Business context and reporting period
This is BioScrip, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2015—not a filing under the name Option Care Health, Inc. BioScrip reported Infusion Services and PBM Services; its Home Health business was classified as discontinued operations after its 2014 sale.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Total revenue | $261.7 million | $239.3 million |
| Gross profit / margin | $66.5 million / 25.4% | $65.1 million / 27.2% |
| Continuing-operations loss, net of tax | $15.9 million | $25.3 million |
| Net loss | $19.7 million | $25.3 million |
| Net loss per common share | $0.31 | $0.37 |
| Consolidated Adjusted EBITDA (non-GAAP) | $6.3 million | $9.2 million |
| Cash used in operating activities | $28.0 million | $26.0 million |
Revenue growth was led by Infusion Services, up 10.6% to $244.4 million; PBM Services revenue declined 5.4% to $17.2 million. Gross profit rose in dollars but margin fell, primarily from a shift toward lower-margin infusion therapies. SG&A declined to $57.8 million from $59.2 million, while bad-debt expense increased to $8.3 million from $6.6 million.
At March 31, cash was $23.2 million, working capital was $67.2 million, and total debt was $418.8 million, including $195.6 million of 2021 Notes and $222.8 million of term loans. The revolving facility had no drawn balance at quarter-end; reported availability was approximately $69.8 million after letters of credit. Cash from financing included $59.0 million net proceeds from a preferred-stock-and-warrant private placement. The company reported $13.7 million cash interest paid during the quarter.
Material changes versus the prior period
- Revenue increased 9.4%, but gross margin decreased 1.8 percentage points and Adjusted EBITDA fell 31%.
- Continuing-operations net loss improved by $9.4 million; however, discontinued-operations loss increased to $3.8 million, largely from legal fees and lease-abandonment costs.
- Interest expense declined $1.3 million to $9.2 million. Cash used in operating activities remained substantial and was broadly comparable year over year.
- In March 2015, BioScrip issued $62.5 million of Series A preferred stock and warrants to PIPE investors; net proceeds were approximately $59.0 million. At least 75% of net proceeds were required to repay debt, and approximately $45.3 million of revolving debt and accrued interest had been repaid by quarter-end.
Outlook, risks, and unusual items
- Management said cash generated from operations and available revolver borrowings were expected to fund anticipated needs for at least the next 12 months, based on historical levels. No specific earnings or revenue guidance was provided.
- Management identified aged receivables as a collection risk: receivables over 180 days increased $3.3 million since year-end, and the doubtful-account allowance was $66.8 million, or 32.8% of gross receivables. Management said first-180-day collections had returned to historical levels but older balances remained higher risk.
- The PIPE preferred stock carries an 11.5% annual accrued-dividend rate if dividends are not paid; if required stockholder approval is not obtained by September 30, 2015, specified dividend rates could rise. The securities also have conversion, voting, and exercise caps pending approval, and potential conversion or warrant exercise could dilute existing shareholders.
- Two putative Delaware shareholder actions challenged the PIPE transaction. A memorandum of understanding proposed settlement terms, including additional disclosures and a rights offering by June 30, 2015, subject to approvals; court approval and final settlement were not assured. A separate securities class action remained pending, and the company said its outcome or potential loss could not be estimated.
- BioScrip reported that disclosure controls were not effective because previously disclosed material weaknesses remained in receivables-reserve controls, review of significant and unusual transactions, and IT access controls. Management had begun remediation but said effectiveness required further testing.
- Other exposures include a $6.8 million PBM processor receivable in arbitration, government reimbursement and regulatory risks, customer concentration (UnitedHealthcare was 22% of revenue), and $35.0 million of remaining-2015 drug purchase commitments.
Key facts investors should verify
- Confirm the registrant identity: this filing is for BioScrip, Inc., notwithstanding the requested company name.
- Track cash generation, revolver availability, debt-covenant compliance, and the company’s ability to service approximately $418.8 million of debt.
- Monitor aged receivable collections, reserve adequacy, and resolution of the $6.8 million PBM arbitration claim.
- Verify stockholder and court outcomes concerning the PIPE transaction, dividend terms, and planned rights offering; assess resulting dilution and governance rights.
- Check progress in remediating internal-control material weaknesses and developments in the outstanding litigation and regulatory matters.