ROC
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of Registrant’s Common Stock outstanding as of May 1, 2024 was
Table of Contents
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Page |
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PART I. |
2 |
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Item 1. |
2 |
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2 |
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3 |
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4 |
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5 |
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6 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
7 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
Item 3. |
37 |
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Item 4. |
38 |
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PART II. |
39 |
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Item 1. |
39 |
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Item 1A. |
39 |
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Item 2. |
39 |
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Item 3. |
39 |
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Item 4. |
39 |
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Item 5. |
39 |
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Item 6. |
40 |
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41 |
i
Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q (this “Form 10-Q”) to “BrightSpring,” the “Company,” “we,” “us,” and “our” refer to BrightSpring Health Services, Inc. and its consolidated subsidiaries.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements that reflect our current views with respect to, among other things, our operations, and financial performance. We have used the words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “future,” “will,” “seek,” “foreseeable,” the negative version of these words, or similar terms and phrases to identify forward-looking statements.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our industries, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. If any of these risks materialize, or if any of our assumptions underlying forward-looking statements prove incorrect, actual results and developments may differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, those set forth in Item 1A, “Risk Factors,” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2023 (our “Form 10-K”) filed with the U.S. Securities and Exchange Commission (the “SEC”). Although we have attempted to identify important risk factors, there may be other risk factors not presently known to us or that we presently believe are not material that could cause actual results and developments to differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. We caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this Form 10-Q. Any forward-looking statement made by us in this Form 10-Q speaks only as of the date hereof. We undertake no obligation to publicly update or to revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
1
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
BrightSpring Health Services, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
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March 31, 2024 |
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December 31, 2023 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance for credit losses |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net of accumulated depreciation of $ |
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Goodwill |
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Intangible assets, net of accumulated amortization |
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Operating lease right-of-use assets, net |
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Deferred income taxes, net |
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— |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities, Redeemable Noncontrolling Interests, and Equity |
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Current liabilities: |
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Trade accounts payable |
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$ |
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$ |
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Accrued expenses |
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Current portion of obligations under operating leases |
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Current portion of obligations under financing leases |
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Current portion of long-term debt |
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Total current liabilities |
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Obligations under operating leases, net of current portion |
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Obligations under financing leases, net of current portion |
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Long-term debt, net of current portion |
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Deferred income taxes, net |
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— |
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Long-term liabilities |
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Total liabilities |
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Redeemable noncontrolling interests |
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Shareholders' equity: |
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Common stock, $ |
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Preferred stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive income |
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Total shareholders' equity |
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Noncontrolling interest |
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Total equity |
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Total liabilities, redeemable noncontrolling interests, and equity |
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$ |
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$ |
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See accompanying notes to the condensed consolidated financial statements.
2
BrightSpring Health Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
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For the Three Months Ended March 31, |
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2024 |
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2023 |
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Revenues: |
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Products |
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$ |
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$ |
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Services |
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Total revenues |
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Cost of goods |
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Cost of services |
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Gross profit |
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Selling, general, and administrative expenses |
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Operating income |
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Loss on extinguishment of debt |
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— |
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Interest expense, net |
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Loss before income taxes |
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( |
) |
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( |
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Income tax benefit |
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( |
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( |
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Net loss |
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( |
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( |
) |
Net loss attributable to noncontrolling interests |
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( |
) |
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( |
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Net loss attributable to BrightSpring Health Services, Inc. and subsidiaries |
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$ |
( |
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$ |
( |
) |
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Net loss per common share (Note 12): |
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Loss per share - basic: |
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$ |
( |
) |
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$ |
( |
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Loss per share - diluted: |
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$ |
( |
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$ |
( |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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See accompanying notes to the condensed consolidated financial statements.
3
BrightSpring Health Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
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For the Three Months Ended March 31, |
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2024 |
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2023 |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments |
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( |
) |
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Cash flow hedges: |
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Net change in fair value, net of tax (1) |
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( |
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Amounts reclassified to earnings, net of tax (2) |
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( |
) |
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( |
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Total other comprehensive income (loss), net of tax |
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( |
) |
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Total comprehensive loss |
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( |
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( |
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Comprehensive loss attributable to redeemable noncontrolling interests |
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( |
) |
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( |
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Comprehensive loss attributable to noncontrolling interest |
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( |
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Comprehensive loss attributable to BrightSpring Health Services, Inc. and subsidiaries |
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$ |
( |
) |
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$ |
( |
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See accompanying notes to the condensed consolidated financial statements.
4
BrightSpring Health Services, Inc. and Subsidiaries
(In thousands, except share data or otherwise indicated)
(Unaudited)
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For the Three Months Ended March 31, 2024 |
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Common Stock |
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Additional |
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Accumulated Deficit |
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Accumulated Other Comprehensive Income |
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Noncontrolling |
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Total |
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Shares |
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Amount |
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Balances at December 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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Net loss (1) |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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( |
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Other comprehensive income, net of tax |
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— |
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— |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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Extinguishment of redeemable |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock on initial public |
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— |
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— |
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— |
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Proceeds from stock purchase contract |
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— |
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— |
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— |
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— |
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— |
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Balances at March 31, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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For the Three Months Ended March 31, 2023 |
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Common Stock |
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Additional |
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Accumulated Deficit |
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Accumulated Other Comprehensive Income |
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Noncontrolling |
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Total |
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Shares |
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Amount |
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Balances at December 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
— |
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$ |
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Net loss (1) |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
Other comprehensive loss, net of tax |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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Shares issued under share-based |
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— |
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— |
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— |
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— |
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Balances at March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
— |
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$ |
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(1)
See accompanying notes to the condensed consolidated financial statements.
5
BrightSpring Health Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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For the Three Months Ended March 31, |
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2024 |
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2023 |
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Operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
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Adjustments to reconcile net loss to cash (used in) provided by operating activities: |
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Depreciation and amortization |
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Impairment of long-lived assets |
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Provision for credit losses |
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Amortization of deferred debt issuance costs |
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Share-based compensation |
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Deferred income taxes, net |
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( |
) |
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( |
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Loss on extinguishment of debt |
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— |
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Loss on disposition of fixed assets |
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Other |
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( |
) |
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Change in operating assets and liabilities, net of acquisitions and dispositions: |
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Accounts receivable |
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( |
) |
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( |
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Prepaid expenses and other current assets |
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Inventories |
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Trade accounts payable |
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( |
) |
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Accrued expenses |
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( |
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Other assets and liabilities |
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( |
) |
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( |
) |
Net cash (used in) provided by operating activities |
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$ |
( |
) |
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$ |
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Investing activities: |
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Purchases of property and equipment |
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$ |
( |
) |
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$ |
( |
) |
Acquisitions of businesses, net of cash acquired |
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( |
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— |
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Other |
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Net cash used in investing activities |
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$ |
( |
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$ |
( |
) |
Financing activities: |
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Long-term debt repayments |
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$ |
( |
) |
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$ |
( |
) |
Proceeds from issuance of common stock on initial public offering, net |
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— |
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Proceeds from issuance of tangible equity units, net |
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— |
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Repayments of the Revolving Credit Facility, net |
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( |
) |
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( |
) |
Payment of debt issuance costs |
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( |
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— |
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Repurchase of shares of common stock |
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( |
) |
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— |
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Shares issued under share-based compensation plan, including tax effects |
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— |
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Purchase of redeemable noncontrolling interest |
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( |
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— |
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Payment of financing lease obligations |
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( |
) |
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( |
) |
Net cash provided by (used in) financing activities |
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$ |
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$ |
( |
) |
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Net increase (decrease) in cash and cash equivalents |
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( |
) |
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Cash and cash equivalents at beginning of year |
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Cash and cash equivalents at end of year |
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$ |
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$ |
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Supplemental disclosures of cash flow information: |
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Cash paid for: |
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Interest, net |
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$ |
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$ |
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Income taxes, net of refunds |
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$ |
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$ |
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Supplemental schedule of non-cash investing and financing activities: |
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Financing lease obligations |
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$ |
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$ |
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Repurchases of common stock in accounts payable |
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$ |
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$ |
— |
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Purchases of property and equipment in accounts payable |
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$ |
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$ |
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Consideration for purchase of redeemable noncontrolling interest in accounts payable |
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$ |
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$ |
— |
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See accompanying notes to the condensed consolidated financial statements.
6
BrightSpring Health Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Significant Accounting Policies
Description of Business
BrightSpring Health Services, Inc. is a leading home and community-based healthcare services platform, focused on delivering complementary pharmacy and provider services to complex patients. Our platform delivers clinical services and pharmacy solutions across Medicare, Medicaid, and commercially-insured populations.
On December 7, 2017, affiliates of Kohlberg Kravis Roberts & Co. L.P. (“KKR”) and Walgreens Boots Alliance, Inc. (“WBA”) purchased PharMerica Corporation (“PharMerica”) and on March 5, 2019, expanded with the acquisition of BrightSpring Health Holdings Corp. The surviving entity has been renamed as BrightSpring Health Services, Inc.
BrightSpring Health Services, Inc. completed its initial public offering (“IPO”) of
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of BrightSpring Health Services, Inc. and its subsidiaries (“BrightSpring,” the “Company,” “we,” “us,” or “our”). The Company consolidates its majority-owned and controlled entities, including variable interest entities (“VIEs”) for which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated.
We record a noncontrolling interest for the allocable portion of income or loss and comprehensive income or loss to which the noncontrolling interest holders are entitled based upon their ownership share of the affiliate. The Company determined noncontrolling interests for certain of these VIEs to be redeemable noncontrolling interests, which are presented in the unaudited condensed consolidated balance sheets as redeemable noncontrolling interests. See Note 11.
Basis of Presentation
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly our financial position, our results of operations, and our cash flows in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting. Our results of operations for the interim periods presented are not necessarily indicative of the results of our operations for the entire year.
This report should be read in conjunction with our consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, which include information and disclosures not included herein. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from the interim financial information presented, as allowed by the rules and regulations of the Securities and Exchange Commission.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts and related disclosures. We rely on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates are involved in the valuation of accounts receivable, inventory, long-lived assets, definite and indefinite-lived intangibles, derivatives, insurance reserves, stock-based compensation, and goodwill. Actual amounts may differ from these estimates.
7
Transition Services Agreement
In conjunction with the divestiture of Workforce Solutions on November 1, 2022, BrightSpring entered into a transition services agreement (“TSA”) with the buyer to provide certain transition services in exchange for service fees totaling $
Fair Value of Financial Instruments
At March 31, 2024 and December 31, 2023, the fair value of cash and cash equivalents, accounts receivable, trade accounts payable, and accrued expenses approximated their carrying values because of the short-term nature of these instruments. The carrying amounts of the Company’s long-term debt approximated fair value as interest rates and negotiated terms and conditions are consistent with current market rates due to the close proximity of recent refinancing transactions to the dates of these unaudited condensed consolidated financial statements. All debt classifications and interest rate swaps represent Level 2 fair value measurements. Contingent consideration, which represents future earn-outs associated with acquisitions, represents a Level 3 fair value measurement as there is little or no market data available. Refer to Note 9.
Debt Issuance Costs
Deferred Offering Costs
Government Actions to Mitigate COVID-19’s Impact
On May 11, 2023, the Department of Health and Human Services declared the COVID-19 pandemic is no longer a public health emergency. Through the Coronavirus Aid, Relief, and Economic Security Act, the Paycheck Protection Program and Health Care Enhancement Act, and the Consolidated Appropriations Act, $
The Company received and recognized the following amounts from the PRF (in thousands):
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For the Three Months Ended March 31, |
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2024 |
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2023 |
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Amounts received from the Provider Relief Fund |
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$ |
— |
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$ |
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Amounts recognized into income |
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$ |
— |
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$ |
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The income recognized in the three months ended March 31, 2023 was offset directly by the expenses incurred within selling, general, and administrative expenses on our unaudited condensed consolidated statements of operations, which resulted in no net financial impact to the Company.
Recently Adopted Accounting Standards
There were no new accounting standards adopted during the three months ended March 31, 2024.
Recently Issued Accounting Standards
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting. This ASU requires the following disclosures on an annual and interim basis:
8
The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and should be applied on a retrospective basis. This ASU will have no impact on the Company’s consolidated financial condition or results of operations. The Company is evaluating the impact to the related segment reporting disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires the following disclosures on an annual basis:
The amendments in this ASU are effective for annual periods beginning after December 15, 2024, with early adoption permitted, and should be applied on a prospective basis. This ASU will have no impact on the Company’s consolidated financial condition or results of operations. The Company is currently evaluating the impact to the income tax disclosures.
2. Revenue
The Company is substantially dependent on revenues received under contracts with federal, state, and local government agencies. Operating funding sources are generally earned from Medicaid, Medicare, commercial insurance reimbursement, and from private and other payors. There is
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Pharmacy Solutions |
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For the Three Months Ended March 31, |
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2024 |
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2023 |
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Revenue |
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Revenue |
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Commercial insurance |
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$ |
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$ |
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Medicaid |
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Medicare A |
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Medicare C |
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Medicare D |
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Private & other |
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$ |
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Provider Services |
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For the Three Months Ended March 31, |
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2024 |
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2023 |
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Revenue |
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Revenue |
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% of Revenue |
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Commercial insurance |
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$ |
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$ |
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Medicaid |
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Medicare A |
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Medicare B |
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Medicare C |
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Private & other |
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$ |
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$ |
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9
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Consolidated |
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For the Three Months Ended March 31, |
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2024 |
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2023 |
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Revenue |
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% of Revenue |
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Revenue |
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% of Revenue |
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Commercial insurance |
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$ |
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% |
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$ |
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Medicaid |
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% |
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Medicare A |
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Medicare B |
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Medicare C |
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Medicare D |
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Private & other |
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$ |
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$ |
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% |
Refer to Note 14 for the disaggregation of revenue by reportable segment.
3. Acquisitions
2024 Acquisition
During the period ended March 31, 2024, we completed
The following table summarizes the consideration paid (in thousands) for the 2024 acquisition and the estimated fair value of the assets acquired at the acquisition date, which are adjusted for measurement-period adjustments through March 31, 2024.
Inventories |
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$ |
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Goodwill |
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Intangible assets |
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Aggregate purchase price |
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$ |
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The Company is in the process of reviewing the fair value of the assets acquired. We have estimated the fair value of acquired customer relationships, trade names, and non-compete agreements based on the values assigned in prior acquisitions. Based on the Company’s preliminary valuations, the total estimated consideration of $
The estimated intangible assets consist primarily of $
The above acquisition contributed approximately $
During the three months ended March 31, 2024, the Company incurred approximately $
The Company also purchased the remaining
2023 Acquisitions
During the year ended December 31, 2023, we completed
10
The following table summarizes the consideration paid (in thousands) for these 2023 acquisitions and the estimated fair value of the assets acquired and the liabilities assumed at the acquisition dates, which are adjusted for immaterial measurement-period adjustments through March 31, 2024. Consideration paid for acquisitions by the Pharmacy Solutions and Provider Services segments was $
Accounts receivable |
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$ |
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Inventories |
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Property and equipment |
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Goodwill |
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Intangible assets |
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Operating lease right-of-use assets |
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Accrued expenses |
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Current portion of obligations under operating leases |
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Obligations under operating leases, net of current portion |
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Aggregate purchase price |
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$ |
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The intangible assets consist primarily of $
Measurement period adjustments for 2023 acquisitions recorded in the three months ended March 31, 2024 were not material to the unaudited condensed consolidated financial statements. The Company expects to finalize the purchase price allocation for the 2023 acquisitions prior to the one-year anniversary date of each acquisition.
The above acquisitions contributed approximately $
During the three months ended March 31, 2023, the Company incurred approximately $
4. Goodwill and Intangible Assets
A summary of changes to goodwill, by segment, is as follows (in thousands):
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Goodwill |
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Pharmacy Solutions |
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Provider Services |
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Total |
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Goodwill at January 1, 2024* |
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$ |
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$ |
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$ |
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Goodwill added through acquisitions |
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— |
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Measurement period adjustments |
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— |
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( |
) |
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( |
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Foreign currency adjustments |
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— |
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( |
) |
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( |
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Goodwill at March 31, 2024* |
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$ |
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$ |
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$ |
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* For the period presented, the carrying amount of goodwill is presented net of accumulated impairment losses of $
11
Intangible assets are as follows (in thousands):
|
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March 31, 2024 |
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December 31, 2023 |
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Gross |
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Accumulated |
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Net Carrying |
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Gross |
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Accumulated |
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Net Carrying |
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Life |
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Customer relationships |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Trade names |
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Licenses |
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