estimated useful life of ten years and $4.3 million of state licenses with an indefinite life. The preliminary estimated fair value of identifiable intangible assets was determined, using Level 3 inputs as defined under ASC Topic 820, with the assistance of a valuation specialist. 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.

The Alliance acquisition accounted for $3.4 million of net service revenues and $0.8 million of operating income for the three and nine months ended September 30, 2019.

VIP Health Care Services

On June 1, 2019, the Company completed the acquisition of all of the assets of VIP Health Care Services (“VIP”). The purchase price was approximately $29.9 million. The purchase of VIP was funded through a combination of the Company’s delayed draw term loan portion of its credit facility and available cash. With the purchase of VIP, the Company expanded its personal care operations in the state of New York and into the New York City metropolitan area. The related acquisition costs were $0.4 million for the nine months ended September 30, 2019 and integration costs were $0.2 million and $0.3 million for the three and nine months ended September 30, 2019. These costs were included in general and administrative expenses on the Condensed Consolidated Statements of Income and were expensed as incurred. The results of VIP are included on the Condensed Consolidated Statements of Income from the date of the acquisition.

The Company’s acquisition of VIP has 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. The acquisition was recorded at its fair value as of June 1, 2019. Under business combination accounting, the VIP purchase price was allocated to VIP’s net tangible and identifiable intangible assets based on their estimated fair values. Based upon management’s valuation, which is preliminary and subject to completion of working capital adjustments, the total purchase price has been allocated as follows:

 

 

 

Total

(Amounts in

Thousands)

 

Goodwill

 

$

10,374

 

Identifiable intangible assets

 

 

15,370

 

Cash

 

 

110

 

Accounts receivable

 

 

5,986

 

Other assets

 

 

2,308

 

Property and equipment

 

 

27

 

Accounts payable

 

 

(385

)

Accrued expenses

 

 

(747

)

Accrued payroll

 

 

(1,571

)

Other liabilities

 

 

(1,554

)

Total purchase price allocation

 

$

29,918

 

 

Management’s assessment of qualitative factors affecting goodwill for VIP 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 market.

Identifiable intangible assets acquired consist of state licenses and customer relationships, with estimated useful lives of six and eight years, respectively. The preliminary estimated fair value of identifiable intangible assets was determined, using Level 3 inputs as defined under ASC Topic 820, with the assistance of a valuation specialist. The goodwill and intangible assets acquired are deductible for tax purposes.

The VIP acquisition accounted for $13.2 million and $17.6 million of net service revenues for the three and nine months ended September 30, 2019, respectively and $0.4 million and $0.1 million of operating loss for the three and nine months ended September 30, 2019, respectively.

Ambercare Corporation

On May 1, 2018, the Company completed the acquisition of all the issued and outstanding securities of Ambercare Corporation (“Ambercare”). The purchase price was approximately $39.6 million, plus the amount of excess cash held by Ambercare at closing (approximately $12.0 million). The purchase of Ambercare was funded by a delayed draw term loan under the Company’s credit facility. With the purchase of Ambercare, the Company expanded its New Mexico personal care operations and entered into its hospice and home health segments in the state of New Mexico. The related acquisition costs were $0.6 million for the nine months ended September 30, 2018. The related integration costs were $0.3 million for the nine months ended September 30, 2019, and $0.7 million and $0.8 million for the three and nine months ended September 30, 2018, respectively. These costs were included in general and administrative expenses on the Condensed Consolidated Statements of Income and were expensed as incurred. The results of Ambercare are included on the Condensed Consolidated Statements of Income from the date of the acquisition.

The Company’s acquisition of Ambercare has 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. The acquisition was recorded at its fair value as of May 1, 2018. Under business combination accounting, the Ambercare purchase price was $51.6 million and was allocated to Ambercare’s net tangible and identifiable intangible assets based on their estimated fair values.

Based upon management’s valuations, which are now final, the total purchase price has been allocated as follows:

 

 

 

Total

(Amounts in

Thousands)

 

Goodwill

 

$

28,831

 

Cash

 

 

12,028

 

Identifiable intangible assets

 

 

9,944

 

Accounts receivable

 

 

6,512

 

Other assets

 

 

442

 

Property and equipment

 

 

154

 

Accrued expenses

 

 

(4,073

)

Deferred tax liability

 

 

(2,138

)

Financing lease

 

 

(75

)

Accounts payable

 

 

(3

)

Total purchase price allocation

 

$

51,622

 

 

Management’s assessment of qualitative factors affecting goodwill for Ambercare 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 market.

The Company acquired all of the outstanding stock of Ambercare. Identifiable intangible assets acquired consist of trade names and customer relationships, with estimated useful lives ranging from three to fifteen years, as well as indefinite lived state licenses. The estimated fair value of identifiable intangible assets was determined, using Level 3 inputs as defined under ASC Topic 820, with the assistance of a valuation specialist. The goodwill and intangible assets acquired are non-deductible for tax purposes.

The Ambercare acquisition accounted for $17.3 million and $47.8 million of net service revenues for the three and nine months ended September 30, 2019, respectively, and $13.4 million and $22.6 million of net service revenues for each of the three and nine months ended September 30, 2018, respectively. Operating income for the three and nine months ended September 30, 2019, was $4.7 million and $11.8 million, respectively, and $2.0 million and $3.8 million of operating income for the three and nine months ended September 30, 2018, respectively.

Arcadia Home Care & Staffing

On April 1, 2018, the Company acquired certain assets of Arcadia Home Care & Staffing (“Arcadia”), expanding its personal care services. The total consideration for the transaction was $18.9 million, and was funded by a delayed draw term loan under the Company’s credit facility. The related acquisition costs was $0.6 million for the nine months ended September 30, 2018 and the integration costs were $0.7 million and $0.8 million for the three and nine months ended September 30, 2018, respectively. These costs were included in general and administrative expenses on the Condensed Consolidated Statements of Income and were expensed as incurred. The results of operations from this acquired entity are included in the Condensed Consolidated Statements of Income from the date of the acquisition.

The Company’s acquisition of Arcadia has been accounted for in accordance with ASC Topic 805 and the resulting goodwill and other intangible assets were accounted for under ASC Topic 350. The acquisition was recorded at its fair value as of April 1, 2018. Under business combination accounting, the Arcadia purchase price was $18.9 million and was allocated to Arcadia’s net tangible and identifiable intangible assets based on their estimated fair values. Based upon management’s valuations, which are now final, the total purchase price has been allocated as follows:

 

 

 

Total

(Amounts in

Thousands)

 

Goodwill

 

$

13,072

 

Accounts receivable

 

 

5,317

 

Identifiable intangible assets

 

 

2,264

 

Property and equipment

 

 

155

 

Other assets

 

 

92

 

Accrued expenses

 

 

(1,540

)

Accounts payable

 

 

(508

)

Total purchase price allocation

 

$

18,852

 

 

Management’s assessment of qualitative factors affecting goodwill for Arcadia 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 market.

Identifiable intangible assets acquired consist of trade name, customer relationships and state licenses, with estimated useful lives ranging from seven to fifteen years. The estimated fair value of identifiable intangible assets was determined, using Level 3 inputs as defined under ASC Topic 820, with the assistance of a valuation specialist. The goodwill and intangible assets acquired are deductible for tax purposes.

The Arcadia acquisition accounted for $11.6 million and $32.9 million of net service revenues for the three and nine months September 30, 2019, respectively, and $10.9 million and $21.7 million of net service revenues for each of the three and nine months September 30, 2018, respectively. Operating income for the three and nine months ended September 30, 2019, was $1.8 million and $4.4 million, respectively, and $1.6 million and $3.2 million of operating income for each of the three and nine months ended September 30, 2018, respectively.

LifeStyle Options, Inc.

Effective January 1, 2018, the Company acquired certain assets of LifeStyle Options, Inc. (“LifeStyle”) in order to expand private pay services in Illinois. The total consideration for the transaction was $4.1 million, comprised of $3.3 million in cash and $0.8 million, representing the estimated fair value of contingent consideration, subject to the achievement of certain performance targets set forth in an earn-out agreement. As of December 31, 2018, the performance targets were not met and the contingent consideration was remeasured to zero. The results of operations from this acquired entity are included in the Condensed Consolidated Statements of Income from the date of the acquisition.

The Company’s acquisition of LifeStyle has been accounted for in accordance with ASC Topic 805 and the resulting goodwill and other intangible assets were accounted for under ASC Topic 350. The acquisition was recorded at its fair value as of January 1, 2018. Under business combination accounting, the LifeStyle purchase price was $4.1 million and was allocated to LifeStyle’s net tangible and identifiable intangible assets based on their estimated fair values. Based upon management’s valuations, which are now final, the total purchase price is final and has been allocated as follows:

 

 

 

Total

(Amounts in

Thousands)

 

Goodwill

 

$

2,751

 

Identifiable intangible assets

 

 

1,152

 

Accounts receivable

 

 

573

 

Other assets

 

 

32

 

Property and equipment

 

 

18

 

Accrued expenses

 

 

(291

)

Accounts payable

 

 

(105

)

Total purchase price allocation

 

$

4,130

 

 

Management’s assessment of qualitative factors affecting goodwill for LifeStyle 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 market.

Identifiable intangible assets acquired consist of trade name and customer relationships, with estimated useful lives ranging from ten to fifteen years. The estimated fair value of identifiable intangible assets was determined, using Level 3 inputs as defined under ASC Topic 820, with the assistance of a valuation specialist. The goodwill and intangible assets acquired are deductible for tax purposes.

The LifeStyle acquisition accounted for $1.2 million and $3.7 million of net service revenues for the three and nine months ended September 30, 2019, respectively, and $1.5 million and $4.5 million of net service revenues for the three and nine months ended September 30, 2018, respectively. Operating income for the three and nine months ended September 30, 2019, was $0.1 million and $0.2 million, respectively, and $0.1 million and $0.4 million of operating income for the three and nine months ended September 30, 2018, respectively.

The following table contains unaudited pro forma condensed consolidated income statement information of the Company had the acquisitions of Alliance, VIP, Ambercare and Arcadia closed on January 1, 2018.

 

 

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Amounts in Thousands)

 

 

(Amounts in Thousands)

 

Net service revenues

 

$

171,432

 

 

$

160,899

 

 

$

494,796

 

 

$

465,258

 

Operating income

 

 

8,146

 

 

 

8,458

 

 

 

22,213

 

 

 

31,799

 

Net income from continuing operations

 

 

6,393

 

 

 

3,904

 

 

 

16,527

 

 

 

20,261

 

Net loss from discontinued operations

 

 

(574

)

 

 

 

 

 

(574

)

 

 

 

Net income

 

$

5,819

 

 

$

3,904

 

 

$

15,953

 

 

$

20,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.46

 

 

$

0.32

 

 

$

1.25

 

 

$

1.73

 

Discontinued operations

 

 

(0.04

)

 

 

 

 

 

(0.04

)

 

 

 

Basic income per share

 

$

0.42

 

 

$

0.32

 

 

$

1.21

 

 

$

1.73

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.45

 

 

$

0.31

 

 

$

1.21

 

 

$

1.68

 

Discontinued operations

 

 

(0.04

)

 

 

 

 

 

(0.04

)

 

 

 

Diluted income per share

 

$

0.41

 

 

$

0.31

 

 

$

1.17

 

 

$

1.68

 

 

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 Alliance, VIP, Ambercare and Arcadia had been acquired effective January 1, 2018. 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.