AdaptHealth Corp. 8-K Summary: Non-Reliance on Financial Statements
Business Context and Reporting Period
AdaptHealth Corp. (AHCO) filed this Form 8-K on March 3, 2021, to disclose a material accounting error requiring the restatement of previously issued unaudited financial statements. The error concerns the classification of "Contingent Consideration Common Shares" related to the 2019 SPAC business combination. The company determined these shares should be classified as a liability rather than equity because their issuance accelerates on a change of control regardless of transaction value.
Key Financial Metrics and Restatement Impact
The filing does not report current period revenue, profit, or cash flow figures. Instead, it details the adjustments to historical balance sheets and statements of operations for the "Relevant Periods" (Q1, Q2, and Q3 2020). The restatement introduces a non-cash charge for the change in fair value of the contingent consideration liability, which significantly reduced reported net income and equity.
| Period | Net Income (Loss) Attributable to AdaptHealth (As Reported) | Net Income (Loss) Attributable to AdaptHealth (As Restated) | EPS Basic (As Reported) | EPS Basic (As Restated) |
|---|---|---|---|---|
| Three Months Ended Mar 31, 2020 | $ (158) thousand | $ (13,777) thousand | $ 0.00 | $ (0.33) |
| Three Months Ended Jun 30, 2020 | $ 4,033 thousand | $ 4,068 thousand | $ 0.09 | $ 0.09 |
| Three Months Ended Sep 30, 2020 | $ (2,489) thousand | $ (23,729) thousand | $ (0.04) | $ (0.41) |
| Nine Months Ended Sep 30, 2020 | $ 1,386 thousand | $ (33,438) thousand | $ 0.03 | $ (0.70) |
Balance Sheet Adjustments (as of Sept 30, 2020):
- Total Assets: Increased from $1,548.8 million to $1,556.3 million (due to deferred tax asset adjustments).
- Total Liabilities: Increased from $1,109.1 million to $1,160.3 million (due to recognition of contingent consideration liability).
- Total Stockholders' Equity: Decreased from $439.7 million to $396.0 million.
The company states that the change in fair value is a non-cash charge and has no impact on historical reported revenues, operating income, Adjusted EBITDA, or cash flows from operating, investing, or financing activities.
Material Changes and Management Commentary
Management and the Audit Committee, in consultation with KPMG LLP, concluded that the errors were material to the unaudited condensed consolidated financial information for the Relevant Periods, with the exception of the three months ended June 30, 2020, where the impact was not material. Consequently, investors should no longer rely on the previously issued unaudited statements for these periods. The audited financial statements for the year ended December 31, 2019, were deemed not materially impacted.
The company is finalizing its evaluation of internal controls over financial reporting and expects to report on any material weaknesses in its upcoming 2020 Annual Report (Form 10-K).
Outlook and Next Steps
AdaptHealth intends to include the restated unaudited interim financial information in its Form 10-K for the year ended December 31, 2020, expected to be filed on or before March 16, 2021. The company will also revise its unaudited 2020 interim consolidated financial information in connection with future Form 10-Q filings and will amend its December 14, 2020 Form 8-K regarding the AeroCare Holdings, Inc. acquisition to correct pro forma financial information.
Key Facts for Investor Verification
- Restatement Scope: Verify the restated financial data in the upcoming 2020 Form 10-K and revised 2020 Form 10-Q filings.
- Internal Controls: Monitor the 2020 Annual Report for disclosures regarding material weaknesses in internal controls over financial reporting.
- Liability Classification: Confirm the treatment of the contingent consideration common shares as a liability on the balance sheet and the associated non-cash charges in the income statement.
- Pro Forma Adjustments: Review the amended Form 8-K regarding the AeroCare acquisition for corrected pro forma financials.