BioScrip, Inc. — Form 10-Q Summary
Entity and period: The supplied filing is BioScrip, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2012, not a filing under the name Option Care Health, Inc. Confirm the issuer identity before relying on this summary.
Business context and reporting period
Following the May 2012 sale of its traditional and specialty mail pharmacy operations and community retail pharmacies to Walgreens, BioScrip reported continuing operations in Infusion Services, Home Health Services and PBM Services. The quarter’s results include the InfuScience acquisition, completed July 31, 2012.
Financial performance and liquidity
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $170.4 million | $133.8 million | $481.9 million | $396.2 million |
| Gross profit | $58.0 million | $53.6 million | $164.6 million | $156.8 million |
| Gross margin | 34.0% | 40.1% | 34.1% | 39.6% |
| Loss from continuing operations, net | $(0.6) million | $(0.3) million | $(6.9) million | $(3.0) million |
| Net income (loss) | $(11.5) million | $0.5 million | $57.5 million | $1.2 million |
| Consolidated Adjusted EBITDA | $11.6 million | $11.7 million | $29.0 million | $33.0 million |
Quarterly revenue growth was driven primarily by Infusion Services; the reported year-to-date net income chiefly reflects the pharmacy-sale gain, not continuing operations. Gross margin declined mainly because of infusion therapy mix and lower Home Health reimbursement. Nine-month net cash from operations was $25.3 million, comprising $56.9 million from continuing operations and $(31.6) million from discontinued operations. Investing activities provided $103.2 million, principally reflecting sale proceeds; financing activities used $61.3 million.
At September 30, cash was $67.2 million, working capital was $124.2 million, and total debt was approximately $226.4 million, including $225.0 million of unsecured notes. No revolving-credit borrowings were outstanding. The notes bear 10.25% interest and mature October 1, 2015. The company reported compliance with its credit covenants and expected available sale proceeds and operating cash flow to cover anticipated needs for at least 12 months.
Material changes and unusual items
- The Walgreens asset sale closed May 4 for approximately $158.8 million, including inventory. BioScrip recorded a $100.0 million pretax gain, net of transaction costs, in discontinued operations. Contingent consideration could add up to $15.0 million or require repayment of up to approximately $6.4 million; no contingent gain was recorded.
- InfuScience was acquired for approximately $38.3 million in cash; consideration could rise to approximately $41.3 million based on post-closing results. Its five infusion centers contributed $6.6 million of post-acquisition revenue through September 30. Purchase accounting remained provisional.
- Q3 discontinued operations reported a $10.9 million loss, including costs related to retained receivables and the divestiture. The company retained approximately $18.6 million of net assets tied to the disposed business and anticipated collecting them later in 2012.
- Q3 acquisition, integration and transitional expenses were $2.9 million and included $0.8 million of prior-year state sales taxes. Nine-month restructuring expense was $0.9 million. Management said further restructuring and transition-related charges could arise.
- Segment Adjusted EBITDA for Q3 was $9.9 million in Infusion, $1.4 million in Home Health and $6.9 million in PBM. Infusion improved year over year; Home Health and PBM declined, reflecting reimbursement reductions and lower discount-card rates, respectively.
Outlook, risks and contingencies
Management described strategic alternatives that could include acquisitions, investment in infusion and home health, or redemption of some unsecured notes, subject to debt-agreement terms; no specific earnings guidance was provided. Risks highlighted include reimbursement cuts, healthcare regulation, customer and contract concentration, bad-debt exposure, debt and covenant constraints, competition, and the ability to execute the post-sale strategy. One large PBM customer was about two months late paying, owing $7.8 million in total, including $0.3 million for BioScrip services; no reserve was recorded because the loss probability was unclear. A separate $3.5 million contract lawsuit was disputed, with no liability accrued. The DOJ and states’ healthcare settlement payments totaled $5.0 million; the relator’s employment claim and counsel’s fee claim remained unresolved.
Most important facts to verify
- Confirm that BioScrip is the intended issuer; the filing does not identify Option Care Health as the registrant.
- Review the recurring performance of continuing operations separately from the $100.0 million sale gain and other discontinued-operation effects.
- Assess the durability of infusion revenue growth against falling gross margins and lower segment EBITDA in Home Health and PBM.
- Verify collection of retained divested-business receivables and resolution of the PBM customer’s overdue balance.
- Check the final InfuScience purchase-price allocation, contingent consideration, restructuring costs and any required use of sale proceeds under the debt agreements.
- Reconcile the MD&A cash-flow discussion with the financial statements: the cash-flow statement reports 2011 operating cash flow of $39.4 million, while MD&A cites $49.9 million, and the MD&A contains inconsistent period labels in places.