Option Care Health Inc (OPCH) 2004 Q4 法說會逐字稿

Welcome to the MIM Corporation fourth quarter and conference call. (OPERATOR INSTRUCTIONS) . I would now like to turn the conference over to our host, our investor relations representative, Ms. Rachel Levine. Please go ahead.

Thank you. Good morning. Thank you for joining us to discuss MIM's fourth quarter and 2004 earnings. If you do not have a copy of our press release, call The Ann Mcbride company at 212-983-1702, extension 207, and we will have one sent to you.. Alternatively, you may obtain a copy of the release at the Investor Information section on the company's corporate website at www.mimcorporation.com. A replay of today's call may be accessed by dialing in on the numbers provided in the press release, or by accessing the Webcast in the Investor Information section of our website.

Before we begin, I will remind you that during this call, you will hear statements that may be considered forward-looking statements. These forward-looking statements may include statements relating to financial projections or other statements relating to the company's plans, objectives, expectations or intentions. These matters involve risks and uncertainties, and actual results may differ materially from those projected or implied in the forward-looking statements. Factors that could cause actual results to materially differ from the forward-looking statements in this call are set forth in our most recent annual report on form 10-K and quarterly reports on form 10-Q. During today's equal, Richard Friedman, our Chairman and Chief Executive Officer, will comment on the quarter and pass the call to Julie Palmer, our Chief Financial Officer, who will discuss the financials and operations in detail. Rich will then return for some final comments before opening the call to questions and answers. I would now like to turn the call over to Richard Friedman.

Thank you, Rachel, and good morning, everyone. I am pleased to say that we delivered a strong quarter in an environment challenged by reimbursement pressure. Fourth quarter net income increased 23 percent on a reported basis, and we achieved an EPS of $0.08 per diluted share when you exclude one-time charges. Fourth quarter total revenues increased 23 percent over the fourth quarter of last year, and specialty revenues increased 40 percent. Total prescription suspense in the quarter increased 26 percent. I will turn the call over to Julie to go through details of the quarter and then I will with closing remarks. Julie.

Thank you, Rich. Revenues for fourth quarter 2004 increased 23 percent to $166.8 million, compared to 135.7 million in fourth quarter 2003. Fourth quarter specialty revenues grew 40 percent to $67.7 million, compared to 48.3 million for the same period last year. PBM services revenues for the quarter, which include traditional mail service, increased 13 percent to $99.1 million, compared to 87.5 million for the same period last year. Fourth quarter 2004 total adjusted prescription suspense increased 26 percent to 962,000 over 2003. Gross profit for the quarter was $17.6 million, or 10.6 percent, compared to 15.3 million, or 11.2 percent a year ago. The decrease in gross profit percentage reflects pricing pressures experienced generally and particularly in the IVIG market.

Selling general and administrative expenses were 14.9 million for fourth quarter 2004, compared to $13.1 million for the same period a year ago. Excluding one-time items, selling general and administrative expenses for fourth quarter 2004 and 2003 were $13.9 million and 11.6 million, respectively.

We recently announced a settlement with Value Options of Texas, Incorporated, a former PBM customer. As a result of that settlement, MIM recorded a one-time after-tax charge of approximately $535,000, or $0.02 per diluted share in its fourth quarter and 2004 results.

Operate income for fourth quarter increased 11 percent to $1.9 million, compared to 1.7 million a year ago. Net income for fourth quarter increased 23 percent to 1.2 million, or $0.0 5 per diluted share, compared to $1 million, or $0.04 per diluted share for fourth quarter 2003. Excluding the Value Option settlement and non-capitalizable acquisition costs related to the upcoming merger with Chronimed, net income for fourth quarter 2004 was 1.8 million, or $0.08 per diluted share.

As I review the year's results, I will reference comparisons from the reconciliation tables in the back of the press release, which itemize one-time events in both 2004 and 2003, in addition to taking into account the effects of TennCare and Synagis results in comparisons. 2004 revenues increased 7 percent to $630.5 million, compared to 588.8 million for the prior year. Excluding from 2003 the loss of TennCare PBM and Synagis revenues, revenues, 2004 revenues increased 24 percent over the prior year. 2004 specialty revenues increased 30 percent to 251.5 million, from $193.2 million for 2003. Adjusted for the loss of Synagis distribution revenues, 2004 specialty revenues increased 40 percent over 2003. This increase includes 11 months of revenues associated with the company's acquisition of Natural Living.

2004 revenues from PBM services, which include mail service, decreased 4 percent overall, primarily due to the loss of TennCare PBM revenues. 2004 PBM services revenues were $379 million compared to 395.5 million in 2003. 2003 TennCare PBM revenues were $67.8 million. That revenue was offset by a 51.3 million increase in the company's 2004 PBM services business. Revenues from PBM services grew 16 percent in fiscal 2004, excluding the results of TennCare PBM revenues in 2003. Gross profit for fiscal 2004 68.2 million, or 10.8 percent, compared to $68.5 million, or 11.6 percent in 2003. Excluding the results from the loss of TennCare PBM and Synagis distribution revenues, gross profit for 2004 and 2003 were 67.9 million, or 10.8 percent, and $62 million, or 12.2 percent, respectively.

Selling general and administrative expenses for 2004 were 52.8 million, compared to 50.6 million for 2003. Excluding one-time items, selling general and administrative expenses for 2004 and 2003 were 51.9 million and 47.5 million, respectively. This increase includes 11 months of expenses associated with Natural Living.

Operating income for 2004 was 12.3 million, compared to 16 million for 2003. Adjusted operating income for 2004 and 2003 were $13 million and 12.7 million, respectively. Net income for 2004 was 7 million, or $0.31 per diluted share, compared to $9.1 million, or $0.40 per diluted share for the prior year. Excluding one-time items, adjusted net income for 2004 and 2003 were $7.5 million, or $0.33 per diluted share, and 7.1 million, or $0.31 per diluted share, respectively.

Turning to the balance sheet, days sales outstanding decreased to 36 days at December 31, 2004, from 37 days at September 30, 2004. The company generated $3.3 million in operating cash flow for the year, and stockholders' equity for 2004 increased to $115.7 million from 107.2 million at the end of 2003. We also reduced the outstanding balance on our line of credit to $7.3 million from $8.2 million at September 30, 2004.

I will now hand the call back to Rich for concluding remarks and comments on the progress of the merger.

Thank you, Julie. We are entering the new year with strong growth. Our community-based business model, which includes infusion, specialty retail, and local deliveries, is paying dividends. The merger with Chronimed, which is expected to close by mid-March, will provide us with the opportunity to combine our model with Chronimed's successful franchise of 29 community-based pharmacies across the country. We have an integration plan in place. We will be ready to execute on our growth strategy. The combination will permit us to be more competitive in the national managed care arena and to grow our business through community-focused relationships and local delivery models. We will be able to provide more resources and be more competitive in our PBM and traditional mail service business. We will have a very strong balance sheet, enabling us to evaluate strategic and opportunistic acquisitions to complement our organic growth at the right time. With that, we will now open up the line for questions.

Thank you. [OPERATOR INSTRUCTIONS] We do have a question from the line of Brooks O'Neil [ph] with Dougherty & Co.. Please go ahead.

Good morning. I have a couple of basic questions. Rich, number one, clearly IVIG pricing pressures impacted the results here this quarter, but I have some sense that maybe the supply situation has begun to tighten up, and perhaps some of that pricing pressure has begun to be mitigated. Can you update us on your perspective on the IVIG market?

Sure, good morning, Brooks. One is that you're absolutely correct in terms of the margin, the pricing pressure that we have experienced over the last year in IVIG. IVIG ,alone, probably affected our margin in the neighborhood of $5 million. You know, if things were equal, the year, obviously, would have been a lot better. We're in a 40 percent margin rage on IVIG in the high 20s.

In terms of the supply situation, it is much tighter. There are rumors on the street that American Red Cross may, in fact, make a decision to close down the Polyglam [ph], Poligam [ph] and Ponglobulin [ph] facilities. That is a rumor right now, but what we're doing is buying as much IVIG as we possibly can. We obviously have other sources for it. We're working with GPO's. In terms of where the pricing will fall out, it's yet to -- right now, it's steady, you know. We haven't experienced recently any more deterioration in the pricing. But as we go forward into the balance of the year, the supply and demand issues will dictate what the pricing is. And right now, it's just difficult to predict that, but we are trying to buy as much, as many grams as we possibly can.

Okay. Is there -- are there any other products or service areas where you're seeing significant changes in pricing or margins right now?

Absolutely not.

Okay. Third question, I noticed that the cash flow this quarter wasn't terribly strong, and I may have missed it in the prepared remarks because I dialed in just a little bit late, but is it -- were there any unusual factors or would you expect cash flow to strengthen here in '05.

When you take a look at '05, and especially after the merger, as you know, we have said that it will $35 million of EBITDA in the 12 months following the merger. When you look at -- and there will be no debt, first of all, because Chronimed is sitting on approximately $20 million of cash and we have about $7 million of debt. So we will be in a cash-plus position. There aren't many capital requirements for either company. There's a few million dollars when you look at the CapEx lines of either one. So the expectation is that there will be, you know, significant cash flow thrown off by the companies.

Yes, That's great. Were there anything unusual in your quarter that depressed the cash flow? Do you think the MIM side will --

Yes, the cash --

-- will pick up, too?

The cash flow is $2.4 million, and, you know, so when you go ahead and look at our net income for the quarter, you know and add the cash flow, you know, there really wasn't anything unusual. During the year, obviously, as we explained previously, there were some rebates payable to plan sponsors from the previous years that we paid during the year.

Okay.

But pretty much Julie, you know is fairly --.

We had a fairly good quarter, actually. Our cash flow was 2.4, for the year it was 3.2. So, when you look at it on that basis, we, we made up for the earlier quarters.

Yes. Okay, just two other quick questions. One longer one, but -- and obviously Chronimed was impacted fairly dramatically, or will be, by the loss of the Aetna business. So I'm just curious if you could review any large customer relationships you have on the MIM side and the status of those?

The relationships being is that we're -- there are no large customers, you know, that are reportable that we believe that there are any issues with going forward.

Okay. Good. And then lastly, clearly you guys, the Chronimed team and yourself, have articulated the potential of the local strategy. I noticed in particular in your comments at the UBS conference, which I thought were very interesting. What do you think is involved in taking advantage of Chronimed's local market presence through its StatScrip [ph] stores and expanding to include some of the products or services that MIM might have had done, or potentially, you know, infusion services and other clinical services?

Great question. That's particularly the reason that we wanted to do this deal. When you take a look at what BioScrip, MIM's BioScrip, in the New York region has been able to achieve, we've put together a business model that does include infusion, not just IVIG, but infusion in physicians' offices, as well as infusion at home, which now includes DeSovery and other products. We have a retail distribution model, and we have a local distribution model all based upon relationships. We're working with hospitals in the region, so there's been significant growth in everything you that look at with BioScrip in the New York area. That model is the model that both Hank and I believe is the model to take out across the country.

Yes.

So when we're adding, and we're looking to add, for example, infusion-based, the franchise -- the franchise that Hank and Chronimed have created is the perfect situation and they're in the right locations to take advantage of the relationships that have been built to now bring in new products into that marketplace, whether it's oncology, whether it's different infusion, whether it's blood products. It's utilizing the base that they have there, and then because, as you realize, you know, 50 percent of their business is HIV, and then add 25, 30 percent of their business is in the transplant area.

Yes.

So utilizing what was there, and now giving us ability to add additional products and therapies into the market is something that we believe is what healthcare is all about. In addition to that, moving the mail order facility from Minitonka into Columbus will create great leverage for us to now be more of a national player with managed care because of the ability to bid, you know, quite frankly a lot stronger than we have been able to bid before because you have much more through-put going through that type of facility.

Yes.

So, all in all, you know, including the synergies that are going to be realized, you know, this thing to us, utilizing local community relationships and the national platform is what we believe is a winner.

That's great. I appreciate that. Thank you very much.

We do have a question from the line of Glenn Garmont [ph] with First Albany Capital. Please go ahead.

Thanks. Good morning, guys. Two quick questions. First, on the specialty side, it looks like you've got one additional month here of Natural Living, relative to the fourth quarter of '03. nd I was wondering what is the growth rate normalized not only for the Synagis but also for Natural Living? I don't think that was disclosed in the press release. And also, we've talked about IVIG and some of the disease states here on the specialty side that have been problematic. Can you talk about some of the disease states that are actually doing well for you right now, and then specifically mention what kind of growth rates you're seeing some in some of the diseases? Thanks.

Morning, Glenn. First of all with the Synagis, last year on Synagis we did about $14 million, and that was pretty much the beginning of the year. There was no Synagis in the fourth quarter of last year. Natural Living was bought in February of 2004, so it does not go back to 2003 at all. When we purchased Natural Living Fair, we announced at the time the revenue was approximately $40 million. Since that time, it has been consolidated and there has been a lot of cross-selling and so we look at that as really a distribution unit as part of the New York region. So we cannot, at this point be able to break out, when we look at the entire New York region, what part is strictly related to Fair. You know, you effectively have to do that type of math.

But without Synagis, you know, we're up clearly 40 percent. And again, Synagis last year was $13.7 million. And if you want to do the math on Fair, you can say that it was running at a $40 million annual rate when we purchased it. In.terms of the disease states, you know, it's pretty much, you know, more recently in the fourth quarter we have pretty much seen growth. You know, there has obviously been pricing pressure on the oncology side with the new pricing, but we've been able to expand our oncology business, and we pretty much see growth in all our product lines.

More recently, we've seen significant growth in Casabray [ph] . And that's been since Thanksgiving. And we believe that we'll have a significant presence in Casabray in 2005, primarily because of our infusion model. Having the ability to open up infusion suites in physicians' offices, giving them the ability to do infusion where they have not had that before, I think is something that sets us apart from others that out there today. And hopefully, when we report into 2005, we expect Casabray to be a significant product for us.

That's great. Thanks for the comments, Rich.

Okay. .

We so have a question from the line of Anne Barlow with Southwest Securities. Please go ahead.

Good morning. A couple of questions. First, any plans to participate in the Medicare drug plan on the PBM side?

Hey, Anne, this is Barry. How are you?

Fine, fine.

Good. We're currently are a card provider for one of the Medicare-endorsed discount cards and we have had very good success with it this year. We're looking at the full-scale program. There are a lot of requirements that we're looking at and, frankly, we're assessing whether it makes sense for us to go forward. If it's something we can do at a good profit level, we're certainly going to do it. We're in the process, we've got a preliminary application, where notification is, we're obviously keeping our options open. We have to see which way it plays out for us.

Okay. And, you know, looking at the PBM growth this year, was your client base basically the same going into '05, or have you had any significant additions for the selling season in '05?

No, we haven't had real significant additions. We have been picking up small groups, which is where we have been concentrating on, and plus, our existing client base has grown significantly. And we've also taken on more territories with certain of our clients that we hadn't had previously. So, we're continuing to see growth in that area. But with the acquisition, clearly part of the focus that that we have discussed is the ability to put more emphasis on the PBM side. We believe that, with the portfolio of products that we have and really concentrating in the PBM and the mail service side to combine them, will give us a tremendous opportunity. We think that we could be a strong player in the PBM business. And, as you know, that's not been an area that we really -- that we have put a lot of resources into for the last two years as we have been trying to build our specialty business. But, going forward, we're going to put a lot more emphasis on PBM and on managed care.

Okay. Any major accounts you're going to have up for renewal at the end of this year?

Not that we're aware of today.

Okay. And going back to the Casabray drug, are you primarily shipping drugs? Right now, are you seeing that distributed or actually infused in physicians' offices, or are you still seeing a lot of it in the hospital?

Our part has been in the physician's offices. That's our model.

Okay. And, going forward, I know we have got the StatScrip stores around the U.S.. And are you looking at adding a number of infusion pharmacies or infusion suites across the U.S. in addition to the StatScrip stores? Or how is that growth model going to work?

Well, the growth model right now is utilizing the StatScrip locations and then we will assess it from there.. StatScrip, as you know, Anne, are in terrific locations -- all the major cities, you know, across the United States. And it's a perfect opportunity, it's a perfect platform to utilize. And in the infusion suites, it's really having an educated sales team out there, pharmacists who are able to work with the physicians to open up the infusion suites and teach them, their offices, of how to do the infusion. So, it's a perfect platform for us to move infusion into..

So, you're actually going to put some infusion suites in the StatScrip stores?

No. It doesn't necessarily have to be in a store. The infusion suite would be in the physician's office.

Another would do more like the mobile model, where they go from different practices?

No, no, no it would be -- no.. You would put the chair and the stand absolutely within the physician-- it's actually selling the product, but you would be helping them establish infusion within their own office.

Okay. All right, thanks.

Okay.

We do have a question from the line of Debra Fiakias [ph] with Crystal Equity. REIT. . Please go ahead.

Yes, this is Debra Fiakias. Today, I'm representing West Rock Advisors. I was wondering if you might elaborate a little bit more on your plans to, you know, for rolling out sales approach that you have been taking in the New York market, what kind of staffing requirements are necessary, what.kind of hiring you might need to do to bring that to fruition?

Good morning, Debra. That is something that the -- this, the integration team, Hank and myself, are working on. What we believe is that we will first have somewhat probably of a reallocation of some of the sales team, and we'll be rolling this out systematically. We're not going to do 29 locations at one time. But we are reviewing the absolute requirements in each one of the geographic areas, and the decisions will be made at this time exactly what the staffing requirements are. All of that, however, you know, is budgeted, and we talk about the forecast going forward, numbers that are required, or the resources that are required have been built in.

And any ideas yet on how rapidly you're going to deploy that? Do you have a goal of so many stores per quarter or, you know, a year from now you would like to have all the stores completely deployed? How do you intend to go about that?

Realistically, it's going to be a rollout, because there is a lot of education that is going to be required. And I think that we will get back to you in the near future, get back to the Street with exactly how that's going to be rolled out. In the meantime, it's all being analyzed right now. And there is a lot of training that is starting, so that in the local areas they could learn more about what is happening in this marketplace to be taken out there.

All right. Thank you.

Okay.

(OPERATOR INSTRUCTIONS) We have a question from the line of David Mayly [ph] with Maple Hill Capital Management.. Please go ahead.

Good morning, thank you for taking my question. Rich, could you give a little flavor on how you see your role as chairman of BioScrip, now you envision working with Hank, and not only immediately but out the next year or two or further?

Sure, good morning, David. My role is well-defined. First of all, I'm going to be working with Hank, obviously, on this strategy and being able to take the New York model and help roll it out. But one of my passions, clearly, is continue to grow the New York model, looking at what we have done here and expand that model, whether it's with hospital associations or different type of groups in order for us to continue to grow and roll out the things that we have done. I'm also going be, obviously, working on the M&A side. So, you know, my passion is to continue to grow this company and look for opportunities to go do that, both organically, new relationships, managed care accounts. I'm going to be spending a lot more time on the road helping in that effort, where Hank is, obviously, going to be running the day-to-day operations of the company.

In the meantime, I'm going to be looking for fits of different potential acquisitions or partners at the right time that we could go take advantage of. So II see myself quite busy, you know, especially over the coming years because I believe this company's just starting. I think that getting us at $1.2 billion is a nice start for us, but I think that the model that we have created is a model that is going to need a number of resources. And, you know, I'm committed with Hank to make sure that this company -- that it works and we get to where we need to be. So, I will be an active participant helping every which way I can to make that happen. And I think it's going to be much more so on the sales side, getting out there and trying to create those type of relationships, as well as trying to continue New York and build on the acquisition side.

Thank you.

There are no further questions, please continue.

Well, I appreciate everyone participating. This is exciting times for us and I'm looking forward to the future. And we're expecting to close the merger in mid-March. And I think the model we have put together is a model going to be significant, going forward. And again, I would like to thank everybody for participating.

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