Option Care Health Inc (OPCH) 2009 Q2 法說會逐字稿

Good morning ladies and gentlemen, thank you for standing by. Welcome to the BioScrip Incorporated Q2 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 Thursday, July 30, 2009.

I would now like to turn the call over to Lisa Wilson, Investor Relations for BioScrip, please go ahead.

Good morning, and thank you for joining us today. By now you should have received a copy of our earnings press release issued this morning. If you have not, you should access it through the Investor Relations section at our website. Richard Friedman, Chairman and Chief Executive Officer, Stanley Rosenbaum, Executive Vice President and Chief Financial Officer, and Rick Smith, President and Chief Operating Officer will host this morning's call. The call is expected to last about 45 minutes and may be accessed through our website at bioscrip.com.

Before we get started, I'd like to remind everyone that any statements made on the conference call today or in our press release that express a belief, expectation, or intent, as well as those that are historical facts are considered forward-looking statements, and are protected under the Safe Harbor of the Private Securities Litigation's Reform Act.

These forward-looking statements are based on information available to BioScrip today, and the Company assumes no obligation to update these statements as circumstances change. These forward-looking statements may involve a number of risks and uncertainties which may cause the Company's results to differ materially from such statements. These risks and uncertainties include facts or details in our SEC filing including our Form 10-K and 10-Q.

Also, the Company urges caution in considering any certain trends or guidance that may be discussed on this conference call. The pharmacy services industry is highly competitive, and trends and guidance are subject to numerous factors, risks, and influences, which are described in the Company's reports and registration statements filed with the SEC. In addition, the impact of current national and global economic conditions on our business may be difficult to predict.

The Company disclaims any obligation to update information on trends and targets other than in its periodic filings with the SEC. In addition, as required by the SEC Regulation G, the reconciliation of any non-GAAP measures mentioned during our call today to the most comparable GAAP measures can be found in Schedule 3 to today's press release, and is available on our website on the Investor Relations tab under the link to press releases.

Thank you, and I would now like to turn the call over to Rich Friedman. Rich?

Thank you Lisa. Good morning and thank you for joining us today.

We are pleased with our operating performance, financial results, and the steady progress we are making. On a comparative basis, excluding the effect of the previously terminated CAP and UHG organ transplant and HIV programs, year-over-year revenues increased 8%. Gross margins for the second quarter increased to 11.7%, and for the six months, 11.4%.

Operating expenses were inline with our forecast at approximately $31.6 million. EPS increased to $0.11 per diluted share. Our liquidity continues to improve, and average bank debt continues to decline.

The management of the chronically ill consisting of education, access, adherence, compliance, and retention is the driving force behind BioScrip. Our vision to become the premier clinical specialty manager of the chronically ill is beginning to bear fruit.

Our strategy of developing the continuum of care model is the right model. Our clinical expertise continues to improve. Combined with our high touch state-of-the-art dispensing sites including community specialty pharmacies, infusion pharmacies, and mail facilities provide our patients with the resources required to manage their chronic conditions.

We continue to improve our technology driven partner collaboration tools which provide our managed care clients, physicians, and pharma partners with the clinical data support they desire and need to realize better therapy outcomes.

We aim to improve the system by which specialty pharmacy care is delivered, lowering costs, improving quality of life. This overall strategy provides a cost-effective management solution for payers and physicians while providing critical medical data for manufacturers.

Stan will now review the second quarter financials, and then Rick will review our second quarter operating performance along with our goals and objectives for the balance of 2009. Stan.

Thank you Rich, and good morning.

Today we announced second quarter net income of $4.4 million, or $0.11 per share on revenues of $328.7 million. These results compared to a net income of $1.6 million, or $0.04 per share on revenues of $348.4 million for the second quarter of 2008. EBITDAO was $7 million for the second quarter of 2009 compared to $5.9 million for the same period a year ago.

Let me share some of the highlights of the second quarter. Allowing for the loss of the CAP program and the HIV organ transplant programs with United Healthcare Group, revenues increased 8% over the same period a year ago. This increase was primarily due to a greater number of patients served within the Company's oncology, multiple sclerosis, and immunology therapies.

Gross profit for the second quarter of 2009 was $38.4 million compared to $35.7 million for the second quarter of 2008. Reported second quarter 2009 gross margin was 11.7% compared to 10.3% in the second quarter of 2008. Increase in gross margin the second quarter of 2009 was the result of improved product mix, the elimination of lower margin business, and improved purchasing. Excluding the impact of the terminated contracts, the gross margin for the second quarter of 2008 would have been 11.3%.

Operating expenses increased 2.6% to $33.2 million. Our ongoing effort to reduce fixed costs were offset by higher variable costs and bad debt expense returning to normalized levels. Operating profit was $5.2 million compared to $3.4 million last year. EBITDAO increased 18.7% to $7 million for the second quarter of 2009.

Our interest expense continues to decline due to lower average borrowing as well as improved rates over prior years. For the six months ended June 30, we reported net income of $7.7 million, or $0.20 per share on revenues of $654.5 million. These results compare to a net income of $1.1 million, or $0.03 per share on revenues of $675.9 million for 2008. Again, without CAP and United, our sales growth would have been 7.2%.

EBITDAO was $13.2 million for the 2009 six month period, an increase of 53% over last year's reported EBITDAO of $8.6 million. Our 2009 reported gross margin increased to 11.4%. Increase in gross margin for the year was the result of improved product mix, the elimination of lower margin business, and improved purchasing. Excluding the impact of the terminating contracts, the gross margin for the six month period of 2009 and 2008 was 11.5% and 11.1% respectively.

Our year-to-date operating expenses remain essentially unchanged over the comparable period of 2008. Operating profit for the six months ended June 30 was $9.5 million compared to $3.6 million last year. Our effective tax rate for the quarter, six month period was 7.9% and 9.3% respectively as the result of the expected utilization of net operating losses which were previously reserved, and the reduction of our amortization of indefinite-lived assets commonly referred to as (inaudible) credit. Determining our 2009 tax rate, we suggest you use 6% state income tax provision in addition to the annual $800,000 amortization (inaudible) credit.

Let's turn now to liquidity and capital resources. At June 30 our borrowings under our credit facility were approximately $33 million. This represents an improvement of $3 million this quarter. As of June 30, our borrowings have declined $17.3 million from December 31. Our average outstanding debt in the quarter dropped $5.1 million to $27.8 million. Reduction in average outstanding debt is due to improved operating performance, the collection of accounts receivable, partially offset by investments in inventory. We continue to remain focused on strengthening our balance sheet and improving our liquidity.

With regard to our systems enhancements, we are pleased to have completed the implementation of 12 stores and continue to move forward. We have also now included a new partner collaborative tool to improve the coordination of patient care. We believe that this tool is critical in our current environment in order to achieve our strategic goal as the leader in specialty care management. As a result, we have adjusted our implementation timetable to the end of the year.

As for guidance, for the remainder of 2009 use the second quarter as a base with a 2% to 3% sequential sales growth. I will now turn the call over to Rick.

Thank you Stan. As we have previously stated, 2009 is focused on generating a higher quality of revenue and operating income for our business. This objective will be met by successfully positioning our company for expansion of our national reach and local presence. We have established an aggressive agenda this year, and we are making good progress on our priorities.

Currently we are in the process of establishing the foundation for clinical excellence in all that we do. We are investing in the technology solutions and business models that we believe will provide a competitive edge in the marketplace.

During the second quarter, our focus on delivering the full continuum of care model through clinical management of infusion, injectable, and oral technologies is providing growth opportunities. We have seen the value of our high touch clinical model consistently validated.

The second quarter results continue to demonstrate excellent growth in key programs on a year-over-year basis. Our oncology, immunology, and multiple sclerosis revenue grew double-digits year-over-year with our oncology category recording a 54% revenue growth. To continue to build on this success, we are in the process of doubling the size of our field based physicians sales force from 15 to 30 account managers. We have also recently restructured our managed care sales team.

Both of these initiatives are expected to lead to higher levels of new patients coming on service in future periods. These investments will be monitored with a self-funding sales generation model with expectation of a very fast payback and a strong return on our investments.

As we stated on our last call, we began analyzing all of our relationships in order to identify opportunities to expand our revenue and clinical models. We continue to work on our expansion plans and location strategy for our community specialty pharmacy footprints, our infusion pharmacies, and ambulatory treatment care locations.

As first discussed in February, we believe that establishing a national footprint of our community specialty pharmacies complemented by adjacent infusion pharmacies would provide excellent growth opportunities for us. By focusing on home infusion expansion, we believe that we could achieve our goal of generating a higher quality of revenue with an opportunity to improve both our gross and operating margins.

In order to be successful within accretive expansion strategy, we stated that we needed to have a very payback on any investment in a new market. One way to accomplish our goal successfully and cost-effectively is to have access to managed care lives through contracts in all markets where we are looking to expand.

On our last call, we stated that we are increasing our managed care contracting focus through both preexisting and new relationships where we believe we could get access to lives and markets to support our expansion. Our initial efforts have been successful.

In the second quarter, we were able to expand an existing home infusion relationship with United Healthcare. As such, I am very pleased that we have been added to the panel of national providers for all United Healthcare plans allowing us the opportunity to serve all United members in all markets.

In addition, we have strengthened our clinical management reach and local presence. We are now able to provide infusion services to chronic patients on a national basis, and we now have acute infusion compounding capacity in 21 markets, up from four just six months ago. We have established national nursing coverage to serve United's members and other important customers, and are working very hard to expand nursing licensure in additional markets.

Unlike the HIV and transplant contract that terminated earlier this year, this contract does not guarantee revenue flow to us. We need to win business in each market against the other local and national providers. We view this as an excellent opportunity to grow patient census in all our markets however, by now providing all technologies, infusion, orals, and injectables.

Our pharma relations remain strong and we're optimistic about the prospects of new biotech products coming to market this year. We look forward to the coming quarters as we have many important initiatives in process that we believe will continue to lead to revenue growth, increased levels of operating income, and higher levels of operating cash flow.

I will now turn the call back to Rich.

Thank you, Rick. The healthcare debate has focused attention on the management of the chronically ill, as well as prevention of rehospitalizations as ways to control cost and improve quality of life. We are excited about the future of BioScrip and its role in improving outcomes while controlling and reducing overall costs.

We will now open up the lines for questions. Operator.

Thank you. Ladies and gentlemen, (Operator Instructions). Our first question comes from the line of Mike Petusky from Noble Research. Please go ahead with your question.

Good morning guys and excellent quarter. A couple housekeeping, if you mentioned it I didn't catch it. Did you guys breakout the revenue between the PBM and the Specialty?

No we did not.

Could you do that Stan?

I can. For the quarter, the Specialty Services was $275,461,000, and for PBM services $53,288,000.

Okay, all right, great. And Stan, actually while I've got you there, in terms of your prepared comments, did I hear you say that the IT transition essentially now is targeted for yearend as opposed to end of third quarter? Did I catch that right?

You did.

Okay. Can you guys elaborate on that? I mean, not that's it the end of the world, but just what's going on there in terms of push out.

Yeah, Mike, this is Rick. We really have been evaluating the functionality, and also with respect to the partner collaboration tools that Rich had mentioned in his prepared comments, we are investing some additional time to put this and incorporate it into the system rollout.

So we put 12 stores in during the quarter, and we're doing some additional work on the partner collaboration tool, and some refinement of our care management tools that we believe are critical to continuing to sell our solutions into the marketplace. So we'll begin to -- the rollout, again, in Q3, and are just looking to then accelerate the opportunities to get this in by yearend.

Mike, one of the points, Rich, the 12 stores that we've implemented are performing exactly to the specifications that we wanted. So this is not a question of us being unhappy at all with the software, the implementation, and the functionality of the program.

What we have realized as we've moved forward in the collaboration in the management of the chronically ill and providing the education and partnering with physicians and managed care, is that we wanted greater technology and visibility and transparency back to our healthcare partners.

So what we've done is we've kind of taken the resources, wanted to enhance the tools that are already existing, to provide greater management and flexibility for us. That is the only reason, had nothing to do with anything else.

Okay, that was actually where I was going to go next. So I should take away -- there hasn't been any business disruptions or unhappy clients? Essentially you guys are on track and this thing is -- ?

Yeah, we've all gone through in previous lives and everything else, system enhancements and system changes. It's an ongoing process, and as we were doing this, we just realized that there were other enhancements we could do to make BioScrip a much greater visibility player in this space.

All right, and then just a quick clarification. Stan, you also in your prepared remarks, and you were just talking faster than I could take this down, did you say for the remainder of the year you expect sequential revenue growth? The sequential quarterly revenue growth. Did I catch that right, or -- ?

Mike, you did, 2% to 3%.

2% to 3%, okay.

Quarterly.

All right, I'll let somebody else have a shot at you guys. Nice job.

Thank you Mike.

Thank you. (Operator Instructions). Our next question comes from the line of Brooks O'Neil from Dougherty & Company. Please go ahead.

Good morning and congratulations on a terrific quarter guys. I am particularly encouraged by the margin improvement you're showing, and that's where I wanted to start off.

I think in the past you've suggested that 11% gross margin was kind of the upper end of what we should expect. Do you think that's still the most realistic target, or do you think it would be realistic to maybe expect a little bit higher number in light of the 11.7% you did this quarter?

I think what you look at Brooks going -- and thank you. We had a long debate on this last evening. We believe that the range of where we are for six months is something that you should be utilizing for model going forward.

That makes a lot of sense to me, so that's great. Secondly I guess, I think I heard Stan say that the operating expenses were basically flat, and I think in the past you've talked about the potential for several million dollars of cost savings. I'm just curious how you're thinking about that today?

Absolutely, Brooks, good morning. We continue to look for opportunities to remove fixed costs from our business and continue to do that, and we believe that we are on track as we had said in the past to eliminate those expenses.

Nevertheless, there are variable expenses that come up during the course of operations. Among these would be variable expenses as it relates to compensation, selling expense, as well as returning our bad debts returning to normalized levels. So we continue to take out fixed costs, but there are variable expenses that we will incur.

And Brooks, one other thing. As were pointed out in Rick's comments, we will be seeing somewhat of an investment in the sales force going forward, but --

Yeah.

That will be a very quick return. You're not going to see significant increases, but what we have proven with what we're doing is those feet on the ground make a lot of sense to us.

Sure, and that makes a ton of sense to me as well. Rick mentioned a relatively incredible, I guess I'd say, expansion in the infusion capabilities which I'm very excited about. I'm just, number one, I guess I want to confirm that I heard him say four sites to 21 sites, and number two, maybe he can just elaborate a little bit on how that's been accomplished.

It was four -- we have 21 compounding facilities that we have access to in the market. We essentially have made that possible through existing resources. And in the prior call we mentioned that our focus was on taking advantage of a variable cost model to give us the coverage we needed, and so we've identified some existing resources in the markets in which we do business to cover the services we need.

We also have focused in on the other opportunities given the national nursing coverage, and we're identifying resources that are available, again, on a variable cost basis to provide the coverage we need to bring the pull through in on this contract.

That's great. Should we expect that -- those capabilities to continue to expand, Rick?

Our goal is to be opportunistic. We have some retooling to do of some of our existing community specialty pharmacies where we've put some infusion investments already, and we're going to expand those capabilities from where they were. We also have some additional community pharmacy locations that we've identified have some existing capacity to convert them and add the infusion capability for that market coverage.

So we are looking at the lives in each of our markets and essentially prioritizing where the larger populations are to increase the pull through on this account.

Great. I'm just curious, obviously the soft economy has impacted some payers and some patients, and maybe Stan, could you comment if you're seeing any issues with payers, either managed care plans, individuals, or other entities like the States with regard to staying current with their obligations to you or whatever.

Well, as you saw, our receivables have come down nicely quarter-to-quarter.

Right.

Nevertheless, we are seeing that States have slowed down. California obviously being the number one that, you know, sending Arnie's out instead US dollars, but we have started to receive money from them. We have received money from the State of Illinois, and those are our two biggest Medicaid states.

Great, okay, thanks a lot. Congratulations again on a terrific quarter.

Thank you.

Thank you, I'm showing no further questions from the phone lines at this time.

Great. We appreciate everybody joining us today. We look forward in BioScrip's role in healthcare going forward, and we will continue to update you on any important events. Thank you again.

Thank you. 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 line. Thank you, and have a good day.