Business context and reporting period
The supplied filing is BioScrip, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2011, filed August 9, 2011. This differs from the requested company name, Option Care Health, Inc.; verify the issuer and filing before relying on this summary. BioScrip operated Pharmacy Services and Infusion/Home Health Services businesses.
Financial results
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $441.4 | $412.0 | $880.7 | $747.1 |
| Gross profit / margin | $76.2 / 17.3% | $73.5 / 17.8% | $153.5 / 17.4% | $112.4 / 15.0% |
| Operating income | $4.5 | $13.5 | $15.0 | $7.2 |
| Net income (loss) | ($2.3) | $3.1 | $0.6 | ($4.0) |
| Diluted earnings (loss) per share | ($0.04) | $0.06 | $0.01 | ($0.09) |
| Consolidated Adjusted EBITDA | $18.1 | $18.4 | $34.7 | $21.1 |
- Revenue mix and growth: Q2 Pharmacy Services revenue rose 8.8% to $332.1 million; Infusion/Home Health revenue increased 2.5% to $109.3 million. Six-month Infusion/Home Health growth of 43.9% included the acquired CHS business; Pharmacy Services grew 11.2%.
- Cash flow: Six-month operating cash flow was $38.5 million, versus $20.8 million used in the prior-year period. The improvement was principally attributed to lower working-capital needs, including a $26.0 million inventory reduction. Investing activities used $5.9 million, and financing activities used $32.6 million.
- Liquidity and debt: Cash was zero at June 30, 2011. Working capital was $55.9 million. Total debt was $273.3 million, including $225.0 million of 10.25% senior unsecured notes due October 2015 and $48.1 million drawn on a $150 million revolver due March 2015. The company reported compliance with debt covenants and said available facility capacity and expected operating cash flow should cover needs for at least 12 months. The revolver requires a minimum balance of $30 million.
Material changes versus prior comparable periods
- Q2 revenue increased 7.1%, but operating income fell to $4.5 million and the company moved from net income to a net loss. Lower gross margin, higher bad-debt expense, restructuring costs and a $4.8 million legal settlement contributed to the weaker quarter.
- Six-month revenue rose 17.9% and gross margin improved to 17.4%, primarily reflecting the CHS acquisition and post-acquisition purchasing synergies. The comparison includes CHS for only part of the 2010 period.
- Six-month interest expense increased to $14.4 million from $11.4 million, reflecting a full six months of acquisition-related debt in 2011. Q2 interest expense decreased year over year to $7.2 million.
Outlook, risks and unusual items
- Management anticipated further restructuring changes and expenses during the remainder of 2011, with additional savings expected; it was also evaluating other restructuring alternatives. Six-month restructuring expense was $5.2 million, and the accrued balance was $4.5 million.
- A proposed CMS rule would reduce the 2012 Medicare home-health reimbursement base rate by 3.56%; a 5.22% Medicare rate reduction was already effective for 2011. Tennessee’s TennCare program reduced certain home-health rates by 4.25% effective July 1, 2011.
- The company recorded a $4.8 million expense and liability for a negotiated-in-principle resolution of a government investigation and qui tam matter. Definitive documents and court approval remained outstanding, as did additional claims by the relator and counsel and the HHS Inspector General’s interests.
- Management cited risks including reimbursement reductions or payment delays, regulation and enforcement, contract losses, competition and pricing pressure, pharmacy-system conversion, and substantial indebtedness. No formal numerical earnings or revenue guidance is provided in the supplied filing text.
- The company reported that a separate New Mexico lawsuit was fully resolved in its favor after the appeals court affirmed dismissal. It recorded no liability for a separate $2.5 million contract-damages lawsuit because a loss was not considered probable.
Important facts for investors to verify
- Confirm that BioScrip, Inc.—not Option Care Health, Inc.—is the intended issuer and that this 2011 filing matches the intended security and reporting period.
- Review the final terms and court approval of the government/qui tam settlement, including any amounts beyond the recorded $4.8 million.
- Assess the effect of reimbursement cuts, contract changes and pharmacy pricing on segment margins and cash generation.
- Monitor revolver availability, the required minimum balance, covenant compliance, debt service and progress toward management’s expected restructuring savings.
- Distinguish acquisition-driven growth from organic growth, particularly in the six-month comparison, and review the company’s non-GAAP Adjusted EBITDA reconciliation.