Option Care Health, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparative period is Q1 2021. Option Care Health provides infusion therapy and related services through a national network of pharmacies and infusion locations, operating as one infusion-services segment.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Revenue | $915.8 million | $759.2 million | Up 20.6% |
| Gross profit / margin | $200.9 million / 21.9% | $165.5 million / 21.8% | Gross profit up 21.4%; margin broadly stable |
| Operating income / margin | $52.2 million / 5.7% | $29.1 million / 3.8% | Improved year over year |
| Net income (loss) | $30.3 million | $(2.9) million | Returned to profitability; diluted EPS was $0.17 versus $(0.02) |
| Operating cash flow | $32.7 million | $18.4 million | Up $14.3 million |
| Cash and cash equivalents | $145.6 million | $119.4 million at Dec. 31, 2021 | Quarter-end balance |
| Debt | $1,098.5 million principal; $1,065.4 million net carrying value | $1,100.0 million principal at Dec. 31, 2021 | Includes $598.5 million term loan and $500.0 million senior notes |
Revenue growth was attributed mainly to organic therapy-portfolio growth: chronic revenue grew in the high-twenties, while acute revenue increased at a mid-single-digit rate. Acquisitions contributed approximately 2% of the increase in revenue and gross profit. Commercial payers generated $786.3 million of revenue, government payers $115.2 million, and patients $14.3 million.
SG&A increased 11.6% to $134.0 million, primarily reflecting acquired employees, but declined to 14.6% of revenue from 15.8%. Interest expense fell to $12.2 million from $19.5 million, mainly following the October 2021 refinancing. Q1 2021 included a $12.4 million debt-extinguishment loss, contributing to the year-over-year improvement in earnings.
Liquidity, debt and cash flow
Cash increased by $26.2 million during the quarter. Investing cash outflow was $5.4 million, primarily capital expenditures; financing cash outflow was $1.1 million, including $1.5 million of term-loan repayments. Management cited higher earnings, lower interest expense and timing of vendor payments as contributors to stronger operating cash flow. Receivables and inventories rose during the quarter, while accounts payable also increased.
The company reported $167.9 million of borrowing availability under its $175.0 million ABL facility, net of outstanding letters of credit. Management believes cash balances and expected operating cash flows should cover operating requirements for at least the next 12 months, while noting that longer-term plans may require additional borrowing or other financing. Term-loan principal is variable-rate; the company has a $300 million, five-year interest-rate cap that partially offsets rate exposure. Senior notes bear 4.375% interest and mature in 2029; the term loan matures in 2028.
Outlook, risks and notable items
- The filing provides no specific revenue, earnings or other numeric financial guidance. Management describes acquisitions as part of its growth strategy and says it continues to evaluate opportunities.
- COVID-19-related uncertainty may continue to affect referrals, staffing, pricing and procurement; management said it could not confidently forecast the duration or ultimate financial impact. The company reported adequate pharmaceutical and supply levels as of March 31, 2022.
- Four vendors accounted for approximately 75% of pharmaceutical and medical-supply purchases in Q1 2022. The largest payer represented approximately 15% of revenue; direct government programs represented approximately 13%. Supplier disruption, reimbursement uncertainty and payer concentration are relevant exposures.
- On April 11, 2022, after quarter-end, the company acquired Specialty Pharmacy Nursing Network for $60 million in cash. It had previously acquired Infinity and Wasatch in 2021.
- Unrealized gains on the interest-rate cap contributed $11.1 million of after-tax other comprehensive income; this is distinct from net income. The cap’s fair value was $14.2 million at quarter-end.
- The company disclosed ordinary-course legal proceedings and government inquiries, stating that it did not expect pending matters, after reserves and indemnification, to materially affect its balance sheet. Outcomes remain uncertain and could affect results or cash flows.
- A prior-period payer-category classification error was corrected and deemed immaterial; it shifted amounts between commercial and government revenue categories and did not affect previously reported consolidated financial statements.
Important facts for investors to verify
- Whether chronic-therapy growth and the reported margin improvement continue, and how much growth remains organic versus acquisition-related.
- Whether operating cash flow remains strong after accounting for working-capital movements, including receivables, inventory and vendor-payment timing.
- Exposure to rising variable interest rates, effectiveness of the interest-rate cap, and continued debt repayment capacity.
- Integration, financing and returns from the SPNN acquisition and other acquisitions, alongside concentrated supplier and payer exposures.
- Changes in COVID-19 operating effects, reimbursement estimates, legal contingencies and state tax-asset realizability.