Filing summary
Entity and period: The supplied filing is BioScrip, Inc.’s Form 10-K for the fiscal year ended December 31, 2012—not a filing identified as Option Care Health, Inc. It reports annual results; fourth-quarter figures are included separately in the filing.
Business context
BioScrip provided home infusion, home health and pharmacy benefit management (PBM) services. Following its strategic review, it sold its traditional and specialty mail and community pharmacy operations to Walgreens in 2012 and emphasized investment in infusion and home health. It acquired InfuScience in July 2012. HomeChoice Partners was acquired on February 1, 2013, after year-end.
Financial performance and condition
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue from continuing operations | $662.6 million | $554.5 million |
| Gross profit / margin | $225.0 million / 33.9% | $215.4 million / 38.8% |
| Operating income | $13.3 million | $25.6 million |
| Net income (loss) from continuing operations | $(8.3) million | $(0.4) million |
| Net income from discontinued operations | $73.0 million | $8.3 million |
| Consolidated Adjusted EBITDA | $41.1 million | $47.9 million |
| Cash from continuing operating activities | $49.9 million | $3.1 million |
- Revenue increased 19.5%, largely on Infusion Services growth. Infusion revenue rose 28.6% to $481.6 million; Home Health revenue decreased 0.6% to $69.2 million; PBM revenue increased 1.2% to $111.9 million.
- Gross profit rose 4.5%, but margin fell 4.9 percentage points, reflecting a greater mix of lower-margin chronic infusion product sales and payer-contract economics. Operating income declined as higher operating costs and mix effects outweighed revenue growth.
- Full-year net income of $64.7 million included the discontinued-operations result, principally the pharmacy-operations sale. The sale generated a reported pretax gain of about $101.6 million after transaction and related costs; it is not representative of continuing operations.
- Cash and cash equivalents were $62.1 million at year-end, versus none reported at year-end 2011; working capital was $127.2 million, up from $71.7 million. Continuing operating cash flow benefited substantially from receivables collections related to the divested business.
- Year-end long-term debt was $226.4 million, principally $225.0 million of 10.25% senior unsecured notes due October 2015. No borrowings were outstanding under the $125 million revolving facility at year-end. The company reported compliance with its credit covenants.
Changes, outlook and risks
- The Walgreens asset sale brought approximately $173.8 million of purchase-price payments; up to approximately $6.4 million may be repayable depending on specified store revenue conditions. The company reported using sale proceeds to pay down the revolving line and fund acquisitions.
- Management said available revolver capacity and expected operating cash flow should cover anticipated needs for at least 12 months, based on historical levels. It planned to pursue acquisitions and other growth opportunities and expected additional restructuring costs; no quantified earnings guidance was provided.
- HomeChoice cost $70 million, subject to working-capital adjustment, with up to $20 million in potential milestone consideration. The acquisition was funded with cash and revolver borrowings and closed after year-end.
- Management cited a scheduled overall 2% Medicare reimbursement reduction beginning April 1, 2013, with an impact not yet predictable. State Medicaid reductions also affected results; Tennessee rate cuts reduced 2012 revenue by approximately $3.0 million.
- Key exposures include healthcare reimbursement and regulatory changes, competition and contract retention, collection risk, dependence on a primary pharmaceutical wholesaler, and substantial debt service. One payor represented 18% of 2012 revenue; IVIG therapy represented 19%. Goodwill totaled $350.8 million, and management noted Home Health goodwill could be vulnerable to further reimbursement pressure.
- The company settled a previously disclosed qui tam matter, paying approximately $5.0 million in total; no liability remained at year-end. A separate Alexander Infusion lawsuit sought $3.5 million, which the company said it would contest.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Management also reported effective disclosure controls and internal controls.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for BioScrip, Inc., despite the request metadata naming Option Care Health, Inc.
- Separate recurring results from the pharmacy-sale gain and discontinued operations; review the continuing-business cash flows and Adjusted EBITDA reconciliation.
- Track the sale-related potential $6.4 million repayment, collection of retained pharmacy receivables, and the final accounting and funding impact of the HomeChoice acquisition.
- Assess the effects of Medicare and Medicaid reimbursement changes, infusion gross-margin trends, and the 18% revenue concentration in one payor.
- Review debt maturity and refinancing needs, covenant headroom after the HomeChoice borrowing, and the realizability of tax assets and carrying value of goodwill.