Business context and reporting period
The filing is BioScrip, Inc.’s Form 10-K for the fiscal year ended December 31, 2015—not a filing identified as Option Care Health. BioScrip was a national home and alternate-site infusion services provider, operating 70 service locations in 28 states. Following the August 2015 sale of its pharmacy benefit management business, Infusion Services was its sole remaining operating segment. Amounts below are in U.S. dollars; the filing also reports the fourth quarter separately.
Financial performance and position
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $982.2 million | $922.7 million |
| Gross profit / margin | $260.9 million / 27% | $250.8 million / 27% |
| Operating loss | $287.6 million | $97.8 million |
| Net loss | $299.7 million | $147.5 million |
| Net loss per common share | $4.51 | $2.15 |
| Adjusted EBITDA (non-GAAP) | $15.9 million | $(36.1) million |
| Cash used in operating activities, continuing operations | $62.3 million | $40.0 million |
| Total debt | $434.0 million | $423.8 million |
| Working capital | $30.9 million | $25.4 million |
| Cash and cash equivalents, year-end | $15.6 million | $0.7 million |
2015 revenue increased 6%, largely on higher patient volumes in nutrition, chronic infusion therapies and Hepatitis C. Gross margin was stable year over year. Bad-debt expense fell to $41.0 million from $79.5 million, after a 2014 acquisition-integration disruption and related reserve increases; management cited improved billing, collections and cash receipts. The $251.9 million goodwill impairment, recorded in 2015, was the principal driver of the larger GAAP operating and net losses. Net interest expense was $37.3 million, down from $40.9 million.
For fourth-quarter 2015, revenue was $243.7 million, gross profit $65.9 million, net loss $18.4 million, and loss per share $0.30. Compared with fourth-quarter 2014, revenue rose from $239.7 million; quarterly net loss narrowed from $63.6 million, which included the prior year’s larger losses and charges.
Material changes, outlook and risks
- BioScrip sold the PBM business for approximately $24.6 million cash consideration, subject to a roughly $1.0 million working-capital repayment; it applied sale proceeds to debt. The company also raised $62.5 million gross in a preferred-stock-and-warrant financing and used approximately $45.3 million to repay revolving debt.
- The Financial Improvement Plan was substantially completed by year-end. The company reported $14.3 million of related expenses, including $7.8 million in severance and benefits and $6.5 million in consulting and professional fees. Corporate functions were consolidated in Denver.
- Management expected operating cash and available revolver capacity to cover anticipated needs for at least 12 months, including working capital, IT investment and scheduled debt service. This expectation depended on continued cash generation, execution of the improvement plan and covenant compliance. At December 31, $15.0 million was drawn on the revolver and approximately $54.6 million of capacity remained after letters of credit; by February 26, 2016, $33.0 million was drawn and additional capacity had fallen to $36.6 million, with a lower amount available under the alternate leverage test.
- Debt includes $222.8 million of term loans and a $200.0 million face amount of 8.875% senior notes due 2021. Revolver and term-loan rates were approximately 7.75% and 6.50%, respectively. The secured credit facilities have financial covenants, were amended repeatedly in 2015 to provide covenant flexibility, and are secured by substantially all company and subsidiary assets. The term loans require quarterly principal payments beginning March 2016.
- Key risks include negative operating cash flow, substantial leverage and refinancing/covenant exposure; payor reimbursement cuts, audits and delayed collections; heavy dependence on UnitedHealthcare, which represented 24% of 2015 revenue; and concentration in a single drug wholesaler. The filing also cites competition, compounding-pharmacy regulation, and uncertainty in reimbursement benchmarks.
- Contingencies include a securities class action settlement that had preliminary, but not final, court approval as of the filing, a pending derivative action, and Walgreens litigation alleging breach of non-compete provisions. The company said it could not reasonably estimate possible loss for the Walgreens and derivative matters. A prior federal and state settlement concerning legacy Exjade distribution was paid in full in January 2016.
- The company reported that three material weaknesses identified in 2014 were remediated during 2015; management and KPMG concluded internal control over financial reporting was effective at year-end. The financial statements received an unqualified audit opinion.
Most important facts for investors to verify
- Confirm the issuer and filing period: this is BioScrip’s 2015 annual report, not an Option Care Health filing or a standalone Q4 report.
- Track cash collections, days sales outstanding, operating cash flow and revolver usage against the company’s liquidity and covenant expectations.
- Review current debt balances, covenant thresholds, amendment terms, scheduled maturities and the availability of borrowing capacity.
- Assess whether revenue growth converts into sustainable operating earnings and cash flow, excluding the non-cash goodwill impairment and other adjustments.
- Check final resolution and financial exposure for the securities settlement, derivative action and Walgreens lawsuit, along with any remaining acquisition-related contingent consideration.