Quarterly report pursuant to Section 13 or 15(d)

Balance Sheet Components

v3.5.0.2
Balance Sheet Components
6 Months Ended
Jun. 30, 2016
Balance Sheet Related Disclosures [Abstract]  
Balance Sheet Components

4. Balance sheet components

Cash, cash equivalents, and short-term investments

The Company considers all short-term highly liquid investments with a maturity of three months or less to be cash equivalents. Cash equivalents are recorded at cost plus accrued interest (adjusted cost), which approximates fair value which includes the unrealized gains (losses). Certificates of deposit are included in cash equivalents and short-term investments based on the maturity date of the security.

The Company considers investments with maturities greater than three months, but less than one year, to be short-term investments. Investments that have maturities of more than one year are classified as long-term investments. Investments are classified as available-for-sale and are reported at fair value with unrealized gains or losses, if any, reported, net of tax, in accumulated other comprehensive income (loss). All income generated and realized gains or losses from investments are recorded to 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. During the three and six months ended June 30, 2016 and 2015, respectively, no losses were recognized for other-than-temporary impairments. Cash, cash equivalents and short-term investments consist of the following:

 

 

 

June 30,

 

 

December 31,

 

Cash and cash equivalents

 

2016

 

 

2015

 

Cash

 

$

42,290

 

 

$

52,164

 

Money market accounts

 

 

33,270

 

 

 

6,725

 

Certificates of deposit

 

 

8,940

 

 

 

7,217

 

Total cash and cash equivalents

 

$

84,500

 

 

$

66,106

 

Short-term investments

 

 

 

 

 

 

 

 

Certificates of deposit

 

$

13,616

 

 

$

16,793

 

Total short-term investments

 

$

13,616

 

 

$

16,793

 

 

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 earnings in the periods in which they become known. This allowance is increased by bad debt provisions charged to bad debt expense, net of recoveries, in operating expense 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 sales 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, including 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, 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 allowance for rental reserve adjustments, the rental revenue adjustments account (contra rental revenue account) is charged.

As of June 30, 2016 and December 31, 2015, included in accounts receivable on the balance sheets were earned but unbilled receivables of $5,361 and $5,155, 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, 2016 and December 31, 2015 were as follows:

 

 

 

June 30,

 

 

December 31,

 

Gross accounts receivable

 

2016

 

 

2015

 

Medicare

 

$

12,556

 

 

$

10,510

 

Medicaid/other government

 

 

660

 

 

 

683

 

Private insurance

 

 

4,238

 

 

 

4,852

 

Patient responsibility

 

 

3,735

 

 

 

3,603

 

Business-to-business & other receivables

 

 

15,236

 

 

 

6,369

 

Total gross accounts receivable

 

$

36,425

 

 

$

26,017

 

 

 

Net accounts receivable (gross accounts receivable net of allowances) balance concentrations by major category as of June 30, 2016 and December 31, 2015 were as follows:

 

 

 

June 30,

 

 

December 31,

 

Net accounts receivable

 

2016

 

 

2015

 

Medicare

 

$

7,572

 

 

$

7,441

 

Medicaid/other government

 

 

463

 

 

 

550

 

Private insurance

 

 

3,110

 

 

 

3,895

 

Patient responsibility

 

 

2,076

 

 

 

2,060

 

Business-to-business & other receivables

 

 

14,616

 

 

 

5,926

 

Total net accounts receivable

 

$

27,837

 

 

$

19,872

 

 

 

The following tables sets forth the allowances for accounts receivable as of June 30, 2016 and December 31, 2015:

 

 

 

June 30,

 

 

December 31,

 

Allowances - accounts receivable

 

2016

 

 

2015

 

Doubtful accounts

 

$

2,086

 

 

$

1,664

 

Rental revenue adjustments

 

 

5,959

 

 

 

4,115

 

Sales returns

 

 

543

 

 

 

366

 

Total allowances - accounts receivable

 

$

8,588

 

 

$

6,145

 

 

Concentration of credit risk

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, short-term investments 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 entered into hedging relationships with a single counterparty to offset a portion of 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 primarily sells its products to consumers on a prepayment basis. No single customer represented more than 10% of the Company’s total revenue for the six months ended June 30, 2016 and June 30, 2015. One customer represented more than 10% of the Company’s total net accounts receivable balance as of June 30, 2016, and no single customer represented more than 10% of the Company’s total net accounts receivable balance as of December 31, 2015.

The Company also rents products directly to consumers for insurance reimbursement, which resulted in a customer concentration relating to Medicare’s service reimbursement programs. Medicare’s service reimbursement programs accounted for 72.2% and 73.1% of rental revenue for the three months ended June 30, 2016 and June 30, 2015, respectively, and based on total revenue was 11.9% and 19.3% for the three months ended June 30, 2016 and June 30, 2015, respectively. Medicare’s service reimbursement programs accounted for 71.8% and 72.9% of rental revenue for the six months ended June 30, 2016 and June 30, 2015, respectively, and based on total revenue was 14.1% and 21.0% for the six months ended June 30, 2016 and June 30, 2015, respectively. Accounts receivable balances relating to Medicare’s service reimbursement programs (including held and unbilled, net of allowances) amounted to $7,550 or 27.1% of total net accounts receivable as of June 30, 2016 as compared to $7,441, or 37.4% of total net accounts receivable as of December 31, 2015.

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, 2016, the Company’s three major vendors accounted for 21.9%, 13.6%, and 7.7%, respectively, of total raw material purchases. For the six months ended June 30, 2015, the Company’s three major vendors accounted for 21.6%, 17.7% and 9.6%, respectively, of total raw material purchases.  

A portion of revenue is earned from sales outside the United States. Approximately 69.1% and 68.0% of the non-U.S. revenue for the three months ended June 30, 2016 and June 30, 2015, respectively, were invoiced in Euros. Approximately 69.2% and 42.4% of the non-U.S. revenue for the six months ended June 30, 2016 and June 30, 2015, respectively, were invoiced in Euros. A breakdown of the Company’s revenue from U.S. and non-U.S. sources for the three months and six months ended June 30, 2016 and June 30, 2015 is as follows:

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

U.S. revenue

 

$

41,469

 

 

$

33,458

 

 

$

74,493

 

 

$

58,812

 

Non-U.S. revenue

 

 

13,098

 

 

 

10,571

 

 

 

23,063

 

 

 

18,969

 

Total revenue

 

$

54,567

 

 

$

44,029

 

 

$

97,556

 

 

$

77,781

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories

Inventories are stated at the lower of cost or market. 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 and market represents the lower of replacement cost or estimated net realizable value. The Company records adjustments at least quarterly to inventory for potentially excess, obsolete, slow-moving or impaired items. Inventories consist of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Raw materials and work-in-progress

 

$

10,709

 

 

$

7,097

 

Finished goods

 

 

1,957

 

 

 

1,679

 

Less: reserves

 

 

(152

)

 

 

(128

)

Inventories

 

$

12,514

 

 

$

8,648

 

 

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

 

2-5 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 are included in cost of revenue on the statements of comprehensive income. Repair and maintenance expense, which includes labor, parts and freight for rental equipment was $746 and $642 for the three months ended June 30, 2016 and June 30, 2015, respectively, and $1,433 and $1,212 for the six months ended June 30, 2016 and June 30, 2015, 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 property and equipment and rental equipment are summarized below for the three months ended June 30, 2016 and June 30, 2015, respectively, and for the six months ended June 30, 2016 and June 30, 2015, respectively.

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Rental equipment

 

$

2,908

 

 

$

2,944

 

 

$

5,855

 

 

$

5,900

 

Other property and equipment

 

 

496

 

 

 

498

 

 

 

974

 

 

 

965

 

Total depreciation and amortization

 

$

3,404

 

 

$

3,442

 

 

$

6,829

 

 

$

6,865

 

 

Property and equipment and rental equipment with associated accumulated depreciation is summarized below for June 30, 2016 and December 31, 2015, respectively.

 

 

 

June 30,

 

 

December 31,

 

Property and equipment

 

2016

 

 

2015

 

Rental equipment, net of allowances of $700 and $850, respectively

 

$

55,074

 

 

$

54,677

 

Other property and equipment

 

 

12,822

 

 

 

11,596

 

Property and equipment

 

 

67,896

 

 

 

66,273

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

 

 

Rental equipment

 

 

31,783

 

 

 

28,894

 

Other property and equipment

 

 

7,673

 

 

 

6,699

 

Accumulated depreciation

 

 

39,456

 

 

 

35,593

 

 

 

 

 

 

 

 

 

 

Net property and equipment

 

 

 

 

 

 

 

 

Rental equipment

 

 

23,291

 

 

 

25,783

 

Other property and equipment

 

 

5,149

 

 

 

4,897

 

Property and equipment, net

 

$

28,440

 

 

$

30,680

 

 

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 during the three months or six months ended June 30, 2016 and June 30, 2015.

Intangible assets

There were no impairments recorded related to the Company’s intangible assets during the three months or six months ended June 30, 2016 and June 30, 2015. Amortization expense for intangible assets for the three months ended June 30, 2016 and June 30, 2015 was $22 and $22, respectively, and for the six months ended June 30, 2016 and June 30, 2015 was $45 and $43, respectively.

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

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

estimated

 

Gross

 

 

 

 

 

 

 

 

 

 

 

useful lives

 

carrying

 

 

Accumulated

 

 

 

 

 

June 30, 2016

 

(in years)

 

amount

 

 

amortization

 

 

Net amount

 

Licenses

 

10

 

$

185

 

 

$

109

 

 

$

76

 

Patents and websites

 

5

 

 

873

 

 

 

795

 

 

 

78

 

Commercials

 

2

 

 

174

 

 

 

144

 

 

 

30

 

Total

 

 

 

$

1,232

 

 

$

1,048

 

 

$

184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

estimated

 

Gross

 

 

 

 

 

 

 

 

 

 

 

useful lives

 

carrying

 

 

Accumulated

 

 

 

 

 

December 31, 2015

 

(in years)

 

amount

 

 

amortization

 

 

Net amount

 

Licenses

 

10

 

$

185

 

 

$

100

 

 

$

85

 

Patents and websites

 

5

 

 

873

 

 

 

779

 

 

 

94

 

Commercials

 

2

 

 

174

 

 

 

124

 

 

 

50

 

Total

 

 

 

$

1,232

 

 

$

1,003

 

 

$

229

 

 

The minimum aggregate amortization expense for intangibles for each of the five succeeding fiscal years is summarized as follows:

 

 

 

June 30, 2016

 

Remaining 6 months of 2016

 

$

39

 

2017

 

 

63

 

2018

 

 

49

 

2019

 

 

13

 

2020

 

 

9

 

Thereafter

 

 

11

 

 

 

$

184

 

Current liabilities

Accounts payable and accrued expenses as of June 30, 2016 and December 31, 2015 consisted of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Accounts payable

 

$

11,058

 

 

$

7,448

 

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

 

 

6,414

 

 

 

3,548

 

Accrued purchasing card liability

 

 

1,578

 

 

 

1,581

 

Accrued franchise and use taxes

 

 

23

 

 

 

45

 

Other accrued expenses

 

 

225

 

 

 

245

 

Accounts payable and accrued expenses

 

$

19,298

 

 

$

12,867