Attached files
file | filename |
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EX-32.2 - EXHIBIT 32.2 - Nobilis Health Corp. | exhibit32-2.htm |
EX-32.1 - EXHIBIT 32.1 - Nobilis Health Corp. | exhibit32-1.htm |
EX-31.1 - EXHIBIT 31.1 - Nobilis Health Corp. | exhibit31-1.htm |
EX-31.2 - EXHIBIT 31.2 - Nobilis Health Corp. | exhibit31-2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________________ to __________________________.
COMMISSION FILE NUMBER: 001-37349
NOBILIS HEALTH CORP.
(Exact name of registrant as specified in its charter)
British Columbia | 98-1188172 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
11700 Katy Freeway, Suite 300 | 77079 |
(Address of principal executive offices) | (Zip Code) |
(713)355-8614
(Registrants telephone
number, including area code)
Not Applicable
(Former name, former
address and former fiscal year, if changed since last report)
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 [
] NO [X]
(Note: As a voluntary filer not subject to the filing requirements of Sections 13 or 15(d) of the Exchange Act, the registrant has filed all reports pursuant to Section 13 or 15(d) of the Exchange Act during the preceding 12 months as if it were subject to such filing requirements.)
Indicate by check mark whether the registrant has submitted
electronically and posted on 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 [ ] NO [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
YES [
] NO [X]
Indicate the number of shares outstanding of each of the
registrants classes of common stock as of the latest practicable date.
62,166,553 common shares as of May 12, 2015.
TABLE OF CONTENTS
EXPLANATORY NOTE
As described in the Current Report on Form 8-K filed on January 5, 2016, we are filing this Amendment No. 1 on Form 10-Q/A (this Form 10-Q/A or "Amended Filing") to amend our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, originally filed with the Securities and Exchange Commission (the SEC) on May 14, 2015 (the Original Filing), to restate our unaudited condensed consolidated financial statements and related footnote disclosures for the three months ended March 31, 2015. This Form 10-Q/A also amends certain other Items in the Original Filing, as listed below.
Background
We are filing this Form 10-Q/A to: (i) correct managements evaluation of the effectiveness of the Company's disclosure controls and procedures included under Part I Item 4 as a result of the identification of a material weakness that existed as of March 31, 2015; and (ii) restate the financial statements as a result of the identification of errors related to: (1) accounting for warrants and options issued in the Companys private placements in 2013 and 2014 and options granted to non-employees; (2) business combination accounting with respect to the Athas and First Nobilis transactions that occurred in December and September 2014, respectively, (3) reclassification of contingently redeemable noncontrolling interests to temporary equity, (4) share-based compensation matters and (5) calculations of fully diluted shares outstanding for application of the treasury stock method. As a result of the decision to file this amended filing, we are taking this opportunity to also correct other errors that were previously uncorrected. In addition, conforming changes occur throughout the Amended Filing because of changes to the financial statements. Accordingly, we hereby amend and replace in its entirety Part IItem 4 (Controls and Procedures) of the Original Filing and have made some amendments to Part I Item 1 (Financial Statements), Part I Item 2 (Managements Discussion and Analysis of Financial Condition and Results of Operations), Part II - Item 1A (Risk Factors) and Part II - Item 6 (Exhibits) of the Original Filing. For the convenience of the reader, this 10-Q/A sets forth the Original Filing, as modified and superseded where necessary to reflect these revisions. The restatement is further discussed in Note 2 to the Companys financial statements included in Part I Item 1 Financial Statements contained herein.
Our management has determined that there was a deficiency in our internal control over financial reporting that constitutes a material weakness, as defined by SEC regulations, at March 31, 2015. For a discussion of managements consideration of our disclosure controls and procedures and the material weakness identified, see Part I - Item 4 included in this Form 10-Q/A.
In accordance with applicable SEC rules, this Form 10-Q/A includes new certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as amended, from our Chief Executive Officer and Chief Financial Officer dated as of the filing date of this Form 10-Q/A. Accordingly, the Registrant hereby amends Part II - Item 6 of the Original Filing to reflect the filing of the new certifications.
Except as described above, this Amended Filing does not amend, update or change any other items or disclosures in the Original Filing and does not purport to reflect any information or events subsequent to the filing thereof. As such, this Amended Filing speaks only as of the date the Original Filing was filed, and the Registrant has not undertaken herein to amend, supplement or update any information contained in the Original Filing to give effect to any subsequent events and any forward-looking statements represent management's views as of the Original Filing Date and should not be assumed to be accurate as of any date thereafter. Accordingly, this Amended Filing should be read in conjunction with the Registrant's filings made with the SEC subsequent to the filing of the Original Filing, including any amendment to those filings.
1
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements
NOBILIS HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In thousands)
March 31, | December 31, | |||||
2015 | 2014 | |||||
(Restated) | (Restated) | |||||
(unaudited) | ||||||
Assets | ||||||
Current Assets: | ||||||
Cash and cash equivalents | $ | 11,631 | $ | 7,568 | ||
Trade accounts receivable, net | 38,482 | 40,461 | ||||
Medical supplies | 1,444 | 1,412 | ||||
Prepaid expenses and other current assets | 3,167 | 3,554 | ||||
Total current assets | 54,724 | 52,995 | ||||
Property and equipment, net | 6,404 | 9,087 | ||||
Intangible assets, net | 19,288 | 19,609 | ||||
Goodwill | 20,888 | 21,589 | ||||
Notes receivable | 686 | 659 | ||||
Investments in associates | 2,365 | 880 | ||||
Other long-term assets | 125 | 234 | ||||
Total Assets | $ | 104,480 | $ | 105,053 | ||
Liabilities, Contingently Redeemable Noncontrolling Interests and Equity | ||||||
Current Liabilities: | ||||||
Trade accounts payable | $ | 5,961 | $ | 10,528 | ||
Accrued liabilities | 7,462 | 8,558 | ||||
Lines of credit | - | 5,420 | ||||
Subordinated notes payable | - | 635 | ||||
Current portion of warrant and stock option liabilities | 378 | 300 | ||||
Current portion of debt | 655 | 3,437 | ||||
Current portion of capital leases | 245 | 257 | ||||
Other current liabilities | 60 | 1,485 | ||||
Total current liabilities | 14,761 | 30,620 | ||||
Long-term capital leases, net of current portion | 526 | 573 | ||||
Long-term debt, net of current portion | 18,715 | 10,582 | ||||
Warrant and option liabilities, net of current portion | 6,942 | 6,357 | ||||
Other long-term liabilities | 310 | 252 | ||||
Total liabilities | 41,254 | 48,384 | ||||
Contingently redeemable noncontrolling interests | 15,502 | 12,867 | ||||
Shareholders' Equity: | ||||||
Common stock
(no par value; authorized unlimited shares, 61,207,615
and 59,418,227 shares issued and outstanding, respectively) |
- | - | ||||
Additional paid in capital | 184,175 | 176,356 | ||||
Accumulated deficit | (140,716 | ) | (136,576 | ) | ||
Accumulated other comprehensive loss | (98 | ) | (111 | ) | ||
Total shareholders equity attributable to Nobilis Health Corp. | 43,361 | 39,669 | ||||
Noncontrolling interests | 4,363 | 4,133 | ||||
Total shareholders' equity | 47,724 | 43,802 | ||||
Total Liabilities, Contingently Redeemable Noncontrolling Interests and Equity | $ | 104,480 | $ | 105,053 |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
2
NOBILIS HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except earnings per
share)
(Unaudited)
Three months ended March 31, | ||||||
2015 | 2014 | |||||
(Restated) | (Restated) | |||||
Revenues: | ||||||
Patient and net professional fees | $ | 35,058 | $ | 12,121 | ||
Contracted marketing revenues | 810 | - | ||||
Factoring revenues | 1,983 | - | ||||
Total revenue | 37,851 | 12,121 | ||||
Cost of revenues | 61 | - | ||||
Gross Profit | 37,790 | 12,121 | ||||
Operating expenses: | ||||||
Salaries and benefits | 7,644 | 1,915 | ||||
Drugs and supplies | 4,949 | 1,564 | ||||
General and administrative | 13,198 | 5,906 | ||||
Depreciation and amortization | 637 | 298 | ||||
Total operating expenses | 26,428 | 9,683 | ||||
Corporate costs: | ||||||
Salaries and benefits | 991 | 559 | ||||
General and administrative | 5,991 | 556 | ||||
Legal expenses | 471 | 271 | ||||
Depreciation | 26 | 32 | ||||
Total corporate costs | 7,479 | 1,418 | ||||
Income from operations | 3,883 | 1,020 | ||||
Other expense (income): | ||||||
Interest expense | 490 | 53 | ||||
Change in fair value of warrant and option liabilities | 3,374 | (374 | ) | |||
Other income, net | (135 | ) | 19 | |||
Total other expense | 3,729 | (302 | ) | |||
Net income before income taxes and noncontrolling interests | 154 | 1,322 | ||||
Income tax | 152 | 80 | ||||
Net income | 2 | 1,242 | ||||
Net income attributable to noncontrolling interests | 4,497 | 1,359 | ||||
Net loss attributable to Nobilis Health Corp. | $ | (4,495 | ) | $ | (117 | ) |
Net loss per basic common share | $ | (0.07 | ) | $ | - | |
Net loss per fully diluted common share | $ | (0.07 | ) | $ | - | |
Weighted average shares outstanding (basic) | 60,191,831 | 43,190,620 | ||||
Weighted average shares outstanding (fully diluted) | 60,191,831 | 43,190,620 |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
3
NOBILIS HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
Three months ended March 31, | ||||||
2015 | 2014 | |||||
(Restated) | (Restated) | |||||
Net income | $ | 2 | $ | 1,242 | ||
Other comprehensive income (loss): | ||||||
Foreign currency translation adjustments | 13 | (109 | ) | |||
Total other comprehensive income (loss) | 13 | (109 | ) | |||
Comprehensive income | 15 | 1,133 | ||||
Less comprehensive income attributable to noncontrolling interest | (4,497 | ) | (1,359 | ) | ||
Comprehensive loss attributable to Nobilis Health Corp. | $ | (4,482 | ) | $ | (226 | ) |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
4
NOBILIS HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended March 31, | ||||||
2015 | 2014 | |||||
(Restated) | (Restated) | |||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||
Net income | $ | 2 | $ | 1,242 | ||
Adjustments to
reconcile net income attributable to Nobilis to net cash
provided by operating activities: |
||||||
Depreciation and amortization | 663 | 330 | ||||
Change in fair value of warrant and option liabilities | 3,374 | (374 | ) | |||
Foreign currency gain (loss) | 13 | (109 | ) | |||
Share-based compensation | 3,410 | 52 | ||||
Changes in operating assets and liabilities: | ||||||
Trade accounts receivable | 1,884 | 1,527 | ||||
Medical supplies | (32 | ) | (83 | ) | ||
Prepaids and other current assets | (1,254 | ) | (186 | ) | ||
Other long-term assets | 47 | 463 | ||||
Trade accounts payable and accrued liabilities | (4,407 | ) | (620 | ) | ||
Other current liabilities | (51 | ) | - | |||
Other long-term liabilities | 58 | (43 | ) | |||
Net cash provided by operating activities | 3,707 | 2,199 | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||
Purchase of property and equipment | (487 | ) | (581 | ) | ||
Purchase of investment in associate | - | (150 | ) | |||
Purchase of interest acquired in subsidiaries, net of cash acquired | - | (346 | ) | |||
Note receivable | (27 | ) | - | |||
Deconsolidation of imaging centers and urgent care clinic | (166 | ) | - | |||
Net cash used for investing activities | (680 | ) | (1,077 | ) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
Distributions to noncontrolling interests | (1,940 | ) | (803 | ) | ||
Proceeds from exercise of stock options | 142 | 28 | ||||
Proceeds from exercise of stock warrants | 2,169 | - | ||||
Payments on capital lease obligations | (59 | ) | (11 | ) | ||
Proceeds from debt and lines of credit | 20,000 | - | ||||
Payments of debt and lines of credit | (18,645 | ) | - | |||
Deferred financing fees | (631 | ) | - | |||
Net cash provided by (used for) financing activities | 1,036 | (786 | ) | |||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 4,063 | 336 | ||||
CASH AND CASH EQUIVALENTS Beginning of period | 7,568 | 5,602 | ||||
CASH AND CASH EQUIVALENTS End of period | $ | 11,631 | $ | 5,938 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||
Cash paid for interest | $ | 600 | $ | 69 | ||
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||
Capital expenditures funded by capital lease borrowings | $ | - | $ | 224 | ||
Non-cash acquisition of property and equipment | $ | - | $ | 2,271 | ||
Non-cash acquisition of goodwill | $ | - | $ | 701 | ||
Non-cash deconsolidation of property and equipment | $ | 2,828 | $ | - | ||
Non-cash deconsolidation of goodwill | $ | 701 | $ | - |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
5
NOBILIS HEALTH CORP. AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share
amounts and as otherwise noted)
1. Basis of Presentation
The Company
Nobilis Health Corp. was incorporated on March 16, 2007 under the name "Northstar Healthcare Inc." pursuant to the provisions of the British Columbia Business Corporations Act ("BCBCA"). On December 5, 2014, Northstar Healthcare Inc. changed its name to Nobilis Health Corp. (the Company, we, our, us). Our registered office is located at Suite 400, 570 Granville Street, Vancouver, British Columbia V6C 3P1 and our corporate office is located at 4120 Southwest Freeway, Suite 150, Houston, Texas 77027.
We own and manage nine healthcare facilities (the "Nobilis Facilities") in Texas and Arizona; two MRI centers, an urgent care center, one hospital and five ambulatory surgery centers (ASC), referred to as the "Nobilis ASCs" of which three are located in Houston, Texas, one in Dallas, Texas and one in Scottsdale, Arizona. The Nobilis ASCs are licensed ambulatory surgery centers that provide scheduled surgical procedures in a limited number of clinical specialties, which enables them to develop routines, procedures and protocols to maximize operating efficiency and productivity while offering an enhanced healthcare experience for both physicians and patients. In December 2014, the Company expanded its services to health care marketing and factoring of receivables when it acquired 100% interests of Athas Health, LLC (Athas).
The Nobilis ASCs do not offer the full range of services typically found in traditional hospitals, but instead focus on certain clinical specialties, including orthopedic surgery, podiatric surgery, ENT, pain management, gastro- intestinal, gynecology, and general surgery. Nobilis hospital focuses on these same specialties with the ability to take on more complex instances.
The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements incorporated by reference in the Companys Annual Report on Form 10-K/A for the year ended December 31, 2014 (the Annual Report) filed on January 12, 2016 (the 10-K/A). If not materially different, certain footnote disclosures included in the 10-K/A have been omitted from this 10-Q/A.
The interim consolidated financial information in this report has not been audited. In the opinion of management, all adjustments, which consist of normal recurring adjustments necessary for a fair statement of the interim period consolidated financial statements, have been made. Results of operations reported for the interim periods are not necessarily indicative of results for the entire year.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and the disclosures of contingent assets and liabilities. These accounting estimates reflect the best judgement of management, but actual results could differ.
Certain amounts reported in the prior year have been reclassified to conform to current year presentation with no effect on net loss or shareholders equity.
Recent Accounting Pronouncements
In May 2014, Financial Accounting Standards Board (FASB) issued guidance that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. In April 2015, the FASB decided to delay the effective date for the guidance. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements.
6
In June 2014, the FASB issued amended guidance on the accounting for certain share-based employee compensation awards. The amended guidance applies to share-based employee compensation awards that include a performance target that affects vesting when the performance target can be achieved after the requisite service period. These targets are to be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award and compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The Company does not expect adoption will have a material impact on its consolidated financial statements.
In February 2015, the FASB issued amended guidance on the consolidation of legal entities including limited partnerships and limited liability corporations. The guidance modifies the consolidation models to be analyzed in determining whether a reporting entity should consolidate certain types of legal entities. The guidance must be applied using one of two retrospective application methods and will be effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The Company does not expect adoption will have a material impact on its consolidated financial statements.
In April 2015, the FASB issued guidance in order to simplify the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented as a direct deduction from the carrying amount of the debt liability rather than as a deferred charge asset as required under current guidance. The guidance also requires that the amortization of debt issuance costs be reported as interest expense. The guidance is effective for the Company starting January 1, 2016 and must be applied on a retrospective basis. Early adoption is permitted. The Company has chosen to early adopt this guidance as of the interim period ended March 31, 2015. No retrospective application was deemed necessary, as the Company did not have any debt issuance costs prior to the three months ended March 31, 2015. Approximately $0.6 million of debt issuance costs have been deducted from the carrying amount of debt as of March 31, 2015.
2. Restatement of Condensed Consolidated Financial Statements
On December 29, 2015, our Audit Committee of the Board of Directors, after consultation with management and the Company's predecessor auditors concluded that the Company's financial statements as of and for the three months ended March 31, 2015 and 2014, should be restated because the financial statements did not properly account for the following items:
|
Accounting for warrants and options issued in private placements and options issued to non-employees as liabilities The Company determined that FASB ASC 815-40-15-7I (ASC 815-40), Contracts in entities own equity, should have been applied to the accounting for warrants and options issued in private placements and for options issued to non-employees. This accounting would have resulted in the Company classifying warrants and options issued in connection with 2013 and 2014 private placements by the Company as liabilities rather than as stockholders equity. Similarly, this same accounting is applicable to stock options issued to non-employees once the performance conditions of such awards are completed. The Company first issued options to non-employees during the second quarter of 2014. Once recorded as liabilities, the warrants and options must be revalued each quarter with changes in their valuation reflected in earnings. |
At December 31, 2013, the warrant and stock option liabilities recognized for the proper application of ASC 815-40 in the Companys balance sheet totaled $2.4 million. During the quarter ended March 31, 2014, $374 thousand of income was recognized for decreases in the value of such liabilities through March 31, 2014. | |
At December 31, 2014, the warrant and stock option liabilities recognized for the proper application of ASC 815-40 in the Companys balance sheet totaled $6.7 million. During the quarter ended March 31, 2015, $3.4 million of expense was recognized for increases in the value of such liabilities through March 31, 2015. | |
|
Recognition of the full fair value of noncontrolling interests in the acquisition of First Nobilis as required by U.S. GAAP instead of at a pro-rata value permitted under IFRS We initially adopted accounting principles generally accepted in the United States of America (U.S. GAAP) effective January 1, 2013 in connection with our filings made with the U.S. Securities & Exchange Commission for registration of our stock in early 2015. Previously we prepared our financial statements under International Financial Reporting Standards (IFRS). The Company determined that FASB ASC 805, Business Combinations (ASC 805) was not properly applied in the initial adoption of U.S. GAAP by the Company and its application to the First Nobilis acquisition completed in September 2014. Under U.S. GAAP, noncontrolling interests should be measured at fair value on the acquisition date [ASC 805-20-30-1] whereas under IFRS these may be measured at their proportionate share of the recognized amount of the acquirees identifiable net assets [IFRS 3.19]. |
7
The impact of the proper application of ASC 805 as of the date of acquisition (September 2014) is a reduction in noncontrolling interests of $2.0 million; a decrease in acquired intangible assets of $1.4 million and a decrease in recognized goodwill of $0.6 million. Amortization expense recognized since the acquisition date will decrease by $15 thousand quarterly because of this change. | |
|
Adjustments to the acquisition accounting for the Athas transaction The Company determined that it did not properly apply ASC 805 in its initial accounting for the Athas acquisition completed in December 2014. The Company incorrectly used an earlier version of the report of the independent valuation firm that was later modified and, secondly, incorrectly gave recognition of Athas deferred rent as a liability in the acquisition accounting. |
Also, we corrected the Companys accounting policies related to accounts receivable factoring activities which commenced with the Athas acquisition. Under ASC 310-10-25-3, factoring revenue is recognized over the period from purchase of the account receivable until its collection. Correction for these accounting policies affects the initial acquisition accounting for the Athas transaction because it included accounts receivable for transactions recognized before the factoring purchase date. | |
The impact of the proper application of ASC 805 as of the date of acquisition is an increase in acquired intangible assets of $1.4 million, a reduction of liabilities of $260 thousand and a decrease in recognized goodwill of $1.7 million. Amortization expense recognized since the acquisition date will increase by $15 thousand quarterly because of this change. | |
The impact of the proper application of ASC 310-10-25-3 as of the date of acquisition was a decrease in acquired accounts receivable of $1.7 million, a reduction in accrued liabilities of $0.3 million and a corresponding increase in goodwill of $1.4 million. This correction of the Companys accounting policies will impact the timing of revenue recognition in the future. Revenues and accounts receivable as of and for the three months ended March 31, 2015 increased by $735 thousand for this reason. | |
|
Reclassification of Contingently Redeemable Noncontrolling Interests to Temporary Equity The Company determined that it did not properly apply SEC Accounting Series Release No. 268, Presentation of Financial Statements of Redeemable Preferred Stock (ASR 268) in classifying contingently redeemable noncontrolling interests associated with Northstar Healthcare Dallas Management, LLC and First Nobilis. Agreements with the third party equity owners in these entities give these owners limited rights to require the Company to repurchase their equity interests upon the occurrence of certain events. The contingently redeemable noncontrolling interests associated with these entities should be classified in the Companys balance sheet as temporary or mezzanine equity in accordance with ASR 268. |
The impact of the proper application of ASR 268 is a reclassification of $15.5 million of contingently redeemable noncontrolling interests from permanent equity to temporary or mezzanine equity at March 31, 2015 and $12.9 million at December 31, 2014. | |
|
Other Adjustments We have also identified and made correction for certain other accounting matters affecting our previous financial statements. These include (i) corrections for stock-based compensation expense for expected term, forfeitures and related assumptions in determining the grant date valuations of option awards, (ii) corrections to the accounting for options issued to non-employees to measure such awards as of the date that performance was completed, and (iii) corrections to the calculations of fully diluted shares outstanding for application of the treasury stock method. The combined impact of these other corrections was an increase in compensation expense of $4 thousand for the quarter ended March 31, 2014 and an increase of $621 thousand for the quarter ended March 31, 2015. |
Along with restating our financial statements as of and for the fiscal years ended December 31, 2013 and 2014 to correct the errors discussed above, we have recorded adjustments for certain previously identified accounting errors related to the periods covered by this Form 10-Q/A. In conjunction with our need to restate our financial statements as a result of the errors noted above, we have determined that it would be appropriate to make adjustments within this Form 10-Q/A for all such previously unrecorded adjustments.
We initially became aware of the above matters as part of the preparation of our financial statements during the third quarter of 2015 and review by the Companys newly engaged independent registered public accounting firm. The adjustments do not impact the Company's previously reported cash, cash equivalents or cash flows from operating, financing or investing activities. Overall, the adjustments increased revenue by $735 thousand for the three months ended March 31, 2015.
8
The Company has restated certain amounts included in these financial statements as follows:
As of March 31, 2015 | As of December 31, 2014 | |||||||||||||||||
As | As | |||||||||||||||||
Reported | Adjustments | Restated | Reported | Adjustments | Restated | |||||||||||||
Assets | ||||||||||||||||||
Current Assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 11,631 | $ | - | $ | 11,631 | $ | 7,568 | $ | - | $ | 7,568 | ||||||
Trade accounts receivable, net | 39,700 | (1,218 | ) | 38,482 | 42,175 | (1,714 | ) | 40,461 | ||||||||||
Medical supplies | 1,444 | - | 1,444 | 1,412 | - | 1,412 | ||||||||||||
Prepaid expenses and other | 3,167 | - | 3,167 | 3,554 | - | 3,554 | ||||||||||||
Total current assets | 55,942 | (1,218 | ) | 52,995 | 54,709 | (1,714 | ) | 52,995 | ||||||||||
Property and equipment, net | 6,404 | - | 6,404 | 9,087 | - | 9,087 | ||||||||||||
Intangible assets, net | 19,222 | 66 | 19,288 | 19,543 | 66 | 19,609 | ||||||||||||
Goodwill | 21,769 | (881 | ) | 20,888 | 22,470 | (881 | ) | 21,589 | ||||||||||
Notes receivable | 686 | - | 686 | 659 | - | 659 | ||||||||||||
Investments in associates | 2,365 | - | 2,365 | 880 | - | 880 | ||||||||||||
Other long-term assets | 125 | - | 125 | 234 | - | 234 | ||||||||||||
Total Assets | $ | 106,513 | $ | (2,033 | ) | $ | 104,480 | $ | 107,582 | $ | (2,529 | ) | $ | 105,053 | ||||
Liabilities, Contingently Redeemable Noncontrolling Interests and Equity | ||||||||||||||||||
Current Liabilities: | ||||||||||||||||||
Trade accounts payable | $ | 5,961 | $ | - | $ | 5,961 | $ | 10,528 | $ | - | $ | 10,528 | ||||||
Accrued liabilities | 8,240 | (778 | ) | 7,462 | 9,112 | (554 | ) | 8,558 | ||||||||||
Lines of credit | - | - | - | 5,420 | - | 5,420 | ||||||||||||
Subordinated notes payable | - | - | - | 635 | - | 635 | ||||||||||||
Current portion of warrant and stock option liabilities | - | 378 | 378 | - | 300 | 300 | ||||||||||||
Current portion of debt | 655 | - | 655 | 3,437 | - | 3,437 | ||||||||||||
Current portion of capital leases | 245 | - | 245 | 257 | - | 257 | ||||||||||||
Other current liabilities | 60 | - | 60 | 1,485 | - | 1,485 | ||||||||||||
Total current liabilities | 15,161 | (400 | ) | 14,761 | 30,874 | (254 | ) | 30,620 | ||||||||||
Long-term capital leases, net of current portion | 526 | - | 526 | 573 | - | 573 | ||||||||||||
Long-term debt, net of current portion | 18,715 | - | 18,715 | 10,582 | - | 10,582 | ||||||||||||
Warrant and stock option liabilities, net of current portion | - | 6,942 | 6,942 | - | 6,357 | 6,357 | ||||||||||||
Other long-term liabilities | 310 | - | 310 | 252 | - | 252 | ||||||||||||
Total liabilities | 34,712 | 6,542 | 41,254 | 42,281 | 6,103 | 48,384 | ||||||||||||
Contingently redeemable noncontrolling interests | 15,502 | 15,502 | - | 12,867 | 12,867 | |||||||||||||
Shareholders' Equity: | ||||||||||||||||||
Common stock, no par value | - | - | - | - | - | - | ||||||||||||
Additional paid in capital | 183,780 | 395 | 184,175 | 179,293 | (2,937 | ) | 176,356 | |||||||||||
Accumulated deficit | (133,724 | ) | (6,992 | ) | (140,716 | ) | (132,866 | ) | (3,710 | ) | (136,576 | ) | ||||||
Accumulated other comprehensive income (loss) | (98 | ) | - | (98 | ) | (111 | ) | - | (111 | ) | ||||||||
Total shareholders equity
attributable to Nobilis Health Corp. |
49,958 | (6,597 | ) | 43,361 | 46,316 | (6,647 | ) | 39,669 | ||||||||||
Noncontrolling interests | 21,843 | (17,480 | ) | 4,363 | 18,985 | (14,852 | ) | 4,133 | ||||||||||
Total shareholders' equity | 71,801 | (24,077 | ) | 47,724 | 65,301 | (21,499 | ) | 43,802 | ||||||||||
Total Liabilities, Contingently Redeemable Noncontrolling Interests and Equity | $ | 106,513 | $ | (2,033 | ) | $ | 104,480 | $ | 107,582 | $ | (2,529 | ) | $ | 105,053 |
9
Quarter Ended March 31, 2015 | Quarter Ended March 31, 2014 | |||||||||||||||||
As | As | |||||||||||||||||
Reported | Adjustments | Restated | Reported | Adjustments | Restated | |||||||||||||
Revenues: | ||||||||||||||||||
Patient and net professional fees | $ | 35,058 | $ | - | $ | 35,058 | $ | 12,121 | $ | - | $ | 12,121 | ||||||
Contracted marketing revenues | 810 | - | 810 | - | - | - | ||||||||||||
Factoring revenues | 1,248 | 735 | 1,983 | - | - | - | ||||||||||||
Total revenue | 37,116 | 735 | 37,851 | 12,121 | - | 12,121 | ||||||||||||
Cost of revenues | 61 | - | 61 | - | - | - | ||||||||||||
Gross Profit | 37,055 | 735 | 37,790 | 12,121 | - | 12,121 | ||||||||||||
Operating expenses: | ||||||||||||||||||
Salaries and benefits | 7,644 | - | 7,644 | 1,915 | - | 1,915 | ||||||||||||
Drugs and supplies | 4,949 | - | 4,949 | 1,564 | - | 1,564 | ||||||||||||
General and administrative | 13,183 | 15 | 13,198 | 5,906 | - | 5,906 | ||||||||||||
Depreciation and amortization | 637 | - | 637 | 298 | - | 298 | ||||||||||||
Total operating expenses | 26,413 | 15 | 26,428 | 9,683 | - | 9,683 | ||||||||||||
Corporate costs: | ||||||||||||||||||
Salaries and benefits | 991 | - | 991 | 559 | - | 559 | ||||||||||||
General and administrative | 5,370 | 621 | 5,991 | 552 | 4 | 556 | ||||||||||||
Legal expenses | 471 | - | 471 | 271 | - | 271 | ||||||||||||
Depreciation | 26 | - | 26 | 32 | - | 32 | ||||||||||||
Total corporate costs | 6,858 | 621 | 7,479 | 1,414 | 4 | 1,418 | ||||||||||||
Income from operations | 3,784 | 99 | 3,883 | 1,024 | (4 | ) | 1,020 | |||||||||||
Other expense (income): | ||||||||||||||||||
Interest expense | 490 | - | 490 | 53 | - | 53 | ||||||||||||
Change in
fair value of warrant and stock option liabilities |
- | 3,374 | 3,374 | - | (374 | ) | (374 | ) | ||||||||||
Other income, net | (135 | ) | - | (135 | ) | 19 | - | 19 | ||||||||||
Total other expense | 355 | 3,374 | 3,729 | 72 | (374 | ) | (302 | ) | ||||||||||
Net income before income taxes and noncontrolling interests | 3,429 | (3,275 | ) | 154 | 952 | 370 | 1,322 | |||||||||||
Income tax | 152 | - | 152 | 80 | - | 80 | ||||||||||||
Net income | 3,277 | (3,275 | ) | 2 | 872 | 370 | 1,242 | |||||||||||
Net income attributable to noncontrolling interests | 4,490 | 7 | 4,497 | 1,359 | - | 1,359 | ||||||||||||
Net loss attributable to Nobilis Health Corp. | $ | (1,213 | ) | $ | (3,282 | ) | $ | (4,495 | ) | $ | (487 | ) | $ | 370 | $ | (117 | ) | |
Net loss per basic common share | $ | (0.02 | ) | $ | (0.05 | ) | $ | (0.07 | ) | $ | (0.01 | ) | $ | 0.01 | $ | - | ||
Net loss per fully diluted common share | $ | (0.02 | ) | $ | (0.05 | ) | $ | (0.07 | ) | $ | (0.01 | ) | $ | 0.01 | $ | - | ||
Weighted average shares outstanding (basic) | 60,191,831 | - | 60,191,831 | 43,190,620 | - | 43,190,620 | ||||||||||||
Weighted average shares outstanding (fully diluted) | 60,191,831 | - | 60,191,831 | 43,190,620 | - | 43,190,620 |
10
Quarter Ended March 31, 2015 | Quarter Ended March 31, 2014 | |||||||||||||||||
As | As | |||||||||||||||||
Reported | Adjustments | Restated | Reported | Adjustments | Restated | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||
Net income | $ | 3,277 | $ | (3,275 | ) | $ | 2 | $ | 872 | $ | 370 | $ | 1,242 | |||||
Adjustments to reconcile net
income to net cash provided by operating activities: |
||||||||||||||||||
Depreciation and amortization | 663 | - | 663 | 330 | - | 330 | ||||||||||||
Change in fair
value of warrant and stock option liabilities |
- | 3,374 | 3,374 | - | (374 | ) | (374 | ) | ||||||||||
Foreign currency gain (loss) | 13 | - | 13 | (109 | ) | - | (109 | ) | ||||||||||
Share-based compensation | 2,789 | 621 | 3,410 | 48 | 4 | 52 | ||||||||||||
Changes in operating assets and liabilities: | - | - | - | - | - | - | ||||||||||||
Trade accounts receivable | 2,380 | (496) | 1,884 | 1,527 | - | 1,527 | ||||||||||||
Medical supplies | (32 | ) | - | (32 | ) | (83 | ) | - | (83 | ) | ||||||||
Prepaids and other current assets | (1,254 | ) | - | (1,254 | ) | (186 | ) | - | (186 | ) | ||||||||
Other long-term assets | 47 | - | 47 | 463 | - | 463 | ||||||||||||
Trade accounts payable and accrued liabilities | (4,183 | ) | (224 | ) | (4,407 | ) | (620 | ) | - | (620 | ) | |||||||
Other current liabilities | (51 | ) | - | (51 | ) | - | - | - | ||||||||||
Other long-term liabilities | 58 | - | 58 | (43 | ) | - | (43 | ) | ||||||||||
Net cash provided by operating activities | 3,707 | - | 3,707 | 2,199 | - | 2,199 | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||
Purchase of property and equipment | (487 | ) | - | (487 | ) | (581 | ) | - | (581 | ) | ||||||||
Purchase of investment in associate | - | - | - | (150 | ) | - | (150 | ) | ||||||||||
Purchase of interest acquired in subsidiaries, net of cash acquired | - | - | - | (346 | ) | - | (346 | ) | ||||||||||
Note receivable | (27 | ) | - | (27 | ) | - | - | - | ||||||||||
Deconsolidation of imaging centers and urgent care clinic | (166 | ) | - | (166 | ) | - | - | - | ||||||||||
Net cash used for investing activities | (680 | ) | - | (680 | ) | (1,077 | ) | - | (1,077 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||
Distributions to noncontrolling interests | (1,940 | ) | - | (1,940 | ) | (803 | ) | - | (803 | ) | ||||||||
Proceeds from exercise of options | 142 | - | 142 | 28 | - | 28 | ||||||||||||
Proceeds from exercise of warrants | 2,169 | - | 2,169 | - | - | - | ||||||||||||
Payments on capital lease obligations | (59 | ) | - | (59 | ) | (11 | ) | - | (11 | ) | ||||||||
Proceeds from debt and lines of credit | 20,000 | - | 20,000 | - | - | - | ||||||||||||
Payments of debt and lines of credit | (18,645 | ) | - | (18,645 | ) | - | - | - | ||||||||||
Deferred financing fees | (631 | ) | - | (631 | ) | - | - | - | ||||||||||
Net cash provided by (used for) financing activities | 1,036 | - | 1,036 | (786 | ) | - | (786 | ) | ||||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 4,063 | - | 4,063 | 336 | - | 336 | ||||||||||||
CASH AND CASH EQUIVALENTS Beginning | 7,568 | - | 7,568 | 5,602 | - | 5,602 | ||||||||||||
CASH AND CASH EQUIVALENTS Ending | $ | 11,631 | $ | - | $ | 11,631 | $ | 5,938 | $ | - | $ | 5,938 |
The adjustments also affect tables and disclosures within Notes 5, 7, 8, 11, 12, 13 and 15 as labeled therein.
11
3. Deconsolidations
During the three month period ended March 31, 2015, we completed the deconsolidation of two imaging centers and one urgent care clinic in Houston. We resigned as the manager of these facilities resulting in loss of control and our rights to exercise significant influence. We retained investments in these facilities that are accounted for as cost method investments as of January 1, 2015. The revaluation of our remaining investments in these facilities resulted in no gain or loss due to the short term these investments were held. The deconsolidation resulted in the reversal of $0.7 million of goodwill.
4. Investments in Associates
In March 2014, the Company acquired an ownership interest in Group of Pioneers Diagnostics (GOP), LLC, representing 40% of the outstanding share interests in GOP. The investment was previously accounted for using the equity method of accounting. During the three months ended March 31, 2015, the Company resigned as manager of GOP resulting in the loss of ability to exercise significant influence over the operating and financial activities of the investee. As a result, the investment will be accounted for under the cost method accounting. The carrying value of this investment at March 31, 2015 was $0.2 million, and is reflected in investments in associates in the consolidated balance sheets.
5. Trade Accounts Receivable (Restated)
A detail of accounts receivable as of March 31, 2015 and December 31, 2014 is as follows:
March 31, | December 31, | |||||
2015 | 2014 | |||||
(Restated) | (Restated) | |||||
Trade accounts receivable | $ | 39,526 | $ | 40,985 | ||
Allowance for doubtful accounts | (1,384 | ) | (1,391 | ) | ||
Receivables transferred | (596 | ) | (873 | ) | ||
Receivables purchased | 936 | 1,740 | ||||
Trade accounts receivable, net | $ | 38,482 | $ | 40,461 |
The Company, from time to time, shall transfer to the third party certain of its accounts receivable payments on a non-recourse basis. For the three months ended March 31, 2015 and 2014, advance payment of $0.6 million and $0.2 million, respectively, was received by the Company. During the same period, $1.8 million and $1.6 million of receivables, net of advancement of payment, were transferred. Concurrently, upon collection of these transferred receivables, payment will be made to the transferee.
Athas purchases receivables from physicians, at a discount, on a nonrecourse basis. The discount and purchase price vary by specialty. These purchased receivables are billed and collected by Athas who retains 100% of what is collected after paying the discounted purchase price. Following the transfer of the receivable, the transferor has no continued involvement and there are no restrictions on the receivables.
12
6. Concentrations
A summary of certain information about our payor concentration is as follows:
MEDICAL SERVICES SEGMENT
PATIENT AND NET
PROFESSIONAL FEE REVENUE BY PAYORS OF THE NOBILIS FACILITIES
FOR
THREE MONTHS ENDED MARCH 31, 2015 AND 2014
2015 Patient and Net |
2014 Patient and Net |
|||||
Payors | Professional Fee Revenue by |
Professional Fee Revenue by |
||||
Payor Mix |
Payor Mix |
|||||
Private insurance and other private pay | 94.9% | 96.4% | ||||
Workers compensation | 4.4% | 2.8% | ||||
Medicare | 0.7% | 0.8% | ||||
Total | 100.0% | 100.0% |
MARKETING & FACTORING SEGMENT
PATIENT AND NET
PROFESSIONAL FEE REVENUE BY PAYORS OF THE NOBILIS FACILITIES
FOR
THREE MONTHS ENDED MARCH 31, 2015 AND 2014
2015 Patient and Net |
2014 Patient and Net |
|||||
Payors | Professional Fee Revenue by |
Professional Fee Revenue by |
||||
Payor Mix |
Payor Mix |
|||||
Private insurance and other private pay | 100.0% | 0.0% | ||||
Workers compensation | 0.0% | 0.0% | ||||
Medicare | 0.0% | 0.0% | ||||
Total | 100.0% | 0.0% |
CONSOLIDATED SEGMENTS
PATIENT AND NET
PROFESSIONAL FEE REVENUE BY PAYORS OF THE NOBILIS FACILITIES
FOR
THREE MONTHS ENDED MARCH 31, 2015 AND 2014
2015 Patient and Net |
2014 Patient and Net |
|||||
Payors | Professional Fee Revenue by |
Professional Fee Revenue by |
||||
Payor Mix |
Payor Mix |
|||||
Private insurance and other private pay | 95.0% | 96.4% | ||||
Workers compensation | 4.3% | 2.8% | ||||
Medicare | 0.7% | 0.8% | ||||
Total | 100.0% | 100.0% |
Two facilities represent approximately 68.9% of the Companys contracted marketing revenue and five facilities represent approximately 67.2% of the Companys contracted marketing accounts receivable for the quarter ended and as of March 31, 2015.
13
7. Intangible Assets (Restated)
Intangible assets at March 31, 2015 and December 31, 2014 consist of the following:
March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||||||
(Restated) | (Restated) | ||||||||||||||||||||||||||
Term | Historical | Accumulated | Accumulated | Net Book | Historical | Accumulated | Accumulated | Net Book | |||||||||||||||||||
(in years) | Cost | Amortization | Impairment | Value | Cost | Amortization | Impairment | Value | |||||||||||||||||||
Definite Life | |||||||||||||||||||||||||||
Non-compete agreements | 10-15 | $ | 2,765 | $ | 909 | $ | - | $ | 1,856 | $ | 2,765 | $ | 857 | $ | - | $ | 1,908 | ||||||||||
Internally developed software | 5 | 1,980 | 132 | - | 1,848 | 1,980 | 33 | - | 1,947 | ||||||||||||||||||
Trade secret methodology | 10 | 5,620 | 191 | - | 5,429 | 5,620 | 47 | - | 5,573 | ||||||||||||||||||
Physician relationships | 15-20 | 2,800 | 82 | - | 2,718 | 2,800 | 47 | - | 2,753 | ||||||||||||||||||
Unfavorable lease | 8 | (290 | ) | (20 | ) | - | (270 | ) | (290 | ) | (11 | ) | - | (279 | ) | ||||||||||||
Indefinite Life | - | - | |||||||||||||||||||||||||
Tradenames | 1,000 | - | - | 1,000 | 1,000 | - | - | 1,000 | |||||||||||||||||||
Trademark | 5,610 | - | - | 5,610 | 5,610 | - | - | 5,610 | |||||||||||||||||||
Medicare license | 8,498 | - | 7,401 | 1,097 | 8,498 | - | 7,401 | 1,097 | |||||||||||||||||||
Total | $ | 27,983 | $ | 1,294 | $ | 7,401 | $ | 19,288 | $ | 27,983 | $ | 973 | $ | 7,401 | $ | 19,609 |
8. Goodwill (Restated)
The following tables provide information on changes in the carrying amount of goodwill, which is included in the accompanying consolidated balance sheets as of March 31, 2015 and December 31, 2014:
March 31, 2015 | December 31, 2014 | |||||
(Restated) | (Restated) | |||||
Cost | $ | 35,188 | $ | 35,889 | ||
Accumulated impairment | (14,300 | ) | (14,300 | ) | ||
Total | $ | 20,888 | $ | 21,589 |
Cost | March 31, 2015 | December 31, 2014 | ||||
BALANCE - beginning of period | $ | 35,889 | $ | 15,528 | ||
January 2014 business combination | - | 701 | ||||
September 2014 business combination | - | 649 | ||||
December 2014 business combination | - | 19,011 | ||||
Deconsolidation of imaging centers and urgent care clinic | (701 | ) | - | |||
Total cost | $ | 35,188 | $ | 35,889 | ||
Accumulated impairment | ||||||
BALANCE - beginning of period | $ | (14,300 | ) | $ | (14,300 | ) |
Impairment charges during the period | - | - | ||||
Total accumulated impairment | $ | (14,300 | ) | $ | (14,300 | ) |
14
9. Lines of Credit
On March 31, 2015, the Company secured a $5.0 million revolving line of credit from General Electric Capital Corporation. The revolving loan bears interest at a rate of 4% plus LIBOR per annum (4.70% at March 31, 2015) and amounts borrowed under the revolver may be repaid and re-borrowed periodically with a maturity of March 2020. The revolving loan is collateralized by the accounts receivable and physical equipment of all 100% owned subsidiaries as well as the Companys ownership interest in all less than wholly owned subsidiaries. The Company has no outstanding amount due on this revolver as of March 31, 2015.
10. Debt
On March 31, 2015, the Company secured a $20.0 million term loan from General Electric Capital Corporation. The term loan bears interest at a rate of 4% plus LIBOR per annum (4.70% at March 31, 2015) and requires quarterly payments of principal and interest until the loan matures in March 2020. The term loan is collateralized by the accounts receivable and physical equipment of all 100% owned subsidiaries as well as the Companys ownership interest in all less than wholly owned subsidiaries.
The $20.0 million term loan primarily served to refinance all previously held debt and lines of credit. Debt issuance costs associated with the new credit facility approximated $0.6 million and are being amortized over the life of the loan.
Long-term debt at March 31, 2015 consisted of the following:
March 31, | December 31, | |||||
2015 | 2014 | |||||
Lines of credit | $ | - | $ | 5,420 | ||
Subordinated notes payable | - | 635 | ||||
Term loan | 20,000 | 14,019 | ||||
Total debt | 20,000 | 20,074 | ||||
Less: current portion | 655 | 9,492 | ||||
Less: amortized loan fees | 630 | - | ||||
Long-term debt, net of current portion | $ | 18,715 | $ | 10,582 |
11. Share Based Compensation (Restated)
The Company granted a total of 1,026,782 stock options during the three months ended March 31, 2015. Of the granted options, 0.3 million of those vest ratably over a one year period, 0.5 million vest ratably over a two year period and 0.2 million vest ratably over a three year period. The following table summarizes stock option activity for the three months ended March 31, 2015.
Shares | Weighted- | Weighted-Average | |||||||
Underlying | Average Exercise | Remaining Life | |||||||
Options | Price | (years) | |||||||
Outstanding at December 31, 2014 | 3,118,218 | $ | 1.45 | 9.80 | |||||
Granted | 1,026,782 | $ | 4.01 | 9.97 | |||||
Exercised | (161,120 | ) | $ | 1.10 | - | ||||
Forfeited | (5,000 | ) | $ | 1.34 | - | ||||
Outstanding at March 31, 2015 | 3,978,880 | $ | 2.13 | 9.69 | |||||
Exercisable at March 31, 2015 | 1,161,924 | $ | 2.26 | 9.98 |
(The table above includes 710,000 options issued to non-employees. See Note 13 for discussion regarding the classification of these options in the balance sheet.)
The total intrinsic value of stock options exercised was $1.5 million for the three months ended March 31, 2015. The total intrinsic value for all in-the-money vested outstanding stock options was $1.1 million for the three months ended March 31, 2015.
The Company recorded compensation expense relative to employee stock options of $2.0 million and nil for the three months ended March 31, 2015 and 2014, respectively.
15
The fair values of stock options used in recording compensation expense are computed using the Black-Scholes option pricing model. The table below shows the assumptions used in the model for employee options awarded during the three months ended March 31, 2015.
Three months ended | |||
March 31, 2015 | |||
(Restated) | |||
Expected price volatility | 114% - 122% | ||
Risk free interest rate | 1.34% - 1.77% | ||
Expected annual dividend yield | 0% | ||
Expected option term (years) | 5 - 6 | ||
Expected forfeiture rate | 0% - 8.8% | ||
Grant date fair value per share | $2.53 - $3.57 |
For stock options, the Company recognizes share-based compensation net of estimated forfeitures and revises the estimates in the subsequent periods if actual forfeitures differ from the estimates. Forfeiture rates are estimated based on historical experience as well as expected future behavior.
12. Shareholders Equity (Restated)
Earnings per share (EPS)
A detail of the Companys EPS is as follows (in thousands except for share and per share amounts):
March 31, 2015 | March 31, 2014 | |||||
(Restated) | (Restated) | |||||
Net loss atttibutable to Nobilis Health Corp. | $ | (4,495 | ) | $ | (117 | ) |
Issued common shares at beginning of period | 59,418,227 | 42,729,547 | ||||
Effect of investment in subsidiary | - | 354,962 | ||||
Effect of stock based compensation | 77,796 | 106,111 | ||||
Effect of stock warrants | 695,808 | - | ||||
Weighted average common shares at end of period | 60,191,831 | 43,190,620 | ||||
Basic net loss per common share | $ | (0.07 | ) | $ | - |
As the Company is in a loss position for the periods presented, the calculation of dilutive shares is unnecessary, as any increase in weighted-average share amounts would result in an anti-dilutive per share amount.
13. Warrants and Options Liabilities (Restated)
Warrants and Options Issued in Private Placements
The Company issued warrants and compensatory options in connection with private placements completed in December 2013 and September 2014. These warrants and options have exercise prices denominated in Canadian dollars and as such may not be considered indexed to our stock in accordance with ASC 815-40-15-7I. Hence, these warrants and options are classified as liabilities under the caption Warrants and Options Liability and recorded at estimated fair value at each reporting date, computed using the Black-Scholes valuation method. Changes in the liability from period to period are recorded in the Statements of Operations under the caption Change in fair value of warrants and options liability.
16
The estimated fair values of warrants and options accounted for as liabilities were determined on the date of the private placements and at each balance sheet date following using the Black Scholes pricing model with the following inputs:
March 31, 2015 | December 31, 2014 | |||||
Risk free interest rate | 0.26% - 0.56% | 0.13% - 0.67% | ||||
Expected life in years | 0.75 1.50 | 1-2 | ||||
Expected volatility | 78% - 80% | 73% - 146% | ||||
Expected dividend yield | 0% | 0% |
The changes in fair value of the warrants and options liability during the quarter ended March 31, 2015 were as follows (in thousands):
Balance at January 1, 2014 | $ | 2,401 | |
Change in fair value recorded in earnings | (374 | ) | |
Balance at March 31, 2014 | $ | 2,027 | |
Balance at January 1, 2015 | $ | 6,657 | |
Exercises | (3,179 | ) | |
Change in fair value recorded in earnings | 3,066 | ||
Balance at March 31, 2015 | $ | 6,544 |
The following warrants and options were outstanding at March 31, 2015:
Number of | Remaining | ||||||||
Exercise price | warrants and | contractual life | |||||||
in Cnd$ | options | (years) | |||||||
2013 Options | Cnd$0.95 | 88,134 | 0.75 | ||||||
2014 Warrants | Cnd$1.80 | 1,461,359 | 1.50 | ||||||
2014 Options | Cnd$1.37 | 179,660 | 1.50 | ||||||
Outstanding and exercisable at March 31, 2015 | 1,729,153 |
Options Issued to Non-Employees
As discussed in Note 11, the Company has issued options to professionals providing services to the organization. These professionals do not meet the definition of an employee under U.S. GAAP. At March 31, 2015, there were 710,000 options issued and outstanding to these non-employees.
Under U.S. GAAP, the value of these option awards is determined at the performance completion date (e.g. vesting date). The Company recognizes expense for such estimated total value of the awards during the period from their issuance until performance completion since the professional services are being rendered during this time. The total expense recognized is adjusted to the final value of the award as determined on the performance completion date.
The estimated and final values of the option awards are determined using the Black Scholes pricing model with the following inputs:
March
31, 2015 |
December 31, 2014 |
|||||
Risk free interest rate | 0.26% - 1.37% | 0.67% - 2.00% | ||||
Expected life of warrants and options | 1 5 years | 2 - 6 years | ||||
Expected volatility | 74% - 121% | 113% - 127% | ||||
Expected dividend yield | 0% | 0% |
The Company recorded expense for non-employee stock options of $1.1 million for the quarter ended March 31, 2015. There were no options issued to non-employees before May 2014.
After the performance completion date, options issued to non-employees will be reclassified from equity to liabilities. Under U.S. GAAP, such options may not be considered indexed to our stock in accordance with ASC 815-40-15-7I because they have exercise prices denominated in Canadian dollars. Hence, these will be classified as liabilities under the caption Warrant and Option Liabilities and recorded at estimated fair value at each reporting date, computed using the Black-Scholes valuation method. Changes in the liability from period to period will be recorded in the Statements of Operations under the caption Change in fair value of warrant and option liabilities. At March 31, 2015, the performance completion date was completed for 166,667 non-employee options. Accordingly, the Company reclassified $468 thousand from
17
equity to liabilities for the value of the options at the performance completion date. At March 31, 2015, these options had increased in value to $776 thousand. The change in value of these options totaling $308 thousand has been recognized in earnings.
14. Income Taxes
The Company files a consolidated federal income tax return. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the periods in which the deferred tax assets are expected to be realized. The Company has determined that its deferred tax assets are not realizable on a more-likely-than-not basis and has recorded a full valuation allowance as of March 31, 2015 and December 31, 2014.
Reported tax expense is attributable to current state taxes only.
15. Business Segment Information (Restated)
A summary of the business segment information as of March 31, 2015 is as follows:
Three months ended March 31, 2015 | ||||||||||||
(Restated) | ||||||||||||
Medical | Marketing & | |||||||||||
Services | Factoring | Corporate | Total | |||||||||
Revenues | $ | 33,844 | $ | 4,007 | $ | - | $ | 37,851 | ||||
Cost of goods sold | - | 61 | - | 61 | ||||||||
Gross Profit | 33,844 | 3,946 | - | 37,790 | ||||||||
Operating expenses | 23,367 | 3,061 | - | 26,428 | ||||||||
Corporate costs | - | - | 7,479 | 7,479 | ||||||||
Income (loss) from operations | $ | 10,477 | $ | 885 | $ | (7,479 | ) | $ | 3,883 | |||
Other data: | ||||||||||||
Depreciation and amortization expense | $ | 289 | $ | 348 | $ | 26 | $ | 663 | ||||
Interest expense | $ | - | $ | 79 | $ | 411 | $ | 490 | ||||
Income tax expense | $ | 127 | $ | 25 | $ | - | $ | 152 | ||||
Intangible assets | $ | 4,541 | $ | 14,747 | $ | - | $ | 19,288 | ||||
Goodwill | $ | 1,877 | $ | 19,011 | $ | - | $ | 20,888 | ||||
Capital expenditures | $ | 487 | $ | - | $ | - | $ | 487 | ||||
Total assets | $ | 59,542 | $ | 39,512 | $ | 5,426 | $ | 104,480 | ||||
Total liabilities | $ | 7,123 | $ | 6,902 | $ | 27,229 | $ | 41,254 |
The Companys Marketing & Factoring segment started in December 2014 following the acquisition of Athas. Prior to the acquisition, the Company operated under one operating segment and therefore, has not presented a prior period comparison of segment information.
16. Related Party
The minority interest holder of First Nobilis, a fully consolidated entity, is also a partial owner of First Street Hospital, L.P. (First Street Hospital) and First Street Surgical Center, L.P. (First Street Surgical), both of which have an ongoing business relationship with the Company. At March 31, 2015, the Company has a due from these related parties of $4.3 million which is partially offset by a due to related parties of $2.6 million for a net amount owed to the Company of $1.7 million.
17. Litigation
The Company is involved in disputes or legal actions arising in the ordinary course of business. Management does not believe the outcome of such disputes or legal actions will have a material adverse effect on the Companys financial position, results of operations or cash flows.
18. Subsequent Events
On April 21, 2015, the Company announced its agreement with a syndicate of underwriters who have agreed to purchase, on a bought-deal private placement basis, 4,029,668 units of Nobilis at a price of Cdn $9.00 per unit, for gross proceeds of Cdn $36.3 million. Each unit is comprised of one treasury unit and one-half of one common share from the Chairman of the Board, Donald L. Kramer, and associates and affiliates of Donald L. Kramer or from the Companys President, Harry Fleming, or from treasury. Each treasury unit is comprised of one-half of one common share and one-half of one common share purchase warrant. Each warrant is exercisable for a period of 24 months following the closing of the offering at an exercise price of $11.50. The expiry date of the warrants may be accelerated by the Company at any time following the nine-month anniversary of the closing and prior to the expiry date of the warrants if the volume-weighted average trading price of the Company's common shares is greater than $13.50 for any 20 consecutive trading days, at which time the Company may accelerate the expiry date by issuing a press release announcing the reduced warrant term whereupon the warrants will expire on the 20th calendar day after the date of such press release.
18
On April 24, 2015, the Company announced that it has entered into an agreement to acquire Victory Healthcare Houston Hospital, a state of the art surgical hospital located in the world's largest medical centers. With 25 beds and six operating rooms, the hospital has provider agreements with most of the health insurers. The Company will acquire a controlling stake in the hospital for cash consideration of $1.5 million dollars and the assumption of capital leases totaling approximately $2.4 million dollars. In addition, Nobilis will extend credit to the hospital and assume certain payment obligations on behalf of the hospital.
On May 5, 2015, the Company announced that it has entered into an agreement to acquire Peak Surgeon Innovations, LLC ("Peak"), a provider of intraoperative neuromonitoring ("IOM") services for hospitals, surgery centers and other healthcare facilities. Nobilis will pay $0.7 million in cash and $0.8 million in Nobilis common stock, and the seller, Dr. Brian Hasse, will be entitled to receive an earn out based on the service line's EBITDA after 18 months of operations under Nobilis. Dr. Hasse executed an employment agreement with Nobilis naming him the Vice President of Nobilis' new electrodiagnostic division.
On May 11, 2015, the Company announced that it has entered into an asset purchase agreement to acquire Victory Healthcare Plano Hospital. With 25 beds and 6 operating rooms, the hospital provides additional capacity in the Dallas market and an option for Nobilis to augment its in-network revenue. Nobilis will acquire the entire hospital for the assumption of $5.5 Million in equipment leases and $7.0 Million in bank debt. No cash will be exchanged in the transaction.
We have evaluated subsequent events through May 13, 2015, the date the consolidated financial statements were issued.
19
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Amendment No. 1 to our Quarterly Report on Form 10-Q/A (this Quarterly Report) and the documents that are incorporated by reference in this Quarterly Report contain certain forward-looking statements within the meaning of Canadian and United States securities laws, including the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts and may be identified by the use of words such as may, believe, will, expect, project, estimate, anticipate, plan or continue. These forward-looking statements are based on current plans and expectations and are subject to a number of risks, uncertainties and other factors which could significantly affect current plans and expectations and our future financial condition and results. These factors, which could cause actual results, performance and achievements to differ materially from those anticipated, include, but are not limited to:
. | the risk that we may
face challenges managing our new Marketing Segment and may not realize
anticipated benefits; |
. | our ability to successfully maintain effective
internal controls over financial reporting, including the impact of material weaknesses identified by management and our ability to remediate such control deficiencies; |
. | our ability to implement our
business strategy, manage the growth in our business, and integrate
acquired businesses; |
. | the risk of litigation and investigations, and
liability claims for damages and other expenses not covered by insurance; |
. | the risk that payments from third-party payors, including government
healthcare programs, may decrease or not increase as costs increase; |
. | adverse developments affecting the medical practices of our physician
limited partners; |
. | our ability to maintain favorable relations with our
physician limited partners; |
. | our ability to grow revenues by increasing
case and procedure volume while maintaining profitability at the Nobilis
Facilities; |
. | failure to timely or accurately bill for services; |
. | our ability
to compete for physician partners, patients and strategic relationships; |
. | the risk of changes in patient volume and patient mix; |
. | the risk that laws
and regulations that regulate payments for medical services made by
government healthcare programs could cause our revenues to decrease; |
. | the
risk that contracts are cancelled or not renewed or that we are not able
to enter into additional contracts under terms that are acceptable to us; |
. | and the risk of potential decreases in our reimbursement rates. |
The foregoing are significant factors we think could cause our actual results to differ materially from expected results. However, there could be additional factors besides those listed herein that also could affect us in an adverse manner.
You should read this Quarterly Report completely and with the understanding that actual future results may be materially different from what we expect. You are cautioned not to unduly rely on forward-looking statements when evaluating the information presented in this Quarterly Report or our other disclosures because current plans, anticipated actions, and future financial conditions and results may differ from those expressed in any forward-looking statements made by or on behalf of Nobilis.
We have not undertaken any obligation to publicly update or revise any forward-looking statements. All of our forward-looking statements speak only as of the date of the document in which they are made or, if a date is specified, as of such date. Subject to an mandatory requirements of applicable law, we disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any changes in events, conditions, circumstances or information on which the forward-looking statement is based. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing factors and the risk factors set forth elsewhere in this report and in our Form 10-K/A filed on January 12, 2016.
Overview
The purpose of this section, Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A), is to provide a narrative explanation of our financial statements that enables investors to better understand our business, to enhance our overall financial disclosures, to provide the context within which our financial information may be analyzed, and to provide information about the quality of, and potential variability of, our financial condition, results of operations and cash flows. Our core business is the ownership, operation and management of outpatient surgery centers and surgical hospitals (the Medical Segment). We are also a provider of marketing services to our own affiliated entities as well as to third parties through our subsidiary Athas Health, LLC (Athas), which is a separate reportable business segment (the Marketing Segment).
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Unless otherwise indicated, all financial and statistical information included in MD&A relates to our continuing operations, with dollar amounts expressed in thousands (except per share, per case and per procedure). Continuing operations information includes the results of 6 of our 7 healthcare facilities (the Nobilis Facilities) operated throughout the three months ended March 31, 2015 and 2014. The Nobilis Facilities are located in Texas and Arizona and consist of two hospitals in Houston, Texas and five ambulatory surgery centers, referred to as the "Nobilis ASCs" of which three are located in Houston, Texas, one in Dallas, Texas and one in Scottsdale, Arizona. Continuing operation information does not include the results of our recent acquisition of an interest in an additional Houston-area hospital, which took place after March 31, 2015.
Restatement
As discussed in the Explanatory Note and in Note 2 of the Notes to Consolidated Financial Statements included in Part I- Item 1 of this 10-Q/A, we are restating our unaudited condensed consolidated financial statements and related disclosures for the three months ended March 31, 2015. The following discussion and analysis of our financial condition and results of operations incorporates the restated amounts.
Recent Developments
GE Capital Debt Financing. On March 31, 2015, we closed a $25 million debt financing facility with GE Capital, Healthcare Financial Services (GE). The facility will be used to support our growth efforts, provide a new revolving line as working capital and repay certain of the Companys existing outstanding indebtedness, including the $12 million sellers note related to Nobilis acquisition of Athas Health in December 2014. Pursuant to the Credit Agreement and ancillary agreements (collectively, the Loan Agreement) the term loan bears interest at a rate of 4% plus LIBOR per annum and amortizes over 20 years with required quarterly payments of principal and interest until the loan matures in March 2020. The revolving loan also bears interest at a rate of 4% plus LIBOR per annum and amounts borrowed under the revolver may be repaid and re-borrowed periodically with a maturity of March 2020. The credit facility is collateralized by the accounts receivable and physical equipment of all 100% owned subsidiaries as well as the Companys ownership interest in all less-than-wholly owned subsidiaries. The new credit facility serves to refinance all previously held debt and lines of credit and provide $5.0 million for working capital. Closing costs associated with the credit facility were approximated $0.6 million.
Acquisition of Victory Houston Medical Center, LP. On April 18, 2015, our affiliate Nobilis Health Holdings Corp. (NHHC) entered into a partnership interest purchase agreement (the Agreement) with Victory Parent Company, LLC, a Texas limited liability company (VPC), and Victory Medical Center Houston GP, LLC, a Texas limited liability company, to purchase a 55% interest in Victory Medical Center Houston, L.P., a Texas limited partnership (the Partnership) that owns and operates Victory Healthcare Houston Hospital. On April 24, 2015, the Purchaser completed the acquisition of interest in the Partnership. The Purchaser paid $1.5 million in cash and assumed approximately $2.4 million in capital leases of VPC and certain intercompany loans of the Partnership. Additionally, thirty (30) days after completing the acquisition, the Purchaser will satisfy certain debts owed to creditors of the Partnership. The Agreement also contains customary representations, warranties, covenants and indemnities.
Revenue Model and Case Mix
Revenues earned by the Nobilis Facilities vary depending on the procedures performed. For every medical procedure performed there are usually three separately invoiced patient billings:
. |
the surgical center fee for the use of infrastructure, surgical equipment, nursing staff, non-surgical professional services, supplies and other support services, which is earned by the Nobilis Facilities; |
. |
the professional fee, which is separately earned, billed and collected by the physician performing the procedure, separate and apart from the fees charged by the Nobilis Facilities; and |
. |
the anesthesiology fee, which is separately earned, billed and collected by the anesthesia provider, separate and apart from the fees charged by the Nobilis Facilities and the physicians. |
Overall revenue depends on procedure volume, case mix and payment rates of the respective payors.
21
The following table sets out the net patient service revenues, the number of procedures performed and the net patient service revenue per procedure at each of the Nobilis Facilities for three months ended March 31, 2015 and 2014:
Net Patient Service Revenue | Net Patient Service Revenue | |||||||||||||||||
($)(in thousands) | Number of Cases (1) | ($) per Case (2) | ||||||||||||||||
Nobilis Facility | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||||||||||||
NHSC-H | $ | 4,897 | $ | 3,412 | 488 | 222 | $ | 10,035 | $ | 15,368 | ||||||||
KIRBY | 2,879 | 2,157 | 874 | 820 | 3,294 | 2,631 | ||||||||||||
MSID | 9,013 | 6,522 | 699 | 457 | 12,894 | 14,271 | ||||||||||||
NHSC-S | 3,257 | - | 254 | - | 12,822 | - | ||||||||||||
FNH | 12,463 | - | 481 | - | 25,911 | - | ||||||||||||
FNSC | 1,121 | - | 435 | - | 2,577 | - | ||||||||||||
Total | 33,630 | 12,091 | 3,231 | 1,499 | 10,408 | 8,066 | ||||||||||||
Year over Year Growth | 178% | 116% | 29% |
Notes | |
(1) |
This table refers to all cases performed, regardless of their contribution to net patient service revenue. |
(2) |
Calculated by dividing net patient service revenues by the number of cases. |
The Nobilis Facilities focus on a limited number of high-volume, non-emergency procedures, most of which are billed on an out of network basis. Billing on an out of network basis means that we bill to entities not participating in the health insurance companies' ("Third Party Payers") provider networks, which negotiate discounted fees with providers and facilities in return for access to the patient populations covered by those Third Party Payors. The case mix at each Nobilis Facility is a function of the clinical specialties of the physicians on the medical staff and the equipment and infrastructure at each facility. The Nobilis Facilities intend to continue to refine their case mix as opportunities arise. The following table sets forth the combined number of cases and procedures by medical specialty performed for three months ended March 31, 2015 and 2014 at the Nobilis Facilities:
MEDICAL SERVICES SEGMENT
CASE AND PROCEDURE MIX
OF THE NOBILIS FACILITIES
FOR THE THREE MONTHS ENDED MARCH 31, 2015
AND 2014
2015 | 2015 | 2015 | 2015 % | 2014 | 2014 % | 2014 | 2014 % | |||||||||||||||||
Specialty | Cases | % Cases | Procedures | Procedures | Cases | Cases | Procedures | Procedures | ||||||||||||||||
Pain Management | 1,060 | 32.8% | 3,803 | 43.0% | 621 | 41.4% | 2,564 | 55.4% | ||||||||||||||||
Musculoskeletal Interventions | 183 | 5.7% | 687 | 7.8% | - | 0.0% | - | 0.0% | ||||||||||||||||
Interventional Headache Procedure | 20 | 0.6% | 20 | 0.2% | - | 0.0% | - | 0.0% | ||||||||||||||||
Orthopedics | 382 | 11.8% | 720 | 8.1% | 169 | 11.3% | 444 | 9.6% | ||||||||||||||||
Podiatry | 99 | 3.1% | 410 | 4.6% | 75 | 5.0% | 354 | 7.6% | ||||||||||||||||
Gastro-intestinal | 87 | 2.7% | 155 | 1.8% | 18 | 1.2% | 23 | 0.5% | ||||||||||||||||
General Surgery | 135 | 4.2% | 280 | 3.2% | 102 | 6.8% | 198 | 4.3% | ||||||||||||||||
Plastic & Reconstructive | 364 | 11.3% | 932 | 10.5% | - | 0.0% | - | 0.0% | ||||||||||||||||
Bariatrics | 670 | 20.7% | 1,311 | 14.8% | 354 | 23.6% | 566 | 12.2% | ||||||||||||||||
Gynecology | 99 | 3.1% | 117 | 1.3% | 26 | 1.7% | 33 | 0.7% | ||||||||||||||||
Ear, Nose, Throat (E.N.T.) | 132 | 4.1% | 401 | 4.5% | 134 | 8.9% | 448 | 9.7% | ||||||||||||||||
TOTAL | 3,231 | 100.0% | 8,836 | 100.0% | 1,499 | 100.0% | 4,630 | 100.0% |
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The following table for the Marketing Segment only includes cases generated through our marketing activities but performed at the non-Nobilis Facilities during the reporting period after the acquisition of Athas.
MARKETING SEGMENT
CASE AND PROCEDURE MIX OF THE
NOBILIS FACILITIES
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
2015 | 2015 % | 2015 | 2015 % | 2014 | 2014 % | 2014 | 2014 % | |||||||||||||||||
Specialty | Cases | Cases | Procedures | Procedures | Cases | Cases | Procedures | Procedures | ||||||||||||||||
Pain Management | 128 | 44.9% | 128 | 44.9% | - | 0.0% | - | 0.0% | ||||||||||||||||
Musculoskeletal Interventions | 124 | 43.5% | 124 | 43.5% | - | 0.0% | - | 0.0% | ||||||||||||||||
Interventional Headache Procedure | 33 | 11.6% | 33 | 11.6% | - | 0.0% | - | 0.0% | ||||||||||||||||
TOTAL | 285 | 100.0% | 285 | 100.0% | - | 0.0% | - | 0.0% |
CONSOLIDATED SEGMENTS
CASEAND PROCEDURE MIX OF
THE NOBILIS FACILITIES
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND
2014
2015 | 2015 % | 2015 | 2015 % | 2014 | 2014 % | 2014 | 2014 % | |||||||||||||||||
Specialty | Cases | Cases | Procedures | Procedures | Cases | Cases | Procedures | Procedures | ||||||||||||||||
Pain Management | 1,188 | 33.8% | 3,931 | 43.1% | 621 | 41.4% | 2,564 | 55.4% | ||||||||||||||||
Musculoskeletal Interventions | 307 | 8.7% | 811 | 8.9% | - | 0.0% | - | 0.0% | ||||||||||||||||
Interventional Headache Procedure | 53 | 1.5% | 53 | 0.6% | - | 0.0% | - | 0.0% | ||||||||||||||||
Orthopedics | 382 | 10.9% | 720 | 7.9% | 169 | 11.3% | 444 | 9.6% | ||||||||||||||||
Podiatry | 99 | 2.8% | 410 | 4.5% | 75 | 5.0% | 354 | 7.6% | ||||||||||||||||
Gastro-intestinal | 87 | 2.5% | 155 | 1.7% | 18 | 1.2% | 23 | 0.5% | ||||||||||||||||
General Surgery | 135 | 3.8% | 280 | 3.1% | 102 | 6.8% | 198 | 4.3% | ||||||||||||||||
Plastic & Reconstructive | 364 | 10.4% | 932 | 10.2% | - | 0.0% | - | 0.0% | ||||||||||||||||
Bariatrics | 670 | 19.1% | 1,311 | 14.4% | 354 | 23.6% | 566 | 12.2% | ||||||||||||||||
Gynecology | 99 | 2.8% | 117 | 1.3% | 26 | 1.7% | 33 | 0.7% | ||||||||||||||||
Ear, Nose, Throat (E.N.T.) | 132 | 3.8% | 401 | 4.4% | 134 | 8.9% | 448 | 9.7% | ||||||||||||||||
TOTAL | 3,516 | 100.0% | 9,121 | 100.0% | 1,499 | 100.0% | 4,630 | 100.0% |
Note:
A procedure is defined as the actual surgery or surgeries that are performed on the date of service for each patient (case). Each case typically includes numerous procedures. In Managements Discussion and Analysis of Financial Condition and Results of Operations in the 2014 Annual Report, we provided the number of unique procedures per case as the total number of procedures during the period (i.e. a patient may have had three different procedures performed, however, one of the three procedures might have been performed numerous times during the case). In this Quarterly Report, we calculated the total number of procedures performed on a case, regardless of the fact that the same procedure may have been performed numerous times. These tables refer to all cases and procedures performed, regardless of their contribution to net patient service revenue.
Our total cases performed for the three months ended March 31, 2015, were 3,516, representing a total increase of 2,017 cases, or 134.6%, from the 1,499 cases in the same period in 2014. The consolidated marketing programs are attributable to 694 of the increase, with 285 cases reported under the Marketing segment, and the remaining under the Medical Services segment. Cases generated by other programs under the Medical Services segment are attributable to 1,323 of the increase. Case volume primarily increased under the specialties of pain management, musculoskeletal interventions and bariatric surgeries.
23
Our procedure volume for the three months ended March 31, 2015, increased by 97.0% to 9,121 from 4,630 during the prior corresponding period. Since case reimbursement is based on case type, a decrease in the number of procedures per case has no effect on our reimbursement and net patient service revenue per case.
We receive payments for surgical procedures and related services from private health insurance plans, workers compensation, directly from patients and from government payor plans. A substantial portion of net patient service revenues generated by the Nobilis Facilities is based on payments received from private (non-government) insurance plans. We receive a relatively small amount of revenue from Medicare or Medicaid procedures. We also receive a relatively small portion of their revenue directly from uninsured patients, who pay out of pocket for the services they receive. Insured patients are responsible for services not covered by their health insurance plans, and for deductibles, co-payments and co-insurance obligations under their plans. The amount of these deductibles, co-payments and coinsurance obligations has increased in recent years but does not represent a material component of the revenue generated by the Nobilis Facilities. The surgical center fees of the Nobilis Facilities are generated by our physician limited partners and the other physicians who use the Nobilis Facilities to provide services. The surgical center fees are billed and collected directly by the Nobilis Facilities.
Patient and net professional fees and contracted marketing revenues are reported as the estimated net realizable amounts from patients, third-party payors, and others for services rendered. Revenue is recognized upon the performance of the patient service. The amounts that we actually collect from third-party payors, including private insurers, may vary even for identical procedures performed. An additional factor in the determination of net patient service revenue is our payor mix, as between private health insurance plans, workers compensation, directly from patients and from government payor plans. We review and evaluate historical collections and payment data, payor mix and current economic conditions on a periodic basis and adjust the estimated collections as a percentage of gross billings, which we use to determine net patient service revenue, as required based on final settlements and collections.
The following tables set out the payor mix at our Medical Segment, our Marketing Segment and on a consolidated basis. This information is not intended to provide a comprehensive comparison of financial results, as reimbursement by insurance carrier varies based on deductibles, plan coverage and cases performed.
MEDICAL SERVICES SEGMENT
PATIENT AND NET
PROFESSIONAL FEE REVENUE BY PAYORS OF THE NOBILIS FACILITIES
FOR
THREE MONTHS ENDED MARCH 31, 2015 AND 2014
2015 Patient and Net | 2014 Patient and Net | |||||
Payors | Professional Fee Revenue by | Professional Fee Revenue by | ||||
Payor Mix | Payor Mix | |||||
Private insurance and other private pay | 94.9% | 96.4% | ||||
Workers compensation | 4.4% | 2.8% | ||||
Medicare | 0.7% | 0.8% | ||||
Total | 100.0% | 100.0% |
MARKETING & FACTORING SEGMENT
PATIENT AND NET
PROFESSIONAL FEE REVENUE BY PAYORS OF THE NOBILIS FACILITIES
FOR
THREE MONTHS ENDED MARCH 31, 2015 AND 2014
2015 Patient and Net | 2014 Patient and Net | |||||
Payors | Professional Fee Revenue by | Professional Fee Revenue by | ||||
Payor Mix | Payor Mix | |||||
Private insurance and other private pay | 100.0% | 0.0% | ||||
Workers compensation | 0.0% | 0.0% | ||||
Medicare | 0.0% | 0.0% | ||||
Total | 100.0% | 0.0% |
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CONSOLIDATED SEGMENTS
PATIENT AND NET
PROFESSIONAL FEE REVENUE BY PAYORS OF THE NOBILIS FACILITIES
FOR
THREE MONTHS ENDED MARCH 31, 2015 AND 2014
2015 Patient and Net | 2014 Patient and Net | |||||
Payors | Professional Fee Revenue by | Professional Fee Revenue by | ||||
Payor Mix | Payor Mix | |||||
Private insurance and other private pay | 95.0% | 96.4% | ||||
Workers compensation | 4.3% | 2.8% | ||||
Medicare | 0.7% | 0.8% | ||||
Total | 100.0% | 100.0% |
RESULTS OF OPERATIONS AS A PERCENTAGE OF PATIENT AND NET
PROFESSIONAL FEES
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
Three months ended March 31, | ||||||
2015 | 2014 | |||||
Revenues: | 100% | 100% | ||||
Cost of revenues | 0.2% | 0.0% | ||||
Gross Profit | 99.8% | 100% | ||||
Operating expenses: | ||||||
Salaries and benefits | 20.2% | 15.8% | ||||
Drugs and supplies | 13.1% | 12.9% | ||||
General and administrative | 34.9% | 48.7% | ||||
Depreciation and amortization | 1.7% | 2.5% | ||||
Total operating expenses | 69.9% | 79.9% | ||||
Corporate costs: | ||||||
Salaries and benefits | 2.6% | 4.6% | ||||
General and administrative | 15.8% | 4.6% | ||||
Legal expenses | 1.2% | 2.2% | ||||
Depreciation and amortization | 0.1% | 0.3% | ||||
Total corporate costs | 19.7% | 11.7% | ||||
Income from operations | 10.2% | 8.4% | ||||
Other expense (income): | ||||||
Interest expense | 1.3% | 0.4% | ||||
Change in fair value of warrant and stock option liabilities | 8.9% | -3.1% | ||||
Other expense (income), net | -0.4% | 0.2% | ||||
Total other expense (income) | 9.8% | -2.5% | ||||
Net income before income taxes and noncontrolling interests | 0.4% | 10.9% | ||||
Income tax | 0.4% | 0.7% | ||||
Net income | 0.0% | 10.2% | ||||
Net income attributable to noncontrolling interests | 11.9% | 11.2% | ||||
Net income attributable to Nobilis Health Corp. | -11.9% | -1.0% |
Consolidated Revenues
Our total revenues for the three months ended March 31, 2015, totaled $37.9 million, an increase of $25.8 million or 213.2%, compared to $12.1 million from the prior corresponding period. The Marketing segment accounted for $4.0 million of the increase while the Medical Services segment increased by $21.8 million, or 180.2%, compared to $12.1 million from the prior corresponding period. Growth at our existing facilities, or same center facilities, represented $4.7 million of the three month period increase, while the remaining $17.1 million is attributable to newly acquired facilities.
25
Operating Salaries
Operating salaries and benefits for the three months ended March 31, 2015, totaled $7.6 million, an increase of $5.7 million or 300.0% from the prior corresponding period. The Marketing Segment contributed to $2.3 million of the increase. Staffing costs at newly acquired facilities accounted for $3.3 million of the $5.7 million increase. The remaining $0.1 million increase is attributable to additional staffing at same center facilities driving by increased case volumes. Operating salaries and benefits as a percent of revenues were 20.2% compared to 15.8% in the prior corresponding period reflective of increased staffing needs at newly acquired facilities and Marketing Segment.
Medical supplies
Drugs and medical supplies expense for the three months ended March 31, 2015, totaled $4.9 million, an increase of $3.3 million or 206.3% from the prior corresponding period. Medical supplies costs at newly acquired facilities accounted for $2.6 million of the increase with the remaining $0.7 million attributable to same center growth. Drugs and medical supplies as a percent of revenues increased to 13.1% from 12.9% from the prior corresponding period due to the increased acuity, and associated increased cost of supplies, of the case mix.
Operating General and Administrative
Our operating general and administrative expense for three months ended March 31, 2015, totaled $13.2 million, an increase of $7.3 million, or 123.7%, from the prior corresponding period. The Marketing Segment contributed to $0.5 million of the increase. The remainder of the $6.8 million increase is due to an increase in operations associated with the newly acquired medical services facilities, and an increase in marketing expenses. Marketing expenses allocated to the Medical Services segment increased to $4.3 million for the three months ended March 31, 2015, from $1.1 million for the corresponding period in 2014. The increase in marketing expenses is related to our strategic growth initiatives of growing our bariatric, spine, podiatry and gynecological brands.
In addition, operating general and administrative expenses increased as a result of an increase in revenue cycle management expenses. From time to time, we transfer to third parties certain of our accounts receivable payments on a non-recourse basis in return for advancement on payment to achieve a faster cash collection. The advancement payment varies by specialty and on average represents between 20% and 50% of the amounts transferred. We do not have any other relationship with third parties of this nature other than the vendor relationship described herein. For three months ended March 31, 2015 and 2014 we received advancement payments of $0.6 million and $0.2 million, respectively. During the same period, we transferred $1.8 million and $1.6 million, respectively, of receivables, net of advancement payment, representing an increase in revenue cycle management expenses of $0.2 million.
Depreciation
Depreciation for the three months ended March 31, 2015, totaled $0.6 million, an increase of $0.3 million or 100.0% from the prior corresponding period. This increase is primarily due to an increase in property and equipment from the Nobilis Scottsdale facility.
Corporate General and Administrative
In total, corporate costs for the three months ended March 31, 2015, totaled $7.5 million, representing an increase of $6.1 million or 435.7% from the prior corresponding period. The increase was primarily attributable to additional corporate staff and legal expenses related to marketing and acquisitions. Non-cash compensation increased by $3.4 million to $3.4 million for the three months ended March 31, 2015 from $0.0 million for the corresponding period in 2014. The increase in non-cash compensation is attributable to the growth in corporate staff to accommodate the companys growth initiatives. We present corporate costs as a separate section from the operating expenses of the revenue generating facilities to illustrate our operational efficiency.
Net income attributable to noncontrolling interests are based on ownership percentages in the Nobilis Facilities that are owned by third parties.
Liquidity, Capital Resources and Financial Condition
We are dependent upon cash generated from operating activities of the Nobilis Facilities, which are the major source of financing for our operations, growth initiatives, acquisitions and for meeting our contractual obligations. Our primary sources of liquidity are cash generated from operating activities of the Nobilis Facilities, available cash and cash equivalents, and available borrowings under our term loan with General Electric Capital Corporation (the Term Loan) described below and in Note 14 - Debt included in the Notes to Consolidated Financial Statements in this Quarterly Report. We expect to be able to fund our activities for the remainder of 2015 with cash flows generated from our operations, available cash and cash equivalents, financing activities and access to the Term Loan.
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Cash and cash equivalents at March 31, 2015 and December 31, 2014 were $11.6 million and $7.6 million, respectively. For the three months ended March 31, 2015, we experienced an increase in operating cash flows of approximately $1.5 million, primarily attributable to increased cash flows related to 2014 year end case volumes.
As of March 31, 2015, the Company had consolidated net working capital of $40.0 million compared to $22.4 million as of December 31, 2014. The increase is primarily due to a decrease in short term debt and notes payables related to refinancing activities. Total accounts receivable were $38.5 million with accounts payables and accrued liabilities totaling $13.4 million.
On March 31, 2015, we closed a $25 million debt financing facility with GE Capital, Healthcare Financial Services (GE). The facility will be used to support our growth efforts, provide a new revolving line as working capital and repay certain of the Companys existing outstanding indebtedness, including the $12 million sellers note related to Nobilis acquisition of Athas Health in December 2014. Pursuant to the Credit Agreement and ancillary agreements (collectively, the Loan Agreement) the term loan bears interest at a rate of 4% plus LIBOR per annum and amortizes over 20 years with required quarterly payments of principal and interest until the loan matures in March 2020. The revolving loan also bears interest at a rate of 4% plus LIBOR per annum and amounts borrowed under the revolver may be repaid and re-borrowed periodically with a maturity of March 2020. The credit facility is collateralized by the accounts receivable and physical equipment of all 100% owned subsidiaries as well as the Companys ownership interest in all less-than-wholly owned subsidiaries. The new credit facility serves to refinance all previously held debt and lines of credit and provide $5.0 million for working capital. Closing costs associated with the credit facility were approximately $0.6 million.
Critical Accounting Policies
A summary of significant accounting policies is included in our 10-K/A. Our critical accounting policies are further described under the caption Critical Accounting Policies in Managements Discussion and Analysis of Financial Condition and Results of Operations in our 10-K/A. There have been no changes in the nature of our critical accounting policies or the application of those policies since December 31, 2014.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to market risk from exposure to changes in interest rates based on our financing, investing and cash management activities. We do not, however, hold or issue financial instruments or derivatives for trading or speculative purposes. At March 31, 2015, the following components of our Loan Agreement bears interest at variable rates at specified margins above either the agent banks alternate base rate or the LIBOR rate: (i) a $20 million, 5-year term loan; and (ii) a $5 million, 5-year revolving credit facility.
Although changes in the alternate base rate or the LIBOR rate would affect the cost of funds borrowed in the future, we believe the effect, if any, of reasonably possible near-term changes in interest rates on our remaining variable rate debt or our consolidated financial position, results of operations or cash flows would not be material. Holding other variables constant, including levels of indebtedness, a 0.125% increase in current interest rates would have no estimated impact on pre-tax earnings and cash flows for the next twelve month period given the 0.70215% LIBOR floor that exists in our Loan Agreement.
We currently believe we have adequate liquidity to fund operations during the near term through the generation of operating cash flows, cash on hand and access to our senior secured revolving credit facility. Our ability to borrow funds under Loan Agreement is subject to, among other things, the financial viability of the participating financial institutions. While we do not anticipate any of our current lenders defaulting on their obligations, we are unable to provide assurance that any particular lender will not default at a future date.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, consisting of controls and other procedures designed to give reasonable assurance that information we are required to disclose in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms and that such information is accumulated and communicated to management, including our chief executive officer and our chief financial officer, to allow timely decisions regarding such required disclosure. At the time that the Original Filing was filed on May 14, 2015, our management, including our chief executive officer and chief financial officer, concluded that our internal control over financial reporting and disclosure controls and procedures were effective as of March 31, 2015.
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Subsequent to that evaluation, our CEO and our CFO have concluded that our Companys disclosure controls and procedures were not effective as of as of March 31, 2015 as of a result of identified material weaknesses in the Companys internal control discussed below.
The following control deficiencies that constituted material weaknesses were identified:
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We did not maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience, and training in the application of U.S. GAAP necessary to support our operations; and |
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We did not apply the appropriate level of review and oversight to the accounting and disclosure for significant, infrequently occurring transactions such as for business combinations and private placements. |
Remediation Plan
In light of these material weaknesses, in preparing our financial statements as of and for the quarters ended March 31, 2015 and 2014, we performed additional analyses and procedures to ensure that our consolidated financial statements included in this Form 10-Q/A have been prepared in accordance with U.S. GAAP.
Our management has been actively engaged in remediation efforts to address the material weaknesses, as well as other identified areas of risk. These remediation efforts, outlined below, are intended to address the identified material weaknesses and to enhance our overall control environment.
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On July 9, 2015, we appointed Mr. Kenny Klein to serve as the Company's Chief Financial Officer. Our previous CFO, assumed other responsibilities with our accounting and finance organization. |
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During the third quarter of 2015, the Company strengthened its accounting and financial reporting group with the addition of five new professionals with knowledge, experience, and training in the application of U.S. GAAP to our accounting and finance organization. This group is complemented by the engagement during the fourth quarter of 2015 of third-party accounting specialists who will assist us with significant, infrequently occurring transactions. |
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We are currently reviewing and implementing remediation steps providing for more detailed supervisory review processes as part of our financial statement close process. |
Our executive management team, together with our Board of Directors, is committed to achieving and maintaining a strong control environment, high ethical standards, and financial reporting integrity.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting during the three months ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except as noted above with respect to the identified material weaknesses regarding personnel and oversight of significant, infrequently occurring transactions.
Part II
Item 1. Legal Proceedings
There was no change in our internal control over financial reporting during the three months ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except as noted above with respect to the identified material weaknesses regarding personnel and oversight of significant, infrequently occurring transactions.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in our Form 10-K/A filed on January 12, 2016.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
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None.
Item 6. Exhibits
Exhibit | Description |
31.1* | |
31.2* | |
32.1* | |
32.2* |
*Filed herewith
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Signature
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.
NOBILIS HEALTH CORP.
Date: January 12, 2016
By: | /s/ Kenneth Klein | |
Kenneth Klein | ||
Chief Financial Officer | ||
(Principal Financial and Duly Authorized Officer) |
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