Lisa Wilson Richard M. Smith - Chief Executive Officer, President, Chief Operating Officer and Director Hai V. Tran - Chief Financial Officer, Senior Vice President and Treasurer

Brooks G. O'Neil - Dougherty & Company LLC, Research Division Michael John Petusky - Noble Financial Group, Inc., Research Division

Ladies and gentlemen, thank you for standing by. Welcome to the BioScrip Second Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, August 9, 2012. I would now like to turn the conference over to Lisa Wilson, Investor Relations with BioScrip. Please go ahead

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 be accessed through our website at bioscrip.com. A replay will be available shortly after the call's completion. Interested parties can access the replay by dialing (800) 633-8284 in the U.S. and (402) 977-9140 internationally and entering access code 21600696. 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 important factors and risks, 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 and adjusted EBITDA. A reconciliation of such measures to the most comparable GAAP financial measure is contained in our press release issued after the close of market yesterday, which can be found at our website at bioscrip.com. And now I would like to turn the call over to Rick Smith. Rick? Richard M. Smith: Thank you, Lisa. Good morning, everyone. Thank you for joining today's call. The second quarter marked a critical turning point at BioScrip. With the divestiture of the Pharmacy Services asset completed, we turned our full attention to growing our Infusion platform while stabilizing our Home Health and PBM businesses. We delivered strong revenue growth in our Infusion business, created significant momentum in our targeted therapies and completed the acquisition of InfuScience, further re-enforcing our foundation in this key segment. For the second quarter total revenue increased 18.5% year-over-year to $155.9 million. The main driver was Infusion revenue, which was, again, exceptionally strong mainly due to volume gains at $111 million, up 23.5%. Home Health revenue declined, as expected, and PBM revenue increased, benefiting from the addition of a new managed care contract added in late 2011. Gross profit for the quarter was $53 million or 34% of revenue compared to $51.8 million or 39.4% in the prior year. Hai will discuss the financial details shortly. I'm very pleased with where the business is trending, our overall performance in the quarter and our continued success in executing upon the goals we set out to achieve in our strategic plan. The strength of our managed care relationships continue to build. Our access to patient lives is growing, and we have action plans in place to optimize and accelerate growth in building the Infusion platform. Our overarching goal remains the same: to serve our customers and patients; build upon core strengths in targeted therapeutic categories; and drive improvements in margins, profitability and cash flow generation. We are building momentum and now targeting an annualized Q4 revenue run rate of $620 million to $650 million and tracking toward targeted annualized adjusted EBITDA of $62 million to $65 million. Hai will expand more in his comments, but note that these targets do not include our recent acquisition of InfuScience. As we discussed in detail on our Q1 call, we expected to have disruption in certain areas of the financial results from continuing operations due to the Pharmacy Services asset sale and the elimination of unnecessary costs related to facility consolidation and overhead costs through the third quarter. During the quarter, our team was hard at work, striving to optimize and accelerate infusion growth. We have begun to eliminate duplicate corporate and field positions, as we previously communicated was our plan post divestiture. Additionally, site optimization has begun, as we are in the process of merging duplicate infusion facilities. We expect to complete this action by the end of Q3 and project we will incur some restructuring charges associated with these closures. All of these efforts are aimed at the rebuilding process, eliminating unnecessary costs and maximizing profitability. In addition to organic growth, we've been working on market expansion plans through opportunistic acquisitions. As noted in our press release, we acquired InfuScience, a provider of alternate site infusion pharmacy services with 5 locations. This acquisition and their approach are consistent with our stated strategy: to expand our infusion footprint nationally while providing clinical excellence through our high-touch service model. Our acquisition pipeline remains robust, and we have 6 de novo pharmacies in initial stages. We are focused on our expansion plans, and we'll keep you apprised of our progress. Now let me turn to some details regarding our Infusion segment. Second quarter revenue grew both on a sequential and year-over-year basis. Our core therapy revenue grew 9.4% over the prior year and is consistent with plan. In addition, chronic infusion revenue therapies grew 41% year-over-year, as we are seeing changes in various markets directing care to the home or alternate site. On a year-over-year basis, segment revenue growth for Infusion was $21.1 million, an increase of 23.5%. Adjusted EBITDA in the segment increased sequentially to $8 million from $7.8 million in Q1 2012. As we outlined last quarter, these results were impacted by short-term transitional effects of the divested businesses, reallocation of corporate cost to continuing operations and higher-than-expected bad debt experience. With Hai on board, we are taking corrective actions to address the bad debt expense trend, including a strengthened process. Next, moving to Home Health. Our expectation for this business remains flat to slightly up for the year due to rate cuts and reduced patient census. While Home Health is a smaller piece of our consolidated business, we expect to do more operationally with this asset as we position ourselves for 2013. We believe this segment is strategically important as a complementary capability to our Infusion business, where we can leverage similar payers and points of care. We also expect to see trends continue to progress favorably, as the reimbursement environment stabilizes and the demographic trends continue to create increased demand for these services. Finally, our PBM Services segment generated $28.1 million in revenue or 16.7% growth on a year-over-year basis. This growth was driven by new relationships as well as expanded customer base. This segment can generate strong cash flow, which the company will continue to use to reinvest in the growth of the Infusion division. Before I turn the call over to Hai, I want to reiterate the strength and momentum we are building and look forward to reporting on our continued progress. Hai? Hai V. Tran: Thank you, Rick, and good morning, everyone. As a reminder, before we review our second quarter financial performance, we have changed the operating and reportable segments of the company to Infusion Services, Home Health Services and PBM Services. In addition to new segment reporting, financial statements reflect continuing versus discontinued operations, classifications for all periods presented. In reviewing our financial performance, we will focus primarily on the continuing operations. With that, for the second quarter of 2012, we reported revenue from continuing operations of $155.9 million compared to $131.6 million in the prior year period, an increase of $24.3 million or 18.5%. This increase was primarily driven by organic volume growth in the Infusion Services segment, which accounted for $21.1 million of the $24.3 million revenue increase or 23.5% gain over the same period last year. The remaining $3.2 million of revenue growth was from an increase in the PBM Services segment, offset by a slight decline in the Home Health Services segment. The increase in the PBM Services segment was volume driven. The performance in the Home Health Services segment was impacted from previously discussed reimbursement reductions for Medicare and TennCare home health rates for the calendar year 2012, as well as TennCare's 4.25% decrease in reimbursement effective July 1, 2011, and January 1, 2012. Gross profit for continuing operations was $53 million compared to $51.8 million for the same period in 2011, an increase of $1.2 million or 2.3%. Gross profit as a percentage of revenue decreased to 34% from 39.4% in the second quarter of 2011. The increase in gross profit was due to growth in revenue in Infusion Services and PBM Services business. The decrease in gross profit margin percentage, primarily related to mix of therapies in the Infusion Services segment. As previously discussed during our first quarter earnings call, in consideration of certain customer relationships, the company provided lower margin services on behalf of those key customers. And cross referrals of certain therapies were impacted in the near term as a result of transition of sales personnel affiliated with the divested business. SG&A for the second quarter was $44.7 million or 28.7% of total revenue, down from 30.7% of total revenue in the prior year period. SG&A expenses were $4.3 million greater than the $40.4 million reported for the same period of 2011, primarily due to costs associated with supporting the growth in volume from our businesses such as additional employee-related costs and broker fees related to our discount card programs, as well as cost that remains from supporting our divested businesses. We are focused on further optimizing our cost structure in order to deliver on our Q4 commitments. Bad debt expense increased from $2.6 million or 2% of revenue in the prior year to $3.8 million or 2.4% of revenue in the current year, primarily due to a higher rate of patient financial hardship and bad debt write-off, a deductibles and coinsurance rise along with the overall weak economic environment. Total operating expense increased from $47.4 million in the second quarter of 2011 to $50.2 million in the current quarter, a $2.8 million increase. This represents expense growth of 5.9% and revenue growth of 18.5%. Operating expenses for the second quarter 2012 included $200,000 of restructuring expense compared to $3.5 million in the prior year period. Interest expense in the second quarter of 2012 was $6.8 million as compared to $6.2 million reported for the prior year. The company reported loss from continuing operations net of income taxes of $4.3 million for the quarter compared to a loss of $1.6 million in the prior year. Income from discontinued operations net of income taxes was $76.1 million in 2012, relative to a loss of $686,000 in 2011. Net income for the quarter was $71.8 million or $1.29 per diluted share compared to a net loss of $2.3 million or $0.04 per share. BioScrip reported adjusted EBITDA from continuing operations of $9 million compared to $11.5 million in the prior year and $8.4 million in the first quarter, a 7.5% sequential quarterly improvement. These results were driven by the impact to gross profit previously described and by an increased cost allocation to the Infusion Services segment of certain corporate resources to support the growth of the business, which will be rationalized over the coming months. Turning to cash flows. The company generated $42.8 million in net cash from continuing operating activity, compared to $9.5 million provided by operating activities in 2011, an increase of $33.3 million. This increase was mainly due to the collection of accounts receivables retained after the Pharmacy Services asset sale, net of accounts payable related to those businesses. Our cash balance at the end of the second quarter was $138.4 million. Outstanding borrowings under the revolving credit facility totaled $30 million at June 30, 2012. However, the company has just executed a new amendment to its revolving credit facility, which along with various changes, provide additional flexibility to support the company's growth strategy and removes the minimum draw requirement. As such, the company paid down remaining balance under the revolver in July. The company remains compliant with all debt covenants. And with regards to the use of proceeds from the divestiture, we are focused on building long-term shareholder value by executing on opportunistic acquisitions to augment our organic growth. As Rick mentioned in his remarks, we are pleased to have acquired InfuScience. We believe this acquisition provides us with an asset that fits well within our strategic framework, enables us to add approximately $40 million in annual revenue, with EBITDA margins consistent with or actually slightly better than our Infusion business once fully integrated. As indicated in our earnings release and mentioned by Rick, the company increased its target annualized revenue from $600 million to $620 million to now a range of $620 million to $650 million and reiterated its annualized adjusted EBITDA of $62 million to $65 million in the fourth quarter of 2012, excluding the impact of our recent acquisition of InfuScience. This outlook reflects our current revenue trends as well as the impact of our de novo activities. In terms of the acquisition, we expect InfuScience to contribute approximately $40 million in annualized revenue, with a targeted segment adjusted EBITDA, excluding corporate overhead, in the 12% to 14% range, once fully integrated. For platform acquisition of this size, we estimate it will take 3 the 6 month for us to fully integrate. Before turning the call back to Rick, I would like to reiterate my excitement in joining the BioScrip team and believe there are compelling, long-term growth opportunities, as the management team also focuses on delivering near-term results. As such, we expect sequential improvement in adjusted EBITDA for the third quarter, as we progress towards our fourth quarter targets. With that, I'll turn the call back to Rick. Richard M. Smith: Thanks, Hai. I will now open the line for questions. Operator?

[Operator Instructions] Our first question comes from the line of Brooks O'Neil with Dougherty & Company. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: I have a few questions. I guess, the first one is maybe you could talk a little bit more about the de novo progress, as well as I think in the first quarter, you mentioned 6 LOIs or some number of LOIs. I can't really remember exactly what it was. And maybe you could just tell us exactly where you stand with the acquisitions outside of InfuScience as well. Richard M. Smith: Well, I think we say we had 6 under LOIs. And so -- yes, so we -- so actually InfuScience equals 5 of those, and then we had -- and then we actually had another 1, under an LOI that we tucked in that was closed in May, the small 1 and overlapping location. So we did actually achieve all 6 in terms of acquisition. We've got some others in our pipeline that were -- are currently under LOI but early stages of discovery as well. And then we had mentioned we had 3 de novos in process at the end of -- during the first quarter call, and we now have increased that to 6. So we've identified some additional markets to go into the -- into markets where -- or consistent with our plan. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: Great. And you think that those numbers can continue to go up in terms of -- I mean, are you still focused on trying to get the number of infusion pharmacies into the 60-70 range over the next year or 18 months? Richard M. Smith: Yes. Our target by the end of 2013 is an additional 35 from where we were, prior to the 6 that we just added, and we will -- our focus is to essentially meet that target by that end date, on or before that end date, that we've put on ourselves. So we will continue to access the acquisition route through the pipeline that we've built as well as through de novos, where we believe it's an opportunity to get into a market sooner than finding an appropriate acquisition. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: Great. And that leads to another question. Obviously, there's been a lot of conversation about what your options are in terms of financing, particularly related to the $225 million of notes outstanding. Could you just talk a little bit about what you see as your options, as it relates to those notes and maybe your options as it relates to financing your growth overall? Hai V. Tran: Yes, certainly, Brooks. Yes, I think that we did do an analysis in terms of our use of proceeds. And at least at this time, given where our bonds are trading, when we performed the analysis, it was a negative NPV proposition for us to go and redeem the notes at this time. And when we weighed that against the robust acquisition pipeline that Rick mentioned in his prepared remarks, we thought that in terms of building longer-term shareholder value, the better use of proceeds was to preserve the liquidity to assess our acquisition opportunities, at least the ones that made sense for us. I think over -- when we look at over the longer term, we'll clearly look to reduce our cost of debt. We've taken the initial steps in terms of the amendment with regards to our revolving credit facility, and we're going to be mindful of making sure our cost of capital continues to tick down as our credit profile improves over time. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: Yes. That's great. And you think some of that can happen in 2013? Hai V. Tran: Yes. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: Great. I'm curious, obviously, you retained quite a bit of receivables with the divestiture. Can you just give us a little update on where you stand with regard to collecting those out and how that's progressing? Richard M. Smith: Yes, we're on plan. We collected a significant amount between the time we closed and our end of the second quarter, and essentially, we've got some specific projects that we're working on. But everything appears to be on plan based on our expectations of net cash that we expect to realize out of the retained assets.

[Operator Instructions] Our next question comes from the line of Mike Petusky with Noble Financial Capital Markets. Michael John Petusky - Noble Financial Group, Inc., Research Division: A couple of quick ones, I guess, in terms of the growth margin and the therapy mix issue, I guess how much of taking that gross margin from kind of 34% range towards 36% or better, how much of that is really within -- essentially within your control, where you can kind of manage that mix? And how much of it is a little bit outside of your control? I mean, can you talk about -- essentially, I'm asking how easy is it -- how easy will it be for you guys to essentially fix that mix issue? Richard M. Smith: Yes. We believe -- as we talked about before, there were some therapies that we had to retain through the end of the second quarter as part of a transitional service, and so we believe that by the time we hit Q4, we'll have an ability to manage the mix and the direction that we've targeted to get essentially to those gross margin targets. So I think that through the plans in terms of traditional core mix, where we've had some good growth, as well as peeling off some of the lower margin therapies that we serviced in Q2, will all essentially look to work itself out of the system by the time we hit Q4. Michael John Petusky - Noble Financial Group, Inc., Research Division: And can you identify some of the lower margin therapies that you may not be as heavily involved in going forward? Richard M. Smith: Yes. There are some transitional injectables and also some lower infusion therapies in the chemo -- chemotherapy area that just is -- does not make sense for us, given our business model, to essentially service from our platform. Michael John Petusky - Noble Financial Group, Inc., Research Division: Okay. All right. Great. And in terms of the site optimization, essentially where it sounds like you guys are going to shut down some duplicate facilities, I mean what are we talking about? 2 or 3 or half a dozen? Or can you kind of give a ballpark of where there -- how much overlap there actually is? Richard M. Smith: Well, it's a few on the Infusion brand side, but we've got a large call center that has serviced the Infusion division. That will be merged in as part of our re-purposing of our Columbus facility, where we had our mail order specialty pharmacy, and so those -- that will be a little bit bigger call center activity with personnel as well. Michael John Petusky - Noble Financial Group, Inc., Research Division: Okay. Is -- I just want to make sure I understand. So in terms of -- when you're talking about site optimization, you're -- are you not talking about actual infusion facility? You're talking -- Richard M. Smith: There's a few infusion facilities, one overlapping with the InfuScience acquisition and then also one with a recent acquisition we just did in the overlapping markets. And then related to the infusion branches, there is call center operations that will be merged into the Columbus facility. Hai V. Tran: So Mike, a lot of it's going to be driven by the acquisition activity. So I -- so as we -- that's part of our synergy and analysis when we look at acquisition opportunities that if -- to the extent that we can consolidate locations, facilities and optimize the system, we'll do so. Michael John Petusky - Noble Financial Group, Inc., Research Division: Okay. All right. Great. And then could you just talk about, I guess, your PBM Services, how in your view pricing plays out over the next year or 2? Will you be able to hold those margins? Or margins going be tougher to come by? And just strategically, does that business make sense over the longer term? Or does it make sense in the near term and not over the longer term? I mean, could you just talk about that piece of your business? Hai V. Tran: Yes, I mean, I think the -- it's -- the bulk of our PBM business or a majority of it is discount card programs, right? So I think that the pricing -- we took a bit of a hit last year on the pricing side, but so far, as we look at this year, there are no indications that any pricing impacts will occur. It's more a volume gain for us at this point in time. So hopefully -- and hopefully, that will continue into 2013 as well. With regards to the strategic value of this business, I think you've heard Rick mentioned on previous calls that we clearly are looking at that business in terms of a harvesting it, right? And what does that mean? That can mean a range of things. It can mean keeping that business continuing to make the appropriate investments to grow that business, and I think Rick has indicated that business ought to grow in kind of the mid-single digits range, right, over time. But it could also mean that if somebody put a big price tag on it, we would consider divesting in that business as well. So I think all options are on the table, but right now, we still think that, that's a good business with good margin that we don't -- after the price impacts that we felt last year, we don't see that recurring at least for the balance of this year or into next year. Michael John Petusky - Noble Financial Group, Inc., Research Division: Okay. So even in a post-Obamacare world, you guys think that's a viable business for you guys? Hai V. Tran: Well, I mean, we don't know, right? I mean, there are lots of uncertainties with regards to how health care reform's going to play out. Richard M. Smith: The number of uninsured. Hai V. Tran: Right. Michael John Petusky - Noble Financial Group, Inc., Research Division: Okay. All right. And then just a quick question, on the de novos, the 6, I know that some of these were supposed -- you were hopeful some of these, I guess, would open up in the third quarter. Can you just kind of say, hey, of the 6, x amount are going to be in the third. x amount are going to be in the fourth or even '13? Can just kind of say what you're expecting there? Richard M. Smith: Yes, I think based on a number of initial stages and the -- based on licensing and their locations, I think we'll expect to see them come online during -- mostly during the fourth quarter. But -- and hopefully, all will be online by the end of the year so that we're seeing some contributions from the locations in 2013 Q1.

Our next question is a follow-up question from the line of Brooks O'Neil with Dougherty & Company. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: I'm just curious. Obviously, you're increasing your revenue guidance but keeping your EBITDA guidance the same, and you said that the guidance increase doesn't reflect any contribution from the acquisition. Could you just talk about what you're seeing that caused you to raise the revenue but keep the EBITDA? And would you say that it's still within the realm of possibility to get to a 10% kind of EBITDA, adjusted EBITDA margin going forward? Hai V. Tran: Yes. So Brooks, I mean, think what I said in the -- my prepared remarks was that the increase in our revenue and the associated maintenance of our EBITDA outlook was primarily driven by 2 things, right? The revenue increase is primarily driven by the fact that it reflects our current revenue trends, right? We're already on an annualized basis approaching or in the lower end of that range, of our increased range. And on top of that, we have to take in into account the investments that we're making on de novo locations and those activities, and clearly, it takes time for those to ramp up. There are initial costs such as personnel costs, facilities costs and other costs that we have to front effectively before we can get it to EBITDA breakeven, and that's clearly impacting our near-term outlook, right? And hence, why we -- although we increased our revenue guidance, we've kept our EBITDA guidance the same. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: Great. That's very helpful. Can you just say -- obviously, you talked about keeping some of these low-margin revenue, and just sort of on the same topic, you're increasing your revenue guidance for the year. So could you maybe size the amount of revenue that you're carrying right now that you think likely to go away and presumably be replaced by higher-margin revenues going forward? Hai V. Tran: Yes, I mean, it's not something that we've spoken to before, so -- but it has been factored into our updated guidance. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: Yes. Okay. And then maybe -- obviously, 3Q is likely to; still be a transition quarter. I know you're not interested or willing to give us a lot of guidance about the third quarter, but can you share any thoughts in terms of should we continue to see sequential progress. Will it be a lot of progress? Or is it likely to be a big step-up in performance when we hit the fourth quarter? Hai V. Tran: Yes, I mean, I think that you should definitely expect to see sequential progress. I think, when we look at our internal plans, we are all working hard to get to that fourth quarter number, our commitment there. And As You saw from our press release and our prepared remarks, we're reiterating the -- that guidance. So -- and I think, I even said in my prepared remarks that we should definitely see sequential improvement in the third quarter as we kind of march towards the fourth quarter numbers.

We currently have no further questions at this time. Richard M. Smith: Okay. Thank you for your time today, and thanks to all the BioScrip employees for their contributions and dedication to our customers and patients. Thank you, everyone.

Ladies and gentlemen, this does conclude the conference for today. We thank you for your participation and ask that you please disconnect your lines.