Filing summary
Issuer and period: The supplied filing is BioScrip, Inc.’s Form 10-K for the fiscal year ended December 31, 2013, filed March 3, 2014. The request identifies Option Care Health, Inc.; that name does not match the issuer named in the filing. The filing includes unaudited fourth-quarter results, but it is an annual report, not a standalone Q4 filing.
Business context and reporting period
BioScrip provided home infusion, home health and pharmacy benefit management (PBM) services. Its strategy centered on growing Infusion Services, including through the 2013 acquisitions of HomeChoice and CarePoint. The company reported 111 locations in 29 states at year-end. It had sold its traditional and specialty pharmacy mail operations and community retail pharmacies in 2012.
After year-end, BioScrip agreed to sell its Home Health Services segment to LHC Group for approximately $60 million, subject to a working-capital adjustment; closing was expected March 31, 2014. The company said it intended to use the net proceeds to reduce debt.
Financial results and liquidity
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Revenue | $842.2 million | $662.6 million |
| Gross profit / margin | $271.8 million / 32.3% | $225.0 million / 33.9% |
| Operating income (loss) | $(7.0) million | $13.3 million |
| Net loss from continuing operations | $(53.6) million; $(0.83) per share | $(8.3) million; $(0.15) per share |
| Net income (loss), including discontinued operations | $(69.7) million | $64.7 million |
| Adjusted EBITDA, continuing operations (non-GAAP) | $48.6 million | $41.1 million |
| Cash from (used in) continuing operating activities | $(38.5) million | $49.9 million |
Revenue rose 27.1%, chiefly from Infusion Services acquisitions and organic growth. Infusion revenue increased 44.8% to $697.3 million; Home Health revenue rose 4.5% to $72.3 million; PBM revenue fell 35.1% to $72.6 million, including the loss of a large, low-margin client and weaker discount-card activity. Gross margin declined as lower-margin infusion revenue became a larger share of the business.
The continuing-operations loss reflected operating expenses, $28.2 million of net interest expense, and a $15.9 million loss on extinguishing the 2015 Notes. Bad-debt expense was $21.0 million, up from $14.0 million; management attributed pressure partly to aged claims during acquisition integration and high-deductible plans. The total 2013 net loss also included discontinued-operations costs, notably a $15.0 million legal-settlement accrual.
Q4 2013: Revenue was $243.5 million and gross profit was $74.9 million. Net loss from continuing operations was $15.4 million; total net loss was $18.6 million. The filing does not provide a clear Q4 operating-cash-flow figure.
At December 31, 2013, working capital was $62.7 million, down from $127.2 million; cash was $1.0 million; total debt was $435.6 million; and stockholders’ equity was $354.6 million. Net cash used in investing activities was $302.4 million, including $283.0 million for acquisitions; financing activities provided $295.8 million, including stock-offering proceeds and new credit-facility borrowings. Management stated that operating cash flow plus available revolver borrowings was expected to cover anticipated needs for at least 12 months, based on historical levels.
Material changes, outlook and risks
- Acquisitions and financing: HomeChoice was acquired for $72.9 million at closing; CarePoint was acquired for $211.1 million in cash, with possible contingent payments. The acquisitions expanded infusion operations but increased integration demands, working-capital needs and debt.
- Debt actions after year-end: In February 2014, BioScrip issued $200 million of 8.875% senior notes due 2021 and used approximately $194.5 million of net proceeds to repay revolving and term debt. In January 2014, its credit amendments increased term-loan pricing to Eurodollar plus 6.00% or base rate plus 5.00%, subject to possible later reductions.
- Settlement: The company agreed to pay $15.0 million plus 3.25% interest in three approximately annual installments through January 2016 to resolve civil claims involving a divested legacy pharmacy business and Exjade distribution. The company denied wrongdoing; potential additional fees and costs were estimated not to exceed $0.75 million. The agreements do not preclude certain administrative actions.
- Reimbursement and operating risks: Medicare, Medicaid and other government programs directly accounted for about 26% of revenue. Medicare sequestration cuts and home-health reimbursement reductions, Medicare competitive bidding, state Medicaid budget pressure, payor pricing, customer concentration, drug supply and labor availability could affect results. UnitedHealthcare represented 21% of 2013 revenue.
- Receivables and controls: Management reported growing receivables aging and warned that additional bad-debt expense remained possible if collection initiatives fell short. Management and the auditor identified material weaknesses in receivables-reserve controls and contingent-consideration calculations. The auditor issued an adverse opinion on internal control over financial reporting, while giving an unqualified opinion on the financial statements.
- Legal and strategic uncertainty: A consolidated securities class action relating to legacy pharmacy matters and the PBM segment was pending; the company said it could not reasonably estimate a possible loss. The Home Health sale remained subject to customary closing conditions. Management provided no formal earnings guidance in the supplied filing text.
Most important facts for investors to verify
- Confirm the intended issuer: the filing is for BioScrip, Inc., not Option Care Health, Inc.
- Track cash generation, collections, aged receivables and reserve adequacy, particularly given the disclosed material weaknesses.
- Verify the Home Health sale’s completion, net proceeds and actual debt reduction.
- Review post-issuance debt balances, interest costs, covenant headroom and liquidity after the 2021 notes issuance and credit amendments.
- Assess infusion acquisition integration, segment profitability and whether PBM declines or reimbursement pressures persist.
- Monitor settlement payments, remaining litigation and any administrative actions, as well as remediation of internal-control weaknesses.