Acquisitions

9 Months Ended

Sep. 30, 2022

Acquisitions

Acquisitions

(3)          Acquisitions

During the nine months ended September 30, 2022 and 2021, the Company completed several acquisitions to strengthen its current market share in existing markets or to expand into new markets. Each of the Company’s acquisitions was accounted for using the acquisition method pursuant to the requirements of FASB ASC Topic 805, Business Combinations, and are included in the Company’s consolidated financial statements since the respective acquisition date. The goodwill generated from these acquisitions is attributable to expected growth and cost synergies and the expected contribution of each acquisition to the Company’s overall strategy. The goodwill recorded during the nine months ended September 30, 2022 is not expected to be deductible for tax purposes. The estimated fair values of the net assets of acquired businesses as described below are subject to change resulting from such items as final analysis of valuations and working capital adjustments post-acquisition. As a result, the acquisition accounting for certain acquired businesses could change in subsequent periods resulting in adjustments to goodwill once finalized. Also, see subsection, “Pro forma information” of this Note 3 for pro forma information on net revenue and operating income.

Nine Months Ended September 30, 2022

During the nine months ended September 30, 2022, the Company acquired 100% of the equity interests of two providers of HME and acquired certain assets of the home medical equipment businesses of five providers of HME.

The following table summarizes the consideration paid at closing for all acquisitions during the nine months ended September 30, 2022 (in thousands):

Cash	$	16,477
Deferred payments		422
Total	$	16,899

The Company allocated the consideration paid to the net assets acquired based on their estimated acquisition date fair values. The Company is still evaluating the fair value of certain assets and liabilities for which provisional amounts were recorded and expects to finalize such valuations during the remainder of 2022. Based upon management’s evaluation, which is preliminary and subject to completion of working capital and other adjustments, the consideration paid for all acquisitions during 2022 was allocated as follows (in thousands):

Cash	$	155
Accounts receivable		2,206
Inventory		686
Prepaid and other current assets		16
Equipment and other fixed assets		4,502
Goodwill		11,788
Identifiable intangible assets		500
Accounts payable and accrued expenses		(2,820)
Contract liabilities		(134)
Net assets acquired	$	16,899

During the nine months ended September 30, 2022, the Company received net cash of $0.2 million relating to working capital and other adjustments associated with businesses that were acquired during 2021, which was recorded as a decrease to goodwill during the period.

Nine Months Ended September 30, 2021

On February 1, 2021, the Company acquired 100% of the equity interests of AeroCare Holdings, Inc. (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 home medical equipment products. The total consideration paid consisted of (i) cash payments of $1.2 billion, (ii) the issuance of 13,992,615 shares of the Company’s Class A Common Stock, (iii) the issuance of 130,474.73 shares of the Company’s Series C Convertible Preferred Stock, and (iv) the issuance of 3,959,892 fully vested options to purchase shares of the Company’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 7 years from the date of closing. Refer to Note 10, Stockholders’ Equity, for additional discussion of the Series C Convertible Preferred Stock issued in connection with the acquisition of AeroCare.

On April 30, 2021, the Company acquired 100% of the equity interests of Spiro Health Services, LLC (Spiro). Spiro is a provider of home medical equipment and supplies. The total consideration paid at closing consisted of a cash payment of $66.1 million, the issuance of 244,641 shares of the Company’s Class A Common Stock, and a potential contingent consideration payment of up to $1.0 million, which was determined to be the fair value at the acquisition date and such amount was recorded as a contingent consideration liability in connection with the Company’s acquisition accounting.

On June 1, 2021, the Company acquired 100% of the equity interests of Healthy Living Medical Supply, LLC (Healthy Living). Healthy Living is a provider of continuous glucose monitors and insulin pumps. The total consideration paid at closing consisted of a cash payment of $47.0 million and the issuance of 196,779 shares of the Company’s Class A Common Stock.

On July 1, 2021, the Company acquired 100% of the equity interests of Agilis Med Holdings, LLC (Agilis). Agilis is an e-commerce retailer of sleep apnea and respiratory equipment in the United States. The total consideration paid at closing consisted of a cash payment of $30.8 million, the issuance of 538,079 shares of the Company’s Class A Common Stock, and a potential contingent consideration payment of up to $1.0 million, which was determined to be the

fair value at the acquisition date and such amount was recorded as a contingent consideration liability in connection with the Company’s acquisition accounting. Such amount is included in other current liabilities in the accompanying consolidated balance sheets at September 30, 2022 based on the expected payment date. In October 2020, the Company acquired a minority interest in Agilis, which was being accounted for under the equity method of accounting prior to the July 2021 transaction. The carrying value of such investment was $8.1 million at the July 2021 transaction date. The fair value of the equity method investment was $10.0 million at the July 2021 transaction date. In connection with the accounting for the July 2021 transaction, the Company recorded goodwill of $10.0 million and eliminated the carrying value of the equity method investment of $8.1 million and recorded a gain on equity method of investment of $1.9 million, which is included in other loss (income), net in the accompanying consolidated statements of operations during the three and nine months ended September 30, 2021.

On July 1, 2021, the Company acquired 100% of the equity interests of WeCare Medical, LLC (WeCare). WeCare is a distributor of durable medical equipment and supplies in the United States. The total consideration paid at closing consisted of a cash payment of $34.8 million and the issuance of 231,866 shares of the Company’s Class A Common Stock.

In addition, during the nine months ended September 30, 2021, the Company acquired 100% of the equity interests of ten providers of home medical equipment and acquired certain assets of the durable medical equipment business of a provider of home medical equipment. The aggregate total consideration paid for these acquisitions consisted of cash payments of $121.7 million, the issuance of 306,569 shares of the Company’s Class A Common Stock, and deferred payment liabilities of $1.2 million.

The following table summarizes the consideration paid at closing for all acquisitions during the nine months ended September 30, 2021 (in thousands):

	AeroCare		Spiro		Healthy Living		Agilis		We Care		Other		Total
Cash	$	1,152,768	$	66,101	$	47,048	$	30,842	$	34,833	$	121,710	$	1,453,302
Equity		1,220,342		7,109		5,057		14,668		6,321		7,703		1,261,200
Contingent consideration		—		1,000		—		1,000		—		—		2,000
Deferred payments		—		—		—		—		—		1,162		1,162
Total	$	2,373,110	$	74,210	$	52,105	$	46,510	$	41,154	$	130,575	$	2,717,664

The Company allocated the consideration paid to the net assets acquired based on their estimated acquisition date fair values. Based upon management’s evaluation, which was preliminary and subject to completion of working capital and other adjustments, the consideration paid for all acquisitions during the nine months ended September 30, 2021 was allocated as follows during that period (in thousands):

	AeroCare		Spiro		Healthy Living		Agilis		We Care		Other		Total
Cash	$	27,686	$	2,132	$	580	$	1,170	$	458	$	2,673	$	34,699
Accounts receivable		75,916		8,526		7,471		—		6,355		20,900		119,168
Inventory		27,612		4,939		2,948		2,478		1,488		6,219		45,684
Prepaid and other current assets		3,522		152		254		—		—		2,466		6,394
Equipment and other fixed assets		190,755		2,148		1,201		—		8,170		13,076		215,350
Operating lease right-of-use assets		55,132		2,738		1,366		490		970		12,176		72,872
Goodwill		2,096,850		62,640		41,955		52,938		29,080		102,688		2,386,151
Identifiable intangible assets		122,800		1,000		1,300		500		400		2,400		128,400
Other assets		1,178		16		—		—		—		—		1,194
Deferred tax liabilities		(64,916)		—		—		—		(3,358)		425		(67,849)
Accounts payable and accrued expenses		(82,722)		(5,148)		(3,604)		(576)		(1,439)		(13,921)		(107,410)
Contract liabilities		(14,495)		—		—		—		—		(124)		(14,619)
Other current liabilities		(10,021)		—		—		—		—		(1,555)		(11,576)
Other long-term liabilities		(1,055)		—		—		—		—		—		(1,055)
Operating lease obligations		(55,132)		(2,738)		(1,366)		(490)		(970)		(12,176)		(72,872)
Capital lease obligations		—		(2,195)		—		—		—		(4,672)		(6,867)
Net assets acquired	$	2,373,110	$	74,210	$	52,105	$	56,510	$	41,154	$	130,575	$	2,727,664

During the nine months ended September 30, 2021, the Company received net cash of $0.7 million relating to working capital and other adjustments associated with businesses that were acquired during 2020, which was recorded as a decrease to goodwill during the period.

Pro-Forma Information

The unaudited pro-forma financial information presented below has been prepared by adjusting the historical results of the Company to include the historical results of the acquisitions described above and to give effect to the GAAP accounting for the acquisitions had they been owned in the earliest period presented below. The unaudited pro-forma financial 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 acquisitions, such as the impact of cost savings or other synergies that may result from these acquisitions, and does not include interest expense associated with debt incurred to fund the acquisitions.

(in thousands) (unaudited)	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net revenue	$	756,495	$	722,406	$	2,195,434	$	2,140,382

Operating income $ 52,949 $ 83,788 $ 163,630 $ 195,945

Results of Businesses Acquired

The following table presents the amount of net revenue and operating income (loss) in the period of acquisition since the respective acquisition dates for the acquisitions described above that is included in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021:

(in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net revenue	$	5,062	$	289,604	$	10,764	$	680,460
Operating income (loss)	$	(726)	$	37,454	$	(333)	$	95,143