BioScrip, Inc. — FY 2016 Form 10-K Summary
Entity note: The supplied filing is for BioScrip, Inc., not Option Care Health, Inc. It reports the fiscal year ended December 31, 2016; fourth-quarter figures are unaudited.
Business context and reporting period
BioScrip was a national home and alternate-site infusion provider, with infusion services as its sole continuing operating segment after the 2015 sale of its pharmacy benefit management business. It acquired substantially all of Home Solutions’ assets on September 9, 2016. The company reported 75 service locations in 28 states at year-end.
Financial performance and position
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $935.6 million | $982.2 million |
| Gross profit / margin | $265.6 million / 28.4% | $260.9 million / 26.6% |
| Net loss | $41.5 million | $299.7 million |
| Net loss per common share | $0.54 | $4.51 |
| Adjusted EBITDA, non-GAAP | $30.9 million | $15.9 million |
| Cash used in operating activities from continuing operations | $35.2 million | $62.3 million |
| Capital expenditures | $9.6 million | $11.5 million |
Revenue fell 5%, which management attributed primarily to lower patient volumes in lower-margin chronic therapies. Gross profit increased despite lower revenue, reflecting the Hepatitis C business divestiture and Home Solutions’ higher margins. Lower bad-debt expense and reduced corporate costs also supported the improved results. The prior-year loss included a $251.9 million goodwill impairment; no goodwill impairment was recorded in 2016.
Fourth-quarter 2016 revenue was $240.1 million and gross profit was $74.7 million. Net loss was $12.5 million, including a $7.3 million loss from discontinued operations; pretax loss from continuing operations was $3.8 million.
At December 31, 2016, cash was $9.6 million, working capital was $45.7 million, total debt was $451.9 million, and stockholders’ deficit was $31.6 million. The revolving facility was fully drawn, with no remaining borrowing capacity. The filing reports a full valuation allowance of $178.5 million against deferred tax assets. The auditor issued unqualified opinions on the financial statements and on internal control over financial reporting, with the acquired Home Solutions business excluded from the internal-control assessment.
Material changes, outlook, and risks
- Home Solutions acquisition: Consideration included $67.5 million cash, 3.75 million common shares, and contingent equity of approximately 7.1 million shares subject to performance or change-of-control conditions. The acquisition contributed $26.8 million revenue and $3.2 million net income during the period it was included in 2016 results.
- Financing and dilution: A June 2016 common-stock offering raised approximately $83.3 million net. The company also carried preferred stock with a $75.5 million liquidation preference for Series C at year-end, plus conversion and warrant-related dilution exposure.
- Post-year-end debt actions: In January 2017, the company amended its senior credit facilities, prohibited further revolver borrowing, increased interest costs and tightened covenants. It also drew a $25 million priming loan bearing 10% interest, due July 2018. In March 2017, it raised approximately $5.1 million gross in a private placement.
- Liquidity outlook: Management expected cash, financing proceeds and operating cash to cover anticipated needs for at least 12 months, while warning that failure to execute its plans could require additional or alternative liquidity. The company was evaluating strategic alternatives, including possible partnerships, a sale or merger, and continuing its operating plan. No numerical operating guidance was provided.
- Reimbursement exposure: The December 2016 Cures Act reduced Medicare drug reimbursement for certain home infusion therapies; management expected a likely material negative effect on revenue and profitability. The related clinical-services payment does not begin until 2021. Government programs represented approximately 16% of revenue, including Medicare at 8%.
- Legal and operating risks: A Walgreens arbitration award of $5.8 million was accrued in discontinued operations; BioScrip sought to vacate it. A derivative lawsuit remained pending, with potential losses not estimable. Other prominent risks include payor concentration (UnitedHealthcare was 24% of 2016 revenue), reimbursement cuts, billing and collection performance, supplier dependence, acquisition integration, regulatory scrutiny, and substantial debt and covenant compliance.
Key facts investors should verify
- Confirm the issuer and security match the intended investment: this filing is BioScrip’s, despite the request naming Option Care Health.
- Review subsequent filings for liquidity, covenant compliance, cash generation, and the terms and impact of the January 2017 debt amendments and priming loan.
- Assess whether Home Solutions integration, patient-volume trends, and expected cost or margin benefits materialized.
- Track Medicare reimbursement implementation and quantify its effect on therapy-level revenue and profitability.
- Check the status and financial outcome of the Walgreens award, derivative litigation, and preferred-stock and contingent-share dilution.