Quarterly report pursuant to Section 13 or 15(d)

Balance Sheet Components

v3.19.2
Balance Sheet Components
6 Months Ended
Jun. 30, 2019
Balance Sheet Related Disclosures [Abstract]  
Balance Sheet Components

4. Balance sheet components

Cash, cash equivalents and marketable securities

The Company considers all short-term highly liquid investments with a maturity of three months or less to be cash equivalents. The Company’s marketable debt securities are classified and accounted for as available-for-sale. Cash equivalents are recorded at cost plus accrued interest, which is considered adjusted cost, and approximates fair value. Marketable debt securities are included in cash equivalents and marketable securities based on the maturity date of the security. Short-term investments are included in marketable securities in the current period presentation.

The Company considers investments with maturities greater than three months, but less than one year, to be marketable securities. Investments are reported at fair value with realized and unrealized gains or losses reported in other income (expense), net.

The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company's intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. Credit losses and other-than-temporary impairments are declines in fair value that are not expected to recover and are charged to other income (expense), net. Cash, cash equivalents, and marketable securities consist of the following:

 

 

 

June 30,

 

 

December 31,

 

Cash and cash equivalents

 

2019

 

 

2018

 

Cash

 

$

34,834

 

 

$

33,671

 

Money market accounts

 

 

171,094

 

 

 

158,438

 

Corporate bonds

 

 

3,522

 

 

 

 

U.S. Treasury securities

 

 

4,497

 

 

 

4,525

 

Total cash and cash equivalents

 

$

213,947

 

 

$

196,634

 

Marketable securities

 

 

 

 

 

 

 

 

Corporate bonds

 

$

6,514

 

 

$

13,613

 

U.S. Treasury securities

 

 

35,688

 

 

 

30,102

 

Total marketable securities

 

$

42,202

 

 

$

43,715

 

 

Accounts receivable and allowance for bad debts, returns, and adjustments

Accounts receivable are customer obligations due under normal sales and rental terms. The Company performs credit evaluations of the customers’ financial condition and generally does not require collateral. The allowance for doubtful accounts is maintained at a level that, in management’s opinion, is adequate to absorb potential losses related to accounts receivable and is based upon the Company’s continuous evaluation of the collectability of outstanding balances. Management’s evaluation takes into consideration such factors as past bad debt experience, economic conditions and information about specific receivables. The Company’s evaluation also considers the age and composition of the outstanding amounts in determining their net realizable value.

The allowance for doubtful accounts is based on estimates, and ultimate losses may vary from current estimates. As adjustments to these estimates become necessary, they are reported in general and administrative expense for sales revenue and as a reduction of rental revenue in the periods in which they become known. The allowance is increased by bad debt provisions, net of recoveries, and is reduced by direct write-offs.

The Company generally does not allow returns from providers for reasons not covered under its standard warranty. Therefore, provision for returns applies primarily to direct-to-consumer sales. This reserve is calculated based on actual historical return rates under the Company’s 30-day return program and is applied to the related sales revenue for the last month of the quarter reported.

The Company also records an allowance for rental revenue adjustments which is recorded as a reduction of rental revenue and net rental accounts receivable balances. These adjustments result from contractual adjustments, audit adjustments, untimely claims filings, or billings not paid due to another provider performing same or similar functions for the patient in the same period, all of which prevent billed revenue from becoming realizable. The reserve is based on historical revenue adjustments as a percentage of rental revenue billed and unbilled during the related period.

When recording the allowance for doubtful accounts for sales revenue, the bad debt expense account (general and administrative expense account) is charged; when recording allowance for sales returns, the sales returns account (contra sales revenue account) is charged; and when recording the allowances for rental reserve adjustments and doubtful accounts, the rental revenue adjustments account (contra rental revenue account) is charged. Prior to the adoption of ASC 842, the Company separately recorded an allowance for doubtful accounts by charging bad debt expense, which is now recorded as part of rental revenue adjustments during the three and six months ended June 30, 2019.

As of June 30, 2019 and December 31, 2018, included in accounts receivable on the consolidated balance sheets were earned but unbilled receivables of $634 and $589, respectively. These balances reflect gross unbilled receivables prior to any allowances for adjustments and write-offs. The Company consistently applies its allowance estimation methodology from period-to-period. The Company’s best estimate is made on an accrual basis and adjusted in future periods as required. Any adjustments to the prior period estimates are included in the current period. As additional information becomes known, the Company adjusts its assumptions accordingly to change its estimate of the allowance.

Gross accounts receivable balance concentrations by major category as of June 30, 2019 and December 31, 2018 were as follows:

 

 

 

June 30,

 

 

December 31,

 

Gross accounts receivable

 

2019

 

 

2018

 

Rental (1)

 

$

3,110

 

 

$

3,406

 

Business-to-business and other receivables (2)

 

 

45,838

 

 

 

35,656

 

Total gross accounts receivable

 

$

48,948

 

 

$

39,062

 

 

Net accounts receivable (gross accounts receivable, net of allowances) balance concentrations by major category as of June 30, 2019 and December 31, 2018 were as follows:

 

 

 

June 30,

 

 

December 31,

 

Net accounts receivable

 

2019

 

 

2018

 

Rental (1)

 

$

2,310

 

 

$

2,413

 

Business-to-business and other receivables (2)

 

 

44,411

 

 

 

34,628

 

Total net accounts receivable

 

$

46,721

 

 

$

37,041

 

 

(1)

Rental includes Medicare, Medicaid/other government, private insurance and patient pay.

(2)

Business-to-business receivables included one customer with a gross accounts receivable balance of $18,989 and $16,198 as of June 30, 2019 and December 31, 2018, respectively. This customer received extended payment terms through a direct financing plan offered. The Company also has a credit insurance policy in place, which allocated up to $20,000 in coverage as of June 30, 2019 and allocated up to $18,000 in coverage as of December 31, 2018 for this customer with a $400 deductible and 10% retention.

 

The following tables set forth the accounts receivable allowances as of June 30, 2019 and December 31, 2018:

 

 

 

June 30,

 

 

December 31,

 

Allowances - accounts receivable

 

2019

 

 

2018

 

Doubtful accounts (1)

 

$

450

 

 

$

693

 

Rental revenue adjustments (1)

 

 

473

 

 

 

438

 

Sales returns

 

 

1,304

 

 

 

890

 

Total allowances - accounts receivable

 

$

2,227

 

 

$

2,021

 

 

(1)

Prior to the adoption of ASC 842, the Company separately recorded an allowance for doubtful accounts by charging bad debt expense. Upon adoption of ASC 842, such balances are recorded as part of rental revenue adjustments to report rental revenue at an expected collectible amount.

 

Concentration of credit risk

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, marketable securities and accounts receivable. At times, cash account balances may be in excess of the amounts insured by the Federal Deposit Insurance Corporation (FDIC). However, management believes the risk of loss to be minimal. The Company performs periodic evaluations of the relative credit standing of these institutions and has not experienced any losses on its cash and cash equivalents to date. The Company has also entered into hedging relationships with a single counterparty to offset the forecasted Euro-based revenues. The credit risk has been reduced due to a net settlement arrangement whereby the Company is allowed to net settle transactions with a single net amount payable by one party to the other.

Concentration of customers and vendors

The Company primarily sells its products to traditional home medical equipment providers, distributors, and resellers in the United States and in foreign countries on a credit basis. The Company also sells its products direct-to-consumers on a primarily prepayment basis. No single customer represented more than 10% of the Company’s total revenue for the six months ended June 30, 2019, and one single customer represented more than 10% of the Company’s total revenue for the six months ended June 30, 2018. Two customers each represented more than 10% of the Company’s net accounts receivable balance with accounts receivable balances of $18,989 and $6,159, respectively, as of June 30, 2019, and $16,198 and $4,155, respectively, as of December 31, 2018.

The Company currently purchases raw materials from a limited number of vendors, which resulted in a concentration of three major vendors. The three major vendors supply the Company with raw materials used to manufacture the Company’s products. For the six months ended June 30, 2019, the Company’s three major vendors accounted for 21.5%, 13.1%, and 9.3%, respectively, of total raw material purchases. For the six months ended June 30, 2018, the Company’s three major vendors accounted for 20.2%, 13.8% and 9.3%, respectively, of total raw material purchases.  

A portion of revenue is earned from sales outside the United States. Approximately 71.8% and 76.0% of the non-U.S. revenue for the three months ended June 30, 2019 and June 30, 2018, respectively, were invoiced in Euros. Approximately 71.6% and 76.4% of the non-U.S. revenue for the six months ended June 30, 2019 and June 30, 2018, respectively, were invoiced in Euros. A breakdown of the Company’s revenue from U.S. and non-U.S. sources for the three and six months ended June 30, 2019 and June 30, 2018, respectively, is as follows:

 

 

 

Three months ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

U.S. revenue

 

$

78,499

 

 

$

76,479

 

 

$

148,898

 

 

$

138,624

 

Non-U.S. revenue

 

 

22,564

 

 

 

20,759

 

 

 

42,367

 

 

 

37,665

 

Total revenue

 

$

101,063

 

 

$

97,238

 

 

$

191,265

 

 

$

176,289

 

 

 

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using a standard cost method, including material, labor and manufacturing overhead, whereby the standard costs are updated at least quarterly to reflect approximate actual costs using the first-in, first-out (FIFO) method. The Company records adjustments at least quarterly to inventory for potentially excess, obsolete, slow-moving or impaired items. The Company recorded noncurrent inventory related to inventories that are expected to be realized or consumed after one year of $1,119 and $1,085 as of June 30, 2019 and December 31, 2018, respectively. Noncurrent inventories are primarily related to raw materials purchased in bulk to support long-term expected repairs to reduce costs and are classified in other assets. Inventories that are considered current consist of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Raw materials and work-in-progress

 

$

22,082

 

 

$

24,980

 

Finished goods

 

 

3,017

 

 

 

2,756

 

Less: reserves

 

 

(614

)

 

 

(665

)

Inventories, net

 

$

24,485

 

 

$

27,071

 

 

Property and equipment

Property and equipment are stated at cost. Depreciation and amortization are calculated using the straight-line method over the assets’ estimated useful lives as follows:  

 

Rental equipment

 

1.5-5 years

Manufacturing equipment and tooling

 

3-5 years

Computer equipment and software

 

2-3 years

Furniture and equipment

 

3-5 years

Leasehold improvements

 

Lesser of estimated useful life or remaining lease term

 

Expenditures for additions, improvements and replacements are capitalized and depreciated to a salvage value of $0. Repair and maintenance costs on rental equipment are included in cost of rental revenue on the consolidated statements of comprehensive income. Repair and maintenance expense, which includes labor, parts and freight, for rental equipment was $701 and $630 for the three months ended June 30, 2019 and June 30, 2018, respectively, and $1,363 and $1,190 for the six months ended June 30, 2019 and June 30, 2018, respectively.    

Included within property and equipment is construction in process, primarily related to the design and engineering of tooling, jigs and other machinery. In addition, this item also includes computer software or development costs that have been purchased but have not completed the final configuration process for implementation into the Company’s systems. These items have not been placed in service; therefore, no depreciation or amortization was recognized for these items in the respective periods.

Depreciation and amortization expense related to rental equipment and other property and equipment are summarized below for the three and six months ended June 30, 2019 and June 30, 2018, respectively.

 

 

 

Three months ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Rental equipment

 

$

1,594

 

 

$

1,966

 

 

$

3,299

 

 

$

4,131

 

Other property and equipment

 

 

842

 

 

 

551

 

 

 

1,603

 

 

 

1,081

 

Total depreciation and amortization

 

$

2,436

 

 

$

2,517

 

 

$

4,902

 

 

$

5,212

 

 

Property and equipment and rental equipment with associated accumulated depreciation is summarized below as of June 30, 2019 and December 31, 2018, respectively.

 

 

 

June 30,

 

 

December 31,

 

Property and equipment

 

2019

 

 

2018

 

Rental equipment, net of allowances of $474 and $594, respectively

 

$

40,587

 

 

$

43,038

 

Other property and equipment

 

 

23,776

 

 

 

21,596

 

Property and equipment

 

 

64,363

 

 

 

64,634

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

 

 

Rental equipment

 

 

30,945

 

 

 

31,813

 

Other property and equipment

 

 

12,057

 

 

 

10,480

 

Accumulated depreciation

 

 

43,002

 

 

 

42,293

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

 

 

 

 

 

 

Rental equipment, net of allowances of $474 and $594, respectively

 

 

9,642

 

 

 

11,225

 

Other property and equipment

 

 

11,719

 

 

 

11,116

 

Property and equipment, net

 

$

21,361

 

 

$

22,341

 

 

Long-lived assets

The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC 360 Property, Plant, and Equipment. In accordance with ASC 360, long-lived assets to be held are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. The Company periodically reviews the carrying value of long-lived assets to determine whether or not impairment to such value has occurred. No impairments were recorded as of June 30, 2019 and June 30, 2018.

Goodwill

The changes in the carrying amount of goodwill for the six months ended June 30, 2019 were as follows:

 

Balance as of December 31, 2018

 

$

2,257

 

Translation adjustment

 

 

(15

)

Balance as of June 30, 2019

 

$

2,242

 

 

Intangible assets

There were no impairments recorded related to the Company’s intangible assets as of June 30, 2019 and June 30, 2018. Amortization expense for intangible assets for the three months ended June 30, 2019 and June 30, 2018 was $324 and $299, respectively, and for the six months ended June 30, 2019 and June 30, 2018 was $652 and $597, respectively.   

The following tables represent the changes in net carrying values of intangible assets as of the respective dates:

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

estimated

 

Gross

 

 

 

 

 

 

 

 

 

 

 

useful lives

 

carrying

 

 

Accumulated

 

 

 

 

 

June 30, 2019

 

(in years)

 

amount

 

 

amortization

 

 

Net amount

 

Licenses

 

10

 

$

185

 

 

$

160

 

 

$

25

 

Patents and websites

 

5

 

 

4,164

 

 

 

1,974

 

 

 

2,190

 

Customer relationships

 

4

 

 

1,364

 

 

 

739

 

 

 

625

 

Non-compete agreement

 

2.3

 

 

228

 

 

 

217

 

 

 

11

 

Commercials

 

2-3

 

 

664

 

 

 

388

 

 

 

276

 

Total

 

 

 

$

6,605

 

 

$

3,478

 

 

$

3,127

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

estimated

 

Gross

 

 

 

 

 

 

 

 

 

 

 

useful lives

 

carrying

 

 

Accumulated

 

 

 

 

 

December 31, 2018

 

(in years)

 

amount

 

 

amortization

 

 

Net amount

 

Licenses

 

10

 

$

185

 

 

$

155

 

 

$

30

 

Patents and websites

 

5

 

 

4,164

 

 

 

1,640

 

 

 

2,524

 

Customer relationships

 

4

 

 

1,373

 

 

 

572

 

 

 

801

 

Non-compete agreement

 

2.3

 

 

229

 

 

 

154

 

 

 

75

 

Commercials

 

2-3

 

 

633

 

 

 

308

 

 

 

325

 

Total

 

 

 

$

6,584

 

 

$

2,829

 

 

$

3,755

 

 

Annual estimated amortization expense for each of the succeeding fiscal years is as follows:

 

 

 

June 30, 2019

 

Remaining 6 months of 2019

 

$

586

 

2020

 

 

1,145

 

2021

 

 

852

 

2022

 

 

544

 

2023

 

 

 

Thereafter

 

 

 

 

 

$

3,127

 

 

Current liabilities

Accounts payable and accrued expenses as of June 30, 2019 and December 31, 2018 consisted of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Accounts payable

 

$

16,071

 

 

$

13,720

 

Accrued inventory (in-transit and unvouchered receipts) and trade payables

 

 

8,225

 

 

 

9,597

 

Accrued purchasing card liability

 

 

1,407

 

 

 

2,089

 

Accrued franchise, sales and use taxes

 

 

621

 

 

 

518

 

Other accrued expenses

 

 

1,001

 

 

 

862

 

Accounts payable and accrued expenses

 

$

27,325

 

 

$

26,786

 

 

Accrued payroll as of June 30, 2019 and December 31, 2018 consisted of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Accrued bonuses

 

$

669

 

 

$

4,780

 

Accrued wages and other payroll related items

 

 

3,105

 

 

 

3,494

 

Accrued vacation

 

 

2,107

 

 

 

1,959

 

Accrued employee stock purchase plan deductions

 

 

1,088

 

 

 

1,174

 

Accrued payroll

 

$

6,969

 

 

$

11,407