Business context and reporting period
This is BioScrip, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2010. The request metadata names Option Care Health, Inc., but the supplied filing identifies the registrant as BioScrip, Inc.; verify the issuer/entity mapping before relying on this summary.
On March 25, 2010, BioScrip acquired Critical Homecare Solutions Holdings, Inc. (CHS), expanding its home-infusion, ambulatory treatment-center and home-nursing footprint. The quarter includes only six days of CHS operating results: $5.0 million revenue and $0.3 million net income.
Financial performance and position
| Metric | Q1 2010 | Q1 2009 / comparison |
|---|---|---|
| Revenue | $335.1 million | $325.7 million; up 2.9% |
| Gross profit / margin | $38.9 million / 11.6% | $36.0 million / 11.0% |
| Operating income (loss) | $(6.3) million | $4.3 million |
| Net income (loss) | $(7.2) million; $(0.18) per diluted share | $3.3 million; $0.08 per diluted share |
| Operating cash flow | $(21.3) million | $15.4 million provided |
| Investing cash flow | $(93.9) million | $(1.1) million |
| Adjusted EBITDA (non-GAAP) | $2.7 million | $6.2 million |
Revenue by segment was $286.3 million for Specialty Pharmacy Services (up 4.4%) and $48.8 million for Traditional Pharmacy Services (down 5.1%). Management attributed specialty growth to new and expanded contracts and drug inflation; excluding terminated UnitedHealthcare programs, it reported 9.4% specialty organic growth. Traditional revenue declined primarily due to PBM contract terminations.
At March 31, cash was $37.2 million, working capital was $178.8 million, and total assets were $714.6 million. Debt was $316.7 million long term plus $2.6 million current; the prior line of credit was paid off. The company also issued $225 million of 10.25% senior unsecured notes due October 2015 and entered a $100 million secured term loan and $50 million revolving facility. The reported quarter-end balance sheet shows no line-of-credit borrowing.
Material changes and unusual items
- CHS’s acquisition materially changed the balance sheet: goodwill rose to $328.7 million, including $304.2 million provisionally recorded for CHS, and intangible assets were $25.0 million. Purchase-price valuations remained subject to adjustment.
- Acquisition and integration expense was $5.0 million; SG&A including these costs was $41.4 million, or 12.4% of revenue, versus $30.3 million, or 9.3%, a year earlier. Net interest expense increased to $3.2 million from $0.6 million.
- Bad-debt expense rose to $3.7 million from $1.4 million. $1.5 million related to the terminated CMS Competitive Acquisition Program; the remaining net receivable under that contract was $3.4 million, and management said reserves were sufficient while collection efforts continued.
- Operating cash use included $26.3 million to pay accrued expenses and other liabilities, primarily related to the acquisition, and $5.4 million for inventory initiatives. Investing cash use was principally the CHS acquisition.
Outlook, risks and contingencies
- No formal revenue or earnings guidance is provided. Management expects potential cross-selling, a broader payor network and higher-margin therapies, alongside cost savings from integration and purchasing scale; realization is uncertain.
- The company expected about $5.0 million of non-recurring integration expenses and $3.0 million of integration-related capital expenditures in the first 12 months after the merger. It said cash, revolver availability and expected operating cash flow should fund needs for at least 12 months.
- Debt covenants include maximum leverage and minimum fixed-charge coverage tests; the company reported compliance at March 31, 2010. About $97.4 million of long-term debt and $2.6 million of short-term debt were variable-rate; a 1 percentage-point rate increase was estimated to add approximately $1.0 million annual interest expense.
- Key risks include substantial debt service, integration and synergy execution, reimbursement reductions or delays, contract losses, regulatory changes, competition and margin pressure, and hiring or retaining qualified nurses and caregivers. Management excluded CHS from its quarter-end internal-control effectiveness assessment while integration was underway.
- A subsidiary faces a contract lawsuit seeking $2.5 million; BioScrip said it considers the claims without merit and intends to defend them. Federal tax years 2005–2008 and many state/local returns for 2004–2008 remained subject to examination.
Investor facts to verify
- Confirm that the filing’s BioScrip registrant is the intended entity given the Option Care Health metadata.
- Review CHS’s finalized purchase-price allocation, acquired receivables and liabilities, and any subsequent goodwill adjustments.
- Track post-acquisition operating cash flow, integration costs, synergy delivery, and whether the business can service debt and meet covenants.
- Check collections of the remaining $3.4 million CMS CAP receivable and developments in the $2.5 million lawsuit.
- Reconcile reported debt carrying values with facility balances, note principal, amortization and available revolver borrowing base.