Option Care Health, Inc. (NASDAQ:OPCH) Q4 2023 Earnings Call Transcript
Option Care Health, Inc. (NASDAQ:OPCH) Q4 2023 Earnings Call Transcript February 22, 2024
Option Care Health, Inc. beats earnings expectations. Reported EPS is $0.32, expectations were $0.29. Option Care Health, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the Option Care Health Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Shapiro, Chief Financial Officer. Please go ahead.
Mike Shapiro: Good morning. Please note that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. We encourage you to review the information in today's press release as well as in our Form 10-K filed with the SEC regarding the specific risks and uncertainties. We do not undertake any duty to update any forward-looking statements except as required by law. During the call, we will use non-GAAP financial measures when talking about the company's performance and financial condition.
You can find additional information on these non-GAAP measures in this morning's press release posted on the Investor Relations portion of our website. With that, I'll turn the call over to John Rademacher, Chief Executive Officer.
John Rademacher: Thanks, Mike, and good morning, everyone. To say that 2023 was an eventful year for Option Care Health is quite the understatement. It was a dynamic year for the team and we advanced our mission to set the pace in home and alternate site infusion care and treat more patients by providing innovative services designed to improve outcomes, reduce costs, and deliver hope for our patients and their families. In 2023, we treated more than 270,000 distinct patients and expanded our portfolio of life saving therapies through our collaboration with referral sources, payers, and biopharma partners. As always, Mike will dive into the financials in a few minutes, but it could not be more pleased with the effort, dedication, and results generated by my devoted colleagues at Option Care Health.
For the full-year, we delivered revenue of $4.3 billion representing 9.1% growth over the prior year. Adjusted EBITDA of $425 million represents 24% growth over 2022 and significantly exceeded the initial expectations we articulated in early 2023. Since the merger in August of 2019, the Option Care Health team has consistently delivered solid growth and met or exceeded our commitments to our shareholders. Reflecting back on 2023, beyond the solid financial results, I'd like to highlight a number of key accomplishments and milestones. In the second quarter, we launched Naven Health, one of the largest infusion nursing platforms in the industry comprised of more than 1,500 clinical professionals. Naven is critical component in our mission to serve more patients and strategically the platform is vital to our continued success.
We continue to invest in our ambulatory infusion suites, footprint, and in 2023 we expanded our network to 164 suites and over 660 chairs nationwide. Again, this is a key investment strategy designed to enable continued growth, while unlocking clinical labor efficiency. We advanced our use of advanced analytics and repetitive process automation within our pharmacy and revenue cycle management operations to reduce waste and improve cash velocity. We also recently announced our multi-year collaboration with Palantir to deploy their artificial intelligence technology across our operations to drive efficiencies and improve the patient experience. We launched a number of new therapies in 2023 through our collaborations with BioPharma, including VYJUVEK, VYVGART, [indiscernible] and Cabenuva to name a few.
We believe our integrated international network of state-of-the-art pharmacies and expanded number of infusion suites combined with the clinical know-how and our leading technology platform continues to resonate with the biopharma partners and positions us well to continually expand our portfolio. Every member of the Option Care Health team understands that behind every dose is a loved one, and behind the scenes is a comprehensive team of pharmacists, pharmacy technicians, dietitians, infusion nurses, patient support professionals, and supply chain experts. Their focused dedication and collaboration help ensure that we deliver unparalleled care in the comfort and convenience of our patients' homes or in one of our infusion suites. Making certain we are an employer of choice and a destination for health care professional is also critical to our continued success.
In 2023, we were thrilled to have earned the designations of the Gallup Exceptional Workplace and a Military Friendly Employer. These recognitions affirm our relentless focus on recruiting our team every day and delivering extraordinary care to our patients. As the old saying goes, you can do well by doing good and we believe that our financial results for 2023 demonstrate that we are doing just that. Exiting 2023, our balance sheet has never been stronger and our liquidity position is in great shape. During 2023, both S&P and Moody's upgraded our credit profile to the highest ratings yet. Our net debt leverage profile is well under 2x and we generated more than $370 million in operating cash flow in 2023 and deployed $250 million towards the share repurchase.
So reflecting on 2023, we continue to deliver strong growth, while investing in this unique platform and our capabilities to enable sustainable growth. As we outlined in our 2024 guidance this morning, we expect to continue this trend of delivering strong financial performance as we grow and serve more patients. I've never been prouder of the Option Care Health team and the level of service that we deliver to our patients every single day, and I remain confident in the road ahead. With that, Mike will provide additional color on the results. Mike?
Mike Shapiro: Thanks and good morning, everyone. As John mentioned, we're quite encouraged by the solid finish to 2023. Fourth quarter revenue of $1.124 billion represented 9.5% growth over Q4 of 2022. Performance was solid across the portfolio and execution in the field was very strong. Full-year revenue of just over $4.3 billion was up 9.1% despite a number of headwinds we've talked about throughout the last year including two exited therapies and the impact of the divested respiratory therapy asset. So overall we're quite pleased with the top line performance. Q4 gross margin of 22% represented dollar growth of 6.9% as we saw some mix shift impact towards the chronic portfolio as well as a smaller procurement benefit in the quarter.
In recent quarters, I've spoken about the favorable procurement dynamics that persisted in 2023 and in Q4 we estimate we realized approximately $8 million in benefit related to the dynamic. For the year, we estimate that we realized $33 million to $35 million of these transitory procurement benefits, which we believe will not continue into 2024. SG&A of $147.8 million actually declined versus Q4 of 2022 and spending leverage improved to 13.1% of revenue, which we believe affirms the scalability of the platform. An adjusted EBITDA of $111.6 million in Q4 represented 9.9% of revenue and was up 18.4% over the prior year. Again, Q4 adjusted EBITDA included roughly an $8 million procurement benefit. Beyond the P&L, we generated more than $370 million of cash flow from operations for the year, which again includes approximately $85 million from the Amedisys transaction termination fee net of related expenses.
During the year, we deployed $250 million for share repurchases and still finished the year with approximately $344 million of cash on hand and a net leverage ratio of 1.8x. This is the fifth year end that we have reported as Option Care Health and reflecting back to 2019 when we completed the merger, we socialized the combined enterprise at the time as generating roughly $2.7 billion in revenue and roughly $200 million in pro forma adjusted EBITDA. Four years later, we've increased revenue by 50% to $4.3 billion and more than doubled adjusted EBITDA to $425 million. We've also driven dramatic improvements in our balance sheet, reduced the leverage profile by more than two-thirds from 6.2x to 1.8x and slashed net interest expense by more than half from $110 million to $51 million.
And while we're proud of how far we've come, we're equally excited about the road ahead. As disclosed in this morning's press release, we anticipate delivering another year of solid growth for our shareholders. In 2024, we expect to generate revenue of $4.6 billion to $4.8 billion. We expect to generate adjusted EBITDA of $425 million to $450 million. And we expect to generate cash flow from operations of at least $300 million to provide some additional data points, we expect net interest expense of $55 million to $60 million approximately $45 million in stock comp expense and an effective tax rate of 26% to 28%. So overall, 2023 was a very productive year, and we expect to continue our track record of leveraged growth into 2024. With that, we're happy to take your questions.
Operator?
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