Greetings and welcome to the BioScrip Inc. Second Quarter 2018 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure your host, Matt Dexter, Vice President, Deputy General Counsel. Thank you. You may begin.

Good morning and thank you for joining us today. BioScrip's second quarter 2018 financial results were released earlier this morning. A copy of the earnings release can be found in the Investor Relations section of our website at www.BioScrip.com. Within two hours of this call's completion, an audio replay also will be available in the Investor Relations section of BioScrip's website. Dan Greenleaf, President and Chief Executive Officer; and Steve Deitsch, Senior Vice President, Chief Financial Officer and Treasurer will host this morning's call. Before we get started, I would like to remind everyone that our comments may contain forward-looking statements within the meaning of the Private Securities Litigation 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. Please refer to our press release and our reports filed with the SEC, where you will find factors that could cause actual results to differ materially from these forward-looking statements. 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 adjusted EBITDA, a non-GAAP financial measure. A reconciliation to the most comparable GAAP financial measure is contained in our press release issued this morning. And now, I'd like to turn the call over to Dan Greenleaf. Dan?

Thanks, Matt. Good morning, everyone, and thank you for joining us. This morning, I'll discuss our second quarter 2018 performance. Before I get into the details, I just say that I continue to grow more bullish on BioScrip's transformational position in healthcare by almost any measure many of which we will discuss today BioScrip continues to lead. Second quarter of 2018 was no exception. In the second quarter of 2018, we continue to execute. We reported record second quarter adjusted EBITDA of $11.4 million up 14% year-over-year which represents the third best quarter in the company's history. Importantly, BioScrip has established a track record of execution with three of the last four quarters representing record quarters for adjusted EBITDA results. Moreover, four of the last five quarters BioScrip has achieved in excess of 10 million of EBITDA as a pure play infusion company. Turning to our gross margin performance. In the second quarter, BioScrip's core mix expanded by 150 basis points year-over-year to 75.1%, helping drive a 510 basis point improvement in gross margin to 34.1%, normalizing gross margin for ASC 606 yields, a second quarter 36.1% gross margin. As we drive profitable growth, continue to focus on supply chain, formulary and asset management, we believe BioScrip's longer-term gross profit margins can approach 40% even when adjusted for ASC 606. Turning to our operating expenses in the second quarter. BioScrip demonstrated continued improvement in its cost discipline and efficiency. This includes a sharp focus on both labor and other operating expenses. For example, this quarter we achieved a 3 million year-over-year reduction in operating expenses on a comparable basis when adjusting for ASC 606. BioScrip's performance in the quarter reflects the management team, as well as colleagues across our network who are committed to delivering and executing on a daily…

Thank you, Dan, and good morning everyone. My prepared remarks will include additional information on the company's second quarter performance and 2018 guidance. Net revenue for the second quarter of 2018 was $175.8 million compared to $218.1 million in the second quarter of 2017, a decrease of $42.3 million or 19.4%. This revenue decrease resulted primarily from our previously discussed shift in strategy to focus on growing BioScrip's core revenue mix including contract changes with the UnitedHealthcare effective September 30, 2017 and the impact of implementing ASC 606 in 2018. Our revenue mix in the second quarter was 75.1% core and 24.9% non-core with core mix increasing 150 basis points above our 73.6% core revenue mix in the prior-year quarter. Gross profit for the second quarter of 2018 decreased $7.7 million or 11.3% compared to the prior year period primarily due to the reduction of revenue related to the ASC 606 adoption and the UnitedHealthcare contract transition. Gross profit margin for the second quarter of 2018 was 34.1%, a 510 basis point improvement compared to the prior year quarter on a comparable basis adjusted for the impact of ASC 606 adoption. Gross profit margin improved primarily due to a higher core mix and supply chain improvements. Operating expenses were $48.5 million for the second quarter of 2018, a $9.1 million or 15.8% reduction compared to the second quarter of 2017. Lower labor cost and a reduction in bad debt expense due to the implementation of ASC 606 were the primary drivers of the improvement. Second quarter 2018 operating expenses were reduced $3 million compared to the prior year quarter on a comparable basis adjusted for the impact of ASC 606 primarily due to lower labor costs. Adjusted EBITDA for the quarter of 2018 was $11.4 million compared to $10 million…

[Operator Instructions] Our first question is coming from the line of Brooks O'Neil with Lake Street Capital Markets. Please proceed with your question.

So my question is first, was there any impact of disruptions in Puerto Rico that affected you this quarter, and is there any way to quantify if there was?

That’s hard to say Brooks. I don't - I will say that you know if we look at use of cash, the inventory increases occurred quite predominantly in the first quarter and the cash use occurred in the second quarter. So as it relates the Puerto Rico, Brooks I don't feel as though there's anything that I can point to, to say that that the impact was any more significant than it's been in the past. And that is - and moreover there's nothing to indicate that that things are getting any worse.

Switching gears, obviously you have the negative impact of the termination of UnitedHealth last year and how that's affecting the business. Is there any way to breakout the rate of organic revenue growth you’re achieving at a branch level or any way to think about that?

I’ll just say it’s improving. As we talked about it, June was better than May and July was better than June, Brooks.

Let me ask one last question, is there any reason to think that July is an unusual month either seasonally or for any other reason or does it in your opinion primarily reflect the impact of the operational steps you've taken there strict in the business?

Well I would think it’s the latter Brooks. I was pleasantly, I don't know if surprised because I've been expecting this at some point in time. But I will say that if we continue to perform in the summer months that bodes very, very well for us in the rest of the year.

The next question is coming from the line of Brian Tanquilut with Jefferies. Please proceed with your question.

This is Bryan Ross on for Brian Tanquilut. Again congrats on the great quarter. I think on the FY 2019 and fiscal year 2020 outlook with Vision 2020, you’ve laid out the EBITDA expectations and goals and some of the initiatives to get there. I guess can you provide a little more color into really the primary initiatives and then some of those secondary initiatives you mentioned in terms of the timeline which elements are you accomplishing now and over the near-term and then which ones do you expect take a little more time.

So if I look at the ones Brian we’re accomplishing now, I would tell you that certainly field force effectiveness is something that's occurring as we speak. And again, we’ve continued to see improvement in our sales. I think the team has done really amazing job on the operational level and particularly managing our expenses. And I believe that - I think that's largely been accomplished and but that being said we still see significant improvement to drive our single repeatable model. When I look at what we’ve done on our revenue cycle management front, forever when I was here I was told that at some point that we were going to consolidate into four or five locations, well that’s been done. We've got a facility in Morris Plains that handles our commercial business. We got a business in St. Louis that handles our federal health services, and our Medicare Medicaid reimbursement has been centralized in Aurora. And our respiratory durable medical equipment billing collections has been centralized in Cromwell, Connecticut. So, we've made - I mean that has been from my standpoint that's built to scale. And then some of the other thing that I've talked to about on the call today Brian, around the branch of the future. And we've made some significant capital investments this year and we launched our first branch of the future. We've got another four or five that are going to be coming online in the next three to six months. And then we’ve made significant investments in our facilities just to upgrade those. And to make sure that they have the look and feel we want. On the formulary and supply chain again, I'm just - there isn't a month goes by that I've not been pleasantly surprised by the work that…

Yes, very helpful. And I guess switching over to the cash flow you talk about it returning to more in normalized levels in Q3 in the back half. And you mentioned couple of different moving pieces there in 2Q, I guess on the AR step up was that more of a short-term item related to maybe some of the rev cycle improvements or any rev cycle changes there or any more color there would be helpful?

Yes and I’ll let Steve handle the other ones. Again I can’t believe that you know - let’s face it, we've done a lot of restructuring here. We’ve moved a lot of people around different roles. We’ve consolidated on a number of fronts and that does have an impact on how we're operating as a business. There's just no two ways around it. So, Steve I know you had some other comments.

Yes, I would just say Brian that the largest factor for the quarter was clearly the timing of the inventory buy-ups that we were executing before the second quarter related to product shortages and recalls. And so we had purchased a fair - a large amount of inventory and that was paid for in the second quarter. And so that's - I’m not going to say that’s going to completely go way but we're certainly not going to see the level of cash usage like we did in the second quarter related to strategic buy-ups because as we mentioned in the first quarter call and talked about we had built inventory and would pay for that in the second quarter and that’s exactly what we did and you see it in the cash flow. Dan touched on the short-term reductions and cash receipt rates and then the other thing would be I would highlight is we made our bonus payment for the first time in several years for BioScrip employees…

Since' 09 again it’s a great thing but it’s use to cash.

Yes, and so those three items were the key drivers of the cash usage in the second quarter. We talked about our July cash balance grew. We expect the cash balance to grow as we move through the second part of the year and that’s going to be driven by increased levels of EBITDA consistent with our guidance, and lower levels of strategic inventory buys and a return to normal on our cash collections rates.

Our next question is coming from the line of Kevin Ellich with Craig-Hallum Capital. Please proceed with your question.

Dan I guess going back to the Vision 2020 comments, and the strategic partnerships is kind of an interesting aspect. Could you give us any color or detail if you could as to what some of these partnerships might look like?

Yes, I’m little sensitive about this candidly Kevin because we do have competitors on the line and so I just want to preface some of my comments by saying that. That being said, I mean some of the obvious ones that we believe are I think very exciting and also that we’re getting some decent traction on is redirection efforts. There are payers that are consistently coming to us, saying, we want to figure out a better way of getting these patients service and alternate sides of care. And the hospital is too expensive, we know that satisfaction levels are lower when the patients are seen in the hospital as opposed to the home. And we also understand that there are safety issues associated with caring for those patients in a hospital versus the home. We also know that there tends to be a higher level of patient financial responsibility when a patient is seen in a hospital or a institution versus the home. So that's one that we see has a lot of legs and is gathering a lot of steam. I think we've talked about the strategic partnerships with hospital systems and that's certainly something that we believe in. We believe that we can create win-win arrangements with them, and so - they think about the strategic partnerships, those are the ones that come to mind but suffice to say there's other ones that are out there, Kevin. And I'm just not in a position really - I don't think it's in my best interest to kind of share that with my competitors.

I guess looking back, one quick one for Steve, going back to the cash flow, one of the things you commented on was a decrease in cash collection on the AR. I guess what was driving that and has that returned to normal as well?

As Dan mentioned, Kevin, we've made a lot of progress on changing and consolidating our revenue cycle functions. We started the year with approximately 10 sensors and we've gone down to 5 as we go into the second half of the year. And a byproduct of that is due to some of the changes that we've implemented while we're improving our longer term prospects for cash and our cash in the second half of this year. There is a little bit of bumpiness when you think about the collection rate, and we're starting to - we expect to see that to improve in the third quarter and into the fourth quarter. But as I mentioned, the primary driver was the inventory buyout during the second quarter. So that was the largest use of cash and we're going to expect to see cash continue to build in the second half of the year, as we normalize the strategic inventory purchases, get our cash collections rates back to a normalized level, and drive our EBITDA growth consistent with our guidance.

And then Dan, one thing you guys have talked about in the past is the in-center infusion initiatives. Just wondering how that's going and are we going to see that rolled out to more center throughout the country?

Yes, we're - you mean the ambulatory infusion centers Kevin?

Exactly.

No, we continue to see utilization growth. As a percent basis with the centers than in fact we're opening centers in Canton, Philadelphia, and Richmond, as we speak. So, we're going to continue to expand our ambulatory infusion suite footprint. We think it's a really effective model, Kevin. And again, we continue to see increases in utilization.

And then last one from me is, Steve, could we get an update or Dan, could we get an update on search for a new controller and/or are you planning to replace Alex Schott, or are you good on the Management front?

Kevin, happy to give you an update on that. We've retained an executive search firm to help us find the right CAO, and we're well along in that process. We've got multiple, highly qualified candidates interested in this role. And we're - we expect to have a new CAO in place this quarter.

[Operator Instructions] Our next question is coming from the line of Mike Petusky with Barrington Research. Please proceed with your question.

Lot of good information, thank you. So, a couple of questions. Dan, I think a few conference calls ago, you had said, hey, look, there are some of these commercial contracts where we don't feel like we're being paid appropriately and you would expect some optimism around maybe moving the needle little bit in terms of pricing. Can you give an update on what you guys have been able to accomplish even if it's anecdotal on that front?

Yes, we've had - again, I'm little hesitant to kind of share, Mike, for obvious reasons but we've had a fair amount of success in that front. I'm very pleased with what's been accomplished to date and I'm also very excited about the things we have in the queue. And some of discussions that we have ongoing right now. So, clearly it's something, we want to make sure that we're being paid fairly, we want to make sure that we're getting paid - what we would describe as fair market value, and where we see GAAPs and what we describe is being paid fairly and fair market value. We're going to have, I think, very deliberate discussions with the respective payers, well that's an issue for us. But again, whether we're - I would say Coram, or whether we've been at Home Solutions or at BioScrip, we've had a lot of success in terms of getting paid or getting our rates increased given where the market is and what people perceive the market value to be and we're - we believe also that that there's more opportunities on that front as well, Mike.

This may seem a little bit picky, but I'm going to go for it, anyway. Look, you guys have made fantastic progress on driving the core mix over the past couple two-three years. But over the past couple two-three quarters, it's sort of flattened out. And I'm just wondering, is that 85.15 target is that still realistic or maybe that's a bridge little bit too far to cross in today's environment for whatever reason? I guess I was just wondering if you could comment on the flattening of the progress last couple of two-three quarters? Thanks.

I think - what I would share with you that the two big bumps we got frankly, Mike, were a result of the Home Solutions acquisition. Because Home Solutions core to non-core mix was about 86% to 87%. So the Company got a big bump as result of that. The Company also got a big bump as it right sized its contractual relationship with United. And at this point, I would describe that the uptick is going to be more incremental, where we got those kind of big swathe of increases. So, I'm not really surprised by that. I'm not - from my standpoint we do - we still take a lot of non-core business, Mike. And our goal is to make sure that it's not so much that we're not going to take non-core business, but is to accelerate our core business faster. And if we continue to see the trends that we've seen, for example, in June and July, I expect that we'll continue to see incremental improvement in the percent core.

So, the strong revenue growth in July, the core mix was at a level that you were happy with.

Yes, we're seeing acceleration in our core revenue, Mike.

And Mike, just to reiterate, what I like to see is the progress is just a sequential improvements as Dan mentioned, May was better than April, June was better than May. July was better than August. And that's how we get the flywheel of momentum going in.

Mike, he's struggling a little bit with his months. He said July was better than August.

What I was trying to say, July of this year was better than August of last year.

Last question, I don't want to beat this up, but I do think it's important given the historical struggles certainly with the previous management teams. It sounds like on the cash collections piece - I'm not talking about the strategic purchasing but on the cash collections piece itself, you guys are essentially trying to communicate, hey look, we've done a lot, there's always going to be some bumps with this, but there's nothing kind of, - this is a bump in the road not a first cock road, is that essentially what you are trying to communicate?

Yes, I would say that. We hired as you know Mike, Danny Claycomb on December 2017 and Danny is unequivocally the best revenue cycle management guy in this industry. And he has done a lot here in a very, very short period of time and I have a tremendous amount of confidence in him. And also as you know, we hired Harriet Booker, as our Chief Operating Officer in December of 2017 as well Mike. And that's really in many respects the tandem on cash and so I have a lot of confidence and the two of them - certainly their track records speaks for itself and I have not been part of an organization where Danny Claycomb has been part of it, and that we have not over achieved in our revenue cycle management performance and again you combine that with Harriet's pedigree and expertise. I feel very good about where we are and where we are headed with this.

Thank you. We have reached the end of our question-and-answer session. So I'd like to pass the floor back over to Mr. Greenleaf for additional concluding comments.

All right. Thank you all for joining today. We are pleased with the solid momentum and the execution of our plans. We look forward to updating you again on our continued progress in November, when we announce our third quarter 2018 financial results.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. And you may disconnect your lines at this time.