BioScrip, Inc. (BIOS) recently declared its fourth-quarter 2013 results. Adjusting for certain one-time expenses, BioScrip reported net loss from continuing operations of 7 cents per share in the quarter, a massive decline from the year-ago adjusted earnings per share (EPS) of 2 cents. The results also considerably lagged the Zacks Consensus Estimate of earnings of 2 cents. Following the announcement on Feb 26, stock price of BioScrip declined 12.3% to $7.40 till yesterday’s closing.
On a reported basis, BioScrip’s net loss from continuing operation was $15.4 million or loss of 23 cents per share – a huge slash from the year-ago loss of $1.4 million or loss of 3 cents per share. For the full year, adjusted net loss was 9 cents a share, wider than the loss of a penny in the year-ago period.
Revenues in Detail
Total revenues in the reported quarter rose 34.8% year over year to $243.5 million, beating the Zacks Consensus Estimate of $238 million. Revenues from continuing operations for the full year came in at $842.2 million, up 27.1% from the year-ago period.
The company operates through three main segments, viz. Infusion Services (87% of total revenue in fourth quarter), Home Health Services (7.4%) and PBM Services (5.6%).
Segments in Detail
The company reported revenues of $212.0 million in Infusion Services, recording impressive growth of 56.3% year over year. Robust organic growth and the acquisitions of HomeChoice and CarePoint were the major revenue drivers in this segment.
On the other hand, revenues in the Home Health Services segment declined 1.5% to $18.0 million. Notably, in order to retain its strong presence and competitive advantage in the infusion industry, in Feb 2014, the company entered into a definitive agreement to sell its Home Health business – Deaconess HomeCare – to LHC Group for $60 million. According to the company, this transaction will enhance BioScrip's financial flexibility to further benefit from the large scale of operations the company created through its three recent infusion acquisitions.
Revenues in the PBM Services segment came in at $13.5 million, reflecting a substantial 49.6% downfall from the prior-year quarter. The decline was due to lower discount cards revenue and termination of a large contract with a PBM client.
Operational Update
While the cost of product revenues shot up 54.3% to $142.3 million, the cost of service revenues declined 6.5% to $26.3 million in the quarter.
Gross profit during the quarter increased 23.9% year over year to $74.9 million on account of greater volume of business generated from Infusion Services, offset by decline in the company’s non-core segment revenues. However, gross margin contracted 266 basis points (bps) to 30.8% owing to the business mix. The downfall resulted from the Infusion Services segment growing more rapidly than the higher-margin PBM Services segment.
Selling, general and administrative (SG&A) expenses escalated 34.2% to $65.9 million. The rise in expenditure resulted in a drag of 255 bps in adjusted operating margin, which settled at 3.7% for the reported quarter.
Financial Update
The company ended the fiscal with cash and cash equivalents of $1 million, compared to $62.1 million at the end of fiscal 2012. The long-term debt was $435.6 million as on Dec 31, 2013 against $223.3 million on Dec 30, 2012.
Guidance
BioScrip initiated its 2014 guidance. The company expects revenues at its Infusion Services segment to grow at the rate of 20% with double-digit organic growth. However, similar to this recently completed fiscal, even in 2014, growth in Infusion Services revenues will be offset by a decline in the PBM Services segment and the sale of the Home Health Services business. Total gross margin is anticipated to suffer due to the sale of Home Health, growth in the low-margin Infusion business and decline in the high-margin PBM Services segment’s gross margin.
Our Take
We believe Bioscrip’s Infusion franchise should continue to grow via organic and inorganic means. We are encouraged to note that the company has been taking several steps to emphasize more on areas with long-term growth potential and high returns.
We believe that the recent acquisitions and sellouts will be significantly accretive to Bioscrip’s top line. In this regard, we are highly optimistic about the CarePoint buyout that should improve BioScrip’s long-term growth profile. Also, the recent agreement to sell its Home Health business reinforces the company’s strategy to strengthen its Infusion Services business. The company has significant opportunities for growth in these three operating areas with several catalysts to accelerate growth going forward.
However, we are rather disappointed with the poor fourth-quarter bottom-line performance at BioScrip. Although Infusion Services business continues to grow at a healthy pace, the poor performance at the PBM Services segment is weighing on the margin. Furthermore, the poor fiscal 2014 guidance fails to show any near-term catalyst that could hoist the bottom line upward.
Currently, the stock carries a Zacks Rank #5 (Strong Sell). Some of the better-ranked stocks in the broader medical space that warrant a look include Herbalife Ltd. (HLF), ABIOMED, Inc. (ABMD) and AngioDynamics Inc. (ANGO). All these stocks carry a Zacks Rank #2 (Buy).
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