Ladies and gentlemen, thank you for standing by. Welcome to the BioScrip 2013 First Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, May 9, 2013. I would now like to turn the conference over to Lisa Wilson, Investor Relations at BioScrip. Please go ahead, ma'am.

Good morning, and thank you for joining us today. By now, should have received a copy of our press release issued yesterday after the close of market. If you've 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 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 2 weeks. Interested parties can access the replay by dialing (800) 633-8284 in the U.S. and (402) 977-9140 internationally and entering access code 21656383. 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 such statements as circumstances change. During this presentation, we will refer to non-GAAP financial measures such as EBITDA, adjusted EBITDA and adjusted EPS. A reconciliation of such measures to the most comparable GAAP financial measure is contained in our press release issued yesterday after the close of market, which can be obtained through our website at bioscrip.com. And now I would like to turn the call over to Rick Smith. Rick?

Thank you, Lisa. Good morning, everyone. Thank you for joining today's call. We entered 2013 with the momentum of our accomplishments in 2012, transforming the company into an industry leader in home infusion services. The sales of legacy business and the redeployment of the net proceeds into the purchase of InfuScience which we closed in July 2012 and Home Choice Partners which we closed in February 2013, has positioned BioScrip to be the third largest provider of home infusion services. We are focused on completing our footprint expansion by the end of this year. In addition, we believe a large percentage of the industry remains highly fragmented and ripe for further consolidation, presenting incremental growth potential. The prospect for organic growth remained strong as we have a significant opportunity to take incremental market share by offering and delivering the highest service levels in each of our markets. Over the last 2 years, the investment in our Centers of Excellence programs has strengthened our competitive offering. Consequently, we are increasingly being presented with new opportunities that could provide new areas of revenue growth. The first quarter of 2013 marked another successful one for BioScrip. For the first quarter, revenue increased 27.9% year-over-year to $199.1 million. The main driver continues to be infusion revenue, which produced strong results at $154.4 million, up 41.5%, demonstrating ongoing organic growth and the positive impact of our recent acquisitions. Gross profit for the quarter was $63.2 million or 31.8% of revenue, compared to $53.5 million or 34.4% in the prior year. Adjusted EBITDA increased $11.5 million from $8.4 million on a year-over-year basis, an increase of 37%. During the quarter, we continued to invest in the overall business, including the expansion of the infusion sales force and the development of new revenue programs. At the same…

Thank you, Rick, and good morning, everyone. As a reminder, before we review our first quarter 2013 financial performance, we report the following 3 segments: Infusion Services, Home Health Services and PBM Services. In addition, the financial statements reflect continuing versus discontinued operations classifications for all periods presented. Therefore, in reviewing our financial performance, we will focus primarily on the continuing operations. As we began doing last quarter, we will continue to report adjusted earnings per diluted share, which take into account the same elements in calculating adjusted EBITDA and also adjusts for the impact of acquisition-related intangible amortization as noted in our press release. With that, for the first quarter of 2013, we reported revenue of $199.1 million, compared to $155.6 million in the prior year period, an increase of $43.4 million or 27.9%. Infusion Services segment revenue increased 41.5% to $154.4 million, primarily driven by organic volume growth and revenue related to our InfuScience and Home Choice Partners acquisitions. Excluding the impact of these acquisitions, revenue growth in our Infusion Services segment was in excess of 20%. The remaining change in revenue growth stems from a 7.4% increase in the Home Health Services segment, offset by a decline in the PBM Services segment. The increase in the Home Health Services segment of $1.2 million to $17.9 million was primarily due to volume growth associated with private duty nursing activity. The decline in our PBM segment of $3.1 million was primarily due to lower volume in the funded PBM business. Gross profit for continuing operations was $63.2 million, compared to $53.5 million for the same period in 2012, an increase of $9.7 million or 18.2%. Gross profit as a percentage of revenue decreased to 31.8% from 34.4% in the first quarter of 2012. The increase in gross profit was…

Thank you, Hai. Susie, we'll open it up to questions.

[Operator Instructions] Our first question, coming from the line of David MacDonald from SunTrust.

Rick, can you give a little bit more detail on some of the hospital-based programs? I mean, that's obviously an enormous market. Can you just give us some detail on kind of what you're developing there? And then is -- are you guys seeing receptivity also to potential joint venture relationships, outsourcing, potentially acquisitions in that space? Just a little more detail there would be helpful.

Yes. I think we're -- clearly, there's a movement to identify getting patients out of the hospital center. We've talked before about our transitional care programs, where we've had excellent success in the early stages on readmission programs and reducing unnecessary readmissions. We have seen some receptivity in the industry in different markets towards some different alliance models that we believe is available to us. We also -- as you know, being a little bit late to the industry, infusion industry, in some markets, a number of hospitals essentially were -- have not been call points for us in the past. And so we've -- we've seen some strong progress in getting some access and penetration into markets. And so our team continues to attack, to open up opportunities for us that previously had been held by our competitors. And so I think that as the model and the service model keeps moving towards the home or alternate site and all of our programs are targeted towards that postacute environment, we're having various conversations in various market that we believe will continue to strengthen our market positioning opportunities.

And then can you guys just give a little bit more detail on potentially some of the new market offerings that you guys are coming with if you can talk about that now from a competitive standpoint? And where some of this increased sales force resources going to be focused? Or is it just you guys expect to be in additional territories and you're kind of hiring in front of that?

We've been hiring -- all of the above. We've been very focused on doubling the concentration of sales professionals as well as nurse liaisons in different markets. We've also invested in our managed care infrastructure, given the number of lives we have under contract and continue to deeply penetrate those lives or pull through success. And then finally, we've put some money into some infrastructure on the ACO side, given where that model continues to evolve and have carved out some of our managed care teams to focus in that area and have put some investments of professionals into new models that are evolving.

And then just last question. I mean, you guys obviously now have a fair amount of money to spend. Can you give us just a little bit of color on the pipeline? What's out there? And then given some of your managed care relationships, is it fair to think about a deal that's not in an existing market is probably more attractive because it allows you to get in and expand relationships with managed care companies pretty much right away?

Yes. So I think that the pipeline, as we've always said along, is robust and it continues to remain very strong. It's comprised of opportunities of various sizes and in various stages of dialogue. And so we're encouraged to -- what we're seeing in the acquisition pipeline. I think in terms of our preference around the opportunities, I would say that we can't always control the timing of the opportunities and we view different benefits relative to the acquisitions. So even in acquisitions whose footprints overlap more with us, we feel that there are some meaningful opportunities there because the synergies can be very great, right, because we can leverage those platforms, consolidate locations, make our national agreements available to those -- that acquisition target that did not have access to this payor lives before, so that they can go back and drive some meaningful sales synergies and growth. So I think that there are benefits on both sides there even in terms of the opportunities we're looking at.

Okay. And then just last question. Guys, can you just give us a quick update on de novos and kind of how that's progressing, anything opened in the quarter, et cetera?

Yes. We opened up our San Diego pharmacy in the quarter. It's waiting on a couple of licenses. It's in process, but it is serving commercial lives today. It took us about 5 months waiting on the pharmacy board inspection to allow us to open up. But it -- that was another market where we actually invested in the sales force about 6 months ahead of opening up the pharmacy. So we are generating some good revenue flow and census flow that we've been servicing out of our Burbank facility. And then on the Chicago market, we've seen some increased revenue momentum. There are still some investment and recouping that startup costs, but happy to see the momentum that, that team is building in that new market. And then our Columbus infusion pharmacy opened up in Q1 and we added some sales assets there to begin marketing the acute side of infusion in that market that we had retained from the legacy business. So a couple of more will come online in Q2 and Q3 in the early stages, and so just slowly building out that footprint, putting flags on the map to access the lives that we have under contract.

And Rick, is there about another 6 in some stage of development, is that a pretty good number?

About that much, yes, about that, approximately that much.

Our next question, coming from the line of Matt Weight with Feltl.

Rick, can you expand on your prepared remarks? I think you talked about gaining access to patients that were previously hard to reach.

Yes. I think that was -- I think we've talked before that some markets were -- essentially, as we're building our presence, creating the awareness, some hospitals were not call points for us. And so in some markets, you have a limit as to how many liaisons from different companies are allowed in. And to our managed care relationships, we've been able to essentially access and increase our call points. And so I want to mention that it's really about now we have access. Our team has done a great job in a number of our markets, presenting our programs, our clinical programs, our capabilities and are having some excellent success slowly. But at the same time, the fact that we're in and we're seeing some patients being discharged to our service is a significant benchmark that I measure and look at given the prospects of new access points for patient census.

Okay. That makes sense. And then with the new sales reps that you brought on in the quarter, on average, how long does it take for them to really ramp up to full productivity?

About 3 to 5, 6 months. We look for reps that essentially can bring some strong relationships in the marketplace and essentially hit the ground running. But given this environment with noncompetes, with competitive assets, it takes a little bit longer. So you're looking for the right attributes, a level to understanding and effectiveness. And we measure each one of them before we bring them on in an ROI model, and then we measure that ROI in terms of its self-funding analysis that for each asset and each market that we invest in.

Okay, okay. And then clearly, you've been putting up some pretty strong organic growth in the Infusion Services side well above what the historical averages were previously. So do you want to -- just kind of remind us what's the drivers there. How sustainable is this? And in regards to that also, are you also seeing any benefit design changes that may be pushing more patients out of the hospitals at a faster rate?

We believe that the work we've done over the last couple of years to have the direct managed care contracts and the lives under contract in all of our markets has been a strong driver for us. And at the same time, we have seen different payor relationships file different benefit designs over the last couple of years. And I believe that we'll see an acceleration of more of that this year and over the next couple of years, given essentially the lowest cost environment is under our contracts in the home or alternate site, AIC. And so we feel that if we stay focused on ensuring our service levels are at the highest relative to the marketplace, then we'll have a good chance to continue to have access to this growth.

Okay. And then last question here. Thinking about Infusion Services's EBITDA margin rate, some nice improvement year-over-year. Last year, obviously, should be a fairly easy comp given the servicing some of those low margin therapies that you no longer have to. So do you think without much lifting you can almost snap back to where you were in 2011 this year?

I think we saw on a year-over-year basis an incremental drop-through rate of about 10% on the growth relative to the infusion segment EBITDA, adjusted EBITDA. And so we believe, as I mentioned in my remarks, that we're starting to see some operating leverage. I think that the other thing that we've talked about in the past, the legacy BioScrip infusion, was mostly chronic. And through the acquisition of InfuScience and Home Choice, we've essentially started to move the mix with a higher concentration in the core therapies that we believe will essentially enable us to continue to grow in those areas that we believe will have a positive impact in the future on increased drop-through rate.

And then last with that, Rick, I think in the past, you've kind of thrown off some targets potentially getting up to a 10%. Is there any reason why that's changed? And can you ultimately exceed that at some point as well?

Well, I think we've talked about moving in that direction through the operating leverage and through the appropriate mix. And so I think that we believe that we can still move in that -- in the positive direction that we've talked about in the past.

Our next question, coming from the line of Brooks O'Neil with Dougherty. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: I, too, have a couple of questions. I'm just following on with Matt's question. Could you talk at all about the trend in therapy mix in the infusion business? Are you seeing stronger growth or opportunity in the chronic side versus the acute side? Or any color there would be very helpful.

I think that the, clearly, the chronic side is where there has been big dollars spent in the past in outpatient and other higher cost settings. And so we're -- benefits designs will essentially move that into the industry faster and we've seen that occur over the last, I think, 5 quarters and we've talked about it. And then on the core acute side, the opportunity to avoid hospitalizations for some of the acute patients that could be started in the home or essentially reduce bed days that would allow for an earlier discharge are also initiatives that are underway in the industry. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: So would it be fair to say that we should see solid growth in both? Or perhaps faster growth on the chronic side?

That is fair. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: Cool. I think you've announced that you plan to refinance your debt. Can you just give us a quick update on where you stand with that effort?

Yes, that's underway, Brooks. We're -- that's something that we are keenly focused on and we're just doing all the spade work right now to get going on that. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: Okay. And then, historically, you guys have mentioned United as a potentially -- particularly a strategic payor relationship. Can you just give us any update on how things are going with United?

Well, we're part of the national panel. And yes, managed care relationship is a hunting license. And so I think it's really about continuing to work hard with all of our relationships to essentially get the pull-through. I think that we've continued to focus in on opportunities to grow our United census on service. And so those are areas that we are keenly focused on in addition to our Aetna census and Humana and other national plans, as well as the local Blues customers that we are on a contract with. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: Good. And then could you just give us any sense for your outlook for the Home Health business and the PBM business? I think Hai commented a little bit about the performance in the quarter. But what are you kind of thinking about for the year in those 2 businesses?

Yes. I mean, I think that the PBM business, we've said, we're not expecting much growth, it will be relatively flat. Home Health, I think they're -- what we're seeing, the mix between private duty and conditional home nursing is a little different than we expected, in that the private duty activities are growing faster. That does have lower margins, but we expect -- we do expect the home nursing component, the skilled nursing component, to continue to grow as well. So I mean, I believe that the Home Health piece will get back on track from a margin perspective. Obviously, that business always has some headwinds from reimbursements perspective. But with that said, we think the census will continue to grow and we'll be able to get that back on track. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: Good. And do you still feel, based on what you're seeing in that business, that long term, Home Health, represents an attractive opportunity for you once you build out your home infusion national platform?

Yes. We've been -- as we've talked before, we've been incorporating the aspects of the Home Health clinical programs and capabilities into our infusion programs, the more clinically intense infusion management programs. Some of the -- as we've talked about, we've expanded Home Health licensure in markets where we've added infusion branches. And so we've seen the beginnings of some nice cross-selling opportunities, as well as cross-level services connected in terms of managing these patients in the home environment. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: Good. And then just my last question. I'm just curious if you're seeing anything significant changing with regard to drug pricing, drug availability or drug reimbursement that's worth noting.

Well the -- I mean, clearly, there's different shortages of [indiscernible] throughout the industry hospitals have been affected. Our -- there's different components that are on back order or have been. Our supply chain team does an excellent job in making sure that we can always take on a patient no matter the therapy. And so we've not seen any impact relative to our census growth relative to the industry issues.

[Operator Instructions] Our next question, coming from the line of Mike Petusky from Noble Financial.

A few questions. Could you guys talk about -- I know that, obviously, the fourth quarter was affected -- some of the referral patterns were affected by Hurricane Sandy. Did you guys still have, I guess, any lingering impact in the first part of the quarter from that storm?

Yes. I mean, as we've talked, we did have some lingering impacts as well. But our expectation is that going to the second quarter, we're moving forward and we don't expect any impact in the second quarter and beyond.

Okay. And then just in terms -- one of your smaller competitors talked about valuations having moved up in the infusion space. Could you just talk about what you're seeing out there in terms of valuation?

Yes. I mean, we're still seeing valuations kind of -- the ranges we've talked about with regards to the effective multiples and you've heard me talk about the 2 categories. We are still seeing opportunities in that same range. I think -- and I think that the only thing we've modified is that from time to time we'll see opportunities that are larger, of larger scale, for example, larger than our Home Choice Partners, that might garner multiples in excess of those ranges or an opportunity that might have something unique that might garner multiples in excess of the ranges. But otherwise, I think that the opportunities we're seeing are kind of following in that range. I think part of the challenge when we -- part of the things that we see when we look at opportunities is because of our scale. We're able to drive more significant synergies than some of our competitors in the marketplace as they're bidding on similar assets. I think that might be some of the competitive dynamics that's going on in the market today.

Okay. And I just want to be clear. When you guys are talking about 20% organic growth in infusion, are you talking about volumes? Are you talking about revenue? Or you're talking about both?

Both. It's mostly volume, Mike, because pricing hasn't -- like we haven't had a price increase, right? So it's all driven by volume.

Okay, okay. I just wanted to clarify that. And then a last question, Hai. Is there any chance that you could help out in terms of modeling share count for Q2?

Yes. I mean -- I think that for Q2, given that the -- with the new equity offering closing towards the end of April, April 24 I think, I think we're estimating share count -- fully diluted share count, in the neighborhood of about 67 million-ish because we issued an additional 10.4 million shares effectively. And then for Q3, you'll get the full impact, right, for the quarter. So that -- and that will depend on where the share price is, obviously, at that time. But that's probably more in the $69 million to $70 million -- 69 million to 70 million share range.

Okay. And then just the last question. Home Choice integration on track. Do you guys feel good about it? Has it been tougher than expected? Just a little commentary around that.

Yes.

Yes. It's been excellent. The integration plan is very detailed, thanks to the expertise of the team we've brought on. And I think that the people are strong, clinically strong. Their sales organization is very strong and their leadership, also, is complementary -- complementing our own team. So it's -- we feel very good about the asset and the integration is going as planned.

Our next question, coming from the line of Brian Tanquilut with Jefferies. Brian Tanquilut - Jefferies & Company, Inc., Research Division: Hai, sorry if you've already addressed this, but I jumped on the call a little late. In terms of the investments in the business that you made, do you think you can quantify that for us what they were doing in the quarter in terms of amount? And also, what percentage of that or which items do you think would recur going forward and which ones were Q1 specific?

Well, I mean, I think clearly, we brought on a couple of dozen sales-oriented resources throughout the quarter, as well as the costs associated with some specific new programs that both Rick and I alluded to in our prepared remarks. So an example of a new program [ph] might be some new programs relative to manufacturers, for example. And so they're associated costs with that. So that's probably a little less recurring but clearly, the labor costs are a lot more recurring. Even within labor costs, the recruiting fees are nonrecurring in nature, right? So -- but our estimate for the total investment in the quarter was almost $1 million. Brian Tanquilut - Jefferies & Company, Inc., Research Division: $1 million. Okay, got it. And then in terms of the debt offering, I know you're pretty limited as to what you can say about that. But as we -- just from a modeling perspective, how should we be thinking about your capital structure postoffering in terms of how much debt we should be thinking on the balance sheet?

Well, I mean, I think the way we look at it is that what you have right now is we have $225 million of notes, right? The redemption premium will cost us probably closer to $18 million or so. So if we replace it with Term B, we'd have to increase our principal amount to close to probably about $250 million to cover the $225 million principal plus the fees associated with the redemption. But offsetting that, even though it's a larger principal -- larger amount of outstanding debt, the interest expense savings more than compensates for that, right? Because the rate reduction will reduce the total interest expense dollars overall.

Our next question, coming from the line of Dana Hambly with Stephens.

Hai, just on that last one, and maybe you don't want to say it. But, I mean, what should we think about for a new interest rate?

I mean, I think that -- I mean, it's hard to say until we go out in the marketplace. Clearly, I'm confident in saying it's hundreds of basis points in savings, right?

Okay, fair enough. Rick, on the hospital opportunity -- when you're going out and you're talking to the hospitals, where -- I mean, on their list of priorities, where does home infusion or alternate site infusion rank for them right now?

I think it depends on the hospital environment. But I think it is one that is important, given the pressures on different hospitals and the need to keep patients out and a lot of the complex patient episodes they're bringing to them. Our clinical programs helps them from the readmission issues and challenges. And then also, the ability to free up bed days is also something that is becoming increasingly important in terms of the hospital environment.

Okay. Are you seeing situations where the hospital would potentially want to capture some of that themselves? And would there be JV opportunities? Or would they be looking to -- looking at it more from a capitation standpoint, saying, "Hey, listen. If I can get this patient out earlier, that's great for me and you get all the business."

Well, there's different environments. I think JVs or alliances are models that have been used in our industry with hospital systems for a long time. And so depending on each hospital's needs, they'll go that path. There's other opportunities to where, essentially, more a contract relationship to essentially get patients out and assist. So it just depends on the individual hospital situation.

Okay, that's fair. And can you just remind me. Your footprint right now of pharmacies and alternate site, what percent of your managed care population are you covering right now? And where do you want to get that to?

Well, we want to get to about 95% because there are some markets we just won't have an infusion pharmacy. But I think we're about 50% covered in terms of the managed care lives today.

Okay. And is the 95% -- I'm sorry is that by year end or is that a multi-year?

I think by year end, we could be about 80%. And then as you go into next year with potentially some additional satellite spokes out there in different markets depending on the marketplace and the lives that we could see potential first dose expansion continuing after we've completed our initial footprint.

Okay. And then last one for me. Hai, as we think about the quarterly progression, can you just remind us how we should -- the seasonality in the business. And is there any one quarter particularly better than the other? And, I guess, the Home Choice would be adding probably the most impact to EBITDA in the fourth quarter. Would that be right?

Yes, that's right. I mean, I think that the fourth quarter is seasonally the strongest. And -- but this year -- so we do expect the business to ramp throughout the year. This year's a little bit different only because of the integration of the acquisitions. Look, in terms of the ramp this year, I mean, we're going to be focused on a basic game plan around mostly 3 components, right? First is, continue to grow organically, focus on that organic growth. And that's why we made the investments we made in the first quarter to be able to continue to execute on that organic growth plan. Second is, to continue to focus and do well on the integration of our acquisitions because as we begin to realize the synergies from that business, right, they will layer in and help grow the EBITDA sequentially for us. And then third is, continue to focus on driving our initiatives around improving operational efficiencies, right? And those initiatives will also help drive the margin expansion, EBITDA margin expansion we expect and contribute to that sequential growth rate throughout the year.

Our next question, coming from the line of Mitra Ramgopal with Sidoti. L. Mitra Ramgopal - Sidoti & Company, LLC: Just a couple of questions, Hai. First, would you say when you look at the revenue guidance, it's really going to be essentially volume driven? Or are you counting on any benefit from pricing?

No. We're counting on our volume. If anything pricing on some of the chronic may be a headwind as opposed to a tailwind, right? But -- so it's all volume. L. Mitra Ramgopal - Sidoti & Company, LLC: Okay. And again, you did talk about the investments in the sales resources. What other thing [ph] you would say we are in there? And should we just expect SG&A in terms of absolute dollars to go up but as a percentage of revenue to probably come in a little?

Yes, that's right. We -- you should expect operating leverage to translate in terms of SG&A as a percentage of revenue coming down over time.

Mr. Smith, there are no further questions at this time. I will turn the call back to you for your closing remarks.

Okay, great. Thank you. Well, I just want to say thank you to the entire BioScrip team, I know a number of people listening to this call, really for their hard work and contributions to our growth and momentum, and then thank you for all of you today for joining today's call. Take care.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day.