NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
–
NATURE OF OPERATIONS AND PRESENTATION OF FINANCIAL STATEMENTS
Corporate Organization and Business
BioScrip, Inc. (“BioScrip”, “we”, “us”, “our” or the “Company”) is a national provider of infusion and home care management solutions. We partner with physicians, hospital systems, payors, pharmaceutical manufacturers and skilled nursing facilities to provide patients access to post-acute care services. We operate with a commitment to bring customer-focused pharmacy and related healthcare infusion therapy services into the home or alternate-site setting. By collaborating with the full spectrum of healthcare professionals and the patient, we aim to provide cost-effective care that is driven by clinical excellence, customer service and values that promote positive outcomes and an enhanced quality of life for those whom we serve.
Our platform provides nationwide service capabilities and the ability to deliver clinical management services that offer patients a high-touch, community-based and home-based care environment. Our core services are provided in coordination with, and under the direction of, the patient’s physician. Our multidisciplinary team of clinicians, including pharmacists, nurses, dietitians and respiratory therapists, work with the physician to develop a plan of care suited to each patient’s specific needs. Whether in the home, physician office, ambulatory infusion center, skilled nursing facility or other alternate sites of care, we provide products, services and condition-specific clinical management programs tailored to improve the care of individuals with complex health conditions such as gastrointestinal abnormalities, infectious diseases, cancer, multiple sclerosis, organ and blood cell transplants, bleeding disorders, immune deficiencies and heart failure.
Basis of Presentation
The Company’s Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain prior period financial statement amounts have been reclassified to conform to current period presentation. Additionally, certain amounts in the Consolidated Statements of Operations have been reclassified to include the presentation of operating expenses and operating income (loss).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2
–
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
On January 1, 2018, the Company adopted ASC 606 - Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not restated and continue to be reported in accordance with accounting standards in effect for those periods.
Net revenues are primarily generated by two performance obligations; delivery of prescription medications to patients and nursing services related to infusion therapies. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is defined as the unit of account for revenue recognition under ASC 606. Sources of net revenues include commercial insurance payors, Medicare, Medicaid, other government insurance payors, hospital and hospice facilities
and patients. Revenue is allocated to each performance obligation based on its relative standalone price, determined using reimbursement rates established by third-party payor contracts. Revenue is recognized in the period in which the related performance obligation is satisfied. Prescription medication revenue is recognized at the time the product is delivered to the patient and nursing revenue is recognized on the date of service.
Transaction prices for performance obligations with contracted payors are based on contracted rates. Transaction prices for Medicare and Medicaid programs are based on predetermined net realizable rates that are established by statutes or regulation. Transaction prices for non-contracted payors are based on usual and customary rates for services provided. These transaction prices are reduced by estimates of variable consideration, consisting of (i) implicit price concessions resulting from differences between rates charged for services performed and expected reimbursements, and (ii) retroactive revenue adjustments due to audits or reviews by our third-party payors.
We determine our estimates of variable consideration based on historical collection experience with similar payor classes, aged accounts receivable by payor class, terms of payment agreements, correspondence from payors related to revenue audits or reviews, our historical settlement activity of audited and reviewed claims and current economic conditions using the portfolio approach. Revenue is recognized only to the extent that it is probable that a significant reversal of the cumulative amount recognized will not occur in future periods.
Net revenues are adjusted when changes in estimates of variable consideration occur. Changes in estimates typically arise as a result of new information obtained, such as actual payment receipt or denial, or retroactive pricing adjustments by payors for new medications or services. Subsequent changes to estimates of transaction prices are recorded as adjustments to net revenue in the period of change. Subsequent changes that are determined to be the result of an adverse change in the payors ability to pay are recorded as an allowance for doubtful accounts.
The Company's performance obligations relate to contracts with a duration of less than
one
year; therefore, the Company has elected to apply the optional exemption provided by ASC 606 and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. The unsatisfied or partially unsatisfied performance obligations are completed when prescription medications are shipped, which generally occurs within a few days of the end of the reporting period. The Company's cost of obtaining contracts is not material.
In accordance with ASC 606, contract assets are to be recognized when an entity has the right to receive consideration in exchange for goods or services that have been transferred to a customer when that right is conditional on something other than the passage of time. The Company does not recognize contract assets as the right to receive consideration is unconditional in accordance with the passage of time criteria. Also in accordance with ASC 606, contract liabilities are to be recognized when an entity is obligated to transfer goods or services for which consideration has already been received. The Company does not receive consideration prior to the transfer of goods or services and, therefore, does not recognize contract liabilities. The Company elected a practical expedient to expense sales commissions when incurred as the amortization period associated therewith is generally one year or less. These costs are recorded in service location operating expenses.
Prior to the adoption of ASC 606, the Company accounted for revenue under ASC Subtopic 605-25,
Revenue Recognition: Multiple-Element Arrangements
(“ASC 605-25”). The Company concluded that its (i) delivery of prescription medications to patients and (ii) nursing services related to infusion therapies represented separate deliverables to its customers and allocated the total consideration to each deliverable based on its stand-alone selling price. Prescription medication revenue was recognized at the time the medication is shipped, and nursing revenue was recognized on the date of service.
Accounts Receivable and Allowance for Doubtful Accounts
Amounts billed that have not yet been collected that also meet the conditions for unconditional right to payment are presented as accounts receivable. We report accounts receivable related to delivery of prescription medications to patients and nursing services related to infusion therapies at their estimated transaction prices, inclusive of adjustments for variable consideration, based on the amounts expected to be collected from payors. Our accounts receivable are uncollateralized and consist of amounts due from commercial, government and patient payors. We write off accounts receivable once we have exhausted our collection efforts and deem an account to be uncollectible. Subsequent to the adoption of ASC 606, an allowance for doubtful accounts is established only as a result of an adverse change in the Company’s payors’ ability to pay outstanding billings. There was
no
allowance for doubtful accounts as of December 31, 2018.
Prior to the adoption of ASC 606, estimates of uncollectible accounts receivable were recorded as bad debt expense and a related allowance for doubtful accounts was established. The risk of collection varied based upon the product and the payor. We estimated the allowance for doubtful accounts based on several factors including the age of the outstanding receivables, the
historical experience of collections, adjusting for current economic conditions, and evaluating specific customer accounts for the ability to pay. We evaluated trends in collections and the effects of systems and business process changes in determining our expected collection rates. Balances that were determined to be uncollectible were written off against the existing allowance for doubtful accounts.
Cost of Revenue
Cost of revenue includes the costs of prescription medications, shipping and other direct and indirect costs, and nursing services, offset by volume and prompt pay discounts received from pharmaceutical manufacturers and distributors and manufacturer rebates, which are generally volume-based incentives that are recorded as a reduction to the cost of inventory purchases.
Cash and Cash Equivalents and Restricted Cash
Highly liquid investments with a maturity of three months or less when purchased are classified as cash equivalents. Restricted cash consists of cash balances held by financial institutions as collateral for letters of credit. These balances are reclassified to cash and cash equivalents when the underlying obligation is satisfied. Restricted cash balances expected to become unrestricted during the next twelve months are recorded as current assets. As of
December 31, 2018
, the Company had a restricted cash balance, in a money market account, of approximately $
4.3 million
.
Inventory
Inventory is recorded at the lower of cost or net realizable value. Cost for prescription medications is determined using specific item identification and supplies are accounted for using the first-in, first-out method.
Acquisitions
We account for acquisitions in accordance with ASC Topic 850,
Business Combinations
, if the acquired assets assumed and liabilities incurred constitute a business. We consider acquired companies to constitute a business if the acquired set of activities and assets are capable of being managed for the purpose of providing a return to the Company. For acquired companies constituting a business, we recognize the identifiable assets acquired and liabilities assumed at their acquisition-date fair values and recognize any excess of total consideration paid over the fair value of the identifiable assets as goodwill.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of assets as follows:
|
|
|
|
|
|
|
|
|
|
Useful Life
|
Computer hardware and software
|
|
3
|
years
|
-
|
5
|
years
|
Office equipment
|
|
|
|
|
5
|
years
|
Vehicles
|
|
4
|
years
|
-
|
5
|
years
|
Medical equipment
|
|
13
|
months
|
-
|
5
|
years
|
Furniture and fixtures
|
|
|
|
|
5
|
years
|
Leasehold improvements and assets leased under capital leases are depreciated using a straight-line basis over the lesser of the related lease term or estimated useful life of the assets. Software implementation costs, primarily consisting of application development activities, are capitalized and included in property and equipment. Costs related to the preliminary project and post-implementation stages of a project are charged to expense as incurred.
Depreciation of the property and equipment commences on the date the asset is ready for its intended use. A gain or loss is recorded in the statement of operations in the period in which the asset was sold or retired. Maintenance and repair costs are expensed as incurred.
The Company evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of its property and equipment may warrant revision or that the remaining balance of an asset may not be recoverable. The measurement of impairment is based on the ability to recover the balance of assets from expected future operating cash flows on an undiscounted basis. Impairment losses, if any, are determined based on the fair value of the asset, which is generally calculated as the present
value of related cash flows using discount rates that reflect the inherent risk of the underlying business.
No
impairment charges related to property and equipment were recorded during the years ended December 31, 2018, 2017 or 2016.
Leases
Operating lease expense is recorded on a straight-line basis over the expected term of the lease beginning on the date the Company gains possession of leased property. The Company includes tenant improvement allowances and rent holidays received from landlords and the effect of any rent escalation clauses as adjustments to straight-line rent expense over the expected term of the lease.
Capital leases are reflected as a liability at the inception of the lease based on the present value of the minimum lease payments or, if lower, the fair value of the property. Assets recorded under capital leases are depreciated in the same manner as owned property.
Goodwill
In accordance with ASC Topic 350,
Intangibles–Goodwill and Other (“ASC 350”)
, we evaluate goodwill for possible impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We concluded that the characteristics of all components of our business are similar and therefore the reporting unit for our goodwill analysis is the entity as a whole. We use a two-step process to assess the realizability of goodwill. The first step is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. For example, we analyze changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there are indicators of a significant decline in the fair value of a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required.
If a qualitative assessment indicates it is more likely than not that the fair value of our reporting unit is less than its carrying amount, we will proceed to the second step where we estimate the fair value of the reporting unit. We concluded that our goodwill was not impaired as a result of our 2018 assessment and none of the goodwill associated with our single reporting unit was considered at risk of impairment as of October 31, 2018.
Intangible Assets
Intangible assets as of December 31, 2018 consisted of managed care contracts and non-compete agreements. We amortize managed care contracts over their estimated useful lives of
four
years, and non-compete agreements on a straight-line basis over their contractual lives, which is generally
one
to
five
years. During 2018, we evaluated our intangible assets for indicators of impairment and determined that there have been no material developments, events, changes in operating performance or other circumstances that would cause management to believe it is more likely than not that the fair value of our intangible assets would be less than its carrying amount.
Amounts due to Plan Sponsors
Amounts due to plan sponsors represent payments received from plan sponsors in excess of the contractually required reimbursement that are expected to be refunded.
2017 Warrants
The 2017 Warrants are recorded at fair value and are included in other non-current liabilities on the accompanying Consolidated Balance Sheets. Fair value is remeasured each reporting period and a mark-to-market adjustment is recorded under the caption “Change in fair value of equity linked liabilities” on the accompanying Consolidated Statements of Operations. The fair value of the 2017 Warrants was
$25.3 million
and
$20.5 million
as of December 31, 2018 and 2017, respectively. Fair value increases of
$4.8 million
and
$3.6 million
were recorded during the years ended December 31, 2018 and 2017.
The Company estimates the fair value of the 2017 Warrants using a valuation model that considers attributes of the Company’s common stock, including the number of outstanding shares, share price and volatility. The valuation also considers the exercise period of the warrants and the attributes of other convertible instruments in estimating the number of shares that will be issued upon the exercise of the warrants.
See Note 8 - Preferred Stock and Stockholders’ Deficit for further discussion of the 2017 Warrants.
Income Taxes
The Company accounts for income taxes under ASC Topic 740, Income Taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using current enacted tax rates in effect in the years in which those temporary differences are expected to reverse. A valuation allowance is recorded against a deferred tax asset if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax asset will not be realized.
Uncertain tax positions are recognized if it is more likely than not that the Company will be able to sustain the tax position taken, and the measurement of the benefit is calculated as the largest amount that is more than 50% likely to be realized upon resolution of the benefit. The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. There were
no
liabilities recorded for uncertain tax positions as of December 31, 2018 or 2017.
Stock-Based Compensation
The Company accounts for stock-based compensation expense under the provisions of ASC Topic 718,
Compensation – Stock Compensation
(“ASC 718”). Stock-based compensation expense is based on the grant date fair value. We estimate the fair value of stock option awards using a Black-Scholes option pricing model. The fair value of restricted stock unit awards is generally estimated using the close price of our common stock on the grant date. We recognize expense for share-based payment awards based on their vesting conditions as follows:
|
|
•
|
Awards with service-based vesting conditions only – Expense is recognized on a straight-line basis over the requisite service period of the award.
|
|
|
•
|
Awards with performance-based vesting conditions – Expense is not recognized until it is determined that it is probable the performance-based conditions will be met. When achievement of a performance-based condition is probable, a cumulative catch-up of expense will be recorded as if the award had been vesting on a straight-line basis from the award date. The award will continue to be expensed on a straight-line basis through the vesting period and will be updated if the probability of achieving the performance-based condition changes.
|
The impact of forfeited awards is recorded in the period in which the forfeiture occurs.
Fair Value Measurements
ASC Topic 820,
Fair Value Measurement
(“ASC 820”), provides a framework for measuring fair value and defines fair value as the price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that is determined using assumptions that market participants would use in pricing an asset or liability. The standard establishes a valuation hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on independent market data sources. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available.
The valuation hierarchy is composed of three categories. The categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The categories within the valuation hierarchy are described as follows:
|
|
•
|
Level 1 - Inputs to the fair value measurement are quoted prices in active markets for identical assets or liabilities.
|
|
|
•
|
Level 2 - Inputs to the fair value measurement include quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
|
|
|
•
|
Level 3 - Inputs to the fair value measurement are unobservable inputs or valuation techniques.
|
The Company’s cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, amounts due to plan sponsors, accrued interest, accrued expenses and other current liabilities approximate fair value due to their fully liquid or short-term nature.
See Note 12 - Fair Value Measurements for additional information on the fair value of the Company’s debt facilities.
Accounting Pronouncements Recently Adopted
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15 —
Internal Use Software
. ASU 2018-15 aligns the requirements for capitalization of implementation costs related to hosted software with the existing internal-use software guidance. The effective date for ASU 2018-15 is for annual and interim periods beginning after December 15, 2019. The Company early adopted this ASU on October 1, 2018 on a prospective basis. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11—
Earnings Per Share (Topic 260), Distinguishing Liabilities From Equity (Topic 480), and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception
. ASU 2017-11 eliminates the requirement that a down round feature precludes equity classification when assessing whether an instrument is indexed to an entity’s own stock. A freestanding equity-linked financial instrument no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The Company adopted the new standard on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09—
Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting.
ASU 2017-09 modifies when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The effective date for ASU 2017-09 is for annual or any interim periods beginning after December 15, 2017. The Company adopted this ASU on January 1, 2018. The adoption of this standard did not materially impact the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18—
Statement of Cash Flows (Topic 230): Restricted Cash
. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The effective date for ASU 2016-18 is for annual or any interim periods beginning after December 15, 2017. The Company adopted this ASU on January 1, 2018. The adoption of this standard did not materially impact the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15—
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.
ASU 2016-15 provides guidance for eight specific cash flow issues with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The effective date for ASU 2016-15 is for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted this ASU on January 1, 2018. The adoption of this standard did not materially impact the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (ASC 606)
. The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and replaced most of the existing revenue recognition guidance in U.S. GAAP. On January 1, 2018, we adopted ASC 606 using the modified retrospective transition method which allowed for the application of the new guidance only to contracts that were not completed at the adoption date. Prior periods have not been restated and continue to be reported under accounting standards that were in place at the time. Prior to the adoption of ASC 606, estimates of implicit price concessions and retroactive price adjustments were recorded as bad debt expense and a related allowance for doubtful accounts was established. Subsequent to the adoption of ASC 606, accounts receivable are recorded net of estimated implicit price concessions and retroactive price adjustments and an allowance for doubtful accounts is established only as a result of an adverse change in the Company’s payors’ ability to pay outstanding billings. Upon adoption, the Company concluded that the allowance for doubtful accounts at December 31, 2017 consisted entirely of estimated implicit price concessions and retroactive price adjustments. As a result, the allowance for doubtful accounts was eliminated and accounts receivable were restated net of estimated implicit price concessions and retroactive price adjustments as of January 1, 2018. Adoption of ASC 606 did not result in an opening accumulated deficit adjustment.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13—
Fair Value Measurement (Topic 820): Disclosure Framework— Changes to the Disclosure Requirements for Fair Value Measurements
. ASU 2018-13 modifies fair value measurement disclosure requirements. The effective date for ASU 2018-13 is for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s disclosures to the consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13—
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
, which requires measurement and recognition of expected credit losses for financial assets held. The amendments in ASU 2016-13 eliminate the probable threshold for initial recognition of a credit loss in current GAAP and reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 is effective for interim and annual reporting periods beginning January 1, 2020, and is to be applied using a modified retrospective transition method. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In February 2016, FASB issued ASU 2016-02,
Leases
(“ASU 2016-02”) and issued additional clarifications and improvements throughout 2018. The pronouncement requires lessees to recognize a liability for lease obligations, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet. The guidance requires disclosure of key information about leasing arrangements that is intended to give financial statement users the ability to assess the amount, timing, and potential uncertainty of cash flows related to leases. ASU 2016-02 is effective for interim and annual reporting periods beginning January 1, 2019. We will elect the optional transition method to apply the standard as of the effective date and therefore, we will not apply the standard to the comparative periods presented in our financial statements. We will elect the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. We will not elect the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of right-of-use assets. Further, we will elect a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets. We are finalizing the impact of the standard to our accounting policies, processes, disclosures, and internal control over financial reporting and have implemented necessary upgrades to our existing lease system.
NOTE 3 - NET REVENUE AND ACCOUNTS RECEIVABLE
The following table presents our disaggregated net revenue for each associated payor class (in thousands). Sales and usage-based taxes are excluded from net revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Commercial
|
$
|
575,566
|
|
|
$
|
677,536
|
|
|
$
|
771,278
|
|
Government
|
127,301
|
|
|
131,459
|
|
|
158,450
|
|
Patient
|
6,036
|
|
|
8,195
|
|
|
5,861
|
|
Net Revenue
|
$
|
708,903
|
|
|
$
|
817,190
|
|
|
$
|
935,589
|
|
Absent implementation of ASC 606, the Company would have reported revenue of
$738.8 million
, gross profit of
$272.9 million
, bad debt expense of
$29.9 million
for the year ended December 31, 2018, respectively, and an allowance for doubtful accounts of
$41.2 million
at December 31, 2018.
Net Revenue Concentration
During the year ended December 31, 2018, Aetna Health Management, LLC accounted for approximately
10%
of net revenue. During the years ended December 31, 2017 and 2016, UnitedHealthcare Insurance Company accounted for approximately
18%
and
24%
of net revenue, respectively.
Collectability of Accounts Receivable
The following table sets forth the aging of our accounts receivable, aged based on date of service and categorized based on the three primary payor groups (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
|
0 - 180 days
|
|
Over 180 days
|
|
Total
|
|
% of Total
|
|
0 - 180 days
|
|
Over 180 days
|
|
Total
|
|
% of Total
|
Government
|
|
$
|
17,849
|
|
|
$
|
6,098
|
|
|
$
|
23,947
|
|
|
|
|
$
|
20,602
|
|
|
$
|
10,082
|
|
|
$
|
30,684
|
|
|
|
Commercial
|
|
67,288
|
|
|
14,740
|
|
|
82,028
|
|
|
|
|
63,767
|
|
|
18,779
|
|
|
82,546
|
|
|
|
Patient
|
|
2,092
|
|
|
6,797
|
|
|
8,889
|
|
|
|
|
2,577
|
|
|
7,627
|
|
|
10,204
|
|
|
|
Gross accounts receivable
|
|
$
|
87,229
|
|
|
$
|
27,635
|
|
|
114,864
|
|
|
|
|
$
|
86,946
|
|
|
$
|
36,488
|
|
|
123,434
|
|
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
—
|
|
|
—
|
%
|
|
|
|
|
|
(37,912
|
)
|
|
30.7
|
%
|
Accounts receivable, net
|
|
|
|
|
|
$
|
114,864
|
|
|
|
|
|
|
|
|
$
|
85,522
|
|
|
|
NOTE 4
–
ACQUISITION
On September 9, 2016, the Company acquired substantially all of the assets and assumed certain liabilities of Home Solutions, Inc. for consideration totaling
93.2 million
, comprised of: (i)
$67.5 million
in cash; (ii)
7.1 million
restricted shares of the Company’s common stock valued at
$15.4 million
; (iii)
3,750,000
shares of the Company’s common stock valued at
$9.9 million
, and (iv) the assumption of
$0.3 million
of capital lease obligations. Home Solutions, a privately held company, provided home infusion and home nursing products and services to patients suffering from chronic and acute medical conditions.
The excess of the purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition was allocated to goodwill in the amount of
$58.5 million
. Acquisition and integration expenses totaled
$10.1 million
for the year ended December 31, 2016 and are included in restructuring, acquisition, integration, and other expenses in the accompanying Consolidated Statements of Operations.
NOTE 5
–
GOODWILL AND INTANGIBLE ASSETS
Goodwill, and the changes in the carrying amount of goodwill for the years ended
December 31, 2018
and
2017
, are as follows (in thousands):
|
|
|
|
|
Balance at December 31, 2016
|
$
|
365,947
|
|
Adjustments associated with the acquisition of Home Solutions
|
1,251
|
|
Balance at December 31, 2017
|
$
|
367,198
|
|
Adjustments
|
—
|
|
Balance at December 31, 2018
|
$
|
367,198
|
|
Intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Infusion customer relationships
|
$
|
25,650
|
|
|
$
|
(25,650
|
)
|
|
$
|
—
|
|
|
$
|
25,650
|
|
|
$
|
(25,650
|
)
|
|
$
|
—
|
|
Managed care contracts
|
25,000
|
|
|
(14,576
|
)
|
|
10,424
|
|
|
25,000
|
|
|
(8,403
|
)
|
|
16,597
|
|
Licenses
|
5,400
|
|
|
(5,400
|
)
|
|
—
|
|
|
5,400
|
|
|
(3,681
|
)
|
|
1,719
|
|
Trade name
|
1,800
|
|
|
(1,800
|
)
|
|
—
|
|
|
1,800
|
|
|
(1,181
|
)
|
|
619
|
|
Non-compete agreements
|
1,700
|
|
|
(1,654
|
)
|
|
46
|
|
|
1,700
|
|
|
(1,521
|
)
|
|
179
|
|
|
$
|
59,550
|
|
|
$
|
(49,080
|
)
|
|
$
|
10,470
|
|
|
$
|
59,550
|
|
|
$
|
(40,436
|
)
|
|
$
|
19,114
|
|
Intangible assets are amortized on a straight-line basis over their estimated useful lives as follows:
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful Life
|
Infusion customer relationships
|
|
5
|
months
|
-
|
4
|
years
|
Managed care contracts
|
|
|
|
|
|
4
|
years
|
Licenses
|
|
|
|
|
|
2
|
years
|
Trade name
|
|
|
|
|
|
2
|
years
|
Non-compete agreements
|
|
|
1
|
year
|
-
|
5
|
years
|
Total amortization expense of intangible assets was
$8.6 million
,
$11.8 million
, and
$6.2 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively. Amortization expense is expected to be the following (in thousands):
|
|
|
|
|
|
Year ending December 31,
|
|
Estimated Amortization
|
2019
|
|
$
|
6,218
|
|
2020
|
|
4,252
|
|
Total estimated amortization expense
|
|
$
|
10,470
|
|
NOTE 6
–
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Computer and office equipment
|
$
|
32,452
|
|
|
$
|
31,371
|
|
Software capitalized for internal use
|
17,625
|
|
|
17,470
|
|
Vehicles
|
2,287
|
|
|
2,379
|
|
Medical equipment
|
42,600
|
|
|
36,230
|
|
Work in progress
|
1,733
|
|
|
2,478
|
|
Furniture and fixtures
|
5,930
|
|
|
5,534
|
|
Leasehold improvements
|
27,012
|
|
|
19,809
|
|
Property and equipment, gross
|
129,639
|
|
|
115,271
|
|
Less: Accumulated depreciation
|
(100,851
|
)
|
|
(88,298
|
)
|
Property and equipment, net
|
$
|
28,788
|
|
|
$
|
26,973
|
|
Depreciation expense, including expense related to assets under capital lease, for the years ended
December 31, 2018
,
2017
and
2016
was
$15.0 million
,
$15.9 million
, and
$15.8 million
, respectively.
NOTE 7
–
DEBT
Debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
First Lien Note Facility, net of unamortized discount
|
$
|
198,962
|
|
|
$
|
198,324
|
|
Second Lien Note Facility, net of unamortized discount
|
108,931
|
|
|
85,694
|
|
2021 Notes, net of unamortized discount
|
198,125
|
|
|
197,363
|
|
Capital leases
|
990
|
|
|
2,863
|
|
Less: Deferred financing costs
|
(2,334
|
)
|
|
(3,656
|
)
|
Total debt
|
504,674
|
|
|
480,588
|
|
Less: Current portion of long-term debt
|
(3,179
|
)
|
|
(1,722
|
)
|
Long-term debt, net of current portion
|
$
|
501,495
|
|
|
$
|
478,866
|
|
Prior Debt Facilities
The Company was previously obligated under (i) a senior secured first-lien revolving credit facility in an aggregate principal amount of
$75.0 million
(the “Revolving Credit Facility”), (ii) a senior secured first-lien term loan B in an aggregate principal amount of
$250.0 million
(the “Term Loan B Facility”) and (iii) a senior secured first-lien delayed draw term loan B in an aggregate principal amount of
$150.0 million
(the “Delayed Draw Term Loan Facility” and, together with the Revolving Credit Facility and the Term Loan B Facility, the “Senior Credit Facilities”) with SunTrust Bank, Jefferies Finance LLC and Morgan Stanley Senior Funding, Inc., originally entered on July 31, 2013 and amended from time to time. The borrowings under these facilities were fully repaid during 2017.
On January 6, 2017, the Company entered into a credit agreement (the “Priming Credit Agreement” and, together with the Senior Credit Facilities, the “Prior Credit Agreements”) with certain existing lenders under the Senior Credit Facilities and SunTrust Bank, as administrative agent for itself and the lenders. The Priming Credit Agreement provided an aggregate borrowing commitment of
$25.0 million
, which was fully drawn at closing. The borrowings under this facility were fully repaid during 2017.
First Lien and Second Lien Note Facilities
On June 29, 2017 (the “Closing Date”), the Company entered into (i) a first lien note purchase agreement (the “First Lien Note Facility”), among the Company, which is the issuer under the agreement, the financial institutions and note purchasers from time to time party to the agreement (the “First Lien Note Purchasers”), and Wells Fargo Bank, National Association, in its capacity as collateral agent for itself and the First Lien Note Purchasers (the “First Lien Collateral Agent”), pursuant to which the Company issued first lien senior secured notes in an aggregate principal amount of
$200.0 million
(the “First Lien Notes”); and (ii) a second lien note purchase agreement (the “Second Lien Note Facility” and, together with the First Lien Note Facility, the “Notes Facilities”) among the Company, which is the issuer under the agreement, the financial institutions and note purchasers from time to time party to the agreement (the “Second Lien Note Purchasers”), and Wells Fargo Bank, National Association, in its capacity as collateral agent for itself and the Second Lien Note Purchasers (the “Second Lien Collateral Agent” and, together with the First Lien Collateral Agent, the “Collateral Agent”), pursuant to which the Company (a) issued second lien senior secured notes in an aggregate initial principal amount of
$100.0 million
(the “Initial Second Lien Notes”) and (b) had the ability to draw upon the Second Lien Note Facility and issue second lien delayed draw senior secured notes, which was exercised on June 21, 2018, in an aggregate initial principal amount of
$10.0 million
, representing the maximum borrowings allowed on this facility (the “Second Lien Delayed Draw Notes” and, together with the Initial Second Lien Notes, the “Second Lien Notes”; the Second Lien notes, together with the First Lien Notes, the “Notes”). Funds managed by Ares Management L.P. are acting as lead purchasers for the Notes Facilities.
The Company used the proceeds of the sale of the First Lien Notes and the Initial Second Lien Notes pursuant to the Notes Facilities to repay in full all amounts outstanding under the Prior Credit Agreements and extinguished the liability. Each of the Prior Credit Agreements was terminated following such repayment. The Company used the remaining proceeds of
$15.9 million
of the Notes Facilities, net of
$0.2 million
in issuance costs, from the Notes Facilities and the Second Quarter 2017 Private Placement for working capital and general corporate purposes.
The First Lien Notes accrue interest, payable monthly in arrears, at a floating rate or rates equal to, at the option of the Company, (i) the base rate (defined as the highest of the Federal Funds Rate plus
0.5%
per annum, the Prime Rate as published
by The Wall Street Journal and the one-month London Interbank Offered Rate (“LIBOR”) (subject to a
1.0%
floor) plus
1.0%
), or (ii) the one-month LIBOR rate (subject to a
1.0%
floor), plus a margin of
6.0%
if the base rate is selected or
7.0%
if the LIBOR Option is selected. The First Lien Notes mature on August 15, 2020, provided that if the Company’s existing
8.875%
Senior Notes due 2021 (the “2021 Notes”) are refinanced prior to August 15, 2020, then the scheduled maturity date of the First Lien Notes shall be June 30, 2022.
The First Lien Notes amortize in equal quarterly installments equal to
0.625%
of the aggregate principal amount of the First Lien Note Facility, commencing on September 30, 2019, and on the last day of each third month thereafter, with the balance payable at maturity. The First Lien Notes are pre-payable at the Company’s option at specified premiums to the principal amount that will decline over the term of the First Lien Note Facility. If the First Lien Notes are prepaid prior to the second anniversary of the Closing Date, the Company will be required to pay a make-whole premium based on the present value (using a discount rate based on the specified treasury rate plus
50
basis points) of all remaining interest payments on the First Lien Notes being prepaid prior to the second anniversary of the Closing Date, plus
4.0%
of the principal amount of First Lien Notes being prepaid. On or after the second anniversary of the Closing Date, the prepayment premium is
4.0%
, which declines to
2.0%
on or after the third anniversary of the Closing Date, and declines to
0.0%
on or after the fourth anniversary of the Closing Date. At any time, the Company may pre-pay up to
$50.0 million
in aggregate principal amount of the First Lien Notes from internally generated cash without incurring any make-whole or prepayment premium. The occurrence of certain events of default may increase the applicable rate of interest by
2.0%
and could result in the acceleration of the Company’s obligations under the First Lien Note Facility prior to stated maturity and an obligation of the Company to pay the full amount of its obligations under the First Lien Note Facility.
The First Lien Note Facility contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross-defaults to material indebtedness and events constituting a change of control. In addition, the obligations under the First Lien Note Facility are guaranteed by joint and several guarantees from the Company’s subsidiaries.
In connection with the First Lien Note Facility, the Company, its subsidiaries and the First Lien Collateral Agent entered into a First Lien Guaranty and Security Agreement, dated as of June 29, 2017 (the “First Lien Guaranty and Security Agreement”). Pursuant to the First Lien Guaranty and Security Agreement, the obligations under the First Lien Notes are secured by first priority liens on, and security interests in, substantially all of the assets of the Company and its subsidiaries.
The Second Lien Notes accrue interest, payable monthly in arrears, at a floating rate or rates equal to, at the option of the Company, (i) one-month LIBOR (subject to a
1.25%
floor) plus
9.25%
per annum in cash, (ii) one-month LIBOR (subject to a
1.25%
floor) plus
11.25%
per annum, which amount will be capitalized on each interest payment date, or (iii) one-month LIBOR (subject to a
1.25%
floor) plus
10.25%
per annum, of which one-half LIBOR plus
4.625%
per annum will be payable in cash and one-half LIBOR plus
5.625%
per annum will be capitalized on each interest payment date, provided that, in each case, if any permitted refinancing indebtedness with which the 2021 Notes are refinanced requires or permits the payment of cash interest, all of the interest on the Second Lien Notes shall be paid in cash. The Company elected to capitalize
$7.8 million
of interest during the year ended December 31, 2018.
No
interest was capitalized during the year ended December 31, 2017. The Second Lien Notes mature on August 15, 2020, provided that if the 2021 Notes are refinanced prior to August 15, 2020, then the scheduled maturity date of the Second Lien Notes shall be June 30, 2022.
The Second Lien Notes are not subject to scheduled amortization installments. The Second Lien Notes are pre-payable at the Company’s option at specified premiums to the principal amount that will decline over the term of the Second Lien Note Facility. If the Second Lien Notes are prepaid prior to the third anniversary of the Closing Date, the Company will need to pay a make-whole premium based on the present value (using a discount rate based on the specified treasury rate plus
50
basis points) of all remaining interest payments on the Second Lien Notes being prepaid prior to the third anniversary of the Closing Date, plus
4.0%
of the principal amount of Second Lien Notes being prepaid. On or after the third anniversary of the Closing Date, the prepayment premium is
4.0%
, which declines to
2.0%
on or after the fourth anniversary of the Closing Date, and declines to
0.0%
on or after the fifth anniversary of the Closing Date. The occurrence of certain events of default may increase the applicable rate of interest by
2.0%
and could result in the acceleration of the Company’s obligations under the Second Lien Note Facility prior to stated maturity and an obligation of the Company to pay the full amount of its obligations under the Second Lien Note Facility.
The Second Lien Note Facility contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross-defaults to material indebtedness and events constituting a change of control. In addition, the obligations under the Second Lien Note Facility are guaranteed by joint and several guarantees from the Company’s subsidiaries.
In connection with the Second Lien Note Facility, the Company, its subsidiaries and the Second Lien Collateral Agent entered into a Second Lien Guaranty and Security Agreement, dated as of June 29, 2017 (the “Second Lien Guaranty and Security
Agreement”). Pursuant to the Second Lien Guaranty and Security Agreement, the obligations under the Second Lien Notes are secured by second priority liens on, and security interests in, substantially all of the assets of the Company and its subsidies.
In connection with the First Lien Note Facility and the Second Lien Note Facility, the Company, the First Lien Collateral Agent and the Second Lien Collateral Agent, entered into an intercreditor agreement containing customary provisions to, among other things, subordinate the lien priority of the liens granted under the Second Lien Note Facility to the liens granted under the First Lien Note Facility.
2021 Notes
On February 11, 2014, the Company issued
$200.0 million
aggregate principal amount of the 2021 Notes. The 2021 Notes are senior unsecured obligations of the Company and are fully and unconditionally guaranteed by all existing and future subsidiaries of the Company. The 2021 Notes were offered in the United States to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act pursuant to an Indenture (the “2021 Notes Indenture”), dated February 11, 2014, by and among the Company, the guarantors named therein and U.S. Bank National Association, as trustee.
Interest on the 2021 Notes accrues at a fixed rate of
8.875%
per annum and is payable in cash semi-annually, in arrears, on February 15 and August 15 of each year, commencing on August 15, 2014. The debt discount of
$5.0 million
at issuance is being amortized as interest expense through maturity which will result in the accretion over time of the outstanding debt balance to the principal amount. The 2021 Notes are the Company’s senior unsecured obligations and rank equally in right of payment with all of its other existing and future senior unsecured indebtedness and senior in right of payment to all of its existing and future subordinated indebtedness.
The 2021 Notes are guaranteed on a full, joint and several basis by each of the Company’s existing and future domestic restricted subsidiaries that is a borrower under any of the Company’s credit facilities or that guarantees any of the Company’s debt or that of any of its restricted subsidiaries, in each case incurred under the Company’s credit facilities. As of
December 31, 2018
, the Company does not have any independent assets or operations, and as a result, its direct and indirect subsidiaries (other than minor subsidiaries), each being 100% owned by the Company, are fully and unconditionally, jointly and severally, providing guarantees on a senior unsecured basis to the 2021 Notes.
The 2021 Notes Indenture contains covenants that, among other things, limit the Company’s ability and the ability of certain of the Company’s subsidiaries to (i) grant liens on its assets, (ii) make dividend payments, other distributions or other restricted payments, (iii) incur restrictions on the ability of the Company’s restricted subsidiaries to pay dividends or make other payments, (iv) enter into sale and leaseback transactions, (v) merge, consolidate, transfer or dispose of substantially all of their assets, (vi) incur additional indebtedness, (vii) make investments, (viii) sell assets, including capital stock of subsidiaries, (ix) use the proceeds from sales of assets, including capital stock of restricted subsidiaries, and (x) enter into transactions with affiliates. In addition, the 2021 Notes Indenture requires, among other things, the Company to provide financial and current reports to holders of the 2021 Notes or file such reports electronically with the U.S. Securities and Exchange Commission (the “SEC”). These covenants are subject to a number of exceptions, limitations and qualifications set forth in the 2021 Notes Indenture.
Pursuant to the terms of the Second Amendment to the Senior Credit Facilities, the Company used the net proceeds of the 2021 Notes of approximately
$194.5 million
to repay existing debt.
Fair Value of Debt Facilities
See Note 12 - Fair Value Measurements, for information related to the estimated fair value of the Company’s debt facilities.
Deferred Financing Costs
In connection with the Note Facilities and the 2021 Notes, the Company incurred underwriting fees, agent fees, legal fees and other expenses of approximately
$4.1 million
and
$0.5 million
, respectively. The deferred financing costs are reflected as additional issuance costs and amortized as a component of interest expense over the remaining term of the Note Facilities using the effective interest method.
Future Maturities
The estimated future maturities of the Company’s long-term debt, exclusive of deferred financing costs and unamortized discounts, as of
December 31, 2018
, are as follows (in thousands):
|
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
2019
|
|
$
|
3,179
|
|
2020
|
|
315,598
|
|
2021
|
|
200,000
|
|
Total future maturities
|
|
$
|
518,777
|
|
Less: Deferred financing costs
|
|
(2,334
|
)
|
Less: Unamortized discounts
|
|
(11,769
|
)
|
Total debt
|
|
$
|
504,674
|
|
NOTE 8
–
PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Series A Preferred Stock
As of
December 31, 2018
, the carrying value of Series A Preferred Stock included accrued dividends at
11.5%
and discount accretion from the date of issuance. Dividends and discount accretion totaled
$0.3 million
and
$0.1 million
, respectively, for each of the years ended December 31, 2018 and 2017 and were recorded as a reduction to additional paid-in capital. The following table sets forth the activity recorded during the years ended
December 31, 2018
and 2017 related to the Series A Preferred Stock (in thousands):
|
|
|
|
|
Series A Preferred Stock carrying value at December 31, 2016
|
$
|
2,462
|
|
Dividends and discount accretion through December 31, 2017
1
|
365
|
|
Series A Preferred Stock carrying value at December 31, 2017
|
$
|
2,827
|
|
Dividends and discount accretion through December 31, 2018
1
|
404
|
|
Series A Preferred Stock carrying value at December 31, 2018
|
$
|
3,231
|
|
1
Dividends recorded reflect the increase in the Liquidation Preference associated with unpaid dividends.
Series C Preferred Stock
As of
December 31, 2018
, the carrying value of Series C Preferred Stock included accrued dividends at
11.5%
and discount accretion from the date of issuance. Dividends and discount accretion totaled
$10.1 million
and
$0.7 million
, respectively, for the year ended December 31, 2018 and
$9.1 million
and
$0.6 million
, respectively, for the year ended December 31, 2017 and were recorded as a reduction to additional paid-in capital. The following table sets forth the activity recorded during the years ended
December 31, 2018
and 2017 related to the Series C Preferred Stock (in thousands):
|
|
|
|
|
Series C Preferred Stock carrying value at December 31, 2016
|
$
|
69,540
|
|
Dividends and discount accretion through December 31, 2017
1
|
9,712
|
|
Series C Preferred Stock carrying value at December 31, 2017
|
$
|
79,252
|
|
Dividends and discount accretion through December 31, 2018
1
|
10,806
|
|
Series C Preferred Stock carrying value at December 31, 2018
|
$
|
90,058
|
|
1
Dividends recorded reflect the increase in the Liquidation Preference associated with unpaid dividends.
First Quarter 2017 Private Placement
On March 1, 2017, the Company entered into a Stock Purchase Agreement (the “First Quarter Stock Purchase Agreement”) with Venor Capital Master Fund Ltd., Map 139 Segregated Portfolio of LMA SPC, Venor Special Situations Fund II LP and Trevithick LP (the “First Quarter Stockholders”). Pursuant to the First Quarter Stock Purchase Agreement, the Company sold an aggregate of
3.3 million
shares of its common stock (the “First Quarter Shares”) for aggregate gross proceeds of approximately
$5.1 million
in a private placement transaction (the “First Quarter 2017 Private Placement”). The purchase price for each Share
was
$1.5366
, which was negotiated between the Company and the First Quarter Stockholders based on the volume-weighted average price of the Company's common stock on the Nasdaq Global Market on March 1, 2017.
Second Quarter 2017 Private Placement
On June 29, 2017, the Company entered into a Stock Purchase Agreement (the “Second Quarter Stock Purchase Agreement”) with a fund managed by Ares Management L.P. (“Ares” or the “Second Quarter Stock Purchaser”). Pursuant to the terms of the Second Quarter Stock Purchase Agreement, the Company issued and sold to the Second Quarter Stock Purchaser in a private placement (the “Second Quarter 2017 Private Placement”)
6,359,350
shares of Common Stock (the “Second Quarter Shares”) at a price of
$2.50
per share, for proceeds of approximately
$15.9 million
, net of
$0.2 million
in associated costs.
Second Quarter Registration Rights Agreement
In connection with the 2017 Warrants and the Second Quarter 2017 Private Placement, the Company entered into a Registration Rights Agreement (the “Second Quarter 2017 Registration Rights Agreement”) with the holders of the 2017 Warrants and the Second Quarter Stock Purchaser. Pursuant to the Second Quarter 2017 Registration Rights Agreement, subject to certain exceptions, the Company is required, upon the request of the Second Quarter Stock Purchaser and holders of the 2017 Warrants, to register the resale of the Second Quarter Shares and the shares of Common Stock issuable upon exercise of the 2017 Warrants. Pursuant to the terms of the Second Quarter 2017 Registration Rights Agreement, these registration rights will not become effective until twelve months after the Closing Date, and the costs incurred in connection with such registrations will be borne by the Company.
2017 Warrants
In connection with the Second Lien Note Facility (as defined above), the Company issued warrants (the “2017 Warrants”) to the purchasers of the Second Lien Notes (as defined below) pursuant to a Warrant Purchase Agreement dated as of June 29, 2017 (the “Warrant Purchase Agreement”). The 2017 Warrants entitle the purchasers of the Warrants to purchase shares of Common Stock, representing at the time of any exercise of the 2017 Warrants an equivalent number of shares equal to
4.99%
of the Common Stock of the Company on a fully diluted basis, subject to the terms of the Warrant Agreement governing the 2017 Warrants, dated as of June 29, 2017 (the “Warrant Agreement”); provided, however, the 2017 Warrants may not be converted to the extent that, after giving effect to such conversion, the holders of the 2017 Warrants would beneficially own, in the aggregate, in excess of (i)
19.99%
of the shares of Common Stock outstanding as of June 29, 2017 (the “Closing Date”) minus (ii) the shares of Common Stock that were sold pursuant to the Second Quarter 2017 Private Placement (as defined below) (the “Conversion Cap”). The Conversion Cap will not apply to the 2017 Warrants if the Company obtains the approval of its stockholders for the removal of the Conversion Cap, which the Company is required to take certain steps to attempt to obtain, subject to the terms of the Warrant Agreement.
The 2017 Warrants have a
10
-year term and an initial exercise price of
$2.00
per share, and may be exercised by payment of the exercise price in cash or surrender of shares of Common Stock into which the 2017 Warrants are being converted in an aggregate amount sufficient to pay the exercise price. The exercise price and the number of shares that may be acquired upon exercise of the 2017 Warrants are subject to adjustment in certain situations, including price based anti-dilution protection whereby, subject to certain exceptions, if the Company later issues Common Stock or certain Common Stock Equivalents (as defined in the Warrant Agreement) at a price less than either the then-current market price per share or exercise price of the 2017 Warrants, then the exercise price will be decreased and the percentage of shares of Common Stock issuable upon exercise of the 2017 Warrants will remain the same, giving effect to such issuance. Additionally, the 2017 Warrants have standard anti-dilution protections if the Company effects a stock split, subdivision, reclassification or combination of its Common Stock or fixes a record date for the making of a dividend or distribution to stockholders of cash or certain assets. Upon the occurrence of certain business combinations, the 2017 Warrants will be converted into the right to acquire shares of stock or other securities or property (including cash) of the successor entity.
See
2017 Warrants
within Note 2 - Summary of Significant Accounting Policies for additional information related to the estimated fair value of the 2017 Warrants.
Treasury Stock
During the years ended
December 31, 2018
and 2017,
51,394
and
5,106
shares, respectively, were surrendered to satisfy tax withholding obligations on the exercise of stock options and the vesting of restricted stock awards. During the year ended December 31, 2018, an additional
257,305
shares were surrendered in net settlement of option exercises. The Company did
not
hold any shares of treasury stock at
December 31, 2016
as the balance was utilized to issue shares, reflected as consideration, in the Home Solutions acquisition.
NOTE 9
–
STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS
BioScrip Equity Incentive Plans
Under the Company’s Amended and Restated 2008 Equity Incentive Plan (the “2008 Plan”), the Company may issue, among other things, incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock grants, restricted stock units, performance shares and performance units to key employees and directors. While stock appreciation rights are authorized under the 2008 Plan, they may also be issued outside of the plan. The 2008 Plan is administered by the Company’s Management Development and Compensation Committee (the “Compensation Committee”), a standing committee of the Board of Directors.
On November 30, 2016, at a special meeting, the stockholders approved an amendment to the 2008 Plan to (a) increase the number of shares of Common Stock in the aggregate that may be subject to awards by
5,250,000
shares, from
9,355,000
to
14,605,000
shares and (b) increase the annual grant caps under the Company’s 2008 Plan from
500,000
Options,
500,000
Stock Appreciation Rights and
350,000
Stock Grants and Restricted Stock Units to a cap of no more than a total of
3,000,000
Options, Stock Appreciation Rights, Stock Grants and Restricted Stock Units combined that are intended to comply with the requirements of Section 162(m) of the Code.
On May 3, 2018, at the annual meeting of stockholders, the Board of Directors and stockholders approved the 2018 Equity Incentive Plan (the “2018 Plan”) to replace the expiring 2008 Plan. The 2018 Plan contains terms and conditions substantially similar to the 2008 Plan. A total of
16,406,939
shares of Common Stock were initially authorized for issuance under the 2018 Plan, which included the shares that remained available under the 2008 Plan. The 2018 Plan will terminate
ten
years after its adoption, unless terminated earlier by the Board of directors. As of
December 31, 2018
, there were
12,987,351
shares of Common Stock available for future grant under the 2018 Plan.
Stock Options
Options granted under the 2008 Plan or the 2018 Plan: (a) typically vest over a
three
-year period and, in certain instances, fully vest upon a change in control of the Company, (b) have an exercise price that may not be less than
100%
of its fair market value on the date of grant and (c) are exercisable for
seven
to
ten
years after the date of grant, subject to earlier termination in certain circumstances.
Option expense is amortized on a straight-line basis over the requisite service period. The Company recognized compensation expense related to stock options of
$1.0 million
,
$1.0 million
, and
$3.4 million
, in the years ended
December 31, 2018
,
2017
and
2016
, respectively.
The weighted-average, grant-date fair value of options granted during the years ending
December 31, 2018
,
2017
and
2016
was
$1.69
,
$1.22
, and
$0.72
, respectively. The fair value of stock options granted was estimated on the date of grant using a Black-Scholes option-pricing model. The assumptions used to compute the fair value of options for the years ending
December 31, 2018
,
2017
and
2016
were:
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Expected volatility
|
71.0
|
%
|
|
73.2
|
%
|
|
68.1
|
%
|
Risk-free interest rate
|
2.71
|
%
|
|
2.04
|
%
|
|
1.98
|
%
|
Expected life of options
|
6.0 years
|
|
|
5.7 years
|
|
|
4.8 years
|
|
Dividend rate
|
—
|
|
|
—
|
|
|
—
|
|
A summary of stock option activity for the 2008 Plan and the 2018 Plan through
December 31, 2018
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted
Average
Exercise Price
|
|
Aggregate
Intrinsic Value
(thousands)
|
|
Weighted Average
Remaining
Contractual Life
|
Balance at December 31, 2017
|
4,398,200
|
|
|
$
|
3.98
|
|
|
$
|
2,639
|
|
|
5.5 years
|
Granted
|
1,047,642
|
|
|
$
|
2.61
|
|
|
$
|
990
|
|
|
|
Exercised
|
(427,977
|
)
|
|
$
|
2.14
|
|
|
$
|
382
|
|
|
|
Forfeited and expired
|
(1,320,140
|
)
|
|
$
|
4.78
|
|
|
$
|
904
|
|
|
|
Balance at December 31, 2018
|
3,697,725
|
|
|
$
|
3.52
|
|
|
$
|
3,974
|
|
|
5.9 years
|
Exercisable at December 31, 2018
|
2,132,090
|
|
|
$
|
4.46
|
|
|
$
|
1,875
|
|
|
4.1 years
|
Cash received from option exercises under share-based payment arrangements was
$0.1 million
,
0.4 million
and nominal for the
years ended December 31, 2018, 2017 and 2016
, respectively.
The maximum term of stock options under these plans is
ten
years. Options outstanding as of
December 31, 2018
expire on various dates ranging from February 2019 through November 2028. The following table outlines our outstanding and exercisable stock options as of
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of Option Exercise Price
|
|
Outstanding Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life
|
|
Options Exercisable
|
|
Weighted Average Exercise Price
|
$0.00 - $2.06
|
|
921,094
|
|
|
$
|
1.35
|
|
|
6.4 years
|
|
471,139
|
|
|
$
|
0.76
|
|
$2.06 - $4.13
|
|
1,812,798
|
|
|
$
|
2.50
|
|
|
7.2 years
|
|
697,118
|
|
|
$
|
1.90
|
|
$4.13 - $6.19
|
|
179,000
|
|
|
$
|
5.13
|
|
|
3.0 years
|
|
179,000
|
|
|
$
|
2.74
|
|
$6.19 - $8.25
|
|
633,333
|
|
|
$
|
7.16
|
|
|
2.8 years
|
|
633,333
|
|
|
$
|
4.15
|
|
$10.31 - $12.38
|
|
125,000
|
|
|
$
|
11.04
|
|
|
2.6 years
|
|
125,000
|
|
|
$
|
5.97
|
|
$12.38 - $14.44
|
|
21,500
|
|
|
$
|
14.06
|
|
|
4.3 years
|
|
21,500
|
|
|
$
|
7.30
|
|
$16.50 - $18.57
|
|
5,000
|
|
|
$
|
16.63
|
|
|
4.6 years
|
|
5,000
|
|
|
$
|
8.96
|
|
All options
|
|
3,697,725
|
|
|
|
|
|
|
|
2,132,090
|
|
|
|
|
As of
December 31, 2018
there was
$1.7 million
of unrecognized compensation expense related to unvested option grants that is expected to be recognized over a weighted-average period of
2.1
years.
Restricted Stock
Restricted stock grants subject solely to an employee’s or director’s continued service with the Company generally will become fully vested within (a) one to
three
years from the date of grant to employees and, in certain instances, may fully vest upon a change in control of the Company, and (b)
one
year from the date of grant for directors. Stock grants subject to the achievement of performance conditions will not vest less than
one
year from the date of grant.
The Company recognized compensation expense related to restricted stock awards of
$2.6 million
,
$1.1 million
, and
$0.5 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
A summary of restricted stock award activity through
December 31, 2018
was as follows:
|
|
|
|
|
|
|
|
|
Restricted
Stock
|
|
Weighted Average
Grant
Date Fair Value
|
Balance at December 31, 2017
|
1,882,363
|
|
|
$
|
1.82
|
|
Granted
|
3,284,197
|
|
|
$
|
2.55
|
|
Awards Vested
|
(372,116
|
)
|
|
$
|
2.09
|
|
Canceled
|
(392,256
|
)
|
|
$
|
2.29
|
|
Balance at December 31, 2018
|
4,402,188
|
|
|
$
|
1.87
|
|
As of
December 31, 2018
, there was
$3.5 million
in unrecognized compensation expense related to unvested restricted stock awards that is expected to be recognized over a weighted-average period of
1.8
years. The total fair value of restricted stock awards vested during the years
December 31, 2018
,
2017
and
2016
was
$0.4 million
,
$0.4 million
, and
$0.2 million
, respectively.
Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan (the “ESPP”) is administered by the Compensation Committee. The ESPP provides all eligible employees, as defined under the ESPP, the opportunity to purchase up to a maximum number of shares of Common Stock of the Company as determined by the Compensation Committee. Participants in the ESPP may acquire the Common Stock at a cost of 85% of the lower of the fair market value on the first or last day of the quarterly offering period.
On May 8, 2018, the Board of Directors and stockholders approved an amendment to the ESPP to increase the number of shares available for issuance from
750,000
shares to
2,250,000
shares. As of December 31, 2018, there were
1,379,943
remaining shares available for issuance. During the years ended
December 31, 2018
, 2017 and 2016,
173,519
,
265,608
and
245,371
shares were purchased under this plan, respectively. The Company recognized
$0.1 million
of expense related to the ESPP during the years ended December 31, 2018, 2017 and 2016.
401(k) Plan
The Company maintains a deferred compensation plan under Section 401(k) of the Internal Revenue Code. Under the Plan, employees may elect to defer up to
100%
of their salary, subject to Internal Revenue Service limits, and the Company may make a discretionary matching contribution. During the year ended December 31, 2018, management approved discretionary matching contributions totaling approximately
$0.3
million effective July 1, 2018. The Company elected to forgo a matching contribution during the years ended December 31, 2017 and 2016.
NOTE 10
–
LOSS PER SHARE
The Company presents basic and diluted loss per share for its common stock, par value
$.0001
per share (“Common Stock”). Basic loss per share is calculated by dividing the net loss attributable to common stockholders of the Company by the weighted average number of shares of Common Stock outstanding during the period. Diluted loss per share is determined by adjusting the profit or loss attributable to stockholders and the weighted average number of shares of Common Stock outstanding adjusted for the effects of all dilutive potential common shares comprised of options granted, unvested restricted stock, stock appreciation rights, the 2017 Warrants and Series A and Series C Convertible Preferred Stock. Potential Common Stock equivalents that have been issued by the Company related to outstanding stock options, unvested restricted stock and warrants are determined using the treasury stock method, while potential common shares related to Series A and Series C Convertible Preferred Stock are determined using the “if converted” method.
The Company's Series A and Series C Convertible Preferred Stock, par value
$.0001
per share (together, the “Preferred Stock”), is considered a participating security, which means the security may participate in undistributed earnings with Common Stock. The holders of the Preferred Stock would be entitled to share in dividends, on an as-converted basis, if the holders of Common Stock were to receive dividends. The Company is required to use the two-class method when computing loss per share when it has a security that qualifies as a participating security. The two-class method is an earnings allocation formula that determines loss per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In determining the amount of net earnings to allocate to common stockholders, earnings are allocated to both common and participating securities based on their respective weighted-average shares outstanding during the period. Diluted loss per share for the Company’s Common Stock is computed using the more dilutive of the two-class method or the if-converted method.
The following table sets forth the computation of basic and diluted loss per common share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
|
|
Loss from continuing operations
|
$
|
(51,592
|
)
|
|
$
|
(63,303
|
)
|
|
$
|
(36,172
|
)
|
Loss from discontinued operations, net of income taxes
|
(101
|
)
|
|
(893
|
)
|
|
(6,593
|
)
|
Net loss
|
(51,693
|
)
|
|
(64,196
|
)
|
|
(42,765
|
)
|
Accrued dividends on preferred stock
|
(11,210
|
)
|
|
(10,077
|
)
|
|
(9,084
|
)
|
Loss attributable to common stockholders
|
$
|
(62,903
|
)
|
|
$
|
(74,273
|
)
|
|
$
|
(51,849
|
)
|
|
|
|
|
|
|
Denominator - Basic and Diluted:
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
127,942
|
|
|
123,791
|
|
|
93,740
|
|
Loss Per Common Share:
|
|
|
|
|
|
Loss from continuing operations, basic and diluted
|
$
|
(0.49
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(0.48
|
)
|
Loss from discontinued operations, basic and diluted
|
—
|
|
|
(0.01
|
)
|
|
(0.07
|
)
|
Loss per common share, basic and diluted
|
$
|
(0.49
|
)
|
|
$
|
(0.60
|
)
|
|
$
|
(0.55
|
)
|
The loss attributable to common stockholders is used as the basis of determining whether the inclusion of common stock equivalents would be anti-dilutive. Accordingly, the computation of diluted shares for the
years ended December 31, 2018, 2017 and 2016
excludes the effect of shares that would be issued in connection with the PIPE Transaction, the Rights Offering, 2017 Warrants, stock options, and restricted stock awards, as their inclusion would be anti-dilutive to loss attributable to common stockholders.
NOTE 11
–
INCOME TAXES
The federal and state income tax benefit (expense) from continuing operations consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Current
|
|
|
|
|
|
Federal
|
$
|
—
|
|
|
$
|
925
|
|
|
$
|
—
|
|
State
|
(502
|
)
|
|
(174
|
)
|
|
30
|
|
Total current
|
(502
|
)
|
|
751
|
|
|
30
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
—
|
|
|
1,951
|
|
|
(1,744
|
)
|
State
|
(66
|
)
|
|
1,428
|
|
|
(301
|
)
|
Total deferred
|
(66
|
)
|
|
3,379
|
|
|
(2,045
|
)
|
Total tax benefit (expense)
|
$
|
(568
|
)
|
|
$
|
4,130
|
|
|
$
|
(2,015
|
)
|
The effect of temporary differences that give rise to a significant portion of deferred taxes is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Deferred tax assets:
|
|
|
|
Reserves not currently deductible
|
$
|
6,634
|
|
|
$
|
10,707
|
|
Net operating loss carryforwards
|
128,819
|
|
|
110,773
|
|
Goodwill and intangibles (tax deductible)
|
7,853
|
|
|
12,757
|
|
Accrued expenses
|
641
|
|
|
95
|
|
Property basis differences
|
3,679
|
|
|
2,813
|
|
Stock based compensation
|
2,180
|
|
|
2,371
|
|
Total deferred tax assets
|
149,806
|
|
|
139,516
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Other
|
(309
|
)
|
|
(180
|
)
|
Less: valuation allowance
|
(148,465
|
)
|
|
(138,238
|
)
|
Net deferred tax asset
|
$
|
1,032
|
|
|
$
|
1,098
|
|
The Company continually assesses the necessity of a valuation allowance. Based on this assessment, the Company concluded that a valuation allowance, in the amount of
$148.5 million
and
$138.2 million
, was required as of
December 31, 2018
and
2017
, respectively. If the Company determines in a future period that it is more likely than not that part or all of the deferred tax assets will be realized, the Company will reverse part or all of the valuation allowance.
At
December 31, 2018
, the Company had federal net operating loss carryforwards of approximately
$429.8 million
, of which
$11.9 million
is subject to an annual limitation, which will begin expiring in 2026 and later. The Company also has a carryforward of approximately
$49.2 million
related to the interest expense limitation, which is not subject to an expiration period. The Company has post-apportioned state net operating loss carryforwards of approximately
$479.7 million
, the majority of which will begin expiring in 2019 and later.
A reconciliation of the federal statutory rate to the effective income tax rate from continuing operations is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Tax benefit at statutory rate
|
$
|
10,715
|
|
|
$
|
23,654
|
|
|
$
|
11,907
|
|
State tax benefit, net of federal taxes
|
1,510
|
|
|
4,587
|
|
|
1,398
|
|
Change in valuation allowance
|
(10,227
|
)
|
|
41,550
|
|
|
(14,725
|
)
|
Change in tax contingencies
|
—
|
|
|
10
|
|
|
66
|
|
Alternative minimum tax receivable
|
—
|
|
|
925
|
|
|
—
|
|
Corporate tax rate changes
|
—
|
|
|
(67,707
|
)
|
|
—
|
|
Other
|
(2,566
|
)
|
|
1,111
|
|
|
(661
|
)
|
Tax benefit (expense)
|
$
|
(568
|
)
|
|
$
|
4,130
|
|
|
$
|
(2,015
|
)
|
As of
December 31, 2018
, the Company had
$1.0 million
of gross unrecognized tax benefits. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Unrecognized tax benefits balance at January 1,
|
$
|
1,014
|
|
|
$
|
1,021
|
|
|
$
|
1,067
|
|
Lapse of statute of limitations
|
—
|
|
|
(7
|
)
|
|
(46
|
)
|
Unrecognized tax benefits balance at December 31,
|
$
|
1,014
|
|
|
$
|
1,014
|
|
|
$
|
1,021
|
|
The Company’s policy for recording interest and penalties associated with uncertain tax positions is to record such items as a component of income tax expense in the Consolidated Statements of Operations. As of
December 31, 2018
and
December 31, 2017
, the Company had a nominal amount of accrued interest related to uncertain tax positions.
The Company files income tax returns, including returns for its subsidiaries, with federal, state and local jurisdictions. The Company’s uncertain tax positions are related to tax years that remain subject to examination. As of
December 31, 2018
, U.S. tax returns for the years 2015 through 2018 remain subject to examination by federal tax authorities. Tax returns for the years 2014 through 2018 remain subject to examination by state and local tax authorities for a majority of the Company's state and local filings.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (“TCJA”). The enactment included broad tax changes that are applicable to BioScrip, Inc. Most notably, the TCJA has established the U.S. corporate tax rate decrease from a high of 35% to a flat 21% income tax rate effective January 1, 2018.
These changes require BioScrip, Inc. to re-measure deferred tax assets and liabilities. The Company uses the asset and liability approach for accounting for income taxes. Under that method, assets and liabilities are recorded for future tax consequences attributable to the difference between financial statement balances of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates at which the temporary differences are expected to reverse. As a result of the decreased U.S. corporate income tax rate from 35% to 21%, the Company has revalued its ending net deferred tax assets as of December 31, 2017. Due to the full valuation allowance against substantially all net deferred tax assets, the change in deferred tax rate to 21% does not have an impact on the Company’s financial statements.
NOTE 12
–
FAIR VALUE MEASURMENTS
The estimated fair values of the Company’s financial instruments either recorded or disclosed on a recurring basis as of December 31, 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instrument
|
|
Carrying Value as of December 31, 2018
|
|
Markets for Identical Item (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
First Lien Note Facility
(1)
|
|
$
|
198,962
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
203,462
|
|
Second Lien Note Facility
(1)
|
|
108,931
|
|
|
—
|
|
|
—
|
|
|
121,622
|
|
2021 Notes
(2)
|
|
198,125
|
|
|
—
|
|
|
186,500
|
|
|
—
|
|
Total debt instruments
|
|
$
|
506,018
|
|
|
$
|
—
|
|
|
$
|
186,500
|
|
|
$
|
325,084
|
|
|
|
|
|
|
|
|
|
|
2017 Warrants
(3)
|
|
$
|
25,331
|
|
|
$
|
—
|
|
|
$
|
25,331
|
|
|
$
|
—
|
|
|
|
(1)
|
The estimated fair values of the First and Second Lien Notes were based on cash flow models discounted at market interest rates that considered the underlying risks of the note.
|
|
|
(2)
|
The estimated fair value of the 2021 Notes incorporated recent trading activity in public markets.
|
|
|
(3)
|
See
2017 Warrants
within Note 2 - Summary of Significant Accounting Policies.
|
NOTE 13
–
RESTRUCTURING, ACQUISITION, INTEGRATION, AND OTHER EXPENSES
Restructuring, acquisition, integration, and other expenses include non-recurring costs associated with restructuring, acquisition and integration initiatives such as employee severance costs, certain legal and professional fees, training costs, redundant wage costs, impacts recorded from the change in contingent consideration obligations, and other costs related to contract terminations and closed branches/offices.
Restructuring, acquisition, integration, and other expenses in the Consolidated Statements of Operations consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Restructuring and other expense
|
$
|
4,934
|
|
|
$
|
12,134
|
|
|
$
|
10,334
|
|
Acquisition and integration expenses
|
1,523
|
|
|
528
|
|
|
10,122
|
|
Change in fair value of contingent consideration
|
—
|
|
|
—
|
|
|
(4,597
|
)
|
Total restructuring, acquisition, integration, and other expenses
|
$
|
6,457
|
|
|
$
|
12,662
|
|
|
$
|
15,859
|
|
NOTE 14
–
COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is a party to various legal, regulatory and governmental proceedings incidental to its business. Based on current knowledge, management does not believe that loss contingencies arising from pending legal, regulatory and governmental matters, including the matters described herein, will have a material adverse effect on the consolidated financial position or liquidity of the Company. However, in light of the inherent uncertainties involved in pending legal, regulatory and governmental matters, some of which are beyond the Company’s control, and the indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to the Company’s results of operations or cash flows for any particular reporting period.
With respect to all legal, regulatory and governmental proceedings, the Company considers the likelihood of a negative outcome. If the Company determines the likelihood of a negative outcome with respect to any such matter is probable and the amount of the loss can be reasonably estimated, the Company records an accrual for the estimated loss for the expected outcome of the matter. If the likelihood of a negative outcome with respect to material matters is reasonably possible and the Company is able to determine an estimate of the possible loss or a range of loss, whether in excess of a related accrued liability or where there is no accrued liability, the Company discloses the estimate of the possible loss or range of loss. However, the Company is unable to estimate a possible loss or range of loss in some instances based on the significant uncertainties involved in, and/or the preliminary nature of, certain legal, regulatory and governmental matters.
On December 18, 2017, a commercial payor of the Company sent a letter that claimed an alleged breach of the Company’s obligation under its provider contracts. No legal proceeding has been filed. The Company is not able to estimate the amount of any possible loss. The Company believes this claim is without merit and intends to vigorously defend against this claim if any such legal proceeding is commenced.
Government Regulation
Various federal and state laws and regulations affecting the healthcare industry do or may impact the Company’s current and planned operations, including, without limitation, federal and state laws prohibiting kickbacks in government health programs, federal and state antitrust and drug distribution laws, and a wide variety of consumer protection, insurance and other state laws and regulations. While management believes the Company is in substantial compliance with all existing laws and regulations material to the operation of its business, such laws and regulations are often uncertain in their application to our business practices as they evolve and are subject to rapid change. As controversies continue to arise in the healthcare industry, federal and state regulation and enforcement priorities in this area can be expected to increase, the impact of which cannot be predicted.
From time to time, the Company responds to investigatory subpoenas and requests for information from governmental agencies and private parties. The Company cannot predict with certainty what the outcome of any of the foregoing might be. While the Company believes it is in substantial compliance with all laws, rules and regulations that affects its business and operations, there can be no assurance that the Company will not be subject to scrutiny or challenge under one or more existing laws or that any
such challenge would not be successful. Any such challenge, whether or not successful, could have a material effect upon the Company’s Consolidated Financial Statements. A violation of the federal Anti-Kickback Statute, for example, may result in substantial criminal penalties, as well as suspension or exclusion from the Medicare and Medicaid programs. Moreover, the costs and expenses associated with defending these actions, even where successful, can be significant.
Further, there can be no assurance the Company will be able to obtain or maintain any of the regulatory approvals that may be required to operate its business, and the failure to do so could have a material effect on the Company’s Consolidated Financial Statements.
Leases
The Company leases its facilities and certain equipment under various operating leases with third parties. The majority of these leases contain escalation clauses that increase base rent payments based upon either the Consumer Price Index or an agreed upon schedule.
In addition, the Company utilizes capital leases agreements with third parties to obtain certain property and equipment. Interest rates on capital leases are both fixed and variable and range from
3%
to
7%
.
As of
December 31, 2018
, future minimum lease payments under operating and capital leases were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Capital Leases
|
|
Total
|
2019
|
$
|
8,934
|
|
|
$
|
679
|
|
|
$
|
9,613
|
|
2020
|
7,143
|
|
|
311
|
|
|
7,454
|
|
2021
|
6,252
|
|
|
—
|
|
|
6,252
|
|
2022
|
4,797
|
|
|
—
|
|
|
4,797
|
|
2023
|
3,320
|
|
|
—
|
|
|
3,320
|
|
2024 and Thereafter
|
7,470
|
|
|
—
|
|
|
7,470
|
|
Total Future Minimum Lease Payments
|
$
|
37,916
|
|
|
$
|
990
|
|
|
$
|
38,906
|
|
Rent expense for leased facilities and equipment was approximately
$8.1 million
,
$7.7 million
and
$7.3 million
for the
years ended December 31, 2018, 2017 and 2016
, respectively.
NOTE 15
–
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of unaudited quarterly financial information for the years ended
December 31, 2018
and
2017
is as follows (in thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Year ended December 31, 2018
|
|
|
|
|
|
|
|
Net revenue
|
$
|
168,584
|
|
|
$
|
175,789
|
|
|
$
|
180,962
|
|
|
$
|
183,568
|
|
Gross profit
|
55,048
|
|
|
59,957
|
|
|
65,911
|
|
|
62,122
|
|
Loss from continuing operations, before income taxes
|
(12,939
|
)
|
|
(15,081
|
)
|
|
(8,001
|
)
|
|
(15,003
|
)
|
Income (loss) from discontinued operations, net of income taxes
|
(30
|
)
|
|
(15
|
)
|
|
(71
|
)
|
|
15
|
|
Net loss
|
$
|
(13,017
|
)
|
|
$
|
(15,139
|
)
|
|
$
|
(8,174
|
)
|
|
$
|
(15,363
|
)
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations, basic and diluted
|
$
|
(0.12
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.14
|
)
|
Income (loss) per share from discontinued operations, basic and diluted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss per share, basic and diluted
|
$
|
(0.12
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
217,810
|
|
|
$
|
218,106
|
|
|
$
|
198,692
|
|
|
$
|
182,582
|
|
Gross profit
|
64,874
|
|
|
67,611
|
|
|
66,563
|
|
|
70,194
|
|
Loss from continuing operations, before income taxes
|
(18,801
|
)
|
|
(28,432
|
)
|
|
(12,998
|
)
|
|
(7,202
|
)
|
Income (loss) from discontinued operations, net of income taxes
|
(299
|
)
|
|
(373
|
)
|
|
66
|
|
|
(287
|
)
|
Net loss
|
$
|
(19,719
|
)
|
|
$
|
(29,523
|
)
|
|
$
|
(12,992
|
)
|
|
$
|
(1,962
|
)
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations, basic and diluted
|
$
|
(0.18
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.03
|
)
|
Income (loss) per share from discontinued operations, basic and diluted
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.01
|
)
|
Loss per share, basic and diluted
|
$
|
(0.18
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.04
|
)
|
NOTE 16
–
SUBSEQUENT EVENTS
On March 14, 2019 we entered into a definitive merger agreement with the shareholder of Option Care Enterprises, Inc. (“Option Care”), the nation’s largest independent provider of home and alternate treatment site infusion therapy services. Under the terms of the merger agreement, the Company will issue new shares of its common stock to Option Care’s shareholder in a non-taxable exchange, which will result in BioScrip shareholders holding approximately
20%
of the combined company. The shareholder of Option Care has secured committed financing, the proceeds of which will be used to retire the Company’s First Lien Note Facility, Second Lien Note Facility and 2021 Notes at the close of the transaction. Following the close of the transaction, the combined company common stock will continue to be listed on the Nasdaq National Market. The transaction is currently expected to close by the end of 2019.