Business context and reporting period
The supplied filing is BioScrip, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2015; it is not filed under the name Option Care Health, Inc. The company’s continuing business was Infusion Services after it sold substantially all of its PBM Services business on August 27, 2015. Prior-period results were reclassified to present PBM and other divested operations as discontinued operations.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $247.2 million | $231.5 million | $738.5 million | $682.9 million |
| Gross profit (margin) | $63.1 million (25.5%) | $60.8 million (26.3%) | $188.2 million (25.5%) | $181.9 million (26.6%) |
| Net loss | $16.8 million | $38.7 million | $281.3 million | $83.8 million |
| Adjusted EBITDA, non-GAAP | $6.2 million | $(14.2) million | $6.8 million | $2.4 million |
Q3 revenue rose 6.8%, driven mainly by core nutrition and chronic infused therapies. Nine-month revenue increased 8.1%, including growth in those therapies and Hepatitis C. Lower-margin therapy mix contributed to gross-margin compression. Q3 SG&A fell to $53.6 million from $56.1 million; nine-month SG&A was $167.5 million versus $166.7 million.
Continuing-operations net loss was $24.2 million in Q3 and $286.4 million for the first nine months. The nine-month loss included a $251.9 million goodwill impairment charge, including $13.9 million recorded in Q3. Q3 bad-debt expense was $9.3 million, down from $26.1 million; nine-month expense was $32.8 million versus $41.0 million. The company recorded $7.5 million of Q3 income from discontinued operations, primarily related to the PBM disposal.
For the nine months, cash used in operating activities was $71.5 million from continuing operations and $67.4 million consolidated, including discontinued operations. Investing activities provided $13.0 million overall, reflecting $22.4 million of net proceeds from the PBM sale; continuing-operations capital expenditures were $9.4 million. Financing activities provided $83.1 million from continuing operations. Cash at September 30 was $29.4 million, versus $0.7 million at year-end 2014; working capital was $52.6 million.
Total debt was $448.9 million, comprising $30.0 million drawn on the revolver, $222.8 million of term loans, $195.9 million carrying value of 2021 notes, and $0.3 million of capital leases. Approximately $39.6 million of revolver capacity was available after letters of credit. The notes bear 8.875% interest; stated revolver and term-loan rates were approximately 7.50% and 6.50%. Stockholders’ equity was a deficit of $61.1 million. Series A preferred stock had a $66.7 million liquidation preference and accrued dividends.
Material changes, outlook and risks
- The PBM business sale generated approximately $24.6 million cash consideration; $22.4 million of proceeds was applied to revolver debt. A subsequent working-capital adjustment required repayment of about $1.0 million.
- A $62.5 million gross private placement of preferred stock and warrants raised $59.7 million net. About $45.3 million of net proceeds was used to repay revolver debt. A rights offering raised a further $1.1 million gross.
- Management expected cash from operations and available revolver capacity to fund anticipated needs for at least 12 months, but warned that failure to execute its Financial Improvement Plan could require additional liquidity. Strategic alternatives under review included further asset sales, partnerships, a sale or merger, or continuing the operating plan.
- The plan announced in August targeted roughly 12% workforce reduction, consolidation of corporate functions in Minnesota, and transition of the New York office to non-executive functions. Completion was expected by year-end 2015; management anticipated further restructuring charges.
- Credit amendments extended or relaxed leverage tests through March 2017, subject to conditions including minimum liquidity and revolver utilization limits. Continuing covenant compliance and the company’s substantial debt burden remain important risks.
- Management identified goodwill valuation as sensitive to cash-flow assumptions, market conditions and share price; further material impairment was possible. Accounts-receivable reserves remained a concern: the allowance was 36.6% of receivables versus 33.5% at year-end, with aged balances presenting elevated collection risk.
- Disclosure controls were deemed ineffective because a material weakness in accounts-receivable reserve controls remained. Management said other identified weaknesses had been remediated, while reserve-control remediation still required further testing.
- Risks and contingencies include healthcare reimbursement and regulatory changes, litigation (including shareholder actions), and $6.8 million owed by a former PBM payment processor being pursued through arbitration. The filing states that the collection outcome is uncertain.
Important facts for investors to verify
- Confirm the issuer identity: the provided filing names BioScrip, Inc., while the request identifies Option Care Health, Inc.
- Review the goodwill impairment assumptions and the potential for further impairment, as well as the ongoing quality and aging of receivables.
- Assess operating cash consumption, available revolver capacity, covenant conditions and the company’s ability to meet debt service and liquidity needs.
- Track execution costs and expected benefits of the Financial Improvement Plan, including workforce reductions and any additional restructuring charges.
- Follow the PBM-sale working-capital adjustment, payment-processor arbitration, pending litigation and the status of remediation testing for the remaining control weakness.