Lisa Carlton-Wilson - President-Investor Relations R. Carter Pate - Director Richard M. Smith - President, Chief Executive Officer & Director Jeffrey M. Kreger - Chief Financial Officer, Treasurer & Senior VP.

Per Erik Ostlund - Craig-Hallum Capital Group LLC Brooks G. O'Neil - Dougherty & Co. LLC David S. MacDonald - SunTrust Robinson Humphrey, Inc. Michael Petusky - Barrington Research Associates, Inc..

Good morning. My name is Silvie and I will be your conference operator today. At this time, I would like to welcome everyone to the BioScrip Third Quarter 2015 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. Thank you. Lisa Wilson, Investor Relations for BioScrip, you may begin your conference..

Good morning and thank you for joining us today. By now, you should have received a copy of our press releases issued this morning. If you have not received it you may access it through the Investor Relations section at our website.

First, BioScrip Director, Carter Pate will make some opening remarks followed by Rick Smith, President and Chief Executive Officer and Jeff Kreger, Chief Financial Officer. Also on the call for the Q&A portion is Chris Luthin, Chief Operating Officer; and Scott Davido, Chief Implementation Officer.

The call may be accessed through our website at bioscrip.com. A replay will be available shortly after the call and will remain available for the period of two weeks. Interested parties can access the replay by dialing 855-859-2056 in the U.S. and 404-537-3406 internationally and entering access code 64965564.

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 releases and our annual and quarterly reports filed with the SEC.

These forward-looking statements are based upon information 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 adjusted EBITDA.

A reconciliation of such measures to the most comparable GAAP financial measures is contained in our most recent press release issued this morning, which can be obtained from our website at bioscrip.com.

In addition, as a result of the previously announced sale of the company's non-core PBM business, the company's financial results concerning PBM are presented as discontinued operations on the consolidated financial statements for all periods presented. And now I would like to turn the call over to Carter Pate.

Carter?.

Well, good morning everyone and thank you so much for joining us. Now before turning this over to Rick to discuss the quarter, I wanted to just make some brief remarks upfront.

Now when I addressed you last quarter it was discussed of how we had strengthened our board and the management team and to introduce the board's Financial Improvement Implementation Committee, which was responsible for overseeing BioScrip's Financial Improvement Plan that we announced on the last call.

Our objective is to quickly and effectively drive meaningful change in order to improve the company's financial and operational performance and enhance value for all our shareholders.

Now, as you can see this morning, we are making real progress on our objectives since initiating the Financial Improvement Plan on August 10, just a little over seven weeks ago. Already BioScrip is a leaner company with a simplified business structure focused on core Infusion Services. Now, this management team has a real sense of urgency here.

We are succeeding and the results delivered this quarter are reflective of those tremendous efforts during the last seven weeks. We showed real progress on growth, revenue for continuing operations. You will see a leaner DSO, a leaner selling and general administrative expenses.

You will see we reduced bad debt expense and you're going to see EBITDA improvement and strong liquidity this morning as Rick walks you through this. Now looking ahead, BioScrip will become an even more efficient company as we execute on the additional components of our strategic priorities and we are confident that this team will meet our goals.

Lastly, I want to thank this management team and my fellow directors for the countless hours they gave us this past seven weeks to make this quarter possible. Now, Rick, I'll turn it over to you at this point..

Thank you, Carter. And good morning, everyone. As Carter said, we are positioning BioScrip as a pure-play Infusion Services provider. We operate in an attractive market where the dynamics are strong due to the need for affordable healthcare and the migration of facility-based services into the homecare setting.

With our comprehensive clinical offering and licensure to provide service in all 50 states, we believe we are well positioned for growth. Our Financial Improvement Plan is focused on growing our core revenue, reducing cost, improving margins and reorganizing our structure around a more focused core infusion business.

During the quarter we substantially completed the announced targeted workforce reduction and remain on track to deliver the expected $19 million in annual cost savings. We made progress towards additional supply chain programs that are expected to add $3 million in annual savings in 2016.

We completed the sale of the non-core PBM business for $25 million in gross cash proceeds. We initiated programs to take place January 1, 2016 that are expected to reduce corporate costs by $5 million annually.

We initiated cost reduction programs totaling $5 million and projected annual cost savings to take effect in January 2016 from other target areas, including nursing, travel, office expense and through technology-enhanced applications.

And finally, we continued our transition of chronic non-core infusion therapies to various alliance pharmacy providers, which, when fully realized, is anticipated to improve adjusted EBITDA by approximately $4 million annually. Once our actions are complete, we expect to drive increased profitability through a more streamlined organization.

We also believe that continued growth in core revenue will have a positive impact on both our gross margin and EBITDA margin profile. In addition, BioScrip will continue growing through a clinically focused and customer-orientated post-acute care model.

Our core infusion business demonstrates strong performance this quarter, reflecting the potential for this business. And we saw continued organic growth year-over-year in the high-single digits. This reinforces our belief in the strategic platform that we've built and the benefits of focusing on the Infusion Services sector.

This quarter's total revenue was flat with the second quarter. However, core and chronic blood therapies, where we focus our efforts in our clinical programs, increased sequentially by $6.4 million through strong patient census increases, while our Hepatitis C revenue decreased $8.4 million.

The mix shift from Q2 to Q3 resulted in a 30 basis point improved gross margin. The improved revenue mix and the effect of the cost reductions initiated in the quarter contributed to sequential improvement in consolidated adjusted EBITDA to $6.2 million.

We remain focused on increased cash collections, showing improvements with lower DSO, resulting from stronger front-end processes and higher levels of cash collection. We are also reiterating our 2016 adjusted EBITDA guidance of between $50 million and $60 million, which takes into account our cost savings which remain on track.

I'd now like to turn the call over to Jeff Kreger, who will provide a more detailed review of our financial results.

Jeff?.

Thank you, Rick. And good morning, everyone. For the third quarter, revenue from continuing operations was $247.2 million, representing a year-over-year increase in revenue of $15.8 million or 6.8%. The revenue increase was driven by year-over-year revenue growth in core therapies, chronic blood therapies and other therapies.

For the third quarter, we reported a net loss from continuing operations of $24.2 million or a $0.38 loss per diluted share as compared to the prior year's same period net loss from continuing operations of $39.2 million or a $0.57 loss per diluted share.

Gross profit for the quarter was $63.1 million, an increase of 3.9% over the $60.8 million gross profit reported in the third quarter of last year, driven by the year-over-year increase in revenues. As a percentage of revenue, gross profit margin in the quarter was 25.5% compared to 26.3% in the year ago period.

As Rick mentioned earlier, on a sequential quarter basis, gross profit margin improved 30 basis points to 25.5% in Q3 from the 25.2% we experienced in Q2; this due to sequential improvements in patient census in the areas of core and chronic therapies – chronic blood.

For the quarter, total consolidated adjusted EBITDA from continuing operations, including corporate expenses, was $6.2 million. Excluding those corporate overhead costs, the Infusion Services adjusted EBITDA for Q3 was $12.4 million.

Adjusted EBITDA has increased both year-over-year and sequentially due primarily to revenue growth combined with reduced operating expenses, including a reduction in bad debt expenses.

During the quarter the company recorded a $13.9 million pre-tax goodwill impairment charge related to the completion of its goodwill evaluation, which we initiated during the second quarter of 2015. The company also incurred $4 million of pre-tax restructuring and other expenses primarily associated with ongoing Financial Improvement Plan.

Interest expense in the third quarter of 2015 was $9.5 million, down slightly from the $9.6 million in the year ago third quarter of 2014. Income tax benefit from continuing operations in the third quarter of 2015 was $4.7 million of benefit as compared to income tax expense of $1.9 million in the prior year period.

As of September 30, 2015, the company had approximately $69 million of liquidity, which is comprised of $29.4 million of cash on hand and $39.6 million of undrawn capacity available on our revolving credit facility.

The company has improved net day sales outstanding by six days since yearend, from 51 days at the end of 2014 to now 45 days at the end of 9/30/2015. Additionally, the company has reduced its cash burn rate throughout 2015, and we expect to be operating cash flow positive in 2016.

As of the end of the third quarter at September 30, 2015 the company is in full compliance with its bank covenants under the terms of the amended credit facility. With that, we'll open the call up for questions..

Your first question comes from the line of Bill Bonello of Craig-Hallum Capital. Your line is open..

Thanks. Good morning, guys. This is actually Per on for Bill..

Hi, Per..

Congratulations on the early progress here. A couple actually housekeeping questions. Curious when you refer in the press release to having transitioned some of the non-core infusion – and I know that that was discussed last quarter. Just curious if the $247 million reported this quarter already reflects a little of that transition.

So in other words was the, call it, 7% growth in the quarter actually better than that because some of that patient population had already been offloaded?.

Per, we have transitioned a small percentage, but as I mentioned, our chronic business, our Hep C was down $8.4 million sequentially, so that reflects some level of that transition, and it was backfilled by our targeted therapies in the core and the chronic blood patient census growth..

Okay.

So it would be fair to say that organic growth was better than the 6.8% reported?.

Yes, in the targeted areas, yes, definitely..

Okay, fantastic. I'm just thinking in terms of framing it in the context of the business that you're endeavoring to go forward with and where you've spoken about 2016 already..

Right..

Okay and then just one other really simple question for me and the bad debt moved better here this quarter. Just wondering if you still see bad debt migrating towards that 3.2%, I think that was where you had stated before.

Is that a fair rate to consider for Q4 and into 2016?.

Yeah, hi, Per. Good morning..

Good morning..

As I stated back in Q2, we're going to take the remainder of this 2015 fiscal year to work through our accounts receivable and our bad debt issues. We think we've gotten a lot better. In fact, October was our best collection month in several years for the company and that's not even reflected of course in our Q3 numbers.

So that's going to benefit the fourth quarter. We think our bad debt expense rate is probably going to continue to move downward from the 3.8% we reported this quarter. I think we were talking more 3.3%, 3.4% and so probably in that mid-3% range is where we're going to be approaching in Q4.

And as we get into 2016, we think the model ought to reflect about the same, 3.4%-ish..

Okay, that sounds good. Thank you..

Thank you..

Your next question comes from the line of Brooks O'Neil from Dougherty & Company. Your line is open..

Good morning. I have a couple questions. So one thing I would love for you to talk a little bit about is your efforts to strengthen the infusion margin I think primarily by driving improved mix. Obviously, we see some improvement this quarter.

But can you talk about where you think you are and what you think the opportunities are going forward?.

Well, I'll take a first pass. First of all, it's continued to drive the patient census. And each quarter this year we have sequentially grown our core therapies and our chronic blood therapies, which is the IVIG, subQ and Factor.

We believe that our sales programs and also we have a nice contract pipeline that we believe will contribute to sequential growth into 2016 and future years. And so we feel good about the focus of our teams and where we are strategically positioned with our hospital partners and a number of our communities as well as with our payers.

And then also one of the initiatives that I talked about is we've taken an aggressive look at additional field operating costs in the nursing side, so that is up in our gross margin. So we saw some sequential improvement from Q2 to Q3 in that area through some management and productivity. And that's a strong initiative for us going into 2016.

So those are areas that we believe are continued focus and where we're positioned with the initiatives in place that will continue to see some good progress..

That's great.

Can you just tell us roughly what the mix is between acute and chronic therapies this quarter?.

Yes, our targeted profile, we are about 36% in terms of the core. I think where we're targeted on – our plan that we presented in August was about 75% total revenue mix including core and chronic blood. We're about 65% at Q3.

So with the expected transition over the next 10 months of the non-core items that we listed, we believe that through census growth and those other steps that we can march towards that directive in 2016..

That's great. I think you said in the past that your efforts to transition some of those non-core therapies might result in a $200 million of revenue reduction.

A, did I hear that correctly? And B, is that still in the range that you're thinking might be possible over the next few quarters?.

Well, I think we laid out our plan in August over 12 months and not all of that transition is in our control.

Yes..

Our cost reductions are certainly in our control and we're on track and driving that. And so the other pieces are just coordinating and communicating and transitioning. So I think in terms of the total range, we maintain our guidance towards the pro forma revenue mix that we've laid out in our plan..

Yes. Okay, good. And then the last thing, I was just hoping Jeff might talk a little bit more about liquidity, about your ability to manage your debt over the next few quarters and sort of what the outlook might be? And thanks for taking the questions..

Sure, Brooks and good morning. We believe we have ample liquidity to continue to execute on our Financial Improvement Plan throughout 2016 and the future periods. As I mentioned, we have the $69 million of liquidity at the end of the third quarter, that's a figure that's not all that different from today where we stand on early November.

Our cash burn rate has continued to come down in 2015 and in fact we are projecting operating cash flow positive in 2016. We of course have some debt amortization payments that kick in, in 2016 as well, we will be able to fund those. So we feel like we've got strong liquidity and we're well positioned marching into next year..

Great. Thank you very much..

You're welcome..

Your next question comes from the line of David MacDonald from SunTrust. Your line is open..

Hey guys, couple of questions.

Rick, can you just run through the numbers again, I missed them, how much Hep C was down sequentially and how much the core therapies and chronic blood was up sequentially?.

Yeah. $8.4 million decreased sequentially in Hep C, Q2, Q3 and then $6.2 million of core and chronic sequentially up from Q2..

And then can you guys just remind me when you transition all of this lower margin chronic business off, what do you anticipate the mix of core versus chronic will be at that point once this is completely done?.

So we had stated in our plan that on a pro forma basis that that picture that we – core would be about 43% total revenue and then core and chronic blood expectation basis would be about 75% of our revenue..

Okay. Okay. Just a couple of cash flow questions. If I look at the working capital, it looks like there was a pretty sizable, payable, outflow sequentially, which doesn't make a lot of sense to me why you guys would be kind of paying your bills, what looks to be faster.

Can you just give me a little detail about am I thinking about that correct? And will that payable working capital drag reverse in the fourth quarter?.

Yeah, Dave. Jeff Kreger. Actually we had about $11 million of AP that's 6/30 because of the way our revolver – financial ratios requirements worked. We actually held $11 million of AP and paid it in early July. As of 9/30 and in fact as of today early November, we are a 100% current with all our vendors.

In fact, many of our vendors we prompt pay to enjoy a discount in terms of our cost with them. So we're 100% at terms on AP currently. That was an $11 million swing within the quarter, so if you move that back to Q2 where it should be, you get a little better look at how the cash flows are really playing out.

We also in the quarter had a concerted effort to work down on our days inventory held at facilities, and that was successful. And now we're ordering more real time as opposed to stocking inventory. That's been a change in our inventory management throughout the company..

So, guys, if I'm doing the math, if I take a look at the operating cash flow and I reverse that working capital anomaly, it looks like operating cash flow is about a $10 million drag in the quarter.

Can you give us any sense of what you expect the fourth quarter to look like and when in 2016 you expect to flip to cash flow positive?.

Yeah, we think the fourth quarter is going to be similar to the third. We still do have some drag on some of our restructuring cost, particularly around severances on these $19 million or so of rips that we're working through and we are substantially through at the end of the third quarter.

We are projecting fourth quarter operating cash flows to be not so dissimilar from what we've experienced in Q3. Q1 of 2016 at some point in those first three months we expect to go cash flow positive.

We've also got the principal amortization that becomes due end of March of 2016, so we're teed up to fund that, but we will be operating cash flow positive throughout 2016. And in fact, bottom line, net cash flow after debt and amortization payments and CapEx, we anticipate that being breakeven for the year of 2016..

Jeff, can you just quickly walk me through how you get from 4Q $10 million negative cash flow to positive in 1Q? I assume some of this is the cost savings and that the EBITDA is going to be higher.

But what are some of the other non-recurring drags that go away as you move into 2016?.

Well, you touched on the majority of it right there. In fact, the rips, as Carter said in his opening comments, we didn't start our Financial Improvement Plan until August 10.

And as we went through our rips during third quarter, we've got some more to implement in the fourth quarter, those severances began to work out combined with the EBITDA improvements that we'll enjoy from that as well.

The combination of those two is effectively going to – and then changes we've got coming through in the early part of next year associated with some changes to different plans around the company, contracts that we put in place that won't begin to kick off savings until the beginning of next year.

All those in concert effectively will reduce that cash burn that we've had during 2015..

And then, guys, just last question, can you give us some sense of ballpark where you expect adjusted EBITDA to be in the fourth quarter? And then if you could just cross walk us from that run rate exiting 2015 to the $50 million to $60 million in 2016 that would be helpful..

Well, I suppose, Dave, I'd say it like this. We've said $50 million to $60 million of EBITDA for 2016. We're not forecasting how 2015 will play out. There's little bit of uncertainty as we work through the rest of our Financial Improvement Plan..

Yeah, Rick, I think our expectations are we would continue to see some sequential revenue growth that we've talked about and then the additional cost savings from the plan will have an impact. And so I think we've got some additional restructuring cost because there's some additional steps to accomplish in Q4 as well.

But I think directionally we feel the steps we're taking and every aspect of our Financial Improvement Plan, with revenue holding relative to sequential growth, that that's teeing up nicely to finish the year in good shape and going into 2016 to achieve our targeted adjusted EBITDA..

Okay. Thanks, guys..

Yes..

Your next question comes from the line of Mike Petusky from Barrington Research. Your line is open..

Yeah, good morning. Obviously some good progress on a number of these metrics. The one issue though that to me seems like it is lagging is that transition of the lower margin business. And to me it seems like it's lagging in a meaningful way, unless I'm misunderstanding what you guys initially had hoped to accomplish a few months ago on that.

Can you just speak to what's going on there? There are multiple groups you're trying to off-load this to, is there one group that you're primarily trying to off-load this to and that's hung up? And then just can you speak to what's a reasonable overall gross margin level post business transitioning could be, is it 200 basis points of improvement from the 25.5% or you know thereabouts?.

I think, first of all, as we said, we expected to execute this plan over a 12-month period when we announced it on August 10 and so all aspects of it when you bring in essentially different coordinated third-parties that essentially working with, it's complicated relative to a patient base.

So I think we believe that all the steps we are taking has us on timetable to be done within the initial 12-month period that we laid out for ourselves and may be a little bit earlier as it relates to the transition of the non-core therapy, so I think that's number one.

We believe that within our plan we are essentially moving forward as essentially we contemplated. At the same time, as it relates to the overall gross margin I think we talked on August 10 relative to the pro forma look after transitioning that we would be closer to I think the 29% to 30% gross margin given the different mix..

Okay, so you are essentially saying growth as planned, you are not lagging on that piece of it that I identified?.

No..

Okay, all right, thanks..

Okay..

There are no further questions at this time. I will turn the call back over to the presenters..

Great. Well, thank you everyone for joining today and all the BioScrip team on the call, thank you for your great efforts in helping us to continue to move forward and improve the strength of our organization. This quarter we presented a solid step forward in our financial improvement plan and our transition to a pure play infusion services provider.

We look forward to updating you on our continued progress. Thank you..

This concludes today's conference call. You may now disconnect..