BioScrip second-quarter 2010 revenue increases 25% to $412.0 million

BioScrip, Inc. (Nasdaq: BIOS) announced 2010 second quarter revenue of $412.0 million, operating income of $13.5 million and net income of $3.1 million, or $0.06 per diluted share. Second quarter adjusted earnings per share (detailed in schedule 5) was $0.07 per diluted share. Adjusted EBITDA for the quarter was $18.4 million. All 2010 per share amounts have been adjusted to reflect the Company's issuance of 13.1 million shares in conjunction with the acquisition of CHS.

“We are focused on changing the paradigm of healthcare services in the alternate site and home care setting. Our efforts are aimed at capitalizing on trends favoring home healthcare and specialty pharmacy”

Second Quarter 2010 Highlights

• Adjusted EBITDA of $18.4 million, up $11.4 million from 2009;
• Gross profit of $73.5 million, up $35.1 million from 2009;
• Income from operations of $13.5 million, up $8.3 million from 2009;
• Infusion/Home Health Segment revenue of $106.7 million and EBITDA of $13.9 million, up $70.3 million and $11.2 million, respectively; and
• Pharmacy Services Segment revenue of $305.4 and EBITDA of $12.4 million, up $13.1 million and $1.1 million, respectively.

"The CHS acquisition is meeting all of our expectations. Our strong second quarter results reflect the execution of our vision for margin and geographic expansion with a focus on increasing profitability through a targeted approach," stated Richard H. Friedman, BioScrip's Chairman and Chief Executive Officer.

"We are focused on changing the paradigm of healthcare services in the alternate site and home care setting. Our efforts are aimed at capitalizing on trends favoring home healthcare and specialty pharmacy," concluded Friedman.

Results of Operations

Commencing this quarter, as a result of the CHS acquisition, the Company's financial results have been realigned into two segments: Pharmacy Services and Infusion/Home Health Services. These new segments are expected to better reflect how the Company will review its results in terms of allocating resources and assessing operating and financial performance.

Second Quarter 2010 versus Second Quarter 2009

Revenue for the second quarter of 2010 totaled $412.0 million compared to $328.7 million for the same period a year ago, an increase of 25%. Pharmacy Services revenue for the second quarter of 2010 was $305.4 million compared to $292.3 million for the prior year period, an increase of $13.1 million or 4.5%. The increase was primarily related to organic sales growth combined with normalized drug inflation, partially offset by the impact of the industry wide average wholesale price (AWP) class action settlement and price concessions granted in the first quarter. Infusion/Home Health Services revenue for the second quarter of 2010 was $106.7 million compared to $36.4 million in the second quarter of 2009, an increase of $70.3 million. CHS revenues contributed $64.8 million during the second quarter of 2010. Excluding the CHS revenues, Infusion/Home Health Services revenues increased 18.7%.

Consolidated gross profit for the second quarter of 2010 was $73.5 million, or 17.8% of revenue, compared to $38.4 million, or 11.7% of revenue for the second quarter of 2009. The increase in gross profit and gross margin percentage from 2009 to 2010 is primarily the result of the contribution from the CHS business during the quarter.

The second quarter 2010 operating profit was $13.5 million, or 3.3% of revenue, compared to an operating profit of $5.2 million, or 1.6% of revenue, for the second quarter of 2009. Operating profit in the second quarter of 2010 includes $1.1 million of CHS transaction and integration related expenses.

During the second quarter of 2010, BioScrip generated $26.3 million of segment Adjusted EBITDA, or 6.4% as a percentage of total revenue. This compares to $14.0 million, or 4.3% of total revenue in the prior year period. The Pharmacy Services segment generated $12.4 million of segment Adjusted EBITDA, or 4.1% as a percentage of Pharmacy Services revenue. This compares to $11.3 million, or 3.9% of that segment's revenue in the prior period. The Infusion/Home Health segment generated $13.9 million of Adjusted EBITDA, or 13.0% of revenue. This compares to $2.7 million, or 7.4% of Infusion/Home Health Services revenue in the second quarter of 2009.

On a consolidated basis, BioScrip reported $18.4 million of Adjusted EBITDA during the second quarter of 2010, or 4.5% of total revenue compared to $7.0 million, or 2.1% of total revenue in the prior year period. The increase was primarily related to the contribution from the CHS business.

Interest expense in the second quarter of 2010 was $8.2 million, which includes $7.5 million of interest associated with the Company's $100.0 million senior secured term loan, $50.0 revolving loan and $225.0 million senior unsecured notes, and $0.7 million relating to the amortization of fees and expenses associated with the Company's new credit facilities. Interest expense in the second quarter of 2009 was $0.4 million.

The Company recorded a provision for income taxes of $2.2 million for the second quarter of 2010 on pre-tax income of $5.3 million, a 40.9% effective tax rate. This compares to $0.4 million of income tax expense on pre-tax income of $4.8 million, a 7.9% effective tax rate for the prior year period. The 7.9% effective tax rate was below the statutory rate due to a reduction in the Company's valuation allowance associated with the utilization of a portion of net operating losses in 2009.

Net income for the second quarter was $3.1 million, or $0.06 per diluted share, compared to $4.4 million, or $0.11 per diluted share, in the prior year period. Adjusting for one-time transaction related expenses in 2010 and assuming a tax rate of 40.9% in the second quarter 2009, earnings per diluted share would have been $0.07 in both periods.

Six Months Ended 2010 versus Six Months Ended 2009

Revenue for the six months ended June 30, 2010 was $747.1 million compared to $654.5 million for the comparable period a year ago. Pharmacy Services segment revenue for the six months ended June 30, 2010 was $594.3 million as compared to revenue of $583.7 million for the same period a year ago, an increase of $10.6 million, or 1.8%. The increase for the year was primarily related to organic sales growth combined with normalized drug inflation, partially offset by the impact of the industry wide AWP class action settlement, pricing concessions and the termination of the United Health Care HIV/AIDS and solid organ transplant programs in the first quarter of 2009. Excluding revenues associated with these programs, Pharmacy Services organic growth would have been 5.0%. Infusion/Home Health Services segment revenue for the six months ended June 30, 2010 was $152.8 million, as compared to $70.8 million for the same period a year ago, an increase of $82.0 million. CHS revenues contributed $69.8 million for the six months ended June 30, 2010. Excluding the CHS revenues, Infusion/Home Health Services segment revenue increased 18.1% over the prior year period.

Consolidated gross profit for the six months ended June 30, 2010 was $112.4 million compared to $74.4 million for the same period a year ago. Combined gross profit as a percent of revenue for the six months ended June 30, 2010 was 15.1%, compared to 11.4% for the same period of 2009. The increase in gross profit and gross profit as a percent of revenue from 2009 to 2010 is primarily the result of contribution from the CHS business during through the year.

Consolidated operating profit for the six months ended June 30, 2010 was $7.2 million, or 1.0% of total revenue, compared to $9.5 million, or 1.4% of revenue, for the same period a year ago. Combined operating profit for the six months ended June 30, 2010 includes $6.1 million of CHS transaction and integration related expenses.

For the six months ended June 30, 2010, BioScrip generated $37.2 million of segment Adjusted EBITDA, or 5.0% as a percentage of total revenue. This compares to $26.1 million, or 4.0% of total revenue for the prior year period. Pharmacy Services segment generated $20.4 million of segment Adjusted EBITDA, or 3.4% as a percentage of Pharmacy Services segment revenue. This compares to $21.3 million, or 3.6% of that segment's revenue in the prior period. Infusion/Home Health segment reported $16.8 million of segment Adjusted EBITDA, or 11.0% of Infusion/Home Health segment revenue. This compares to $4.9 million, or 6.8% of Infusion/Home Health Services segment revenue, in the prior year period.

On a consolidated basis, BioScrip reported $21.1 million of Adjusted EBITDA for the six month period ended June 30, 2010, or 2.8% of total revenue compared to $13.2 million, or 2.0% of total revenues in the prior year period. The increase was primarily related to the acquisition of CHS. Consolidated Adjusted EBITDA includes corporate expenses, which are not allocated to the segments.

Interest expense for the six months ended June 30, 2010 was $11.4 million, which includes $8.4 million of interest associated with the Company's $100.0 million senior secured term loan, $50.0 million revolving loan and $225.0 million senior unsecured notes, $2.3 million one-time financing fee related to bridge financing fees and $0.7 million relating to the amortization of fees and expenses associated with the issuance of the Company's credit facilities in connection with the CHS acquisition. Interest expense for the comparable period 2009 was $1.0 million.

An income tax benefit of $0.1 million was recorded for the six months ended June 30, 2010 on a pre-tax net loss of $4.2 million, resulting in a 3.3% effective tax rate. The effective tax rate for the six months period is below the statutory rate due to the CHS acquisition related costs which were treated as a discrete item for tax purposes during the first quarter of 2010. This compares to a $0.8 million income tax expense on pre-tax income of $8.4 million, a 9.3% effective tax rate for the same period a year ago. The 9.3% effective tax rate was below the statutory rate due to a reduction in the Company's valuation allowance associated with the utilization of a portion of net operating losses in 2009.

Net loss for the six months ended June 30, 2010 was $4.0 million, or $0.09 per share. This compares to net income of $7.7 million or $0.20 per diluted share for the same period last year.

Liquidity

As of June 30, 2010, the Company had $34.6 million of cash with an average cash balance of $49.7 million during the quarter. In addition, the $50.0 million revolving credit facility remains undrawn. Free cash flow (Adjusted EBITDA less cash interest, cash taxes and cash capital expenditure) during the second quarter was $14.1 million.

2010 Full-Year Guidance:

• Revenue: The Company now estimates that 2010 total revenue will be at the lower end of its previously guided range of $1.67 billion to $1.72 billion based on its plan to target therapies that have higher profitability and lower per patient revenue;
• Consolidated Adjusted EBITDA of $67.0 to $71.0 million;
• Depreciation, amortization and option expense of $15.0 million to $15.5 million;
• Interest expense will be in the range of $27.5 million to $28.0 million; and
• Income taxes: The Company estimates that its effective income tax rate for the remainder of 2010 will be in the range of 40% to 42%.