Business context and reporting period
BioScrip, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2018. The filing describes a national infusion-services provider operating 65 service locations in 27 states. The request metadata names Option Care Health, Inc.; the filing itself is for BioScrip, Inc., so verify the intended issuer.
Financial results and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $175.8 million | $218.1 million | $344.4 million | $435.9 million |
| Gross profit | $60.0 million | $67.6 million | $115.0 million | $132.5 million |
| Gross margin | 34.1% | 31.0% | 33.4% | 30.4% |
| Net loss | $15.1 million | $29.5 million | $28.2 million | $49.2 million |
| Adjusted EBITDA (non-GAAP) | $11.4 million | $10.0 million | $17.1 million | $14.8 million |
Q2 loss per share was $0.14, versus $0.26; six-month loss per share was $0.26, versus $0.45. Interest expense was $13.8 million in Q2 and $27.2 million for the six months.
Net cash used in operating activities was $20.3 million for the six months, versus $5.0 million in 2017; continuing-operations use was $20.3 million versus $4.4 million. Capital expenditures were $6.9 million. Cash and cash equivalents were $20.8 million at June 30 ($25.8 million including $5.0 million restricted cash). Working capital was $74.4 million, down from $81.5 million at year-end 2017.
Total debt was $493.3 million, including $198.6 million of first-lien notes, $98.4 million of second-lien notes, $197.7 million of 2021 notes, and capital leases. The company drew the remaining $10.0 million under its delayed-draw second-lien facility in June. Notes facilities mature August 2020, subject to extension to June 2022 if the 2021 Notes are refinanced before August 2020; scheduled principal payments on those facilities begin September 2019.
Material changes versus prior period
- Revenue fell 19.4% in Q2 and 21.0% year to date. Management cited the strategic shift toward core therapy mix, the UnitedHealthcare contract transition effective September 2017, lower volumes in some product lines, and first-quarter weather-related branch closures.
- ASC 606 adoption reduced reported revenue by $5.4 million in Q2 and $10.9 million for the six months. Prior-year figures were not restated. The standard presents expected uncollectible amounts as lower revenue rather than bad-debt expense; absent adoption, reported 2018 revenue would have been $181.2 million for Q2 and $355.2 million for the six months.
- Gross margin improved, which management attributed to a greater share of higher-margin core therapies and lower drug costs from supply-chain improvements. Temporary product shortages partly offset the improvement.
- Reported net loss narrowed year over year, while Adjusted EBITDA increased. The comparison is affected by the 2017 debt-extinguishment loss and bad-debt expense, and by the 2018 accounting change and warrant fair-value mark.
Outlook, risks, and unusual items
Management expected cash to increase in the second half of 2018, citing anticipated higher profitability, lower strategic inventory purchases, and improved receivable collections. It stated that cash on hand and operations were expected to fund working capital, scheduled interest, and other needs for at least 12 months, but warned that failure to execute plans could require additional or alternative liquidity. No quantified earnings or revenue guidance was provided.
Key risks include high indebtedness and compliance with debt covenants; reimbursement cuts or payment delays from government and commercial payors; contract losses, network lockouts, and competition; drug supply disruptions and pricing changes; and healthcare regulation and enforcement. Management said it may consider financing, asset sales, refinancing, strategic alternatives, or other transactions.
The company reported a material weakness in internal control over financial reporting identified in its 2017 Form 10-K; remediation was incomplete and disclosure controls were deemed ineffective at June 30, 2018. A commercial payor had asserted a contract-breach claim, no suit had been filed, and the company could not estimate a possible loss; management considered the claim without merit. The company also reported a $3.1 million Q2 expense from an increase in the fair value of warrants, primarily tied to its stock-price increase. Deferred tax asset valuation allowances substantially offset statutory tax benefits.
Important facts for investors to verify
- Confirm the issuer identity: this filing is BioScrip, Inc., not Option Care Health, Inc.
- Assess whether revenue declines and working-capital cash use stabilize, including collections, inventory, and the continuing effects of the UnitedHealthcare transition.
- Review debt maturities, interest-rate terms, covenant headroom, and the feasibility of refinancing the 2021 Notes before the stated maturity-extension deadline.
- Track progress remediating the material weakness and any subsequent updates on the commercial-payor dispute.
- When comparing periods, account for ASC 606’s presentation change and distinguish GAAP losses from management’s non-GAAP Adjusted EBITDA.