Exhibit 99.3
ADDUS HOMECARE CORPORATION AND SUBSIDIARIES
Pro Forma Combined Balance Sheet
As of June 30, 2019
(Amounts in thousands)
(Unaudited)
|
| Addus |
|
| Hospice Partners of America |
|
| Pro Forma Adjustments |
|
| Notes |
| Pro Forma Combined |
| ||||
Assets |
|
|
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Current assets |
|
|
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|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 54,792 |
|
| $ | 4,078 |
|
| $ | 42,945 |
|
| (d) |
| $ | 101,815 |
|
Accounts receivable, net of allowances |
|
| 132,764 |
|
|
| 6,530 |
|
|
| — |
|
|
|
|
| 139,294 |
|
Prepaid expenses and other current assets |
|
| 9,148 |
|
|
| 944 |
|
|
| — |
|
|
|
|
| 10,092 |
|
Total current assets |
|
| 196,704 |
|
|
| 11,552 |
|
|
| 42,945 |
|
|
|
|
| 251,201 |
|
Property and equipment, net of accumulated depreciation and amortization |
|
| 11,428 |
|
|
| 169 |
|
|
| — |
|
|
|
|
| 11,597 |
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| — |
|
|
| 70 |
|
|
| — |
|
|
|
|
| 70 |
|
Goodwill |
|
| 145,812 |
|
|
| 14,038 |
|
|
| 84,006 |
|
| (b) |
|
| 243,856 |
|
Intangibles, net of accumulated amortization |
|
| 36,480 |
|
|
| — |
|
|
| 32,644 |
|
| (c) |
|
| 69,124 |
|
Operating lease right of use assets, net |
|
| 18,260 |
|
|
| — |
|
|
| 2,661 |
|
| (e) |
|
| 20,921 |
|
Total other assets |
|
| 200,552 |
|
|
| 14,108 |
|
|
| 119,311 |
|
|
|
|
| 333,971 |
|
Total assets |
| $ | 408,684 |
|
| $ | 25,829 |
|
| $ | 162,256 |
|
|
|
| $ | 596,769 |
|
Liabilities and stockholders’ equity |
|
|
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Current liabilities |
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|
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|
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Accounts payable |
| $ | 13,230 |
|
| $ | 870 |
|
| $ | — |
|
|
|
| $ | 14,100 |
|
Accrued expenses |
|
| 55,139 |
|
|
| 5,350 |
|
|
| 835 |
|
| (e) |
|
| 61,324 |
|
Current portion of long-term debt |
|
| 955 |
|
|
| 1,586 |
|
|
| — |
|
|
|
|
| 2,541 |
|
Total current liabilities |
|
| 69,324 |
|
|
| 7,806 |
|
|
| 835 |
|
|
|
|
| 77,965 |
|
Long-term liabilities |
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|
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|
|
|
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Long-term debt, less current portion, net of debt issuance costs |
|
| 36,231 |
|
|
| 1,147 |
|
|
| — |
|
|
|
|
| 37,378 |
|
Long-term operating lease liabilities |
|
| 12,929 |
|
|
| — |
|
|
| 1,826 |
|
| (e) |
|
| 14,755 |
|
Deferred tax liabilities, net |
|
| 617 |
|
|
| — |
|
|
| 3,526 |
|
| (f) |
|
| 4,143 |
|
Other long-term liabilities |
|
| 242 |
|
|
| — |
|
|
| — |
|
|
|
|
| 242 |
|
Total long-term liabilities |
|
| 50,019 |
|
|
| 1,147 |
|
|
| 5,352 |
|
|
|
|
| 56,518 |
|
Total liabilities |
| $ | 119,343 |
|
| $ | 8,953 |
|
| $ | 6,187 |
|
|
|
| $ | 134,483 |
|
Stockholders’ equity |
|
|
|
|
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|
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|
|
|
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Common stock |
| $ | 13 |
|
| $ | — |
|
| $ | 2 |
|
| (d) |
| $ | 15 |
|
Additional paid-in capital |
|
| 181,111 |
|
|
| — |
|
|
| 172,943 |
|
| (d) |
|
| 354,054 |
|
Retained earnings |
|
| 108,217 |
|
|
| 16,876 |
|
|
| (16,876 | ) |
| (g) |
|
| 108,217 |
|
Total stockholders’ equity |
|
| 289,341 |
|
|
| 16,876 |
|
|
| 156,069 |
|
|
|
|
| 462,286 |
|
Total liabilities and stockholders’ equity |
| $ | 408,684 |
|
| $ | 25,829 |
|
| $ | 162,256 |
|
|
|
| $ | 596,769 |
|
ADDUS HOMECARE CORPORATION AND SUBSIDIARIES
Pro Forma Combined Statement of Operations
For the Six Months Ended June 30, 2019
(Amounts and shares in thousands, except per share data)
(Unaudited)
| Addus |
|
| Hospice Partners of America |
|
| Pro Forma Adjustments |
|
| Notes |
| Pro Forma Combined |
| |||||
Net service revenues |
| $ | 288,946 |
|
| $ | 27,136 |
|
| $ | — |
|
|
|
| $ | 316,082 |
|
Cost of service revenues |
|
| 210,902 |
|
|
| 11,736 |
|
|
| — |
|
|
|
|
| 222,638 |
|
Gross profit |
|
| 78,044 |
|
|
| 15,400 |
|
|
| — |
|
|
|
|
| 93,444 |
|
General and administrative expenses |
|
| 59,479 |
|
|
| 11,988 |
|
|
| (197 | ) |
| (a) |
|
| 71,270 |
|
Depreciation and amortization |
|
| 4,609 |
|
|
| — |
|
|
| 197 |
|
| (a) |
|
| 4,806 |
|
|
|
|
|
|
|
|
|
|
|
| 1,028 |
|
| (c) |
|
| 1,028 |
|
Total operating expenses |
|
| 64,088 |
|
|
| 11,988 |
|
|
| 1,028 |
|
|
|
|
| 77,104 |
|
Operating income |
|
| 13,956 |
|
|
| 3,412 |
|
|
| (1,028 | ) |
|
|
|
| 16,340 |
|
Interest income |
|
| (310 | ) |
|
| — |
|
|
| (4 | ) |
|
|
|
| (314 | ) |
Interest expense |
|
| 1,298 |
|
|
| 144 |
|
|
| — |
|
|
|
|
| 1,442 |
|
Total interest expense (income), net |
|
| 988 |
|
|
| 144 |
|
|
| (4 | ) |
|
|
|
| 1,128 |
|
Other income |
|
| — |
|
|
| (4 | ) |
|
| 4 |
|
| (a) |
|
| — |
|
Income before income taxes |
|
| 12,968 |
|
|
| 3,272 |
|
|
| (1,028 | ) |
|
|
|
| 15,212 |
|
Income tax expense |
|
| 2,588 |
|
|
| — |
|
|
| 582 |
|
| (h) |
|
| 3,170 |
|
Net income |
| $ | 10,380 |
|
| $ | 3,272 |
|
| $ | (1,610 | ) |
|
|
| $ | 12,042 |
|
Net income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Basic income per share |
| $ | 0.80 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 0.79 |
|
Diluted income per share |
| $ | 0.77 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 0.77 |
|
Weighted average number of common shares and potential common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 13,019 |
|
|
|
|
|
|
| 2,300 |
|
| (d) |
|
| 15,319 |
|
Diluted |
|
| 13,413 |
|
|
|
|
|
|
| 2,300 |
|
| (d) |
|
| 15,713 |
|
2
ADDUS HOMECARE CORPORATION AND SUBSIDIARIES
Pro Forma Combined Statement of Operations
For the Twelve Months Ended December 31, 2018
(Amounts and shares in thousands, except per share data)
(Unaudited)
| Addus |
|
| Hospice Partners of America |
|
| Pro Forma Adjustments |
|
| Notes |
| Pro Forma Combined |
| |||||
Net service revenues |
| $ | 518,119 |
|
| $ | 49,698 |
|
| $ | — |
|
|
|
| $ | 567,817 |
|
Cost of service revenues |
|
| 379,843 |
|
|
| 22,947 |
|
|
| — |
|
|
|
|
| 402,790 |
|
Gross profit |
|
| 138,276 |
|
|
| 26,751 |
|
|
| — |
|
|
|
|
| 165,027 |
|
General and administrative expenses |
|
| 105,335 |
|
|
| 24,124 |
|
|
| (619 | ) |
| (a) |
|
| 128,840 |
|
Depreciation and amortization |
|
| 8,642 |
|
|
| — |
|
|
| 570 |
|
| (a) |
|
| 9,212 |
|
|
|
|
|
|
|
|
|
|
|
| 1,944 |
|
| (c) |
|
| 1,944 |
|
Total operating expenses |
|
| 113,977 |
|
|
| 24,124 |
|
|
| 1,895 |
|
|
|
|
| 139,996 |
|
Operating income from continuing operations |
|
| 24,299 |
|
|
| 2,627 |
|
|
| (1,895 | ) |
|
|
|
| 25,031 |
|
Interest income |
|
| (2,592 | ) |
|
| — |
|
|
| — |
|
|
|
|
| (2,592 | ) |
Interest expense |
|
| 5,016 |
|
|
| 280 |
|
|
| — |
|
|
|
|
| 5,296 |
|
Total interest expense, net |
|
| 2,424 |
|
|
| 280 |
|
|
| — |
|
|
|
|
| 2,704 |
|
Other income |
|
| — |
|
|
| (49 | ) |
|
| 49 |
|
| (a) |
|
| — |
|
Income before income taxes |
|
| 21,875 |
|
|
| 2,396 |
|
|
| (1,944 | ) |
|
|
|
| 22,327 |
|
Income tax expense |
|
| 4,498 |
|
|
| — |
|
|
| 123 |
|
| (h) |
|
| 4,621 |
|
Net income from continuing operations |
| $ | 17,377 |
|
| $ | 2,396 |
|
| $ | (2,067 | ) |
|
|
| $ | 17,706 |
|
Net income from continuing operations per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share |
| $ | 1.44 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 1.23 |
|
Diluted income per share |
| $ | 1.40 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 1.21 |
|
Weighted average number of common shares and potential common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 12,049 |
|
|
|
|
|
|
| 2,300 |
|
| (d) |
|
| 14,349 |
|
Diluted |
|
| 12,383 |
|
|
|
|
|
|
| 2,300 |
|
| (d) |
|
| 14,683 |
|
3
ADDUS HOMECARE CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Combined Financial Statements
Note 1 – Description of the Transaction
On October 1, 2019 Addus HealthCare completed its acquisition of Hospice Partners. Addus HealthCare acquired all of the issued and outstanding securities of Hospice Partners for an aggregate purchase price of $130.0 million, subject to customary adjustments for working capital and other items, which was paid in full in cash at the closing. The purchase was funded through the net proceeds of the Corporation’s public offering of common stock, which closed on September 9, 2019.
Hospice Partners is a multi-state provider of hospice services headquartered in Birmingham, Alabama. Hospice Partners currently serves patients through 21 locations across Idaho, Kansas, Missouri, Oregon, Texas and Virginia. Hospice Partners also launched a palliative care program in Texas in 2018.
Note 2 – Basis of Presentation
The unaudited pro forma combined financial information is based on historical financial statements of the Corporation and Hospice Partners, as adjusted for the unaudited pro forma effects of the transaction. The unaudited pro forma combined financial information should be read in conjunction with:
| • | the historical consolidated financial statements and accompanying notes of the Corporation included in its Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 18, 2019; |
| • | the unaudited historical condensed consolidated financial statements and accompanying notes of the Corporation included in its Quarterly Report on Form 10-Q for the six months ended June 30, 2019 filed with the SEC on August 8, 2019; |
| • | the historical consolidated financial statements and accompanying notes of Hospice Partners for the calendar year ended December 31, 2018 included in this Amendment No. 1 to Current Report on Form 8-K; and |
| • | the historical unaudited condensed financial statements and accompanying notes of Hospice Partners as of June 30, 2019 and December 31, 2018, and for the six months ended June 30, 2019 and 2018 also included in this Amendment No. 1 to Current Report on Form 8-K. |
The unaudited pro forma combined balance sheet presents the financial position of the Corporation as if the transaction was consummated on June 30, 2019. The unaudited pro forma combined statements of operations for the six months ended June 30, 2019 and for the year ended December 31, 2018 give effect as if the transaction was consummated on January 1, 2018.
The unaudited pro forma adjustments and related assumptions are described in the accompanying notes to the unaudited pro forma combined financial information. The unaudited pro forma combined financial information has been prepared based upon currently available information and assumptions that are deemed appropriate by the Corporation’s management. The unaudited pro forma combined financial information has been adjusted to give effect to pro forma events that are (i) directly attributable to the transaction, (ii) factually supportable, and (iii) with respect to the unaudited pro forma combined statements of operations, expected to have a continuing impact on the Corporation. The unaudited pro forma combined financial information is for informational and illustrative purposes only and is not intended to be indicative of what actual results would have been had the transaction occurred on the dates assumed, nor does such data purport to represent the consolidated financial results of the Corporation for future periods. The actual financial position and results of operations may differ significantly from the unaudited pro forma amounts reflected herein due to a variety of factors.
4
ADDUS HOMECARE CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Combined Financial Statements
The unaudited pro forma combined financial information of the Corporation was prepared in accordance with Article 11 of Regulation S-X.
Note 3 – Conformity of Accounting Policies
The unaudited pro forma financial information includes adjustments to conform the accounting policies of Hospice Partners to those of the Corporation. The impact of the adoption of Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”), has been reflected in the pro forma combined balance sheet as more fully described in Note 5(e). The impact of the adoption of ASC 842 on the pro forma combined statements of operations was not material. The impact of the adoption of ASC 606, Revenue from Contracts with Customers, for the year ended December 31, 2018, would have had an immaterial impact on the historical financial statements of Hospice Partners.
Note 4 – Purchase Consideration and Preliminary Purchase Price Allocation
The following preliminary schedule summarizes the consideration paid for Hospice Partners, the fair value of the assets acquired and liabilities assumed. The final valuation could differ materially from the preliminary schedule summarized below. The excess of the aggregate fair value of the net tangible assets and identified intangible assets has been treated as goodwill in accordance with ASC 805. Management’s assessment of qualitative factors affecting goodwill includes estimates of market share at the date of purchase, ability to grow in the market, synergy with existing Corporation operations, and the payor profile in the market.
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 |
| $ | 98,044 |
|
Identifiable intangible assets |
|
| 32,644 |
|
Cash |
|
| 4,078 |
|
Accounts receivable |
|
| 6,530 |
|
Other assets |
|
| 1,014 |
|
Property and equipment |
|
| 169 |
|
Accounts payable |
|
| (870 | ) |
Accrued expenses |
|
| (5,350 | ) |
Deferred tax liability |
|
| (3,526 | ) |
Other liabilities |
|
| (2,733 | ) |
Total purchase price allocation |
| $ | 130,000 |
|
Note 5 – Pro Forma Adjustments
Pro forma adjustments reflect those matters that are a direct result of the acquisition of Hospice Partners, which are factually supportable and, for pro forma adjustments to the unaudited pro forma condensed consolidated statements of operations, are expected to have a continuing impact. The pro forma adjustments are based on preliminary estimates that will likely differ from final amounts the Corporation will calculate after completing a detailed valuation analysis, and any differences could have a material effect on the unaudited pro forma condensed consolidated financial statements or the Corporation’s financial statements for future periods.
5
ADDUS HOMECARE CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Combined Financial Statements
The following is a summary of the unaudited pro forma adjustments reflected in the unaudited pro forma combined financial information. All adjustments are based on current valuations and assumptions, which are subject to change.
(a) | Adjustments were made to Hospice Partners’ historical consolidated financial statements to conform to the financial statement presentation of the Corporation. These adjustments include reclassifying depreciation and amortization from general and administrative expenses to depreciation and amortization and reclassifying items from other income to interest income and general and administrative expenses. |
(b) | Reflects the adjustments to remove Hospice Partners’ historical goodwill of $14.0 million and record goodwill resulting from the transaction of $98.0 million. |
(c) | Reflects the adjustment to record intangible assets acquired by the Corporation based on their estimated fair values. As part of the preliminary valuation analysis, the Corporation identified and valued approximately $32.6 million in intangible assets, including state licenses, trade names and customer relationships. |
The following table reflects the fair values of intangible assets acquired and the estimated pro forma amortization expense for all periods presented:
|
|
|
|
|
|
|
|
| Pro Forma Amortization |
| ||||||
|
| Estimated Fair Value |
|
| Estimated Useful Life |
|
| For the Year Ended December 30, 2018 |
|
| For the Six Months Ended June 30, 2019 |
| ||||
|
| (Amounts in thousands, except useful life) |
| |||||||||||||
Tradename |
| $ | 15,886 |
|
|
| 15.0 |
|
| $ | 1,059 |
|
| $ | 530 |
|
Customer relationships |
|
| 5,876 |
|
|
| 5.0 |
|
|
| 1,175 |
|
|
| 588 |
|
State licenses |
|
| 10,882 |
|
| indefinite life |
|
|
| — |
|
|
| — |
| |
Total intangible assets |
| $ | 32,644 |
|
|
|
|
|
| $ | 2,234 |
|
| $ | 1,118 |
|
Historical amortization expense |
|
|
|
|
|
|
|
|
|
| (290 | ) |
|
| (90 | ) |
Pro forma adjustments |
|
|
|
|
|
|
|
|
| $ | 1,944 |
|
| $ | 1,028 |
|
The amortization expense is adjusted to reflect the fair value increases for the intangible assets identified. The definitelived intangible assets subject to amortization include a trade name and customer relationships totaling a preliminary value of $21.8 million. Pro forma amortization expense is computed based on the straight-line method over the estimated useful life of the intangible asset.
(d) | On September 9, 2019, the Corporation completed a public offering of an aggregate 2,300,000 shares of common stock, par value $0.001 per share, including 300,000 shares of common stock sold pursuant to the exercise in full by the underwriters of their option to purchase additional shares at a public offering price of $79.50 per share (the “Public Offering”). |
The adjustment reflects the net proceeds of approximately $172.9 million, after deducting underwriting discounts and offering expenses of approximately $9.9 million. The Corporation used approximately $130.0 million from the net proceeds of the Public Offering to fund the purchase price for the Corporation’s acquisition of Hospice Partners.
6
ADDUS HOMECARE CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Combined Financial Statements
The following table reflects the preliminary net adjustment to cash in connection with the acquisition (in millions):
Proceeds from issuance of common stock, net of offering costs |
| $ | 172,945 |
|
Cash purchase price |
|
| (130,000 | ) |
Pro forma adjustments |
| $ | 42,945 |
|
(e) | Reflects the conformance to the Corporation’s accounting for leases under ASC 842. Within the unaudited pro forma balance sheet, the adjustment reflects the addition of the “Operating lease right of use assets” of $2.7 million and operating lease liabilities of $2.7 million, for which $0.9 million relates to the current portion and $1.8 million to the long-term portion. The expected impact on the statements of operations is not material. |
(f) | The $3.5 million increase in deferred tax liabilities reflects the preliminary estimate of deferred tax liabilities recognized on the estimated fair value adjustments to net assets acquired. This amount was calculated using an estimated blended statutory tax rate of 27.3%. |
(g) | Represents the adjustments to remove the historical retained earnings of Hospice Partners. |
(h) | Represents the adjustment to record the estimated income tax expense based on a blended statutory tax rate of 25.9% and 27.2% for the six months ended June 30, 2019 and the year ended December 31, 2018, respectively. The total effective tax rate could be significantly different depending on various tax matters. |
7