Option Care Health, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. The company provides infusion therapy and related services through a national network. BioScrip results are included only from the August 6, 2019 merger date, so comparisons with 2019 reflect both merger-related scale and underlying performance.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $740.8 million | $497.3 million | $1,446.3 million | $973.8 million |
| Gross profit / margin | $166.3 million / 22.4% | $101.4 million / 20.4% | $324.3 million / 22.4% | $199.6 million / 20.5% |
| Operating income (loss) / margin | $23.2 million / 3.1% | $(8.0) million / (1.6)% | $31.9 million / 2.2% | $(2.6) million / (0.3)% |
| Net loss | $(7.7) million | $(13.6) million | $(27.6) million | $(17.3) million |
| Net loss per share, diluted | $(0.04) | $(0.10) | $(0.16) | $(0.12) |
Q2 revenue rose 49.0% year over year; management attributed approximately $208.4 million of the increase to the merger, with the balance principally reflecting therapy portfolio growth. Gross margin improved, while higher interest and merger-related depreciation and amortization remained significant. Net loss narrowed in Q2 but increased for the first half.
Cash flow, liquidity, and debt
- Six-month operating cash flow was $53.4 million, versus $22.4 million in 2019; management cited working-capital efficiencies and payment timing. Investing cash outflow was $8.7 million, principally reflecting $9.3 million of property and equipment purchases.
- Cash increased to $118.1 million at June 30, 2020, from $67.1 million at year-end. The company reported $140.4 million of available ABL capacity and no ABL borrowings.
- Total debt principal was $1,332.6 million; reported debt carrying value was $1,284.6 million. First-lien term loan interest was 4.68% and second-lien notes interest was 10.25% at quarter-end. Six-month net interest expense was $59.5 million.
- The company elected to pay the August 2020 second-lien interest in kind, adding approximately $10.8 million to principal and incurring an additional 1.00% interest during the quarter’s interest period.
- After quarter-end, on July 24, the company issued 10 million shares in a public offering and received approximately $118 million net proceeds; it planned to use proceeds and available cash to repay $125 million of second-lien notes. HC I separately sold 8 million shares.
Changes, outlook, and risks
- Management said the pandemic reduced new acute and chronic patient referrals, but increased transfers from hospital and outpatient settings supported revenue. Q2 acute revenue declined at a single-digit rate year over year, while chronic revenue grew at a low-double-digit rate.
- COVID-19 increased labor costs through overtime and contract staffing and raised PPE procurement costs. The company said it maintained adequate supplies and had not experienced material deceleration in cash collections. Management could not reliably forecast the pandemic’s duration or ultimate financial impact.
- The company reported that it had achieved its stated goal of at least $60 million in net merger cost synergies by the end of Q2 and expected to exceed that goal. No specific revenue, earnings, or cash-flow guidance was provided.
- The $11.7 million received under the CARES Act was recorded as a liability because the company intended to return the unused funds; management said it would return them.
- Risks include pandemic-related referral volatility, staffing and supply constraints, payer and reimbursement uncertainty, reliance on three vendors for approximately 72% of pharmaceutical and medical-supply purchases, and substantial indebtedness. One payer represented approximately 16% of Q2 revenue. The company also disclosed ongoing legal proceedings but did not expect pending matters, after reserves and indemnification, to materially affect its balance sheet.
Important facts for investors to verify
- Separate merger-driven revenue growth from organic growth and assess whether reported therapy trends persist.
- Track delivery of additional synergies and whether labor, PPE, and other pandemic costs continue to offset savings.
- Confirm completion and terms of the planned $125 million second-lien repayment, including resulting debt and interest burden.
- Monitor operating cash conversion, working-capital movements, and the return of CARES Act funds.
- Assess referral trends, payer concentration, supplier continuity, and any material changes in legal or reimbursement exposures.