Quarterly report pursuant to Section 13 or 15(d)

Balance Sheet Components

v3.8.0.1
Balance Sheet Components
3 Months Ended
Mar. 31, 2018
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. Cash equivalents are recorded at cost plus accrued interest, which is considered adjusted cost, and approximates fair value. Certificates of deposit and agency mortgage-backed 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 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).

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

 

2018

 

 

2017

 

Cash

 

$

43,188

 

 

$

46,237

 

Money market accounts

 

 

107,906

 

 

 

93,430

 

Certificates of deposit

 

 

3,190

 

 

 

490

 

Corporate bonds

 

 

 

 

 

2,796

 

Total cash and cash equivalents

 

$

154,284

 

 

$

142,953

 

Marketable securities

 

 

 

 

 

 

 

 

Certificates of deposit

 

$

8,461

 

 

$

10,516

 

Corporate bonds

 

 

22,043

 

 

 

17,972

 

Agency mortgage-backed securities

 

 

1,005

 

 

 

2,004

 

U.S. Treasury securities

 

 

2,503

 

 

 

499

 

Total marketable securities

 

$

34,012

 

 

$

30,991

 

 

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, 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 allowance 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 March 31, 2018 and December 31, 2017, included in accounts receivable on the consolidated balance sheets were earned but unbilled receivables of $1,299 and $1,470, 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, 2018 and December 31, 2017 were as follows:

 

 

 

March 31,

 

 

December 31,

 

Gross accounts receivable

 

2018

 

 

2017

 

Rental (1)

 

$

6,143

 

 

$

6,236

 

Business-to-business & other receivables (2)

 

 

32,945

 

 

 

28,474

 

Total gross accounts receivable

 

$

39,088

 

 

$

34,710

 

 

Net accounts receivable (gross accounts receivable, net of allowances) balance concentrations by major category as of March 31, 2018 and December 31, 2017 were as follows:

 

 

 

March 31,

 

 

December 31,

 

Net accounts receivable

 

2018

 

 

2017

 

Rental (1)

 

$

3,695

 

 

$

4,212

 

Business-to-business & other receivables (2)

 

 

31,394

 

 

 

27,232

 

Total net accounts receivable

 

$

35,089

 

 

$

31,444

 

 

(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 $9,461 and $10,394 as of March 31, 2018 and December 31, 2017, 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 $18,000 in coverage as of March 31, 2018 and allocated up to $12,000 in coverage as of December 31, 2017 for this customer with a $1,000 deductible and 10% retention.

 

The following tables set forth the accounts receivable allowances as of March 31, 2018 and December 31, 2017:

 

 

 

March 31,

 

 

December 31,

 

Allowances - accounts receivable

 

2018

 

 

2017

 

Doubtful accounts

 

$

1,589

 

 

$

1,415

 

Rental revenue adjustments

 

 

1,013

 

 

 

947

 

Sales returns

 

 

1,397

 

 

 

904

 

Total allowances - accounts receivable

 

$

3,999

 

 

$

3,266

 

 

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 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 three months ended March 31, 2018 and March 31, 2017. Two customers with accounts receivable balances of $9,461 and $8,077, respectively, each represented more than 10% of the Company’s net accounts receivable balance as of March 31, 2018, and two customers with accounts receivable balances of $10,394 and $6,459, respectively, each represented more than 10% of the Company’s net accounts receivable balance as of December 31, 2017.

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, 2018, the Company’s three major vendors accounted for 18.5%, 15.1%, and 12.0%, respectively, of total raw material purchases. For the three months ended March 31, 2017, the Company’s three major vendors accounted for 18.8%, 11.6% and 10.9%, respectively, of total raw material purchases.  

A portion of revenue is earned from sales outside the United States. Approximately 76.9% and 72.2% of the non-U.S. revenue for the three months ended March 31, 2018 and March 31, 2017, 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, 2018 and March 31, 2017 is as follows:

 

 

 

Three months ended March 31,

 

 

 

2018

 

 

2017

 

U.S. revenue

 

$

62,145

 

 

$

41,077

 

Non-U.S. revenue

 

 

16,906

 

 

 

11,423

 

Total revenue

 

$

79,051

 

 

$

52,500

 

 

 

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 $452 and $644 as of March 31, 2018 and December 31, 2017, 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:

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Raw materials and work-in-progress

 

$

18,814

 

 

$

16,324

 

Finished goods

 

 

4,640

 

 

 

2,917

 

Less: reserves

 

 

(489

)

 

 

(399

)

Inventories

 

$

22,965

 

 

$

18,842

 

 

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 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 $560 and $651 for the three months ended March 31, 2018 and March 31, 2017, 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, 2018 and March 31, 2017, respectively.

 

 

 

Three months ended March 31,

 

 

 

2018

 

 

2017

 

Rental equipment

 

$

2,165

 

 

$

2,689

 

Other property and equipment

 

 

530

 

 

 

488

 

Total depreciation and amortization

 

$

2,695

 

 

$

3,177

 

 

Property and equipment and rental equipment with associated accumulated depreciation are summarized below for March 31, 2018 and December 31, 2017, respectively.

 

 

 

March 31,

 

 

December 31,

 

Property and equipment

 

2018

 

 

2017

 

Rental equipment, net of allowances of $754 and $754, respectively

 

$

47,420

 

 

$

49,349

 

Other property and equipment

 

 

17,387

 

 

 

15,219

 

Property and equipment

 

 

64,807

 

 

 

64,568

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

 

 

Rental equipment

 

 

33,671

 

 

 

34,754

 

Other property and equipment

 

 

10,238

 

 

 

9,711

 

Accumulated depreciation

 

 

43,909

 

 

 

44,465

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

 

 

 

 

 

 

Rental equipment, net of allowances of $754 and $754, respectively

 

 

13,749

 

 

 

14,595

 

Other property and equipment

 

 

7,149

 

 

 

5,508

 

Property and equipment, net

 

$

20,898

 

 

$

20,103

 

 

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 ended March 31, 2018 and March 31, 2017.

Goodwill

The changes in the carrying amount of goodwill for the three months ended March 31, 2018 were as follows:

 

Balance as of December 31, 2017

 

$

2,363

 

Translation adjustment

 

 

67

 

Balance as of March 31, 2018

 

$

2,430

 

Intangible assets

There were no impairments recorded related to the Company’s intangible assets during the three months ended March 31, 2018 and March 31, 2017. Amortization expense for intangible assets for the three months ended March 31, 2018 and March 31, 2017 was $298 and $27, respectively.   

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

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

estimated

 

Gross

 

 

 

 

 

 

 

 

 

 

 

useful lives

 

carrying

 

 

Accumulated

 

 

 

 

 

March 31, 2018

 

(in years)

 

amount

 

 

amortization

 

 

Net amount

 

Licenses

 

10

 

$

185

 

 

$

142

 

 

$

43

 

Patents and websites

 

5

 

 

4,173

 

 

 

1,131

 

 

 

3,042

 

Customer relationships

 

4

 

 

1,479

 

 

 

339

 

 

 

1,140

 

Non-compete agreement

 

3

 

 

246

 

 

 

75

 

 

 

171

 

Commercials

 

2-3

 

 

303

 

 

 

243

 

 

 

60

 

Total

 

 

 

$

6,386

 

 

$

1,930

 

 

$

4,456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

estimated

 

Gross

 

 

 

 

 

 

 

 

 

 

 

useful lives

 

carrying

 

 

Accumulated

 

 

 

 

 

December 31, 2017

 

(in years)

 

amount

 

 

amortization

 

 

Net amount

 

Licenses

 

10

 

$

185

 

 

$

137

 

 

$

48

 

Patents and websites

 

5

 

 

4,173

 

 

 

959

 

 

 

3,214

 

Customer relationships

 

4

 

 

1,437

 

 

 

240

 

 

 

1,197

 

Non-compete agreement

 

3

 

 

240

 

 

 

52

 

 

 

188

 

Commercials

 

2-3

 

 

303

 

 

 

233

 

 

 

70

 

Total

 

 

 

$

6,338

 

 

$

1,621

 

 

$

4,717

 

 

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

 

 

 

March 31, 2018

 

Remaining 9 months of 2018

 

$

906

 

2019

 

 

1,147

 

2020

 

 

1,069

 

2021

 

 

790

 

2022

 

 

544

 

Thereafter

 

 

 

 

 

$

4,456

 

Current liabilities

Accounts payable and accrued expenses as of March 31, 2018 and December 31, 2017 consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Accounts payable

 

$

13,589

 

 

$

9,541

 

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

 

 

7,644

 

 

 

7,252

 

Accrued purchasing card liability

 

 

2,089

 

 

 

2,381

 

Accrued franchise, sales and use taxes

 

 

498

 

 

 

479

 

Other accrued expenses

 

 

940

 

 

 

973

 

Accounts payable and accrued expenses

 

$

24,760

 

 

$

20,626

 

 

Accrued payroll as of March 31, 2018 and December 31, 2017 consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Accrued bonuses

 

$

1,306

 

 

$

3,086

 

Accrued wages and other payroll related items

 

 

3,803

 

 

 

2,453

 

Accrued vacation

 

 

1,498

 

 

 

1,338

 

Accrued payroll

 

$

6,607

 

 

$

6,877