Business context and reporting period
The supplied filing is BioScrip, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2014; it is not filed under the name Option Care Health, Inc. BioScrip reported Infusion Services and PBM Services as its continuing segments after selling substantially all of its Home Health Services business on March 31, 2014, for final cash consideration of approximately $60.6 million.
Financial performance and liquidity
| Metric | Q2 2014 | Six months 2014 |
|---|---|---|
| Revenue | $247.1 million, up from $172.3 million | $486.4 million, up from $353.3 million |
| Gross profit / margin | $65.4 million / 26.4%; prior-year margin 33.5% | $130.5 million / 26.8%; prior-year margin 32.2% |
| Loss from continuing operations, net | $18.6 million | $43.9 million |
| Net loss | $19.8 million, or $0.29 per share | $45.1 million, or $0.66 per share |
| Operating cash flow | Not presented for the quarter alone | Cash used: $31.0 million, including $26.7 million from continuing operations |
For the six months, consolidated Adjusted EBITDA was $20.2 million versus $21.1 million a year earlier; this is a non-GAAP measure. Cash and cash equivalents were $1.5 million at June 30. Total debt was $418.7 million, including $200 million principal of 8.875% senior notes due 2021; the revolving credit facility was undrawn. Working capital was $113.2 million. Management stated cash from operations and available revolver borrowings were expected to cover anticipated needs for at least the next 12 months, based on historical levels.
Material changes versus the prior comparable period
- Revenue growth was principally driven by Infusion Services acquisitions and organic growth. Infusion revenue grew 47.8% in Q2, with reported organic growth of approximately 24%; six-month organic growth was approximately 17.8%.
- PBM revenue declined 19.2% for the first six months, mainly reflecting lower discount-card revenue and the prior-year termination of a low-margin client. PBM Adjusted EBITDA also declined.
- Gross margin compressed as revenue mix shifted away from the higher-margin PBM business. Integration-related disruption contributed to contractual reserve provisions and collection problems.
- Bad debt expense rose to $8.4 million in Q2 and $15.0 million for six months, versus $3.5 million and $6.6 million, respectively. Acquisition integration issues, weaker-than-expected collections on acquired receivables, and patient deductibles were cited.
- Interest expense increased to $9.1 million in Q2 and $19.6 million for six months, reflecting higher debt levels, principally associated with the CarePoint acquisition.
Outlook, risks, contingencies, and unusual items
- No specific revenue or earnings guidance was provided. Management said it intended to focus growth and capital on Infusion Services and continued to consider acquisitions and other strategic transactions.
- CarePoint contingent consideration was remeasured to $5.0 million at June 30 after performance below target. Management said the target would be difficult to attain; if earned, a further $5.0 million expense could be recorded.
- Income tax expense included substantial valuation-allowance adjustments: $8.8 million for Q2 and $19.4 million for the first six months, despite pretax losses.
- BioScrip had a material weakness in internal control over financial reporting relating to accounts-receivable reserves and timely bad-debt recognition. Management said it remained unresolved at June 30; a separate weakness involving contingent-consideration calculations had been remediated.
- A third-party PBM processor had stopped paying amounts owed: approximately $6.8 million to BioScrip and $2.1 million related to a sold affiliate. No reserve had been recorded.
- A $15.0 million government settlement related to legacy pharmacy operations was payable in installments plus interest; $3.0 million, including interest, had been paid by June 30. Securities class-action litigation remained pending, with outcome and possible loss not estimable by the company.
- Other key risks cited include reimbursement and regulatory changes, debt and covenant obligations, acquisition integration, customer and supplier relationships, and concentration: UnitedHealthcare represented approximately 22% of revenue, while immune globulin products represented 17% of Q2 revenue.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing names BioScrip, Inc., not Option Care Health, Inc.
- Assess whether acquisition integration and receivables collection improve, given rising bad-debt expense and the unresolved controls weakness.
- Monitor PBM processor recoveries and whether any reserve or impairment becomes necessary.
- Review debt service, covenant headroom, and liquidity against operating cash use and scheduled obligations.
- Track CarePoint earnout results, pending securities litigation, and the remaining government-settlement payments.