Ladies and gentlemen, thank you for standing by. Welcome to the BioScrip 2013 Second Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, August 8, 2013. I would now like to turn the conference over to Lisa Wilson. Please go ahead, ma'am.

Good morning, and thank you for joining us today. By now, you 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 also 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 21669105. 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 the -- 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 statements as circumstances change. During this presentation, we will refer to non-GAAP financial measures such as EBITDA, adjusted EBITDA and adjusted earnings per diluted share. 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 from our website at bioscrip.com. And now I would like to turn the call over to Rick Smith. [indiscernible]

Thank you, Lisa. Good morning, everyone, and thank you for joining our call today. The second quarter reflects another report of continued progress and executing on our strategic plan in the infusion segment. We posted strong double-digit organic growth in the quarter as we continue to see our sales programs produce improved results. We also generated significant infusion EBITDA growth both on a sequential and year-over-year basis and made continued progress integrating our acquisitions and opening up our de novo locations in several markets. I want to begin by restating our expectations of performance, as we have been building our infusion platform. First, we expect that we could achieve double-digit organic growth, and we achieved it again. We also stated that we expected to take advantage of opportunistic acquisitions. We have done so successfully with InfuScience, HomeChoice Partners and, soon, CarePoint Partners. We expected that the execution of our plan would result in margin expansion and operating leverage. Both trends this quarter showed good progress toward our longer-term target. Finally, we indicated that we are striving to build a national infusion footprint by the end of 2013, and we are on track to do so. Our robust acquisition pipeline indicates we can achieve this target. We continue to make good progress, as planned, and we expect it to accelerate in the second half of the year. Infusion revenue was at $156.2 million, up 40.7% over last year, demonstrating continued strong organic growth, coupled with the acquired businesses. For reference, our reported organic growth was over 15%. However, you may recall that, in Q2 of 2012, we had agreed to continue servicing patients that had been handled by our discontinued business as part of the transitional services rendered on behalf of key customers. The revenue reported in the second quarter of…

Thank you, Rick. And good morning, everyone. As a reminder, before we review our second 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. We will continue to report adjusted earnings per diluted share, which take into account the same element in calculating adjusted EBITDA and also adjust for the impact of acquisition-related intangible amortization, as noted in our press release. With that, the second quarter of -- with that, the second quarter of 2013, we reported revenue of $190.7 million compared to $155.9 million in the prior year period, an increase of $34.8 million or 22.3%. Infusion Services segment revenue increased 40.7% or $45.2 million, partly as a result of continued organic growth and revenue related to our InfuScience and HomeChoice Partners acquisitions. Excluding the impact of the acquisitions, organic volume growth in Infusion Services segment accounted for $17 million of the $45.2 million in revenue increase or 15.3% gain over the same period last year. This growth was net of the previously discussed initiatives to divert low-margin volumes to certain partners, which is part of our overall strategy to expand margin. Additionally, as Rick mentioned, the sequential infusion revenue trends reflect the seasonality in the business, as there was $9 million of seasonal Synagis therapy in the first quarter that did not recur in the second or third quarters of the year. The remaining change in revenue stems from an 8.1% increase in the Home Health Services segment resulting from growth in volume of private duty nursing activity, offset by a decline in PBM Services segment revenue of $11.7 million…

Thank you, Hai. Operator, we'll open the line up for questions, please.

[Operator Instructions] Our first question comes from the line of David McDonald with SunTrust.

Just a quick question on the infusion margins. If I look sequentially, year-over-year, whatever, the margins continue to look very strong. And I realize, sequentially, at least, you likely got a margin pickup just because of Synagis rolling off. But can you talk about in a little bit more detail some of the things you guys are doing to manage therapy mix? You touched on it briefly, but could you give a little more detail there and anything that you're doing on the sales and marketing side to help kind of drive business in some of the higher-margin therapies?

Yes. We, as we mentioned, in Q1, we invested in some additional sales assets, but the significant amount of focus continues to be on the core therapies that require the highest level of clinical management and nursing services. And so we saw, actually, in Q2 so far, the highest level of new patient starts per day in those core therapies. And we are very much encouraged by a lot of the success we've been having with the referral sources with our clinical programs in the marketplace. That investment took place over the last 1.5 years, 2 years as we've talked about our center of excellence and the training that has occurred with all of our employees. We've also seen a greater collaboration between our sales and our operations teams in terms of getting patients started, turned around faster and service levels continue to improve. So I think those different areas of progress and improvement drove some strong margin mix for us in the second quarter.

Yes. And clearly, our incentive compensation plans are geared towards driving core therapies, David. And we've made investments in, structurally speaking, around what we call strategic business units, which are effectively an overlay team that work with our sales resources to specifically drive volume in key core therapies for us.

And then, Rick, just quickly, in your prepared comments you talked a little bit about remaining confident you'll build out the infusion platform by the end of '13. I mean, with what you guys have done kind of organically and around de novos or whatever, and also the acquisitions, what else are we talking about in terms of between now and year end? Will there be some additional -- will you guys look to do some onesies and twosies on the strategic side? Will there be initial additional de novo activity? What are some of the additional filling-in that we should expect?

Yes, I mean, I -- as we've mentioned on other calls, I think, our preference, Dave, is acquisitions where possible, because, in terms of getting to market quickly, it really does give us a jump start. And so I mean, I think, the de novo activity, it -- we -- you should not look for that to really accelerate. But with regards to the acquisitions, I think our pipeline remains very robust. I think that, similar to the last quarter when we talked about the fact that we've got a good mix in our pipeline of larger and smaller -- medium to smaller opportunities, I think the same dynamics still hold today. I think, clearly, we've been very successful in taking some of the larger assets off the market. So the number of larger assets, there are just less of them out there, but there's still some very meaningful opportunities for us to pursue.

And I would assume, just given the size of the CarePoint transaction, we should be expecting more bite-sized types of transactions over the next quarter or 2.

Yes. I mean, I think the answer is it depends, right, and that we can't always control the timing of the opportunity. With that said, we are committed to ensuring that we're balancing the ability to pursue opportunities with execution risks related to the opportunities you already have in hand, right? So we want to make sure that we're well underway in terms of the integration of our acquisitions before we pursue the next opportunity. And so harking back to when we announced the CarePoint acquisition, right, we announced -- we pursued CarePoint and announced that acquisition because we felt very good about the integration of HomeChoice and how that was proceeding. And I think that, to the extent you'll see us make an announcement about the next acquisition and if its meaningful in size, it's an indicator that we feel very good about the integration of CarePoint.

Okay. And then just last question, guys. If you look at the company now, as opposed to where it was even 12 months ago, and especially once CarePoint comes on, there's significantly more bulk. Can you talk about areas that are becoming increasingly obvious in terms of improved leverage, whether that's purchasing, whether that's the ability to centralize some services, et cetera? Can you just talk about areas we should be thinking about that are kind of no-brainers from a leverage standpoint and an improved profitability standpoint?

Yes. We are already underway relative today. I think, just as we mentioned, we -- as part of the HomeChoice acquisition and looking ahead to CarePoint, that we've taken the steps to start to regionalize and centralize different levels of service functions, clinical management, even reimbursement functions that will essentially take shape in a stronger way the second half of the year and into 2014. The -- looking at the purchasing synergies, we're seeing increasing opportunities given the increased leverage that we have today, as well as anticipated with the CarePoint acquisition. The scale and concentration in some of our therapies that we're driving enable us to have some strong, meaningful discussions with our manufacturer partners to drive some more opportunities for further restatements [ph] down the road.

Yes. And of course, there's always opportunities to generate some meaningful operating leverage off that corporate overhead. I mean, as I indicated in my prepared remarks, the infusion EBITDA, segment EBITDA, has grown by almost 77% year-over-year, yet the corporate overhead has only grown by 26%. That to me is the very definition of operating leverage.

Our next question comes from the line of Brian Tanquilut with Jefferies.

Just wanted to hear your thoughts on -- or I guess, Rick as well, on how you view the PBM business right now. Obviously, we've seen some weakness there. I just wanted to see, is that something that's under evaluation given your focus on the core infusion business?

Well, I think, Brian, we're -- this is a business, as I stated. We've -- we said it all along that it's a business. And as I mentioned in my prepared remarks, we've used that cash flow to really strengthen the infrastructure and invest in the transition of -- boost the transition to the infusion platform and the growth of the establishment. So it's funded a significant amount of opportunities to create an IT infrastructure that is now strengthened, given the CarePoint coming on-board, that we've been able to take those opportunity. I think, as I said in my prepared remarks, there is a market for this. Strategically, if we think down the road that this could be better served in someone else's hand, we have seen recent transactions and -- from strategic players of movement just this last quarter. And so those are always options for us down the road as we look at, essentially, appropriate time to focus 100% on the strategic direction of our company.

Okay. And then just on margins in the core infusion business. I mean, you've done a great job ramping it up. And you guys talked about the different things that you guys are doing to improve margins. But as we look 3 years down the road, how should we be thinking about -- I don't want to say peak margins, but where do you think you can bring those margins for the infusion segment?

Yes, I mean, clearly, I think that we can -- we're at 9.1% now. We saw a nice growth year-over-year. I think there's nothing that precludes us from getting into the low double digits.

Okay. And then high -- how should I think about seasonality for the back end of the year?

Yes, I mean, I think one of the -- as we think about how we are going to get to the numbers in the second half of the year, I think we tried to outline that in our guidance, but the one thing that we didn't outline is that, seasonally speaking, the fourth quarter is always the strongest quarter in the infusion business, not only because of seasonal drugs like Synagis come back to play but you have other dynamics like home for the holidays, which is always a big push to get patients out of the institutional care setting, the acute setting, and back into the home, right? So that drives some meaningful, significant volume. That's going to help create, what I'll call, natural lift in the absence of anything else.

Okay. And then last question. I don't know if you've mentioned this, what's the interest rate on your new credit facilities?

Yes, it's -- you should probably model it at about 6 1/2% where it is today. It's the spread to LIBOR is about -- is 525 basis points. But you've got a LIBOR floor of 125. So 6 1/2% is the good rate to model, right? And the way to think about interest expense, in general, just a couple of things, since you brought the subject here, Brian, is that we're -- we saved some meaningful interest expense off of our notes, so to speak. That's offset by the fact that we will be taking out more debt as part of the acquisition of CarePoint, right? So my best estimate for where the third quarter interest expense is going to come in, probably about $7.5 million. And that is not just at the cash portion, but that's inclusive of effectively all the amortization of the -- and the deferred financing costs associated with the transaction, right? And on a going-forward basis, for the fourth quarter, probably 7.6 is probably a good quarterly number, assuming kind of our current trend, so to speak. The other thing I'd highlight is you will see, though, a onetime loss on the early extinguishment of debt, right, because from an accounting perspective, that's a nonrecurring onetime item. You see it's a separate line in the third quarter. And that -- the components of that are things like paying off any remaining fees on our old revolver, the tender offer consideration from such payments, call premiums and the write-offs of any deferred financing cost. And a crude estimate of that is going to be about $15 million in total for all those components as the onetime, nonrecurring line item that will -- you'll see in the third quarter.

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

Just on the core and the chronic mix. I'm sure you don't want to give percentages, but is it a fair assumption that, even with the growth from the core, that chronic is still kind of well above 50% of that mix?

Yes. But we're making progress, right? I mean, I think what we saw last year was that -- in the chronic, that we were not making much progress in that mix. But what we've been seeing is progress, and part of that is -- as I've seen it, Rick and I both mentioned it, part of that is our own internal efforts to shift the mix, but part of that is the fact that we've targeted specifically acquisitions that have a higher mix of core therapy. So as we begin to consolidate that, the mix will change.

Great, all right. So plenty of room to go there on improving the mix. And just on the -- it -- Rick, you talk about -- I understand the strategy is to go more core. I'm just wondering, you talk about being able to get some of the chronic therapies to some of the partners. I mean, why can't you keep that chronic business? Is it unprofitable for you and that's why you're shifting it? Or is it -- muddying the waters, take sales eye off the ball? Just kind of any color around that.

Well, there are certain therapies that just doesn't make sense for us because of scale and purchasing. And we -- there are certain chronic infusions that just at the margin are very low. So there's other aligned partners with scale that can take those on. And it may just -- it may not fit with the clinical programs that we're targeting. So we still are seeing some strong growth in the chronic in the areas that match nicely with our clinical programs. And then there are those that -- and there are the others that we feel can do a better job because they have programs focused on it. So it really depends on the therapy that comes in and where our focus is in terms of that level of growth. So the kind of service initiatives are ones that will drive the chronic infusion and with some injectables, but those are the areas that we will hold onto that are consistent with some of our other clinical programs. And then there are others that are infusions that are lower margin in some other to-be [ph] states that it makes sense for us to -- for the patient to really hand it over to one of our aligned partners.

Okay, that makes sense. It's high on the -- the pro forma capital structure, it's about $400 million in debt, right?

That's right.

And so you'd still have about $75 million on the revolver?

That's correct.

And I just -- so where would your leverage ratio -- are they taken into account future acquisitions into your EBITDA?

Yes, I mean, I think that I -- obviously, for the $400 million, that you have to pro forma in the -- and what the banks have done is pro forma in the expected contribution from the CarePoint acquisition, right, as well. So I think that we're talking between 4x and 5x at the end of the day right now on a pro forma basis. And we expect, obviously, if we continue to grow at double digits, that leverage will -- organically, that leverage will come down fairly quickly. And I think there's always a bit of a balancing act with us. We've always said, Rick and I have always said, that we're probably pretty comfortable around the 4x. We go north of 4x temporarily for the right opportunities. And CarePoint was the right opportunity for us.

Our next question comes from the line of Matt Weight with Feltl and Company.

With the CarePoint acquisition, how are you sizing up the remaining fragmented market? Are you looking at more acquisition targets potentially like HomeChoice Partners? Or is it more similar to an InfuScience?

Yes, like I said, Matt, I mean, I think our pipeline right now is quite diverse, right? There are a number of smaller opportunities that -- I think, that are very attractive to us to pursue. There are others that are more midsize like an InfuScience. There are not like -- I think I said to the marshal [ph], there are not many CarePoints left, right? So those take some time to kind of become real opportunities. And there are few kind of in-between a CarePoint and an InfuScience, right? So I mean, they're -- it's a bit of a mixed bag.

Okay. And with CarePoint, being that you're on the same IT platform, is there an opportunity to accelerate the integration time frame from their 12- to 15-month area? And then...

Yes, absolutely. No, absolutely. I mean, I think that's part of the opportunity, right? I mean, if we're able to accelerate integration, then we'll be able to garner better performance more quickly.

And are there any other revenue synergy opportunities with them given your national managed care contracts?

Yes. We anticipate that we should be able to take advantage of our managed care opportunities there. And they also have some local managed care contracts in the new markets that we're entering into that we did not have. So that will continue to add to the number of lives that we will have under contract. And so it's got a very strong presence, very strong clinical reputation in the markets that they're in. Some of their branches, we overlap. And we'll increase our concentration in those markets, which will even strengthen our position and revenue momentum opportunity. And then they have branches in between some of our branches. So the ability to increase concentration in various states with more branches and flags will enable us to continue to grow and drive some strong momentum, we believe.

Okay. And then switching over to the PBM side -- I appreciate the color there -- what percent of that business is related to the discount card business?

Right now, in terms of EBITDA, the vast majority is related to the discount card program because they -- we only have a -- just a handful of funded clients left, most of which are very small.

And then as you think about the discount card business in a healthcare reform environment where uninsured levels could be coming down, could you just comment on what are the opportunities or risks, potentially, that could pose to the discount card business?

Yes. I mean, I think that the risk has been known, right, by investors. It's -- I think the knee-jerk reaction is this business is going away because there's going to be universal coverage, right? But if you actually drill down below that initial knee-jerk reaction and you look at even reports out of the OMB, you'll see that, even post-clinical healthcare reform and universal healthcare, it's estimated it'll be over 30 million uninsured, right? And so the market for these cards are not going away. And on top of that, when you look at some of the reports and some of the analyses around discount cards, what you'll see is that what folks like managed care and PBMs and plan sponsors have done a good job of over the last decade or so is cost-shift to the beneficiaries or the members or the employees the costs of their prescription program. So what you really have now is the dynamic where there's a large and growing number of underinsured, right, relative to their prescription needs. And that, I think, is where the opportunity is, right? So you're seeing the product evolve to address that. You'll seeing -- you're seeing -- for example, you're seeing things like employers looking to offer up a private label discount card as a supplement to the benefits they're offering to employees. You're seeing other affinity-type programs taking hold where they're using the card as a way to brand, as a branding tool as well as a way to generate revenues given their affinity program, to augment their affinity program. So there are lots of ways this card is evolving and being utilized. And I think that the debt for those who have transacted the last quarter, as Rick mentioned, quite a number of large, meaningful transactions for -- to acquire businesses that have very large discount card programs. I think the bet is that these programs are still ways to address a growing underinsured population.

[Operator Instructions] Our next question comes from the line of Brooks O'Neil with Dougherty & Company. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: You obviously changed the guidance for 2013 to reflect the addition of CarePoint. Could you be just a little more specific about what your expectations are with regard to the timing of the deal close and the contribution of CarePoint to your results this year?

Yes. I mean, like I said, but our expectation is it will close in the third quarter, I mean, given that we're sitting here in August already, Brooks. I mean, could it go all the way to the end of September, potentially? We don't think so. We think that there's an opportunity for it to close as early as maybe the end of August and -- or the beginning of September. It's kind of probably our expectation at this point. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: Okay. And then I think you said annualized revenues from CarePoint in the range of $160 million when you announced the acquisition. And I think you said 12% to 14% adjusted EBITDA margin. So should we sort of prorate that or assume that the margin is going to be lower, obviously, during the integration period?

Yes, it should be lower during the integration period. I think that, like -- just like what we said with InfuScience, what we said with HomeChoice, we've always talked about an integration period, right? And the guidance we provided were always once fully integrated. During the integration period, there's going to be a ramp, right? And so -- and that ramp is mostly because, and I think I went through this on the last call, with regard to CarePoint, it takes time to get at some of the synergies. And so, no, I do not expect the 12% or 14% to occur day 1. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: Right. Okay, that's good. And then historically, you've suggested that 7% to 9% organic growth was sustainable. I think I heard you say double digits. Obviously, there's a pretty big range. I understand the comments Rick made about some of the things that happened last year in 2Q, but can you target in a little bit more what you think the sustainable sort of organic growth rate might be for the business based on what you're seeing today and where you're taking the company?

Look, so I mean, I think that we've done, the team has done an extraordinary job of growing the business this year, right? This year, we've, given all the challenges, the transitions and whatnot, the fact that we've delivered anywhere from 15% to an over-20% organic growth, right, no matter how you slice it. Even though the most conservative analysis says that even done minimally in the mid teens. And once you factor out all the noise, as Rick suggested, over 20% growth. Is that something I would model out over a 3- to 5-year period? No, right, because at some point, the law of large numbers come into play. But I think that the prevailing winds are very positive for us, right? Nothing changes core in terms of our pieces around the opportunity in this industry, right? The movement towards care -- ultimate site care is still as strong as ever, right? There's still a desire for our payers to look to optimize the post acute -- to optimize costs, right, which is rapidly moving the site of care out of higher-cost institutional setting into the home setting. That still occur, right? There's still rationalization occurring as payers are looking to consolidate to the national platform, preferred network. So all those things are still happening, right? And that's what's fueling our growth. So do we think double-digit growth is -- can be achieved on a sustainable basis on a -- over a multiyear period? Yes. Do we think it's going to be north of 20% over a 3- to 5-year period? I would not model that. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: Right. That's very, very helpful. I just have one more question. When I looked at corporate expenses, not SG&A, but corporate expenses, in the segment detail, I was modeling for a little bit lower number by about $1.5 million. And I'm -- I just wanted, trying to think about whether there were some unusual expenses or some investments that might not continue into the back half or whether that's -- the number you reported this quarter is something that we should be thinking about for the next couple of quarters.

No, I think there's opportunities for us to reduce that number, right? That's part of the -- that's clearly a part of the calculus when we're -- when we're talking about our guidance range, right, that we have to continue to generate meaningful operating leverage. We do, which is making sure that our overhead cost are rising at significantly lower levels than the EBITDA contribution from our segments. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: That's good. Maybe just a follow-up, I have some sense that maybe some systems investments and whatnot this quarter that you may have gotten your hands around in terms of positioning the organizational infrastructure where it needs to be to continue to grow but may not need that level of investment going forward?

Yes, I mean, I think that there are a host of opportunities there, right, I mean, not only in systems but across all of our corporate departments, right? So we are -- I think our team, some of whom are listening on this call, are keenly aware of the emphasis we put on controlling costs, right? And we're holding each and everyone of them accountable for delivering on those commitments.

[Operator Instructions] And there are no further questions over the phone as of this time.

All right, great. Thank you, everyone, for joining our call today. Really, thank you to all of our BioScrip teams for your great care of our patients and our great results. Thank you very much, everyone. Bye-bye.

Bye-bye.

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.