Segment and Related Information

3 Months Ended

Mar. 31, 2022

Segment Reporting [Abstract]

Segment and Related Information

Segment and Related Information

We have identified two operating segments and both performance evaluation and resource allocation decisions are determined based on each segment’s income from operations. The operating segments are described further below.

Patient Care - This segment consists of (i) our owned and operated patient care clinics, and (ii) our contracting and network management business. The patient care clinics provide services to design and fit O&P devices to patients. These clinics also instruct patients in the use, care, and maintenance of the devices. The principal reimbursement sources for our services are:

•Commercial private payors and other, which consist of individuals, rehabilitation providers, commercial insurance companies, health management organizations (“HMOs”), preferred provider organizations (“PPOs”), hospitals, vocational rehabilitation, workers’ compensation programs, and similar sources;

•Medicare, a federally funded health insurance program providing health insurance coverage for persons aged 65 or older and certain persons with disabilities, which provides reimbursement for O&P products and services based on prices set forth in published fee schedules (generally with either 10 regional pricing areas or state level prices) for prosthetics and orthotics and by state for durable medical equipment (DMEPOS);

•Medicaid, a health insurance program jointly funded by federal and state governments providing health insurance coverage for certain persons requiring financial assistance, regardless of age, which may supplement Medicare benefits for persons aged 65 or older requiring financial assistance; and

•the VA.

Our contract and network management business, known as Linkia, is the only network management company dedicated solely to serving the O&P market and is focused on managing the O&P services of national and regional insurance companies. We partner with healthcare insurance companies by securing a national or regional contract either as a preferred provider or to manage their O&P network of providers.

Products & Services - This segment consists of our distribution business, which distributes and fabricates O&P products and components to sell to both the O&P industry and our own patient care clinics, and our therapeutic solutions business. The therapeutic solutions business leases and sells rehabilitation equipment and ancillary consumable supplies combined with equipment maintenance, education, and training.

Corporate & Other - This consists of corporate overhead and includes unallocated expense such as personnel costs, professional fees, and corporate offices expenses.

The accounting policies of the segments are the same as those described in Note A - “Organization and Summary of Significant Accounting Policies” in our 2021 Form 10-K.

Intersegment revenue primarily relates to sales of O&P components from the Products & Services segment to the Patient Care segment. The sales are priced at the cost of the related materials plus overhead.

Summarized financial information concerning our reportable segments is shown in the following tables. Total assets for each of the segments has not materially changed from December 31, 2021.

	Patient Care				Products & Services
	For the Three Months Ended March 31,				For the Three Months Ended March 31,
(in thousands)	2022		2021		2022		2021
Net revenues
Third party	$	219,818	$	195,682	$	41,469	$	41,788
Intersegments	—		—		54,675		47,047
Total net revenues	219,818		195,682		96,144		88,835
Material costs
Third party suppliers	59,918		51,617		25,674		23,553
Intersegments	11,058		8,305		43,617		38,742
Total material costs	70,976		59,922		69,291		62,295
Personnel expenses	86,409		75,754		15,266		14,126
Other expenses	40,696		36,141		7,057		5,803
Depreciation & amortization	4,744		4,815		2,023		1,935
Segment income from operations	$	16,993	$	19,050	$	2,507	$	4,676

A reconciliation of the total of the reportable segments’ income from operations to consolidated net loss is as follows:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
(Loss) income from operations
Patient Care	$	16,993	$	19,050
Products & Services	2,507		4,676
Corporate & other	(22,045)		(21,705)
(Loss) income from operations	(2,545)		2,021
Interest expense, net	7,385		7,340
Non-service defined benefit plan expense	160		167
Loss before income taxes	(10,090)		(5,486)
Benefit for income taxes	(2,113)		(2,156)
Net loss	$	(7,977)	$	(3,330)

A reconciliation of the reportable segments’ net revenues to consolidated net revenues is as follows:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
Net revenues
Patient Care	$	219,818	$	195,682
Products & Services	96,144		88,835
Corporate & other	—		—
Consolidating adjustments	(54,675)		(47,047)
Consolidated net revenues	$	261,287	$	237,470

A reconciliation of the reportable segments’ material costs to consolidated material costs is as follows:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
Material costs
Patient Care	$	70,976	$	59,922
Products & Services	69,291		62,295
Corporate & other	—		—
Consolidating adjustments	(54,675)		(47,047)
Consolidated material costs	$	85,592	$	75,170