Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
LBMH > SEC Filings for LBMH > Form 10-Q on 14-Aug-2014All Recent SEC Filings

Show all filings for LIBERATOR MEDICAL HOLDINGS, INC.

Form 10-Q for LIBERATOR MEDICAL HOLDINGS, INC.


14-Aug-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. When used in this Quarterly Report, in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify forward-looking statements. Forward-looking statements speak only as of the date made. Various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of distributing or marketing activities, competitive and regulatory factors, and additional factors set forth in the Company's Annual Report on Form 10-K for the year ended September 30, 2013, under the caption "Risk Factors," could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from those anticipated by any forward-looking statements.

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in this Form 10-Q and the audited financial statements of the Company included in our Annual Report on Form 10-K for the year ended September 30, 2013, and management's discussion and analysis contained therein. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Business Overview

Liberator Medical Supply, Inc. ("Liberator Medical"), a wholly-owned subsidiary of the Company, is a leading, federally licensed, national direct-to-consumer provider of quality medical supplies to Medicare-eligible seniors. Accredited by The Joint Commission, our Company's unique combination of marketing, industry expertise and customer service has demonstrated success over a broad spectrum of chronic conditions. Liberator is recognized for offering a simple, reliable way to purchase medical supplies needed by our patients on a recurring basis, generally on a continual basis for a lifetime, with the convenience of direct billing to Medicare and private insurance. Liberator's revenue primarily comes from supplying urological, ostomy, and diabetic medical supplies and mastectomy fashions. Customers may purchase by phone, mail, or the Internet; repeat orders are confirmed with the customer and shipped when needed.

We market our products directly to consumers through our direct response advertising efforts. We target consumers with chronic conditions who require a continuous supply of medical products that we can provide at attractive gross margins. Our advertising efforts do not represent an effort to target new markets or sell new products, but are a continuation of our efforts to acquire new customers in the markets we currently serve. We also generate new customers through referrals as a result of our regular communication with doctors' offices, home health organizations, vendors, and existing customers.

We receive initial contact from prospective customers in the form of leads. A certain number of leads are then qualified and become new customers. Our qualification efforts primarily involve verifying insurance eligibility, obtaining the required medical documentation from the customer's physician, and explaining our billing and collection processes, if applicable. The majority of the new customers qualified from our process typically place their initial order with us within three to six months from the time we receive initial contact from the customer. Since our inception, we have demonstrated our ability to attract and retain customers with our unique customer service that generates an annuity-like revenue stream that can last for periods of greater than ten years.


The following table shows our revenue streams, including new and recurring orders, for the three and nine months ended June 30, 2014 and 2013, based on the fiscal year that we received the initial lead from these customers (dollars in thousands):

                                       For the three months                     For the nine months
New and recurring revenues                ended June 30,                          ended June 30,
generated from customer
leads received during:              2014                 2013             2014                    2013

Pre-FY 2009                      $    2,295          $      2,677       $   7,421             $       8,364
FY 2009                               2,760                 3,000           8,406                     9,374
FY 2010                               2,546                 2,799           7,773                     8,790
FY 2011                               2,672                 3,122           8,354                     9,603
FY 2012                               2,787                 3,230           8,683                    10,387
FY 2013                               2,441                 2,485           7,976                     5,220
FY 2014                               2,886                   n/a           5,600                       n/a

Total Revenues *                 $   18,387          $     17,313       $  54,213             $      51,738
Other Sales and                                                               621                        38
Adjustments                             191                   178

Net Sales                        $   18,578          $     17,491       $  54,834             $      51,776

* Revenues include orders from new and recurring customers, net of contractual allowances. Revenue from new customers will impact comparisons between the periods for fiscal year 2014 and the corresponding periods from fiscal year 2013, especially revenue from new customers acquired during the latter portion of the fiscal years.

We believe the recurring nature of our customer base helps provide a long-term stable cash flow. We are able to adjust our advertising spend relatively quickly to respond to changing market conditions, favorable or unfavorable, which helps control our operating cash flows. As our customer base grows and revenues increase, we continue to focus on improving operational efficiencies to increase profitability.

Results of Operations



The following table summarizes the results of operations for the three and nine
months ended June 30, 2014 and 2013, including percentage of sales (dollars in
thousands):



                              For the three months ended June 30,                    For the nine months ended June 30,
                                2014                        2013                        2014                      2013
                         Amount           %          Amount         %            Amount          %         Amount         %
Net Sales               $  18,578        100.0      $ 17,491       100.0        $  54,834       100.0     $ 51,776       100.0
Cost of Sales               6,827         36.7         6,598        37.7           20,320        37.1       19,172        37.0
Gross Profit               11,751         63.3        10,893        62.3           34,514        62.9       32,604        63.0
Operating Expenses          8,635         46.5         7,537        43.1           25,301        46.1       24,632        47.6
Income from
Operations                  3,116         16.8         3,356        19.2            9,213        16.8        7,972        15.4
Other Expenses               (12)        (0.1)          (20)       (0.1)             (38)       (0.1)         (62)       (0.1)
Income before Income
Taxes                       3,104         16.7         3,336        19.1            9,175        16.7        7,910        15.3
Provision for Income
Taxes                       1,121          6.0         1,322         7.6            3,459         6.3        3,124         6.0
Net Income              $   1,983         10.7      $  2,014        11.5        $   5,716        10.4     $  4,786         9.2

Revenues

Net sales for the three months ended June 30, 2014, increased by $1,087,000, or 6.2%, to $18,578,000, compared with net sales of $17,491,000 for the three months ended June 30, 2013. Net sales for the nine months ended June 30, 2014, increased by $3,058,000, or 5.9%, to $54,834,000, compared with net sales of $51,776,000 for the nine months ended June 30, 2013. The increase in net sales was primarily due to our continued emphasis on our direct response advertising campaign to acquire new customers and our emphasis on customer service to maximize the reorder rates for our recurring customer base.

Our direct-response advertising expenditures for the three months ended June 30, 2014, were $3,183,000 compared with $2,036,000 for the three months ended June 30, 2013. We acquired 3,332 and 2,903 new customers during the three months ended June 30, 2014 and 2013, respectively.

Our direct-response advertising expenditures for the nine months ended June 30, 2014, were $10,213,000 compared with $6,975,000 for the nine months ended June 30, 2013. We acquired 9,392 and 9,727 new customers during the nine months ended June 30, 2014 and 2013, respectively.


The following table summarizes the revenues generated from our new customers and our recurring customer base for the three and nine months ended June 30, 2014 and 2013 (dollars in thousands):

                                                 For the three months                       For the nine months
                                                    ended June 30,                             ended June 30,

Revenues generated by:                        2014                 2013               2014                     2013

New Customers (1)                          $    3,734          $       3,466        $  7,783               $       7,974
Recurring Customer Base                        14,653                 13,846          46,430                      43,764

Total Revenues, net of contractual         $                                        $ 54,213               $      51,738
adjustments                                    18,387          $      17,312
Other Sales and Adjustments                       191                    179             621                          38

Net Sales                                  $   18,578          $      17,491        $ 54,834               $      51,776

(1) For the nine months ended June 30, 2014, $5,600 of the net sales for new customers acquired was generated from leads received during the nine months ended June 30, 2014. For the nine months ended June 30, 2013, $5,220 of the net sales for new customers acquired was generated from leads received during the nine months ended June 30, 2013. The remaining net sales from new customers acquired were generated from leads received during prior periods.

We obtain the majority of our new customers from leads generated by direct responses to our advertising. The number of new customers acquired through our advertising is dependent on internal and external factors, including, but not limited to, the timing of our advertising spend, the length of time from the receipt of the customer leads, the level of responses to our advertising efforts, our ability to convert leads to customers, and the market environment.

During the first three quarters of fiscal year 2014, we increased our advertising expenditures to build our customer lead base.

The following table shows the number of new customer leads generated from our quarterly advertising expenditures and business acquisitions over the last seven quarters:

                                          Customer
                                         Acquisition     Number of
                                         Investment       Customer
                       Quarter            ($000's)         Leads
                      FY2014-Q3          $   3,183         12,145
                     FY2014-Q2 (1)           4,282         16,943
                      FY2014-Q1              2,918         14,206
                     FY2013-Q4 (2)           2,367         12,461
                      FY2013-Q3              2,036         11,220
                      FY2013-Q2              2,187         11,905
                      FY2013-Q1              2,753         15,451

(1) Includes $170,000 for an acquisition of a small urological division completed in January 2014.

(2) Includes $343,000 for an acquisition of a small ostomy supply business completed in July 2013.

The following table shows the timing of the new customers acquired based on the quarter the customer leads were initially received:

    Customer                                              Number of New Customers Acquired (1)
      Leads                                                                                                             FY2013-Q1
    Received            FY2014-Q3       FY2014-Q2       FY2014-Q1       FY2013-Q4       FY2013-Q3       FY2013-Q2
    FY2014-Q3             1,837
    FY2014-Q2              830            2,077
    FY2014-Q1              137             626            1,688
    FY2013-Q4              87              112             607            1,978
    FY2013-Q3              29              39              66              542            1,669
    FY2013-Q2              40              32              65              86              634            1,713
    FY2013-Q1              25              50              45              64              109             570            2,108
   Pre-FY2013              347             295             358             355             491             633            1,800
    Total New             3,332           3,231           2,829           3,025           2,903           2,916           3,908
    Customers

(1) The number of new customers acquired in a particular quarter are derived from leads received in the current quarter and from leads received in preceding quarters. During the third quarter of fiscal year 2014, we acquired 3,332 new customers, of which 1,837 new customers were from leads received in the same quarter and 1,495 new customers were from leads received in prior quarters.


The majority of the new customers acquired place their initial order with us within three to six months following our advertising expenditures. However, we generate new customers directly from the customer leads received from a particular quarter's advertising spend beyond six months, primarily due to delays in reconnecting with the prospective customers after the initial contact and obtaining the proper documentation from the customers and/or their physicians. We expect to continue to acquire new customers over the next fifteen to eighteen months from our increased customer lead base. Similar to our past direct-response advertising efforts, when we increased our advertising spend, our costs to acquire new customers increased. We believe that the incremental costs associated with acquiring new customers through our increased advertising expenditures will be more than offset by the recurring revenues generated from the new customers acquired as a result of our advertising efforts.

Gross Profit

Gross profit for the three months ended June 30, 2014, increased by $858,000, or 7.9%, to $11,751,000, compared with gross profit of $10,893,000 for the three months ended June 30, 2013. For the nine months ended June 30, 2014, gross profit increased by $1,910,000, or 5.9%, to $34,514,000, compared with gross profit of $32,604,000. The increase was attributed to our increased sales volume for the three and nine months ended June 30, 2014, compared with the three and nine months ended June 30, 2013.

As a percentage of sales, gross profit increased and decreased by 1.0% and 0.1%, respectively, for the three and nine months ended June 30, 2014, compared with the three and nine months ended June 30, 2013. For the three months ended June 30, 2014, the increase in gross profit as a percentage of sales was primarily attributable to rebates earned based on product volume tiers and a reduction in product costs from one of our suppliers beginning in November 2013. For the nine months ended June 30, 2014, the decrease in gross profit as a percentage of sales was primarily attributable to an increase in our product mix towards ostomy supplies, which have lower gross margins than our other product lines, partially offset by rebates earned based on product volume tiers and a reduction in product costs from one of our suppliers beginning in November 2013.

Operating Expenses



The following table provides a breakdown of our operating expenses for the three
and nine months ended June 30, 2014 and 2013, including percentage of sales
(dollars in thousands):


                              For the three months ended June 30,                    For the nine months ended June 30,
                                 2014                        2013                       2014                      2013
                         Amount            %           Amount        %           Amount           %         Amount        %
Operating Expenses:
Payroll, taxes, and
benefits                $   3,650           19.6      $  3,570       20.4       $  10,988         20.0     $ 11,079       21.4
Advertising                 2,553           13.7         2,146       12.3           7,250         13.2        6,617       12.8
Bad debts                     845            4.6           541        3.1           2,487          4.5        2,986        5.8
Depreciation and
amortization                  166            0.9           171        1.0             505          0.9          509        1.0
General and
administrative              1,421            7.7         1,109        6.3           4,071          7.4        3,441        6.6

Total Operating
Expenses                $   8,635           46.5      $  7,537       43.1       $  25,301         46.1     $ 24,632       47.6

Payroll, taxes and benefits increased by $80,000, or 2.2%, to $3,650,000 for the three months ended June 30, 2014, compared with the three months ended June 30, 2013. Payroll, taxes and benefits decreased by $91,000, or 0.8%, to $10,988,000 for the nine months ended June 30, 2014, compared with the nine months ended June 30, 2013. The increase for the three months ended June 30, 2014, was due to an increase in the number of employees to support our increased sales volume. The decrease for the nine months ended June 30, 2014, was the result of process and system enhancements implemented over the past year. As of June 30, 2014, we had 330 active employees, compared with 320 at June 30, 2013.

Advertising expenses increased by $407,000, or 19.0%, to $2,553,000 for the three months ended June 30, 2014, compared with the three months ended June 30, 2013. For the nine months ended June 30, 2014, advertising expenses increased by $633,000, or 9.6%, to $7,250,000, compared with the nine months ended June 30, 2013.


The majority of our advertising expense is associated with the amortization of previously capitalized direct response advertising costs. The balance of our advertising expense is for costs that do not qualify as direct response advertising and are expensed as incurred. The following table shows a breakdown of our advertising expense for the three and nine months ended June 30, 2014 and 2013 (dollars in thousands):

                                      For the three months           For the nine months
                                         Ended June 30,                 Ended June 30,
                                      2014             2013          2014            2013

 Advertising Expense:
 Amortization of direct-response
 costs                             $     2,533       $  2,117     $    7,197       $   6,487
 Other advertising expenses                 20             29             53             130
 Total Advertising Expense         $     2,553       $  2,146     $    7,250       $   6,617

Direct response advertising costs are accumulated into quarterly cost pools and amortized separately. The amortization is the amount computed using the ratio that current period revenues for each direct-response advertising cost pool bear to the total of current and estimated future benefits for that direct response advertising cost pool. We have persuasive evidence that demonstrates future benefits are realized from our direct response advertising efforts beyond four years. Since the reliability of accounting estimates decreases as the length of the period for which such estimates are made increases, we estimate future benefits for each advertising cost pool for a period of no longer than four years at each reporting period, which creates a "rolling" type amortization period. Once a particular cost pool has been amortized to a level where the difference between amortizing the cost pool over a "rolling" four-year period and amortizing the cost pool on a "straight-line" basis over a period shorter than four years is de minimis, we amortize the costs over a fixed time period based on current and expected future revenues. As a result of this policy, our direct response advertising costs are amortized over a period of approximately six years based on probable future net revenues updated at each reporting period.

The table below shows our historical direct response advertising spend and a breakdown of the amortization expense associated with the respective accumulated advertising cost pools for the nine months ended June 30, 2014 and 2013. For presentation purposes, the quarterly advertising cost pools prior to fiscal year 2013 have been aggregated into fiscal years (dollars in thousands):

      Actual          Grouped by         Amortization Expense for the         Deferred
    Advertising    Fiscal or Interim      nine months ended June 30,        Advertising
       Spend            Period            2014                 2013           Balance @
                                                                             6/30/2014
    $   1,567           FY2008         $        -           $        25    $            -
        4,191           FY2009                108                   179                75
        10,808          FY2010                722                 1,010             1,121
        15,245          FY2011              1,555                 1,935             3,868
        13,113          FY2012              1,749                 2,308             6,122
        2,753          FY2013-Q1              410                   580             1,608
        2,187          FY2013-Q2              351                   318             1,386
        2,036          FY2013-Q3              353                   132             1,394
        2,024          FY2013-Q4              407                     -             1,476
        2,918          FY2014-Q1              645                     -             2,273
        4,112          FY2014-Q2              660                     -             3,452
        3,183          FY2014-Q3              237                     -             2,946

Total Amortization Expense $ 7,197 $ 6,487 $ 25,721

Bad debt expenses increased by $304,000, or 56.2%, to $845,000 for the three months ended June 30, 2014, compared with the three months ended June 30, 2013. The increase in bad debt expense for the three months ended June 30, 2014, is primarily attributed to the timing of adjustments made to our bad debt reserve requirements in the third quarter of fiscal year 2013 as a result of improvements implemented in our billing and collections process over the last two years, including system enhancements and an increase in the number of employees in our accounts receivable department. As a result of our increased collection efforts during fiscal year 2013, we were able to reduce our bad debt reserve requirements beginning in the third quarter of fiscal year 2013, which resulted in a lower percentage of bad debt expense during the third quarter of fiscal year 2013 compared with the third quarter of fiscal year 2014.

For the nine months ended June 30, 2014, bad debt expenses decreased by $499,000 to $2,487,000, or 16.7%, compared with the nine months ended June 30, 2013. The decrease in bad debt expense for the nine months ended June 30, 2014, was also due to the timing of improvements implemented in our billing and collections process over the last two years. The bad debt expense for the nine months ended June 30, 2014, is the result of three quarters of collection efforts with the improved processes. The bad debt expense for the nine months ended June 30, 2013, is the result of one quarter with the improved collection processes and two quarters of collection efforts while we were implementing the improved processes.


Depreciation and amortization expenses decreased by $5,000, or 2.9%, to $166,000 for the three months ended June 30, 2014, compared with the three months ended June 30, 2013. For the nine months ended June 30, 2014, depreciation and amortization expense decreased by $4,000, or 0.8%, to $505,000 compared with the nine months ended June 30, 2013.

Purchases of property and equipment totaled $276,000 and $361,000 during the nine months ended June 30, 2014 and 2013, respectively.

General and administrative expenses increased by $312,000, or 28.1%, to $1,421,000 for the three months ended June 30, 2014, compared with the three months ended June 30, 2013. For the nine months ended June 30, 2014, general and administrative expenses increased by $630,000, or 18.3% to $4,071,000, compared with the nine months ended June 30, 2013. The increase is due to increases in professional fees, legal expenses, and directors' compensation, partially offset by reduced software support costs.

Income from Operations

Income from operations for the three months ended June 30, 2014, decreased by $240,000, or 7.2%, to $3,116,000, compared with the three months ended June 30, 2013. The decrease in operating income is primarily attributed to an increase in advertising expense, general and administrative expenses, and bad debt expense, partially offset by increased gross profits driven by our increased sales volumes, and a reduction as a percentage of sales in payroll costs.

For the nine months ended June 30, 2014, income from operations increased by $1,241,000, or 15.6%, to $9,213,000, compared with the nine months ended June 30, 2013. The increase in operating income is primarily attributed to increased gross profits driven by our increased sales volumes and a reduction as a percentage of sales in payroll and bad debts expense, partially offset by increases in advertising expense and general and administrative expense.

. . .

  Add LBMH to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for LBMH - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.