Option Care Health, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited results; amounts below are in millions of dollars unless stated otherwise. Option Care Health provides infusion therapy and related services through a national network; the filing describes one operating segment, infusion services.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $860.3 | $740.8 | $1,619.5 | $1,446.3 |
| Gross profit / margin | $199.0 / 23.1% | $166.3 / 22.4% | $364.4 / 22.5% | $324.3 / 22.4% |
| Operating income / margin | $48.1 / 5.6% | $23.2 / 3.1% | $77.2 / 4.8% | $31.9 / 2.2% |
| Net income (loss) | $31.8 | $(7.7) | $29.0 | $(27.6) |
| Diluted earnings (loss) per share | $0.18 | $(0.04) | $0.16 | $(0.16) |
| Operating cash flow | Not separately stated for quarter | $92.0 | $53.4 |
Q2 revenue rose 16.1% year over year; six-month revenue rose 12.0%. Management attributed growth primarily to organic growth across therapies. Q2 acute revenue had high-single-digit growth and chronic revenue grew in the mid-teens. Gross margin improved modestly, which management attributed to a mix shift toward higher-profit therapies. Q2 SG&A increased 7.5% in dollars but fell to 15.6% of revenue from 16.9%; six-month SG&A was nearly unchanged in dollars and declined to 15.7% of revenue from 17.6%.
Liquidity, debt and capital
- At June 30, cash was $157.5, versus $99.3 at year-end 2020. Current assets were $735.8 and current liabilities $459.5.
- Six-month operating cash flow was $92.0; investing cash use was $25.7, including $18.9 for the BioCure asset acquisition; financing cash use was $8.1. Cash increased $58.3.
- Debt principal was $1,159.9; its net carrying value was $1,131.2. No ABL revolver borrowings were outstanding; net availability was $165.4 after $9.6 of letters of credit.
- In January 2021, the company issued incremental first-lien term debt and prepaid its $245.8 second-lien notes balance. The refinancing lowered the first-lien spread from LIBOR plus 4.25% to LIBOR plus 3.75%; the reported June 30 rate was 3.85%. The first-lien loan matures in August 2026. Six-month interest expense was $36.7, down from $59.5.
- The refinancing generated a $12.4 loss on debt extinguishment, contributing to six-month other expense. BioCure’s $18.9 purchase price was allocated principally to referral-source intangible assets.
Changes, outlook and risks
- Profitability improved versus the prior-year periods, reflecting revenue growth, contribution margin and merger-integration savings. The company reported that integration initiatives continued to offset pandemic-related effects.
- COVID-19 continued to affect referral patterns and staffing. Management cited clinical labor and other staffing inefficiencies, while reporting productive payer collaboration, no material deceleration in cash collections and adequate pharmaceutical and supply levels as of June 30. It could not confidently forecast the pandemic’s duration or ultimate financial impact.
- No specific financial guidance was provided. Management said current cash and expected operating cash flows should cover operating needs for at least the next 12 months; longer-term strategic plans may require additional financing.
- Risks include reliance on a major payer (about 16% of Q2 revenue), concentration among three suppliers (about 64% of first-half purchases), reimbursement estimates and complex government-program rules, and potential service disruption if suppliers change. The company also disclosed ongoing legal proceedings and governmental reviews; it did not expect pending matters, after reserves and indemnification, to materially affect the balance sheet, but noted outcomes remain uncertain.
- A payer-category classification error in prior periods overstated government and understated commercial revenue; the company corrected the classifications and concluded the errors were immaterial, with no impact on financial statements. The filing reports a full valuation allowance against nearly all U.S. federal and state deferred tax assets and notes Section 382 limits may constrain use of federal NOLs.
Important facts for investors to verify
- Whether organic growth, therapy mix and integration savings persist, and how staffing constraints affect margins and service capacity.
- Debt refinancing economics, variable-rate exposure, swap coverage and the company’s ability to service debt and fund acquisitions.
- Exposure to the largest payer and concentrated suppliers, including renewal terms, reimbursement changes and continuity of supply.
- The filing describes 97 full-service pharmacies in the business note and 144 locations in the MD&A overview; verify the scope and meaning of these different counts.
- Future tax-asset realizability, legal and regulatory developments, and any changes to the corrected payer-revenue classifications.