Balance Sheet Components
|9 Months Ended|
Sep. 30, 2021
|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:
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 primarily 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 September 30, 2021 and December 31, 2020, included in accounts receivable on the consolidated balance sheets were earned but unbilled receivables of $1,400 and $459, 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 September 30, 2021 and December 31, 2020 were as follows:
Net accounts receivable (gross accounts receivable, net of allowances) balance concentrations by major category as of September 30, 2021 and December 31, 2020 were as follows:
The following tables set forth the accounts receivable allowances as of September 30, 2021 and December 31, 2020:
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. One single customer represented more than 10% of the Company’s total revenue for the nine months ended September 30, 2021 and for the nine months ended September 30, 2020. Two customers each represented more than 10% of the Company’s net accounts receivable balance with accounts receivable balances of $6,674 and $5,513, respectively, as of September 30, 2021, and $8,417 and $7,044, respectively, as of December 31, 2020.
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 nine months ended September 30, 2021, the Company’s three major vendors accounted for 17.0%, 12.6% and 10.8%, respectively, of total raw material purchases. For the nine months ended September 30, 2020, the Company’s three major vendors accounted for 20.7%, 11.1% and 9.7%, respectively, of total raw material purchases.
A portion of revenue is earned from sales outside the United States. Approximately 71.0% and 83.4% of the non-U.S. revenue for the three months ended September 30, 2021 and September 30, 2020, respectively, were invoiced in Euros. Approximately 71.9% and 75.6% of the non-U.S. revenue for the nine months ended September 30, 2021 and September 30, 2020, respectively, were invoiced in Euros. A breakdown of the Company’s revenue from U.S. and non-U.S. sources for the three and nine months ended September 30, 2021 and September 30, 2020, respectively, is as follows:
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 $1,879 and $1,153 as of September 30, 2021 and December 31, 2020, 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. The Company prepaid for raw materials of $12,126 as of September 30, 2021 that are classified in prepaid expenses and other current assets. During the nine months ended September 30, 2021 and September 30, 2020, $817 and $1,795, 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 flows. Inventories that are considered current consist of the following:
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:
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 $858 and $653 for the three months ended September 30, 2021 and September 30, 2020, respectively, and $2,531 and $1,776 for the nine months ended September 30, 2021 and September 30, 2020, 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 nine months ended September 30, 2021 and September 30, 2020, respectively.
Property and equipment and rental equipment with associated accumulated depreciation is summarized below as of September 30, 2021 and December 31, 2020, respectively.
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. During the three months ended June 30, 2021, the Company determined that an impairment indicator was present as a result of the court order to dismiss the Company’s preliminary injunction related to the Department of Health and Human Services and the Centers for Medicare and Medicaid Services lawsuit. The relevant long-lived asset grouping was evaluated for impairment. An undiscounted cash flow analysis demonstrated sufficient undiscounted cash flows in excess of the asset group’s carrying value. Estimates and significant assumptions included in the long-lived asset impairment analysis included identification of the asset group and undiscounted cash flow projections. The Company concluded that its definite-lived intangible assets and long-lived assets were not impaired based on the results of the quantitative analyses performed. No impairments were recorded as of September 30, 2021 and September 30, 2020.
The changes in the carrying amount of goodwill for the nine months ended September 30, 2021 were as follows:
As of September 30, 2021, the Company had no accumulated impairment losses related to goodwill.
There were no accumulated impairment losses related to the Company’s intangible assets as of September 30, 2021 and December 31, 2020.
The following tables represent the changes in net carrying values of intangible assets as of the respective dates:
Annual estimated amortization expense for each of the succeeding fiscal years is as follows:
Accounts payable and accrued expenses as of September 30, 2021 and December 31, 2020 consisted of the following:
Accrued payroll as of September 30, 2021 and December 31, 2020 consisted of the following:
The entire disclosure for supplemental balance sheet disclosures, including descriptions and amounts for assets, liabilities, and equity.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef