Option Care Health Inc (OPCH) 2013 Q2 法說會逐字稿

Ladies and gentlemen. Thank you for standing by. Welcome to the BioScrip 2013 second quarter 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 August 8th, 2013. I would now like to turn the conference over to Lisa Wilson. Please go ahead, ma'am.

Good morning, and thank you for joining us today. By now you should have received a copy of our press release issued yesterday after the close of market. If you have not received it, you may access it through the Investor Relations section at our website. Rick Smith, President and Chief Executive Officer, and Hai Tran, Chief Financial Officer, will host this morning's call. The call may also be accessed through our website at Bioscrip.com. A replay will be available shortly after the call, and will remain available for a period of two weeks. Interested parties can access the replay by dialing 800-633-8284 in the US and 402-977-9140 internationally, and entering access code 21669105. An audio webcast will also be available for 30 days following the call under the Investor Relations section of the BioScrip website at bioscrip.com.

Before we get started, I would like to remind everyone that any forward-looking statements made during the call are protected under the Safe Harbor of the Private Securities Litigation and Reform Act. Such forward-looking statements are based upon current expectations, and there can be no assurance that the results contemplated in these statements will be realized. Actual results may differ materially from such statements due to a number of factors and risks, some of which are identified in our press release, and our annual and quarterly reports filed with the SEC.

These forward-looking statements are based on information available to BioScrip today, and the Company assumes no obligation to update statements as circumstances change. During this presentation we will refer to non-GAAP financial measures, such as EBITDA, adjusted EBITDA and adjusted earnings per diluted share, a reconciliation of such measure to the most comparable GAAP financial measure is contained in our press release issued yesterday after the close of market, which can be obtained from our website at Bioscrip.com.

And now I would like to turn the call over to Rick Smith. Please go ahead.

Thank you Lisa. Good morning everyone, thank you for joining our call today. The second quarter reflects another quarter of continued progress and executing on our strategic plan in the infusion segment. We posted strong double-digit organic growth in the quarter, and we continue to see our sales programs produce improved results. We also generated significant infusion growth, both on a sequential and year-over-over basis, and made continued progress integrating our acquisitions and opening up our de novo locations in several moments. I want to begin by restating our expectations of performance as we have been building our infusion platform. First, we expected we could achieve double-digit organic growth and we achieved it again. We also stated that we expected to take advantage of opportunistic acquisitions. We have done so successfully with InfuScience, HomeChoice Partners, and soon, CarePoint Partners.

We expected that the execution of our plan would result in margin expansion and operating leverage. Both trends this quarter showed good progress toward our longer term target. Finally, we indicated we are striving to build a national infusion footprint by the end of 2013, and on track to do so. Our robust acquisition pipeline indicates that we can achieve this target. We continue to make the progress as planned, and we expect it to accelerate in the second half of the year.

Infusion revenue was up $156.2 million up 40.7% over last year, demonstrating strong organic growth coupled with the acquired businesses. For reference our reported organic growth was over 15%. However, you may recall that in Q2 of 2012, we had agreed to continue servicing patients that had been handled by a discontinued business, as part of the transitional services rendered on behalf of key customers. The revenue reported in the second quarter of 2012 included patient service revenue related to these transitional services and approximated $6.5 million. Post-closing we transferred those patients to new providers as directed. Adjusting for this transitional revenue, our revenue growth year-over-over in Q2 was over 20%.

Additionally we have instituted programs to manage our risk, in order to minimize unprofitable and low margin therapy. There was also $9.2 million of revenue from the first quarter from the seasonal drug Synagis, and only $250,000 in the second quarter. We expect to service parents under this therapy in the fourth quarter when the season returns. Thus the sequential growth from Q1 to Q2 was strong, and driven in part by growth in the core therapies. This improvement in patient mix helped to contribute positively to our sequential margin improvement in the quarter as well. We witnessed strong revenue and earnings growth from the InfuScience platform, and we are beginning to see contributions from HomeChoice Partners.

The actions we have taken over the last year have driven the increase for the Infusion segment adjusted EBITDA to $14.2 million, an increase from $12.3 million on a sequential basis, and from $8 million on a year-over-over basis. We are also preparing for the CarePoint Partners program, which is expected during the third quarter. Our mutual teams have been working diligently on various aspects required for closing. This includes integration planning with respect to local markets, in order to welcome the CarePoint employees and patients into the BioScrip family of companies upon closing. Based on early success of InfuScience and HomeChoice Partners integrations, we expect to build momentum and overlapping in new markets from day one.

We further anticipate that the momentum from our expanding platform will continue to build throughout the second half of the year, positioning us well as we enter 2014 with opportunity to increase market share. We anticipate we will finish building out our Infusion footprint by the end of 2013, particularly in those markets where we are targeting to have a physical presence. As we have consistently stated, we believe we are well-positioned competitively to remain focused on core areas of growth, and we expect opportunities for sustainable upside to continue to be strong for BioScrip.

In our Home Health segment, we have been aligning this platform with our infusion offerings, to build our transitional care management model, which has yielded positive results in assisting hospitals to reduce readmissions. We have had great success with these programs to-date on behalf of our hospital partners. For all patients managed in this program under the pilot, we have reduced the number of readmissions during the first 30 days by 25%, compared to the national average. For heart failure patients we reduced readmissions by 35% compared to the natural average. We will be entering into additional pilots by Q3, and expect this model to also drive infusion revenue.

Turning to our PBM segment you may recall that this is one of the original legacy BioScrip businesses. We made a conscious discussion to harvest the cash flow contribution, in order to fund the transition to the Infusion expansion plan. This quarter revenue declined from Q1 to Q2 by $10.4 million. Of this amount $9.1 million is related to a low margin funded business client we terminated on March 31, 2013, and the remaining amount was related to lower cash card utilization. In addition, this business is reliant on our marketing efforts of our broker network. During the quarter certain of our existing brokers reduced or delayed their marketing spend, which resulted in reduced sales and profit contribution impacting this segment's perfection.

Nevertheless, the cash flow from this segment has helped us fund investments in our de novo location, a stronger IT infrastructure to support the growth of our infusion network, the creation of a transitional care software solution we now offer in the marketplace, and establishing the corporate development resources needed the execute on the acquisition pipeline that is building our national footprint. We expect the PBM segment will over time represent a lower percentage of the Company, as the Infusion segment continues to grow and expand. We believe that the healthcare reform will continue to provide a market for the discount card business, as represented by a number of recent transactions in this space by strategic players in the industry.

We also continued to see utilization of discount cards, as well as interest from patients and new distribution partners. Looking to the balance for the year, we are excited and have significant momentum in place for our core Infusion business. We will carefully monitor the progress of our acquisition integration, we will also evaluate and continue to pursue our deep pipeline of opportunities. We are building a Company that we believe will continue to execute, and take the requisite steps to become the industry leader. Our plans are on track for continued growth and we look forward to reporting on our progress. With that, I will turn it over to Hai.

Thanks Rick. Good morning everyone. As a reminder, before we review our second quarter 2013 financial performance, we report the following three segments, Infusion services, Home Health services and PBM Services. In addition, the financial statements reflect continuingversus discontinued operations classifications for all periods presented. Therefore in reviewing our financial performance, we will focus primarily on the continuing operations. We will continue to report adjusted earnings per diluted share, which take into account the same elements in calculating adjusted EBITDA, and also adjust for the impact of acquisition related tangible amortization, as noted in our press release.

With that, the second quarter of 2013 we reported revenue of $190.7 million, compared to $155.9 million in the prior year period, an increase of $34.8 million or 22.3%. Infusion services segmentrevenue increased 40.7%, or $45.2 million partly as a result of continued organic growth, and revenue related to our InfuScience and HomeChoice Partners acquisitions. Excluding theimpact of the acquisitions, organic volume growth in the Infusion Services segment accounted for $17 million of the $45.2 million in revenue increase, or a 15.3% gain over the same period last year. This growth was net of the previously discussed initiative to divert low margin volume to certain partners, which is part of our overall strategy to expand margin.

Additionally as Rick mentioned, the sequential infusion revenue trend reflected seasonality in the business, as there was $9 million of seasonal Synagis therapy in the first quarter, that does not recur in the second or third quarters of the year. The remaining change in revenue stems from an 8.1% increase in the Home Health Services segment, resulting from growth in volume of private duty nursing activity, offset by a decline in PBM services segment revenue of $11.7 million, due primarily to the previously disclosed contract termination of a low margin funded PBM Services client on March 31, and a decrease in discount card volume.

Gross profit was $65 million compared to $53 million for the same period in 2012, an increase of $12 million, or 22.6%. Gross profit as a percentage of revenue was 34.1%, and 34% for the quarters ended June 30, 2013 and 2012 respectively. Consolidated gross profit margin percentage was impacted by mix of business as the Infusion services segment has grown more quickly than the higher margin PBM Services segment. Additionally the Infusion Services gross profit margin increased by 2 percentage points from the prior year, and the PBM Services segment gross profit margin increased by 15.6 percentage points from the prior year. The improvement in gross profit margin percentage in the Infusion Services segment resulted primarily from an improved shift in therapy mix, as well as the impact of the acquisitions. The improvement in the gross profit margin percentage in the PBM Services segment was primarily due to the departure of the one low margin client in the [funds] business.

SG&A for the second quarter was $56 million, an increase of $11.9 million over the prior year. SG&A for the second quarter as a percentage of total revenue was 29.4% compared to 28.3% of total revenue in 2012. The increase in SG&A was primarily due to the consolidation of our acquisitions, and continued investments in the growth of the Infusion business, as well as the increase in stock compensation as a result of the increase in the stock price.

Total operating expense increased from $50.3 million in the second quarter of 2012 to $56.3 million in the current quarter, a $16 million increase. The increase in operating expenses for the second quarter 2013 was driven primarily by growth in SG&A, and an increase of $2.9 million of acquisition and integration expenses over the same period last year.

Interest expense in the second quarter 2013 was $6.5 million as compared to $6.6 million reported for the prior year. The Company reported a loss from continued operations net of income taxes of $8.3 million for the quarter, compared to a loss of $4.3 million in the prior year. Loss from discontinued operations net of income taxes was $600,000 in 2013, compared to an income of $76.1 million in 2012.

Consolidated net loss for the quarter was $8.9 million, or $0.14 per diluted share, compared to net income of $71.8 million, or $1.29 per diluted share. BioScrip reported adjusted EBITDA from continued operations of $12.1 million, compared to $9 million in the prior year, a 34.4% increase. The performance in the quarter reflects robust growth in the Infusion business offset by lower than expected performance in other segments, primarily associated with the PBM business.

Of note, we continue to see meaningful progress in our Infusion focused growth strategy, as we are beginning to demonstrate not only sustained revenue growth, but also margin expansion and operating leverage. This can be seen in the second quarter of 2013 as the Infusion services segment adjusted EBITDA was $14.2 million, or 9.1% of segment revenue, compared to $8 million, or 7.2% of segment revenue in the prior year, a 190 basis point improvement. Additionally although Infusion Services segments increased 76.8% year-over-over inclusive of the acquisitions, corporate overhead only increased 25.9% during the same period. On a sequential basis Infusion Services segment adjusted EBITDA margin increased 110 basis points.

Turning to cash flows, BioScrip used $20.8 million in net cash and continuing operating activities, compared to $42.8 million generated from operating activities during the first six months of 2012. Cash flow from operations during the 2013 period was primarily impacted by the acquisition of HomeChoice. Cash flowfrom operations during the 2012 period was primarily impacted by the collection of Accounts Receivable retained after the pharmacy services asset sale, net of accounts payable paid related to those businesses, as well as the impact of acquisitions. The Company's cash balance at the end of the second quarter was $81.6 million. There was no outstanding borrowings under the revolving credit facility as of June 30, 2013 or 2012. In April 2013 the Company raised net proceeds of $118.6 million from a public offering of its common stock, and used part of these net proceeds to pay down outstanding amounts under its revolving credit facility. In July of 2013, we also entered into a new $475 million senior credit facility, comprised of a $75 million revolving credit facility, a $250 million senior secured term loan B, and a $150 million secured delayed draw term loan B. In conjunction with the new credit facilities, the Company has initiated the redemption of the 10.25% senior notes.

Turning to the outlook, as indicated in our release, we believe that our 2013 revenue will be in the range of $830 million to $865 million. Our 2013 adjusted EBITDA will be in the range of $67 million to $73 million. This revenue and adjusted EBITDA range assumes the base business will be at the lower end of the original adjusted EBITDA guidance, which reflects the current assessment for the PBM segment, and further includes the estimated contribution from the CarePoint Partners acquisition. This assumes that the CarePoint transaction will close in the third quarter of 2013.

The performance of the Infusion business in the second half of the year will be driven by continued initiatives to drive improved therapy mix, and expand margins, to continue to deliver double-digit organic growth, to generate improved operating leverage by scaling to the enterprise, and to achieve the expected synergies from the HomeChoice acquisition. As Rick mentioned at the beginning of his remarks, we are encouraged with the progress we are making with regards to executing on our Infusion focused strategy. This progress is evidenced by the positive indicators for double-digit organic growth, efficient integration of opportunistic acquisitions, margin expansion, and operating leverage.

With that, I will turn the call back to Rick.

Thank you Hai. Operator, we will open the line up for questions, please.

Thank you. (Operator Instructions) Our first question comes from the line of David MacDonald with SunTrust. Please go ahead with your question.

Good morning guys. Just a quick question on the Infusion margins. If I look sequentially year-over-over, whatever, the margins continue to look very strong, and I realize sequentially at least you likely got a margin pickup just because of synergies rolling off. Can you talk in a little bit more detail some of the things that you guys are doing to manage therapy mix. You touched on it briefly, but can you give a little more detail there, and anything that you are doing on the sales and marketing side, to help drive business in some of the higher margin therapies?

Good morning David, it is Rick. As we mentioned in Q1, we have invested in some additional sales assets. But the significant amount offocus continues to be on the core therapies that require the highest level of clinical management and nursing services. And so we saw actually in Q2 so far, the highest level of new patient starts per day in those core therapies, and we are very much encouraged by a lot of the success we have been having with our referral sources, with our clinical programs in the marketplace. That investment took place over the last 1.5 to 2 years, as we have talked about our Center of Excellence, and the training that has occurred with all of our employees. We have seen a greater collaboration between our sales and operations teams, in terms of getting patients started, turned around faster, and service levels continue to improve. So I think that those different areas of progress and improvement drove some strong margin mix for us in the second quarter.

And clearly our incentive compensation plans are geared towards driving core therapies, David, and we have made investments and structurally speaking around what we call strategic business units, which are effectively an overlay team, that work with our sales resources, specifically drive volume in key core therapies for us.

And then Rick, just quickly in your prepared comments you talked a little bit about, you remain confident you will build out the Infusion platform by the end of 2013. With what you guys have done kind of organically around de novos or whatever, and also the acquisitions, what else are we talking about in terms of between now and year end? Will there be some additional, will you guys look to do some onesies and twosies on the strategic side, will there be additional de novo activity. What is some of the additional filling in that we should expect?

As we have mentioned on other calls, our preference, David, acquisitions where possible. Because in terms of getting to market quickly, it really does give us a jump start. I think the de novo activity should not look for that to really accelerate, but with regard to the acquisitions, I think that our pipelines remain very robust. I think that similar to last quarter when we talked about the fact that we have got a good mix in our pipeline of larger and smaller, medium to smaller opportunities, I think that the same dynamics still hold today. I think that clearly we have been very successful with taking some of the larger assets off of the market. The number of larger assets, there are just less of them out there. But there are still some very meaningful opportunities for us to pursue.

And I would assume that just given the size of the CarePoint transaction we should be expecting more bite-size types of transactions over the next quarter or two?

Yes, the answer is, it depends, right. We can't always control the timing of the opportunity. With that said we are committed to ensuring that we are balancing the ability to pursue opportunities with execution risks related to the opportunities that we already have in hand. We want to make sure that we are well under way in terms of integration of our acquisitions before we pursue the next opportunity. And so, harking back to when we announced the CarePoint acquisition, we pursued CarePoint, announced that acquisition, because we felt very good about the integration of HomeChoice and how that was proceeding, and I think that to the extent that you see us make an announcement about the next acquisition, and if it is meaningful in size, it is an indicator that we feel very good about the integration of CarePoint.

Okay. And the last question, guys, if you look at the Company now as opposed to whee it was even 12 months ago, especially once CarePoint comes in, there is significantly more bulk. Can you talk about areas that are becoming increasingly obvious, in terms of improved leverage, whether that is purchasing, whether that is the ability to centralize some services, et cetera. Can you just talk about areas we should be thinking about, that are kind of no brainers from a leverage standpoint and an improved profitability standpoint?

We are already under way relative to that. As you mentioned, as part of the HomeChoice acquisition and looking ahead to CarePoint, we have taken the steps to start to regionalize and centralize different levels of service function, clinical management, even reimbursement functions, that will potentially take shape in a stronger way in the second half of the year and into 2014. Looking at the purchasing synergies, we are seeing increasing opportunities given the increased leverage that we would have today, as well as anticipated with the CarePoint acquisition. The scale and concentration in some of our therapies that we are driving, enable us to have some strong meaningful discussions with our manufacturing partners, to drive some opportunities for further restatements down the road.

And, of course, there are always opportunities to generate some meaningful operating leverage off of our corporate overhead. As I indicated in my prepared remarks, the Infusion EBITDA, segment EBITDA has grown almost 77% year-over-over, yet the corporate overhead has only grown by 26%. That to me is the very definition of operating leverage.

Okay. Thanks, guys.

Thank you.

Thanks.

Our next question comes from the line of Brian Tanquilut with Jefferies. Please go ahead with your question.

Hi, I just wanted to hear your thoughts, Rick as well, how you view the PBM business right now? Obviously we have seen some weakness there. I wanted to see if that is something that is under evaluation, given the focus of your core Infusion business?

I think, Brian, this is a business as I stated. We have said it all along that it is a business, and as I mentioned in my prepared remarks, we have used that cash flow to really strengthen the infrastructure and invest in the transition, bridge the transition to the Infusion platform, and the growth of the establishment. So it has funded a significant amount of opportunities to create an IT infrastructure that is now strengthened given that CarePoint is coming on board, that we have been able to take those opportunities. As I said in my prepared remarks, there is a market for this strategically. If we think down the road that this could be better served in someone else's hands, we have seen recent transactions from strategic players of movement just in this last quarter. Those are always options for us down the road, as we look at essentially the appropriate times to focus 100% on the strategic direction of our Company.

And then just on the margins in the core Infusion business, you have done a great job ramping it up, and you talked about the different things that you are doing to improve margins. As we look three years down the road, how should we be thinking about, I don't want to say peak margins, but where do you think you can bring those margins for the Infusion segment?

Clearly I think we can, we are at 9.1% now. Nice growth year-over-over. There is nothing that precludes us from getting into the low double-digits.

Okay. How should I think seasonality for the back end of the year?

I think one of the, as we think about how we are going to get to the numbers in the second half of the year, I think that we tried to outline that in our guidance, the one thing that we didn't outline is that seasonally speaking the fourth quarter is always the strongest quarter in the Infusion business, not only because of seasonal drugs like Synagis coming back into play, but we have other dynamics like home for the holidays, which is always a big push to get patients out of the institutional care setting, the acute setting and back into the home. So that drives some meaningful significant volume that will help create what I will call natural lift, in the absence of anything else.

And last question, I don't know if you mentioned this, what is the interest rate on your new credit facilities?

You should probably model it about 6.5%, where it is today. The spread to LIBOR is about 525 basis points. But you have got LIBOR for 125, so 6.5% is a good rate to model. And the way to think about interest expense in general, is just a couple of things, since you brought up the subject here Brian, is that we have saved some meaningful interest expense off of our note, so to speak. That is offset by the fact that we will be taking on more debt as part of the acquisition of CarePoint, right. So my best estimate for where third quarter interest expense will come in is probably about $7.5 million, and that is not just the cash portion, but that is inclusive of the amortization and the deferred financial costs associated with the transaction, right.

And on a going forward basis our fourth quarter $7.6 million isprobably a good quarterly number assuming our current trend, so to speak. The other thing I highlighted, you will see a one-time loss on the early extinguishment of debt. Because from an accounting perspective that is a non-recurring one-time item, you see it as a separate line item in the third quarter. And the components of that are things like, paying off any remaining fees on our old revolver, the tender offer for consideration and set payments, call premiums, and the write-off of any deferred financing costs. And our currentestimate of that is going to be about $15 million in total for all of those components, and so one-time non-recurring line items that you will see in the third quarter.

Alright, got it. Thanks guys.

Thank you.

Our next question comes from the line of Dana Hambly with Stephens. Please go ahead with your questions.

Good morning, thanks. Just on the core and the chronic mix, I am sure you don't want to give percentages, but is it a fair assumption that even with the growth in the core, that chronic is still well above 50% of that mix?

Yes. But we are making progress. I think what we saw last year was that in chronic, we were not making much progress to that mix, but what we have been seeing is progress, and part of that as I see and Rick and I both mentioned it, part of it is our own internal efforts to shift the mix, but part of that is the fact that we targeted specifically acquisitions that have a higher mix of core therapy. As we begin to consolidate that, the mix will change.

Great. So plenty of room to go there on improving the mix. And just, Rick, you talk I understand the strategy is to go more core, I am just wondering, you talk about being able to get some of the chronic therapies to some of the partners, why can't you keep that chronic business? Is it unprofitable for you, and that is why you are shifting it, or is it a muddy the waters, take sales eye off the ball, any color around that?

There are certain therapies that it just doesn't make sense for us because of scale and purchasing. There are certain chronic infusions that just the margin are very low, so there are other alliance partners with scale that can take those on, and it may not fit with the clinical programs that we are targeting. So we still are seeing some strong growth in the chronic, in the areas that match nicely with our clinical program. And then there are those, and others that we feel can do a better job, because they have programs focused on it. It really depends on the therapy that comes in, and where our focus is in terms of that long term growth. The kind of service initiatives are ones that will drive the chronic infusion, and with some injectables, but those are the areas that we will go back to that are consistent with some of our other clinical programs, and then there are others that are infusions that are lower margin in some other disease states, that it makes sense for us for the patient to really hand it over to one of our alliance partners.

Okay. That makes sense. Hai, on the proforma capital structure, it is $400 million in debt, right?

That is right.

So you still have about $75 million on a revolver?

That is correct.

Where would your leverage ratio, do they take into account future acquisitions into your EBITDA?

Yes. Obviously for the $400 million of debt you have to proforma, and what the banks have done is proforma in the expected contribution from the CarePoint acquisitions as well. So I think that we are talking between 4 and 5 times at the end of the day right now on a proforma basis. We expect obviously if we continue to grow at double-digits, that leverage, organically that leverage will come down fairly quickly, and I think that is always a bit of a balancing act with us. Rick and I have always said that we are pretty comfortable around the 4 times, we go north of 4 times temporarily for the right opportunities, and CarePoint was the right opportunity for us.

Great. Thank you.

Thank you.

Our next question comes from the line of Matt Weight with Feltl and Company. Please go ahead with your question.

Good morning. With the CarePoint acquisition, how are you sizing up the remaining fragment of the markets? Are you looking at more acquisition targets, like HomeChoice Partners, or is it more similar to an InfuScience?

Like I said, Matt, our pipeline right now is quite diverse, right. There are a number of smaller opportunities that I think are very attractive to us that we will pursue. There are others that are more mid size. There are not many CarePoints left, right, so those take some time to become real opportunities. A few kind of in-between CarePoint and an InfuScience, so it is a bit of a mixed bag.

Okay. And with CarePoint, seeing that you are on the same IT platform, is there an opportunity to accelerate the integration time frame from your 12 to 15 month area?

Absolutely. That is part of the opportunity, right. If we are able to accelerate the integration, then we will be able to garner better performance more quickly.

And are there any revenue synergy opportunities with them, given your national managed care contract?

Yes. We anticipate that we should be able to take advantage of our managed care opportunities back, and they also had some local managed care contracts in the new markets that we are entering into that we did not have. So that will continue to add to the number of lives thatwe have with the contract, and so they have got a very strong presence, a very strong clinical reputation in the markets that they are in. Some of their branches we overlap, and we will increase our concentration in the markets which will even strengthen our position and revenue opportunity, and then we have branches in between some of our branches so the ability to increase concentration in various states with more branches and flags, will enable us to continue to grow and drive some strong momentum we believe.

Okay. And then switching over to the PBM side, I appreciate the color there, what percent of that business is related to the discount card business?

Right now in terms of EBITDA, the vast majority is related to the discount card program. We only have a handful of funded clients left, most of which are very small.

As then as you think the discount card business and the healthcare reform environment, where uninsured levels can be coming down. Can you just comment on, what are the opportunities or risks potentially that could pose to the discount card business?

The risk has been known by investors. The knee jerk reaction is this business is going away, there is going to be universal coverage. But you actually drill down below that initial knee-jerk reaction, and you look at reports out of OMB, you will see even post clinical healthcare reform and universal healthcare, it is estimated to still be over 30 million uninsured. So the market for these cards are not going away. On top of that, when you look at some of the reports, and some of the analysis around discount cards, what you will see is that what folks like managed care and PBMs and planned sponsors have done a good job of over the last decade or so, is cost shift to the beneficiaries or the members or the employees, the cost of their prescription programs. What you really have now is a dynamic, where there is a large and growing number of underinsured, relative to their prescriptions needs, and that I think is where the opportunity is. You are seeing the product evolve to address that. For example, you are seeing things like employers looking to offer up a private label discount card as a supplement to the benefits they are offering to their employees. You are seeing other affinity type programs taking hold, where they are using the card as a way to brand, as a branding tool as well as a way to generate revenues, given their affinity program, to augment their affinity program. So there are lots of ways this card is evolving and being utilized, and I think for those who have transacted over the last quarter, as Rick mentioned, quite a number of large meaningful transactions to acquire businesses that have very large discount card programs, I think that these programs are still ways to address a growing underinsured population.

Thank you. That is all I have.

(Operator Instructions). Our next question comes from the line of Brooks O'Neil with Dougherty and Company. Please go ahead with your question.

Good morning. You obviously changed the guidance for 2013 to reflect the addition of CarePoint. Can you be a little more specific with what your expectations are with regard to the timing of the deal close, and the contribution of CarePoint to your results this year?

Our expectations are to close in the third quarter, given that we are sitting here in August already. Could it go all of the way to the end of September? Potentially, we don't think so. We think there is an opportunity to close early at the end of August or the beginning of September is probably our expectation this morning.

Okay. And then I think you said annualized revenues from CarePoint in the range of $160 million when you announced the acquisition, and I think you said 12 to 14 percentage as to EBITDA margins. Should we sort of prorate that, or assume that the margin is going to be lower obviously during the integration period?

It should be lower during the integration period. Just like what we said with InfuScience, what was said with HomeChoice, we have always talked about an integration period, right. And the guidance we provided were always once fully integrated. During the integration period there is going to be a ramp. And that ramp is mostly because, and I think I went through this on the last call with regard to CarePoint, it takes time to get at some of the synergies.

Okay.

I do not expect the 12% to 14% to occur day one.

Right. Okay. That is good. And thenhistorically you have suggested that 7% to 9% organic growth was sustainably, I think I heard you say double-digits. Obviously there is a pretty big range. I understand the comments Rick made about some of the things that happened last year in 2Q. Can you target in a little bit more what you think the sustainable sort of organic growth rate might be for the business, based on what you are seeing today, and where you are taking the Company?

I think that we have done, and the team has done an extraordinary job of growing the business this year. This year given all of the challenges, the transactions and what not, the fact that we deliver anywhere from 15% to over 20% organic growth, no matter how you slice it. Even the conservative analysis says that we have done minimally the mid-teens, and once you factor out all of the noise, as Rick suggested, over 20% growth. Is that something that would model out over a three to five-year period? No, because at some point the law of large numbers comes into play. But I think that the prevailing winds are very positive for us. Nothing changed this quarter in terms of our thesis around the opportunity in this industry. The movement towards care, ultimate type care, is still as strong as ever. There is still a desire for our payers to look to optimize costs, which is rapidly moving the side of care out of the higher cost institutional setting into the home setting. That is still occurring. There is still rationalization occurring as payers are looking to consolidate to the national platform preferred network. All ofthose things are still happening, and that is what is fueling our growth. Do we think double-digit growth can be achieved on sustainable basis over a multi-year period? Yes. Do we think it is going to be north of 20% over a three to five year period? I would not model that.

Right. That is very, very helpful. I have one more question. When I looked at corporate expenses, not SG&A but corporate expenses in the segment detail, I was modelling for a little lower number by about $1.5 million, I just wanted to try to think about whether there were some unusual expenses, or some investments that might not continue into the back half, or whether that is the number you reported this quarter as something that we should be thinking about for the next couple of quarters?

No, I think there are opportunities for us to reduce that number. That is part of the calculus when we talk about our guidance range, that we have to continue to generate meaningful operating leverage, which is making sure that our overhead costs are rising at significantly lower levels than the EBITDA contribution from our segments.

That is good. Maybe just as a follow-up, I had some sense that maybe there were some systems investments and what not this quarter, that you may have gotten your hands around in terms of positioning the organizational infrastructure where it needs to be to continue to grow, but may not need that level of investment going forward?

Yes. I think that there are a host of opportunities there. Not only in systems, but across all of our corporate departments. Our team, some of whom are listening on this call, are keenly aware of the emphasis we put on controlling costs. And we are holding each and every one of them accountable for delivering on those commitments.

That is good. Okay. Thanks very much.

(Operator Instructions). And there are no further questions over the phone lines at this time.

Great. Thank you everyone for joining our call today. Thank you to all of our BioScrip team for the great care of our patients, and our great results. Thank you very much, everyone. Bye bye.

Bye.

Ladies and gentlemen, that does conclude the conference call for today. Thank you for your participation, and ask that you please disconnect your line.