BioScrip, Inc. — Q2 2012 Form 10-Q
Issuer note: The supplied filing is for BioScrip, Inc., not Option Care Health, Inc. It covers the quarter and six months ended June 30, 2012; amounts below are in U.S. dollars unless stated otherwise.
Business context and reporting period
BioScrip reported three continuing segments: Infusion Services, Home Health Services and PBM Services. On May 4, 2012, it completed the sale to Walgreens of its traditional and specialty mail pharmacy operations and community retail pharmacies; those operations are presented as discontinued operations.
Financial performance and liquidity
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Continuing-operations revenue | $155.9 million | $131.6 million | $311.5 million | $262.4 million |
| Gross profit / margin | $53.0 million / 34.0% | $51.8 million / 39.4% | $106.6 million / 34.2% | $103.2 million / 39.3% |
| Net income (loss) from continuing operations | $(4.3) million | $(1.6) million | $(6.3) million | $(2.7) million |
| Net income (loss), including discontinued operations | $71.8 million | $(2.3) million | $69.1 million | $0.6 million |
| Consolidated Adjusted EBITDA | $9.0 million | $11.5 million | $17.4 million | $21.3 million |
- Q2 revenue growth came mainly from Infusion Services (+23.5%) and PBM Services (+16.7%); Home Health Services revenue declined 4.6%.
- Gross margin fell primarily because of infusion therapy mix, lower government reimbursement and growth in funded PBM business. Bad-debt expense rose to $3.8 million in Q2 and $7.2 million for the half-year, reflecting higher patient cost-sharing and collection challenges.
- Q2 and first-half reported net income were dominated by the pharmacy-sale gain: the company recorded a $100.0 million pretax gain and about $13.0 million in transaction-related, impairment, severance and other one-time charges, for an approximately $87.0 million net effect before related taxes and other discontinued-operation items.
- Six-month operating cash flow was $21.6 million, versus $38.5 million a year earlier; continuing operations provided $42.8 million, while discontinued operations used $21.2 million. Investing activities provided $147.3 million, largely reflecting sale proceeds.
- At June 30, cash was $138.4 million and working capital was $172.9 million. Debt included $225.0 million of 10.25% senior notes due October 2015, $30.0 million on the revolving facility and $2.4 million of capital leases. The company said the revolver had no outstanding balance as of the filing date.
Material changes, outlook and risks
- The pharmacy divestiture generated approximately $158.8 million at closing. The company had received a further approximately $0.7 million and could receive up to $15.0 million in additional consideration, or have to refund up to approximately $6.4 million, subject to post-closing conditions. It retained approximately $32.4 million of related receivables and working-capital assets and expected to collect them during the remainder of 2012.
- Management said sale proceeds and anticipated operating cash flow were expected to cover working capital, IT investment, interest and other cash needs for at least 12 months. It was evaluating debt reduction, investment in remaining businesses and acquisitions; no specific earnings or revenue guidance was provided.
- After quarter-end, the revolving facility was amended, including reducing commitments from $150 million to $125 million and lowering the LIBOR floor. On July 31, BioScrip acquired InfuScience for $38.0 million, with potential additional consideration up to $3.0 million.
- Key operating pressures include Medicare and Medicaid reimbursement reductions, competition and pricing, patient credit risk, and dependence on significant payors and IVIG therapy. One payor represented 17% of first-half revenue; IVIG represented 21%.
- A PBM customer was approximately two months behind payment terms, owing $6.8 million at June 30; management had not accrued a loss, considering one not probable. A healthcare qui tam settlement remained subject to resolving relator and counsel claims. A separate $3.5 million contract lawsuit was being contested, with no liability accrued because a loss was not considered probable.
- Management began a second restructuring assessment and warned that additional asset write-downs, severance, redundant costs and contract termination costs could arise. It reported compliance with debt covenants and effective disclosure controls.
Important facts for investors to verify
- Confirm the issuer identity: this filing is BioScrip’s 2012 10-Q, notwithstanding the Option Care Health request metadata.
- Track collection of the retained $32.4 million in divested-business working capital and resolution of the sale’s contingent payment or refund provisions.
- Assess continuing-business margins and segment EBITDA trends against reimbursement pressure, therapy mix, PBM pricing and rising bad debt.
- Verify post-amendment liquidity, debt repayments or note redemptions, and the funding and performance impact of the InfuScience acquisition.
- Monitor the overdue PBM receivable, unresolved legal claims, restructuring charges and any further costs associated with the divestiture.