Filing identity and reporting period
The supplied filing is BioScrip, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2015. It is not filed under the name Option Care Health, Inc.; confirm the issuer and intended filing before relying on this summary.
BioScrip reported Infusion Services and PBM Services. Its strategy was to concentrate investment on infusion care and divest non-core businesses.
Financial performance
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q2 2015 | Q2 2014 | First half 2015 | First half 2014 |
|---|---|---|---|---|
| Revenue | $262.4 | $247.1 | $524.0 | $486.4 |
| Gross profit | $66.0 | $65.4 | $132.4 | $130.5 |
| Gross margin | 25.1% | 26.4% | 25.3% | 26.8% |
| Net loss | $(244.8) | $(19.8) | $(264.5) | $(45.1) |
| Net loss per common share | $(3.62) | $(0.29) | $(3.93) | $(0.66) |
| Consolidated Adjusted EBITDA (non-GAAP) | $(2.5) | $11.0 | $3.8 | $20.2 |
- Revenue growth was led by Infusion Services: Q2 revenue increased 7.1% and first-half revenue increased 8.8%. PBM Services revenue fell 7.2% in Q2 and 5.8% for the first half.
- Gross profit dollars rose modestly, but margins declined as infusion revenue shifted toward lower-margin chronic and other therapies. Bad debt expense increased to $15.1 million in Q2 and $23.5 million for the first half; the company attributed much of the increase to aged receivables.
- Q2 and first-half results included a preliminary, non-cash $238.0 million goodwill impairment charge for Infusion Services. The charge drove most of the deterioration in reported losses and remained subject to finalization in Q3.
Cash, debt, and liquidity
- Cash was $1.2 million at June 30, 2015. Total debt was $418.9 million, including $222.8 million of term loans and $195.7 million carrying value of 8.875% senior notes due 2021. Debt totaled $423.8 million at December 31, 2014.
- Operating cash outflow was $46.2 million for the first half, including $42.1 million from continuing operations. Capital expenditures were $5.8 million. Cash increased $0.4 million over the period, mainly reflecting financing proceeds.
- Working capital was $51.4 million. At June 30, approximately $69.8 million of revolving-credit capacity remained available after letters of credit; by August 10, $38.0 million was drawn.
- The March 2015 preferred-stock and warrant financing generated $59.0 million net. The company reported using approximately $45.3 million, or 77% of net proceeds, to repay revolving debt and accrued interest. The credit facilities are secured; the notes bear 8.875% interest.
- Management said cash from operations and available revolver capacity were expected to cover anticipated needs for at least 12 months, while warning that operating trends could increase liquidity needs and that future financing was not assured.
Changes, outlook, and significant risks
- Compared with the first half of 2014, revenue increased 7.7%, but gross margin fell from 26.8% to 25.3%, Adjusted EBITDA fell from $20.2 million to $3.8 million, and net loss widened substantially. Higher bad debt and lower-margin infusion mix weighed on operating performance.
- Receivables more than 180 days old were $59.6 million before doubtful-account allowance, up $0.7 million from year-end. The allowance for doubtful accounts rose to $72.3 million, or 35.5% of total receivables, from 32.1% at year-end. Management said older balances carried greater collection risk.
- After quarter-end, the company completed a rights offering that raised approximately $1.1 million gross. It also amended its credit facilities on August 6, 2015, providing modified leverage-covenant relief through March 2017 subject to conditions.
- On August 9, the company agreed to sell PBM Services for approximately $25 million in cash, subject to working-capital adjustment and closing conditions; closing was expected August 27. This was consistent with its plan to focus on infusion services.
- On August 10, management announced a financial improvement plan involving consolidation of corporate functions and closure of the Elmsford office, with approximately 300 job losses expected and completion targeted by year-end. Costs were expected; no cost estimate was provided.
- The Series A preferred stock carried a $64.8 million liquidation preference at June 30 and accumulated dividends at 11.5% when cash dividends were not paid. Conversion and warrants may dilute common shareholders; preferred holders also have voting and board-designation rights.
- Management reported disclosure controls were ineffective because material weaknesses in financial reporting remained. It said IT access-control remediation was complete as of June 1, but reserve-estimation and significant/unusual-transaction controls still required testing across two quarters.
- Contingencies include securities and derivative lawsuits, a $6.8 million PBM processor receivable in arbitration with no reserve recorded, and healthcare regulatory exposure. The filing states that litigation outcomes and potential losses could not be reliably estimated. The company also disclosed an $8.6 million accrual related to prior pharmacy-services settlement costs.
- Other key risks cited include reimbursement reductions or payment delays, debt covenant compliance, dependence on major payors (UnitedHealthcare represented about 24% of revenue), and further goodwill impairment. The $238.0 million impairment estimate could be materially adjusted when finalized.
Investor verification points
- Verify that BioScrip’s 2015 filing is the intended issuer and period, rather than a filing for Option Care Health under a different registrant name.
- Review the final Q3 goodwill impairment assessment and any additional impairment charges.
- Track receivable aging, reserve adequacy, cash collections, bad debt expense, and the outcome of the $6.8 million arbitration.
- Check subsequent operating results, liquidity usage, covenant compliance, and whether the stated 12-month funding outlook remains supportable.
- Confirm the PBM sale’s closing, final proceeds, and use of proceeds, and assess the execution and costs of the financial improvement plan.
- Assess dilution, dividend accumulation, voting rights, and potential governance influence associated with preferred stock and warrants.
- Monitor remediation and testing of the remaining internal-control weaknesses, as well as material developments in litigation and regulatory matters.