Business context and reporting period
The supplied filing is BioScrip, Inc.’s Form 10-K for the fiscal year ended December 31, 2009—not an Option Care Health filing. The company provided specialty pharmacy distribution and therapy management, plus traditional mail pharmacy, discount-card and limited PBM services. Its 43 specialty pharmacy locations served patients with complex conditions. Results are annual; fourth-quarter data are identified where relevant.
Financial performance and liquidity
| Metric | 2009 | 2008 |
|---|---|---|
| Revenue | $1,329.5 million | $1,401.9 million |
| Gross profit / margin | $157.8 million / 11.9% | $142.2 million / 10.1% |
| Operating income (loss) | $15.5 million | ($83.5 million) |
| Net income (loss) | $54.1 million | ($74.0 million) |
| Diluted EPS | $1.36 | ($1.93) |
| Operating cash flow | $22.7 million provided | $8.7 million used |
| Capital expenditures | $5.7 million | $7.5 million |
| Working capital at year-end | $91.1 million | $58.8 million |
| Revolving credit borrowings at year-end | $30.4 million | $50.4 million |
Cash and cash equivalents were reported as zero at both year-ends. The $40.6 million 2009 income-tax benefit—primarily from reversing the deferred-tax-asset valuation allowance—was a major contributor to reported net income; it was largely noncash. Fourth-quarter 2009 net income was $40.7 million, including a reported $41.8 million tax benefit.
Material changes versus the prior period
- Revenue declined 5.2%. Specialty Pharmacy Services revenue fell 7.0% to $1,113.3 million, mainly after the CMS Competitive Acquisition Program ended and certain UnitedHealthcare contracts terminated or wound down. Traditional Pharmacy Services revenue grew 5.3% to $216.2 million, primarily from discount-card growth.
- Gross profit increased 11.0% and gross margin expanded to 11.9%. Management attributed this chiefly to the exit of lower-margin contracts, improved business mix, supply-chain initiatives and lower shipping costs.
- SG&A rose to $133.7 million from $125.2 million; bad-debt expense increased to $8.6 million from $4.7 million. No impairment charge was recorded in 2009, compared with $93.9 million in 2008 for goodwill and intangible assets.
- Operating cash flow improved from cash use in 2008. The company cited earnings and lower working-capital requirements, while inventory increased $6.0 million.
Outlook, risks and unusual items
- Management expected 2010 gross-margin pressure from the industry AWP benchmark reduction to be offset by organic growth and a higher-margin mix. It estimated the annualized effect at approximately $5.0 million. AWP publishers also indicated they planned to discontinue publishing AWP information within two years.
- On January 24, 2010, BioScrip agreed to acquire Critical Homecare Solutions (CHS), subject to shareholder approval and other conditions, with closing then expected around March 31, 2010. Proposed consideration included $110 million cash, up to about 12.9 million shares and warrants for about 3.4 million shares; CHS had approximately $132 million of net debt at December 31, 2009. Financing commitments totaled $375 million. Management projected year-one EPS dilution and accretion thereafter; completion, integration and synergies were uncertain.
- The existing $85 million receivables-based facility matured November 1, 2010; $54.6 million was available at year-end, subject to the borrowing base. Management said available financing and operating cash were expected to cover needs for at least 12 months. A 1 percentage-point rate increase was estimated to add about $0.4 million in annual pretax interest expense.
- Key risks include reimbursement and regulatory changes, client and network losses, competitive pricing, collection risk, dependence on AmerisourceBergen as principal wholesaler, information-system implementation and privacy/security risks, and restricted access to credit. Approximately 25% of revenue came directly from government-sponsored programs.
- A Northland Pharmacy seller dispute sought at least $5.64 million in additional earn-out consideration and was in arbitration; the company disputed liability and said an adverse result could be material. A separate pharmacy-class settlement was approved, with costs covered by insurance.
- The company reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Confirm the filing identity and issuer: the document is BioScrip, Inc. (ticker BIOS), despite the request metadata naming Option Care Health.
- Assess how much 2009 earnings depended on the noncash tax benefit and whether operating profitability and cash generation were sustainable.
- Track the realized impact of AWP benchmark changes, government reimbursement and the replacement or renegotiation of lost contracts.
- Verify CHS acquisition completion, final financing terms, dilution, leverage, covenant headroom and integration results.
- Review receivables collectability, the borrowing-base availability and renewal of the credit facility, plus the outcome of the earn-out arbitration.