DELAWARE | 20-0428568 | |||
(State or other jurisdiction of | (I.R.S. employer | |||
incorporation or organization) | identification no.) | |||
5429 LYNDON B. JOHNSON FREEWAY | ||||
SUITE 850 | ||||
DALLAS, TEXAS | ||||
75240 | ||||
(Address of principal executive offices) | ||||
(Zip code) |
Large accelerated filer o | Non-accelerated filer o |
Accelerated filer o (do not check if a smaller reporting company) | Smaller Reporting Company x |
PART I. | FINANCIAL INFORMATION |
ITEM 1. | Financial Statements |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Net revenues | $ | 11,496 | $ | 14,763 | $ | 35,881 | $ | 45,092 | |||||||
Cost of revenues: | |||||||||||||||
Provider payments | 9,091 | 11,069 | 27,715 | 33,171 | |||||||||||
Administrative fees | 616 | 799 | 1,791 | 2,552 | |||||||||||
Claims administration and provider development | 1,008 | 1,189 | 3,261 | 3,597 | |||||||||||
Total cost of revenues | 10,715 | 13,057 | 32,767 | 39,320 | |||||||||||
Contribution margin | 781 | 1,706 | 3,114 | 5,772 | |||||||||||
Selling, general and administrative expenses | 1,778 | 1,446 | 4,943 | 4,722 | |||||||||||
Goodwill impairment charge | 4,361 | — | 4,361 | — | |||||||||||
Depreciation and amortization | 204 | 197 | 585 | 571 | |||||||||||
Total operating expenses | 6,343 | 1,643 | 9,889 | 5,293 | |||||||||||
Operating income (loss) | (5,562 | ) | 63 | (6,775 | ) | 479 | |||||||||
Other Income | 8 | 24 | 32 | 85 | |||||||||||
Income (loss) before income taxes | (5,554 | ) | 87 | (6,743 | ) | 564 | |||||||||
Income tax provision | 969 | 43 | 647 | 220 | |||||||||||
Net income (loss) | $ | (6,523 | ) | $ | 44 | $ | (7,390 | ) | $ | 344 | |||||
Earnings (loss) per common share: | |||||||||||||||
Basic | $ | (0.38 | ) | $ | 0.00 | $ | (0.44 | ) | $ | 0.02 | |||||
Diluted | $ | (0.38 | ) | $ | 0.00 | $ | (0.44 | ) | $ | 0.02 | |||||
Basic weighted average common shares outstanding | 17,011 | 16,631 | 16,978 | 16,413 | |||||||||||
Diluted weighted average common shares outstanding | 17,011 | 17,124 | 16,978 | 17,169 |
September 30, 2011 (Unaudited) | December 31, 2010 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 11,061 | $ | 14,512 | |||
Accounts receivable, net | 3,780 | 5,510 | |||||
Prepaid expenses and other current assets | 553 | 532 | |||||
Deferred income taxes | 6 | 237 | |||||
Total current assets | 15,400 | 20,791 | |||||
Property and equipment, net | 1,906 | 1,824 | |||||
Other assets: | |||||||
Deferred income taxes | 226 | 609 | |||||
Other non-current assets | 78 | 340 | |||||
Intangible assets, net | 928 | 1,025 | |||||
Goodwill | — | 4,361 | |||||
$ | 18,538 | $ | 28,950 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Due to service providers | $ | 3,056 | $ | 6,718 | |||
Accounts payable and accrued liabilities | 1,503 | 1,446 | |||||
Total current liabilities | 4,559 | 8,164 | |||||
Commitments and contingencies | |||||||
Shareholders' equity: | |||||||
Preferred stock, $0.01 par value; 10,000 shares authorized, none issued | — | — | |||||
Common stock, $0.01 par value; 40,000 shares authorized; 17,072 and 16,922 shares issued and outstanding in 2011 and 2010, respectively | 171 | 169 | |||||
Additional paid-in capital | 22,183 | 21,602 | |||||
Accumulated deficit | (8,375 | ) | (985 | ) | |||
Total shareholders' equity | 13,979 | 20,786 | |||||
$ | 18,538 | $ | 28,950 |
Additional | Total | |||||||||||||||||
Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||
Balance at December 31, 2010 | 16,922 | $ | 169 | $ | 21,602 | $ | (985 | ) | $ | 20,786 | ||||||||
Net loss | — | — | — | (7,390 | ) | (7,390 | ) | |||||||||||
Stock-based compensation expense | — | — | 632 | — | 632 | |||||||||||||
Issuance of common stock upon conversion of equity incentive awards, net of tax withholdings | 150 | 2 | (51 | ) | — | (49 | ) | |||||||||||
Balance at September 30, 2011 | 17,072 | $ | 171 | $ | 22,183 | $ | (8,375 | ) | $ | 13,979 |
Nine months ended September 30, | |||||||
2011 | 2010 | ||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | (7,390 | ) | $ | 344 | ||
Adjustments to reconcile net income (loss) to net cash provided (used) by operations: | |||||||
Stock-based compensation expense | 632 | 606 | |||||
Depreciation and amortization | 585 | 571 | |||||
Goodwill impairment charge | 4,361 | — | |||||
Unrealized gain on warrant derivative | — | (18 | ) | ||||
Amortization of long-term client agreement | 187 | 187 | |||||
Client administration fee expense related to warrants | 67 | 150 | |||||
Deferred income taxes | 615 | 193 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | 1,730 | 1,072 | |||||
Prepaid expenses and other assets | (81 | ) | 22 | ||||
Accounts payable and accrued liabilities | 76 | (287 | ) | ||||
Due to service providers | (3,662 | ) | (2,313 | ) | |||
Net cash provided by (used) in operating activities | (2,880 | ) | 527 | ||||
Cash flows from investing activities: | |||||||
Investment in software development costs | (513 | ) | (283 | ) | |||
Additions to property and equipment | (58 | ) | (282 | ) | |||
Net cash (used) in investing activities | (571 | ) | (565 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from exercise of equity incentive awards | — | 157 | |||||
Net cash provided by financing activities | — | 157 | |||||
Net increase (decrease) in cash and cash equivalents | (3,451 | ) | 119 | ||||
Cash and cash equivalents at beginning of period | 14,512 | 11,868 | |||||
Cash and cash equivalents at end of period | $ | 11,061 | $ | 11,987 | |||
Supplemental cash flow information: | |||||||
Cash paid for taxes | $ | 65 | $ | 134 | |||
Supplemental non-cash financing activity: | |||||||
Income tax withholdings on conversion of equity incentives | $ | 37 | $ | 19 |
• | lowering its payors’ ancillary care costs throughout our network of high quality, cost effective providers that the Company has under contract at more favorable terms than they could generally obtain on their own; |
• | providing payors with a comprehensive network of ancillary healthcare services providers that is tailored to each payor’s specific needs and is available to each payor’s covered persons for covered services; |
• | providing payors with claims management, reporting and processing and payment services; |
• | performing network/needs analysis to assess the benefits to payors of adding additional/different service providers to the payor -specific provider networks; and |
• | credentialing network service providers for inclusion in the payor -specific provider networks. |
• | The Company is the primary obligor in the arrangement. The Company has assessed its role as primary obligor as a strong indicator of gross reporting. The Company believes that it is the primary obligor in its transactions because it is responsible for providing the services desired by its client payors. The Company has distinct, separately negotiated contractual relationships with its client payors and with the ancillary health care providers in its networks. The Company does not negotiate “on behalf of” its client payors and does not hold itself out as the agent of the client payors when negotiating the terms of the Company’s ancillary healthcare service provider agreements. The Company’s agreements contractually prohibit client payors and service providers to enter into direct contractual relationships with one another. The client payors have no control over the terms of the Company’s agreements with the service providers. In executing transactions, the Company assumes key performance-related risks. The client payors hold the Company responsible for fulfillment, as the provider, of all of the services the client payors are entitled to under their contracts; client payors do not look to the service providers for fulfillment. In addition, the Company bears the pricing/margin risk as the principal in the transactions. Because the contracts with the client payors and service providers are separately negotiated, the Company has complete discretion in negotiating both the prices it charges its client payors and the financial terms of its agreements with the service providers. Since the Company’s profit is the spread between the amounts received from the client payors and the amount paid to the service providers, it bears significant pricing/margin risk. There is no guaranteed mark-up payable to the Company on the amount the Company has contracted. Thus, the Company bears the risk that amounts paid to the service provider will be greater than the amounts received from the client payors, resulting in a loss or negative claim. |
• | The Company has latitude in establishing pricing. As stated above, the Company has complete latitude in negotiating the price to be paid to the Company by each client payor and the price to be paid to each contracted service provider. This type of pricing latitude indicates that the Company has the risks and rewards normally attributed to a principal in the transactions. |
• | The Company changes the product or performs part of the services. The Company provides the benefits associated with the relationships it builds with the client payors and the services providers. While the parties could deal with each other directly, the client payors would not have the benefit of the Company’s experience and expertise in assembling a comprehensive network of service providers, in claims management, reporting and processing and payment services, in performing network/needs analysis to assess the benefits to client payors of adding additional/different service providers to the client payor-specific provider networks, and in credentialing network service providers. |
• | The Company has complete discretion in supplier selection. One of the key factors considered by client payors who engage the Company is to have the Company undertake the responsibility for identifying, qualifying, contracting with and managing the relationships with the ancillary healthcare service providers. As part of the contractual arrangement between the Company and its client payors, the payors identify their obligations to their respective covered persons and then work with the Company to determine the types of ancillary healthcare services required in order for the payors to meet their obligations. The Company may select the providers and contract with them to provide services at its discretion. |
• | The Company is involved in the determination of product or service specifications. The Company works with its client payors to determine the types of ancillary healthcare services required in order for the payors to meet their obligations to their respective covered persons. In some respects, the Company is customizing the product through its efforts and ability to assemble a comprehensive network of providers for its payors that is tailored to each payor’s specific needs. In addition, as part of its claims processing and payment services, the Company works with the client payors, on the one hand, and the providers, on the other, to set claims review, management and payment specifications. |
• | The supplier (and not the Company) has credit risk. The Company believes it has some level of credit risk, but that risk is mitigated because the Company does not remit payment to providers unless and until it has received payment from the relevant client payors following the Company’s processing of a claim. |
• | The amount that the Company earns is not fixed. The Company does not earn a fixed amount per transaction nor does it realize a per-person per-month charge for its services. |
Periods ended September 30, 2011 | Periods ended September 30, 2010 | ||||||||||||||||||||||||||||||||||
As of September 30, 2011 | Three months | Nine months | As of September 30, 2010 | Three months | Nine months | ||||||||||||||||||||||||||||||
Accounts Receivable | Net Revenue | % of Total Revenue | Net Revenue | % of Total Revenue | Accounts Receivable | Net Revenue | % of Total Revenue | Net Revenue | % of Total Revenue | ||||||||||||||||||||||||||
Client A | $ | 1,627 | $ | 3,964 | 34 | % | $ | 12,142 | 34 | % | $ | 2,747 | $ | 6,708 | 45 | % | $ | 22,265 | 49 | % | |||||||||||||||
Client B | 756 | 2,535 | 22 | 7,794 | 22 | 1,789 | 3,889 | 26 | 13,189 | 29 | |||||||||||||||||||||||||
All Others | 1,556 | 5,130 | 45 | 16,382 | 45 | 2,013 | 4,226 | 29 | 9,818 | 22 | |||||||||||||||||||||||||
Allowance for Uncollectable Receivables/Provision for refunds | (159 | ) | (133 | ) | (1 | ) | (437 | ) | (1 | ) | (204 | ) | (60 | ) | — | (180 | ) | — | |||||||||||||||||
$ | 3,780 | $ | 11,496 | 100 | % | $ | 35,881 | 100 | % | $ | 6,345 | $ | 14,763 | 100 | % | 45,092 | 100 | % |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Numerator: | |||||||||||||||
Net income (loss) for basic earnings per share | $ | (6,523 | ) | $ | 44 | $ | (7,390 | ) | $ | 344 | |||||
Less: | |||||||||||||||
Change in fair value of warrant derivative liability | — | 2 | — | 18 | |||||||||||
Net loss for diluted earnings per share | $ | (6,523 | ) | $ | 42 | $ | (7,390 | ) | $ | 326 | |||||
Denominator: | |||||||||||||||
Weighted-average basic and diluted common shares outstanding | 17,011 | 16,631 | 16,978 | 16,413 | |||||||||||
Assumed conversion of dilutive securities: | |||||||||||||||
Stock options | — | 239 | — | 282 | |||||||||||
Stock warrants | — | 254 | — | 474 | |||||||||||
Restricted stock units | — | — | — | — | |||||||||||
Potentially dilutive common shares | — | 493 | — | 756 | |||||||||||
Denominator for diluted earnings per share -- Adjusted weighted average shares | 17,011 | 17,124 | 16,978 | 17,169 | |||||||||||
Earnings (loss) per common share: | |||||||||||||||
Basic | $ | (0.38 | ) | $ | 0.00 | $ | (0.44 | ) | $ | 0.02 | |||||
Diluted | $ | (0.38 | ) | $ | 0.00 | $ | (0.44 | ) | $ | 0.02 |
2011 | 2010 | |||||||
Computed “expected” tax provision (benefit) at statutory rates | $ | (2,293 | ) | $ | 192 | |||
Change in valuation allowance | 2,906 | — | ||||||
Permanent differences | (19 | ) | (507 | ) | ||||
Shortfall from restricted stock units conversion | 42 | — | ||||||
Warrant deduction | — | 511 | ||||||
State taxes | 14 | 37 | ||||||
Other | (3 | ) | (13 | ) | ||||
Total income tax provision | $ | 647 | $ | 220 |
2011 | 2010 | |||||||
Deferred tax assets: | ||||||||
Operating loss carryforward | $ | 1,038 | $ | 101 | ||||
Accounts receivable allowance | 56 | 69 | ||||||
Warrants | 202 | 179 | ||||||
Texas tax credit carryforward | 232 | 238 | ||||||
Stock option compensation | 1,251 | 1,140 | ||||||
Goodwill | 873 | — | ||||||
Accrued expenses | 246 | 203 | ||||||
Alternative Minimum Tax credit carryforwards | 16 | 16 | ||||||
Total deferred tax assets | 3,914 | 1,946 | ||||||
Deferred tax liabilities: | ||||||||
Goodwill | — | (563 | ) | |||||
Property and equipment | (713 | ) | (496 | ) | ||||
Prepaid expense | (63 | ) | (41 | ) | ||||
Total deferred tax liabilities | (776 | ) | (1,100 | ) | ||||
Valuation allowance | (2,906 | ) | — | |||||
Net Deferred Tax Assets | $ | 232 | $ | 846 |
ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
• | lowering its payors’ ancillary care costs throughout its network of high quality, cost effective providers that the Company has under contract at more favorable terms than they could generally obtain on their own; |
• | providing payors with a comprehensive network of ancillary healthcare services providers that is tailored to each payor’s specific needs and is available to each payor’s members for covered services; |
• | providing payors with claims management, reporting and processing and payment services; |
• | performing network/needs analysis to assess the benefits to payors of adding additional/different service providers to the payor -specific provider networks; and |
• | credentialing network service providers for inclusion in the payor -specific provider networks. |
Third Quarter | Nine Months | ||||||||||||||||||||||||||||
Change | Change | ||||||||||||||||||||||||||||
($ in thousands) | 2011 | 2010 | $ | % | 2011 | 2010 | $ | % | |||||||||||||||||||||
Net Revenues | $ | 11,496 | $ | 14,763 | (3,267 | ) | (22 | )% | $ | 35,881 | $ | 45,092 | $ | (9,211 | ) | (20 | )% |
Third Quarter | Nine Months | |||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||
(in thousands) | 2011 | 2010 | Claims | % | 2011 | 2010 | Claims | % | ||||||||||||||||
Processed | 73 | 111 | (38 | ) | (34 | )% | 240 | 316 | (76 | ) | (24 | )% | ||||||||||||
Billed | 61 | 76 | (15 | ) | (20 | ) | 196 | 247 | (51 | ) | (21 | ) |
• | Loss of a significant employer group by our largest client. Claims from the group generated revenue of approximately $2.5 million in the third quarter of 2010 and $7.2 million for the nine months ended September 30, 2010. Claims from the group generated approximately $35,000 and $535,000 during the three and nine months ended September 30, 2011, respectively; |
• | The ongoing transition status of our other key account related to a business combination resulting in declining revenues as it transitions its payors and employer groups to network alternatives; we expect revenue from the account to be significantly impacted in 2012 by the completion of the transition; |
• | Stronger presence of larger carriers in the market, which resulted in loss of market share; |
• | The change in patient and specialty mix and benefit plan design changes, which has resulted in the increase in non-covered benefits; and |
• | The extended sales cycle as we focus our sales efforts more heavily on the TPA and direct payor market. For the nine months ended September 30, 2010, we added 11 new client accounts as compared to 3 during the nine months ended September 30, 2011. |
Net Revenue | Billed Claims Volume | |||||||||||||||||||||||||
Third Quarter | Change | Third Quarter | Change | |||||||||||||||||||||||
(in thousands) | 2011 | 2010 | $ | % | 2011 | 2010 | Claims | % | ||||||||||||||||||
Client A | $ | 3,964 | $ | 6,708 | $ | (2,744 | ) | (41 | )% | 18 | 29 | (11 | ) | (38 | )% | |||||||||||
Client B | 2,535 | 3,889 | (1,354 | ) | (35 | ) | 10 | 19 | (9 | ) | (47 | ) | ||||||||||||||
Other clients | 1,972 | 2,475 | (503 | ) | (20 | ) | 15 | 20 | (5 | ) | (25 | ) | ||||||||||||||
Clients implemented in 2010 | 2,868 | 1,751 | 1,117 | 64 | 16 | 8 | 8 | 100 | ||||||||||||||||||
Clients implemented in 2011 | 290 | — | 290 | nm | 2 | — | 2 | nm | ||||||||||||||||||
Total | 11,629 | 14,823 | (3,194 | ) | (22 | )% | 61 | 76 | (15 | ) | (20 | )% | ||||||||||||||
Provision for refunds | (133 | ) | (60 | ) | (73 | ) | nm | — | — | — | nm | |||||||||||||||
Net Revenue | $ | 11,496 | $ | 14,763 | $ | (3,267 | ) | (22 | )% | 61 | 76 | (15 | ) | (20 | )% |
Net Revenue | Billed Claims Volume | |||||||||||||||||||||||||
Nine Months | Change | Nine Months | Change | |||||||||||||||||||||||
(in thousands) | 2011 | 2010 | $ | % | 2011 | 2010 | Claims | % | ||||||||||||||||||
Client A | $ | 12,142 | $ | 22,265 | $ | (10,123 | ) | (45 | )% | 58 | 95 | (37 | ) | (39 | )% | |||||||||||
Client B | 7,794 | 13,189 | (5,395 | ) | (41 | ) | 34 | 75 | (41 | ) | (55 | ) | ||||||||||||||
Other clients | 7,339 | 6,673 | 666 | 10 | 54 | 63 | (9 | ) | (14 | ) | ||||||||||||||||
Clients implemented in 2010 | 8,401 | 3,145 | 5,256 | 167 | 46 | 14 | 32 | 228 | ||||||||||||||||||
Clients implemented in 2011 | 642 | — | 642 | nm | 4 | — | 4 | nm | ||||||||||||||||||
Total | 36,318 | 45,272 | (8,954 | ) | (20 | )% | 196 | 247 | (51 | ) | (21 | )% | ||||||||||||||
Provision for refunds | (437 | ) | (180 | ) | (257 | ) | (143 | ) | — | — | — | nm | ||||||||||||||
Net Revenue | $ | 35,881 | $ | 45,092 | $ | (9,211 | ) | (20 | )% | 196 | 247 | (51 | ) | (21 | )% |
Third Quarter | ||||||||||||||||||||||||||
2011 | 2010 | Change | ||||||||||||||||||||||||
($ in thousands) | Count | Revenue | % of revenue | Count | Revenue | % of revenue | $ | % | ||||||||||||||||||
PPOs | 11 | $ | 6,782 | 58.3 | % | 11 | $ | 10,458 | 70.6 | % | $ | (3,676 | ) | (35 | )% | |||||||||||
TPAs | 23 | 3,505 | 30.1 | 17 | 2,645 | 17.8 | 860 | 33 | ||||||||||||||||||
Direct/Insurance Companies | 3 | 1,342 | 11.5 | 3 | 1,720 | 11.6 | (378 | ) | (22 | ) | ||||||||||||||||
Total | $ | 11,629 | 100.0 | % | $ | 14,823 | 100.0 | % | $ | (3,194 | ) | (22 | )% |
Nine Months | ||||||||||||||||||||||||||
2011 | 2010 | Change | ||||||||||||||||||||||||
($ in thousands) | Count | Revenue | % of revenue | Count | Revenue | % of revenue | $ | % | ||||||||||||||||||
PPOs | 11 | $ | 20,243 | 55.7 | % | 11 | $ | 34,237 | 75.6 | % | $ | (13,994 | ) | (41 | )% | |||||||||||
TPAs | 23 | 11,476 | 31.6 | 17 | 6,816 | 15.1 | 4,660 | 68 | ||||||||||||||||||
Direct/Insurance Companies | 3 | 4,599 | 12.7 | 3 | 4,219 | 9.3 | 380 | 9 | ||||||||||||||||||
Total | $ | 36,318 | 100.0 | % | $ | 45,272 | 100.0 | % | $ | (8,954 | ) | (20 | )% |
Third Quarter | |||||||||||||||||||||
Change | |||||||||||||||||||||
($ in thousands) | 2011 | % of net revenue | 2010 | % of net revenue | $ | % | |||||||||||||||
Provider payments | $ | 9,091 | 79.1 | % | $ | 11,069 | 75.0 | % | $ | (1,978 | ) | (18 | )% | ||||||||
Administrative fees | 616 | 5.4 | 799 | 5.4 | (183 | ) | (23 | ) | |||||||||||||
Claims administration and provider development | 1,008 | 8.7 | 1,189 | 8.0 | (181 | ) | (15 | ) | |||||||||||||
Total cost of revenues | $ | 10,715 | 93.2 | % | $ | 13,057 | 88.4 | % | $ | (2,342 | ) | (18 | )% |
Nine Months | |||||||||||||||||||||
Change | |||||||||||||||||||||
($ in thousands) | 2011 | % of net revenue | 2010 | % of net revenue | $ | % | |||||||||||||||
Provider payments | $ | 27,715 | 77.2 | % | $ | 33,171 | 73.5 | % | $ | (5,456 | ) | (16 | )% | ||||||||
Administrative fees | 1,791 | 5.0 | 2,552 | 5.7 | (761 | ) | (30 | ) | |||||||||||||
Claims administration and provider development | 3,261 | 9.1 | 3,597 | 8.0 | (336 | ) | (9 | ) | |||||||||||||
Total cost of revenues | $ | 32,767 | 91.3 | % | $ | 39,320 | 87.2 | % | $ | (6,553 | ) | (17 | )% |
• | A shift in mix from clients that generate higher margins, relative to other clients, primarily as a result of (1) the loss a large payor group by our largest client which carried advantageous pricing relative to our other clients and (2) more competitive pricing associated with our TPAs and direct payor clients relative to other clients; and |
• | A shift in mix from higher margin categories, such as diagnostic imaging services, to lower margin categories, such as dialysis services. In addition, margins on dialysis services claims declined as a result of a shift to service providers with which we have less advantageous pricing resulting in pressure on contribution margin. |
Third Quarter | Nine Months | |||||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||||
($ in thousands) | 2011 | 2010 | $ | % | 2011 | 2010 | $ | % | ||||||||||||||||||||||
Claims administration | $ | 710 | $ | 750 | $ | (40 | ) | (5 | )% | $ | 2,293 | $ | 2,146 | $ | 147 | 7 | % | |||||||||||||
Provider development | 298 | 439 | (141 | ) | (32 | ) | 968 | 1,451 | (483 | ) | (33 | ) | ||||||||||||||||||
Total cost of revenues | $ | 1,008 | $ | 1,189 | $ | (181 | ) | (15 | )% | $ | 3,261 | $ | 3,597 | $ | (336 | ) | (9 | )% |
Headcount (average) | 2011 | 2010 | ||||
Operations | 21 | 22 | ||||
Information technology | 14 | 14 | ||||
Total claims administration | 35 | 36 | ||||
Provider development | 9 | 12 |
Third Quarter | Nine Months | |||||||||||||||||
2011 | 2010 | Percent Change | 2011 | 2010 | Percent Change | |||||||||||||
Contribution margin | 6.8 | % | 11.6 | % | (4.8 | )% | 8.7 | % | 12.8 | % | (4.1 | )% |
Third Quarter | Nine Months | |||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||
($ in thousands) | 2011 | 2010 | $ | % | 2011 | 2010 | $ | % | ||||||||||||||||||||
Selling, general and administrative expenses | $ | 1,778 | $ | 1,446 | $ | 332 | 23 | % | $ | 4,943 | $ | 4,722 | $ | 221 | 5 | % | ||||||||||||
Percentage of total net revenues | 15.5 | % | 9.8 | % | 13.8 | % | 10.5 | % |
Third Quarter | Nine Months | |||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||
($ in thousands) | 2011 | 2010 | $ | % | 2011 | 2010 | $ | % | ||||||||||||||||||||
Depreciation | $ | 172 | $ | 165 | $ | 7 | 4 | % | $ | 489 | $ | 475 | $ | 14 | 3 | % | ||||||||||||
Amortization | 32 | 32 | — | — | 96 | 96 | — | — | ||||||||||||||||||||
Total Depreciation and Amortization | $ | 204 | $ | 197 | $ | 7 | 4 | % | $ | 585 | $ | 571 | $ | 14 | 2 | % |
ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk |
ITEM 4. | Controls and Procedures |
PART II. | OTHER INFORMATION |
ITEM 5. | Other Information |
ITEM 6. | Exhibits |
Exhibit 31.1 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Exhibit 31.2 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Exhibit 32.1 | Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Exhibit 101 | The following financial statements and footnotes from the American Caresource Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations; (ii) Consolidated Balance Sheets; (iii) Consolidated Statement of Stockholders' Equity; (iv) Consolidated Statements of Cash Flows; and (v) the Notes to Unaudited Consolidated Financial Statements, tagged as blocks of text.* |
AMERICAN CARESOURCE HOLDINGS, INC. | |||
Date: | November 14, 2011 | By: | /s/ Kenneth S. George |
Kenneth S. George | |||
Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) |
Date: | November 14, 2011 | By: | /s/ Matthew D. Thompson |
Matthew D. Thompson | |||
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||
1. | I have reviewed this quarterly report on Form 10-Q of American CareSource Holdings, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and |
d) | disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. |
Dated: | November 14, 2011 | By: /s/ Kenneth S. George | |
Kenneth S. George | |||
Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of American CareSource Holdings, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and |
d) | disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. |
Dated: | November 14, 2011 | By: /s/ Matthew D. Thompson | |
Matthew D. Thompson | |||
Chief Financial Officer |
1. | The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2011, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: | November 14, 2011 | By: /s/ Kenneth S. George | |
Kenneth S. George | |||
Chief Executive Officer | |||
Dated: | November 14, 2011 | By: /s/ Matthew D. Thompson | |
Matthew D. Thompson | |||
Chief Financial Officer |
Consolidated Balance Sheets Parenthetical (USD $) In Thousands, except Per Share data | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Shareholders' equity: | ||
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 10,000 | 10,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 40,000 | 40,000 |
Common stock, shares issued | 17,072 | 16,922 |
Common stock, shares outstanding | 17,072 | 16,922 |
Document and Entity Information | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Nov. 07, 2011 | |
Entity Information [Line Items] | ||
Entity Registrant Name | American Caresource Holdings, Inc. | |
Entity Central Index Key | 0001316645 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2011 | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 17,072,848 |
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Warrants | 9 Months Ended |
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Sep. 30, 2011 | |
Warrants [Abstract] | |
Disclosure of Compensation Related Costs, Share-based Payments [Text Block] | Warrants The Company entered into an agreement as of February 25, 2011, whereby the Company agreed to issue warrants to purchase 250,000 shares of common stock with an exercise price of $1.67. The warrants vest in increments pursuant to the achievement of defined, agreed upon revenue targets generated by new clients within a five year term. The agreement also obligates the Company to issue warrants to purchase up to an additional 500,000 shares of common stock (issued in 250,000 increments) pursuant to the achievement of additional defined agreed upon revenue targets. During the three and nine months ended September 30, 2011, we recognized compensation costs of approximately $11,000 and $25,000, respectively, associated with the warrant. The cost has been adjusted for the probability that the revenue targets will be reached. That probability will be re-evaluated and updated based on current market conditions, on a quarterly basis, and compensation costs will be adjusted accordingly. |
Revenue Recognition | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Recognition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Recognition [Text Block] | Revenue Recognition The Company recognizes revenue on the services that it provides, which includes (i) providing payor clients with a comprehensive network of ancillary healthcare providers, (ii) providing claims management, reporting, processing and payment services, (iii) providing network/need analysis to assess the benefits to payor clients of adding what additional/different service providers to the client-specific provider networks and (iv) providing credentialing of network services providers for inclusion in the client payor-specific provider networks. Revenue is recognized when services are delivered, which occurs after processed claims are billed to the client payors and collections are reasonably assured. The Company estimates revenues and costs of revenues using average historical collection rates and average historical margins earned on claims. Periodically, revenues are adjusted to reflect actual cash collections so that revenues recognized accurately reflect cash collected. The Company determines whether it is acting as a principal or agent in the fulfillment of the services rendered. After careful evaluation of the key gross and net revenue recognition indicators, the Company acknowledges that while the determination of gross versus net reporting is highly judgmental in nature, the Company has concluded that its circumstances are most consistent with those key indicators that support gross revenue reporting. Following are the key indicators that support the Company’s conclusion that it acts as a principal when settling claims for service providers through its contracted service provider network:
The Company has evaluated the other indicators of gross and net revenue recognition, including whether or not the Company has general inventory risk. The Company does not have any general inventory risk, as its business is not related to the manufacture, purchase or delivery of goods and it does not purchase in advance any of the services to be provided by the ancillary healthcare service providers. While the absence of this risk would be one indicator in support of net revenue reporting, as described in detail above, the Company has carefully evaluated all of the key gross and net revenue recognition indicators and has concluded that its circumstances are most consistent with those key indicators that support gross revenue reporting. If the Company were to report its revenues net of provider payments rather than on a gross reporting basis, for the three and nine months ended September 30, 2011, its net revenues would have been approximately $2.4 million and $8.2 million, respectively. For the three and nine months ended September 30, 2010, its net revenues would have been approximately $3.7 million and $11.9 million, respectively. The Company records a provision for refunds on a periodic basis. Refunds are paid to payors for overpayments on claims, claims paid in error, and claims paid for non-covered services. In some instances, we will recoup payments made to the ancillary service provider if the claim has been fully resolved. The evaluation is performed periodically and is based on historical data. We present revenue net of the provision for refunds on the consolidated statement of operations. During the three and nine months ended September 30, 2011 and 2010, two of the Company’s clients comprised a significant portion of the Company’s revenues. The following is a summary of the approximate amounts of the Company’s revenue and accounts receivable contributed by each of those clients as of the dates and for the periods presented (amounts in thousands):
|
Goowill Impairment | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Note 8. Goodwill Impairment [Abstract] | |
Asset Impairment Charges [Text Block] | Goodwill Impairment As of September 30, 2011 and prior to our December 31 annual impairment test, the Company concluded that impairment indicators existed based upon, among other things, the decline in market capitalization, revenue declines of the Company's two most significant client accounts and operating results for the nine months ended September 30, 2011, which required the performance of an interim impairment test. As a result, the Company performed the generally recognized threshold goodwill impairment test (step 1) which indicated that the fair value of the Company (single reporting unit), based primarily on the trading value of the Company's common stock plus an estimated control premium, was less than the book value of its net assets. Therefore, the required next analysis of the assessment was performed (step 2), in which the implied fair value of the Company's goodwill was compared to the book value of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, that is, the estimated fair value of the Company is allocated to all of those assets and liabilities (including both recognized and unrecognized intangible assets) as if the Company had been acquired in a business combination and the estimated fair value was the purchase price paid. If the carrying amount of goodwill is greater than the implied fair value of goodwill, an impairment loss is recognized in the amount of the excess and is charged to operations. As a result of our preliminary interim impairment assessment, the Company recognized an estimated non-cash goodwill impairment charge of $4.4 million as of September 30, 2011, representing the entire balance of goodwill. In addition, at this interim date, the Company also reviewed the carrying value of the other identifiable intangible assets, which is limited to our ancillary provider network, to determine if impairment exists. Based on this analysis, the Company concluded that no impairment of the ancillary provider network existed as of September 30, 2011. A deferred tax benefit of $1.5 million was recognized as of September 30, 2011 as a result of the total amount of estimated impairment charges, but a valuation allowance was immediately provided. The impairment was primarily the result of our continued declining total revenues as a result of declines in revenue and claims volume from our two most significant clients and the expectation of significantly diminishing revenue from at least one of these clients. The impairment did not impact our operations or cash flows. Due to the complexity of the process, the Company will not fully complete the measurement of the implied fair value of goodwill and other intangible assets under step 2 of the test until the fourth quarter of 2011 and, accordingly, the goodwill impairment charge included in the condensed consolidated statement of operations for the three and nine months ended September 30, 2011 represents an estimate. Any adjustments to these amounts, which could be material, resulting from the completion of step 2 will be recognized during the fourth quarter of 2011. |
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