Specialty pharmacy services provider, BioScrip Inc. (BIOS) reported a loss of 4 cents per share in the second quarter of fiscal 2011 compared with the year-ago quarter EPS of 6 cents. However, after deducting the impact of restructuring charges and legal settlement cost, adjusted EPS came in at 10 cents during the quarter, surpassing the Zacks Consensus Estimate of 6 cents.
BioScrip operates through two segments – Infusion and Home Health Services and Pharmacy Services. Total revenue in the quarter was $441.4 million, in line with the Zacks Consensus Estimate. However, reported revenue increased 7.1% year over year, attributable to a 8.7% rise in pharmacy revenues to $332.1 million and 2.5% growth in Infusion and Home Health Services revenue to $109.3 million.
However, despite strong revenue growth across the two segments of BioScrip, the company’s margins contracted due to a 7.9% rise in cost of revenues in the quarter. Although gross profit increased 3.7% to $76.2 million, the company witnessed a 50-basis points (bps) drag in gross margin to 17.3% during the reported quarter.Shift in patient mix and movement of certain out-of-network patients to contracted relationships also adversely impacted the margin.
In addition, higher selling, general and administrative expenses (up 4.3% year over year) led to a 27-bp contraction in adjusted operating margin (excluding the impact of certain one-time expenses) to 4.3% during the quarter.
BioScrip’s operating cash flow of $6.7 million in the second quarter of 2011 compared favorably with $500,000 in the prior-year quarter. At the end of June 2011, the company had working capital of $55.9 million compared with $50.1 million at December, 2010. In addition, the company’s total borrowings under revolving credit facility declined from $81.2 million at the end of December 2010 to $48.2 million as of June, 2011.
The company faces significant competition in the pharmaceutical healthcare services industry from players like CVS Caremark (CVS) and Express Script (ESRX) as well as many smaller organizations that operate on a local or regional basis. Moreover, the highly leveraged balance sheet continues to be a drag on the bottom line.
However, the company has adopted a new strategic assessment policy for its business in order to improve its present position. Also the success of CHS business is expected to improve BioScrip’s competitive position by boosting its Infusion and Home Health Services going forward. Presently we remain ‘Neutral’ on the stock.
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