Filing summary
Issuer and period: The supplied filing is BioScrip, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2013—not a filing under the name Option Care Health, Inc. The company reported home infusion, home health and pharmacy benefit management (PBM) services. Results below compare the three months ended March 31, 2013 with the same 2012 period unless stated otherwise.
Financial performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $199.1 million | $155.6 million |
| Gross profit / margin | $63.2 million / 31.8% | $53.5 million / 34.4% |
| Loss from continuing operations, net | $7.5 million | $2.0 million |
| Net loss | $8.1 million; $0.14 per diluted share | $2.7 million; $0.05 per diluted share |
| Adjusted EBITDA, non-GAAP | $11.5 million | $8.4 million |
| Cash used in operating activities, continuing operations | $12.2 million | $3.9 million |
| Cash used in investing activities | $76.9 million | $4.5 million |
Revenue increased 27.9%. Infusion Services revenue grew 41.5% to $154.4 million, reflecting organic growth and acquisitions; Home Health Services rose 7.4% to $17.9 million; PBM Services declined 10.4% to $26.8 million. Gross profit dollars increased 18.1%, but margin fell 2.6 percentage points. Management attributed the margin decline mainly to a greater mix of infusion revenue, seasonal Synagis growth and more lower-margin chronic product sales.
SG&A increased to $52.8 million from $44.6 million, but declined as a share of revenue to 26.5% from 28.6%, which management attributed to operating leverage. Acquisition and integration expense rose to $4.6 million from $0.2 million and included a $2.3 million probable settlement related to merger and acquisition activities. Restructuring and other expense was $1.3 million versus $0.4 million. Net interest expense was $6.5 million, broadly comparable to the prior-year $6.6 million.
Balance sheet, liquidity and debt
At March 31, 2013, cash and cash equivalents were zero, compared with $62.1 million at December 31, 2012. Working capital was $56.9 million, down from $127.2 million, primarily due to the HomeChoice acquisition. Current assets were $190.0 million and current liabilities $133.2 million. Total debt was approximately $253.4 million, including $225.0 million of 10.25% senior unsecured notes due October 2015 and $27.1 million drawn on the revolving credit facility. The company reported compliance with its credit covenants at quarter-end and at filing.
Subsequent to quarter-end, the company completed a common-stock offering on April 24, 2013, receiving $118.6 million in net proceeds. It also announced plans to pursue a roughly $325 million senior secured credit facility to refinance the revolving facility, redeem the senior notes and support working capital and general corporate needs. Management expected operating cash flow, refinancing and offering proceeds to fund anticipated needs for at least 12 months; this was an expectation, not a completed refinancing at the reporting date.
Material developments and management commentary
- BioScrip acquired HomeChoice Partners on February 1, 2013 for $70 million plus a $2.3 million purchase-price adjustment, funded with cash and revolver borrowings. The purchase price may increase by up to $20 million based on performance milestones. The company recorded $8.0 million of contingent consideration. HomeChoice contributed $10.8 million of revenue and a $0.8 million continuing-operations loss from acquisition through quarter-end.
- The company’s continuing strategy focused on growing infusion and home health services after its 2012 sale of its traditional/specialty mail and community pharmacy businesses. InfuScience, acquired in 2012, contributed $11.4 million revenue and a $1.0 million continuing-operations loss in Q1 2013.
- Management cited organic infusion growth, acquisition contributions, improved collection processes and SG&A leverage. Segment Adjusted EBITDA increased for Infusion and PBM, while Home Health declined, with management citing lower reimbursement rates.
- Government reimbursement remains a risk: Medicare provider reimbursement was reduced overall by 2% beginning April 1, 2013. The company also described state Medicaid rate and program changes; a Tennessee rate reduction decreased Q1 2013 revenue by about $0.2 million.
- One payor represented approximately 21% of Q1 2013 revenue, versus 16% in Q1 2012. Immune Globulin therapy accounted for 17% of revenue, versus 21% a year earlier.
- Other exposures include healthcare regulation and enforcement, contract terminations and network exclusions, acquisition integration, drug costs, competition and the company’s debt load. The filing identifies a $3.5 million claim in litigation that the company says it will defend, and $27.7 million of drug purchase commitments for the remainder of 2013.
Investor verification points
- Confirm the issuer identity: the supplied document is BioScrip, Inc.’s filing, despite the request metadata naming Option Care Health, Inc.
- Review the final terms and completion status of the planned refinancing, including whether the 10.25% notes were redeemed and the resulting interest expense, maturities and covenants.
- Assess the use of the $118.6 million offering proceeds, resulting share dilution and any subsequent debt reduction or acquisitions.
- Track HomeChoice and InfuScience integration, contingent purchase consideration, and whether their operating contributions improve profitability and cash generation.
- Monitor gross-margin trends, PBM revenue, reimbursement reductions, payor concentration and the company’s ability to convert reported growth into operating cash flow.