BioScrip, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2009. The supplied filing identifies the registrant as BioScrip, Inc., not Option Care Health, Inc.; verify the company and filing match before relying on this summary.
Business context and results
BioScrip provided specialty and traditional pharmacy services. Specialty Pharmacy Services included complex-therapy distribution and management; Traditional Pharmacy Services mainly included mail-order fulfillment and discount-card programs. The company renamed its former “PBM Services” segment to “Traditional Pharmacy Services” as its business mix shifted.
| Metric | Q3 2009 | Q3 2008 | Nine months 2009 | Nine months 2008 |
|---|---|---|---|---|
| Revenue | $333.5m | $359.4m | $988.0m | $1,035.3m |
| Gross profit / margin | $41.5m / 12.4% | $36.1m / 10.0% | $115.9m / 11.7% | $104.2m / 10.1% |
| Operating income / margin | $6.7m / 2.0% | $2.8m / 0.8% | $16.1m / 1.6% | $6.4m / 0.6% |
| Net income | $5.7m | $1.4m | $13.4m | $2.6m |
| Diluted EPS | $0.14 | $0.04 | $0.34 | $0.07 |
All dollar figures above are U.S. dollars. Q3 revenue fell 7.2% year over year; nine-month revenue fell 4.6%. Specialty revenue declined 9.2% in Q3 and 6.1% for nine months, chiefly following termination of the CMS Competitive Acquisition Program and certain UnitedHealthcare contracts. Traditional Pharmacy Services revenue grew 4.2% in Q3 and 4.3% for nine months, primarily from discount-card growth.
Cash flow, debt and liquidity
- Operating cash flow was $14.0m for the first nine months of 2009, versus cash used of $15.4m in 2008. Investing cash outflow was $4.5m, mainly for IT; financing cash outflow was $9.5m, principally reflecting line-of-credit repayments. Cash and cash equivalents were zero at September 30, 2009.
- Working capital was $76.2m, up from $58.8m at December 31, 2008. Receivables were $147.3m and inventory $47.8m.
- Revolving credit borrowings were $39.6m, down from $50.4m at year-end 2008. The facility had an $85.0m borrowing base and $45.4m available at quarter-end; it matures November 1, 2010. The quarterly weighted-average rate was 4.4%. The company reported covenant compliance.
- The company said cash on hand, facility availability and expected operating cash flow would be sufficient for anticipated needs for at least 12 months. It had no long-term debt reported at quarter-end. A 1% rate increase was estimated to raise annual pretax interest expense by approximately $0.4m.
Changes, outlook and risks
- Higher gross margin dollars and percentages reflected the exit of lower-margin contracts, a more favorable mix, supply-chain initiatives and reduced shipping costs. Lower borrowing levels and rates reduced interest expense. Bad-debt expense increased to $2.4m in Q3 from $1.4m and to $5.4m for nine months from $2.8m.
- Effective September 26, 2009, an industry AWP benchmark change affected drug pricing. Most third-party payors adjusted reimbursement so BioScrip’s net reimbursement remained unchanged, but some state programs did not. Management expected lower gross margins beginning in Q4 and estimated an annual impact of about $5.0m; it expected organic growth and higher-margin mix to offset the impact in 2010. This was an expectation, not formal earnings guidance.
- Management cited exposure to healthcare regulation, reimbursement reductions or payment delays, contract expirations and terminations, competition and pricing changes, acquisition costs, financing availability and credit-facility covenants. The company had fully reserved deferred tax assets, while expecting utilization of some net operating losses to reduce the 2009 tax valuation allowance.
- The Eufaula pharmacy class action settlement was preliminarily approved, with final approval scheduled for November 4, 2009. The filing said the settlement was fully insured and would not adversely affect the business or financial results, if approved.
- Management reported effective disclosure controls. A new pharmacy dispensing, clinical-management and accounts-receivable system was being implemented; the company said related control changes enhanced controls and were not prompted by a material deficiency.
Important facts for investors to verify
- Confirm whether this BioScrip filing is the intended filing for Option Care Health and whether any later corporate/name changes affect the comparison.
- Track the effects of the AWP settlement on reimbursement, gross margins and the stated estimated $5.0m annual impact.
- Review the specialty-contract losses, replacement business and segment profitability, particularly as specialty revenue declined despite improved margins.
- Monitor bad-debt expense, working-capital movements, borrowing-base availability, covenant compliance and the November 2010 facility maturity.
- Verify final court approval and settlement completion for the Eufaula action, and assess whether the new operating system implementation affects reporting or controls.