OPTION CARE HEALTH, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2017
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
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Commission file number: 001-11993
BioScrip, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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05-0489664
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(State of incorporation)
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(I.R.S. Employer Identification No.)
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1600 Broadway, Suite 700, Denver, Colorado
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80202
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
720-697-5200
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted to its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
þ
Non-accelerated filer
o
Smaller reporting company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
þ
On
August 7, 2017
, there were
127,475,226
shares of the registrant’s Common Stock outstanding.
TABLE OF CONTENTS
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Page
Number
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PART I
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PART II
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2
FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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BIOSCRIP, INC. AND SUBSIDIARIES
(in thousands, except share amounts)
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June 30,
2017 |
December 31,
2016 |
||||||
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(unaudited)
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|||||||
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ASSETS
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Current assets
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|||||
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Cash and cash equivalents
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$
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40,533
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$
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9,569
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Restricted cash
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5,055
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—
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Receivables, less allowance for doubtful accounts of $45,651 and $44,730 as of June 30, 2017 and December 31, 2016, respectively
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103,089
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111,811
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Inventory
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28,822
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36,165
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Prepaid expenses and other current assets
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12,998
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18,507
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Total current assets
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190,497
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176,052
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Property and equipment, net
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30,063
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32,535
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Goodwill
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365,947
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365,947
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Intangible assets, net
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24,672
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31,043
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Other non-current assets
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2,204
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2,163
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Total assets
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$
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613,383
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$
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607,740
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
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Current liabilities
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Current portion of long-term debt
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$
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1,731
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$
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18,521
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Accounts payable
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46,381
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59,134
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Amounts due to plan sponsors
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4,825
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3,799
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Accrued interest
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6,736
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6,705
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Accrued expenses and other current liabilities
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43,209
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42,191
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Total current liabilities
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102,882
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130,350
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Long-term debt, net of current portion
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475,674
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433,413
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Deferred taxes
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3,504
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2,281
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Other non-current liabilities
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17,942
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1,257
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Total liabilities
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600,002
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567,301
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Series A convertible preferred stock, $.0001 par value; 825,000 shares authorized; 21,645 shares issued and outstanding as of June 30, 2017 and December 31, 2016; and $2,754 and $2,603 liquidation preference as of June 30, 2017 and December 31, 2016, respectively
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2,639
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2,462
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Series C convertible preferred stock, $.0001 par value; 625,000 shares authorized; 614,177 shares issued and outstanding as of June 30, 2017 and December 31, 2016; and $79,858 and $75,491 liquidation preference as of June 30, 2017 and December 31, 2016, respectively
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74,229
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69,540
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Stockholders’ deficit
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Preferred stock, $.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
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—
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—
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Common stock, $.0001 par value; 250,000,000 shares authorized; 127,441,893 and 117,682,543 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
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13
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12
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Additional paid-in capital
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628,545
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611,844
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Accumulated deficit
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(692,045
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)
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(643,419
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)
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Total stockholders’ deficit
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(63,487
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)
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(31,563
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)
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Total liabilities and stockholders’ deficit
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$
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613,383
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$
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607,740
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See accompanying Notes to Unaudited Consolidated Financial Statements.
3
BIOSCRIP, INC. AND SUBSIDIARIES
(in thousands, except per share amounts)
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Three Months Ended
June 30, |
Six Months Ended
June 30, |
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2017
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2016
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2017
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2016
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Net revenue
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$
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218,106
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$
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232,462
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$
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435,916
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$
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470,924
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Cost of revenue (excluding depreciation expense)
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149,796
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168,298
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302,022
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342,528
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Gross profit
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68,310
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64,164
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133,894
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128,396
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Other operating expenses
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42,486
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40,619
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86,844
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80,277
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Bad debt expense
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6,223
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4,279
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13,387
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11,871
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General and administrative expenses
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10,025
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9,414
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19,504
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20,465
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Restructuring, acquisition, integration, and other expenses, net
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3,911
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4,291
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7,134
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6,958
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Depreciation and amortization expense
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6,789
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4,252
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13,777
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8,790
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Interest expense
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12,715
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9,469
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25,459
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18,881
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Loss on extinguishment of debt
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13,453
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—
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13,453
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—
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Loss (gain) on dispositions
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685
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—
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685
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(939
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)
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Loss from continuing operations, before income taxes
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(27,977
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)
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(8,160
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)
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(46,349
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)
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(17,907
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)
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Income tax expense
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718
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149
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1,337
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172
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Loss from continuing operations, net of income taxes
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(28,695
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)
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(8,309
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)
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(47,686
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)
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(18,079
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)
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(Loss) income from discontinued operations, net of income taxes
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(503
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)
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75
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(940
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)
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308
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Net loss
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$
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(29,198
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)
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$
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(8,234
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)
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$
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(48,626
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)
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$
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(17,771
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)
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Accrued dividends on preferred stock
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(2,303
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)
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(2,056
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)
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(4,517
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)
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(4,054
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)
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Deemed dividends on preferred stock
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(175
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)
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(173
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)
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(349
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)
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(345
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)
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Loss attributable to common stockholders
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$
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(31,676
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)
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$
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(10,463
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)
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$
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(53,492
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)
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$
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(22,170
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)
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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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(0.26
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)
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$
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(0.14
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)
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$
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(0.44
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)
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$
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(0.32
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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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(0.01
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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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(0.26
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)
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$
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(0.14
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)
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$
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(0.45
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)
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$
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(0.32
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)
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Weighted average common shares outstanding, basic and diluted
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121,189
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73,186
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119,993
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70,978
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See accompanying Notes to Unaudited Consolidated Financial Statements.
4
BIOSCRIP, INC. AND SUBSIDIARIES
(in thousands)
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Six Months Ended
June 30, |
|||||||
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2017
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2016
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|||||
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Cash flows from operating activities:
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|||||||
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Net loss
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$
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(48,626
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)
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$
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(17,771
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)
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Less: (Loss) income from discontinued operations, net of income taxes
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(940
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)
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308
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|
|||
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Loss from continuing operations, net of income taxes
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(47,686
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)
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(18,079
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)
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|||
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Adjustments to reconcile net loss from continuing operations, net of income taxes to net cash used in operating activities:
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|||||||
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Depreciation and amortization
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13,777
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8,790
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|
|||
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Amortization of deferred financing costs and debt discount
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2,875
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1,987
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|
|||
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Change in fair value of contingent consideration
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—
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102
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|
|||
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Change in deferred income tax
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1,223
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|
352
|
|
|||
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Compensation under stock-based compensation plans
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1,027
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1,993
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|
|||
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Loss (gain) on dispositions
|
685
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(939
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)
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|||
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Loss on extinguishment of debt
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13,453
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—
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|
|||
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Changes in assets and liabilities:
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|||||||
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Receivables, net of bad debt expense
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8,721
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(1,281
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)
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|||
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Inventory
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7,343
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10,537
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Prepaid expenses and other assets
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5,469
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322
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|||
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Accounts payable
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(12,753
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)
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(16,190
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)
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Amounts due to plan sponsors
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1,027
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62
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Accrued interest
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31
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(192
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)
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Accrued expenses and other liabilities
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714
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(3,140
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)
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|||
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Net cash used in operating activities from continuing operations
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(4,094
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)
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(15,676
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)
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|||
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Net cash used in operating activities from discontinued operations
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(940
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)
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(5,913
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)
|
|||
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Net cash used in operating activities
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(5,034
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)
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(21,589
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)
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|||
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Cash flows from investing activities:
|
|||||||
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Purchases of property and equipment
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(4,292
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)
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(5,466
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)
|
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Proceeds from dispositions
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—
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1,132
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|
|||
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Investment in restricted cash
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(5,055
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)
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—
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|||
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Net cash used in investing activities
|
(9,347
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)
|
(4,334
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)
|
|||
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Cash flows from financing activities:
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|||||||
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Proceeds from priming credit agreement, net of expenses
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23,060
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—
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|||
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Fees attributable to extinguishment of debt
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(311
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)
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—
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|||
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Net proceeds from issuance of equity, net of issuance costs
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20,776
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|
83,267
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|||
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Borrowings on long-term debt, net of expenses
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294,446
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—
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|||
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Borrowings on revolving credit facility
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563
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45,000
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|||
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Repayments on revolving credit facility
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(55,863
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)
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(60,000
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)
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|||
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Principal payments of long-term debt
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(236,770
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)
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(6,274
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)
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|||
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Repayments of capital leases
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(401
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)
|
(129
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)
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Other
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(155
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)
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(93
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)
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|||
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Net cash provided by financing activities
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45,345
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|
61,771
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|||
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Net change in cash and cash equivalents
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30,964
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|
35,848
|
|
|||
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Cash and cash equivalents - beginning of period
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9,569
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|
15,577
|
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|||
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Cash and cash equivalents - end of period
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$
|
40,533
|
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$
|
51,425
|
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DISCLOSURE OF CASH FLOW INFORMATION:
|
|||||||
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Cash paid during the period for interest
|
$
|
22,613
|
|
$
|
17,325
|
|
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Cash paid during the period for income taxes
|
$
|
249
|
|
$
|
229
|
|
|
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DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|||||||
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Entry into capital lease
|
$
|
1,327
|
|
$
|
—
|
|
|
See accompanying Notes to Unaudited Consolidated Financial Statements.
5
BIOSCRIP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 and six months
ended
June 30, 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
June 30, 2017
, the Company had a restricted cash balance, in a money market account, of $
5.1 million
to cash collateralize outstanding letters of credit.
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):
|
June 30, 2017
|
December 31, 2016
|
|||||||||||||||||||||||
|
|
0 - 180 days
|
Over 180 days
|
Total
|
0 - 180 days
|
Over 180 days
|
Total
|
||||||||||||||||||
|
Government
|
$
|
18,714
|
|
$
|
7,512
|
|
$
|
26,226
|
|
$
|
19,891
|
|
$
|
8,278
|
|
$
|
28,169
|
|
||||||
|
Commercial
|
84,190
|
|
23,589
|
|
107,779
|
|
97,744
|
|
19,848
|
|
117,592
|
|
||||||||||||
|
Patient
|
5,195
|
|
9,540
|
|
14,735
|
|
3,955
|
|
6,825
|
|
10,780
|
|
||||||||||||
|
Gross accounts receivable
|
$
|
108,099
|
|
$
|
40,641
|
|
148,740
|
|
$
|
121,590
|
|
$
|
34,951
|
|
156,541
|
|
||||||||
|
Allowance for doubtful accounts
|
(45,651
|
)
|
(44,730
|
)
|
||||||||||||||||||||
|
Net accounts receivable
|
$
|
103,089
|
|
$
|
111,811
|
|
||||||||||||||||||
6
Recent Accounting Pronouncements
In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-11—Earnings Per Share (Topic 260), Distinguishing Liabilities From Equity (Topic 480), and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. ASU 2017-11 eliminates the requirement that a down round feature precludes equity classification when assessing whether an instrument is indexed to an entity’s own stock. A freestanding equity-linked financial instrument no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The effective date for ASU 2017-11 is for annual or any interim periods beginning after December 15, 2018. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09—Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 modifies when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The effective date for ASU 2017-09 is for annual or any interim periods beginning after December 15, 2017. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued 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 consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18—Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The effective date for ASU 2016-18 is for annual or any interim periods beginning after December 15, 2017. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15—Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for eight specific cash flow issues with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The effective date for ASU 2016-15 is for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In February 2016, 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.
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 has not elected early adoption and will apply the modified retrospective approach upon adoption. The Company continues to evaluate the impact of the adoption of the new revenue standard on its consolidated financial statements.
7
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):
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||||||||||
|
|
2017
|
2016
|
2017
|
2016
|
|||||||||||
|
Numerator:
|
|
|
|
|
|||||||||||
|
Loss from continuing operations, net of income taxes
|
$
|
(28,695
|
)
|
$
|
(8,309
|
)
|
$
|
(47,686
|
)
|
$
|
(18,079
|
)
|
|||
|
Income (loss) from discontinued operations, net of income taxes
|
(503
|
)
|
75
|
|
(940
|
)
|
308
|
|
|||||||
|
Net loss
|
$
|
(29,198
|
)
|
$
|
(8,234
|
)
|
$
|
(48,626
|
)
|
$
|
(17,771
|
)
|
|||
|
Accrued dividends on preferred stock
|
(2,303
|
)
|
(2,056
|
)
|
(4,517
|
)
|
(4,054
|
)
|
|||||||
|
Deemed dividend on preferred stock
|
(175
|
)
|
(173
|
)
|
(349
|
)
|
(345
|
)
|
|||||||
|
Loss attributable to common stockholders
|
$
|
(31,676
|
)
|
$
|
(10,463
|
)
|
$
|
(53,492
|
)
|
$
|
(22,170
|
)
|
|||
|
Denominator - Basic and Diluted:
|
|
|
|
|
|
|
|
|
|||||||
|
Weighted average common shares outstanding
|
121,189
|
|
73,186
|
|
119,993
|
|
70,978
|
|
|||||||
|
Loss per Common Share:
|
|||||||||||||||
|
Loss from continuing operations, basic and diluted
|
$
|
(0.26
|
)
|
$
|
(0.14
|
)
|
$
|
(0.44
|
)
|
$
|
(0.32
|
)
|
|||
|
Loss from discontinued operations, basic and diluted
|
—
|
|
—
|
|
(0.01
|
)
|
—
|
|
|||||||
|
Loss per common share, basic and diluted
|
$
|
(0.26
|
)
|
$
|
(0.14
|
)
|
$
|
(0.45
|
)
|
$
|
(0.32
|
)
|
|||
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 June 30, 2017 and 2016
excludes the effect of
18.3 million
and
14.0 million
shares, respectively, and the computation of the diluted shares for the
six months ended June 30, 2017 and 2016
excludes the effect of
18.4 million
and
15.5 million
shares, respectively, issued in connection with the PIPE Transaction and the Rights Offering, as well as the 2017 Warrants (see Note 3 - Stockholders’ Deficit), stock options and restricted stock awards, as their inclusion would be anti-dilutive to loss attributable to common stockholders.
8
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:
|
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
|
|
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
June 30, 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
June 30, 2017
, the Liquidation Preference of the Series A Preferred Stock and Series C Preferred Stock was
$2.8 million
and
$79.9 million
, respectively.
9
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
June 30, 2017
, the following values were accreted pursuant to the terms of the Exchange Agreement, dated as of June 10, 2016, among the Company and the signatories thereto 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
June 30, 2017
. The following table sets forth the activity recorded during the
six months ended June 30, 2017
related to the Series A Preferred Stock (in thousands):
|
Series A Preferred Stock carrying value at December 31, 2016
|
$
|
2,462
|
|
|
Accretion of discount related to issuance costs
|
26
|
|
|
|
Dividends recorded through June 30, 2017
1
|
151
|
|
|
|
Series A Preferred Stock carrying value June 30, 2017
|
$
|
2,639
|
|
1
Dividends recorded reflect the increase in the Liquidation Preference associated with unpaid dividends.
10
Carrying Value of Series C Preferred Stock
As of
June 30, 2017
, the following values were accreted pursuant to the terms of the Exchange Agreement, dated as of June 16, 2016, among the Company and the signatories thereto 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
June 30, 2017
. The following table sets forth the activity recorded during the
six months ended June 30, 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
|
323
|
|
|
|
Dividends recorded through June 30, 2017
1
|
4,366
|
|
|
|
Series C Preferred Stock carrying value June 30, 2017
|
$
|
74,229
|
|
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
11
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. On March 13, 2017, the Company filed with the SEC a Registration Statement on Form S-3 to register the Contingent Shares and it was declared effective on April 18, 2017.
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.
First Quarter 2017 Private Placement
On March 1, 2017, the Company entered into a Stock Purchase Agreement (the “First Quarter Stock Purchase Agreement”) with Venor Capital Master Fund Ltd., Map 139 Segregated Portfolio of LMA SPC, Venor Special Situations Fund II LP and Trevithick LP (the “First Quarter Stockholders”). Pursuant to the First Quarter Stock Purchase Agreement, the Company sold an aggregate of
3.3 million
shares of its common stock (the “First Quarter Shares”) for aggregate gross proceeds of approximately
$5.1 million
in a private placement transaction (the “First Quarter 2017 Private Placement”). The purchase price for each Share was
$1.5366
, which was negotiated between the Company and the First Quarter Stockholders based on the volume-weighted average price of the Company's common stock on the NASDAQ Global Market on March 1, 2017.
In connection with the First Quarter 2017 Private Placement, the Company entered into a Registration Rights Agreement (the “First Quarter 2017 Registration Rights Agreement”) with the First Quarter Stockholders. Pursuant to the First Quarter 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 First Quarter Shares and any shares of common stock issued as a dividend or other distribution with respect to the First Quarter Shares.
As provided under the First Quarter 2017 Registration Rights Agreement, the Company, on March 13, 2017, filed a shelf registration statement on Form S-3 under the Securities Act to register the First Quarter Shares and it was declared effective April 18, 2017.
Proceeds from the First Quarter 2017 Private Placement were used for working capital and general corporate purposes.
2017 Warrants
In connection with the Second Lien Note Facility (as defined below), the Company also issued warrants (the “2017 Warrants”) to the purchasers of the Second Lien Notes (as defined below) pursuant to a Warrant Purchase Agreement dated as of June 29, 2017 (the “Warrant Purchase Agreement”). The 2017 Warrants entitle the purchasers of the Warrants to purchase shares of Common Stock, representing at the time of any exercise of the 2017 Warrants an equivalent number of shares equal to
4.99%
of the Common Stock of the Company on a fully diluted basis, subject to the terms of the Warrant Agreement governing the Warrants, dated as of June 29, 2017 (the “Warrant Agreement”); provided, however, the Warrants may not be converted to the extent that, after giving effect to such conversion, the holders of the 2017 Warrants would beneficially own, in the aggregate, in excess of (i)
19.99%
of the shares of Common Stock outstanding as of June 29, 2017 (the “Closing Date”) minus (ii) the shares of Common Stock that
12
were sold pursuant to the Second Quarter 2017 Private Placement (as defined below) (the “Conversion Cap”). The Conversion Cap will not apply to the 2017 Warrants if the Company obtains the approval of its stockholders for the removal of the Conversion Cap, which the Company is required to take certain steps to attempt to obtain, subject to the terms of the Warrant Agreement.
The 2017 Warrants have a 10-year term and an initial exercise price of
$2.00
per share, and may be exercised by payment of the exercise price in cash or surrender of shares of Common Stock into which the Warrants are being converted in an aggregate amount sufficient to pay the exercise price. The exercise price and the number of shares that may be acquired upon exercise of the 2017 Warrants is subject to adjustment in certain situations, including price based anti-dilution protection whereby, subject to certain exceptions, if the Company later issues Common Stock or certain Common Stock Equivalents (as defined in the Warrant Agreement) at a price less than either the then-current market price per share or exercise price of the 2017 Warrants, then the exercise price will be decreased and the percentage of shares of Common Stock issuable upon exercise of the Warrants will remain the same, giving effect to such issuance. Additionally, the 2017 Warrants have standard anti-dilution protections if the Company effects a stock split, subdivision, reclassification or combination of its Common Stock or fixes a record date for the making of a dividend or distribution to stockholders of cash or certain assets. Upon the occurrence of certain business combinations the 2017 Warrants will be converted into the right to acquire shares of stock or other securities or property (including cash) of the successor entity.
Second Quarter 2017 Private Placement
On June 29, 2017, the Company entered into a Stock Purchase Agreement (the “Second Quarter Stock Purchase Agreement”) with a fund managed by Ares Management L.P. (“Ares” or the “Second Quarter Stock Purchaser”). Pursuant to the terms of the Second Quarter Stock Purchase Agreement, the Company issued and sold to the Second Quarter Stock Purchaser in a private placement (the “Second Quarter 2017 Private Placement”)
6,359,350
shares of Common Stock (the “Second Quarter Shares”) at a price of
$2.50
per share, for proceeds of approximately
$15.9 million
, net of
$0.2 million
in associated costs.
Second Quarter Registration Rights Agreement
In connection with the 2017 Warrants and the Second Quarter 2017 Private Placement, the Company entered into a Registration Rights Agreement (the “Second Quarter 2017 Registration Rights Agreement”) with the holders of the 2017 Warrants and the Second Quarter Stock Purchaser. Pursuant to the Second Quarter 2017 Registration Rights Agreement, subject to certain exceptions, the Company is required, upon the request of the Second Quarter Stock Purchaser and holders of the 2017 Warrants, to register the resale of the Second Quarter Shares and the shares of Common Stock issuable upon exercise of the 2017 Warrants. Pursuant to the terms of the Second Quarter 2017 Registration Rights Agreement, these registration rights will not become effective until twelve months after the Closing Date, and the costs incurred in connection with such registrations will be borne by the Company.
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 Home Solutions Transaction was equal to (i) the Cash Consideration; plus (ii)(a) 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 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. 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
|
|
13
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 continues to evaluate the collectability of the government receivables and will record a liability in the event collections fall short of the guarantee.
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.
14
Restructuring, acquisition, integration, and other expenses, net in the Unaudited Consolidated Statements of Operations for the
three months and six months
ended
June 30, 2017
and
2016
consisted of the following (in thousands):
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||||||
|
Restructuring expense
|
$
|
3,648
|
|
$
|
1,316
|
|
$
|
6,854
|
|
$
|
3,932
|
|
|||
|
Acquisition and integration expense
|
263
|
|
2,924
|
|
280
|
|
2,924
|
|
|||||||
|
Change in fair value of contingent consideration
|
—
|
|
51
|
|
—
|
|
102
|
|
|||||||
|
Total restructuring, acquisition, integration, and other expense, net
|
$
|
3,911
|
|
$
|
4,291
|
|
$
|
7,134
|
|
$
|
6,958
|
|
|||
As of
June 30, 2017
and
December 31, 2016
, the Company’s debt consisted of the following (in thousands):
|
June 30,
2017 |
December 31,
2016 |
||||||
|
Senior Credit Facilities
|
$
|
—
|
|
$
|
265,507
|
|
|
|
First Lien Note Facility, net of unamortized discount
|
198,000
|
|
—
|
|
|||
|
Second Lien Note Facility, net of unamortized discount
|
82,931
|
|
—
|
|
|||
|
2021 Notes, net of unamortized discount
|
197,008
|
|
196,670
|
|
|||
|
Capital leases
|
3,134
|
|
2,209
|
|
|||
|
Less: Deferred financing costs
|
(3,668
|
)
|
(12,452
|
)
|
|||
|
Total Debt
|
477,405
|
|
451,934
|
|
|||
|
Less: Current portion
|
(1,731
|
)
|
(18,521
|
)
|
|||
|
Long-term debt, net of current portion
|
$
|
475,674
|
|
$
|
433,413
|
|
|
Debt Facilities
The Company was previously obligated under (i) a senior secured first-lien revolving credit facility in an aggregate principal amount of
$75.0 million
(the “Revolving Credit Facility”), (ii) a senior secured first-lien term loan B in an aggregate principal amount of
$250.0 million
(the “Term Loan B Facility”) and (iii) a senior secured first-lien delayed draw term loan B in an aggregate principal amount of
$150.0 million
(the “Delayed Draw Term Loan Facility” and, together with the Revolving Credit Facility and the Term Loan B Facility, the “Senior Credit Facilities”) with SunTrust Bank (“SunTrust”), Jefferies Finance LLC and Morgan Stanley Senior Funding, Inc., originally entered on July 31, 2013 and amended from time to time.
On January 6, 2017, the Company entered into a credit agreement (the “Priming Credit Agreement” and, together with the Senior Credit Facilities, the “Prior Credit Agreements”) with certain existing lenders under the Senior Credit Facilities and SunTrust, as administrative agent for itself and the lenders. The Priming Credit Agreement provided an aggregate borrowing commitment of
$25.0 million
, which was fully drawn at closing.
On June 29, 2017 (the “Closing Date”), the Company entered into (i) a first lien note purchase agreement (the “First Lien Note Facility”), among the Company, which is the issuer under the agreement, the financial institutions and note purchasers from time to time party to the agreement (the “First Lien Note Purchasers”), and Wells Fargo Bank, National Association, in its capacity as collateral agent for itself and the First Lien Note Purchasers (the “First Lien Collateral Agent”), pursuant to which the Company issued first lien senior secured notes in an aggregate principal amount of
$200.0 million
(the “First Lien Notes”); and (ii) a second lien note purchase agreement (the “Second Lien Note Facility” and, together with the First Lien Note Facility, the “Notes Facilities”) among the Company, which is the issuer under the agreement, the financial institutions and note purchasers from time to time party to the agreement (the “Second Lien Note Purchasers”), and Wells Fargo Bank, National Association, in its capacity as collateral agent for itself and the Second Lien Note Purchasers (the “Second Lien Collateral Agent” and, together with the First Lien Collateral Agent, the “Collateral Agent”), pursuant to which the Company (a) issued second lien senior secured notes in an aggregate initial principal amount of
$100.0 million
(the “Initial Second Lien Notes”) and (b) has the ability to draw upon the Second Lien Note Facility and issue second lien delayed draw senior secured notes in an aggregate initial principal amount of
$10.0 million
for a period of
18
months after the Closing Date, subject to certain terms and conditions (the “Second Lien Delayed Draw Notes” and, together with the Initial Second Lien Notes, the “Second Lien Notes”; the Second Lien Notes, together with the First Lien Notes, the “Notes”). Funds managed by Ares are acting as lead purchasers for the Notes Facilities.
15
The Company used the proceeds of the sale of the First Lien Notes and the Initial Second Lien Notes to repay in full all amounts outstanding under the Prior Credit Agreements and extinguished the liability. Each of the Prior Credit Agreements was terminated following such repayment. The Company used the remaining proceeds of
$15.9 million
, net of
$0.2 million
in issuance costs, from the Notes Facilities and the Second Quarter 2017 Private Placement for working capital and general corporate purposes.
The First Lien Notes accrue interest, payable monthly in arrears, at a floating rate or rates equal to, at the option of the Company, (i) the base rate (defined as the highest of the Federal Funds Rate plus
0.5%
per annum, the Prime Rate as published by The Wall Street Journal and the one-month London Interbank Offered Rate (“LIBOR”) (subject to a
1.0%
floor) plus
1.0%
), or (ii) the one-month LIBOR rate (subject to a
1.0%
floor), plus a margin of
6.0%
if the base rate is selected or
7.0%
if the LIBOR Option is selected. The First Lien Notes mature on August 15, 2020, provided that if the Company’s existing
8.875%
Senior Notes due 2021 (the “2021 Notes”) are refinanced prior to August 15, 2020, then the scheduled maturity date of the First Lien Notes shall be June 30, 2022.
The First Lien Notes will amortize in equal quarterly installments equal to
0.625%
of the aggregate principal amount of the First Lien Note Facility, commencing on September 30, 2019, and on the last day of each third month thereafter, with the balance payable at maturity. The First Lien Notes are pre-payable at the Company’s option at specified premiums to the principal amount that will decline over the term of the First Lien Note Facility. If the First Lien Notes are prepaid prior to the second anniversary of the Closing Date, the Company will be required to pay a make-whole premium based on the present value (using a discount rate based on the specified treasury rate plus
50
basis points) of all remaining interest payments on the First Lien Notes being prepaid prior to the second anniversary of the Closing Date, plus
4.0%
of the principal amount of First Lien Notes being prepaid. On or after the second anniversary of the Closing Date, the prepayment premium is
4.0%
, which declines to
2.0%
on or after the third anniversary of the Closing Date, and declines to
0.0%
on or after the fourth anniversary of the Closing Date. At any time, the Company may pre-pay up to
$50.0 million
in aggregate principal amount of the First Lien Notes from internally generated cash without incurring any make-whole or prepayment premium. The occurrence of certain events of default may increase the applicable rate of interest by
2.0%
and could result in the acceleration of the Company’s obligations under the First Lien Note Facility prior to stated maturity and an obligation of the Company to pay the full amount of its obligations under the First Lien Note Facility.
The First Lien Note Facility contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross-defaults to material indebtedness and events constituting a change of control. In addition, the obligations under the First Lien Note Facility will be guaranteed by joint and several guarantees from the Company’s subsidiaries.
In connection with the First Lien Note Facility, the Company, its subsidiaries and the First Lien Collateral Agent entered into a First Lien Guaranty and Security Agreement, dated as of June 29, 2017 (the “First Lien Guaranty and Security Agreement”). Pursuant to the First Lien Guaranty and Security Agreement, the obligations under the First Lien Notes will be secured by first priority liens on, and security interests in, substantially all of the assets of the Company and its subsidiaries.
The Second Lien Notes accrue interest, payable monthly in arrears, at a floating rate or rates equal to, at the option of the Company, (i) one-month LIBOR (subject to a
1.25%
floor) plus
9.25%
per annum in cash, (ii) one-month LIBOR (subject to a
1.25%
floor) plus
11.25%
per annum, which amount will be capitalized on each interest payment date, or (iii) one-month LIBOR (subject to a
1.25%
floor) plus
10.25%
per annum, of which one-half LIBOR plus
4.625%
per annum will be payable in cash and one-half LIBOR plus
5.625%
per annum will be capitalized on each interest payment date, provided that, in each case, if any permitted refinancing indebtedness with which the 2021 Notes are refinanced requires or permits the payment of cash interest, all of the interest on the Second Lien Notes shall be paid in cash. The Second Lien Notes mature on August 15, 2020, provided that if the 2021 Notes are refinanced prior to August 15, 2020, then the scheduled maturity date of the Second Lien Notes shall be June 30, 2022.
In connection with the Second Lien Note Facility, the Company also issued warrants (the “2017 Warrants”) to the purchasers of the Second Lien Notes pursuant to a Warrant Purchase Agreement dated as of June 29, 2017 (the “Warrant Purchase Agreement”). The 2017 Warrants entitle the purchasers of the Warrants to purchase shares of Common Stock, representing at the time of any exercise of the 2017 Warrants an equivalent number of shares equal to
4.99%
of the Common Stock of the Company on a fully diluted basis, subject to the terms of the Warrant Agreement governing the Warrants, dated as of June 29, 2017 (the “Warrant Agreement”). The 2017 Warrants, considered a derivative and subject to remeasurement at each reporting period, are reflected in other non-current liabilities at a fair value of
$16.9 million
.
The Second Lien Notes are not subject to scheduled amortization installments. The Second Lien Notes are pre-payable at the Company’s option at specified premiums to the principal amount that will decline over the term of the Second Lien Note Facility. If the Second Lien Notes are prepaid prior to the third anniversary of the Closing Date, the Company will need to pay a make-whole premium based on the present value (using a discount rate based on the specified treasury rate plus
50
basis points) of all
16
remaining interest payments on the Second Lien Notes being prepaid prior to the third anniversary of the Closing Date, plus
4.0%
of the principal amount of Second Lien Notes being prepaid. On or after the third anniversary of the Closing Date, the prepayment premium is
4.0%
, which declines to
2.0%
on or after the fourth anniversary of the Closing Date, and declines to
0.0%
on or after the fifth anniversary of the Closing Date. The occurrence of certain events of default may increase the applicable rate of interest by
2.0%
and could result in the acceleration of the Company’s obligations under the Second Lien Note Facility prior to stated maturity and an obligation of the Company to pay the full amount of its obligations under the Second Lien Note Facility.
The Second Lien Note Facility contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross-defaults to material indebtedness and events constituting a change of control. In addition, the obligations under the Second Lien Note Facility will be guaranteed by joint and several guarantees from the Company’s subsidiaries.
In connection with the Second Lien Note Facility, the Company, its subsidiaries and the Second Lien Collateral Agent entered into a Second Lien Guaranty and Security Agreement, dated as of June 29, 2017 (the “Second Lien Guaranty and Security Agreement”). Pursuant to the Second Lien Guaranty and Security Agreement, the obligations under the Second Lien Notes will be secured by second priority liens on, and security interests in, substantially all of the assets of the Company and its subsidies.
In connection with the First Lien Note Facility and the Second Lien Note Facility, the Company, the First Lien Collateral Agent and the Second Lien Collateral Agent, entered into an intercreditor agreement containing customary provisions to, among other things, subordinate the lien priority of the liens granted under the Second Lien Note Facility to the liens granted under the First Lien Note Facility.
2021 Notes
On February 11, 2014, the Company issued
$200.0 million
aggregate principal amount of the 2021 Notes. The 2021 Notes are senior unsecured obligations of the Company and are fully and unconditionally guaranteed by all existing and future subsidiaries of the Company.
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
June 30, 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 June 30, 2017
|
Markets for Identical Item (Level 1)
|
Significant Other Observable Inputs (Level 2)
|
Significant Unobservable Inputs (Level 3)
|
||||||||||||
|
First Lien Note Facility
|
$
|
198,000
|
|
$
|
—
|
|
$
|
198,000
|
|
$
|
—
|
|
||||
|
Second Lien Note Facility
|
82,931
|
|
—
|
|
82,931
|
|
—
|
|
||||||||
|
2017 Warrants
|
16,908
|
|
—
|
|
16,908
|
|
—
|
|
||||||||
|
2021 Notes
|
197,008
|
|
—
|
|
178,109
|
|
—
|
|
||||||||
|
Total
|
$
|
494,847
|
|
$
|
—
|
|
$
|
475,948
|
|
$
|
—
|
|
||||
17
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.
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
June 30, 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. On July 19, 2017, the Court confirmed the arbitration award and denied Walgreens’ request for injunctive relief. The Company intends to continue to vigorously defend itself, but the Company can provide no assurance that any continued 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
18
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. Plaintiffs filed a notice of appeal on May 12, 2017.
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.
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
21.9%
and
24.4%
of revenue during the
three months ended June 30, 2017 and 2016
, respectively, and approximately
22.4%
and
25.2%
of revenue during the
six months ended June 30, 2017 and 2016
, respectively. This contract, exclusive of certain provisions, will terminate effective September 30, 2017. In addition, Medicare accounted for approximately
7.1%
and
8.3%
of revenue during the
three months ended June 30, 2017 and 2016
, respectively, and
7.0%
and
7.8%
of revenue during the
six months ended June 30, 2017 and 2016
.
Therapy Revenue Concentration Risk
The Company sells products related to the Immune Globulin therapy, which represented
21.1%
and
17.2%
of revenue for the
three months ended June 30, 2017 and 2016
, respectively, and
21.6%
and
17.2%
of revenue for the
six months ended June 30, 2017 and 2016
.
19
The Company’s federal and state income tax provision from continuing operations for the
three months and six months
ended
June 30, 2017
and
2016
is summarized in the following table (in thousands):
|
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||
|
|
2017
|
2016
|
2017
|
2016
|
|||||||||||
|
Current
|
|
|
|||||||||||||
|
Federal
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|||
|
State
|
190
|
|
25
|
|
226
|
|
25
|
|
|||||||
|
Total current
|
190
|
|
25
|
|
226
|
|
25
|
|
|||||||
|
Deferred
|
|
|
|
|
|
|
|
|
|||||||
|
Federal
|
437
|
|
108
|
|
932
|
|
125
|
|
|||||||
|
State
|
91
|
|
16
|
|
179
|
|
22
|
|
|||||||
|
Total deferred
|
528
|
|
124
|
|
1,111
|
|
147
|
|
|||||||
|
Total income tax expense
|
$
|
718
|
|
$
|
149
|
|
$
|
1,337
|
|
$
|
172
|
|
|||
The income tax expense recognized for the
three months and six months
ended
June 30, 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 and six months
ended
June 30, 2017
and
2016
is summarized as follows (in thousands):
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||||||
|
Tax benefit at statutory rate
|
$
|
(9,790
|
)
|
$
|
(2,844
|
)
|
$
|
(16,236
|
)
|
$
|
(6,271
|
)
|
|||
|
State tax expense, net of federal taxes
|
190
|
|
3
|
|
226
|
|
3
|
|
|||||||
|
Valuation allowance changes affecting income tax provision
|
10,266
|
|
1,926
|
|
17,242
|
|
5,314
|
|
|||||||
|
Non-deductible transaction costs and other
|
52
|
|
1,064
|
|
105
|
|
1,126
|
|
|||||||
|
Income tax expense
|
$
|
718
|
|
$
|
149
|
|
$
|
1,337
|
|
$
|
172
|
|
|||
At
June 30, 2017
, the Company had Federal net operating loss (“NOL”) carry forwards of approximately
$373.8 million
, of which
$14.3 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
$414.4 million
, the majority of which will begin expiring in 2017 and later.
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.
20
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
June 30, 2017
,
4,360,887
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
$0.7 million
during the
three months ended June 30, 2017
and
2016
, respectively, and
$0.6 million
and
$1.7 million
during the
six months ended June 30, 2017 and 2016
, respectively.
Restricted Stock
The Company recognized
$0.1 million
and a nominal amount of compensation expense related to restricted stock awards during the
three months ended June 30, 2017 and 2016
, respectively, and
$0.3 million
and a nominal amount of compensation expense during the
six months ended June 30, 2017 and 2016
, respectively.
Stock Appreciation Rights and Market Based Cash Awards
The Company recognized nominal amounts of compensation expense related to stock appreciation rights awards during the
three months ended June 30, 2017 and 2016
, and nominal and
$0.1 million
of compensation expense during the
six months ended June 30, 2017 and 2016
, respectively.
The Company recognized nominal compensation expense and
$0.2 million
compensation benefit related to market based cash awards during the
three months ended June 30, 2017 and 2016
, respectively, and nominal and
$0.1 million
compensation expense during
six months ended June 30, 2017 and 2016
, respectively.
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
June 30, 2017
,
136,713
shares remained available for grant under the ESPP. Since inception, the ESPP’s third-party service provider has purchased
613,287
shares on the open market and delivered these shares to the Company’s employees pursuant to the ESPP. During the
three months ended June 30, 2017 and 2016
, and the
six months ended June 30, 2017 and 2016
, the Company incurred less than
$0.1 million
of expense related to the ESPP.
21
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
|
The following discussion should be read in conjunction with the Audited Consolidated Financial Statements, including the notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended
December 31, 2016
(the “Annual Report”) filed with the U.S. Securities and Exchange Commission (“SEC”), as well as our Unaudited Consolidated Financial Statements and the related notes thereto included elsewhere in this report.
This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains statements not purely historical and which may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding our expectations, beliefs, future plans and strategies, anticipated events or trends concerning matters that are not historical facts or that necessarily depend upon future events. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions. Specifically, this Quarterly Report contains, among others, forward-looking statements about:
|
•
|
our ability to successfully integrate the HS Infusion Holdings, Inc. (“Home Solutions”) business into our existing businesses;
|
|
•
|
our ability to make principal and interest payments on our debt and satisfy the other covenants contained in our debt agreements;
|
|
•
|
our high level of indebtedness;
|
|
•
|
our expectations regarding financial condition or results of operations in future periods;
|
|
•
|
our future sources of, and needs for, liquidity and capital resources;
|
|
•
|
our expectations regarding economic and business conditions;
|
|
•
|
our expectations regarding potential legislative and regulatory changes impacting the level of reimbursement received from the Medicare and state Medicaid programs;
|
|
•
|
periodic reviews and billing audits from governmental and private payors;
|
|
•
|
our expectations regarding the size and growth of the market for our products and services;
|
|
•
|
our business strategies and our ability to grow our business;
|
|
•
|
the implementation or interpretation of current or future regulations and legislation, particularly governmental oversight of our business;
|
|
•
|
our expectations regarding the outcome of litigation;
|
|
•
|
our ability to maintain contracts and relationships with our customers;
|
|
•
|
our ability to avoid delays in payment from our customers;
|
|
•
|
sales and marketing efforts;
|
|
•
|
status of material contractual arrangements, including the negotiation or re-negotiation of such arrangements;
|
|
•
|
future capital expenditures;
|
|
•
|
our ability to hire and retain key employees;
|
|
•
|
our ability to execute our acquisition and growth strategy; and
|
|
•
|
our ability to successfully integrate other businesses we may acquire.
|
Investors are cautioned that any such forward-looking statements are not guarantees of future performance, involve risks and uncertainties and that actual results may differ materially from those possible results discussed in the forward-looking statements as a result of various factors. Important factors that could cause such differences include, among other things:
|
•
|
risks associated with increased government regulation related to the health care and insurance industries in general, and more specifically, home infusion providers;
|
|
•
|
our ability to comply with debt covenants in our Notes Facility (as defined below) and unsecured notes indenture;
|
|
•
|
risks associated with our issuance of Preferred Stock and PIPE Warrants to the PIPE Investors (each as defined below);
|
|
•
|
risks associated with the exchanges of our Preferred Stock;
|
|
•
|
risks associated with our issuance of 2017 Warrants (as defined below);
|
|
•
|
risks associated with the First Quarter 2017 Private Placement and the Second Quarter 2017 Private Placement (each as defined below);
|
|
•
|
risks associated with the Notes Facilities (as defined below);
|
|
•
|
risks associated with our issuance of common stock in the 2016 Equity Offering, as defined below;
|
|
•
|
risks associated with the retention or transition of executive officers and key employees
|
|
•
|
our expectation regarding the interim and ultimate outcome of commercial disputes, including litigation;
|
|
•
|
unfavorable economic and market conditions;
|
22
|
•
|
disruptions in supplies and services resulting from force majeure events such as war, strike, riot, crime, or “acts of God” such as hurricanes, flooding, blizzards or earthquakes;
|
|
•
|
reductions in federal and state reimbursement for our products and services;
|
|
•
|
delays or suspensions of Federal and state payments for services provided;
|
|
•
|
efforts to reduce healthcare costs and alter health care financing;
|
|
•
|
effects of the 21st Century Cures Act (the “Cures Act”), the Patient Protection and Affordable Care Act (“PPACA”), any repeal or amendment thereof, and the Health Care and Education Reconciliation Act of 2010, which amended PPACA, and the related accountable care organizations;
|
|
•
|
existence of complex laws and regulations relating to our business;
|
|
•
|
availability of financing sources;
|
|
•
|
declines and other changes in revenue due to the expiration of short-term contracts;
|
|
•
|
network lockouts and decisions to in-source by health insurers including lockouts with respect to acquired entities;
|
|
•
|
unforeseen contract terminations;
|
|
•
|
difficulties in the implementation and ongoing evolution of our operating systems;
|
|
•
|
difficulties with the implementation of our growth strategy and integrating businesses we have acquired or will acquire;
|
|
•
|
increases or other changes in our acquisition cost for our products;
|
|
•
|
increased competition from competitors having greater financial, technical, reimbursement, marketing and other resources could have the effect of reducing prices and margins;
|
|
•
|
disruptions in our relationship with our primary supplier of prescription products;
|
|
•
|
the level of our indebtedness and its effect on our ability to execute our business strategy and increased risk of default under our debt obligations;
|
|
•
|
the UnitedHealthcare contract termination, including potential accounting charges and impacts on other contract provisions and their associated revenue;
|
|
•
|
introduction of new drugs, which can cause prescribers to adopt therapies for existing patients that are less profitable to us;
|
|
•
|
changes in industry pricing benchmarks, which could have the effect of reducing prices and margins; and
|
|
•
|
other risks and uncertainties described from time to time in our filings with the SEC.
|
You should not place undue reliance on such forward-looking statements as they speak only as of the date they are made. Except as required by law, we assume no obligation to publicly update or revise any forward-looking statement even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
Business Overview
We are a national provider of infusion solutions. We partner with physicians, hospital systems, skilled nursing facilities, and healthcare payors to provide patients access to post-acute care services. We operate with a commitment to bring customer-focused healthcare infusion therapy services into the home or alternate site setting. By collaborating with the full spectrum of healthcare professionals and the patient, we aim to provide cost-effective care that is driven by clinical excellence, customer service and values that promote positive outcomes and an enhanced quality of life for those whom we serve. As of the filing of this Quarterly Report, we have a total of
67
service locations in
27
states.
Our platform provides nationwide service capabilities and the ability to deliver clinical management services that offer patients a high-touch, community-based and home-based care environment. Our core services are provided in coordination with, and under the direction of, the patient’s physician. Our multidisciplinary team of clinicians, including pharmacists, nurses, dietitians and respiratory therapists, work with the physician to develop a plan of care suited to our patient’s specific needs. Whether in the home, physician office, ambulatory infusion center, skilled nursing facility or other alternate sites of care, we provide products, services and condition-specific clinical management programs tailored to improve the care of individuals with complex health conditions such as gastrointestinal abnormalities, infectious diseases, cancer, multiple sclerosis, organ and blood cell transplants, bleeding disorders, immune deficiencies and heart failure.
We operate in one segment, Infusion Services, and accordingly, we do not present disaggregated segment information.
Strategic Assessment and Transactions
We regularly examine our business operations, assess our market strengths, and compare our position to that of our competitors. As a result, we have focused our growth on investments in the Infusion Services business, which remains the primary driver of our growth strategy. Transactions executed to further strengthen our position in the Infusion Services business include:
|
•
|
On March 31, 2014, we completed the sale of substantially all of our Home Health Services segment (the “Home Health Business”) to LHC Group, Inc.
|
23
|
•
|
On August 27, 2015, we completed the sale of substantially all of our pharmacy benefit management services segment (the “PBM Business”) pursuant to an Asset Purchase Agreement dated as of August 9, 2015 (the “PBM Asset Purchase Agreement”), by and among the Company, BioScrip PBM Services, LLC and ProCare Pharmacy Benefit Manager Inc. (the “PBM Buyer”). Under the PBM Asset Purchase Agreement, the PBM Buyer agreed to acquire substantially all of the assets used solely in connection with the PBM Business and to assume certain PBM Business liabilities (the “PBM Sale”). On the closing date, pursuant to the terms of the PBM Asset Purchase Agreement, we received total cash consideration of approximately $24.6 million, including an adjustment for estimated closing date net working capital. On October 20, 2015, we finalized working capital adjustment negotiations in relation to the PBM Sale whereby we agreed to repay approximately $1.0 million to the PBM Buyer. We used the net proceeds from the PBM Sale to pay down a portion of our outstanding debt.
|
|
•
|
On September 9, 2016, we acquired substantially all of the assets and assumed certain liabilities of 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.
|
Regulatory Matters Update
Approximately
15.7%
and
18.8%
of revenue for the
three months ended June 30, 2017 and 2016
, respectively, and approximately
16.0%
and
18.5%
of revenue for the
six months ended June 30, 2017 and 2016
was derived directly from Medicare, state Medicaid programs and other government payors. We also provide services to beneficiaries of Medicare, Medicaid and other government-sponsored healthcare programs indirectly through managed care entities. Medicare Part D, for example, is administered through managed care entities. In the normal course of business, we and our customers are subject to legislative and regulatory changes impacting the level of reimbursement received from the Medicare and state Medicaid programs.
State Medicaid Programs
Over the last several years, increased Medicaid spending, combined with slow state revenue growth, led many states to institute measures aimed at controlling spending growth. Spending cuts have taken many forms including reducing eligibility and benefits, eliminating certain types of services, and provider reimbursement reductions. In addition, some states have been moving beneficiaries to managed care programs in an effort to reduce costs.
Each individual state Medicaid program represents less than 5% of our consolidated revenue for the
three months and six months
ended
June 30, 2017
, and no individual state Medicaid reimbursement reduction is expected to have a material effect on our Consolidated Financial Statements. We are continually assessing the impact of the state Medicaid reimbursement cuts as states propose, finalize and implement various cost-saving measures.
Given the reimbursement pressures, we continue to improve operational efficiencies and reduce costs to mitigate the impact on results of operations where possible. In some cases, reimbursement rate reductions may result in negative operating results, and we would likely exit some or all services where rate reductions result in unacceptable returns to our stockholders.
States are also in the process of determining whether to expand their Medicaid programs as permitted by the Patient Protection and Affordable Care Act, or PPACA. We cannot predict the impact of these decisions, but they may have a material impact on net revenues or income from continuing operations.
Medicare
Federal efforts to reduce Medicare spending continued in 2016. Congress first passed the PPACA, followed by the Health Care and Education Reconciliation Act of 2010, which amended PPACA. In August 2011, Congress passed a deficit reduction agreement that created a committee tasked with proposing legislation to reduce the federal deficit by November 23, 2011. Because the committee did not act, automatic Medicare cuts were scheduled to go into effect January 1, 2013. However, Congress passed legislation extending the time for such cuts by three months. Thus, Medicare reimbursement to providers was reduced overall by 2% (as part of sequestration) beginning April 1, 2013. In addition, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 established requirements for a competitive bidding program for determining Medicare reimbursement rates for certain items of durable medical equipment, prosthetics, orthotics and supplies (“DMEPOS”), including enteral nutrients, supplies and equipment, certain respiratory therapy and home medical equipment products and external infusion pumps and supplies.
24
We are contract suppliers under the Round 1 Recompete, which included nine competitive bidding areas (“CBAs”) and six product categories, including external infusion pumps, and expired on December 31, 2016, and Round 2 of competitive bidding, which was conducted in 100 additional CBAs for eight product categories, including enteral nutrition, and expired on June 30, 2016. We have entered into strategic relationships in the CBAs in which we were not awarded contracts for such periods. We were not awarded any contracts in Round 2 Recompete, which went into effect July 1, 2016 and includes 117 CBAs, comprising the same geographic area as the second round of competitive bidding, and seven product categories, including enteral nutrition. Our revenue may decrease unless and until we are able to provide Medicare beneficiaries with competitively bid items in the applicable CBAs but any negative impact has been immaterial.
Medicare currently covers home infusion therapy for selected therapies primarily through the durable medical equipment benefit. The Cures Act, enacted by Congress in December of 2016, creates a new payment system for certain home infusion therapy services paid under Medicare Part B. The Cures Act significantly reduces the amount paid by Medicare for the drug costs, and also provides for the implementation of a clinical services payment. That services payment does not take effect until 2021.
Approximately
7.1%
and
7.0%
of revenue for the
three months and six months
ended
June 30, 2017
was derived from Medicare, respectively.
Critical Accounting Estimates
Our Unaudited Consolidated Financial Statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). In preparing our financial statements, we are required to make estimates 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 revenue and expenses during the reporting period. As a result, actual results could differ from these estimates.
We evaluate our estimates and judgments on an ongoing basis. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period presented. Our actual results may differ from these estimates, and different assumptions or conditions may yield different estimates. There have been no changes to critical accounting estimates in the
six months ended June 30, 2017
. For a full description of our accounting policies please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report.
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):
|
June 30, 2017
|
December 31, 2016
|
|||||||||||||||||||||||
|
|
0 - 180 days
|
Over 180 days
|
Total
|
0 - 180 days
|
Over 180 days
|
Total
|
||||||||||||||||||
|
Government
|
$
|
18,714
|
|
$
|
7,512
|
|
$
|
26,226
|
|
$
|
19,891
|
|
$
|
8,278
|
|
$
|
28,169
|
|
||||||
|
Commercial
|
84,190
|
|
23,589
|
|
107,779
|
|
97,744
|
|
19,848
|
|
117,592
|
|
||||||||||||
|
Patient
|
5,195
|
|
9,540
|
|
14,735
|
|
3,955
|
|
6,825
|
|
10,780
|
|
||||||||||||
|
Gross accounts receivable
|
$
|
108,099
|
|
$
|
40,641
|
|
148,740
|
|
$
|
121,590
|
|
$
|
34,951
|
|
156,541
|
|
||||||||
|
Allowance for doubtful accounts
|
(45,651
|
)
|
(44,730
|
)
|
||||||||||||||||||||
|
Net accounts receivable
|
$
|
103,089
|
|
$
|
111,811
|
|
||||||||||||||||||
25
Results of Operations
The following consolidated statements have been derived from our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q. The discussion set forth below compares our results of operations for the
three months and six months
ended
June 30, 2017
with the results of operations for the corresponding periods in
2016
.
Three months ended June 30, 2017
compared to
three months ended June 30, 2016
|
|
Three Months Ended June 30,
|
As a Percentage of Revenue
|
|||||||||||
|
(in thousands)
|
|||||||||||||
|
|
2017
|
2016
|
2017
|
2016
|
|||||||||
|
Net revenue
|
$
|
218,106
|
|
$
|
232,462
|
|
100.0
|
%
|
100.0
|
%
|
|||
|
Gross profit
|
68,310
|
|
64,164
|
|
31.3
|
%
|
27.6
|
%
|
|||||
|
Other operating expenses
|
42,486
|
|
40,619
|
|
19.5
|
%
|
17.5
|
%
|
|||||
|
Bad debt expense
|
6,223
|
|
4,279
|
|
2.9
|
%
|
1.8
|
%
|
|||||
|
General and administrative expenses
|
10,025
|
|
9,414
|
|
4.6
|
%
|
4.0
|
%
|
|||||
|
Restructuring, acquisition, integration, and other expenses, net
|
3,911
|
|
4,291
|
|
1.8
|
%
|
1.8
|
%
|
|||||
|
Depreciation and amortization expense
|
6,789
|
|
4,252
|
|
3.1
|
%
|
1.8
|
%
|
|||||
|
Interest expense
|
12,715
|
|
9,469
|
|
5.8
|
%
|
4.1
|
%
|
|||||
|
Loss on extinguishment of debt
|
13,453
|
|
—
|
|
6.2
|
%
|
—
|
%
|
|||||
|
Loss on dispositions
|
685
|
|
—
|
|
0.3
|
%
|
—
|
%
|
|||||
|
Loss from continuing operations, before income taxes
|
(27,977
|
)
|
(8,160
|
)
|
(12.8
|
)%
|
(3.5
|
)%
|
|||||
|
Income tax expense
|
718
|
|
149
|
|
0.3
|
%
|
0.1
|
%
|
|||||
|
Loss from continuing operations, net of income taxes
|
(28,695
|
)
|
(8,309
|
)
|
(13.2
|
)%
|
(3.6
|
)%
|
|||||
|
(Loss) income from discontinued operations, net of income taxes
|
(503
|
)
|
75
|
|
(0.2
|
)%
|
—
|
%
|
|||||
|
Net loss
|
$
|
(29,198
|
)
|
$
|
(8,234
|
)
|
(13.4
|
)%
|
(3.5
|
)%
|
|||
Net Revenue.
Net revenue for the
three months ended June 30, 2017
decreased
$14.4 million
, or
6.2%
, to
$218.1 million
, compared to net revenue of
$232.5 million
for the same period in
2016
. The decrease in net revenue primarily reflects the Company’s shift in strategy to focus on growing its core revenue mix coupled with the impact of the Cures Act.
Gross Profit
. Gross profit consists of revenue less cost of revenue (excluding depreciation expense). The cost of revenue (excluding depreciation expense) primarily includes the costs of prescription medications, supplies, nursing services, shipping and other direct and indirect costs. The increase in gross profit of
$4.1 million
or
6.5%
for the
three months ended June 30, 2017
as compared to the same period in
2016
was driven by an improved mix of higher margin core therapy revenues versus lower margin non-core therapy revenues, coupled with improved product costs. Gross profit as a percentage of revenue improved by
3.7%
for the
three months ended June 30, 2017
as compared to the same period in
2016
.
Other Operating Expenses.
Other operating expenses consist primarily of wages and benefits, travel expenses, professional service and field office expenses for our healthcare professionals engaged in providing infusion services to our patients. Other operating expenses for the
three months ended June 30, 2017
increased
$1.9 million
or
4.6%
compared to the same period in
2016
as a result of increased wage, benefit, and other employee costs associated with the acquisition of Home Solutions on September 9, 2016.
Bad Debt Expense.
The
$1.9 million
increase in bad expense during the
three months ended June 30, 2017
as compared to the same period in
2016
results from our estimation process that incorporates historical write-offs, the aging of accounts receivable balances, and our mix of payers.
General and Administrative Expenses
. General and administrative expenses consist of wages and benefits for corporate overhead personnel, and certain corporate level professional service fees, including legal, accounting, and IT fees. The increase of
$0.6 million
or
6.5%
in general and administrative expenses during the
three months ended June 30, 2017
as compared to the same period in
2016
, resulted from increases in variable compensation expenses, partially offset by decreases in professional service fees.
26
Loss on Extinguishment of Debt.
The loss on extinguishment of debt of
$13.5 million
during the
three months ended June 30, 2017
is attributable to the Company’s entry into the Notes Facilities and the associated extinguishment of the Prior Credit Agreements (each term as defined below, see Note 6 - Debt).
Restructuring, Acquisition, Integration, and Other Expenses, Net.
The restructuring, acquisition, integration, and other expenses, net decreased by
$0.4 million
or
8.9%
during the
three months ended June 30, 2017
as compared to the same period in
2016
. The restructuring, acquisition, integration, and other expenses consist primarily of employee severance and other benefit-related costs, third-party consulting costs, redundant facility and personnel-related costs and certain other costs associated with our restructuring, acquisition, and integration activities specific to the Home Solutions Transaction and ongoing cost management initiatives.
Depreciation and Amortization Expense.
Depreciation and amortization expense includes the depreciation of property and equipment and the amortization of intangible assets such as customer relationships, trademarks, and non-compete agreements with estimable lives. During the
three months ended June 30, 2017
and
2016
, we recorded depreciation expense of
$3.6 million
and
$3.5 million
, respectively, and amortization expense of intangibles of
$3.2 million
and
$0.8 million
, respectively.
The increase in depreciation expense in the
three months ended June 30, 2017
as compared to the same period in
2016
is the result of a lower property and equipment net balance at the beginning of the three month period ended
June 30, 2017
. The increase in amortization expense is attributable to the corresponding increase in intangible assets associated with the acquisition of Home Solutions, Inc. in the third quarter of
2016
.
Interest Expense
. Interest expense consists of interest expense and deferred financing costs reduced by an immaterial amount of interest income. During the
three months ended June 30, 2017
and
2016
, we recorded interest expense of
$12.7 million
and
$9.5 million
, respectively, including
$1.6 million
and
$0.9 million
of amortization of deferred financing costs, respectively. The increase in interest expense during the
three months ended June 30, 2017
as compared to the same period in 2016 is the result of the changes in debt structure attributable to the now extinguished Sixth Amendment to the Senior Credit Facilities (see Note 6 - Debt).
Loss on Dispositions.
Loss on dispositions of
$0.7 million
during
three months ended June 30, 2017
is the result of the Company’s write-off of certain assets associated with a software system no longer used in operations.
Income Tax Expense (Benefit).
The
2017
income tax expense includes a federal tax benefit of
$9.8 million
and transaction costs and other permanent items of
$0.1 million
, offset by a
$10.3 million
adjustment related to deferred tax asset valuation allowances and state tax expense of
$0.2 million
. The income tax benefit of
$0.1 million
for the
three months ended June 30, 2016
includes a federal tax benefit of
$2.8 million
and transaction costs and other permanent items of
$1.1 million
, partially offset by a
$1.9 million
adjustment to deferred tax asset valuation allowances and insignificant state tax expense.
27
Six months ended June 30, 2017
compared to
six months ended June 30, 2016
|
|
Six Months Ended June 30,
|
As a Percentage of Revenue
|
|||||||||||
|
(in thousands)
|
|||||||||||||
|
|
2017
|
2016
|
2017
|
2016
|
|||||||||
|
Net revenue
|
$
|
435,916
|
|
$
|
470,924
|
|
100.0
|
%
|
100.0
|
%
|
|||
|
Gross profit
|
133,894
|
|
128,396
|
|
30.7
|
%
|
27.3
|
%
|
|||||
|
Other operating expenses
|
86,844
|
|
80,277
|
|
19.9
|
%
|
17.0
|
%
|
|||||
|
Bad debt expense
|
13,387
|
|
11,871
|
|
3.1
|
%
|
2.5
|
%
|
|||||
|
General and administrative expenses
|
19,504
|
|
20,465
|
|
4.5
|
%
|
4.3
|
%
|
|||||
|
Restructuring, acquisition, integration, and other expenses, net
|
7,134
|
|
6,958
|
|
1.6
|
%
|
1.5
|
%
|
|||||
|
Depreciation and amortization expense
|
13,777
|
|
8,790
|
|
3.2
|
%
|
1.9
|
%
|
|||||
|
Interest expense
|
25,459
|
|
18,881
|
|
5.8
|
%
|
4.0
|
%
|
|||||
|
Loss on extinguishment of debt
|
13,453
|
|
—
|
|
3.1
|
%
|
—
|
%
|
|||||
|
Loss (gain) on dispositions
|
685
|
|
(939
|
)
|
0.2
|
%
|
(0.2
|
)%
|
|||||
|
Loss from continuing operations, before income taxes
|
(46,349
|
)
|
(17,907
|
)
|
(10.6
|
)%
|
(3.8
|
)%
|
|||||
|
Income tax expense
|
1,337
|
|
172
|
|
0.3
|
%
|
—
|
%
|
|||||
|
Loss from continuing operations, net of income taxes
|
(47,686
|
)
|
(18,079
|
)
|
(10.9
|
)%
|
(3.8
|
)%
|
|||||
|
(Loss) income from discontinued operations, net of income taxes
|
(940
|
)
|
308
|
|
(0.2
|
)%
|
0.1
|
%
|
|||||
|
Net loss
|
$
|
(48,626
|
)
|
$
|
(17,771
|
)
|
(11.2
|
)%
|
(3.8
|
)%
|
|||
Net Revenue.
Net revenue for the
six months ended June 30, 2017
decreased
$35.0 million
, or
7.4%
, to
$435.9 million
, compared to net revenue of
$470.9 million
for the same period in
2016
. The decrease in net revenue primarily reflects the Company’s shift in strategy to focus on growing its core revenue mix coupled with the impact of the Cures Act.
Gross Profit
. Gross profit consists of revenue less cost of revenue (excluding depreciation expense). The cost of revenue (excluding depreciation expense) primarily includes the costs of prescription medications, supplies, nursing services, shipping and other direct and indirect costs. The increase in gross profit of
$5.5 million
or
4.3%
for the
six months ended June 30, 2017
as compared to the same period in
2016
was driven by an improved mix of higher margin core therapy revenues versus lower margin non-core therapy revenues, coupled with improved product costs. Gross profit as a percentage of revenue improved by
3.4%
for the
six months ended June 30, 2017
as compared to the same period in
2016
.
Other Operating Expenses.
Other operating expenses consist primarily of wages and benefits, travel expenses, professional service and field office expenses for our healthcare professionals engaged in providing infusion services to our patients. Other operating expenses for the
six months ended June 30, 2017
increased
$6.6 million
or
8.2%
compared to the same period in
2016
due to increased wage, benefit, and other employee costs associated with the Home Solutions Transaction on September 9, 2016.
Bad Debt Expense.
The
$1.5 million
increase in bad expense during the
six months ended June 30, 2017
as compared to the same period in
2016
results from our estimation process that incorporates historical write-offs, the aging of accounts receivable balances, and our mix of payers.
General and Administrative Expenses
. General and administrative expenses consist of wages and benefits for corporate overhead personnel and certain corporate level professional service fees, including legal, accounting, and IT fees. The decrease in general and administrative expenses of
$1.0 million
or
4.7%
resulted from reductions in the number of corporate personnel and their associated wage and benefits costs, as well as decreases in professional service fees.
Loss on Extinguishment of Debt.
The loss on extinguishment of debt of
$13.5 million
during the
six months ended June 30, 2017
is attributable to the Company’s entry into the Notes Facilities and the associated extinguishment of the Senior Credit Facilities and the Prior Credit Agreements (see Note 6 - Debt).
Restructuring, Acquisition, Integration, and Other Expenses, Net.
The restructuring, acquisition, integration, and other expenses, net increased by
$0.2 million
or
2.5%
during the
six months ended June 30, 2017
. The restructuring, acquisition, integration, and other expenses consist primarily of employee severance and other benefit-related costs, third-party consulting costs, redundant facility and personnel-related costs and certain other costs associated with our restructuring, acquisition, and integration activities specific to the Home Solutions Transaction and ongoing cost management initiatives.
28
Depreciation and Amortization Expense.
Depreciation and amortization expense includes the depreciation of property and equipment and the amortization of intangible assets such as customer relationships, trademarks, and non-compete agreements with estimable lives. During the
six months ended June 30, 2017
and
2016
, we recorded depreciation expense of
$7.4 million
and
$7.1 million
, respectively, and amortization expense of intangibles of
$6.4 million
and
$1.6 million
, respectively. The increase in depreciation expense during the
six months ended June 30, 2017
as compared to the same period in
2016
is attributable to increases in property and equipment associated with the Home Solutions Transaction. The increase in amortization expense of intangibles is a result of increased net intangible asset balances at the beginning of the current period due to the Home Solutions Transaction in
2016
.
Interest Expense
. Interest expense consists of interest expense and amortization of deferred financing costs, reduced by an immaterial amount of interest income. During the
six months ended June 30, 2017
and
2016
, we recorded interest expense of
$25.5 million
and
$18.9 million
, respectively, including
$2.9 million
and
$0.9 million
of amortization of deferred financing costs, respectively. The increase in interest expense during the
six months ended June 30, 2017
as compared to the same period in 2016 is the result of the changes in debt structure attributable to the now extinguished Sixth Amendment to the Senior Credit Facilities (see Note 6 - Debt).
Loss (Gain) on Dispositions.
Loss on dispositions of
$0.7 million
during the
six months ended June 30, 2016
is the result of the Company’s write-off of certain assets certain assets associated with a software system no longer used in operations. Gain on dispositions during the
six months ended June 30, 2016
consists of $0.9 million related to the sale of the Infusion Services center in Pittsburgh, Pennsylvania in the first quarter of 2016.
Income Tax Expense (Benefit).
The
2017
income tax expense includes a federal tax benefit of
$16.2 million
, offset by
$0.2 million
state tax expense, a
$17.2 million
adjustment related to deferred tax asset valuation allowances, and transaction costs and other permanent items of
$0.1 million
. The nominal income tax expense for the
six months ended June 30, 2016
includes a federal tax benefit of
$6.3 million
and an insignificant state tax benefit, partially offset by a
$5.3 million
adjustment to deferred tax asset valuation allowances and transaction costs of
$1.1 million
.
29
Non-GAAP Measures
The following table reconciles GAAP loss from continuing operations, net of income taxes to consolidated Adjusted EBITDA. Adjusted EBITDA is net income (loss) adjusted for interest expense, income tax expense (benefit), depreciation and amortization, impairments, loss on extinguishment of debt, and stock-based compensation expense. Adjusted EBITDA also excludes restructuring, acquisition, integration and other expenses including 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.
Consolidated Adjusted EBITDA is a measure of earnings that management monitors as an important indicator of financial performance, particularly future earnings potential and recurring cash flow. Adjusted EBITDA is also a primary objective of the management bonus plan. Inclusion of Adjusted EBITDA is intended to provide investors insight into the manner in which management views the performance of the Company.
Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Our calculation of Non-GAAP Adjusted EBITDA, as presented, may differ from similarly titled measures reported by other companies. We encourage investors to review these reconciliations and we qualify our use of non-GAAP financial measures with cautionary statements as to their limitations.
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||||||
|
(in thousands)
|
(in thousands)
|
||||||||||||||
|
Infusion services Adjusted EBITDA
|
$
|
19,601
|
|
$
|
19,266
|
|
$
|
33,663
|
|
$
|
36,248
|
|
|||
|
Corporate overhead Adjusted EBITDA
|
(9,592
|
)
|
(8,895
|
)
|
(18,477
|
)
|
(18,472
|
)
|
|||||||
|
Consolidated Adjusted EBITDA
|
10,009
|
|
10,371
|
|
15,186
|
|
17,776
|
|
|||||||
|
Interest expense
|
(12,715
|
)
|
(9,469
|
)
|
(25,459
|
)
|
(18,881
|
)
|
|||||||
|
Gain (loss) on dispositions
|
(685
|
)
|
—
|
|
(685
|
)
|
939
|
|
|||||||
|
Loss on extinguishment of debt
|
(13,453
|
)
|
—
|
|
(13,453
|
)
|
—
|
|
|||||||
|
Income tax expense
|
(718
|
)
|
(149
|
)
|
(1,337
|
)
|
(172
|
)
|
|||||||
|
Depreciation and amortization expense
|
(6,789
|
)
|
(4,252
|
)
|
(13,777
|
)
|
(8,790
|
)
|
|||||||
|
Stock-based compensation expense
|
(433
|
)
|
(519
|
)
|
(1,027
|
)
|
(1,993
|
)
|
|||||||
|
Restructuring, acquisition, integration, and other expenses, net
|
(3,911
|
)
|
(4,291
|
)
|
(7,134
|
)
|
(6,958
|
)
|
|||||||
|
Loss from continuing operations, net of income taxes
|
$
|
(28,695
|
)
|
$
|
(8,309
|
)
|
$
|
(47,686
|
)
|
$
|
(18,079
|
)
|
|||
Consolidated Adjusted EBITDA decreased during the
three months and six months
ended June 30, 2017 compared to the same period of the prior year primarily due to the impact of the Cures Act on revenues, partially offset by the Company’s shift in strategy to focus on growing its core revenue mix and the Company’s restructuring efforts to cut costs.
Liquidity and Capital Resources
Sources and Uses of Funds
Net cash used in operating activities from continuing operations totaled
$4.1 million
during the
six months ended June 30, 2017
compared to
$15.7 million
during the
six months ended June 30, 2016
, a decrease of
$11.6 million
. The decreased cash usage was primarily driven by improved operating performance and favorable changes from working capital management, which provided
$16.9 million
more in cash during the
six months ended June 30, 2017
as compared to the same period in
2016
, partially offset by a
$5.3 million
increase in cash paid for interest.
Net cash used in investing activities from continuing operations during the
six months ended June 30, 2017
was
$9.3 million
compared to
$4.3 million
in cash used during the same period in
2016
. The increase was the result of restrictions on cash to collateralize letters of credit issued under the Senior Credit Facilities totaling
$5.1 million
.
30
Net cash provided by financing activities from continuing operations during the
six months ended June 30, 2017
was
$45.3 million
compared to
$61.8 million
in cash provided by financing activities during the same period in
2016
. The cash provided by financing activities during the
six months ended June 30, 2017
, includes the net proceeds of approximately
$20.8 million
from the Second Quarter 2017 Private Placement,
$23.1 million
from the Priming Credit Agreement,
$294.4 million
from the Notes Facilities, and advances of
$0.6 million
offset by repayments of
$55.9 million
on our Revolving Credit Facility and by
$236.8 million
of principal payments made on the Term Loan Facility and the Priming Credit Agreement.
At
June 30, 2017
, we had working capital of
$87.6 million
, including
$40.5 million
of cash on hand, compared to working capital of
$45.7 million
at
December 31, 2016
. The
$41.9 million
increase in working capital results primarily from the increase in our cash and cash equivalents and restricted cash of
$36.0 million
attributable to the net proceeds received from the Notes Facilities and the First Quarter 2017 Private Placement and the Second Quarter 2017 Private Placement. Additional liquidity of $10.0 million is provided by the delayed draw capacity in our Second Lien Note Facility described below. At
June 30, 2017
, we had outstanding letters of credit totaling
$4.8 million
, collateralized by restricted cash of
$5.1 million
.
Debt Facilities
The Company was previously obligated under (i) a senior secured first-lien revolving credit facility in an aggregate principal amount of
$75.0 million
(the “Revolving Credit Facility”), (ii) a senior secured first-lien term loan B in an aggregate principal amount of
$250.0 million
(the “Term Loan B Facility”) and (iii) a senior secured first-lien delayed draw term loan B in an aggregate principal amount of
$150.0 million
(the “Delayed Draw Term Loan Facility” and, together with the Revolving Credit Facility and the Term Loan B Facility, the “Senior Credit Facilities”) with SunTrust Bank, Jefferies Finance LLC and Morgan Stanley Senior Funding, Inc., originally entered on July 31, 2013 and amended from time to time.
On January 6, 2017, the Company entered into a credit agreement (the “Priming Credit Agreement” and, together with the Senior Credit Facilities, the “Prior Credit Agreements”) with certain existing lenders under the Senior Credit Facilities and SunTrust, as administrative agent for itself and the lenders. The Priming Credit Agreement provides an aggregate borrowing commitment of
$25.0 million
, which was fully drawn at closing.
On June 29, 2017, the Company entered into (i) a first lien note purchase agreement (the “First Lien Note Facility”), among the Company, which is the issuer under the agreement, the financial institutions and note purchasers from time to time party to the agreement (the “First Lien Note Purchasers”), and Wells Fargo Bank, National Association, in its capacity as collateral agent for itself and the First Lien Note Purchasers (the “First Lien Collateral Agent”), pursuant to which the Company issued first lien senior secured notes in an aggregate principal amount of
$200.0 million
(the “First Lien Notes”); and (ii) a second lien note purchase agreement (the “Second Lien Note Facility” and, together with the First Lien Note Facility, the “Notes Facilities”) among the Company, which is the issuer under the agreement, the financial institutions and note purchasers from time to time party to the agreement (the “Second Lien Note Purchasers”), and Wells Fargo Bank, National Association, in its capacity as collateral agent for itself and the Second Lien Note Purchasers (the “Second Lien Collateral Agent” and, together with the First Lien Collateral Agent, the “Collateral Agent”), pursuant to which the Company (a) issued second lien senior secured notes in an aggregate initial principal amount of
$100.0 million
(the “Initial Second Lien Notes”) and (b) has the ability to draw upon the Second Lien Note Facility and issue second lien delayed draw senior secured notes in an aggregate initial principal amount of
$10.0 million
for a period of
18
months after the Closing Date, subject to certain terms and conditions (the “Second Lien Delayed Draw Notes” and, together with the Initial Second Lien Notes, the “Second Lien Notes”; the Second Lien Notes, together with the First Lien Notes, the “Notes”). Funds managed by Ares are acting as lead purchasers for the Notes Facilities.
The Company used the proceeds of the sale of the First Lien Notes and the Initial Second Lien Notes pursuant to the Note Facilities to repay in full all amounts outstanding under the Prior Credit Agreements. Each of the Prior Credit Agreements was terminated following such repayment. The Company used the remaining proceeds of
$15.9 million
of the Notes Facilities, net of
$0.2 million
in associated costs, and the Second Quarter 2017 Private Placement for working capital and general corporate purposes.
The First Lien Notes accrue interest, payable monthly in arrears, at a floating rate or rates equal to, at the option of the Company, (i) the base rate (defined as the highest of the Federal Funds Rate plus
0.5%
per annum, the Prime Rate as published by The Wall Street Journal and the one-month London Interbank Offered Rate (“LIBOR”) (subject to a
1.0%
floor) plus
1.0%
), or (ii) the one-month LIBOR rate (subject to a
1.0%
floor), plus a margin of
6.0%
if the base rate is selected or
7.0%
if the LIBOR Option is selected. The First Lien Notes mature on August 15, 2020, provided that if the Company’s existing
8.875%
Senior Notes due 2021 (the “2021 Notes”) are refinanced prior to August 15, 2020, then the scheduled maturity date of the First Lien Notes shall be June 30, 2022.
The First Lien Notes will amortize in equal quarterly installments equal to
0.625%
of the aggregate principal amount of the First Lien Note Facility, commencing on September 30, 2019, and on the last day of each third month thereafter, with the balance payable at maturity. The First Lien Notes are pre-payable at the Company’s option at specified premiums to the principal amount
31
that will decline over the term of the First Lien Note Facility. If the First Lien Notes are prepaid prior to the second anniversary of the Closing Date, the Company will be required to pay a make-whole premium based on the present value (using a discount rate based on the specified treasury rate plus
50
basis points) of all remaining interest payments on the First Lien Notes being prepaid prior to the second anniversary of the Closing Date, plus
4.0%
of the principal amount of First Lien Notes being prepaid. On or after the second anniversary of the Closing Date, the prepayment premium is
4.0%
, which declines to
2.0%
on or after the third anniversary of the Closing Date, and declines to
0.0%
on or after the fourth anniversary of the Closing Date. At any time, the Company may pre-pay up to
$50.0 million
in aggregate principal amount of the First Lien Notes from internally generated cash without incurring any make-whole or prepayment premium. The occurrence of certain events of default may increase the applicable rate of interest by
2.0%
and could result in the acceleration of the Company’s obligations under the First Lien Note Facility prior to stated maturity and an obligation of the Company to pay the full amount of its obligations under the First Lien Note Facility.
The First Lien Note Facility contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross-defaults to material indebtedness and events constituting a change of control. In addition, the obligations under the First Lien Note Facility will be guaranteed by joint and several guarantees from the Company’s subsidiaries.
In connection with the First Lien Note Facility, the Company, its subsidiaries and the First Lien Collateral Agent entered into a First Lien Guaranty and Security Agreement, dated as of June 29, 2017 (the “First Lien Guaranty and Security Agreement”). Pursuant to the First Lien Guaranty and Security Agreement, the obligations under the First Lien Notes will be secured by first priority liens on, and security interests in, substantially all of the assets of the Company and its subsidiaries.
The Second Lien Notes accrue interest, payable monthly in arrears, at a floating rate or rates equal to, at the option of the Company, (i) one-month LIBOR (subject to a
1.25%
floor) plus
9.25%
per annum in cash, (ii) one-month LIBOR (subject to a
1.25%
floor) plus
11.25%
per annum, which amount will be capitalized on each interest payment date, or (iii) one-month LIBOR (subject to a
1.25%
floor) plus
10.25%
per annum, of which one-half LIBOR plus
4.625%
per annum will be payable in cash and one-half LIBOR plus
5.625%
per annum will be capitalized on each interest payment date, provided that, in each case, if any permitted refinancing indebtedness with which the 2021 Notes are refinanced requires or permits the payment of cash interest, all of the interest on the Second Lien Notes shall be paid in cash. The Second Lien Notes mature on August 15, 2020, provided that if the 2021 Notes are refinanced prior to August 15, 2020, then the scheduled maturity date of the Second Lien Notes shall be June 30, 2022.
The Second Lien Notes are not subject to scheduled amortization installments. The Second Lien Notes are pre-payable at the Company’s option at specified premiums to the principal amount that will decline over the term of the Second Lien Note Facility. If the Second Lien Notes are prepaid prior to the third anniversary of the Closing Date, the Company will need to pay a make-whole premium based on the present value (using a discount rate based on the specified treasury rate plus
50
basis points) of all remaining interest payments on the Second Lien Notes being prepaid prior to the third anniversary of the Closing Date, plus
4.0%
of the principal amount of Second Lien Notes being prepaid. On or after the third anniversary of the Closing Date, the prepayment premium is
4.0%
, which declines to
2.0%
on or after the fourth anniversary of the Closing Date, and declines to
0.0%
on or after the fifth anniversary of the Closing Date. The occurrence of certain events of default may increase the applicable rate of interest by
2.0%
and could result in the acceleration of the Company’s obligations under the Second Lien Note Facility prior to stated maturity and an obligation of the Company to pay the full amount of its obligations under the Second Lien Note Facility.
The Second Lien Note Facility contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross-defaults to material indebtedness and events constituting a change of control. In addition, the obligations under the Second Lien Note Facility will be guaranteed by joint and several guarantees from the Company’s subsidiaries.
In connection with the Second Lien Note Facility, the Company, its subsidiaries and the Second Lien Collateral Agent entered into a Second Lien Guaranty and Security Agreement, dated as of June 29, 2017 (the “Second Lien Guaranty and Security Agreement”). Pursuant to the Second Lien Guaranty and Security Agreement, the obligations under the Second Lien Notes will be secured by second priority liens on, and security interests in, substantially all of the assets of the Company and its subsidies.
In connection with the First Lien Note Facility and the Second Lien Note Facility, the Company, the First Lien Collateral Agent and the Second Lien Collateral Agent, entered into an intercreditor agreement containing customary provisions to, among other things, subordinate the lien priority of the liens granted under the Second Lien Note Facility to the liens granted under the First Lien Note Facility.
32
2021 Notes
On February 11, 2014, the Company issued
$200.0 million
aggregate principal amount of
8.875%
senior notes due in 2021 (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
June 30, 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.
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 PIPE Preferred Shares 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 (together with the Warrant Addendum, the “Warrant Agreement”), 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 to the PIPE Investors
625,000
shares of Series A Preferred Stock at
$100.00
per share. We are required, pursuant to the terms of the Certificate of Designations governing the Series A Preferred Stock and the Warrant Agreement governing the PIPE Warrants, to at all times reserve sufficient shares of common stock to allow for the conversion of the Series A Preferred Stock and exercise of the PIPE Warrants.
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 Company’s Annual Report. The Company may pay a noncumulative cash dividend on each share of the Series A Preferred Stock. 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:
|
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, 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
|
33
|
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 a new series of preferred stock of the Company (the “Series C Preferred Stock” and, together with the Series A Preferred Stock and the Series B Preferred Stock, the “Preferred Stock”), designated “Series C Convertible 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 our common stock for the exercise of the PIPE Warrants.
The transactions effected pursuant to the Series C Exchange Agreement ensured there were a sufficient number of authorized shares of common stock to undertake the 2016 Equity Offering. In the Series C Exchange Agreement, we agreed that within four months of the date of the Series C Exchange Agreement, a special meeting of our stockholders would be called to seek approval to the Charter Amendment so as to allow us to reserve sufficient shares for the conversion of the Series C Preferred Stock and the exercise of the PIPE Warrants. This approval was obtained at a special meeting of our stockholders held on November 30, 2016.
As a result of the exchanges discussed above, there are, as of
June 30, 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.
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 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.
2016 Shelf Registration
We 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, we 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, pursuant to our effective shelf registration statement on Form S-3, we completed an underwritten public offering of
45,200,000
shares of our 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”). We received net proceeds of approximately
$83.3 million
from the 2016 Equity Offering, after deducting underwriting discounts and commissions and offering expenses.
A portion of the net proceeds from the 2016 Equity Offering was used to temporarily repay our outstanding borrowings under the Revolving Credit Facility. We then drew from the Revolving Credit Facility and used the remainder of the 2016 Equity Offering
34
net proceeds to fund the Cash Consideration and pay fees and expenses in connection with the closing of the Home Solutions Transaction.
Home Solutions Transaction
On September 9, 2016, the Company acquired substantially all of the assets and assumed certain liabilities of Home Solutions and its subsidiaries pursuant to the Home Solutions Agreement dated June 11, 2016, 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 “HS 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 Transaction. The HS Second Amendment instead provided that the Company will hold a stockholder meeting after the closing of the 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. This approval was obtained at a special meeting held on November 30, 2016. On September 9, 2016, in connection with the consummation of the Transaction, the parties entered into a third amendment (the “Third Amendment”) to the Home Solutions Agreement, which provided for non-material amendments to the closing mechanics, defined terms, acquired and excluded assets, and covenants of the Home Solutions Agreement.
Under the Home Solutions Agreement, the Company did not purchase, among other things, (a) any accounts receivable associated with governmental payors, (b) cash assets, (c) certain non-transferable assets (e.g., state licenses and Medicare and Medicaid certifications and personnel and employment records), (d) the equity of Home Solutions and its subsidiaries; (e) certain tax assets, (f) causes of actions related to any of the items specified as excluded assets or excluded liabilities in the Home Solutions Agreement, (g) any privileged materials, documents or records of Home Solutions related to such excluded assets or excluded liabilities, or (h) intercompany receivables.
The aggregate consideration paid by the Company in the Home Solutions Transaction was equal to (i) the Cash Consideration; plus (ii)(a) 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 will be approximately
3.1 million
. The number of shares of Company common stock in Tranche B will be approximately
4.0 million
. 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. 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. 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.
First Quarter 2017 Private Placement
On March 1, 2017, the Company entered into a Stock Purchase Agreement (the “First Quarter Stock Purchase Agreement”) with Venor Capital Master Fund Ltd., Map 139 Segregated Portfolio of LMA SPC, Venor Special Situations Fund II LP and Trevithick LP (the “First Quarter Stockholders”). Pursuant to the First Quarter Stock Purchase Agreement, the Company sold an
35
aggregate of
3.3 million
shares of its common stock (the “First Quarter Shares”) for aggregate gross proceeds of approximately
$5.1 million
in a private placement transaction (the “First Quarter 2017 Private Placement”). The purchase price for each Share was
$1.5366
, which was negotiated between the Company and the 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 First Quarter 2017 Private Placement will be used for working capital and general corporate purposes.
2017 Warrants
In connection with the Second Lien Note Facility (as defined below), the Company will also issue warrants (the “2017 Warrants”) to the purchasers of the Second Lien Notes (as defined below) pursuant to a Warrant Purchase Agreement dated as of June 29, 2017 (the “2017 Warrant Purchase Agreement”). The 2017 Warrants entitle the purchasers of the 2017 Warrants to purchase shares of Common Stock, representing at the time of any exercise of the 2017 Warrants an equivalent number of shares equal to 4.99% of the Common Stock of the Company on a fully diluted basis, subject to the terms of the Warrant Agreement governing the Warrants, dated as of June 29, 2017 (the “2017 Warrant Agreement”); provided, however, the Warrants may not be converted to the extent that, after giving effect to such conversion, the holders of the 2017 Warrants would beneficially own, in the aggregate, in excess of (i) 19.99% of the shares of Common Stock outstanding as of June 29, 2017 (the “Closing Date”) minus (ii) the shares of Common Stock that were sold pursuant to the Second Quarter 2017 Private Placement (as defined below) (the “Conversion Cap”). The Conversion Cap will not apply to the 2017 Warrants if the Company obtains the approval of its stockholders for the removal of the Conversion Cap, which the Company is required to take certain steps to attempt to obtain, subject to the terms of the Warrant Agreement.
The 2017 Warrants have a
10
-year term and an initial exercise price of
$2.00
per share, and may be exercised by payment of the exercise price in cash or surrender of shares of Common Stock into which the Warrants are being converted in an aggregate amount sufficient to pay the exercise price. The exercise price and the number of shares that may be acquired upon exercise of the 2017 Warrants is subject to adjustments in certain situations, including price based anti-dilution protection whereby, subject to certain exceptions, if the Company later issues Common Stock or certain Common Stock Equivalents (as defined in the Warrant Agreement) at a price less than either the then-current market price per share or exercise price of the 2017 Warrant, then the exercise price will be decreased and the percentage of shares of Common Stock issuable upon exercise of the Warrants will remain the same, giving effect to such issuance. Additionally, the 2017 Warrants have standard anti-dilution protections if the Company effects a stock split, subdivision, reclassification or combination of its Common Stock or fixes a record date for the making of a dividend or distribution to stockholders of cash or certain assets. Upon the occurrence of certain business combinations the 2017 Warrants will be converted into the right to acquire shares of stock or other securities or property (including cash) of the successor entity.
Second Quarter 2017 Private Placement
On June 29, 2017, the Company entered into a Stock Purchase Agreement (the “Second Quarter Stock Purchase Agreement”) with a fund managed by Ares Management L.P. (“Ares” or the “Second Quarter Stock Purchaser”). Pursuant to the terms of the Second Quarter Stock Purchase Agreement, the Company issued and sold to the Second Quarter Stock Purchaser in a private placement (the “Second Quarter 2017 Private Placement”)
6,359,350
shares of Common Stock (the “Second Quarter Shares”) at a price of
$2.50
per share, for proceeds of approximately
$15.9 million
, net of
$0.2 million
in associated costs.
Second Quarter Registration Rights Agreement
In connection with the 2017 Warrants and the Second Quarter 2017 Private Placement, the Company entered into a Registration Rights Agreement (the “Second Quarter 2017 Registration Rights Agreement”) with the holders of the 2017 Warrants and the Second Quarter Stock Purchaser. Pursuant to the Second Quarter 2017 Registration Rights Agreement, subject to certain exceptions, the Company is required, upon the request of the Second Quarter Stock Purchaser and holders of the 2017 Warrants, to register the resale of the Second Quarter Shares and the shares of Common Stock issuable upon exercise of the 2017 Warrants. Pursuant to the terms of the Second Quarter 2017 Registration Rights Agreement, these registration rights will not become effective until twelve months after the Closing Date, and the costs incurred in connection with such registrations will be borne by the Company.
Income Taxes
At
June 30, 2017
, we had Federal net operating loss (“NOL”) carry forwards of approximately
$373.8 million
, of which
$14.3 million
is subject to an annual limitation, which will begin expiring in 2026 and later. We have post-apportioned state NOL carry forwards of approximately
$414.4 million
, the majority of which will begin expiring in 2017 and later.
36
Future Cash Requirements
Net cash used in operating activities from continuing operations totaled
$4.1 million
during the
six months ended June 30, 2017
. Our working capital increased
$41.9 million
as of
June 30, 2017
compared to
December 31, 2016
, primarily as a result of an increase in our cash and cash equivalents of
$31.0 million
attributable to the net proceeds received from the 2017 Private Placement and the Priming Credit Agreement. At
June 30, 2017
, we had
$40.5 million
of unrestricted cash on hand and, until December 2018, $10.0 million of delayed draw capacity under the Second Lien Notes Facility to supplement our working capital needs.
If we cannot successfully execute our strategic plans we will likely require additional or alternative sources of liquidity, including additional borrowings.
On June 29, 2017, we entered into the Notes Facilities pursuant to which we issued new senior secured notes and refinanced our existing senior secured credit facilities. Please refer to “Debt Facilities” in this section.
We regularly evaluate market conditions and financing options to improve our current liquidity profile and enhance our financial flexibility. These options may include opportunities to raise additional funds through the issuance of various forms of equity and/or debt securities or other instruments, the sale of assets or refinancing all or a portion of our indebtedness. However, there is no assurance that, if necessary, we would be able to raise capital to provide required liquidity.
Additionally, we will pursue our operational and strategic plan and will also review a range of strategic alternatives, which could include, among other things, transitioning chronic therapies to alliance partners, a potential sale or merger of our company, or continuing to pursue our operational and strategic plan. Additionally, we may pursue joint venture arrangements, additional business acquisitions and other transactions designed to expand our business.
As of the filing of this Quarterly Report, we expect that our cash on hand and cash from operations will be sufficient to fund our anticipated working capital, scheduled interest repayments and other cash needs for at least the next 12 months. Principal payments on the Notes Facilities are not required until September 30, 2018.
The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates realization of assets and satisfaction of liabilities in the ordinary course of business. As such, they do not include any adjustments to the recoverability and reclassification of recorded amounts that might be necessary should we be unable to continue as a going concern.
The UnitedHealthcare contract will terminate effective on September 30, 2017. Following a negotiation process it became apparent our business demands do not align, and UnitedHealthcare and the Company were unable to find an agreement that was beneficial to both parties. The termination of this agreement is consistent with our CORE initiative, which focuses on growth of our profitable business segments. We anticipate that the UnitedHealthcare contract termination, exclusive of certain provisions, will have a negative impact to 2017 revenue and a neutral impact to 2017 adjusted EBITDA. Because the UnitedHealthcare contract was not profitable, its termination is expected to have a negative impact on revenues but a positive impact on adjusted EBITDA outlook going forward (see Note 8 - Concentration of Risk).
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risks
|
There have been no material changes to our exposure to market risk since the Annual Report.
|
Item 4.
|
Controls and Procedures
|
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, management evaluated the effectiveness of the Company’s disclosure controls and procedures as of
June 30, 2017
. Based on that evaluation, the Company’s Chief Executive Officer and its Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of
June 30, 2017
.
37
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the three months ended
June 30, 2017
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
OTHER INFORMATION
|
Item 1.
|
Legal Proceedings
|
For a summary of legal proceedings please refer to Note 7 within the financial statements section of this document.
|
Item 1A.
|
Risk Factors
|
The risk factors disclosed in “Item 1A. Risk Factors” included in our Annual Report on Form 10-K for the year ended
December 31, 2016
are hereby incorporated by reference.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
The information disclosed in Part I Item 2 under the headings “2017 Warrants” and “Second Quarter 2017 Private Placement” is hereby incorporated by reference. The Company relied on Section 4(a)(2) of the Securities Act for both the issuance of the 2017 Warrants and the Common Shares in the Second Quarter 2017 Private Placement.
|
Item 5.
|
Other Information
|
None.
38
|
Item 6.
|
Exhibits
|
(a) Exhibits.
|
Exhibit Number
|
Description
|
|
2.1+
|
Asset Purchase Agreement, dated June 11, 2016, by and among HS Infusion Holdings, Inc., the direct and indirect subsidiaries of HS Infusion Holdings, Inc. set forth on the signature pages, the Company and HomeChoice Partners, Inc. (the “Home Solutions Agreement”) (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 13, 2016, SEC File Number 000-28740).
|
|
2.2
|
First Amendment, dated June 16, 2016, to the Home Solutions Agreement (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K/A filed on June 20, 2016, SEC File Number 000-28740).
|
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2.3
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Second Amendment, dated September 2, 2016, to the Home Solutions Agreement (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on September 7, 2016, SEC File Number 001-11993).
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2.4
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Third Amendment, dated September 9, 2016, to the Home Solutions Agreement (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on September 12, 2016, SEC File Number 001-11993).
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3.1
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Second Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-4 (File No. 333-119098) declared effective on January 26, 2005).
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3.2
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Amendment to the Second Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 10, 2010, SEC File Number 000-28740).
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3.3
|
Certificate of Designations for Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 10, 2015, SEC File Number 000-28740).
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3.4
|
Certificate of Designations for Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 13, 2016, SEC File Number 000-28740).
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3.5
|
Certificate of Designations for Series C Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 14, 2016, SEC File Number 000-28740).
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3.6
|
Certificate of Designations, Preferences, and Rights for Series D Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on August 12, 2016, SEC File Number 000-28740).
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3.7
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Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on April 28, 2011, SEC File Number 000-28740).
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4.1
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Registration Rights Agreement, dated June 29, 2017, by and among the Company and the parties signatory thereto (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on June 29, 2017, SEC File Number 001-11993).
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4.2
|
Warrant Agreement, dated June 29, 2017, by and among the Company and the subscribers signatory thereto (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 29, 2017, SEC File Number 001-11993).
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10.1
|
Offer Letter, dated April 10, 2017, by and between the Company and Stephen M. Deitsch (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 20, 2017, SEC File Number 001-11993).
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10.2
|
First Lien Note Purchase Agreement, dated as of June 29, 2017, by and among the Company, the financial institutions and note purchasers from time to time party thereto, and Wells Fargo Bank, National Association, as Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 29, 2017, SEC File Number 001-11993).
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10.3
|
First Lien Guaranty and Security Agreement, dated as of June 29, 2017, by and the Company, the subsidiaries of the Company signatory thereto and Wells Fargo Bank, National Association as Collateral Agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 29, 2017, SEC File Number 001-11993).
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10.4
|
Second Lien Note Purchase Agreement, dated as of June 29, 2017, by and among the Company, the financial institutions and note purchasers from time to time party thereto, and Wells Fargo Bank, National Association as Collateral Agent (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 29, 2017, SEC File Number 001-11993).
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10.5
|
Second Lien Guaranty and Security Agreement, dated as of June 29, 2017, by and the Company, the subsidiaries of the Company signatory thereto and Wells Fargo Bank, National Association as Collateral Agent (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 29, 2017, SEC File Number 001-11993).
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10.6
|
Warrant Purchase Agreement, dated as of June 29, 2017, by and among the Company and the subscribers signatory thereto (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on June 29, 2017, SEC File Number 001-11993).
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10.7
|
Stock Purchase Agreement, dated as of June 29, 2017, by and among the Company and the purchaser signatory thereto (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on June 29, 2017, SEC File Number 001-11993).
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31.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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39
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32.1
|
Certification of Chief Executive Officer pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2
|
Certification of Chief Financial Officer pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101 *
|
The following financial information from BioScrip, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015, (ii) Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015, (iii) Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015, and (iv) Notes to Unaudited Consolidated Financial Statements.
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*
|
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections.
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+
|
Certain schedules attached to the Home Solutions Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish the omitted schedules to the Securities and Exchange Commission upon request by the Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on
August 8, 2017
.
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BIOSCRIP INC.
|
|
|
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/s/ C. Britt Jeffcoat
|
|
C. Britt Jeffcoat
|
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Vice President, Controller
and Chief Accounting Officer
|
40
TABLE OF CONTENTS
Part IItem 1. Financial StatementsNote 1 Basis Of PresentationNote 2 Loss Per ShareNote 3 Stockholders DeficitNote 4 AcquisitionsNote 5 Restructuring, Acquisition, Integration, and Other Expenses, NetNote 6 DebtNote 7 Commitments and ContingenciesNote 8 Concentration Of RiskNote 9 Income TaxesNote 10 Stock-based CompensationItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RisksItem 4. Controls and ProceduresPart IIItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 5. Other InformationItem 6. Exhibits