DD May 23, 2011..
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31,
2011 December 31,
2010
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents
$ 3,176 $ 5,014
Accounts receivable, less allowance for doubtful accounts of $1,912 and $1,796 at March 31, 2011 and December 31, 2010, respectively
7,056 6,679
Inventory
1,555 1,699
Prepaid expenses and other current assets
699 750
Deferred income taxes
1,127 1,147
Total Current Assets
13,613 15,289
Property & equipment, net
16,663 16,672
Deferred debt issuance costs, net
596 658
Goodwill
64,092 64,092
Intangible assets, net
33,416 33,252
Other assets
552 401
Total Assets
$ 128,932 $ 130,364
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
$ 1,808 $ 2,016
Other current liabilities
4,449 4,631
Derivative liabilities
116 183
Current portion of long-term debt
5,900 5,551
Total Current Liabilities
12,273 12,381
Long-term debt, net of current portion
25,628 26,646
Deferred income taxes
5,642 5,788
Other liabilities
407 406
Total Liabilities
$ 43,950 $ 45,221
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 21,179,712 and 21,163,337, respectively; outstanding 21,055,953 and 21,117,516, respectively
2 2
Additional paid-in capital
86,967 87,004
Accumulated other comprehensive loss
(17 ) (64 )
Retained (deficit) earnings
(1,970 ) (1,799 )
Total Stockholders’ Equity
84,982 85,143
Total Liabilities and Stockholders’ Equity
$ 128,932 $ 130,364
See accompanying notes to consolidated financial statements.
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INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31
(in thousands, except share data)
2011 2010
Net revenues
$ 12,957 $ 10,934
Cost of revenues:
Cost of revenues — Product, service and supply costs
2,143 1,675
Cost of revenues — Pump depreciation, sales and disposals
1,761 1,139
Gross profit
9,053 8,120
Selling, general and administrative expenses:
Provision for doubtful accounts
1,222 1,393
Amortization of intangibles
645 487
Selling and marketing
2,442 1,442
General and administrative
4,517 3,306
Total sales, general and administrative:
8,826 6,628
Operating income
227 1,492
Other loss:
Loss on derivatives
— (389 )
Interest expense
(541 ) (805 )
Other expense
(3 ) —
Total other loss
(544 ) (1,194 )
(Loss) income before income taxes
(317 ) 298
Income tax benefit (expense)
146 (310 )
Net loss
$ (171 ) $ (12 )
Net loss per share:
Basic and diluted
$ (0.01 ) $ (0.00 )
Weighted average shares outstanding:
Basic and diluted
21,102,312 18,903,611
See accompanying notes to consolidated financial statements.
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INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31
(in thousands)
2011 2010
OPERATING ACTIVITIES
Net (loss)
$ (171 ) $ (12 )
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Loss on derivative liabilities
— 389
Provision for doubtful accounts
1,222 1,393
Depreciation
1,558 1,141
Loss on disposal of pumps
271 65
Amortization of intangible assets
645 487
Amortization of deferred debt issuance costs
62 107
Stock-based compensation
248 100
Deferred income taxes
(146 ) —
Changes in assets and liabilities, exclusive of effects of acquisitions:
(Increase) in accounts receivable, net of provision
(1,599 ) (2,392 )
Decrease in other current assets
195 60
(Increase) in other assets
(11 ) (7 )
(Decrease) increase in accounts payable and other liabilities
(152 ) 132
NET CASH PROVIDED BY OPERATING ACTIVITIES
2,122 1,463
INVESTING ACTIVITIES
Capital expenditures
(2,438 ) (537 )
NET CASH USED IN INVESTING ACTIVITIES
(2,438 ) (537 )
FINANCING ACTIVITIES
Principal payments on term loan
(1,030 ) (818 )
Treasury shares repurchased
(229 )
Principal payments on capital lease obligations
(263 ) (140 )
NET CASH USED IN FINANCING ACTIVITIES
(1,522 ) (958 )
Net change in cash and cash equivalents
(1,838 ) (32 )
Cash and cash equivalents, beginning of period
5,014 7,750
Cash and cash equivalents, end of period
$ 3,176 $ 7,718
SUPPLEMENTAL DISCLOSURES
Cash paid for interest (including swap payments)
$ 479 $ 686
Cash paid for income taxes
$ 31 $ 7
NON-CASH TRANSACTIONS
Additions to property (a)
$ 350 $ 84
Property acquired pursuant to a capital lease
$ 624 $ 576
Gross issuance of vested restricted shares (number of shares)
25 25
(a) Amounts consist of current liabilities for net property that have not been included in investing activities. These amounts have not been paid for as of March 31, but will be included as a cash outflow from investing activities for capital expenditures when paid.
See accompanying notes to consolidated financial statements.
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INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation and Nature of Operations
The information in this Quarterly Report on Form 10-Q includes the financial position of InfuSystem Holdings, Inc. and its consolidated subsidiaries (the “Company”) as of March 31, 2011 and December 31, 2010, the results of operations and cash flows for the three months ended March 31, 2011 and 2010. In the opinion of the Company, the consolidated statements for the all periods presented include all adjustments, consisting of normal recurring adjustments, necessary to present a fair statement of the results for such periods. The accompanying unaudited financial statements should be read in conjunction with the December 31, 2010 annual report 10-K.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany accounts and transactions have been eliminated. Results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results for an entire year.
The Company is the 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, and Ontario, Canada.
On June 15, 2010, the Company entered into a stock purchase agreement with the shareholders of First Biomedical, Inc., (First Biomedical) a Kansas corporation, to acquire all of the issued and outstanding stock of First Biomedical and completed the acquisition simultaneously. First Biomedical sells, rents, services and repairs new and pre-owned infusion pumps and other medical equipment. First Biomedical also sells a variety of primary and secondary tubing, cassettes, catheters and other disposable items that are utilized with infusion pumps. For more information, refer to the “Acquisition” discussion included in Note 3.
The Company supplies 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. The Company obtains an assignment of insurance benefits from the patient, bills the insurance company or patient accordingly, and collects payment. The Company provides pump management services for the pumps and associated disposable supply kits to over 1,300 oncology practices in the United States. The Company retains title to the pumps during this process.
In addition, the Company sells or rents new and pre-owned pole mounted and ambulatory infusion pumps to, and provides 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. The Company also provides these products and services to customers in the small-hospital market.
The Company purchases new and pre-owned pole mounted and ambulatory infusion pumps from a variety of sources on a non-exclusive basis. The Company repairs, refurbishes and provides biomedical certification for the devices as needed. The pumps are then available for sale, rental or to be used within the Company’s ambulatory infusion pump management service.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all wholly owned organizations. All intercompany transactions and account balances have been eliminated in consolidation.
Segments
The Company operates in one business segment based on management’s view of its business for purposes of evaluating performance and making operating decisions, representing the only reportable segment in accordance with Accounting Standard Codification (“ASC”) 280, “Segment Reporting.”
The Company utilizes shared services including but not limited to, human resources, payroll, finance, sales, pump repair and maintenance services, as well as certain shared assets and sales, general and administrative costs. The Company is in the process of transitioning more shared services and synergies since the acquisition of First Biomedical. The Company’s approach is to make operational decisions and assess performance based on delivering products and services that together provide solutions to our customer base, utilizing functional management structure and shared services where possible. Based upon this business model, the chief operating decision maker only reviews consolidated financial information.
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Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements, including the notes thereto. The Company considers critical accounting policies to be those that require more significant judgments and estimates in the preparation of its consolidated financial statements, including the following: revenue recognition, which includes contractual adjustments; accounts receivable and allowance for doubtful accounts; sales return allowances; inventory reserves; income taxes; and goodwill valuation. Management relies on historical experience and other assumptions believed to be reasonable in making its judgment and estimates. Actual results could differ materially from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company maintains its cash and cash equivalents primarily with two financial institutions and is fully insured with the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program until December 31, 2012.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are reported at the estimated net realizable amounts from patients, third-party payors and other direct pay customers for goods provided and services rendered. The Company performs periodic analyses to assess the accounts receivable balances. It records an allowance for doubtful accounts based on the estimated collectability of the accounts such that the recorded amounts reflect estimated net realizable value. Upon determination that an account is uncollectible, the account is written-off and charged to the allowance.
Accounts receivable are reduced by an allowance for amounts that could become uncollectible in the future. The Company’s estimate for its allowance for doubtful accounts is based upon management’s assessment of historical and expected net collections by payor. Due to continuing changes in the health care industry and third-party reimbursement it is possible that management’s estimates could change in the near term, which could have an impact on its financial position, results of operations, and cash flows.
Inventory
Our inventory consists of infusion pumps and related parts and supplies and is stated at the lower of cost, determined on a first in, first out basis, or market. The Company periodically performs an analysis of slow moving inventory and records a reserve based on estimated obsolete inventory.
Property and Equipment
Property and equipment is stated at acquired cost and depreciated using the straight-line method over the estimated useful lives of the related assets, ranging from three to seven years. Rental equipment, consisting primarily of infusion pumps that the Company acquires from third-parties, is depreciated over five years. Information Technology (IT) software and hardware are depreciated over three years. Leasehold improvements are amortized using the straight-line method over the life of the asset or the remaining term of the lease, whichever is shorter. Maintenance and minor repairs are charged to operations as incurred. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is recorded in the current period.
Long-Lived Assets
The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC 360, “Property, Plant and Equipment.” This standard addresses financial accounting and reporting for the impairment of long-lived assets and for the disposal of long-lived assets. In accordance with this standard, long-lived assets to be held are reviewed for events or changes in circumstances, which indicate that their carrying value may not be recoverable. If an impairment indicator exists, the Company assesses the asset or asset group for recoverability. Recoverability of these assets is determined based upon the expected undiscounted future net cash flows from the operations to which the assets relate, utilizing management’s best estimates, appropriate assumptions and projections at the time. If the carrying value is determined not to be recoverable from future operating cash flows, the asset is deemed impaired and an impairment loss would be recognized to the extent the carrying value exceeded the estimated fair market value of the asset. The Company reviews the carrying value of long-lived assets if there is an indicator of impairment. The Company has determined that no impairment indicators existed as of March 31, 2011.
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