BioScrip, Inc. — Q1 2012 Form 10-Q
Entity note: The filing provided is for BioScrip, Inc., not Option Care Health, Inc. It covers the three months ended March 31, 2012; financial statements are unaudited. Dollar amounts below are in millions unless stated otherwise.
Business context and reporting period
BioScrip was shifting its focus toward infusion and home health services and agreed to sell its traditional and specialty mail pharmacy operations and community retail pharmacies to Walgreens. The sale closed on May 4, 2012, after quarter-end. The company reported Infusion Services, Home Health Services, and PBM Services as its segments; the pharmacy businesses being sold are presented as discontinued operations.
Financial performance and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Continuing-operations revenue | $155.6 | $130.8 |
| Gross profit | $53.5 | $51.4 |
| Gross margin | 34.4% | 39.2% |
| Operating income before interest and taxes | $4.0 | $5.2 |
| Net loss from continuing operations | $2.0 | $1.0 |
| Discontinued-operations result | $(0.7) | $4.0 |
| Net income (loss) | $(2.7) | $2.9 |
| Consolidated Adjusted EBITDA | $8.4 | $9.8 |
| Cash provided by operating activities | $2.5 | $31.7 |
Continuing-operations revenue increased 19.0%. Infusion revenue rose 18.9% to $109.1 million, PBM revenue rose 36.4% to $29.9 million, and Home Health revenue fell 2.9% to $16.7 million. Gross profit increased 4.2%, but gross margin fell 4.8 percentage points. Segment Adjusted EBITDA was $15.0 million before $6.6 million of corporate overhead.
Continuing-operations operating cash flow was negative $3.9 million; discontinued operations contributed $6.4 million. Cash and cash equivalents were reported as zero at quarter-end. Working capital was $76.2 million. Total debt, including capital leases, was $291.4 million: $61.7 million drawn on the revolving facility, $225.0 million of senior unsecured notes, and $4.6 million of capital leases. The revolver matures in March 2015; the 10.25% notes mature in October 2015. The company reported compliance with debt covenants.
Material changes and unusual items
Compared with Q1 2011, continuing revenue grew, while operating income, Adjusted EBITDA, and continuing-operations earnings declined. Management attributed margin pressure chiefly to infusion therapy mix, lower-margin services being provided to certain customers during the transition, lower home health reimbursement, and growth in funded PBM business. Discontinued operations generated $338.1 million in revenue but had a $0.7 million loss, versus $308.5 million in revenue and $4.0 million of income a year earlier.
The Walgreens transaction had an estimated total deal value of approximately $225 million, including about $161 million in cash and $64.3 million of net working capital retained by BioScrip. The filing also describes approximately $158 million received at closing; the cash figures are presented differently across the filing. Management estimated a second-quarter pretax gain of $111.3 million, subject to final accounting, and approximately $22.3 million of transaction, restructuring, and other one-time costs, for an estimated net effect of $89.0 million. Contingent consideration could add up to $15.0 million or require a refund of up to $6.4 million.
Management said sale proceeds would support debt reduction and investment in infusion and home health services, and stated that sale proceeds and expected operating cash flow should cover anticipated needs for at least 12 months, based on historical levels. No specific earnings guidance was provided. A further strategic assessment could result in asset write-downs, severance, restructuring charges, bonuses, or accelerated contractual payments.
Risks, contingencies, and management commentary
- About 36% of Q1 revenue came directly from Medicare, Medicaid, or other government payors. Reimbursement reductions remain a risk; management estimated the 2012 Medicare home health rate changes would reduce annual segment revenue and gross profit by $1.8 million versus 2011, assuming unchanged patient mix and volume.
- One payor represented 16% of revenue, and one therapy represented 21%. The company also reported higher bad-debt expense, citing financial hardship cases and rising deductibles.
- Debt-service and borrowing availability depend on the asset-based revolver and sale-related reductions in eligible receivables and inventory. Management expected lower working-capital needs after the divestiture.
- A $4.8 million liability was recorded for a government-related settlement. A separate $3.5 million claim by Alexander Infusion was disputed; no liability was accrued because a loss was not considered probable.
- Management cited regulatory uncertainty, reimbursement and pricing pressure, competition, customer or contract losses, and the ability to meet debt covenants as material risks.
Important facts for investors to verify
- Confirm the filer’s identity: this filing is BioScrip, Inc., despite the request metadata naming Option Care Health, Inc.
- Reconcile the sale’s reported cash proceeds, final working-capital adjustments, contingent consideration, and final recognized gain and one-time costs.
- Review how sale proceeds were allocated among revolver repayments, note redemption, and reinvestment, and assess post-sale liquidity and borrowing-base availability.
- Monitor infusion and home health margins, reimbursement changes, concentration in the largest payor and therapy, and cash conversion as the business transitions.