Filing Summary
Entity note: The supplied filing is BioScrip, Inc.’s Form 10-K, not a filing under the name Option Care Health, Inc. It covers the fiscal year ended December 31, 2014; fourth-quarter figures are also reported.
Business Context and Reporting Period
BioScrip provided home and alternate-site infusion therapy and pharmacy benefit management (PBM) services. After selling substantially all of its Home Health Services business on March 31, 2014, it reported two segments: Infusion Services and PBM Services. Management identified Infusion Services as its primary growth focus.
Key Financial Metrics
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Revenue | $984.1 million | $769.5 million |
| Gross profit / margin | $261.1 million / 26.5% | $243.6 million / 31.7% |
| Operating loss | $91.1 million | $10.4 million |
| Net loss | $147.5 million | $69.7 million |
| Net loss per share | $2.15 | $1.08 |
| Cash used in continuing operating activities | $24.6 million | $46.0 million |
| Consolidated Adjusted EBITDA (non-GAAP) | $(23.0) million | $45.7 million |
Fourth-quarter 2014 revenue was $253.7 million, gross profit was $65.6 million, and net loss was $63.6 million. Annual revenue growth primarily reflected Infusion Services organic growth and a full year of HomeChoice and CarePoint contributions. Infusion Services revenue rose 32.4% to $922.7 million, including reported organic growth of 18.3%; PBM Services revenue fell 15.4% to $61.4 million.
Liquidity at year-end included $0.7 million of cash, $25.9 million of working capital, and $70.0 million of unused revolving-credit capacity. Total debt was $423.8 million, versus $435.6 million a year earlier. Net interest expense was $38.5 million, up from $28.2 million. Capital expenditures were $13.8 million. Total cash used in operating activities, including discontinued operations, was $31.4 million.
Material Changes Versus the Prior Period
- Gross margin fell to 26.5% from 31.7%, reflecting a greater revenue share from lower-margin Infusion Services and a mix shift toward lower-margin chronic therapies.
- Bad debt expense increased to $79.6 million from $19.6 million. The company recorded approximately $60.4 million of incremental bad-debt and contractual-adjustment reserves after acquisition-integration problems disrupted billing and collections.
- Infusion Services Adjusted EBITDA declined to $6.5 million from $60.7 million, substantially affected by the reserve adjustments. PBM Services Adjusted EBITDA declined to $6.7 million from $17.1 million, as discount-card revenue weakened.
- BioScrip sold its Home Health Services business for approximately $60.6 million and used part of the proceeds to repay debt. It also issued $200.0 million of 8.875% senior notes due 2021 and applied net proceeds to repay revolving and term-loan borrowings.
Outlook, Risks, Contingencies, and Unusual Items
- Management expected operating cash generation and available revolver capacity to fund anticipated needs for at least the next 12 months, based on historical levels. Its 2015 priorities included reducing days sales outstanding and tightly managing expenses; this was not quantified earnings guidance.
- Cash generation improved in the second half of 2014 as collections increased and days sales outstanding declined. Liquidity remains sensitive to collection performance and borrowing-covenant requirements. A March 2015 credit amendment revised leverage testing and lowered the revolver-covenant trigger beginning in the second quarter of 2015.
- The auditor gave an unqualified opinion on the 2014 financial statements but an adverse opinion on internal control over financial reporting. Management also said disclosure controls were ineffective. Material weaknesses involved receivables reserves and bad-debt recognition, accounting for significant and unusual transactions, and general IT controls; certain related misstatements were corrected before issuance.
- The company had a $15.0 million settlement, plus interest, concerning claims related to a divested legacy pharmacy business; it reported $12.4 million remaining in the legal-settlement accrual at year-end. The settlement did not constitute an admission of liability.
- A $6.8 million PBM receivable from a third-party processor was in arbitration with no reserve recorded. A separate CarePoint earnout dispute could result in an additional $5.4 million expense or reversal of the $4.6 million recorded liability, depending on arbitration.
- Other significant risks include government reimbursement and competitive-bidding changes, healthcare regulation and compounding oversight, contract retention, supplier concentration, acquisition integration, cybersecurity, and substantial debt service. UnitedHealthcare represented 22% of 2014 revenue; Medicare represented 11.3%.
Most Important Facts to Verify
- Whether BioScrip’s severe 2014 receivables-reserve charges are sufficient and whether collections and days sales outstanding continued to improve after year-end.
- The status and outcome of remediation of the three material weaknesses, and whether internal and disclosure controls became effective.
- Current liquidity, revolver availability, covenant compliance, and capacity to service debt, including the 8.875% notes and secured credit facilities.
- Arbitration outcomes for the $6.8 million PBM receivable and CarePoint contingent consideration.
- Infusion Services’ ability to sustain organic growth while restoring segment profitability, and the outlook for PBM discount-card volumes and contracts.