Quarterly report pursuant to Section 13 or 15(d)

Balance Sheet Components

v3.20.1
Balance Sheet Components
3 Months Ended
Mar. 31, 2020
Balance Sheet Related Disclosures [Abstract]  
Balance Sheet Components

5. 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:

 

 

 

March 31,

 

 

December 31,

 

Cash and cash equivalents

 

2020

 

 

2019

 

Cash

 

$

50,238

 

 

$

51,560

 

Money market accounts

 

 

158,124

 

 

 

146,477

 

Total cash and cash equivalents

 

$

208,362

 

 

$

198,037

 

Marketable securities

 

 

 

 

 

 

 

 

Corporate bonds

 

$

 

 

$

2,013

 

U.S. Treasury securities

 

 

 

 

 

9,044

 

Total marketable securities

 

$

 

 

$

11,057

 

 

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.

As of March 31, 2020 and December 31, 2019, included in accounts receivable on the consolidated balance sheets were earned but unbilled receivables of $596 and $590, 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 March 31, 2020 and December 31, 2019 were as follows:

 

 

 

March 31,

 

 

December 31,

 

Gross accounts receivable

 

2020

 

 

2019

 

Rental (1)

 

$

3,442

 

 

$

3,003

 

Business-to-business and other receivables (2)

 

 

38,706

 

 

 

33,101

 

Total gross accounts receivable

 

$

42,148

 

 

$

36,104

 

 

Net accounts receivable (gross accounts receivable, net of allowances) balance concentrations by major category as of March 31, 2020 and December 31, 2019 were as follows:

 

 

 

March 31,

 

 

December 31,

 

Net accounts receivable

 

2020

 

 

2019

 

Rental (1)

 

$

2,912

 

 

$

2,464

 

Business-to-business and other receivables (2)

 

 

37,484

 

 

 

31,861

 

Total net accounts receivable

 

$

40,396

 

 

$

34,325

 

 

(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 $8,978 and $10,695 as of March 31, 2020 and December 31, 2019, 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 March 31, 2020 and allocated up to $20,000 in coverage as of December 31, 2019 for this customer with a $400 deductible and 10% retention.

 

The following tables set forth the accounts receivable allowances as of March 31, 2020 and December 31, 2019:

 

 

 

March 31,

 

 

December 31,

 

Allowances - accounts receivable

 

2020

 

 

2019

 

Doubtful accounts

 

$

167

 

 

$

205

 

Rental revenue adjustments

 

 

409

 

 

 

411

 

Sales returns

 

 

1,176

 

 

 

1,163

 

Total allowances - accounts receivable

 

$

1,752

 

 

$

1,779

 

 

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 primarily on a credit basis. The Company also sells its products direct-to-consumers on a primarily prepayment basis. One single customer represented more than 10% of the Company’s total revenue for the three months ended March 31, 2020, and no single customer represented more than 10% of the Company’s total revenue for the three months ended March 31, 2019. Two customers each represented more than 10% of the Company’s net accounts receivable balance with accounts receivable balances of $10,341 and $8,978, respectively, as of March 31, 2020, and $10,695 and $5,228, respectively, as of December 31, 2019.

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 three months ended March 31, 2020, the Company’s three major vendors accounted for 23.6%, 15.2%, and 9.4%, respectively, of total raw material purchases. For the three months ended March 31, 2019, the Company’s three major vendors accounted for 20.6%, 11.6% and 11.4%, respectively, of total raw material purchases.  

A portion of revenue is earned from sales outside the United States. Approximately 68.7% and 72.5% of the non-U.S. revenue for the three months ended March 31, 2020 and March 31, 2019, respectively, were invoiced in Euros. A breakdown of the Company’s revenue from U.S. and non-U.S. sources for the three months ended March 31, 2020 and March 31, 2019, respectively, is as follows:

 

 

 

Three months ended

March 31,

 

 

 

2020

 

 

2019

 

U.S. revenue

 

$

68,406

 

 

$

70,399

 

Non-U.S. revenue

 

 

20,083

 

 

 

19,803

 

Total revenue

 

$

88,489

 

 

$

90,202

 

 

 

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 $2,150 and $1,076 as of March 31, 2020 and December 31, 2019, 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. During the three months ended March 31, 2020 and March 31, 2019, $368 and $441, respectively, of inventory was transferred to rental equipment and was considered a noncash transaction in the production and purchase of rental equipment on the consolidated statements of cash flow. Inventories that are considered current consist of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Raw materials and work-in-progress

 

$

33,066

 

 

$

31,676

 

Finished goods

 

 

5,931

 

 

 

5,174

 

Less: reserves

 

 

(1,397

)

 

 

(1,186

)

Inventories, net

 

$

37,600

 

 

$

35,664

 

 

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 $524 and $662 for the three months ended March 31, 2020 and March 31, 2019, 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 months ended March 31, 2020 and March 31, 2019, respectively.

 

 

 

Three months ended

March 31,

 

 

 

2020

 

 

2019

 

Rental equipment

 

$

1,299

 

 

$

1,705

 

Other property and equipment

 

 

921

 

 

 

761

 

Total depreciation and amortization

 

$

2,220

 

 

$

2,466

 

 

Property and equipment and rental equipment with associated accumulated depreciation is summarized below as of March 31, 2020 and December 31, 2019, respectively.

 

 

 

March 31,

 

 

December 31,

 

Property and equipment

 

2020

 

 

2019

 

Rental equipment, net of allowances of $395 and $395, respectively

 

$

38,995

 

 

$

39,308

 

Other property and equipment

 

 

26,496

 

 

 

24,986

 

Property and equipment

 

 

65,491

 

 

 

64,294

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

 

 

Rental equipment

 

 

31,035

 

 

 

30,984

 

Other property and equipment

 

 

14,789

 

 

 

13,872

 

Accumulated depreciation

 

 

45,824

 

 

 

44,856

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

 

 

 

 

 

 

Rental equipment, net of allowances of $395 and $395, respectively

 

 

7,960

 

 

 

8,324

 

Other property and equipment

 

 

11,707

 

 

 

11,114

 

Property and equipment, net

 

$

19,667

 

 

$

19,438

 

 

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 March 31, 2020 and March 31, 2019.

Goodwill

The changes in the carrying amount of goodwill for the three months ended March 31, 2020 were as follows:

 

Balance as of December 31, 2019

 

$

32,954

 

Translation adjustment

 

 

(42

)

Balance as of March 31, 2020

 

$

32,912

 

 

Intangible assets

There were no impairments recorded related to the Company’s intangible assets as of March 31, 2020 and March 31, 2019. Amortization expense for intangible assets for the three months ended March 31, 2020 and March 31, 2019 was $2,242 and $328, 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

 

 

 

 

 

March 31, 2020

 

(in years)

 

amount

 

 

amortization

 

 

Net amount

 

Technology

 

10

 

$

77,700

 

 

$

4,856

 

 

$

72,844

 

Licenses

 

10

 

 

185

 

 

 

167

 

 

 

18

 

Patents and websites

 

5

 

 

4,274

 

 

 

2,479

 

 

 

1,795

 

Customer relationships

 

4

 

 

1,320

 

 

 

963

 

 

 

357

 

Commercials

 

2-3

 

 

777

 

 

 

509

 

 

 

268

 

Total

 

 

 

$

84,256

 

 

$

8,974

 

 

$

75,282

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

estimated

 

Gross

 

 

 

 

 

 

 

 

 

 

 

useful lives

 

carrying

 

 

Accumulated

 

 

 

 

 

December 31, 2019

 

(in years)

 

amount

 

 

amortization

 

 

Net amount

 

Technology

 

10

 

$

77,700

 

 

$

2,914

 

 

$

74,786

 

Licenses

 

10

 

 

185

 

 

 

165

 

 

 

20

 

Patents and websites

 

5

 

 

4,274

 

 

 

2,308

 

 

 

1,966

 

Customer relationships

 

4

 

 

1,346

 

 

 

897

 

 

 

449

 

Commercials

 

2-3

 

 

777

 

 

 

465

 

 

 

312

 

Total

 

 

 

$

84,282

 

 

$

6,749

 

 

$

77,533

 

 

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

 

 

 

March 31,

 

 

 

2020

 

Remaining 9 months of 2020

 

$

6,722

 

2021

 

 

8,678

 

2022

 

 

8,367

 

2023

 

 

7,792

 

2024

 

 

7,787

 

Thereafter

 

 

35,936

 

 

 

$

75,282

 

 

Current liabilities

Accounts payable and accrued expenses as of March 31, 2020 and December 31, 2019 consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accounts payable

 

$

18,727

 

 

$

16,399

 

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

 

 

11,129

 

 

 

11,124

 

Accrued purchasing card liability

 

 

1,940

 

 

 

1,675

 

Accrued franchise, sales and use taxes

 

 

501

 

 

 

713

 

Other accrued expenses

 

 

556

 

 

 

819

 

Accounts payable and accrued expenses

 

$

32,853

 

 

$

30,730

 

 

Accrued payroll as of March 31, 2020 and December 31, 2019 consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued bonuses

 

$

1,143

 

 

$

87

 

Accrued wages and other payroll related items

 

 

4,939

 

 

 

3,158

 

Accrued vacation

 

 

2,262

 

 

 

2,169

 

Accrued employee stock purchase plan deductions

 

 

306

 

 

 

801

 

Accrued payroll

 

$

8,650

 

 

$

6,215