Bioscrip Inc (BIOS) Q4 2018 Earnings Conference Call Transcript


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Bioscrip Inc  (NASDAQ:BIOS)Q4 2018 Earnings Conference CallMarch 15, 2019, 9:00 a.m. ET

Contents:
Prepared Remarks Questions and Answers Call Participants
Prepared Remarks:

Operator

Greetings and welcome to the Bioscrip and Option Care Merger Transaction call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.


I would now like to turn the call over to Kathryn Stalmack, Senior Vice President and General Counsel for Bioscrip. Please go ahead.

Kathryn M. Stalmack — Senior Vice President and General Counsel

Good morning, and thank you for joining us today. Earlier this morning, Bioscrip jointly announced a definitive merger agreement with Option Care, and announced the Company’s fourth quarter and full year 2018 financial results.

Copies of both press releases along with an investor presentation summering highlights of the definitive merger agreement with Option Care can be found in the Investor Relations section of our website at www.bioscrip.com.


Within two hours of this call’s completion, an audio replay will also be available in the Investor Relations section of Bioscrip’s website. Please note that today’s presentation is neither an offering of securities nor solicitation of a proxy vote. The information discussed today is qualified in its entirety by the registration statement and joint proxy statement, that Bioscrip and Option Care will be filing with the SEC in the future.

Before I get started, I’d like to remind everyone that our comments may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such forward-looking statements are based on current expectations, and there could be no assurance that the results contemplated in these statements will be realized.


Please refer to our press releases, our reports filed with the SEC, where you will find factors that could cause actual results to differ materially from these forward-looking statements. These forward-looking statements are based upon information available to Bioscrip today and the Company assumes no obligation to update statements as circumstances change.

During this presentation, we will refer to adjusted EBITDA, a non-GAAP financial measure. Reconciliation to the most comparable GAAP-financial measure is contained in our press release issued this morning.


Now with me here today, President and chief executive officer, Dan Greenleaf of Bioscrip, who will begin the call with opening remarks about the transaction announced this morning. And then Steve Deitsch, Senior Vice President, Chief Financial Officer and Treasurer of Bioscrip, will provide a brief recap of Bioscrip’s fourth quarter and full year financial results.

Then John Rademacher, Chief Executive Officer of Option Care and Mike Shapiro, Chief Financial Officer of Option Care will provide their remarks on the transaction, and we will leave enough time for Q&A.


All four members of the management will be available to answer your questions. And now I’d like to turn the call over to Dan Greenleaf. Dan?

Daniel E. Greenleaf — President & Chief Executive Officer

Yeah. Hey, thanks, Kathryn, and good morning, everyone and thank you for joining us. I want to draw your attention to slide four. Clearly, it is a very exciting day for all of us. We are absolutely thrilled to have entered into definitive merger agreement with Option Care. This historic transaction will transform each of our respective companies in the entire home infusion industry through their creation of a leading independent provider of home and alternate site infusion services.


Our companies have complementary footprints and the combination creates a well diversified organization with national reach, including approximately 150 locations in 46 states. It also expands our therapies and preferred partnerships with payers, hospital systems, drug and drug manufacturers, allowing us to better serve our patients.

We operate in a highly fragmented market and this transaction gives the combined Company, the capability to serve more patients with cost effective care throughout the US. The highly complementary nature of our respective portfolios will enable the delivery of high quality, cost effective solutions to providers across the country and will position us to provide superior outcomes for patients, payers and providers.


I see a great cultural fit between our two organizations, highlighted by our common emphasis on clinical expertise and successful patient outcomes. Together, we will have more than 2,900 skilled clinicians in a footprint that covers 96% of the US population.

By merging with Option Care, we have the potential to drive significant value for Bioscrip shareholders, through a combined operating model and the realization of clearly identified synergies, along with the refinancing of Bioscrip’s complicated capital structure.

Among the key financial takeaways, the combined Company is projected to deliver 2018 pro forma annual revenue of more than $2.6 billion, annual run rate cost synergies of at least $60 million within two years. Pro forma adjusted 2018 EBITDA exceeding $200 million, including synergies, a pro forma debt to EBITDA leverage ratio of approximately 6 times, providing greater flexibility for the Company to grow.


With a simplified capital structure, multiple growth opportunities and achievable run rate cost synergies, the combined Company should be able to deliver — delever, excuse me, while pursuing a balanced capital allocation strategy, which will include market making the appropriate investments to achieve sustainable growth and shareholder value appreciation.

As one of the largest providers of home and alternate site infusion solutions in the United States, the combined Companies will be a pure play of scale. We believe it will offer investors a compelling way to participate in the attractive and growing home and alternate site infusion market.


Option Care’s CEO John Rademacher will become the CEO of the combined Companies, and Option Care’s, Chief Financial Officer, Mike Shapiro will become the CFO of the combined Companies.

John and Mike are accomplished healthcare professionals with significant healthcare leadership experience. I will be staying with the Company as an advisor to combined Companies’ Board of Directors.

John has held various executive level positions at leading public healthcare companies, including Cardinal Health, where he served as President and General Manager for both the ambulatory care division and the nuclear and pharmacy services division. And at Cigna Corporation, where he served as President of CareAllies and Chief Operating Officer for the CIGNA Behavioral Health business.


Mike served as a Senior Vice President and Chief Financial Officer for Catamaran Corporation. A publicly traded pharmacy benefits manager and led a successful process through which the company was sold to United Healthcare Group. He also had

a long-standing career with Baxter International, holding several financial positions across several business and corporate functions. Having to got to know John and Mike better, the last several months, I’m highly confident that in working with them together, we will take the combined Company to the next level.


In short this is a great fit. We are joining two strong high-performing companies with track records of growth and success. From this position of strength, the two companies coming together are positioned to grow at even a greater rate.

I am now pleased to turn the floor over to Steve Deitsch, Chief Financial Officer, who will provide an overview of our fourth quarter and full year 2018 results. Steve?

Steve Deitsch — Senior Vice President Chief Financial Officer & Treasurer

Thank you, Dan, and good morning, everyone. I am also very excited about this transformative and historic transaction we announced with Option Care this morning. Before we discuss the transaction further, I will provide a brief overview of BioScrip’s fourth quarter and full year 2018 financial results, which were released this morning.


Fourth quarter net revenue grew 7.8% on a comparable basis to the fourth quarter of 2017. During the fourth quarter of 2018, the Company recorded a bad debt adjustment of $7.5 million based upon trends in cash collections. The bad debt adjustment reduced net revenue and adjusted EBITDA by $7.5 million.

Adjusted EBITDA was $11.6 million or $19.2 million before the bad debt adjustment compared to $17.1 million in the prior year quarter, an approximate 12% increase.

Cash and cash equivalents were $14.5 million at December 31st, 2018. Adjusted EBITDA for the full year was $45.1 million or $52.6 million before the bad debt adjustment compared to $45 million in the prior year, a 16.8% increase. This amount was slightly below the low end of our full-year EBITDA guidance, due to slower than anticipated revenue growth in December.


However, we commenced 2019 on a very strong note with gross revenue growth accelerating to 9% in both January and February, and March gross revenue to date trending at similar levels. The first quarter of 2019 will mark the third consecutive quarter of organic revenue growth achieved by BioScrip.

Finally, given the combination announced today with Option Care, the Company will not be providing updated 2019 BioScrip financial guidance.

I’ll now turn the call over to John Rademacher to give you some visibility into the Option Care business. John?

John C. Rademacher — Chief Executive Officer

Good morning, everyone, and thanks for joining us today. I’m happy to be here with you to tell you about — more about the incredible opportunity we see through the combination of BioScrip and Option Care. And thank you Dan and Steve. I’ve enjoyed getting to know both of you and I look forward to working with you as we move toward closing an integration.

I want to underscore how excited I am to be bringing together two strong mission-driven companies to create a leading independent provider of home and alternate site infusion services with national reach, comprehensive therapy offering, continued independent and financial capacity and flexibility to succeed and capitalize on growth opportunities.

Taking a step back, Option Care formally Walgreens Infusion Services has been an independent infusion services company, since it was separated from Walgreens Boots Alliance in 2015 in a joint investment partnership between Madison Dearborn Partners, a leading private-equity firm based in Chicago and Walgreens Boots Alliance, Inc.

Option Care has nearly — has a nearly 40-year history of shaping the home infusion services industry, and during our time under private ownership, we have transformed the company, benefiting from the agility of being an independent company with additional investment and access to the expertise, capabilities and resources of Madison Dearborn and a continued collaboration with Walgreens.

We have enhanced capabilities, a network of over 70 pharmacies and over 90 alternate treatment sites across the country. Over 750 payer relationships inclu