NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — BASIS OF PRESENTATION
These Unaudited Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements, including the notes thereto, and other information included in the Annual Report on Form 10-K of BioScrip, Inc. and its wholly-owned subsidiaries (the “Company”) for the year ended
December 31, 2016
(the “Annual Report”) filed with the U.S. Securities and Exchange Commission (“SEC”). These Unaudited Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, and the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.
The information furnished in these Unaudited Consolidated Financial Statements reflects all adjustments, including normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Operating results for the
three months
ended
March 31, 2017
require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes and are not necessarily indicative of the results that may be expected for the full year ending
December 31, 2017
.
The Unaudited 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.
Business Combinations
Business combinations are accounted for using the acquisition method as of the acquisition date, the date on which control is transferred to the Company. Goodwill is measured at the acquisition date as the fair value of the consideration transferred, plus the fair value of the identifiable assets acquired and liabilities assumed. Transaction costs are expensed as incurred. Contingent consideration payable is measured at fair value at the acquisition date. Contingent consideration classified as equity is not re-measured and settlement is accounted for within equity.
Reclassifications
Prior period financial statement amounts have been reclassified to conform to current period presentation.
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, or in accordance with the governing agreement. Restricted cash balances expected to become unrestricted during the next twelve months are recorded as current assets. As of
March 31, 2017
, the Company had a restricted cash balance, in a money market account, of $
5.1 million
to cash collateralize outstanding letters of credit issued in connection with the Sixth Amendment to the Senior Credit Facilities (each term as defined below).
Collectability of Accounts Receivable
The following table sets forth the aging of our net accounts receivable (net of allowance for contractual adjustments, and prior to allowance for doubtful accounts), aged based on date of service and categorized based on the three primary overall types of accounts receivable characteristics (in thousands):
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|
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|
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|
March 31, 2017
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|
December 31, 2016
|
|
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0 - 180 days
|
|
Over 180 days
|
|
Total
|
|
0 - 180 days
|
|
Over 180 days
|
|
Total
|
Government
|
|
$
|
17,963
|
|
|
$
|
7,191
|
|
|
$
|
25,154
|
|
|
$
|
19,891
|
|
|
$
|
8,278
|
|
|
$
|
28,169
|
|
Commercial
|
|
91,676
|
|
|
22,619
|
|
|
114,295
|
|
|
97,744
|
|
|
19,848
|
|
|
117,592
|
|
Patient
|
|
6,190
|
|
|
7,899
|
|
|
14,089
|
|
|
3,955
|
|
|
6,825
|
|
|
10,780
|
|
Gross accounts receivable
|
|
$
|
115,829
|
|
|
$
|
37,709
|
|
|
153,538
|
|
|
$
|
121,590
|
|
|
$
|
34,951
|
|
|
156,541
|
|
Allowance for doubtful accounts
|
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(44,061
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)
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(44,730
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)
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Net accounts receivable
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$
|
109,477
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|
|
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|
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$
|
111,811
|
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Recent Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04—Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 modifies the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The effective date for ASU 2017-04 is for annual or any 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 business, financial position, results of operations or liquidity.
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. Early adoption is permitted. The Company is currently assessing the impact of this new standard on its financial statements.
In March 2016, the FASB issued ASU 2016-09—Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”).
ASU 2016-09 modifies the accounting for share-based payment awards, including income tax consequences, classification of awards as equity or liabilities, and classification on the statement of cash flows. The effective date for ASU 2016-09 is for annual periods beginning after December 15, 2016, and interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company’s business, financial position, results of operations or liquidity.
In February 2016, the FASB issued ASU 2016-02—Leases (Topic 842), requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. The Company is evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09—Revenue from Contracts with Customers (Topic 606). The guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The FASB delayed the effective date to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. In addition, in March and April 2016, the FASB issued new guidance intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. Both amendments permit the use of either a retrospective or cumulative effect transition method and are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early application permitted. The Company is assessing the impact of this new standard on its financial statements and has not yet selected a transition method.
NOTE 2 — LOSS PER SHARE
The Company presents basic and diluted loss per share for its common stock, par value
$0.0001
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 stocks, stock appreciation rights, warrants and Series A and Series C Preferred Stock (as defined below). 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 Preferred Stock are determined using the “if converted” method.
The Company's Series A Convertible Preferred Stock, par value
$0.0001
per share (the “Series A Preferred Stock”), and Series C Convertible Preferred Stock, par value
$0.0001
per share (the “Series C Preferred Stock” and, together with the Series A Preferred Stock, the “Preferred Stock”), is considered a participating security, which means the security may participate in undistributed earnings with Common Stock. The holders of the Preferred Stock would be entitled to share in dividends, on an as-converted
basis, if the holders of Common Stock were to receive dividends. The Company is required to use the two-class method when computing loss per share when it has a security that qualifies as a participating security. The two-class method is an earnings allocation formula that determines loss per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In determining the amount of net earnings to allocate to common stockholders, earnings are allocated to both common and participating securities based on their respective weighted-average shares outstanding during the period. Diluted loss per share for the Company’s Common Stock is computed using the more dilutive of the two-class method or the if-converted method.
The following table sets forth the computation of basic and diluted loss per common share (in thousands, except for per share amounts):
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Three Months Ended
March 31,
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2017
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2016
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Numerator:
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Loss from continuing operations, net of income taxes
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$
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(18,991
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)
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$
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(9,770
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)
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Income (loss) from discontinued operations, net of income taxes
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(437
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)
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233
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Net loss
|
$
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(19,428
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)
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|
$
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(9,537
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)
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Accrued dividends on preferred stock
|
(2,214
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)
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(1,998
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)
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Deemed dividend on preferred stock
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(174
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)
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(172
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)
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Loss attributable to common stockholders
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$
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(21,816
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)
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$
|
(11,707
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)
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Denominator - Basic and Diluted:
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Weighted average common shares outstanding
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118,783
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68,771
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Loss per Common Share:
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Loss from continuing operations, basic and diluted
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$
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(0.18
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)
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$
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(0.17
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)
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Loss from discontinued operations, basic and diluted
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—
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—
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Loss per common share, basic and diluted
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$
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(0.18
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)
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$
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(0.17
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)
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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
three months ended March 31, 2017 and 2016
excludes the effect of
19.4 million
and
17.5 million
shares, respectively, issued in connection with the PIPE Transaction and the Rights Offering (see Note 3 - Stockholders’ Deficit), as well as stock options and restricted stock awards, as their inclusion would be anti-dilutive to loss attributable to common stockholders.
NOTE 3 — STOCKHOLDERS’ DEFICIT
Securities Purchase Agreement
On March 9, 2015, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Coliseum Capital Partners L.P., a Delaware limited partnership, Coliseum Capital Partners II, L.P., a Delaware limited partnership, and Blackwell Partners, LLC, Series A, a Georgia limited liability company (collectively, the “PIPE Investors”). Pursuant to the terms of the Purchase Agreement, the Company issued and sold to the PIPE Investors in a private placement (the “PIPE Transaction”) an aggregate of (a)
625,000
shares of Series A Preferred Stock at a purchase price per share of
$100.00
, (b)
1,800,000
Class A warrants (the “Class A Warrants”), and (c)
1,800,000
Class B warrants (the “Class B Warrants” and, together with Class A Warrants, the “PIPE Warrants”), for gross proceeds of
$62.5 million
. The initial conversion price for the Series A Preferred Stock is
$5.17
. The PIPE Warrants may be exercised to acquire shares of Common Stock. Pursuant to an addendum (the “Warrant Addendum”), dated as of March 23, 2015, to the Warrant Agreement, dated as of March 9, 2015, with the PIPE Investors, the PIPE Investors paid the Company
$0.5 million
in the aggregate, and the per share exercise price of the Class A Warrants and Class B Warrants was set at
$5.17
and
$6.45
, respectively, reduced from
$5.295
to
$5.17
and from
$6.595
to
$6.45
, respectively.
Series A, Series B, and Series C Convertible Preferred Stock
In connection with the PIPE Transaction, the Company authorized
825,000
shares and issued
625,000
shares of Series A Preferred Stock at
$100.00
per share. In connection with the Rights Offering (as defined below), the Company issued an additional
10,822
shares of Series A Preferred Stock at
$100.00
per share. The Series A Preferred Stock may, at the option of the holder, be converted into Common Stock and receive a Liquidation Preference upon voluntary or involuntary liquidation, dissolution, or winding up of the Company as described in the Annual Report. The Company may pay a noncumulative cash dividend on each share of the Series A Preferred Stock as previously disclosed in the Annual Report. In the event the Company does not declare and pay a cash dividend, the Liquidation Preference of the Series A Preferred Stock will be increased to an amount equal to the Liquidation Preference in effect at the start of the applicable quarterly dividend period, plus an amount equal to such then applicable Liquidation Preference multiplied by
11.5%
per annum.
On June 10, 2016, in order to allow the shares of Common Stock reserved for issuance for the conversion of the Series A Preferred Stock and exercise of the PIPE Warrants to be released from reservation and sold pursuant to the 2016 Equity Offering (see below), we entered into an Exchange Agreement with the PIPE Investors (the “Series B Exchange Agreement”) pursuant to which the PIPE Investors agreed:
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i)
|
to exchange
614,177
shares of the existing Series A Preferred Stock for an identical number of shares of Series B Convertible Preferred Stock (the “Series B Preferred Stock”), which have the same terms as the Series A Preferred Stock previously described in the Company’s prior public filings, except that the terms of the Series B Preferred Stock include the authority of the holders of the Series B Preferred Stock to waive the requirement that the Company reserve a sufficient number of shares of Common Stock reserved at all times to allow for the conversion of the Series B Preferred Stock; and
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ii)
|
to waive the requirement under the Warrant Agreement governing the PIPE Warrants to reserve
3,600,000
shares of our Common Stock for the exercise of the PIPE Warrants.
|
On June 14, 2016, the Company entered into another Exchange Agreement (the “Series C Exchange Agreement”) with the PIPE Investors, pursuant to which the PIPE Investors agreed to exchange their shares of Series B Preferred Stock issued pursuant to the Series B Exchange Agreement on a one for one basis for shares of Series C Preferred Stock.
Under the terms of the Series C Exchange Agreement, the PIPE Investors agreed to exchange
614,177
shares of the Series B Preferred Stock for an identical number of shares of Series C Preferred Stock, which have the same terms as the Series B Preferred Stock, except that the terms of the Series C Preferred Stock provide that the
11.5%
per annum rate of non-cash dividends payable on the shares of the Series C Preferred Stock will be reduced based on the achievement by the Company of specified “Consolidated EBITDA” as defined in the Senior Credit Facilities. In addition, pursuant to the Series C Exchange Agreement, the PIPE Investors agreed to waive the requirement under the Warrant Agreement governing the PIPE Warrants held by the PIPE Investors to reserve
3,600,000
shares of Common Stock for the exercise of the PIPE Warrants.
As a result of the exchanges discussed above, there are, as of March 31, 2017, (a)
21,645
shares of Series A Preferred Stock outstanding, of which
10,823
shares are owned by the PIPE Investors, (b)
no
shares of Series B Preferred Stock outstanding, and (c)
614,177
shares of Series C Preferred Stock outstanding, all of which are owned by the PIPE Investors.
As of
March 31, 2017
, the Liquidation Preference of the Series A Preferred Stock and Series C Preferred Stock was
$2.7 million
and
$77.6 million
, respectively.
PIPE Warrants
In connection with the PIPE Transaction, the Company issued
1,800,000
Class A Warrants and
1,800,000
Class B Warrants which may be exercised to acquire shares of Common Stock. The rights and terms of the Class A Warrants and the Class B Warrants are identical except for the exercise price. Pursuant to the Warrant Addendum with the PIPE Investors, the PIPE Investors paid the Company
$0.5 million
in the aggregate, and the per share exercise price of the Class A Warrants and Class B Warrants was set at
$5.17
and
$6.45
, respectively, reduced from
$5.295
to
$5.17
and from
$6.595
to
$6.45
, respectively.
The Company entered into a registration rights agreement, as amended (the “Registration Rights Agreement”), with the PIPE Investors that, among other things and subject to certain exceptions, requires the Company, upon the request of the PIPE Investors, to register the Common Stock of the Company issuable upon conversion of the PIPE Investors’ Series A Preferred Shares, the Series C Preferred Shares, or exercise of the PIPE Warrants. Pursuant to the terms of the Registration Rights Agreement, the costs incurred in connection with such registrations will be borne by the Company. As provided under the Registration Rights Agreement, the Company on April 1, 2016 filed a shelf registration statement on Form S-3 under the Securities Act of 1933, as amended (the
“Securities Act”), to register, among other things, the Common Stock of the Company issuable upon conversion of the PIPE Investors’ Series A and Series C Preferred Shares.
Rights Offering
On June 30, 2015, the Company commenced a rights offering (the “Rights Offering”) pursuant to which the Company distributed subscription rights to purchase units consisting of (1) Series A Preferred Stock, each share convertible into shares of Common Stock at a conversion price of
$5.17
per share, (2) Class A warrants to purchase one share of Common Stock at a price of
$5.17
per share (the “Public Class A Warrants”), and (3) Class B warrants to purchase one share of Common Stock at a price of
$6.45
per share (the “Public Class B Warrants” and, together with the Public Class A Warrants, the “Public Warrants”). The Rights Offering expired on July 27, 2015 and was completed on July 31, 2015. Stockholders of the Company exercised subscription rights to purchase
10,822
units, consisting of an aggregate of
10,822
shares of the Series A Preferred Stock,
31,025
Public Class A Warrants, and
31,025
Public Class B Warrants, at a subscription price of
$100.00
per unit. Pursuant to the Rights Offering, the Company raised gross proceeds of approximately
$1.1 million
.
With the exception of the expiration date, the Class A Warrants issued pursuant to the PIPE Transaction, as amended by the Warrant Addendum, have the same terms as the Public Class A Warrants issued pursuant to the Rights Offering. Similarly, with the exception of the expiration date, the Class B Warrants issued pursuant to the PIPE Transaction, as amended by the Warrant Addendum, have the same terms as the Public Class B Warrants issued pursuant to the Rights Offering.
Carrying Value of Series A Preferred Stock
As of
March 31, 2017
, the following values were accreted as described above and recorded as a reduction of additional paid in capital in Stockholders’ Deficit and a deemed dividend on the Unaudited Consolidated Statements of Operations. In addition, dividends were accrued at
11.5%
from the date of issuance to
March 31, 2017
. The following table sets forth the activity recorded during the
three months ended March 31, 2017
related to the Series A Preferred Stock (in thousands) issued for both the PIPE Transactions and the Rights Offering:
|
|
|
|
|
Series A Preferred Stock carrying value at December 31, 2016
|
$
|
2,462
|
|
Accretion of discount related to issuance costs
|
13
|
|
Dividends recorded through March 31, 2017
1
|
74
|
|
Series A Preferred Stock carrying value March 31, 2017
|
$
|
2,549
|
|
1
Dividends recorded reflect the increase in the Liquidation Preference associated with unpaid dividends.
Carrying Value of Series C Preferred Stock
As of
March 31, 2017
, the following values were accreted as described above and recorded as a reduction of additional paid in capital in Stockholders’ Deficit and a deemed dividend on the Unaudited Consolidated Statements of Operations. In addition, dividends were accrued at
11.5%
from the date of issuance to
March 31, 2017
. The following table sets forth the activity recorded during the
three months ended March 31, 2017
related to the Series C Preferred Stock (in thousands):
|
|
|
|
|
Series C Preferred Stock carrying value at December 31, 2016
|
$
|
69,540
|
|
Accretion of discount related to issuance costs
|
161
|
|
Dividends recorded through March 31, 2017
1
|
2,141
|
|
Series C Preferred Stock carrying value March 31, 2017
|
$
|
71,842
|
|
1
Dividends recorded reflect the increase in the Liquidation Preference associated with unpaid dividends.
Shelf Registration Statement
The Company filed a shelf registration statement on Form S-3 under the Securities Act on April 1, 2016, which was declared effective May 2, 2016 (the “2016 Shelf”). Under the 2016 Shelf at the time of effectiveness, the Company had the ability to raise up to
$200.0 million
, in one or more transactions, by selling Common Stock, preferred stock, debt securities, warrants, units and rights.
2016 Equity Offering
On June 22, 2016 the Company completed an underwritten public offering of
45,200,000
shares of Common Stock, including
5,200,000
shares of Common Stock issued upon the underwriters’ full exercise of the over-allotment option, at a public offering price of
$2.00
per share, less underwriting discounts and commissions and offering expenses payable by us (the “2016 Equity Offering”). The Company received net proceeds of approximately
$83.3 million
from the 2016 Equity Offering, after deducting underwriting discounts and commissions and offering costs.
A portion of the net proceeds from the 2016 Equity Offering was used to fund the Cash Consideration (as defined below) and pay fees and expenses in connection with the closing of the Home Solutions Transaction (see below)
.
Home Solutions Transaction
On September 9, 2016, the Company acquired substantially all of the assets and assumed certain liabilities of HS Infusion Holdings, Inc. (“Home Solutions”) and its subsidiaries (the “Home Solutions Transaction”) pursuant to an Asset Purchase Agreement dated June 11, 2016 (as amended, the “Home Solutions Agreement”), by and among Home Solutions, a Delaware corporation, certain subsidiaries of Home Solutions, the Company and HomeChoice Partners, Inc., a Delaware corporation. Home Solutions, a privately held company, provides home infusion and home nursing products and services to patients suffering from chronic and acute medical conditions. On June 16, 2016, the Company, HomeChoice Partners, Inc. and Home Solutions entered into an amendment to the Home Solutions Agreement (the “First Amendment”), which modified the terms of the consideration payable by the Company to Home Solutions thereunder. On September 2, 2016, the same parties entered into a second amendment to the Home Solutions Agreement (the “Second Amendment”), which amended the Home Solutions Agreement to eliminate the condition to closing that the Company receive stockholder approval to increase its authorized share capital (the “Charter Amendment”) and facilitated the timely consummation of the Home Solutions Transaction. The Second Amendment instead provided that the Company will hold a stockholder meeting after the closing of the Home Solutions Transaction to seek stockholder approval of the Charter Amendment, and if the approval is not obtained at the first special meeting, the Company will submit the proposal on a twice per year basis beginning in 2017, at either the annual meeting or a special meeting of stockholders. The Charter Amendment was approved at a special meeting of stockholders held on November 30, 2016.
The aggregate consideration paid by the Company in the Home Solutions Transaction was equal to (i)
$67.5 million
in cash (the “Cash Consideration”); plus (ii) (a)
3,750,000
shares of Company common stock (the “Transaction Closing Equity Consideration”) and (b) the right to receive contingent equity securities of the Company, in the form of restricted shares of Company common stock (the “RSUs”), issuable in two tranches, Tranche A and Tranche B, with different vesting conditions (collectively, the “Contingent Shares”). The number of shares of Company common stock in Tranche A is
3.1 million
and the number of shares of Company common stock in Tranche B is
4.0 million
, each subject to certain vesting conditions. Upon close of the Home Solutions Transaction the RSUs had no intrinsic value, but are reported in our consolidated financial statements at their estimated fair value at the date of issuance. The Home Solutions Agreement provides Home Solutions with certain customary registration rights that required us, within 30 days following the closing of the Home Solutions Transaction, to file a registration statement for the selling stockholder’s resale of the Transaction Closing Equity Consideration and the Contingent Shares pursuant to the Securities Act. The Company filed the registration statement on October 7, 2016 and it was declared effective on October 27, 2016.
The Company will issue the shares of our Common Stock issuable to Home Solutions pursuant to the RSUs in Tranche A promptly, and in any event within five business days, following the earlier of (a) the closing price of our Common Stock, as reported by NASDAQ, averaging
$4.00
per share or above over
20
consecutive trading days during the period beginning on September 9, 2016 and ending December 31, 2019, or (b) a change of control that occurs on or prior to December 31, 2017 or a change of control thereafter but on or prior to December 31, 2019, pursuant to which the consideration payable per share equals or exceeds
$4.00
per share. The Company will issue the shares of our Common Stock issuable to Home Solutions pursuant to the RSUs in Tranche B promptly, and in any event within five business days, following the earlier of (a) the closing price of our Common Stock, as reported by NASDAQ, averaging
$5.00
per share or above over
20
consecutive trading days during the period beginning on September 9, 2016 and ending December 31, 2019, or (b) a change of control that occurs on or prior to December 31, 2017, or a change of control thereafter but on or prior to December 31, 2019, pursuant to which the consideration payable per share equals or exceeds
$5.00
per share. The Home Solutions Agreement provides for a cash settlement option related to the RSUs, effective June 15, 2021, if, and only if, authorized shares are unavailable when the vesting conditions of Tranche A and Tranche B are met. At the date of acquisition, the Company did not have sufficient authorized shares available to satisfy the issuance of Tranche A and Tranche B RSUs and, accordingly, recognized a liability for the fair value of the contingent consideration. As of November 30, 2016, upon approval of the Charter Amendment, the Company had sufficient authorized shares available should the vesting conditions be met and the RSUs become issuable. The liability was reclassified to equity and a gain on the change in the fair value of the RSUs was recognized as of November 30, 2016.
The Cash Consideration and the Transaction Closing Equity Consideration were paid at closing and were funded by cash on-hand and borrowings from our Revolving Credit Facility.
2017 Private Placement
On March 1, 2017, the Company entered into a Stock Purchase Agreement (the “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 “Stockholders”). Pursuant to the Stock Purchase Agreement, the Company sold an aggregate of
3.3 million
shares of its common stock (the “Shares”) for aggregate gross proceeds of approximately
$5.1 million
in a private placement transaction (the “2017 Private Placement”). The purchase price for each Share was
$1.5366
, which was negotiated between the Company and the Stockholders based on the volume-weighted average price of the Company's common stock on the NASDAQ Global Market on March 1, 2017. Proceeds from the Private Placement will be used for working capital and general corporate purposes.
In connection with the 2017 Private Placement, the Company entered into a Registration Rights Agreement (the “2017 Registration Rights Agreement”) with the Stockholders. Pursuant to the 2017 Registration Rights Agreement, the Company agreed to prepare and file a registration statement with the SEC within ten days of the date it files its annual report on Form 10-K for the fiscal year ended December 31, 2016, for purposes of registering the resale of the Shares and any shares of common stock issued as a dividend or other distribution with respect to the Shares.
As provided under the Registration Rights Agreement, the Company, on March 13, 2016, filed a shelf registration statement on Form S-3 under the Securities Act to register the Shares and it was declared effective April 18, 2017.
Proceeds from the 2017 Private Placement will be used for working capital and general corporate purposes.
NOTE 4 — ACQUISITIONS
On September 9, 2016, the Company completed the Home Solutions Transaction pursuant to the Home Solutions Agreement.
The aggregate consideration paid by the Company in the Transaction was equal to (i) the Cash Consideration; plus (ii) the Transaction Closing Equity Consideration and (b) the RSUs, issuable in two tranches, Tranche A and Tranche B, with different vesting conditions. The number of shares of Company common stock in Tranche A is
3.1 million
and the number of shares of Company common stock in Tranche B is
4.0 million
, each subject to vesting conditions(see Note 3 - Stockholders’ Deficit). Upon close of the Transaction the RSUs had no intrinsic value, but are reported in our consolidated financial statements at their estimated fair value at the date of issuance. Upon approval of the Charter Amendment on November 30, 2016, the date at which sufficient shares were available should the RSUs vest and become issuable, the liability was remeasured to its then-current fair value and reclassified to equity.
The following table sets forth the consideration transferred in connection with the acquisition of Home Solutions as of September 9, 2016 (in thousands):
|
|
|
|
|
Cash
|
$
|
67,516
|
|
Equity issued at closing
|
9,938
|
|
Capital lease obligation assumed
|
301
|
|
Fair value of contingent consideration
|
15,400
|
|
Total consideration
|
$
|
93,155
|
|
The following table sets forth the preliminary estimate of fair value of the assets acquired and liabilities assumed upon acquisition of Home Solutions (in thousands):
|
|
|
|
|
Accounts receivable
|
$
|
11,956
|
|
Inventories
|
3,199
|
|
Prepaids and other assets
|
852
|
|
Total current assets
|
$
|
16,007
|
|
Property and equipment
|
4,651
|
|
Goodwill
|
57,218
|
|
Managed care contracts
|
24,700
|
|
Licenses
|
5,400
|
|
Trade name
|
1,800
|
|
Non-compete agreements
|
200
|
|
Other non-current assets
|
891
|
|
Total assets
|
$
|
110,867
|
|
Accounts payable
|
14,576
|
|
Accrued liabilities
|
3,136
|
|
Current liabilities
|
$
|
17,712
|
|
Total fair value of cash and contingent consideration
|
$
|
93,155
|
|
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. The value of the goodwill represents the value the Company expects to be created by combining the operations of the companies, including the ability to cross-sell its services on a national basis with an expanded footprint in home infusion and the opportunity to focus on higher margin therapies.
In accordance with ASC Topic 805
Business Combinations
(“ASC 805”), the allocation of the purchase price is subject to adjustment during the measurement period after the closing date (September 9, 2016) when additional information on assets and liability valuations becomes available. The Company has not finalized its valuation of certain assets and liabilities recorded pursuant to the acquisition including intangible assets and contingent consideration. Thus, the provisional measurements recorded are subject to change. Any changes will be recorded as adjustments to the fair value of the assets and liabilities with residual amounts allocated to goodwill.
Under the Home Solutions Agreement, the Company did not purchase, among other things, any accounts receivable associated with governmental payors. However, the Home Solutions Agreement stipulates that collections of government receivables, as of the first anniversary of the closing date, in an amount less than the amount estimated as government receivables in the Closing Certificate, must be paid to the seller. The Company believes the government receivables will be collected and, as a result, has not recorded a liability for the guarantee.
NOTE 5 — RESTRUCTURING, ACQUISITION, INTEGRATION, AND OTHER EXPENSES, NET
Restructuring, acquisition, integration and other expenses include non-operating 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, net in the Unaudited Consolidated Statements of Operations for the
three months
ended
March 31, 2017
and
2016
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
Restructuring expense
|
$
|
3,206
|
|
|
$
|
2,254
|
|
Acquisition and integration expense
|
17
|
|
|
362
|
|
Change in fair value of contingent consideration
|
—
|
|
|
51
|
|
Total restructuring, acquisition, integration, and other expense, net
|
$
|
3,223
|
|
|
$
|
2,667
|
|
NOTE 6 — DEBT
As of
March 31, 2017
and
December 31, 2016
, the Company’s debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31,
2016
|
Revolving Credit Facility
|
$
|
54,862
|
|
|
$
|
55,300
|
|
Term Loan Facilities
|
207,070
|
|
|
210,207
|
|
Priming Credit Facility
|
25,000
|
|
|
—
|
|
2021 Notes, net of unamortized discount
|
195,867
|
|
|
196,670
|
|
Capital leases
|
1,970
|
|
|
2,209
|
|
Less: Deferred financing costs
|
(12,271
|
)
|
|
(12,452
|
)
|
Total Debt
|
472,498
|
|
|
451,934
|
|
Less: Current portion
|
(22,426
|
)
|
|
(18,521
|
)
|
Long-term debt, net of current portion
|
$
|
450,072
|
|
|
$
|
433,413
|
|
Senior Credit Facilities
The Company is 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 (“SunTrust”), Jefferies Finance LLC and Morgan Stanley Senior Funding, Inc. (collectively, the “Lenders”), originally entered on July 31, 2013 and amended from time to time.
On January 6, 2017, the Company entered into a sixth amendment (the “Sixth Amendment”) to its Senior Credit Facilities. The Sixth Amendment amended the Senior Credit Facilities to, among other things, (a) permanently reduce the revolving commitments in accordance with a schedule set forth therein and prohibit further revolving borrowings, (b) require the cash collateralization of letters of credit issued thereunder, (c) increase the interest rate for loans outstanding under the Senior Credit Facilities and require a portion of accrued interest at the increased rate to be paid-in-kind, (d) permit the Company and its subsidiaries to enter into the Priming Credit Agreement (as defined below), which provides the Company with an aggregate borrowing commitment of
$25.0 million
, to be fully drawn at closing, and permit the Company to incur the obligations thereunder and to subordinate the liens securing the Senior Credit Facilities to the liens securing the obligations under the Priming Credit Agreement, and (e) amend certain covenants, including by (i) increasing the consolidated senior secured net leverage ratio covenant, (ii) adding a minimum EBITDA covenant, to be tested quarterly, and (iii) otherwise restricting the ability of the Company and its subsidiaries to incur certain additional indebtedness and make additional significant investments or acquisitions.
On January 6, 2017, the Company entered into a new credit agreement (the “Priming Credit Agreement”) with certain existing lenders under the Senior Credit Facilities and SunTrust, as administrative agent for itself and the lenders. The Priming Credit Agreement provides an aggregate borrowing commitment of
$25.0 million
, which will be fully drawn at closing. The Company intends to use the proceeds of the borrowing under the Priming Credit Agreement (i) to permanently prepay a portion of the outstanding revolving loan balance under the Senior Credit Facilities, (ii) to cash collateralize letters of credit issued under the
Senior Credit Facilities, (iii) to pay fees and expenses in connection with the execution and delivery of the Priming Credit Agreement and the Sixth Amendment, and (iv) for working capital and other general corporate purposes.
The Company will pay interest on the outstanding loans under the Priming Credit Agreement at a rate of
10%
per annum, and accrued interest will be payable in cash monthly in arrears on the last day of each fiscal month. The obligations under the Priming Credit Agreement are not subject to scheduled amortization installments, and all outstanding obligations will mature and be due and payable in full in cash on July 31, 2018. The occurrence of certain events of default may increase the applicable rate of interest by
2%
and could result in the acceleration of the Company’s obligations under the Priming Credit Agreement prior to stated maturity.
The Priming Credit Agreement contains mandatory prepayments, representations and warranties, affirmative and negative covenants, financial covenants and events of default that are substantially identical to the corresponding provisions of the Senior Credit Facilities. In addition, the obligations under the Priming Credit Agreement are guaranteed by joint and several guarantees from the Company’s subsidiaries and secured by a security interest on substantially all of the assets of the Company and its subsidiaries.
The payment obligations under the Priming Credit Agreement rank pari passu in right of payment with the payment obligations under the Senior Credit Facilities. Upon the occurrence of certain mandatory prepayment events, the Company is required to apply the net proceeds thereof, first, to the permanent prepayment of outstanding revolving loans under the Senior Credit Facilities until paid in full, next, to the permanent prepayment of outstanding term loans under the Senior Credit Facilities until paid in full, and, last, to the permanent prepayment of outstanding loans under the Priming Credit Agreement.
The applicable interest rates for each of the Term Loan Facilities is the Eurodollar rate plus
6.00%
or the base rate plus
5.00%
, until the occurrence of certain pricing decrease triggering events, as defined in the amended Senior Credit Facilities. Upon the occurrence of a pricing decrease triggering event, the interest rates for the Senior Credit Facilities may revert to the Eurodollar rate plus
5.25%
or the base rate plus
4.25%
. As of
March 31, 2017
, the interest rates related to the Revolving Credit Facility and the Term Loan Facilities are approximately
8.25%
and
6.50%
, respectively.
The Revolving Credit Facility matures on July 31, 2018 at which time all principal amounts outstanding are due and payable. The Term Loan Facilities require quarterly principal repayments of
$3.1 million
beginning March 31, 2016 until their July 31, 2020 maturity at which time the remaining principal amount of approximately
$194.9 million
is due and payable.
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.
Interest on the 2021 Notes accrues at a fixed rate of
8.875%
per annum and is payable in cash semi-annually on February 15 and August 15 of each year. 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
March 31, 2017
, 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.
Fair Value of Financial Instruments
The following details our financial instruments where the carrying value and the fair value differ (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instrument
|
|
Carrying Value as of March 31, 2017
|
|
Markets for Identical Item (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
Term Loan Facilities
|
|
$
|
207,070
|
|
|
$
|
—
|
|
|
$
|
204,999
|
|
|
$
|
—
|
|
2021 Notes
|
|
195,867
|
|
|
—
|
|
|
168,446
|
|
|
—
|
|
Total
|
|
$
|
402,937
|
|
|
$
|
—
|
|
|
$
|
373,445
|
|
|
$
|
—
|
|
The fair value hierarchy for disclosure of fair value measurements is as follows:
Level 1
: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2
: Quoted prices, other than quoted prices included in Level 1, which are observable for the assets or liabilities, either directly or indirectly.
Level 3
: Inputs that are unobservable for the assets or liabilities. Financial assets with carrying values approximating fair value include cash and cash equivalents and accounts receivable. Financial liabilities with carrying values approximating fair value include accounts payable and capital leases. The carrying value of these financial assets and liabilities approximates fair value due to their short maturities.
NOTE 7 — COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Breach of Contract Litigation in the Delaware Court of Chancery
On November 3, 2015, Walgreen Co. and various affiliates (“Walgreens”) filed a lawsuit in the Delaware Court of Chancery against the Company and certain of its subsidiaries (collectively, the “Defendants”). The complaint alleges that the Company breached certain non-compete provisions contained in the Community Pharmacy and Mail Business Purchase Agreement dated as of February 1, 2012, by and among Walgreens and certain subsidiaries and the Company and certain subsidiaries. The complaint seeks both money damages and injunctive relief. On December 7, 2015, the Defendants filed a motion to dismiss the case. Walgreens filed an answering brief on January 11, 2016 and the Defendants filed a reply on January 25, 2016. On March 11, 2016, the Court held oral argument on the Company’s motion to dismiss and granted the motion, holding that Walgreens’ breach of contract claims for money damages must be resolved in accordance with the 2012 Purchase Agreement’s alternative dispute resolution procedure. On March 15, 2016, Walgreens informed the Court that it would not be pursuing any claims for injunctive relief in the Court at that time, but instead would engage in the required alternative dispute resolution procedure. Walgreens requested that the Court keep the case open pending the results of that process. On March 16, 2016, the Court stayed the lawsuit and removed the trial from its calendar, but did not grant Walgreens any other relief or enjoin the Company from taking any action. On December 8, 2016, the parties submitted the dispute to an arbitrator. On December 28, 2016, the arbitrator rendered its decision, finding that the Company had not violated the non-compete, except for certain limited sales of oral oncology, HIV and transplant pharmaceuticals, constituting approximately
3 percent
of the total sales that Walgreens claimed were made in violation of the agreement. The arbitrator also concluded that Walgreens was not entitled to recover its lost profits or lost revenues as a result of any such sales. Despite that ruling, the arbitrator awarded Walgreens
$5.8 million
in damages, or approximately
20 percent
of the total amount requested. Such amount is included as a component of Accrued expenses and other current liabilities within the Consolidated Balance Sheets as of March 31, 2017 (unaudited) and December 31, 2016. The Company believes that arbitrator’s damages award ignored applicable law, contradicted the arbitrator’s liability findings and exceeded the scope of the arbitrator’s authority in light of both parties’ arbitration submissions. Accordingly, on January 13, 2017, the Company filed a motion to vacate the arbitration award. On February 10, 2017, Walgreens opposed the Company’s motion and filed a motion to confirm the arbitration award and for other relief. Those motions were fully briefed on April 28, 2017. The Company intends to continue to vigorously defend itself. Due to the inherent uncertainty in litigation, however, the Company can provide no assurance that its challenge to the award will be successful.
Derivative Lawsuit in the Delaware Court of Chancery
On May 7, 2015, a derivative complaint was filed in the Delaware Court of Chancery (the “Derivative Complaint”) by the Park Employees’ & Retirement Board Employees’ Annuity & Benefit Fund of Chicago (the “Derivative Plaintiff”). The Derivative Complaint names as defendants certain current and former directors of the Company, consisting of Richard M. Smith, Myron Holubiak, Charlotte Collins, Samuel Frieder, David Hubers, Richard Robbins, Stuart Samuels and Gordon Woodward (collectively, the “Director Defendants”), certain current and former officers of the Company, consisting of Kimberlee Seah, Hai Tran and Patricia Bogusz (collectively the “Officer Defendants”), Kohlberg & Co., L.L.C., Kohlberg Management V, L.L.C., Kohlberg Investors V, L.P., Kohlberg Partners V, L.P., Kohlberg TE Investors V, L.P., KOCO Investors V, L.P., and Jefferies LLC. The Company is also named as a nominal defendant in the Derivative Complaint. The Derivative Complaint was filed in the Delaware Court of Chancery as
Park Employees and Retirement Board Employees’ Annuity and Benefit Fund of Chicago v. Richard M. Smith, Myron Z. Holubiak, Charlotte W. Collins, Samuel P. Frieder, David R. Huber, Richard L. Robbins, Stuart A. Samuels, Gordon H. Woodward, Kimberlee C. Seah, Hai V.Tran, Patricia Bogusz, Kohlberg & Co., L.L.C., Kohlberg Management V, L.L.C., Kohlberg Investors V, L.P., Kohlberg Partners V, L.P., Kohlberg TE Investors V, L.P., KOCO Investors V, L.P., Jefferies LLC and BioScrip, Inc., C.A. No. 11000-VCG (Del. Ch. Ct., May 7, 2015).
The Derivative Complaint alleges generally that certain defendants breached their fiduciary duties with respect to the Company’s public disclosures, oversight of Company operations, secondary stock offerings and stock sales. The Derivative Complaint also contends that certain defendants aided and abetted those alleged breaches. The damages sought are not quantified but include, among other things, claims for money damages, restitution, disgorgement, equitable relief, reasonable attorneys’ fees, costs and expenses, and interest. The Derivative Complaint incorporates the same factual allegations from
In re BioScrip, Inc., Securities Litigation
(described below). On June 16, 2015, all defendants moved to dismiss the case. Briefing for the motion to dismiss was completed on November 30, 2015, and the court heard oral argument on the motion to dismiss on January 12, 2016. During the hearing, the court requested additional briefing, which was completed on February 12, 2016. On May 31, 2016, the court determined that the Derivative Plaintiff’s claims could not proceed as pled but granted the Derivative Plaintiff thirty days in which to make a motion to amend the Derivative Complaint. The court reserved decision on the motion to dismiss and on June 29, 2016, the Derivative Plaintiff filed a motion for leave to file an amended complaint. On October 10, 2016, all defendants moved to dismiss the amended complaint and the Court heard oral argument on January 19, 2017. On April 18, 2017, the Court granted the defendants’ motion to dismiss.
The Company, Director Defendants and the Officer Defendants deny any allegations of wrongdoing in this lawsuit. The Company and those persons believe all of the claims in this lawsuit are without merit and intend to vigorously defend against these claims. However, there is no assurance that the defense will be successful or that insurance will be available or adequate to fund any settlement, judgment or litigation costs associated with this action. Certain of the defendants have sought indemnification from the Company pursuant to certain indemnification agreements, for which there may be no insurance coverage. Additional similar lawsuits may be filed. The Company is unable to predict the outcome or reasonably estimate a range of possible loss at this time. While no assurance can be given as to the ultimate outcome of this matter, the Company believes that the final resolution of this action is not likely to have a material adverse effect on results of operations, financial position, liquidity or capital resources.
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.
NOTE 8 — CONCENTRATION OF RISK
Customer and Credit Concentration Risk
The Company provides trade credit to its customers in the normal course of business. One commercial payor, United Healthcare, accounted for approximately
22.8%
and
26.0%
of revenue during the
three months ended March 31, 2017 and 2016
, respectively. This contract will terminate effective September 30, 2017. In addition, Medicare accounted for approximately
6.9%
and
7.3%
of revenue during the
three months ended March 31, 2017 and 2016
, respectively.
Therapy Revenue Concentration Risk
The Company sells products related to the Immune Globulin therapy, which represented
22.2%
and
17.1%
of revenue for the
three months ended March 31, 2017 and 2016
, respectively.
NOTE 9 — INCOME TAXES
The Company’s federal and state income tax provision from continuing operations for the
three months
ended
March 31, 2017
and
2016
is summarized in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
Current
|
|
|
|
Federal
|
$
|
—
|
|
|
$
|
—
|
|
State
|
—
|
|
|
—
|
|
Total current
|
—
|
|
|
—
|
|
Deferred
|
|
|
|
|
|
Federal
|
495
|
|
|
17
|
|
State
|
124
|
|
|
6
|
|
Total deferred
|
619
|
|
|
23
|
|
Total income tax expense
|
$
|
619
|
|
|
$
|
23
|
|
The income tax expense recognized for the
three months
ended
March 31, 2017
is a result of an increase in the deferred tax liability.
The Company’s reconciliation of the statutory rate from continuing operations to the effective income tax rate for the
three months
ended
March 31, 2017
and
2016
is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
Tax benefit at statutory rate
|
$
|
(6,445
|
)
|
|
$
|
(3,411
|
)
|
State tax expense (benefit), net of federal taxes
|
36
|
|
|
(16
|
)
|
Valuation allowance changes affecting income tax provision
|
6,976
|
|
|
3,388
|
|
Non-deductible transaction costs and other
|
52
|
|
|
62
|
|
Income tax expense
|
$
|
619
|
|
|
$
|
23
|
|
At
March 31, 2017
, the Company had Federal net operating loss (“NOL”) carry forwards of approximately
$345.7 million
, of which
$15.0 million
is subject to an annual limitation, which will begin expiring in 2026 and later. The Company has post-apportioned state NOL carry forwards of approximately
$390.0 million
, the majority of which will begin expiring in 2017 and later.
NOTE 10 — STOCK-BASED COMPENSATION
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 (“SARs”), restricted stock grants, restricted stock units, performance shares and performance units to key employees and directors. While SARs 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 (i) an amendment to the Company’s Second Amended and Restated Certificate of Incorporation to increase the number of shares of Common Stock that the Company is authorized to issue from
125 million
shares to
250 million
shares (the “Charter Amendment”); (ii) 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 that are intended to comply with the requirements of Section 162(m) of the Code to a cap of no more than a total of
3,000,000
Options, Stock Appreciation Rights, Stock Grants and Restricted Stock Units that are intended to comply with the requirements of Section 162(m) of the Code combined; and (iii) if necessary, an adjournment of the Stockholders’ Meeting if there were insufficient votes in favor of the Charter Amendment.
As of
March 31, 2017
,
4,672,624
shares remain available for grant under the 2008 Plan.
Stock Options
The Company recognized compensation expense related to stock options of
$0.3 million
and
$1.1 million
during the
three months ended March 31, 2017
and
2016
, respectively.
Restricted Stock
The Company recognized
$0.2 million
and a nominal amount of compensation expense related to restricted stock awards during the
three months ended March 31, 2017 and 2016
, respectively.
Stock Appreciation Rights and Market Based Cash Awards
The Company recognized a nominal amount of compensation benefit related to stock appreciation rights awards and market based cash awards during the
three months ended March 31, 2017 and 2016
.
Employee Stock Purchase Plan
On May 7, 2013, the Company’s stockholders approved the BioScrip, Inc. Employee Stock Purchase Plan (the “ESPP”). 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. The Company filed a Registration Statement on Form S-8 to register
750,000
shares of Common Stock, par value
$0.0001
per share, for issuance under the ESPP.
As of
March 31, 2017
, there were
317,896
shares that remained available for grant under the ESPP. Since inception, the ESPP’s third-party service provider has purchased
591,078
shares on the open market and delivered these shares to the Company’s employees pursuant to the ESPP. During the
three months ended March 31, 2017 and 2016
, we incurred less than
$0.1 million
of expense related to the ESPP.