Business context and reporting period
The filing is BioScrip, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2011. Although the request identifies Option Care Health, the filing itself names BioScrip, Inc. as the registrant. BioScrip reported two segments: Infusion/Home Health Services and Pharmacy Services. Its results include the acquired CHS business; the 2010 comparison includes CHS only from its March 25, 2010 acquisition date.
Key financial metrics
| Metric | Q1 2011 | Q1 2010 / comparison |
|---|---|---|
| Revenue | $439.3 million | $335.1 million; up $104.2 million, or 31.1% |
| Gross profit and margin | $77.3 million; 17.6% | $38.9 million; 11.6% |
| Operating income (loss) | $10.4 million; 2.4% of revenue | $(6.3) million |
| Net income (loss) | $2.9 million; $0.05 per diluted share | $(7.2) million; $(0.18) per diluted share |
| Operating cash flow | $31.7 million provided | $21.3 million used |
| Investing cash flow | $2.8 million used | $93.9 million used |
| Financing cash flow | $28.9 million used | $152.4 million provided |
| Cash and working capital | Cash: $0; working capital: $55.5 million | Working capital was $50.1 million at Dec. 31, 2010 |
| Debt at March 31, 2011 | $277.6 million total: $52.4 million revolver, $225.0 million notes, and $0.2 million capital leases | Cash balance was $0 |
Segment revenue was $110.5 million for Infusion/Home Health and $328.8 million for Pharmacy Services. Segment Adjusted EBITDA before corporate overhead was $11.5 million and $13.7 million, respectively; consolidated Adjusted EBITDA was $16.6 million. Adjusted EBITDA is a non-GAAP measure. The company’s $225 million senior unsecured notes bear 10.25% interest and mature October 1, 2015. The $150 million revolving facility matures March 25, 2015; $52.4 million was drawn at quarter-end. The filing states the company was in covenant compliance.
Material changes versus the prior comparable period
- Revenue rose 31.1%; CHS contributed $63.3 million of incremental Infusion/Home Health revenue. Excluding CHS, home infusion revenue increased 2.4%. Pharmacy Services growth reflected new and expanded contracts, drug inflation, $10.1 million of additional discount-card program revenue, and $5.6 million from the DS Pharmacy acquisition.
- Gross margin increased to 17.6% from 11.6%, which management attributed primarily to CHS and post-acquisition purchasing synergies, as well as a focus on higher-margin revenue.
- SG&A increased to $59.1 million from $36.4 million, including $16.6 million of additional costs associated with expanded operations after CHS and $4.3 million more in brokers’ fees. SG&A rose to 13.5% of revenue from 10.8%.
- Net interest expense increased to $7.3 million from $3.2 million, primarily reflecting a full quarter of acquisition-related debt interest.
- Operating cash flow improved by $53.0 million year over year, primarily due to lower working-capital requirements, including lower inventory and a favorable comparison in accrued liabilities.
Outlook, risks, contingencies, and unusual items
- Management expected available cash, revolver capacity, and operating cash flow to cover anticipated working capital, IT investment, scheduled interest, and other needs for at least the next 12 months. Cash on hand at quarter-end was zero.
- Management anticipated additional 2011 restructuring costs following a strategic assessment focused on growth opportunities and reducing overhead. Q1 restructuring expense was $1.3 million; the quarter-end accrual was $4.3 million.
- Management expected continued revenue and operating-income growth from renegotiated discount-card broker arrangements, which increased fees to support new-member growth; it said the revenue growth had offset the higher fees.
- The company was responding to multiple government subpoenas and information requests, including one from the U.S. Attorney’s Office in Minneapolis. Management said outcomes could not be predicted and that related challenges or defense costs could materially affect results.
- Other disclosed matters included a $2.5 million claim concerning an uncompleted acquisition, which BioScrip considered without merit, and an appeal in a product-related lawsuit. No liability was accrued for either matter because a loss was not considered probable.
- Key risks identified include healthcare regulation and reimbursement changes, contract expirations or terminations, network exclusions, competition and pricing pressure, pharmacy-system implementation, product-cost changes, and indebtedness and covenant compliance.
- The effective tax rate was 7.5%, reflecting a reduction in the valuation allowance against deferred tax assets to offset current-period tax expense; the company had fully reserved deferred tax assets in Q4 2010.
Important facts for investors to verify
- Confirm the issuer and corporate-history relationship: this 2011 filing is by BioScrip, Inc., not under the Option Care Health name.
- Assess how much reported growth and margin improvement is attributable to CHS, acquisitions, purchasing synergies, and recurring underlying performance.
- Review the company’s zero cash balance, revolver availability and minimum-balance requirement, debt costs and maturities, and ability to sustain cash generation and meet covenants.
- Monitor government inquiries, litigation developments, and the timing and total cost of the restructuring plan.
- Evaluate working-capital trends, particularly receivables from a major customer, and whether inventory-related cash-flow benefits are repeatable.