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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-38399

AdaptHealth Corp.

(Exact name of registrant as specified in its charter)

Delaware

82-3677704

(State of Other Jurisdiction of incorporation or Organization)

(I.R.S. Employer Identification No.)

220 West Germantown Pike Suite 250, Plymouth Meeting, PA

19462

(Address of principal executive offices)

(Zip code)

Registrant’s telephone number, including area code: (610) 630-6357

Securities registered pursuant to Section 12(b) of the Act:

    

    

Name Of Each Exchange

Title of Each Class

Trading Symbol(s)

On Which Registered

Class A Common Stock, par value $0.0001 per share

AHCO

The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.0405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer

Non-accelerated filer ☐

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 5, 2021, there were 129,244,574 shares of the Registrant’s Class A Common Stock issued and outstanding and 0 shares of the Registrant’s Class B Common Stock issued and outstanding.

ADAPTHEALTH CORP.

FORM 10-Q

TABLE OF CONTENTS

Page Number

PART I FINANCIAL INFORMATION

Item 1. Consolidated Interim Financial Statements (Unaudited)

Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

4

Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020

5

Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2021 and 2020

6

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three months ended March 31, 2021 and 2020

7

Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020

8

Notes to Consolidated Interim Financial Statements

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

37

Item 3. Quantitative and Qualitative Disclosures About Market Risk

50

Item 4. Controls and Procedures

50

PART II OTHER INFORMATION

52

Item 1. Legal Proceedings

52

Item 1A. Risk Factors

52

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

79

Item 3. Defaults upon Senior Securities

80

Item 4. Mine Safety Disclosure

80

Item 5. Other Information

80

Item 6. Exhibits

80

Signatures

83

1

CERTAIN DEFINED TERMS

Throughout this Quarterly Report on Form 10-Q, unless otherwise specified or the context so requires:

AdaptHealth Holdings” means AdaptHealth Holdings LLC, a Delaware limited liability company;

AdaptHealth Units” means units of AdaptHealth Holdings;

BM Notes” means, collectively, the Promissory Notes, dated as of November 8, 2019, and Amended and Restated Promissory Notes, dated as of March 20, 2019, issued by AdaptHealth Holdings in favor of affiliates of Assured Guaranty Ltd. (formerly BlueMountain Capital Management, LLC), which amended and restated the Promissory Notes, dated as of March 20, 2019, issued by AdaptHealth Holdings in favor of affiliates of Assured Guaranty Ltd.;

Business Combination” means our business combination with AdaptHealth Holdings, which we completed on November 8, 2019;

Class A Common Stock” means our Class A Common Stock, par value $0.0001 per share, created on the Closing;

Class B Common Stock” means our Class B Common Stock, par value $0.0001 per share, created on the Closing;

Closing” means the closing of the Business Combination;

Common Stock” means our Class A Common Stock and our Class B Common Stock, collectively;

Exchange Agreement” means the Exchange Agreement, dated as of November 8, 2019, by and among AdaptHealth, AdaptHealth Holdings, and holders of AdaptHealth Units;

OEP Purchaser” means OEP AHCO Investment Holdings, LLC, a Delaware limited liability company;

Series B-1 Preferred Stock” means the series of preferred stock of the Company designated as “Series B-1 Convertible Preferred Stock,” par value $0.0001 per share;

Sponsor” means Deerfield/RAB Ventures LLC;

Tax Receivable Agreement” means the Tax Receivable Agreement, dated as of November 8, 2019, by and among AdaptHealth, AdaptHealth Holdings, and holders of AdaptHealth Units; and

“Warrants” means, collectively, the warrants that were issued in our initial public offering (our “IPO”) pursuant to the registration statement declared effective on February 15, 2018 and which were redeemed on September 2, 2020 (the “public warrants”) and the warrants initially issued to our Sponsor in a private placement that occurred simultaneously with our IPO (the “private placement warrants”), which private placement warrants have been distributed from the Sponsor to its members.

2

CAUTIONARY STATEMENT

In this Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I Item 2, and the documents incorporated by reference herein, we make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for our business. These statements may be preceded by, followed by or include the words “may,” “might,” “will,” “will likely result,” “should,” “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “continue,” “target” or similar expressions.

These forward-looking statements are based on information available to us as of the date they were made, and involve a number of risks and uncertainties which may cause them to turn out to be wrong. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward- looking statements. Some factors that could cause actual results to differ include:

competition and the ability of our business to grow and manage growth profitably;
changes in applicable laws or regulations;
fluctuations in the U.S. and/or global stock markets;
the possibility that we may be adversely affected by other economic, business, and/or competitive factors;
the impact of the coronavirus (COVID-19) pandemic and our response to it;
failure to consummate or realize the expected benefits of acquisitions, including the failure to realize the expected benefits of the acquisition of AeroCare Holdings, Inc. (“AeroCare”); and
other risks and uncertainties set forth in this Form 10-Q, as well as the documents incorporated by reference herein.

3

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Interim Financial Statements

ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

March 31, 

December 31,

2021

2020

Assets

Current assets:

  

  

Cash and cash equivalents

$

132,137

$

99,962

Accounts receivable

 

260,761

 

171,065

Inventory

 

75,487

 

58,783

Prepaid and other current assets

 

35,117

 

33,441

Total current assets

 

503,502

 

363,251

Equipment and other fixed assets, net

 

298,537

 

110,468

Goodwill

 

3,142,076

 

998,810

Identifiable intangible assets, net

245,239

116,061

Other assets

 

19,204

 

16,483

Deferred tax assets

 

311,510

 

208,399

Total Assets

$

4,520,068

$

1,813,472

Liabilities and Stockholders' Equity

 

 

Current liabilities:

 

 

Accounts payable and accrued expenses

$

305,928

$

254,212

Current portion of capital lease obligations

 

20,162

 

22,282

Current portion of long-term debt

 

17,500

 

8,146

Contract liabilities

 

25,168

 

11,043

Other liabilities

 

108,279

 

89,524

Contingent consideration common shares liability

36,103

36,846

Total current liabilities

 

513,140

 

422,053

Long-term debt, less current portion

 

1,748,829

 

776,568

Other long-term liabilities

 

322,475

 

186,470

Long-term portion of contingent consideration common shares liability

32,409

33,631

Warrant liability

110,737

113,905

Total Liabilities

 

2,727,590

 

1,532,627

Commitments and contingencies (note 14)

 

 

Stockholders' Equity

 

 

Class A Common Stock, par value of $0.0001 per share, 210,000,000 shares authorized; 129,386,009 and 76,457,439 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

13

8

Class B Common Stock, par value of $0.0001 per share, 35,000,000 shares authorized; 0 and 13,218,758 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

1

Preferred Stock, par value of $0.0001 per share, 5,000,000 shares authorized; 124,060 and 163,560 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

1

1

Additional paid-in capital

1,993,962

558,486

Accumulated deficit

(203,162)

(199,196)

Accumulated other comprehensive loss

 

(2,535)

 

(4,411)

Total stockholders' equity attributable to AdaptHealth Corp.

 

1,788,279

 

354,889

Noncontrolling interests in subsidiaries

 

4,199

 

(74,044)

Total stockholders' equity

 

1,792,478

 

280,845

Total Liabilities and Stockholders' Equity

$

4,520,068

$

1,813,472

See accompanying notes to unaudited consolidated interim financial statements.

4

ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

Three Months Ended March 31, 

2021

    

2020

Net revenue

$

482,119

$

191,439

Costs and expenses:

 

 

Cost of net revenue

 

396,698

 

167,630

General and administrative expenses

 

56,632

 

14,347

Depreciation and amortization, excluding patient equipment depreciation

 

13,380

 

1,242

Total costs and expenses

 

466,710

 

183,219

Operating income

 

15,409

 

8,220

Interest expense, net

 

22,185

 

7,938

Loss on extinguishment of debt

 

4,213

 

Change in fair value of contingent consideration common shares liability (note 10)

(1,965)

16,367

Change in fair value of warrant liability (note 10)

(3,168)

36,100

Other income, net

(519)

(1,091)

Loss before income taxes

 

(5,337)

 

(51,094)

Income tax benefit

 

(1,695)

 

(1,641)

Net loss

(3,642)

(49,453)

Income (loss) attributable to noncontrolling interests

 

324

 

(14,902)

Net loss attributable to AdaptHealth Corp.

$

(3,966)

$

(34,551)

Weighted average common shares outstanding - basic

111,109

41,977

Weighted average common shares outstanding - diluted

115,995

41,977

Basic loss per share

$

(0.04)

$

(0.82)

Diluted loss per share (1)

$

(0.08)

$

(0.82)

(1) See Note 11, Earnings per Share, to the unaudited consolidated interim financial statements for the calculation of diluted loss per share.

See accompanying notes to unaudited consolidated interim financial statements.

5

ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

(UNAUDITED)

Three Months Ended March 31, 

2021

2020

Net loss

$

(3,642)

$

(49,453)

Other comprehensive income (loss):

 

 

Interest rate swap agreements, inclusive of reclassification adjustment

 

1,876

 

(11,417)

Comprehensive loss

 

(1,766)

 

(60,870)

Income (loss) attributable to noncontrolling interests

 

324

 

(14,902)

Comprehensive loss attributable to AdaptHealth Corp.

$

(2,090)

$

(45,968)

See accompanying notes to unaudited consolidated interim financial statements.

6

ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(IN THOUSANDS)

(UNAUDITED)

Accumulated

Additional

other

Noncontrolling

Class A Common Stock

Class B Common Stock

Preferred Stock

paid-in

Accumulated

comprehensive

interests in

Shares

  

Amount

  

Shares

  

Amount

  

Shares

  

Amount

  

capital

deficit

  

income (loss)

  

subsidiaries

  

Total

Balance, December 31, 2020

76,458

$

8

13,219

$

1

164

$

1

$

558,486

$

(199,196)

$

(4,411)

$

(74,044)

$

280,845

Issuance of Class A Common Stock for acquisitions

14,092

2

564,986

564,988

Issuance of Series C Preferred Stock for an acquisition

130

523,856

523,856

Issuance of stock options for an acquisition

134,683

134,683

Exchange of Class B Common Stock for Class A Common Stock

13,219

1

(13,219)

(1)

(77,919)

77,919

Equity-based compensation

172

8,582

8,582

Cashless exercise of options

9

Issuance of Class A Common Stock, net of offering costs of $13,832

8,450

1

265,017

265,018

Conversion of Series B-1 Preferred Stock to Class A Common Stock

3,950

(40)

Conversion of Series C-1 Preferred Stock to Class A Common Stock

13,047

1

(130)

(1)

Class A Common Stock issued in connection with Employee Stock Purchase Plan

8

314

314

Net income (loss)

(3,966)

324

(3,642)

Equity activity resulting from the Tax Receivable Agreement

16,768

16,768

Change in fair value of interest rate swaps, inclusive of reclassification adjustment

1,876

1,876

Other

(19)

(810)

(810)

Balance, March 31, 2021

129,386

$

13

$

124

$

1

$

1,993,962

$

(203,162)

$

(2,535)

$

4,199

$

1,792,478

Accumulated

Additional

other

Noncontrolling

Class A Common Stock

Class B Common Stock

Preferred Stock

paid-in

Accumulated

comprehensive

interests in

Shares

  

Amount

  

Shares

  

Amount

  

Shares

  

Amount

  

capital

deficit

  

income (loss)

  

subsidiaries

  

Total

Balance, December 31, 2019

40,816

$

4

31,564

$

3

$

$

$

(40,258)

$

1,431

$

(26,963)

$

(65,783)

Issuance of Class A Common Stock for an acquisition

387

6,248

6,248

Exchange of Class B Common Stock for Class A Common Stock

1,000

(1,000)

(361)

361

Exercise of warrants

1,092

15,273

15,273

Equity-based compensation

59

2,223

2,223

Net income (loss)

(34,551)

(14,902)

(49,453)

Equity activity resulting from Tax Receivable Agreement

2,483

2,483

Change in fair value of interest rate swaps, inclusive of reclassification adjustment

(6,570)

(4,847)

(11,417)

Balance, March 31, 2020

43,354

$

4

30,564

$

3

$

$

25,866

$

(74,809)

$

(5,139)

$

(46,351)

$

(100,426)

See accompanying notes to unaudited consolidated interim financial statements.

7

ADAPTHEALTH CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

Three Months Ended March 31, 

2021

2020

Cash flows from operating activities:

Net loss

$

(3,642)

$

(49,453)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

Depreciation, including patient equipment depreciation

 

36,884

 

16,740

Equity-based compensation

 

8,582

 

2,223

Change in fair value of contingent consideration common shares liability

(1,965)

16,367

Change in fair value of warrant liability

(3,168)

36,100

Deferred income tax benefit

 

(1,695)

 

(2,269)

Change in fair value of interest rate swaps, net of reclassification adjustment

(709)

(707)

Change in fair value of contingent consideration

183

(2,000)

Amortization of intangible assets

10,322

Amortization of deferred financing costs

 

894

 

392

Imputed interest expense

83

Write-off of deferred financing costs

 

4,213

 

Gain on sale of investment

(591)

Changes in operating assets and liabilities, net of effects from acquisitions:

 

 

Accounts receivable

 

(7,344)

 

(20,458)

Inventory

 

16,444

 

51

Prepaid and other assets

 

2,589

 

3,909

Accounts payable and accrued expenses and other current liabilities

 

(43,291)

 

24,076

Net cash provided by operating activities

 

18,380

 

24,380

Cash flows from investing activities:

 

 

Payments for business acquisitions, net of cash acquired

 

(1,178,168)

 

(105,841)

Purchases of equipment and other fixed assets

 

(35,596)

 

(7,534)

Proceeds from sale of investment

2,046

Net cash used in investing activities

 

(1,213,764)

 

(111,329)

Cash flows from financing activities:

 

 

Proceeds from borrowings on long-term debt and lines of credit

 

795,000

 

70,000

Repayments on long-term debt and lines of credit

 

(303,771)

 

(984)

Proceeds from the issuance of Class A Common Stock

278,850

Proceeds from the issuance of senior unsecured notes

500,000

Payments on capital leases

 

(9,854)

 

(10,781)

Payments for equity issuance costs

 

(13,832)

 

Payments of deferred financing costs

 

(16,148)

 

Proceeds received in connection with Employee Stock Purchase Plan

314

Payments for tax withholdings from equity-based compensation activity

 

(810)

 

Payment of deferred purchase price in connection with acquisitions

(2,190)

Net cash provided by financing activities

 

1,227,559

 

58,235

Net increase (decrease) in cash and cash equivalents

 

32,175

 

(28,714)

Cash and cash equivalents at beginning of period

 

99,962

 

76,878

Cash and cash equivalents at end of period

$

132,137

$

48,164

Supplemental disclosures:

 

 

Cash paid for interest

$

16,188

$

7,704

Cash paid for income taxes

2,802

2,086

Noncash investing and financing activities:

Equipment acquired under capital lease obligations

$

7,445

$

9,758

Unpaid equipment and other fixed asset purchases at end of period

19,200

7,814

Equity consideration issued in connection with acquisitions

1,223,527

6,248

Deferred purchase price in connection with acquisitions

423

14

See accompanying notes to unaudited consolidated interim financial statements.

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Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Consolidated Interim Financial Statements (Unaudited)

(1)          General Information

AdaptHealth Corp. and subsidiaries (AdaptHealth or the Company), f/k/a DFB Healthcare Acquisitions Corp. (DFB), is a national leader in providing patient-centered, healthcare-at-home solutions including home medical equipment, medical supplies, and related services. AdaptHealth focuses primarily on providing (i) sleep therapy equipment, supplies and related services (including CPAP and bi PAP services) to individuals suffering from obstructive sleep apnea (OSA), (ii) medical devices and supplies to patients for the treatment of diabetes (including continuous glucose monitors (CGM) and insulin pumps), (iii) home medical equipment (HME) to patients discharged from acute care and other facilities, (iv) oxygen and related chronic therapy services in the home, and (v) other HME medical devices and supplies on behalf of chronically ill patients with wound care, urological, incontinence, ostomy and nutritional supply needs. AdaptHealth services beneficiaries of Medicare, Medicaid and commercial payors.

On July 8, 2019, AdaptHealth Holdings LLC (AdaptHealth Holdings) entered into an Agreement and Plan of Merger (the Merger Agreement), as amended on October 15, 2019, with DFB, pursuant to which AdaptHealth Holdings combined with DFB (the Business Combination). The Business Combination closed on November 8, 2019.

Unless the context otherwise requires, “the Company”, “we,” “us,” and “our” refer, for periods prior to the closing of the Business Combination, to AdaptHealth Holdings and its subsidiaries and, for periods upon or after the closing of the Business Combination, to AdaptHealth Corp. and its subsidiaries, including AdaptHealth Holdings and its subsidiaries.

The consolidated interim financial statements are unaudited, but reflect all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2020. Interim results are not necessarily indicative of the results for a full year.

There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2020.

(a)          Basis of Presentation

The consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). In the opinion of management, the consolidated interim financial statements include all necessary adjustments for a fair presentation of the financial position and results of operations for the periods presented.

The Business Combination was accounted for as a reverse recapitalization, with DFB treated as the acquired company and AdaptHealth Holdings as the acquirer, for financial reporting purposes. Therefore, the equity structure has been restated to that of the Company.

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the Securities Act), as modified by the Jumpstart our Business Startups Act of 2012, (the JOBS Act), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and other exemptions. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of our Class A Common Stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal

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ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Consolidated Interim Financial Statements (Unaudited)

year in which we have total annual gross revenue of $1.07 billion or more during such fiscal year, (iii) the date on which we have issued more than $1.0 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock in the IPO, which would be December 31, 2023. The Company generated net revenue for the year ended December 31, 2020 of $1.06 billion. If the Company continues to expand its business through acquisitions and/or continues to grow revenues organically, or if the Company continues to issue debt, including to fund such acquisitions, it may cease to be an emerging growth company prior to December 31, 2023. For instance, the Company expects to exceed $1.07 billion in revenue for the year ended December 31, 2021, meaning it would no longer be an emerging growth company as of December 31, 2021. In addition, the Company may no longer qualify as an emerging growth company as of December 31, 2021 due to the market value of its Class A Common Stock that is held by non-affiliates, assuming no material decline in the market price of its Class A Common Stock as of June 30, 2021.

(b)         Basis of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

(c)          Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

(d)          Accounting Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and reported amounts of revenues and expenses during the reporting period. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements and other factors that management believes to be reasonable. Significant areas requiring the use of management estimates relate to revenue recognition and the valuation of accounts receivable (implicit price concession), income taxes, contingent consideration, equity-based compensation, interest rate swaps, warrant liability and long-lived assets, including goodwill and identifiable intangible assets. Actual results could differ from those estimates.

(e)          Valuation of Goodwill

The Company has a significant amount of goodwill on its balance sheet that resulted from the business acquisitions the Company has made in recent years. Goodwill is not amortized and is tested for impairment annually and upon the occurrence of a triggering event or change in circumstances indicating a possible impairment. Such changes in circumstance can include, among others, changes in the legal environment, reimbursement environment, operating performance, and/or future prospects. The Company performs its annual impairment review of goodwill during the fourth quarter of each year. The impairment testing can be performed on either a quantitative or qualitative basis. The Company first assesses qualitative factors to determine whether it is necessary to perform quantitative goodwill impairment testing. If determined necessary, the Company applies the quantitative impairment test to identify and measure the amount of impairment, if any.

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ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Consolidated Interim Financial Statements (Unaudited)

(f) Impairment of Long Lived Assets

The Company’s long lived assets, such as equipment and other fixed assets and definite-lived identifiable intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Definite-lived identifiable intangible assets consist of tradenames, payor contracts, contractual rental agreements and developed technology. These assets are amortized using the straight-line method over their estimated useful lives, which reflects the pattern in which the economic benefits of the assets are expected to be consumed. These assets are tested for impairment consistent with the Company’s long-lived assets. The following table summarizes the useful lives of the identifiable intangible assets acquired:

Tradenames

5 to 10

years

Payor contracts

10

years

Contractual rental agreements

2

years

Developed technology

5

years

The Company did not incur any impairment charges on long-lived assets for the three months ended March 31, 2021 and 2020. In addition to consideration of impairment upon the events or changes in circumstances described above, management regularly evaluates the remaining lives of its long lived assets.

(g)          Business Segment

The Company’s chief operating decision-makers are its Co-Chief Executive Officer and President, who make resource allocation decisions and assess performance based on financial information presented on an aggregate basis. There are no segment managers who are held accountable by the chief operating decision-makers, or anyone else, for any planning, strategy and key decision-making regarding operations. The corporate office is responsible for contract negotiation with vendors and payors, corporate compliance with healthcare laws and regulations, and revenue cycle management. Accordingly, the Company has a single reportable segment and operating segment structure.

(h)        Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize leases on its-balance sheet and disclose key information about leasing arrangements. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use (ROU) asset on the balance sheet for most leases. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company expects to elect the “package of practical expedients” under the new standard, which, among other things, permits lease agreements that are twelve months or less to be excluded from the balance sheet, and permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company will adopt the new standard during the year ended December 31, 2021. The Company expects to adopt this guidance using a modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application, and will recognize a cumulative-effect adjustment to the opening balance of accumulated deficit in the period of adoption. The Company expects that this standard will have a material effect on its consolidated financial statements. While the Company continues to assess all of the effects of adoption, it currently believes the most significant effects relate to the recognition of new ROU assets and lease

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ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Consolidated Interim Financial Statements (Unaudited)

liabilities on its consolidated balance sheet for its real estate operating leases, and providing significant new disclosures about its leasing activities.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which is intended to improve financial reporting by requiring earlier recognition of credit losses on certain financial assets. The standard replaces the current incurred loss impairment model that recognizes losses when a probable threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. Further, the FASB issued ASU 2019-04 and ASU 2019-05 to provide additional guidance on the credit losses standard. The standard is effective for fiscal years beginning after December 15, 2022, for smaller reporting companies, including interim periods within those annual periods, with early adoption permitted. The Company will adopt the new standard during the year ended December 31, 2021. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Specifically, the guidance permits an entity, when certain criteria are met, to consider amendments to contracts made to comply with reference rate reform to meet the definition of a modification under GAAP. It further allows hedge accounting to be maintained and a one-time transfer or sale of qualifying held-to-maturity securities. The expedients and exceptions provided by the amendments are permitted to be adopted any time through December 31, 2022 and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for certain optional expedients elected for certain hedging relationships existing as of December 31, 2022. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

(i)        Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

(2)         Revenue Recognition and Accounts Receivable

Revenue Recognition

The Company generates revenues for services and related products that the Company provides to patients for home medical equipment, related supplies, and other items. The Company’s revenues are recognized in the period in which services and related products are provided to customers and are recorded either at a point in time for the sale of supplies and disposables, or over the fixed monthly service period for equipment.

Revenues are recognized when control of the promised good or service is transferred to customers, in an amount that reflects the consideration to which the Company expects to receive from patients or under reimbursement arrangements with Medicare, Medicaid and third-party payors, in exchange for those goods and service.

The Company determines the transaction price based on contractually agreed-upon amounts or rates, adjusted for estimates of variable consideration, such as implicit price concessions. The Company utilizes the expected value method to determine the amount of variable consideration that should be included to arrive at the transaction price, using contractual agreements and historical reimbursement experience within each payor type. The Company applies constraint to the transaction price, such that net revenue is recorded only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in the future. If actual amounts of consideration ultimately received differ from the Company’s estimates, the Company adjusts these estimates, which would affect net revenue in the period such adjustments become known.

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ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Consolidated Interim Financial Statements (Unaudited)

Sales revenue is recognized upon transfer of control of products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Revenues for the sale of durable medical equipment and related supplies, including oxygen equipment, ventilators, wheelchairs, hospital beds and infusion pumps, are recognized when control of the promised good or service is transferred to customers, which is generally upon shipment for direct to consumer supplies and upon delivery to the home for durable medical equipment.

The Company provides certain equipment to patients which is reimbursed periodically in fixed monthly payments for as long as the patient is using the equipment and medical necessity continues (in certain cases, the fixed monthly payments are capped at a certain amount). The equipment provided to the patient is based upon medical necessity as documented by prescriptions and other documentation received from the patient’s physician. The patient generally does not negotiate or have input with respect to the manufacturer or model of the equipment prescribed by their physician and delivered by the Company. Once initial delivery of this equipment is made to the patient for initial setup, a monthly billing process is established based on the initial setup service date. The Company recognizes the fixed monthly revenue ratably over the service period as earned, less estimated adjustments, and defers revenue for the portion of the monthly bill that is unearned. No separate revenue is earned from the initial setup process. Included in fixed monthly revenue are unbilled amounts for which the revenue recognition criteria had been met as of period-end but were not yet billed to the payor. The estimate of net unbilled fixed monthly revenue recognized is based on historical trends and estimates of future collectability.

The Company’s billing system contains payor-specific price tables that reflect the fee schedule amounts in effect or contractually agreed upon by various government and commercial payors for each item of equipment or supply provided to a customer. Revenues are recorded based on the applicable fee schedule. The Company has established a contractual allowance to account for adjustments that result from differences between the payment amount received and the expected realizable amount. If the payment amount received differs from the net realizable amount, an adjustment is recorded to revenues in the period that these payment differences are determined. The Company reports revenues in its consolidated financial statements net of such adjustments.

The Company’s business experiences some seasonality. Its patients are generally responsible for a greater percentage of the cost of their treatment or therapy during the early months of the year due to co-insurance, co-payments and deductibles, and therefore may defer treatment and services of certain therapies until meeting their annual deductibles. In addition, changes to employer insurance coverage often go into effect at the beginning of each calendar year which may impact eligibility requirements and delay or defer treatment. These factors may lead to lower net revenue and cash flow in the early part of the year versus the latter half of the year. Additionally, the increased incidence of respiratory infections during the winter season may result in initiation of additional respiratory services such as oxygen therapy for certain patient populations. The Company’s net revenue and quarterly operating results may fluctuate significantly in the future depending on these and other factors.

The Company recognizes revenue in the consolidated statements of operations and contract assets on the consolidated balance sheets only when services have been provided. Since the Company has performed its obligation under the contract, it has unconditional rights to the consideration recorded as contract assets and therefore classifies those billed and unbilled contract assets as accounts receivable.

Fixed monthly payments that the Company receives from customers in advance of providing services represent contract liabilities. Such payments primarily relate to patients who are billed monthly in advance and are recognized over the period as earned.

The Company disaggregates net revenue from contracts with customers by payor type and by core service lines. The Company believes that disaggregation of net revenue into these categories depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The payment terms and conditions within the Company’s revenue-generating contracts vary by payor type and payor source.

13

Table of Contents

ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Consolidated Interim Financial Statements (Unaudited)

The composition of net revenue by payor type for the three months ended March 31, 2021 and 2020 are as follows (in thousands):

Three Months Ended March 31, 

2021

2020

Insurance

$

290,010

$

114,451

Government

133,730

51,245

Patient pay

 

58,379

 

25,743

Net revenue

$

482,119

$

191,439

The composition of net revenue by core service lines for the three months ended March 31, 2021 and 2020 are as follows (in thousands):

Three Months Ended March 31, 

2021

2020

Net sales revenue:

Sleep

$

128,682

$

68,894

Diabetes

95,017

5,307

Supplies to the home

41,363

28,032

Respiratory

 

5,621

 

2,768

HME

24,156

11,579

Other

22,426

12,393

Total net sales revenue

$

317,265

$

128,973

Net revenue from fixed monthly equipment reimbursements:

Sleep

$

48,109

$

22,669

Diabetes

2,853

Respiratory

 

83,454

 

25,007

HME

20,380

12,177

Other

10,058

2,613

Total net revenue from fixed monthly equipment reimbursements

$

164,854

$

62,466

Total net revenue:

Sleep

$

176,791

$

91,563

Diabetes

97,870

5,307

Supplies to the home

41,363

28,032

Respiratory

 

89,075

 

27,775

HME

44,536

23,756

Other

32,484

15,006

Total net revenue

$

482,119

$

191,439

In response to the COVID-19 pandemic and the National Emergency Declaration, dated March 13, 2020, the Company increased its cash liquidity by, among other things, seeking recoupable advance payments of $45.8 million made available by CMS under the CARES Act legislation, which was received in April 2020. In addition, in connection with an acquisition completed prior to March 31, 2021, the Company assumed a liability of $3.7 million relating to funds received by the acquired company prior to the date of acquisition for CMS recoupable advance payments. At March 31, 2021, the Company has deferred a total of $49.5 million related to CMS recoupable advance payments, which is included in other current liabilities in the consolidated balance sheet as of March 31, 2021. The recoupment of the

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ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Consolidated Interim Financial Statements (Unaudited)

advance payments by CMS has begun in April 2021 and is being applied to services provided and revenue recognized during the period in which the recoupment occurs.

Accounts Receivable

Due to the continuing changes in the healthcare industry and third-party reimbursement environment, certain estimates are required to record accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. The complexity of third-party billing arrangements and laws and regulations governing Medicare and Medicaid may result in adjustments to amounts originally recorded.

The Company performs a periodic analysis to review the valuation of accounts receivable and collectability of outstanding balances. Management’s evaluation takes into consideration such factors as historical bad debt experience, business and economic conditions, trends in healthcare coverage, other collection indicators and information about specific receivables. The Company’s evaluation also considers the age and composition of the outstanding amounts in determining their estimated net realizable value.

Receivables are considered past due when not collected by established due dates. Specific patient balances are written off after collection efforts have been followed and the account has been determined to be uncollectible. Revisions in reserve estimates are recorded as an adjustment to net revenue in the period of revision.

Included in accounts receivable are earned but unbilled accounts receivables. Billing delays, ranging from several days to several weeks, can occur due to the Company’s policy of compiling required payor specific documentation prior to billing for its services rendered. At March 31, 2021 and December 31, 2020, the Company recorded unbilled accounts receivables of $13.8 million and $20.2 million, respectively.

(3)          Acquisitions

During the three months ended March 31, 2021 and 2020, 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 majority of the goodwill recorded during the three months ended March 31, 2021 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 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.

Three Months Ended March 31, 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 durable medical equipment products. The total consideration consisted of (i) a cash payment of approximately $1.1 billion at closing, (ii) the issuance of 13,992,615 shares of the Company’s Class A Common Stock at closing, (iii) the issuance of 130,474.73 shares of the Company’s Series C Convertible Preferred Stock at closing, and (iv) the issuance of 3,959,892 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

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ADAPTHEALTH CORP. AND SUBSIDIARIES

Notes to Consolidated Interim Financial Statements (Unaudited)

share and a weighted-average remaining exercise period of approximately 7 years from the date of closing. Refer to Note 10, Stockholders’ Equity – Preferred Stock, for additional discussion of the Series C Convertible Preferred Stock issued in connection with the acquisition of AeroCare. The Company allocated the consideration paid to the estimated fair values of the net assets acquired on a provisional basis, including $27.7 million to cash, $75.9 million to accounts receivable, $27.6 million to inventory, $163.5 million to equipment and other fixed assets, $138.2 million to identifiable intangible assets (consisting of $70.0 million of contractual rental agreements and $68.2 million of tradenames), $2.1 billion to goodwill, $82.7 million to accounts payable and accrued expenses, $63.7 million to deferred tax liabilities, and $20.9 million of net liabilities to other working capital accounts.

In addition, during the three months ended March 31, 2021, the Company acquired 100% of the equity interests of two providers of home medical equipment, and acquired certain assets of the durable medical equipment business of a provider of home medical equipment. The Company allocated the consideration paid for these acquisitions to the estimated fair values of the net assets acquired on a provisional basis, including $1.6 million to cash, $6.4 million to accounts receivable, $5.4 million to inventory, $13.2 million to equipment and other fixed assets, $1.5 million to identifiable intangible assets (consisting of tradenames), $38.1 million to goodwill, $5.0 million to accounts payable and accrued expenses, and $0.5 million of net liabilities to other working capital accounts. One of the acquisitions also includes potential contingent payments of up to $4.0 million based on certain conditions after closing, which was determined to have a nominal acquisition date fair value, and thus no contingent liability was recorded in connection with the Company’s preliminary acquisition accounting for the acquisition.

In addition, during the three months ended March 31, 2021, the Company completed certain other acquisitions which in the aggregate had a consideration paid of approximately $2.2 million.

The following table summarizes the consideration paid for all acquisitions during the three months ended March 31, 2021 (in thousands):

Cash consideration

$

1,207,958

Equity consideration

 

1,223,527

Deferred payments

 

423

Total

$

2,431,908

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 evaluation during the remainder of 2021. 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 the three months ended March 31, 2021 was allocated as follows during such period (in thousands):

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Notes to Consolidated Interim Financial Statements (Unaudited)

Cash

$

29,232

Accounts receivable

 

82,352

Inventory

 

33,149

Prepaid and other current assets

 

4,380

Equipment and other fixed assets

 

177,088

Goodwill

 

2,143,322

Identifiable intangible assets

139,700

Other assets

1,178

Deferred tax liabilities

(63,501)

Accounts payable and accrued expenses

 

(87,823)

Contract liabilities

(14,538)

Other current liabilities

(11,576)

Other long-term liabilities

(1,055)

Net assets acquired

$

2,431,908

During the three months ended March 31, 2021, the Company received net receipts of $0.6 million relating to working capital adjustments associated with businesses that were acquired during 2020 which was recorded as a decrease to goodwill during the period.

Three Months Ended March 31, 2020

On January 2, 2020, the Company purchased 100% of the equity interests of the Patient Care Solutions business (PCS), which was a subsidiary of McKesson Corporation. PCS is a home medical equipment supplies business. During the three months ended March 31, 2020, the Company allocated the consideration paid to the estimated fair values of the net assets acquired on a provisional basis, including $16.3 million to accounts receivable, $0.5 million to equipment and other fixed assets, $1.4 million to goodwill, and $3.2 million of net liabilities to other working capital accounts.

On March 2, 2020, the Company purchased certain assets of the durable medical equipment business of Advanced Home Care, Inc. (Advanced). During the three months ended March 31, 2020, the Company allocated the consideration paid to the estimated fair values of the net assets acquired on a provisional basis, including $18.5 million to equipment and other fixed assets, $38.5 million to goodwill, and $1.5 million of net assets to other working capital accounts. The acquisition of Advanced also includes a potential contingent payment of up to $9.0 million based on certain conditions after closing. As of March 31, 2020, the Company had not yet determined the fair value of such contingent payment, as such an estimated fair value was not included in the consideration paid as part of the Company’s preliminary acquisition accounting during the three months ended March 31, 2020. Subsequent to March 31, 2020, the Company determined that the potential contingent payment had an acquisition date fair value of $5.0 million which was recorded as a contingent liability. The fair value of the estimated contingent liability of $5.0 million at March 31, 2021 is included in other current liabilities in the accompanying consolidated balance sheets based on the expected payment date.

In addition, during the three months ended March 31, 2020, the Company acquired 100% of the equity interests of a provider of home medical equipment. The Company allocated the consideration paid for this acquisition to the estimated fair values of the net assets acquired on a provisional basis, including $0.3 million to cash, $3.3 million to accounts receivable, $0.9 million to inventory, $5.5 million to equipment and other fixed assets, $33.8 million to goodwill, $2.9 million to accounts payable and accrued expenses, $1.6 million to capital lease obligations, and $0.6 million of net liabilities to other working capital accounts.

In addition, during the three months ended March 31, 2020, the Company completed certain other acquisitions which in the aggregate had a consideration paid of approximately $0.2 million.

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Notes to Consolidated Interim Financial Statements (Unaudited)

The following table summarizes the consideration paid for all acquisitions during the three months ended March 31, 2020 (in thousands):

Cash consideration

$

106,178

Equity consideration

 

6,248

Deferred payments

14

Total

$

112,440

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 three months ended March 31, 2020 was allocated as follows during such period (in thousands):

Cash

$

337

Accounts receivable

 

19,574

Inventory

 

4,780

Prepaid and other current assets

 

1,334

Equipment and other fixed assets

 

24,406

Goodwill

 

74,016

Accounts payable and accrued expenses

 

(6,494)

Contract liabilities

(2,467)

Unfavorable lease liability

(1,419)

Capital lease obligations

(1,627)

Net assets acquired

$

112,440

The Company finalized the valuation of the fair value of the net assets acquired for these acquisitions during the remainder of 2020.

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 significant acquisitions described above. 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)

Three Months Ended March 31, 

2021

    

2020

Net revenue

$

564,148

$

482,471

Operating income

$

21,511

$

41,059

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Notes to Consolidated Interim Financial Statements (Unaudited)

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 significant acquisitions described above that is included in the Company’s consolidated statements of operations for the three months ended March 31, 2021 and 2020:

(in thousands)

Three Months Ended March 31, 

2021

    

2020

Net revenue

$

142,648

$

40,725

Operating income (loss)

$

20,383

$

(5,560)

(4)          Equipment and Other Fixed Assets

Equipment and other fixed assets as of March 31, 2021 and December 31, 2020 are as follows (in thousands):

    

March 31, 

December 31,

2021

    

2020

Patient medical equipment

$

341,734

    

$

158,108

Delivery vehicles

 

19,997

    

 

8,211

Other

 

38,630

    

 

26,098

 

400,361

 

192,417

Less accumulated depreciation

 

(101,824)

 

(81,949)

$

298,537

$

110,468

(5)          Goodwill and Identifiable Intangible Assets

Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The change in the carrying amount of goodwill for the three months ended March 31, 2021 was as follows (in thousands):

Balance at December 31, 2020

$

998,810

Goodwill from acquisitions

2,143,322

Net receipts relating to prior acquisitions

(558)

Increase

502

Balance at March 31, 2021

$

3,142,076

Annually, and upon the identification of a triggering event, management is required to perform an evaluation of the recoverability of goodwill. Triggering events potentially warranting an interim goodwill impairment test include, amongst other factors, declines in historical or projected revenue, operating income or cash flows, and declines in the Company’s stock price or market capitalization. While management cannot predict if or when future goodwill impairments may occur, a goodwill impairment could have a material adverse effect on the Company’s operating income, net assets and the Company’s cost of, or access to, capital. The Company did not record any goodwill impairment charges during the three months ended March 31, 2021 and 2020.

As discussed in Note 3, Acquisitions, during the three months ended March 31, 2021, the Company received net receipts of $0.6 million relating to working capital adjustments associated with businesses that were acquired during 2020 which was recorded as a reduction to goodwill during the period. The other increase in the table above relates to measurement period adjustments relating to businesses that were acquired by the Company during 2020.

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Notes to Consolidated Interim Financial Statements (Unaudited)

Identifiable intangible assets that are separable and have determinable useful lives are valued separately and amortized over the period which reflects the pattern in which the economic benefits of the assets are expected to be consumed. Identifiable intangible assets consisted of the following at March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021

Weighted-Average

Remaining Life (Years)

Tradenames, net of accumulated amortization of $3,917

$

99,383

9.5

Payor contracts, net of accumulated amortization of $5,666

76,334

9.3

Contractual rental agreements, net of accumulated amortization of $5,833

64,167

2.0

Developed technology, net of accumulated amortization of $945

5,355

4.3

Identifiable intangible assets, net

$

245,239

December 31, 2020

Weighted-Average

Remaining Life (Years)

Tradenames, net of accumulated amortization of $1,793

$

32,007

8.8

Payor contracts, net of accumulated amortization of $3,616

78,384

9.6

Developed technology, net of accumulated amortization of $630

5,670

4.5

Identifiable intangible assets, net

$

116,061

Amortization expense related to identifiable intangible assets, which is included in depreciation and amortization, excluding patient equipment depreciation, in the accompanying statements of operations, was $10.3 million for the three months ended March 31, 2021. There was no amortization expense related to identifiable intangible assets for the three months ended March 31, 2020.

Future amortization expense related to identifiable intangible assets is estimated to be as follows (in thousands):

Twelve months ending March 31, 

    

2022

$

55,416

2023

 

49,583

2024

 

20,416

2025

 

20,402

2026

 

18,899

Thereafter

 

80,523

Total

$

245,239

The Company recorded no impairment charges related to identifiable intangible assets during the three months ended March 31, 2021 and 2020.

(6)          Fair Value of Assets and Liabilities

FASB ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820), creates a single definition of fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. Assets and liabilities adjusted to fair value in the balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by ASC 820, are as follows:

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Notes to Consolidated Interim Financial Statements (Unaudited)

Level input

Input Definition

Level 1

Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.

Level 2

Inputs, other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.

Level 3

Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The following table presents the valuation of the Company’s financial assets and liabilities as of March 31, 2021 and December 31, 2020 measured at fair value on a recurring basis. The fair value estimates presented herein are based on information available to management as of March 31, 2021 and December 31, 2020. These estimates are not necessarily indicative of the amounts the Company could ultimately realize.

(in thousands)

    

Level 1

    

Level 2

    

Level 3

March 31, 2021

Assets

 

  

 

  

 

  

Money market accounts

$

59

$

$

Total assets measured at fair value

$

59

$

$

Liabilities

 

  

 

  

 

  

Acquisition-related contingent consideration-short term

$

$

$

32,258

Acquisition-related contingent consideration-long term

 

 

 

1,548

Interest rate swap agreements-short term

5,919

Interest rate swap agreements-long term

 

 

7,657

 

Contingent consideration common shares liability-short term

36,103

Contingent consideration common shares liability-long term

32,409

Warrant liability

110,737

Total liabilities measured at fair value

$

$

13,576

$

213,055

(in thousands)

    

Level 1

    

Level 2

    

Level 3

December 31, 2020

Assets

 

  

 

  

 

  

Money market accounts

$

5,602

$

$

Total assets measured at fair value

$

5,602

$

$

Liabilities

 

  

 

  

 

  

Acquisition-related contingent consideration-short term

$

$

$

23,941

Acquisition-related contingent consideration-long term

 

 

 

9,599

Interest rate swap agreements-short term