Full Press Release Details
HC Group Holdings II, Inc.
Quarterly Report for the Quarterly Period Ended June 30, 2019
HC Group Holdings II, Inc.
| Page | |
| Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018 (audited) | 1 |
| Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2019 and 2018 | 2 |
| Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 | 3 |
| Unaudited Condensed Consolidated Statements of Shareholder's Equity for the three and six months ended June 30, 2019 and 2018 | 4 |
| Notes to Unaudited Condensed Consolidated Financial Statements | 5-12 |
| HC GROUP HOLDINGS II, INC. |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| (IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS) |
| (unaudited) | (audited) | |||||||
| June 30, | December 31, | |||||||
| 2019 | 2018 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 46,855 | $ | 36,391 | ||||
| Accounts receivable, less allowance of $60,362 and $60,361, respectively | 284,119 | 310,169 | ||||||
| Inventories | 75,019 | 83,340 | ||||||
| Prepaid expenses and other current assets | 30,068 | 37,525 | ||||||
| Total current assets | 436,061 | 467,425 | ||||||
| NONCURRENT ASSETS: | ||||||||
| Property and equipment, net | 87,510 | 93,142 | ||||||
| Intangible assets, net | 209,921 | 219,713 | ||||||
| Goodwill | 639,011 | 639,011 | ||||||
| Other noncurrent assets | 16,566 | 15,462 | ||||||
| Total noncurrent assets | 953,008 | 967,328 | ||||||
| TOTAL ASSETS | $ | 1,389,069 | $ | 1,434,753 | ||||
| LIABILITIES AND SHAREHOLDER'S EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 169,194 | $ | 187,886 | ||||
| Amounts due to plan sponsors | 12,847 | 12,189 | ||||||
| Accrued compensation and employee benefits | 17,557 | 24,895 | ||||||
| Accrued expenses and other current liabilities | 16,229 | 10,877 | ||||||
| Long term debt - current portion | 4,150 | 4,150 | ||||||
| Total current liabilities | 219,977 | 239,997 | ||||||
| NONCURRENT LIABILITIES: | ||||||||
| Long term debt, net of discount and deferred financing costs | 534,784 | 535,225 | ||||||
| Deferred income taxes | 25,569 | 33,481 | ||||||
| Other noncurrent liabilities | 24,593 | 23,225 | ||||||
| Total noncurrent liabilities | 584,946 | 591,931 | ||||||
| Total liabilities | 804,923 | 831,928 | ||||||
| SHAREHOLDER'S EQUITY: | ||||||||
| Common stock, $0.01 par value; | ||||||||
| 1,000 shares authorized, issued, and outstanding | - | - | ||||||
| Paid-in capital | 618,417 | 619,635 | ||||||
| Management notes receivable | (1,287 | ) | (1,619 | ) | ||||
| Accumulated deficit | (33,350 | ) | (16,035 | ) | ||||
| Accumulated other comprehensive income | 366 | 844 | ||||||
| Total shareholder's equity | 584,146 | 602,825 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY | $ | 1,389,069 | $ | 1,434,753 |
The notes to unaudited condensed consolidated financial statements
are an integral part of these statements.
| HC GROUP HOLDINGS II, INC. |
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS |
| (IN THOUSANDS) |
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| NET REVENUE | $ | 512,584 | $ | 496,930 | $ | 1,005,592 | $ | 971,858 | ||||||||
| COST OF REVENUE | 395,876 | 378,216 | 774,174 | 737,163 | ||||||||||||
| GROSS PROFIT | 116,708 | 118,714 | 231,418 | 234,695 | ||||||||||||
| OPERATING COSTS AND EXPENSES: | ||||||||||||||||
| Selling, general and administrative expenses | 99,245 | 82,859 | 182,036 | 172,385 | ||||||||||||
| Provision for doubtful accounts | 15,318 | 17,440 | 31,830 | 31,725 | ||||||||||||
| Depreciation and amortization expense | 10,150 | 9,518 | 20,119 | 18,623 | ||||||||||||
| Total operating expenses | 124,713 | 109,817 | 233,985 | 222,733 | ||||||||||||
| OPERATING (LOSS) INCOME | (8,005 | ) | 8,897 | (2,567 | ) | 11,962 | ||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Interest expense | (11,563 | ) | (12,007 | ) | (22,608 | ) | (23,288 | ) | ||||||||
| Equity in earnings of joint ventures | 643 | 211 | 1,192 | 355 | ||||||||||||
| Other, net | (101 | ) | (2,230 | ) | (177 | ) | (2,309 | ) | ||||||||
| Total other expense | (11,021 | ) | (14,026 | ) | (21,593 | ) | (25,242 | ) | ||||||||
| LOSS BEFORE INCOME TAXES | (19,026 | ) | (5,129 | ) | (24,160 | ) | (13,280 | ) | ||||||||
| INCOME TAX BENEFIT | (5,423 | ) | (820 | ) | (6,845 | ) | (2,120 | ) | ||||||||
| NET LOSS | $ | (13,603 | ) | $ | (4,309 | ) | $ | (17,315 | ) | $ | (11,160 | ) | ||||
| OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: | ||||||||||||||||
| Change in unrealized gains on cash flow hedges, net of income taxes of ($15), ($141), $227 and ($496), respectively | 27 | 418 | (478 | ) | 1,448 | |||||||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | 27 | 418 | (478 | ) | 1,448 | |||||||||||
| NET COMPREHENSIVE LOSS | $ | (13,576 | ) | $ | (3,891 | ) | $ | (17,793 | ) | $ | (9,712 | ) |
The notes to unaudited condensed consolidated financial statements
are an integral part of these statements.
| HC GROUP HOLDINGS II, INC. |
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (IN THOUSANDS) |
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2019 | 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (17,315 | ) | $ | (11,160 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operations: | ||||||||
| Depreciation and amortization expense | 21,591 | 20,144 | ||||||
| Deferred income taxes - net | (7,912 | ) | (2,212 | ) | ||||
| Loss on sale of assets | 726 | 350 | ||||||
| Gain on business casualty loss | (626 | ) | - | |||||
| Loss on extinguishment of debt | - | 72 | ||||||
| Amortization of deferred financing costs | 1,635 | 1,502 | ||||||
| Equity in earnings of joint ventures | (1,192 | ) | (355 | ) | ||||
| Stock-based incentive compensation expense | 1,153 | 1,106 | ||||||
| Interest on management notes receivable | (39 | ) | (37 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | 26,050 | (41,740 | ) | |||||
| Inventories | 8,321 | 7,696 | ||||||
| Prepaid expenses and other current assets | 6,979 | (2,110 | ) | |||||
| Accounts payable | (18,692 | ) | 22,799 | |||||
| Amounts due to plan sponsors | 658 | 2,771 | ||||||
| Accrued compensation and employee benefits | (7,338 | ) | (3,670 | ) | ||||
| Accrued expenses and other current liabilities | 6,951 | 3,613 | ||||||
| Other noncurrent assets and liabilities | 1,456 | (201 | ) | |||||
| Net cash provided by (used in) operating activities | 22,406 | (1,432 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Acquisition of property and equipment | (8,502 | ) | (13,060 | ) | ||||
| Insurance proceeds from business casualty loss | 626 | - | ||||||
| Proceeds from sale of assets | 10 | - | ||||||
| Net cash used in investing activities | (7,866 | ) | (13,060 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Redemptions to related parties | (2,000 | ) | - | |||||
| Proceeds from debt | - | 1,000 | ||||||
| Repayments of debt | (2,076 | ) | (3,074 | ) | ||||
| Net cash used in financing activities | (4,076 | ) | (2,074 | ) | ||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 10,464 | (16,566 | ) | |||||
| Cash and cash equivalents - beginning of the period | 36,391 | 53,116 | ||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 46,855 | $ | 36,550 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 15,156 | $ | 21,783 | ||||
| Cash paid for income taxes | $ | 1,060 | $ | 792 |
The notes to unaudited condensed consolidated financial statements
are an integral part of these statements.
| HC GROUP HOLDINGS II, INC. |
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY |
| (IN THOUSANDS) |
| Accumulated | ||||||||||||||||||||||||
| Management | Other | |||||||||||||||||||||||
| Common | Paid-In | Notes | Accumulated | Comprehensive | Shareholder's | |||||||||||||||||||
| Stock | Capital | Receivable | Deficit | Income | Equity | |||||||||||||||||||
| Balance - December 31, 2017 | $ | - | $ | 617,071 | $ | (1,116 | ) | $ | (9,920 | ) | $ | 70 | $ | 606,105 | ||||||||||
| Shareholder's contribution | - | 425 | (425 | ) | - | - | - | |||||||||||||||||
| Interest on management notes receivable | - | - | (17 | ) | - | - | (17 | ) | ||||||||||||||||
| Stock-based incentive compensation | - | 438 | - | - | - | 438 | ||||||||||||||||||
| Net loss | - | - | - | (6,851 | ) | - | (6,851 | ) | ||||||||||||||||
| Other comprehensive income | - | - | - | - | 1,030 | 1,030 | ||||||||||||||||||
| Balance - March 31, 2018 | $ | - | $ | 617,934 | $ | (1,558 | ) | $ | (16,771 | ) | $ | 1,100 | $ | 600,705 | ||||||||||
| Interest on management notes receivable | - | - | (20 | ) | - | - | (20 | ) | ||||||||||||||||
| Stock-based incentive compensation | - | 668 | - | - | - | 668 | ||||||||||||||||||
| Net loss | - | - | - | (4,309 | ) | - | (4,309 | ) | ||||||||||||||||
| Other comprehensive income | - | - | - | - | 418 | 418 | ||||||||||||||||||
| Balance - June 30, 2018 | $ | - | $ | 618,602 | $ | (1,578 | ) | $ | (21,080 | ) | $ | 1,518 | $ | 597,462 | ||||||||||
| Balance - December 31, 2018 | $ | - | $ | 619,635 | $ | (1,619 | ) | $ | (16,035 | ) | $ | 844 | $ | 602,825 | ||||||||||
| Interest on management notes receivable | - | - | (21 | ) | - | - | (21 | ) | ||||||||||||||||
| Shareholder's redemptions | - | (2,000 | ) | - | - | - | (2,000 | ) | ||||||||||||||||
| Stock-based incentive compensation | - | 584 | - | - | - | 584 | ||||||||||||||||||
| Net loss | - | - | - | (3,712 | ) | - | (3,712 | ) | ||||||||||||||||
| Other comprehensive loss | - | - | - | - | (505 | ) | (505 | ) | ||||||||||||||||
| Balance - March 31, 2019 | $ | - | $ | 618,219 | $ | (1,640 | ) | $ | (19,747 | ) | $ | 339 | $ | 597,171 | ||||||||||
| Interest on management notes receivable | - | - | (18 | ) | - | - | (18 | ) | ||||||||||||||||
| Shareholder's redemptions | - | (371 | ) | 371 | - | - | - | |||||||||||||||||
| Stock-based incentive compensation | - | 569 | - | - | - | 569 | ||||||||||||||||||
| Net loss | - | - | - | (13,603 | ) | - | (13,603 | ) | ||||||||||||||||
| Other comprehensive income | - | - | - | - | 27 | 27 | ||||||||||||||||||
| Balance - June 30, 2019 | $ | - | $ | 618,417 | $ | (1,287 | ) | $ | (33,350 | ) | $ | 366 | $ | 584,146 |
The notes to unaudited condensed consolidated financial statements
are an integral part of these statements.
HC group Holdings ii, inc.
notes to UNAUDITED CONDENSED consolidated
financial statements
(in thousands, except per share
HC Group Holdings II, Inc. ("HC II") was
incorporated under the laws of the State of Delaware on January 7, 2015, with its sole shareholder being HC Group Holdings I, LLC.
("HC I" or the "Shareholder"). On April 7, 2015, HC I and HC II collectively acquired Walgreens Infusion
Services, Inc. and its subsidiaries from Walgreen Co. (the "Predecessor Shareholder"), and the business was rebranded
as Option Care ("Option Care" or the "Company"). Option Care is a wholly-owned group of operating subsidiaries
of HC II and provides infusion therapy and other ancillary health care services through a national network of 73 locations. The
Company contracts with managed care organizations, third-party payers, hospitals, physicians, and other referral sources to provide
pharmaceuticals and complex compounded solutions to patients for intravenous delivery in the patients' homes or other nonhospital
On March 14, 2019, HC I and HC II entered into a definitive
merger agreement with BioScrip, Inc. ("BioScrip"), a national provider of infusion and home care management solutions.
Under the terms of the merger agreement, BioScrip will issue new shares of its common stock to HC I in a non-taxable exchange,
which will result in BioScrip's shareholders holding approximately 20.5% of the combined company and HC I holding approximately
79.5% of the combined company. HC I has secured committed financing, the proceeds of which will be used to retire HC II's
first lien term loan and second lien term loan, as well as all outstanding debt of BioScrip at the close of the transaction. Following
the close of the transaction, the combined company stock will continue to be listed on the Nasdaq Global Select Market. See Note
10, Subsequent Events, for further discussion on the closing of the transaction.
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting
principles ("GAAP") in the United States and contain all adjustments, including normal recurring adjustments, necessary
to present fairly the Company's financial position, results of operations and cash flows for interim financial reporting.
The results of operations for the interim periods presented are not necessarily indicative of the results of operations for the
entire year. These unaudited condensed consolidated financial statements do not include all of the information and footnotes required
by GAAP for complete financial statements and should be read in conjunction with the 2018 audited consolidated financial statements,
including the notes thereto.
Company's unaudited condensed consolidated financial statements include the accounts of HC Group Holdings II, Inc. and its
subsidiaries. All intercompany transactions and balances are eliminated in consolidation.
Concentrations of Business Risk-The Company
generates revenue from managed care contracts and other agreements with commercial third-party payers. Revenue related to the Company's
largest payer was approximately 18% and 21% for the three and six months ended June 30, 2019, respectively. Revenue related to
the Company's largest payer was approximately 18% and 17% for the three and six months ended June 30, 2018, respectively.
HC group Holdings ii, inc.
notes to UNAUDITED CONDENSED consolidated
financial statements
(in thousands, except per share
For the three and six months ended June 30, 2019, approximately
13% of the Company's revenue was reimbursable through governmental programs, such as Medicare and Medicaid. For the three
and six months ended June 30, 2018, approximately 12% of the Company's revenue was reimbursable through governmental programs,
such as Medicare and Medicaid. As of June 30, 2019 and December 31, 2018, respectively, approximately 12% and 13%, respectively,
of the Company's accounts receivable was related to these programs. Governmental programs pay for services based on fee schedules
and rates that are determined by the related governmental agency. Laws and regulations pertaining to government programs are complex
and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change in the
The Company does not require its patients nor other
payers to carry collateral for any amounts owed for goods or services provided. Other than as discussed above, concentration of
credit risk relating to trade accounts receivable is limited due to the Company's diversity of patients and payers. Further,
the Company generally does not provide charity care.
For the three and six months ended June 30, 2019, approximately
73% and 74%, respectively, of the Company's pharmaceutical and medical supply purchases are from three vendors. For the three
and six months ended June 30, 2018, approximately 66% and 67%, respectively, of the Company's pharmaceutical and medical
supply purchases are from two vendors. Although there are a limited number of suppliers, the Company believes that other vendors
could provide similar products on comparable terms. However, a change in suppliers could cause delays in service delivery and possible
losses in revenue, which could adversely affect the Company's financial condition or operating results.
Recent Accounting Pronouncements-In February
2016, the FASB issued ASU No. 2016-02, Leases, intended to improve financial reporting about leasing transactions. The new
guidance will require entities that lease assets to recognize on their balance sheets the assets and liabilities for the rights
and obligations created by those leases and to disclose key information about the leasing arrangements. ASU 2016-02 is effective
for interim and annual periods beginning after December 15, 2018 for public entities and certain not-for-profits and for annual
periods beginning after December 15, 2019 for non-public entities. Early adoption is permitted. The guidance permits lessees and
lessors to recognize and measure leases using a modified retrospective approach or under a prospective approach. The Company is
currently evaluating the effect this guidance will have on its consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU No. 2014-09, Revenue
from Contracts with Customers. The ASU requires that an entity recognizes revenue to depict the transfer of promised goods
or services to a customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange
for these goods or services. ASU 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017
for public entities and certain not-for-profits and for annual periods beginning after December 15, 2018 for non-public entities.
Early adoption is permitted as of the original effective date, which was interim and annual reporting periods beginning after December
15, 2016 for public entities and certain not-for-profits and for annual periods beginning after December 15, 2017 for non-public
entities. The guidance permits the use of either of the following transition methods: (i) a full retrospective approach reflecting
the application of the standard in each prior reporting period with the option to elect certain practical expedients or (ii) a
retrospective approach with the cumulative effect upon initial adoption recognized at the date of adoption. Adoption of this pronouncement
will result in changes to the presentation of the financial information within the consolidated statements of comprehensive loss
as well as expanded disclosures within the notes to the financial statements. The primary change to the consolidated statements
of comprehensive loss will be to the presentation for bad debts, which relate to self-pay patients and amounts due from patients
with insurance for co-pays and deductibles. Under the new standards, these amounts will be a direct reduction from net revenues.
HC group Holdings ii, inc.
notes to UNAUDITED CONDENSED consolidated
financial statements
(in thousands, except per share