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Earnings Per Share

9 Months Ended

Sep. 30, 2022

(11) Earnings Per Share

Earnings Per Share (EPS) is computed by dividing net income by the weighted average number of common shares outstanding during the period on a basic and diluted basis. The Company computes diluted net income per share using the more dilutive of the treasury stock method and the two-class method after giving effect to all potential dilutive Common Stock.

The Company’s potentially dilutive securities include potential common shares related to outstanding warrants, contingent consideration common shares, unvested restricted stock, outstanding stock options and outstanding preferred stock. Refer to Note 10, Stockholders’ Equity, for additional discussion of these potential dilutive securities.

Diluted net income per share considers the impact of potentially dilutive securities except when the potential common shares have an antidilutive effect. The Company’s outstanding preferred stock are considered participating securities, thus requiring the two-class method of computing diluted net income per share. Computation of diluted net income per share under the two-class method excludes from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities. The related participating securities are similarly excluded from the denominator.

Computations of basic and diluted net income per share were as follows (in thousands, except per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator
Net income attributable to AdaptHealth Corp.	$	16,122	$	58,092	$	71,904	$	133,233
Less: Earnings allocated to participating securities ⁽¹⁾		1,360		5,002		6,079		12,572
Net income for basic EPS	$	14,762	$	53,090	$	65,825	$	120,661
Change in fair value of warrant liability ⁽²⁾		—		(16,737)		(17,145)		(57,359)
Change in fair value of contingent consideration common shares liability ⁽²⁾		—		(8,145)		—		(27,718)
Net income for diluted EPS	$	14,762	$	28,208	$	48,680	$	35,584

Denominator ^{(1) (2)}
Basic weighted-average common shares outstanding		134,227		131,684		134,186		124,228
Add: Warrants ⁽²⁾		—		2,245		1,436		2,598
Add: Contingent Consideration Common Shares ⁽²⁾		—		2,000		—		2,000
Add: Stock options		2,903		3,794		2,669		4,112
Add: Unvested restricted stock		453		599		308		700
Diluted weighted-average common shares outstanding		137,583		140,322		138,599		133,638

Basic net income per share	$	0.11	$	0.40	$	0.49	$	0.97
Diluted net income per share	$	0.11	$	0.20	$	0.35	$	0.27

(1)

The Company’s preferred stock are considered participating securities. Computation of EPS under the two-class method excludes from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities. The related participating securities are similarly excluded from the denominator.

(2)

For the nine months ended September 30, 2022, and the three and nine months ended September 30, 2021, the impact to earnings from the change in fair value of the Company’s warrant liability is excluded from the numerator, and the corresponding security is included in the denominator, for purposes of computing diluted net income per share. For the three and nine months ended September 30, 2021, the impact to earnings from the change in fair value of the Company’s contingent consideration common shares liability is excluded from the numerator, and the corresponding security is considered for inclusion in the denominator, for purposes of computing diluted net income per share. These adjustments are included as the effect of the numerator and denominator adjustments for these derivative instruments is dilutive as a result of the non-cash gains recorded for the change in fair value of these instruments during the periods.

The table below provides the weighted-average number of potential common shares associated with outstanding securities not included in the Company’s computation of diluted net income per share for the three and nine months ended September 30, 2022 and 2021 because to do so would be antidilutive (in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,
	2022		2021		2022		2021
Preferred Stock		12,406		12,406		12,406		12,944
Warrants		1,706		—		—		—
Stock options		468		—		468		—
Unvested restricted stock		108		—		221		—
Total		14,688		12,406		13,095		12,944

In addition, there are 1,000,000 shares relating to the Contingent Consideration Common Shares that were not included in the diluted net income per share computation for the three and nine months ended September 30, 2022 as the corresponding average stock price hurdle for issuing these contingently issuable shares would not have been met as of the September 30, 2022 reporting date. As discussed in note 10, Stockholders’ Equity, the measurement date is December 31, 2022 for these shares and they will be issued at such time if they are earned.