(13) Business Combinations

MatrixCare

On November 13, 2018, we completed the acquisition of 100% of the shares in MatrixCare Inc. and its subsidiaries (“MatrixCare”), a provider of software solutions for skilled nursing, life plan communities, senior living and private duty, for base purchase consideration paid of $750.0 million. This acquisition has been accounted for as a business combination using purchase accounting and included in our consolidated financial statements from November 13, 2018. The acquisition was paid for using our revolving credit facility.

We have not finalized the purchase price allocation in relation to this acquisition as certain appraisals associated with the valuation of intangible assets and income tax positions are not yet complete. We do not believe that the completion of this work will materially modify the preliminary purchase price allocation. We expect to complete our purchase price allocation during the quarter ending June 30, 2019. The cost of the acquisition was allocated to the assets acquired and liabilities assumed based on estimates of their fair values at the date of acquisition. The goodwill recognized as part of the acquisition is reflected in the Software as a Service segment and is not deductible for tax purposes. It mainly represents the synergies that are unique to our combined businesses and the potential for new products and services to be developed in the future.

The preliminary fair values of assets acquired and liabilities assumed, and the estimated useful lives of intangible assets acquired are as follows (in thousands):


	Preliminary		Intangible assets - useful life
Current assets	$	50,707
Property, plant and equipment		4,401
Trade names		18,000		7 years
Developed technology		82,000		7 years
Customer relationships		145,000		15 years
Goodwill		567,173
Assets acquired	$	867,281
Current liabilities		(14,968)
Deferred revenue		(17,642)
Deferred tax liabilities		(70,102)
Debt assumed		(151,665)
Total liabilities assumed	$	(254,377)
Net assets acquired	$	612,904

A reconciliation of the base consideration to the net consideration is as follows (in thousands):


Base consideration		750,000
Cash acquired		15,576
Debt assumed		(151,665)
Net working capital and other adjustments		(1,007)
Net consideration	$	612,904

During the three and nine months ended March 31, 2019, revenues of $30.2 million and $45.6 million, respectively, and losses from operations of $1.5 million and $2.6 million, respectively, related to MatrixCare were included in the unaudited condensed consolidated statement of comprehensive income. The loss from operations for the three and nine months ended March 31, 2019 was negatively impacted by $6.1 million and $9.1 million, respectively, of amortization of acquired intangible assets and fair value purchase price adjustments relating to deferred revenue of $2.2 million and $4.3 million, respectively, to deferred revenue. Excluding the impact of these items, revenue for the three and nine months ended March 31, 2019 was $32.4 million and $49.9 million, respectively, and income from operations was $6.7 million and $10.8 million, respectively.

The acquisition is considered a material business combination and accordingly unaudited pro forma information presented below for the three and nine months ended March 31, 2019 and March 31, 2018, include the effects of pro forma adjustments as if the acquisition of MatrixCare occurred on July 1, 2017. MatrixCare results are reflected in our consolidated results for the three months ended March 31, 2019 and as such, no adjustment is required for this period. The pro forma results were prepared using the acquisition method of accounting and combine our historical results and MatrixCare’s for the three and nine months ended March 31, 2019 and 2018, including the effects of the business combination, primarily amortization expense related to the fair value of identifiable intangible assets acquired, interest expense associated with the financing obtained by us in connection with the acquisition, and the elimination of incurred acquisition-related costs.

The pro forma financial information presented below is not necessarily indicative of the results of operations that would have been achieved if the acquisition occurred at the beginning of the earliest period presented, nor is it intended to be a projection of future results.


Unaudited Proforma Consolidated Results
(In thousands, except per share information)
	Three Months Ended March 31,				Nine Months Ended March 31,
	2019		2018		2019		2018
Revenue	$	662,228	$	620,933	$	1,947,096	$	1,803,685
Net income	$	105,416	$	106,583	$	334,302	$	192,445
Basic earnings per share	$	0.74	$	0.75	$	2.34	$	1.35
Diluted earnings per share	$	0.73	$	0.74	$	2.32	$	1.34

The unaudited pro forma consolidated results for the three and nine months ended March 31, 2019 and March 31, 2018 reflect primarily the following pro forma pre-tax adjustments:

Net amortization expense related to the fair value of identifiable intangible assets acquired of $0.0 million and $3.1 million for the three months ended March 31, 2019 and 2018, respectively, and $1.3 million and $10.6 million for the nine months ended March 31, 2019 and 2018, respectively.

Net interest expense associated with debt that was issued to finance the acquisition of $0.0 million and $3.1 million for the three months ended March 31, 2019 and 2018, respectively, and $2.6 million and $9.7 million for the nine months ended March 31, 2019 and 2018, respectively.

Elimination of pre-tax acquisition-related costs incurred by ResMed and MatrixCare of $0.0 million and $16.7 million for the three and nine months ended March 31, 2019, respectively.

Net income tax expense of $0.0 million and $1.5 million for the three months ended March 31, 2019 and 2018, respectively, and $1.4 million and $5.9 million for the nine months ended March 31, 2019 and 2018, respectively.

Other acquisitions

During the nine months ended March 31, 2019 we have completed the following acquisitions:

On July 6, 2018, we completed the acquisition of 100% of the shares in Healthcarefirst Holding Company (“HealthcareFirst”), a provider of software solutions and services for home health and hospice agencies, for a total purchase consideration of $126.3 million.

On October 15, 2018, we completed the acquisition of 100% of the shares in HB Healthcare, a homecare provider in South Korea.

On December 11, 2018, we completed the acquisition of assets in Interactive Health Network, a provider of integrated clinical and financial management software solution for long-term care companies.

On December 13, 2018, we completed the acquisition of assets in Apacheta, a provider of cloud-based SaaS software that manages the medical equipment delivery process for home medical equipment dealers.

On January 6, 2019, we completed the acquisition of Propeller Health, a digital therapeutics company providing connected health solutions for people living with chronic obstructive pulmonary disease and asthma, for a total purchase consideration of $242.9 million, which adjusts for cash acquired and debt assumed at the time of acquisition.

These acquisitions have been accounted for as business combinations using purchase accounting and are included in our consolidated financial statements from the acquisition dates. These acquisitions, individually and collectively, are not considered a material business combination and accordingly pro forma information is not provided. The acquisitions were funded by drawing on our existing credit facility and through cash on-hand.

We have not completed the purchase price allocation in relation to these acquisitions and expect to complete this during the quarter ending June 30, 2019. We do not believe that the completion of this work will materially modify the preliminary purchase price allocation for these acquisitions. The cost of the share acquisitions was allocated to the assets acquired and liabilities assumed based on estimates of their fair values at the date of acquisition. The goodwill recognized as part of these acquisitions, which is predominantly not deductible for tax purposes, mainly represents the synergies that are unique to our combined businesses and the potential for new products and services to be developed in the future. Goodwill from these acquisitions has been reflected in the Software as a Service segment except for the goodwill resulting from the HB Healthcare and Propeller Health acquisitions, which have been recorded in the Sleep and Respiratory Care segment.

The fair values of assets acquired and liabilities assumed of all other acquisitions, excluding MatrixCare, and the estimated useful lives of intangible assets acquired are as follows (in thousands):


	Preliminary		Intangible assets - useful life
Current assets	$	31,648
Property, plant and equipment		2,289
Trade names		10,838		10 years
Non-compete		1,000		3 years
Developed technology		49,600		5 to 6 years
Customer relationships		48,052		5 to 15 years
Goodwill		312,246
Assets acquired	$	455,673
Current liabilities		(6,310)
Deferred revenue		(3,619)
Deferred tax liabilities		(21,774)
Debt assumed		(35,104)
Total liabilities assumed	$	(66,807)
Net assets acquired	$	388,866

During the nine months ended March 31, 2019, we recorded $6.1 million in acquisition related expenses and did not have material acquisition related expenses during the nine months ended March 31, 2018.