BioScrip, Inc. — Form 10-Q Summary
Entity note: The supplied filing identifies the registrant as BioScrip, Inc., not Option Care Health, Inc. It covers the three months ended March 31, 2017 and was signed May 4, 2017. Dollar amounts below are in millions unless otherwise noted.
Business context
BioScrip operated a single Infusion Services segment, providing infusion products and services across 68 locations in 27 states. The company had acquired Home Solutions in September 2016, expanding its home infusion and nursing business.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $217.8 | $238.5; down 8.7% |
| Gross profit / margin | $65.6 / 30.1% | $64.2 / 26.9% |
| Net loss | $(19.4) | $(9.5) |
| Loss from continuing operations | $(19.0) | $(9.8) |
| Adjusted EBITDA | $5.2 | $7.4 |
| Operating cash flow | $(11.0), including $(10.6) from continuing operations | $(11.0), including $(5.0) from continuing operations |
Gross margin improved as revenue mix shifted toward higher-margin core therapies. Higher operating costs, depreciation and amortization, and interest expense contributed to the larger continuing-operations loss. Interest expense was $12.7, compared with $9.4 a year earlier.
At March 31, 2017, cash and cash equivalents were $16.0, plus $5.1 of restricted cash held as collateral for letters of credit. Working capital was $54.3. Total debt was $472.5, up from $451.9 at December 31, 2016; current debt was $22.4. The company reported $54.9 drawn and no additional borrowing capacity under its revolving facility. Stockholders’ deficit was $47.9.
Material changes and financing
- Revenue declined $20.7 year over year, which management attributed to its focus on core revenue mix and the impact of the Cures Act. Gross profit rose $1.4 despite lower revenue.
- Other operating expenses rose $4.7, primarily reflecting Home Solutions-related wages and employee costs. General and administrative expense fell $1.6.
- On January 6, 2017, a credit amendment increased borrowing costs, restricted further revolver borrowing, required cash collateral for letters of credit, revised covenants, and waived prior covenant violations. A new $25.0 million priming facility was fully drawn, bears 10% interest, and matures July 31, 2018.
- A March 2017 private placement issued 3.3 million common shares for approximately $5.1 million net proceeds. Common shares outstanding were 121.0 million at March 31, versus 117.7 million at year-end.
Outlook, risks and unusual items
- Management expected cash on hand and cash from operations to fund anticipated needs for at least the next 12 months, but stated additional liquidity could be required if strategic plans are not executed successfully. The statements were prepared on a going-concern basis.
- The UnitedHealthcare contract, representing 22.8% of Q1 2017 revenue, is scheduled to terminate September 30, 2017. Management expected a neutral effect on 2017 Adjusted EBITDA and a positive effect on the outlook thereafter, describing the contract as unprofitable.
- The company reported no numerical earnings guidance. It said it would assess financing alternatives and strategic options, including potential asset sales, refinancing, partnerships, or a sale or merger.
- Unpaid preferred dividends accrued at 11.5% annually; Q1 accrued preferred dividends were $2.2 million. Series A and C preferred stock had a combined liquidation preference of approximately $80.3 million at quarter-end.
- An arbitrator awarded Walgreens $5.8 million in a contract dispute; the amount was accrued. BioScrip sought to vacate the award and warned there was no assurance its challenge would succeed. A separate derivative lawsuit was dismissed on April 18, 2017.
- Key operating risks include reimbursement and regulatory changes, collection delays, high leverage and covenant compliance, and concentration in UnitedHealthcare and immune globulin therapy.
Investor verification priorities
- Confirm the filing entity and its relationship to Option Care Health; this report is filed by BioScrip, Inc.
- Track UnitedHealthcare revenue replacement and the realized impact of the contract termination on revenue and Adjusted EBITDA.
- Review covenant compliance, liquidity, refinancing needs, and the July 2018 maturities of the priming and revolving facilities.
- Monitor operating cash burn, receivables aging and collections, and whether improved gross margin can offset lower revenue and higher costs.
- Follow the Walgreens award challenge and other legal or regulatory exposures, and verify the treatment of preferred dividends and potential dilution.