INFUSYSTEM HOLDINGS, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
(in thousands, except share data)
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,041
|
|
|
$
|
1,138
|
|
Accounts receivable, less allowance for doubtful accounts of $5,574 and $4,774 at June 30, 2014 and December 31, 2013,
respectively
|
|
|
10,768
|
|
|
|
10,697
|
|
Inventory
|
|
|
1,485
|
|
|
|
1,234
|
|
Other current assets
|
|
|
712
|
|
|
|
518
|
|
Deferred income taxes
|
|
|
2,296
|
|
|
|
2,296
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
16,302
|
|
|
|
15,883
|
|
Medical equipment held for sale or rental
|
|
|
2,255
|
|
|
|
3,664
|
|
Medical equipment in rental service, net of accumulated depreciation
|
|
|
16,185
|
|
|
|
14,438
|
|
Property & equipment, net of accumulated depreciation
|
|
|
1,577
|
|
|
|
872
|
|
Deferred debt issuance costs, net
|
|
|
1,505
|
|
|
|
1,817
|
|
Intangible assets, net
|
|
|
24,287
|
|
|
|
24,182
|
|
Deferred income taxes
|
|
|
15,376
|
|
|
|
16,300
|
|
Other assets
|
|
|
248
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
77,735
|
|
|
$
|
77,373
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,101
|
|
|
$
|
4,736
|
|
Current portion of long-term debt
|
|
|
3,871
|
|
|
|
5,118
|
|
Other current liabilities
|
|
|
2,573
|
|
|
|
3,187
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
10,545
|
|
|
|
13,041
|
|
Long-term debt, net of current portion
|
|
|
22,829
|
|
|
|
21,609
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
33,374
|
|
|
$
|
34,650
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value: authorized 1,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock, $.0001 par value: authorized 200,000,000 shares; issued and outstanding 22,400,743 and 22,203,053, respectively, as of
June 30, 2014 and 22,158,041 and 21,960,351, respectively, as of December 31, 2013
|
|
|
2
|
|
|
|
2
|
|
Additional paid-in capital
|
|
|
89,951
|
|
|
|
89,783
|
|
Retained deficit
|
|
|
(45,592
|
)
|
|
|
(47,062
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
44,361
|
|
|
|
42,723
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
77,735
|
|
|
$
|
77,373
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
3
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
(in thousands, except share and per share data)
|
|
June 30
|
|
|
June 30
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rentals
|
|
$
|
14,795
|
|
|
$
|
13,618
|
|
|
$
|
29,645
|
|
|
$
|
27,061
|
|
Product Sales
|
|
|
1,577
|
|
|
|
1,044
|
|
|
|
3,969
|
|
|
|
2,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
16,372
|
|
|
|
14,662
|
|
|
|
33,614
|
|
|
|
29,363
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues Product, service and supply costs
|
|
|
2,913
|
|
|
|
2,845
|
|
|
|
5,803
|
|
|
|
5,424
|
|
|
|
|
|
|
Cost of revenues Pump depreciation and disposals
|
|
|
1,536
|
|
|
|
1,487
|
|
|
|
3,812
|
|
|
|
3,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
11,923
|
|
|
|
10,330
|
|
|
|
23,999
|
|
|
|
20,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
1,438
|
|
|
|
1,327
|
|
|
|
3,545
|
|
|
|
2,987
|
|
Amortization of intangibles
|
|
|
625
|
|
|
|
652
|
|
|
|
1,254
|
|
|
|
1,324
|
|
Selling and marketing
|
|
|
2,624
|
|
|
|
2,482
|
|
|
|
5,279
|
|
|
|
4,890
|
|
General and administrative
|
|
|
4,898
|
|
|
|
5,008
|
|
|
|
9,807
|
|
|
|
10,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative
|
|
|
9,585
|
|
|
|
9,469
|
|
|
|
19,885
|
|
|
|
19,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,338
|
|
|
|
861
|
|
|
|
4,114
|
|
|
|
1,513
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(776
|
)
|
|
|
(924
|
)
|
|
|
(1,603
|
)
|
|
|
(1,798
|
)
|
Other income
|
|
|
40
|
|
|
|
24
|
|
|
|
23
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(736
|
)
|
|
|
(900
|
)
|
|
|
(1,580
|
)
|
|
|
(1,462
|
)
|
|
|
|
|
|
Income/(loss) before income taxes
|
|
|
1,602
|
|
|
|
(39
|
)
|
|
|
2,534
|
|
|
|
51
|
|
Income tax (expense)/benefit
|
|
|
(716
|
)
|
|
|
144
|
|
|
|
(1,065
|
)
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
886
|
|
|
$
|
105
|
|
|
$
|
1,469
|
|
|
$
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
0.00
|
|
|
|
0.07
|
|
|
|
0.01
|
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
0.00
|
|
|
|
0.07
|
|
|
|
0.01
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,146,106
|
|
|
|
21,860,866
|
|
|
|
22,059,902
|
|
|
|
21,831,852
|
|
Diluted
|
|
|
22,399,434
|
|
|
|
22,015,499
|
|
|
|
22,321,143
|
|
|
|
22,052,151
|
|
|
|
|
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
886
|
|
|
$
|
105
|
|
|
$
|
1,469
|
|
|
$
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
886
|
|
|
$
|
105
|
|
|
$
|
1,469
|
|
|
$
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30
|
|
(in thousands)
|
|
2014
|
|
|
2013
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
$
|
1,806
|
|
|
$
|
2,233
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of medical equipment and property
|
|
|
(4,524
|
)
|
|
|
(2,564
|
)
|
Proceeds from sale of medical equipment and property
|
|
|
4,005
|
|
|
|
1,726
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(519
|
)
|
|
|
(838
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Principal payments on revolving credit facility, term loans, and capital lease obligations
|
|
|
(33,479
|
)
|
|
|
(16,918
|
)
|
Cash proceeds from revolving credit facility
|
|
|
32,198
|
|
|
|
13,340
|
|
Common stock repurchased to satisfy statutory withholding on employee stock based compensation plans
|
|
|
(103
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN FINANCING ACTIVITIES
|
|
|
(1,384
|
)
|
|
|
(3,619
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(97
|
)
|
|
|
(2,224
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
1,138
|
|
|
|
2,326
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,041
|
|
|
$
|
102
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
5
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
|
Basis of Presentation, Nature of Operations and Summary of Significant Accounting Policies
|
InfuSystem Holdings, Inc. (the Company) is a leading provider of infusion pumps and related services. The
Company services hospitals, oncology practices and other alternate site healthcare providers. Headquartered in Madison Heights, Michigan, the Company delivers local, field-based customer support, and also operates pump repair Centers of
Excellence in Michigan, Kansas, California, Texas, and Ontario, Canada.
The accompanying consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. Accordingly they do not include all of the information and notes required by U.S. Generally Accepted
Accounting Principles (GAAP) for complete financial statements. The accompanying consolidated financial statements include all adjustments, composed of normal recurring adjustments, considered necessary by management to fairly state our
results of operations, financial position and cash flows. The operating results for the interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These consolidated financial
statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013 (2013 Form 10-K) as filed with the SEC.
The consolidated financial statements are prepared in conformity with GAAP, which requires the use of estimates, judgments and assumptions
that affect the amounts of assets and liabilities at the reporting date and the amounts of revenue and expenses in the periods presented. We believe that the accounting estimates employed are appropriate and the resulting balances are reasonable;
however, due to the inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods.
2.
|
Medical Equipment and Property
|
Medical equipment consisted of the following as of June 30, 2014 and December 31, 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Medical Equipment in rental service
|
|
$
|
39,460
|
|
|
$
|
37,252
|
|
Medical Equipment in rental service - pump reserve
|
|
|
(119
|
)
|
|
|
(87
|
)
|
Accumulated depreciation
|
|
|
(23,156
|
)
|
|
|
(22,727
|
)
|
Medical Equipment held for sale or rental
|
|
|
2,255
|
|
|
|
3,664
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,440
|
|
|
$
|
18,102
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for medical equipment for the three and six months ended June 30, 2014 was $0.8
million and $1.5 million, respectively compared to $1.3 million and $2.4 million for the same prior year periods, which was recorded in cost of revenues pump depreciation and disposals, respectively.
During the first quarter of 2014, the Company reassessed the estimated useful life of certain of its property and equipment. As a result, the
estimated useful life of the Companys medical equipment was changed from five to seven years due to the determination that the Company was using these assets longer than originally anticipated. A major factor in this change was the servicing
of such equipment by the Companys Kansas facility, which was acquired in 2010. As a result, disposal of such equipment has decreased significantly since that acquisition.
The change in the estimated useful lives of the Companys pump equipment was accounted for as a change in accounting estimate, on a
prospective basis, effective January 1, 2014. The change in estimated useful lives resulted in $0.5 million and $1.0 million in less depreciation expense for the three and six months ended June 30, 2014, respectively, than otherwise would
have been recorded. After-tax impact to net income would have been lower by $0.3 million and $0.6 million for the three months and six months ended June 30, 2014 if this change in estimate had not been made. There was no impact to the basic or
diluted income per share due to this change in estimate.
6
Depreciation expense for property and equipment for the three and six months ended June 30,
2014 was $0.1 million and $0.2 million, respectively, consistent with the same prior year periods. This expense was recorded in general and administrative expenses.
At December 31, 2013, Medical equipment held for sale or rental included approximately $0.8 million of pre-owned equipment received from
a financial institution when such equipment came off lease. Under the Companys former arrangement with the financial institution, the Company did not pay for the equipment until it was sold. The liability for this equipment was included in
other current liabilities for a similar amount. The Company assumed risk of loss and accounted for the disposition of such equipment as a sale. In June 2014, the Company bought out the remaining equipment from the financial institution for $0.5
million and payment was made in July 2014. As such, the Company no longer has any liabilities pertaining to this transaction.
The carrying amount and accumulated amortization of intangible assets as of June 30, 2014 and December 31, 2013,
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
Gross
Assets
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Nonamortizable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
$
|
2,000
|
|
|
$
|
|
|
|
$
|
2,000
|
|
Amortizable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Physician and customer relationships
|
|
|
32,865
|
|
|
|
13,659
|
|
|
|
19,206
|
|
Non-competition agreements
|
|
|
848
|
|
|
|
703
|
|
|
|
145
|
|
Software
|
|
|
4,269
|
|
|
|
1,333
|
|
|
|
2,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonamortizable and amortizable intangible assets
|
|
$
|
39,982
|
|
|
$
|
15,695
|
|
|
$
|
24,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
Gross
Assets
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Nonamortizable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
$
|
2,000
|
|
|
$
|
|
|
|
$
|
2,000
|
|
Amortizable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Physician and customer relationships
|
|
|
32,865
|
|
|
|
12,564
|
|
|
|
20,301
|
|
Non-competition agreements
|
|
|
848
|
|
|
|
621
|
|
|
|
227
|
|
Software
|
|
|
2,907
|
|
|
|
1,253
|
|
|
|
1,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonamortizable and amortizable intangible assets
|
|
$
|
38,620
|
|
|
$
|
14,438
|
|
|
$
|
24,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
Amortization expense for the three and six months ended June 30, 2014 was $0.6 million and
$1.3 million, respectively, compared to $0.7 million and $1.3 million for the same prior year periods. Expected annual amortization expense for intangible assets recorded as of June 30, 2014, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
7/1-
12/31/2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019 and
thereafter
|
$1,243
|
|
$2,321
|
|
$2,235
|
|
$2,201
|
|
$2,191
|
|
$12,096
|
On November 30, 2012, the Company entered into a credit agreement with Wells Fargo as Administrative Agent and Wells
Fargo and PennantPark as Lenders. The credit agreement consists of a $12.0 million Term Loan A (provided by Wells Fargo), a $14.5 million Term Loan B (provided by PennantPark) and a $10.0 million revolving credit facility (the Revolver),
all of which mature on November 30, 2016, collectively (the Credit Facility). Interest on the Credit Facility is payable at the Companys choice of LIBOR plus 7.25% (with a LIBOR floor of 2.0%) or the Wells Fargo prime rate
plus 6.25% (with a prime rate floor of 3.0%).
On May 19, 2014, the Company entered into the Second Amendment to the Credit Agreement
with Wells Fargo Capital Finance and funds managed by PennantPark Investment Advisers, LLC. This amendment lowers both the effective floating rate and the effective fixed rate by 150 basis points each. As of June 30, 2014, the effective
floating interest rate under this Amendment was 7.75%.
The availability under the Revolver is based upon the Companys eligible
accounts receivable and eligible inventory and is broken down as follows (in thousands):.
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Revolver:
|
|
|
|
|
|
|
|
|
Gross Availability
|
|
$
|
6,500
|
|
|
$
|
5,900
|
|
Outstanding Draws
|
|
|
(2,021
|
)
|
|
|
|
|
Letter of Credit
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Availability on Revolver
|
|
$
|
4,398
|
|
|
$
|
5,900
|
|
|
|
|
|
|
|
|
|
|
The Credit Facility is collateralized by substantially all of the Companys assets and requires the
Company to comply with covenants, including but not limited to, financial covenants relating to the satisfaction, on a quarterly and annual basis for the duration of the Credit Facility, of a total leverage ratio, a fixed charge coverage ratio and
an annual limit on capital expenditures, including capital leases. As of June 30, 2014, the Company was in compliance with all such covenants and expects to be in compliance over the next 12 months.
In connection with the Credit Facility, the Company has the following covenant obligations for the duration of the facility:
|
a)
|
The fixed charge coverage ratio is calculated in accordance with the agreement governing the Credit Facility. This covenant was first required to be reported as of March 31, 2013 and has a minimum ratio at that
time of 1.25:1. The required ratio varies quarterly for the remainder of the facility duration, from 1.25:1 to 2.00:1. The required ratio as of June 30, 2014 was 1.50:1.
|
|
b)
|
The leverage ratio is calculated in accordance with the agreement governing the Credit Facility. This covenant was first required to be reported as of March 31, 2013 and has a maximum ratio at that time of 2.50:1.
The required ratio varies quarterly for the remainder of the facility duration, from 2.50:1 to 1.00:1. The required ratio as of June 30, 2014 was 1.75:1.
|
|
c)
|
The Credit Facility includes an annual limitation on Capital Expenditures, as defined in and in accordance with the credit agreement for the Credit Facility, which was $1.25 million for the month ended December 31,
2012 and $5.5 million for each year ending December 31, 2013 through 2016.
|
The Company occasionally enters into
capital leases to finance the purchase of ambulatory infusion pumps. The pumps are capitalized into medical equipment in rental service at their fair market value, which equals the value of the future minimum lease payments and are depreciated over
the useful life of the pumps.
8
The Company had approximate future maturities of loans and capital leases as of June 30, 2014 as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder
of 2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
Total
|
|
Term Loans
|
|
$
|
1,200
|
|
|
$
|
2,400
|
|
|
$
|
17,688
|
|
|
$
|
|
|
|
$
|
21,288
|
|
Revolver
|
|
|
|
|
|
|
|
|
|
|
2,021
|
|
|
|
|
|
|
|
2,021
|
|
Capital Leases
|
|
|
712
|
|
|
|
1,474
|
|
|
|
1,056
|
|
|
|
149
|
|
|
|
3,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,912
|
|
|
$
|
3,874
|
|
|
$
|
20,765
|
|
|
$
|
149
|
|
|
$
|
26,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a breakdown of the Companys current and long-term debt (including capital leases) as of
June 30, 2014 and December 31, 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
Current
Portion of
Long-Term
Debt
|
|
|
Long-Term
Debt
|
|
|
Total
|
|
|
|
|
Current
Portion of
Long-Term
Debt
|
|
|
Long-Term
Debt
|
|
|
Total
|
|
Term Loans
|
|
$
|
2,400
|
|
|
$
|
18,888
|
|
|
$
|
21,288
|
|
|
Term Loans
|
|
$
|
4,064
|
|
|
$
|
19,931
|
|
|
$
|
23,995
|
|
Revolver
|
|
|
|
|
|
|
2,021
|
|
|
|
2,021
|
|
|
Revolver
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Leases
|
|
|
1,471
|
|
|
|
1,920
|
|
|
|
3,391
|
|
|
Capital Leases
|
|
|
1,054
|
|
|
|
1,678
|
|
|
|
2,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,871
|
|
|
$
|
22,829
|
|
|
$
|
26,700
|
|
|
Total
|
|
$
|
5,118
|
|
|
$
|
21,609
|
|
|
$
|
26,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On April 11, 2014, the Company repaid $1.6 million on its Credit Facility for its annual Excess Cash Flow
sweep as required and defined by the Companys Credit Agreement.
During the three and six months ended June 30, 2014, the Company recorded income tax expense of $0.7 million and $1.1
million, respectively. The company recorded income tax benefits of $0.1 million, respectively, for the same prior year periods. The increase is tax expense was primarily due to profitability during the quarter ended June 30, 2014. In computing
its income tax provision, the Company estimates its effective tax rate for the full year and applies that rate to income earned though the reporting period. The effective income tax rate was 41.3% and 38.2% for the quarters ended June 30, 2014
and 2013, respectively. For the six months ended June 30, 2014 the effective tax rate was 42.1%.
6.
|
Commitments and Contingencies
|
The Company is currently involved in legal proceedings arising out of the ordinary course and conduct of our business, the
outcomes of which are not determinable at this time. We have insurance policies covering potential losses where such coverage is cost effective. In the Companys opinion, any liability that might be incurred by us upon the resolution of these
claims and lawsuits will not, in the aggregate, have a material effect on the Companys consolidated financial condition, results of operations or cash flows.
9
Basic income per share is computed by dividing net income by the weighted average number of common shares outstanding during
the period. Diluted income per share assumes the issuance of potentially dilutive shares of common stock during the period. The following table reconciles the numerators and denominators of the basic and diluted income per share computations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30
|
|
|
June 30
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(in thousands)
|
|
$
|
886
|
|
|
$
|
105
|
|
|
$
|
1,469
|
|
|
$
|
156
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,146,106
|
|
|
|
21,860,866
|
|
|
|
22,059,902
|
|
|
|
21,831,852
|
|
Dilutive effect of non-vested awards
|
|
|
253,328
|
|
|
|
154,633
|
|
|
|
261,241
|
|
|
|
220,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
22,399,434
|
|
|
|
22,015,499
|
|
|
|
22,321,143
|
|
|
|
22,052,151
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
|
|
|
$
|
0.07
|
|
|
$
|
0.01
|
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
|
|
|
$
|
0.07
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2014, vested stock options of 0.1 million were not
included in the calculation because they were not in-the-money.
On July 2, 2014, the Compensation Committee of InfuSystem Holdings, Inc. (the Company) authorized a grant of the
option to purchase 100,000 shares of the Companys common stock, par value $0.0001 per share, at an exercise price of $2.674 per share, to Jonathan P. Foster, Chief Financial Officer of the Company. The option vests in equal monthly
installments over a three-year period, expires after five (5) years and is otherwise exercisable in accordance with the InfuSystem Holdings, Inc. Equity Plan.
9.
|
Recent Accounting Pronouncements and Developments
|
In May 2014, the Financial Accounting Standards Board issued a comprehensive new standard, which amends revenue recognition
principles and provides a single set of criteria for revenue recognition among all industries. The new standard provides a five step framework whereby revenue is recognized when promised goods or services are transferred to a customer at an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires enhanced disclosure pertaining to revenue recognition in both the interim and annual periods. The standard
is effective for interim and annual periods beginning after December 15, 2016 and allows for adoption using a full retrospective method, or a modified retrospective method. We are currently assessing the method of adoption and the expected impact
the new standard has on our financial position and results of operations.
10
Cautionary Statement about Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of the U.S.
Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements can be identified by words such as: anticipate,
continue, intend, plan, goal, seek, believe, project, estimate, expect, strategy, future, likely,
may, should, will and similar references to future periods. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Companys current
beliefs, expectations and assumptions regarding the future of its business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future,
they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Companys control. Actual results and financial condition may differ materially from those
indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause the Companys actual results and financial condition to differ materially from those
indicated in the forward-looking statements include, among others, the Companys expectations regarding financial condition or results of operations in future periods; the Companys expectations regarding potential legislative and
regulatory changes impacting, among other things, the level of reimbursement received from the Medicare and state Medicaid programs including CMS competitive bidding; the Companys expectations regarding the size and growth of the market for
its products and services; the Companys ability to execute its business strategies to grow its business, including its ability to introduce new products and services; the Companys ability to hire and retain key employees; the
Companys ability to remain in compliance with its credit facility; the Companys dependence on its Medicare Supplier Number; changes in third-party reimbursement processes and rates; availability of chemotherapy drugs used in the
Companys infusion pump systems; physicians acceptance of infusion pump therapy over alternative therapies; the Companys dependence on a limited number of third party payors; the Companys ability to maintain relationships with
health care professionals and organizations; the adequacy of the Companys allowance for doubtful accounts; the Companys ability to comply with changing health care regulations; sequestration; natural disasters affecting the Company, its
customers or its suppliers; industry competition; the Companys ability to implement information technology improvements and to respond to technological changes; dependence upon the Companys suppliers; and such other factors as discussed
in Part I, Item 1A. Risk Factors of the Companys annual report on Form 10-K for the year ended December 31, 2013, this quarterly report on Form 10-Q for the quarter ended June 30, 2013 and other public filings made by the Company from time to
time with the SEC.
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
Overview
We are a leading provider of infusion pumps and related services. We service hospitals, oncology practices and other alternate
site healthcare providers. Headquartered in Madison Heights, Michigan, we deliver local, field-based customer support, and also operate Centers of Excellence in Michigan, Kansas, California, Texas, and Ontario, Canada.
We supply electronic ambulatory infusion pumps and associated disposable supply kits to oncology practices, infusion clinics and hospital
outpatient chemotherapy clinics. These pumps and supplies are utilized primarily by colorectal cancer patients who receive a standard of care treatment that utilizes continuous chemotherapy infusions delivered via electronic ambulatory infusion
pumps. We obtain an assignment of insurance benefits from the patient, bill the insurance company or patient accordingly, and collect payment. We provide pump management services for the pumps and associated disposable supply kits to over 1,800
oncology sites of care in the United States, and retain title to the pumps during this process.
We sell or rent new and pre-owned pole
mounted and ambulatory infusion pumps to, and provide biomedical recertification, maintenance and repair services for, oncology practices as well as other alternate site settings including home care and home infusion providers, skilled nursing
facilities, pain centers and others.
Additionally, we sell, rent, service and repair new and pre-owned infusion pumps and other medical
equipment. We also sell a variety of primary and secondary tubing, cassettes, catheters and other disposable items that are utilized with infusion pumps.
InfuSystem Holdings, Inc. Results of Operations for the three and six months ended June 30, 2014 compared to the three and six months
ended June 30, 2013
Revenues
Our revenue for the quarter ended June 30, 2014 was $16.4 million, an increase of $1.7 million, or 12%, compared to $14.7 million for the
quarter ended June 30, 2013. During the period, net revenues from rentals increased 9% while net revenues from product sales increased 51% over the same period in 2013. The increase in revenues was primarily related to the addition of larger
customers and increased penetration into our existing customer accounts.
Revenue for the six months ended June 30, 2014 was $33.6
million, an increase of $4.3 million over the same prior year period. In large part, this year to date increase is due to an opportunistic product sale during the first quarter of the year, of a particular pump at a low gross margin. That sale alone
resulted in additional revenue of approximately $0.9 million.
11
Gross Profit
Gross profit for the quarter ended June 30, 2014 was $11.9 million, an increase of $1.6 million, or 15%, compared to gross profit of $10.3
million for the quarter ended June 30, 2013. Gross profit, as a percentage of revenues, represented 73% and 70% for the three months ended June 30, 2014 and 2013, respectively. Gross profit for the six months ended June 30, 2014 is up $3.2
million or 16% compared to the same prior year period.
During the first quarter of 2014, we reassessed the estimated useful life of
certain property and equipment. As a result, the estimated useful life of our medical equipment was changed from five to seven years due to the determination that we were using these assets longer than originally anticipated. A major factor in this
change was the servicing of such equipment by our Kansas facility, which was acquired in 2010. As a result, disposal of such equipment has decreased significantly since that acquisition.
The change in the estimated useful lives of our pump equipment was accounted for as a change in accounting estimate, on a prospective basis,
effective January 1, 2014. The change in estimated useful lives resulted in $0.5 million less depreciation expense for the quarter ended June 30, 2014 than otherwise would have been recorded. As a result, cost of revenues in the current
period is $0.5 million less than the same prior year period. Year to date depreciation expense is lower by $1.0 million through June 30, 2014 when compared to the six months ended June 30, 2013 due to this change in estimated life.
Provision for Doubtful Accounts
Provision for doubtful accounts for the quarter ended June 30, 2014 was $1.4 million, an increase of $0.1 million, or 8%, compared to $1.3
million for the quarter ended June 30, 2013. The provision for doubtful accounts was 9% of revenues at June 30, 2014, consistent with the same period in the prior year. A large part of the Companys provision for doubtful accounts can
be attributed to a major group of third party payors that revised their claim processing guidelines at the end of 2012 that continues to affect all durable medical equipment (DME) providers. Prior to the change, DME providers
submitted claims to their home plan and the claims were processed in-network. Since the change in guidelines, DME providers are now required to submit their claims to the payor in the state where services were initiated. If the
DME provider is not a participating provider with that specific payor, the claim is treated as out-of-network and the patient will incur higher costs. Therefore, we must collect a higher portion of reimbursement directly from patients, which
creates an increased collection risk. This major payors association selected us as a preferred provider, which will help us in securing contracts in areas currently out-of-network.
Provision for doubtful accounts for the six months ended June 30, 2014 was $3.5 million compared to $3.0 million for the same prior year
period. This represents an increase of 19%. The provision for doubtful accounts was 11% of revenue at June 30, 2014 compared to 10% of revenue in the same prior year period.
Amortization of Intangible Assets
Amortization of intangible assets for the quarter ended June 30, 2014 was $0.6 million, a decrease of 4%, compared to $0.7 million in the
same prior year period. Year to date amortization as of June 30, 2014 was $1.3 million, consistent with the same prior year period.
Selling and Marketing Expenses
During the quarter ended June 30, 2014, selling and marketing expenses were $2.6 million, an increase of $0.1 million, or 6%, compared to
$2.5 million for the quarter ended June 30, 2013. Selling and marketing expenses for the six months ended June 30, 2014 were $5.3 million compared to $4.9 million for the same prior year period, an increase of $0.4 million or 8%.
These increases were largely attributed to increased commissions based on higher revenue for the comparable periods. Selling and marketing expenses during these periods consisted of sales personnel salaries, commissions and associated fringe benefit
and payroll-related items, marketing, share-based compensation, travel and entertainment and other miscellaneous expenses.
General and
Administrative Expenses
During the quarter ended June 30, 2014, our G&A expenses were $4.9 million, which is slightly down from
the $5.0 million for the quarter ended June 30, 2013. The decrease in G&A expense versus the same prior year period was mainly attributed to savings of $0.7 million in professional fees offset by increases in spending on IT and Pain Management
for $0.2 million; write off of obsolete pumps in our Kansas location for $0.1 million, severance of $0.1 million and increases in headcount for $0.2 million.
G&A expenses for the six months ended June 30, 2014 were $9.8 million, compared to $10.0 million for the same prior year period. The
decrease in G&A expense versus the same prior year period was mainly attributed to savings of $0.8 million in professional fees offset by increases in spending on IT and Pain Management for $0.4 million; write off of obsolete pumps in our Kansas
location for $0.1 million and severance of $0.1 million. General and administrative expense (G&A) during these periods consisted primarily of accounting, administrative, third party payor billing and contract services, customer
service, nurses on staff, new product services, and service center personnel salaries, fringe benefits and other payroll related items, professional fees, legal fees, stock based compensation, insurance and other miscellaneous items.
12
Other Income and Expenses
During the quarter ended June 30, 2014, we recorded interest expense of $0.8 million compared to $0.9 million for the same prior year
period. Interest expense for the six months ended June 30, 2014 was $1.6 million compared to $1.8 million for the six months ended June 30, 2013. In addition, during the first quarter of 2013, we received other income of $0.3 million in
proceeds when a mutual insurance company we maintained a policy with was acquired and cash payments were disbursed to eligible members.
Income Taxes
During the
quarter ended June 30, 2014, we recorded income tax expense of $0.7 million compared to a tax benefit of $0.1 million during the quarter ended June 30, 2013. During the six months ended June 30, 2014 income tax expense was $1.1
million compared to a tax benefit in the same prior year period of $0.1 million. The increase in income tax expense was primarily due to increased profitability during the quarter and the year to date period ended June 30, 2014.
Liquidity and Capital Resources
As of
June 30, 2014, we had cash or cash equivalents of $1.0 million and $4.4 million of net availability on the Revolver compared to $1.1 million of cash and cash equivalents and $5.9 million of availability on the Revolver at December 31,
2013.
Cash provided by operating activities for the six months ended June 30, 2014 was $1.8 million compared to $2.2 million for the
six months ended June 30, 2013. The decrease in cash is due to the cash flow effects of the change in accounts payable and other accruals.
Cash used in investing activities was $0.5 million for the six months ended June 30, 2014, compared to $0.8 million for the six months
ended June 30, 2013. The decrease is primarily related to a $2.4 million improvement in proceeds from medical equipment, mostly related to the opportunistic sale of a particular pump that resulted in $0.9 million as well as other sales
increases. This however, is offset by a $1.9 million increase in spending on non-pump assets which is a direct result of a significant ongoing investment in technology and preparing a new office facility in Kansas and other warehouse sights around
the country.
Cash used in financing activities for the six months ended June 30, 2014 was $1.4 million compared to $3.6 million for
the six months ended June 30, 2013. This change is mainly attributed to the Company paying off many old capital leases in 2013, whereas, this year the Company has made the required principal payments on all outstanding leases.
The availability under the Revolver is based upon the Companys eligible accounts receivable and eligible inventory and is broken down as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Revolver:
|
|
|
|
|
|
|
|
|
Gross Availability
|
|
$
|
6,500
|
|
|
$
|
5,900
|
|
Outstanding Draws
|
|
|
(2,021
|
)
|
|
|
|
|
Letter of Credit
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Availability on Revolver
|
|
$
|
4,398
|
|
|
$
|
5,900
|
|
|
|
|
|
|
|
|
|
|
The Credit Facility is collateralized by substantially all of the Companys assets and requires the
Company to comply with covenants, including but not limited to, financial covenants relating to the satisfaction, on a quarterly and annual basis for the duration of the Credit Facility, of a total leverage ratio, a fixed charge coverage ratio and
an annual limit on capital expenditures, including capital leases. As of June 30, 2014, the Company was in compliance with all such covenants and expects to be in compliance for the next 12 months.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in conformity with U.S. GAAP, which require the use of estimates, judgments and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses in the periods presented. We believe that the
accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates actual results could differ from the original estimates, requiring adjustments to these balances in
future periods. The critical accounting estimates that affect the consolidated financial statements and the judgments and assumptions used are consistent with those described in the MD&A section in our 2013 Form 10-K.
13