BioScrip, Inc. — Q1 2016 Form 10-Q
Entity note: The supplied filing is for BioScrip, Inc., not Option Care Health, Inc. It covers the three months ended March 31, 2016; financial statements are unaudited. BioScrip described itself as a national infusion-services provider operating in 69 locations across 28 states.
Financial results
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $238.5 million | $244.4 million |
| Gross profit / margin | $64.2 million / 26.9% | $65.0 million / 26.6% |
| Loss from continuing operations | $9.8 million | $17.3 million |
| Net loss | $9.5 million | $19.7 million |
| Loss per common share | $0.17 | $0.31 |
| Adjusted EBITDA (non-GAAP) | $7.4 million | $5.0 million |
| Cash from continuing operations | Used $5.0 million | Used $26.6 million |
Revenue declined 2%, attributed mainly to lower Hepatitis patient volumes and declines in IVIG, Synagis and chemotherapy therapies. Gross margin was broadly stable. Lower operating costs and bad-debt expense, along with reduced restructuring costs, helped narrow the continuing-operations loss. Adjusted EBITDA improved, which management attributed mainly to restructuring, lower corporate overhead and focus on infusion services.
Q1 2016 net loss included a $0.9 million gain on sale of property and equipment. Bad-debt expense fell to $7.6 million, including a $2.3 million benefit from a revised allowance estimate based on improved collection experience. Restructuring, integration and other expense was $2.7 million, versus $3.7 million a year earlier. Discontinued operations contributed $0.2 million income, versus a $2.4 million loss in Q1 2015; the PBM business had been sold in 2015.
Balance sheet, debt and liquidity
- At March 31, 2016, cash was $8.1 million, working capital was $23.2 million, and total assets were $503.5 million. Cash was down from $15.6 million at December 31, 2015.
- Total debt was $423.9 million, up from $418.1 million at year-end; the balance included $23.0 million drawn on the revolver, $219.6 million in term loans and $196.2 million in 2021 Notes. Stockholders’ deficit was $91.5 million.
- Revolver availability was reported as $46.6 million, or $31.6 million to remain subject to the alternate leverage test, after $5.4 million in letters of credit. Availability is conditional on credit-facility requirements.
- Debt carried significant interest costs: approximately 7.75% on the revolver, 6.50% on term loans, and 8.875% on the 2021 Notes. The term loans require quarterly principal payments of about $3.1 million.
- Cash used in operating activities overall was $11.0 million, including $6.0 million for discontinued operations. Investing activities used $1.3 million; financing activities provided $4.8 million. Management expected cash from operations and available revolver capacity to cover anticipated needs for at least 12 months.
Outlook, risks and contingencies
- Management said it was evaluating financing options and strategic alternatives, including potential asset sales, financing, partnerships, a sale or merger, or continuing its operating plan. It cautioned that additional capital, if needed, might not be available.
- Medicare and other government payors accounted for about 21% of revenue; UnitedHealthcare represented about 26%. BioScrip was not awarded contracts in the Medicare Round 2 Recompete effective July 1, 2016, and was exploring strategic relationships; it did not expect the impact to be material if such relationships could not be secured.
- Key risks include reimbursement reductions or delays, healthcare regulation and audits, customer and supplier relationships, competition and pricing, debt service and covenant compliance, and litigation. Management reported no material change to the risk factors from its 2015 Form 10-K.
- Walgreens’ contract claims were directed to alternative dispute resolution; the court stayed the lawsuit and granted no injunctive relief. A securities class-action settlement had preliminary approval but remained subject to final court approval. BioScrip said it could not reasonably estimate possible losses for certain other litigation.
- The 2016 shelf registration, declared effective May 2, permits BioScrip to raise up to $200 million through specified securities; the filing does not indicate that this amount was raised.
Most important facts to verify
- Confirm the intended issuer: the supplied 10-Q identifies BioScrip, not Option Care Health.
- Review revolver availability, covenant conditions and compliance, given low cash, substantial debt and operating cash outflow.
- Track collection performance and the $2.3 million allowance-estimate benefit, along with receivables aging and payer concentration.
- Assess the revenue and margin trajectory in the named therapies and the effect of Medicare competitive bidding and reimbursement changes.
- Monitor litigation outcomes, final approval of the securities settlement, and whether the shelf registration or strategic alternatives result in financing or a transaction.