BIOS BioPlus Acquisition Corporation

In the first quarter of 2013, BioScrip Inc. (BIOS) posted adjusted earnings per share (EPS) of a penny, better than the year-ago adjusted loss of 2 cents. Nonetheless, the result missed the Zacks Consensus Estimate by a couple of cents.

On a reported basis, BioScrip’s net loss from continuing operations of $7.5 million or a loss of 13 cents per share was worse than the net loss of $2 million or 4 cents per share in the year-ago quarter. This was mainly due to a higher share count and margin contraction in the quarter.

Total revenue rose 27.9% year over year to $199.1 million in the first quarter, exceeding the Zacks Consensus Estimate of $189 million. In the first quarter, solid revenue growth was attributable to contributions from Infusion Services and Home Health Services business.

The company recorded a robust hike of 41.5% in Infusion Services revenues to $154.4 million on the back of volume growth and accretive acquisitions. Revenues from the Home Health Services segment rose 7.4% to $17.9 million, led by volume growth from private duty nursing activity. Lastly, revenues from the PBM Services segment were $26.8 million, down 10.4% from the prior-year quarter. The decline was due to lower sales volume of discount cards.

While the cost of product revenues shot up 45.9% to $105.5 million, the cost of service revenues inched up 1.7% to $30.3 million in the quarter. Gross margin contracted 260 basis points (bps) to $31.8% in the quarter due to unfavorable product mix. Selling, general and administrative (SG&A) expenses increased 18.4% to $52.8 million. The gross margin contraction and surging SG&A resulted in a 50 bps drag in adjusted operating margin in the quarter to 5.2%.

Exiting the first quarter, BioScrip had no cash balance compared with $62.1 million in the sequentially prior quarter. The company’s outstanding borrowings under its revolving credit facility was roughly $28 million due to the HomeChoice takeover. Following the first quarter, BioScrip raised net proceeds of $118.6 million from secondary offering.

Outlook

For 2013, BioScrip continues to expect revenues of $830–$865 million, reflecting growth in the range of 25% to 30%. The current Zacks Consensus Estimate is pegged at $839 million.

Our Take

BioScrip reported mixed results in the first quarter of 2013. While top-line sailed past the Zacks Consensus Estimate, the bottom-line was worse than expected. The Infusion services franchise appears to be a major revenue driver for the company. Moreover, the recent acquisitions are likely to accelerate growth in the future.

However, reimbursement cuts and adverse business mix leading to margin pressure continues to drag the financial results for BioScrip. Also worth mentioning is the tough competitive landscape with larger players and deeper resources.

The stock carries a Zacks Rank #3 (Hold). While we remain on the sidelines for BioScrip, other stocks such as CVS Caremark (CVS), Rite Aid Corporation (RAD) and GNC Holdings Inc. (GNC) warrant a look. These stocks carry a Zacks Rank #2 (Buy).
 

 
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