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Operator
Ladies and gentlemen, thank you for standing by. Welcome to the BioScrip fourth quarter and year end 2006 earnings results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, Friday, March 16, 2007.
I would now like to turn the conference over to Craig Allison, Investor Relations representative for BioScrip. Please go ahead, sir.
Craig Allison - IR Representative
Thank you and good morning. Welcome to BioScrip's fourth quarter conference call. Joining us today are Richard Friedman, Chairman and Chief Executive Officer, and Stan Rosenbaum, EVP and Chief Financial Officer. If you have not received it yet, you may find today's financial press release on the Company's website at www.BioScrip.com under the Investor section.
Before we begin, I will remind all listeners that throughout the call we may make statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the intent, belief or current expectations at the Company, its directors or its officers with respect to the future operating performance of the Company, the operational and financial impact of certain new governmental programs on the Company.
Investors are cautioned that any such forward-looking statements are not guarantees of future performance or the successful execution of the Company's strategic plan and involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of various factors. Important factors that could cause some of that differences described above are described in the Company's periodic filings with the Securities and Exchange Commission including its annual report on Form 10-K. I direct you to these documents to understand the current business environment and its associated risks.
Earnings before interest, taxes, depreciation, amortization and option expense, EBITDAO, is a non-GAAP financial measure as defined under US Securities and Exchange Commission Regulation G. As required by Regulation G, BioScrip has provided a reconciliation of this measure to the most comparable GAAP financial measure. This information is available under the Investor section of the BioScrip website, www.BioScrip.com.
Today's call will consist of opening comments from Richard Friedman, a financial review of the quarter by Stan Rosenbaum, and then conclude with a brief question-and-answer session.
I will now turn the call over to Richard Friedman. Please go ahead.
Richard Friedman - Chairman and CEO
Thank you, Craig, and good morning, everyone.
BioScrip reported a loss of $28 million or $0.75 per share for the fourth quarter on revenues of $292.2 million. $25.7 million of that loss results from a non-cash reserve on our deferred tax assets. $2.3 million of the loss is from operations. We experienced positive fourth quarter EBITDAO of $1.25 million. Our fourth quarter EBITDAO improved $1.9 million quarter-over-quarter. The improvement in performance was primarily attributable to reduce expenses and top line growth. We expect these trends to continue.
2006 was a challenging year for our Company, due primarily to challenges associated with our merger integration. Although we still have work ahead of us, we have a solid handle on the cost issues that affected our business. It is now time to concentrate on top line growth.
I will now take a moment to discuss our growth drivers. One, as previously reported, starting July 1, 2006, as the sole vendor under Medicare's Competitive Acquisition Program, CAP, BioScrip began dispensing Medicare Part B drugs and biologics to CAP-enrolled physicians. Recently Congress modified the program in order to streamline the reimbursement process. This will help improve our cash position significantly due to timelier and less cumbersome process.
Further, CMS recently announced a new enrollment period commencing May 1, 2007 through June 15 for new physician enrollments effective August 1. BioScrip intends to invest in marketing and educational programs in order to maximize participation in the upcoming enrollment period.
Fourth quarter CAP revenues were $7.2 million from 1,350 enrolled physicians. Following the fourth quarter 2006 enrollment period, we now have a total of approximately 2,450 physicians. We are counting on continued growth from this exciting opportunity.
Given the significant pipeline of infused drugs along with higher profitability associated with these products, BioScrip intends to expand its infusion platform. We believe that further cuts in physician drug reimbursement, led in part by Medicare, lower administration and procedure fees present a revenue growth opportunity for BioScrip to work with third party payors to help reduce costs.
Infusion centers afford payors lower costs by keeping patients out of the hospital. With modest costs associated with site development, this service model would allow BioScrip to utilize its infusion expertise and manufacturer relationships to enhance infusion service revenues while providing an efficient treatment alternative.
A robust product pipeline for the treatment of our core disease states creates an ongoing opportunity to continue to participate in new drug launches. This will also create the opportunity for marketing and sale of our expanded services model. We have built a reputation for providing exceptional levels of service to all of our customers. We have established strong relationships with manufacturers, whose new products to market within their limited distribution networks, contributed $55 million to 2006 revenue with a Q4 annual run rate in excess of $80 million.
As a result of CAP and the product pipeline, we will likely see HMOs and other sponsors follow the government's lead to manage the cost of office-administered medications. Concurrently, physicians are feeling the pressure of reduced drug reimbursement rates and are looking for an outlet to eliminate the financial risks associated with drug purchasing, inventory management, and reimbursement. BioScrip has the products to support them. As the sole CAP vendor, we are provided with a window of opportunity to market the government model to private health insurers, looking to reduce in-office drug expenditures and provide an alternative to buy and bill to help keep patients out of the hospital.
BioScrip's community pharmacies continue to grow despite market challenges. Given our prominence in the HIV/AIDs market, we will continue to provide medication and therapeutic, financial reimbursement and other patient support to existing patients as well as those coming to us as the face of HIV/AIDS changes. We will be looking to relocate our existing stores and open new ones in the areas in which patients now and in the future reside to ensure that BioScrip pharmacy continues to be the pharmacy of choice for the HIV communities.
We will also be pursuing the shift in demographics of the HIV epidemic through initiatives intended to focus BioScrip as the trusted brand and resource for communities now increasingly affected by HIV and other conditions like hepatitis C, diabetes, and sickle cell anemia. These communities have unmet needs and we believe that we are uniquely qualified to fill that void. We have invested in and continue to invest in education and training of our employees to better understand the needs of those communities and its people.
In short, we have taken many critical steps to improve our current and future operational performance and have now positioned ourselves for growth. Although we are not issuing specific guidance at this time, we are expecting profitability in 2007 and believe that many of the obstacles previously affecting BioScrip have been put behind us.
I will now turn the call over to Stan for the review of the financials. Stan?
Stan Rosenbaum - EVP and CFO
Thank you, Rich. Revenue for the fourth quarter of 2006 was $292.2 million compared to $304.2 million for the same period a year ago. The revenue decrease in PBM services primarily due to the loss of Centene, is partially offset by revenue increases in the Company's Specialty Services segment.
Fourth quarter 2006 Specialty Services revenue was $232.5 million, an increase of $29 million over the prior year or 14.3%. This was primarily due to revenues associated with preferred distribution arrangements with manufacturers for newly approved drugs, strong growth in our infusion services business, new business resulting from the CAP contract, and the acquisition of Intravenous Therapy Services in March of 2006. Fourth quarter 2006 PBM services was $59.7 million, a decrease of $41 million or 40.7% as compared to the fourth quarter for the reason I noted previously.
Gross profit for the fourth quarter of 2006 was $30.8 million compared to $33.6 million for the same period of 2005. Gross profit was 10.5% of revenue in the fourth quarter of 2006 compared to 11% in the comparable period of last year. Gross profit declines from 2005 were partially the result of lower reimbursement rates associated with the new Medicare Part D networks and further industry-wide reimbursement pressure.
Fourth quarter 2006 selling, general and administrative expenses were $28.5 million, or 9.7% of revenue compared to $28.1 million or 9.2% of revenue for the fourth quarter of 2005. The increase in SG&A over 2005 was due primarily to the acquisition of ITS in March of 2006, stock option expense associated with the adoption of FAS 123R, and incremental costs related to the CAP contract. Partially offsetting these expenses were reduced spending from the previously announced cost reduction program.
Bad debt expense in the fourth quarter of 2006 was $3 million or 1% of revenue compared to $9.3 million or 3% of revenue for the same period of 2005. The fourth quarter 2006 bad debt expense includes a $300,000 charge for a non-trade receivable. Without that specific reserve, bad debt in the fourth quarter would have been lower than the third quarter by 0.8%.
As Rich mentioned, our fourth quarter net loss of $28 million includes a reserve on our deferred tax assets. GAAP requires the Company to determine if these assets will be utilized in the future. Since we have used up our carryback, had accumulative losses for 12 quarters among other criteria established in FAS 109, management believed it was prudent to establish this reserve. It is important to note that these assets are still available to us when we return to profitability.
Revenue for the year ended December 31, 2006 was $1.15 billion, an increase of $79 million over the 2005 comparable period. The 2005 results include Chronimed sales from March 12 of 2005, the date of its acquisition by BioScrip. The net loss for 2006 was $38.3 million, which includes the aforementioned $25.7 million reserve against our deferred tax assets as compared to a loss of $23.8 million for 2005. The 2005 results include a $25.2 million charge for the impairment of goodwill and intangibles as well as a $4.6 million charge for merger-related expenses.
Turning to our balance sheet, our receivables have increased by $7,250,000. The CAP program is responsible for this increase due to the cumbersome process of matching doctors' claims to ours by CMS. In December, the law regarding the CAP program was modified so that all our claimed shipped prior to April 1 would be paid on that date and all future claims of ours will be paid in a two week timeframe.
DSO at 12/31/2006 was 41 versus 38 in 2005. This increase is essentially due to the CAP contract.
Inventory is up $7.6 million from the 2005 levels. This increase reflects a $1.7 million due to the CAP contract, $600,000 from the acquisition of ITS, and $6.1 million in our infusion business, which reflects increased sales and forward buys to take advantage of price and availability of IVIG.
Our borrowings under our line of credit are [$52.895 million], an increase of almost $45 million over the prior year. This increase is due to the purchase of ITS of $13 million, the loss of Centene as our claims payable are down almost $22 million year to year, and increased working capital needs. As of yesterday, we had approximately $32 million available under our facility. We are not in violations of any covenants as it relates to that facility.
At this point, I'll turn the call back to Rich. Rich?
Richard Friedman - Chairman and CEO
Thank you, Stan. We will now open the lines up for questions. Operator?
Operator
OPERATOR INSTRUCTIONS). Melissa Mullikin, Piper Jaffray.
Melissa Mullikin - Analyst
Just a couple of questions here. In terms of the IT systems that you talked about on your last call, you had talked about how you were going to be using Q1 to start pulling together a plan. Can you tell us where you are in that process? Have you selected a vendor? Are you any closer to coming to a timeline on that?
Stan Rosenbaum - EVP and CFO
Yes, let me give you some updates. As you realize, we've had some issues as it relates to IT and it's important to note in the first quarter so far this year, we have converted two of our older systems into newer systems, that being our New Jersey infusion center which has moved over to CPR Plus, which is the system we are choosing for our fusion business. We've also switched over from the QS1 program in our Roswell facility into the Tech RX ScriptMed facility that we currently use in Columbus.
Nevertheless, we still need a one-system to support the strategic plan that Rich has outlined, because we see ourselves as one company, regardless of whether it's mail or pharmacy. To that end, we did retain a third party to assist in this program. We have gone through a whole series of meetings internally and are currently preparing a script to be sent out to various vendors. We hope to have that completed by the end of this quarter. In the second quarter we will start to make a determination. Right now it looks like around June 30 we should have -- in the second quarter we should have a determination as to which vendor we choose going forward.
Melissa Mullikin - Analyst
So how many systems are you at now? It sounds like -- so with that conversion of New Jersey, all your infusion is on one system, is that correct?
Stan Rosenbaum - EVP and CFO
That's correct, CPR Plus.
Melissa Mullikin - Analyst
And then what about your retail pharmacies, your mail-order and all that?
Stan Rosenbaum - EVP and CFO
Retail pharmacy is on one system, which is Tech RX. The problem there is that our dispensing system and our AR system are two different systems and they do not speak to each other. What we're looking to do here is to pick one system that will integrate not just the dispensing system but also the back end as well to enable us to better collect and to better service our customers going forward.
I would like to add one other thing -- that we added a new CIO in the last quarter. Comes to us very strongly recommended and we are very pleased with his first month on the job. He has done an assessment. He is onboard with this program and we expect to have very positive results for this year.
Melissa Mullikin - Analyst
And then I have a couple of follow-ups. In terms of revenue in 2007, you talked about your growth drivers. Can you talk about any of those specifically, how you expect those to play out in '07?
And I think in the Q3 call you talked about that you expected to lose one customer in Q1. Is that playing out the way you thought it would? How do you see revenue in '07?
Stan Rosenbaum - EVP and CFO
Let me discuss that customer. We talked about [XLRX] under our PBM services. And yes, we had to notify that they will be leaving us but it has not happened in the first quarter. It now looks like it will happen in the second quarter.
Melissa Mullikin - Analyst
And that was approximately I think you said in the $30 million range?
Stan Rosenbaum - EVP and CFO
We do about $30 million a year with them.
Melissa Mullikin - Analyst
But that is the only one you're expecting in '07 at this point?
Stan Rosenbaum - EVP and CFO
That is the only one we are aware of at this point.
Melissa Mullikin - Analyst
And then most of that growth that you're expecting is obviously going to be on the specialty pharmacy side then?
Stan Rosenbaum - EVP and CFO
That is correct.
Operator
(OPERATOR INSTRUCTIONS). Glenn Garmont, First Albany Capital.
Glenn Garmont - Analyst
Rich, any thought -- what are you doing with the PBM business? Has there been any further thought to maybe getting out of that business and further concentrating on what you are doing on the specialty side? And then, second question, the $80 million run rate from new products in the fourth quarter, what is that number do you think for 2007? Could it be $100 million?
Richard Friedman - Chairman and CEO
Dealing with the PBM question first, as you are aware and others, the concentration has been on specialty. But the PBM and traditional mail segment continued to throw off positive cash flow and earnings as you see in the segment information that you will see in the 10-K. We will always look to see if there's an opportunity with the PBM business. But clearly, our focus has been on specialty and if the right opportunity presents itself, we will look at those opportunities.
Regarding new products, there is an incredible robust pipeline of products. Another one that was announced just the other day is [TICERP] and will be part of that limited distribution network as well.
So I think that you could see, your question was would it be $100 million. Yes, I think it's safe to say it will be over $100 million. We think that because of the pipeline that's out there that we will be part of these limited distribution networks, and it will be a part of our revenue stream going forward.
Operator
Bill Nasgovitz, Heartland Funds.
Bill Nasgovitz - Analyst
As long-term investors, the tardiness of reporting doesn't give us, and I'm sure, others much confidence that you've really got your arms around this baby. Stan, why does it take almost 2.5 months to get our financials out?
Stan Rosenbaum - EVP and CFO
We had our financials done in February. The problem today is due to the material weakness that we have and have stated relative to our IT, our auditors are required to do much more detailed auditing to ensure that our financial statements are fairly presented.
Accordingly, while our financials are done on time, the auditing process takes a little bit longer because of that IT material weakness. We have, as you heard, brought in Doug Lee who will assist us as we go forward to remediate that IT weakness. We also had to go through a various analysis as it related to goodwill impairment to see if there was any; we took a hard look at our options to see if there were any issues relative to that. So all that took time. So I would say that was more a function of our material weakness in IT than it was in our ability to close the books in a timely manner.
Richard Friedman - Chairman and CEO
Let me comment on it. And there were two issues that were brought up, one is getting your arms around, and the other one is reporting.
Let me deal with the reporting first. Clearly we have had systems issues and we have reported on that consistently. And because of those systems issues, there's a lot more manual testing and a lot more work that has to go on; that's required now under Sarbanes-Oxley and other things before people could sign off on the financial statements. That is going to change. It is changing now.
And I will tell you that going forward, it is going to get a lot better. Having our arms around it -- we clearly see and understand what is going on within the business. We have taken appropriate action. We've reduced costs. We understand what is happening. But we still have a lot of manual processes that need to change and get automated. We know what they are. We're on top of it. We're making the changes.
We have made a lot of personnel changes as you are aware of, this year. Effectively we have a new CEO. We have a new CFO. We have a new CIO. We have a new VP of Finance. We have a lot of changes that have taken place this year, and all of that has really gone into significant improvements over the last number of quarters.
This Company has now turned. The worst is behind us. This Company is going forward. We have some terrific growth drivers. We're getting our arms around the systems. The Company is EBITDAO positive. We expect profitability in '07. So we are addressing every issue. I share in your pain. I feel the same way, but it's getting better and we will show it to you in the coming quarters.
Bill Nasgovitz - Analyst
At the end of the first quarter, Rich?
Richard Friedman - Chairman and CEO
No. I think in coming quarters. I wish I could say it would all be behind us in the first quarter. The systems, as you know, takes awhile to get through. Clearly by the end of the year you will see the 10-K, you will see the financial statements get out quicker. The earnings call will get out quicker. And I will tell you, hopefully by the second and third quarter, hopefully the Q will get out faster. I can't give you that commitment by the end of the first quarter.
Bill Nasgovitz - Analyst
Well, with your stock trading at less than 10% of sales, there doesn't seem to be much confidence in this turn. And anything you can do to give stockholders, shareholders and the Street some confidence would be, I think, a remarkable achievement.
Richard Friedman - Chairman and CEO
I agree with you.
Operator
[Glenn Madson], GT Capital.
Glenn Madson - Analyst
I think you said you changed your billing procedures from a -- to a non-payment from the customer or the patient directly or the payment of a deductible by the customer at the point of service. How does that stand? And how is your AR going? It seems to be up quite a bit.
Stan Rosenbaum - EVP and CFO
Well, the AR is up, as I mentioned, mostly because of reimbursement delays under our CAP program. That should be rectified with the change in the law as I said earlier. So that should start to see improvements. As to --
Richard Friedman - Chairman and CEO
The improvement in collections.
Stan Rosenbaum - EVP and CFO
Oh, yes, in July -- sorry about that, in July we changed a lot of our policies when I first came on. Among those was to be more aggressive in collecting our co-pays. It has certainly not hurt our sales effort. And in fact, it has improved our monthly cash collection rate by close to $700,000 a month. We have not lost any patients as a result. So that has helped -- that policy shift has helped tremendously.
Glenn Madson - Analyst
How do you stand on bad debt? Are they fully reserved, do you think, at this point?
Stan Rosenbaum - EVP and CFO
Absolutely. We are adequately reserved. It's a management estimate, but we feel we are adequately reserved.
Operator
(OPERATOR INSTRUCTIONS). Bill Nasgovitz, Heartland Advisors.
Bill Nasgovitz - Analyst
Rich, just a comment and a question here. As you know, a lot of us have been long-term shareholders through this merger and now this long turnaround. It's been years. And in the world of -- well, in today's world of private equity and leveraged buyouts, whatever you want to call it, just one of the concerns that Heartland is that if in fact you do have this turn, and we hope it is taking place, that somebody swoops in and takes out the Company -- $4.00 would be a 33% premium. I'm sure some investment banker would be willing to sign on to that. To us, as long-term investors, to us that would be not just a disappointment, it would be an event that could trigger perhaps other activity. But what's your view of that, Rich, in today's market?
Richard Friedman - Chairman and CEO
What's my view of $4 or what's my view of private equity?
Bill Nasgovitz - Analyst
What's your view of BioScrip staying a long-term, publicly traded Company here, over the intermediate term? To allow this rollout, this turn to rollout.
Richard Friedman - Chairman and CEO
Look, I believe in what we're doing. I believe in the growth drivers. I was the architect of putting these companies together, as you know. I am more disappointed in the integration process. It wasn't that anything was wrong with the concept of how we were doing it; it was the integration process that fell apart. And that's what's been fixed and is being fixed.
I believe this Company, it's going to take 2007 to prove this Company's worth in going forward. So this Company is not for sale. We have a fiduciary responsibility to the shareholders. If someone --
Bill Nasgovitz - Analyst
Okay, that's great to hear.
Richard Friedman - Chairman and CEO
If someone were to come in here with what the Board would believe was a significant offer, we would have to take that to the Board and proceed, like any CEO would do. But this Company is moving forward. We plan to restore it to its profitability as the Company was prior to the merger -- as both companies were prior to the merger, and to get this Company back on track of where it should be. And the stock price -- net income drives stock price. We have to deliver that at net income and then the market to determine what this Company is worth. I think it's worth a hell of a lot more than it is today. But we just have to prove it.
Operator
We have no further questions at this time. I will turn the call back over to you.
Richard Friedman - Chairman and CEO
I would like to thank you all for participating. It is important to know that BioScrip's underlying business remains solid. I believe our future outlook is vastly improved. We have taken corrective action. We have retained the necessary personnel to strengthen the organization, and we look forward to updating you on our progress during our next earnings conference call. Thank you.
Operator
Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and we ask that you please disconnect your lines. Have a great day, everyone.