Option Care(OPCH) - 2020 Q4 - Annual Report

PART I Item 1. Business Option Care Health is the largest independent provider of home and alternate site infusion services in the U.S. through a national network - Option Care Health is the largest independent provider of home and alternate site infusion services, with 145 locations in 45 states and approximately 2,900 clinicians[16] - Services are primarily provided in patients' homes, also at clinics, physician offices, or ambulatory infusion suites, through 99 full-service pharmacies and 46 stand-alone ambulatory infusion suites[25] - Sales and marketing focus on building relationships with managed care organizations, patient referral sources, and pharmaceutical manufacturers for product distribution[28][29] - United Health Group is the largest payer, accounting for approximately 15% of revenue in 2020, with government programs (Medicare and Medicaid) also accounting for approximately 15% of revenue in 2020[37] - As of December 31, 2020, the company employed 5,146 full-time and 706 part-time personnel, relying on attracting and retaining qualified nursing staff, pharmacists, and other professionals[54][55] Item 1A. Risk Factors The company faces significant risks from pharmaceutical industry changes, payer relationships, competition, and extensive regulations - Revenue and profitability are highly dependent on pharmaceutical manufacturers' ability to develop, supply, and market compatible pharmaceuticals; supply shortages, recalls, or FDA approval changes could have a material adverse effect[60][61] - 85% of 2020 revenue came from managed care organizations and other non-governmental payers; loss of these relationships or reduced pricing from competitive bidding could significantly impact revenue and net income[62] - Approximately 70% of pharmaceutical and medical supply purchases in 2020 were from three vendors, posing a risk of supply disruption or cost increases if relationships change or shortages occur[70] Outstanding Indebtedness as of December 31, 2020 | Debt Type | Amount (millions USD) | | :------------------ | :-------------------- | | First Lien Term Loan| $915.8 | | Second Lien Notes | $245.8 | | Total | $1,161.5 | - The COVID-19 pandemic negatively affected new patient referrals for acute and chronic conditions, caused cost inefficiencies in clinical labor and PPE procurement, but also led to increased patient transfers from hospitals[121][122] Item 1B. Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - No unresolved staff comments were reported[140] Item 2. Properties The company leases all its properties, including its corporate headquarters and numerous infusion pharmacies, with terms extending through 2035 - All properties are leased from third parties, with terms extending through 2035[142] - Properties consist mainly of infusion pharmacies with clean room and compounding capabilities, some co-located with ambulatory infusion centers[142] Item 3. Legal Proceedings Information regarding material legal proceedings is incorporated by reference from Note 14 of the consolidated financial statements - Material legal proceedings are detailed in Note 14, Commitments and Contingencies, within Item 8 of the report[143] Item 4. Mine Safety Disclosures This item is not applicable to the company - Item 4, Mine Safety Disclosures, is not applicable[144] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq, has 142 stockholders, and has not paid cash dividends, with performance detailed - Common Stock symbol changed from 'BIOS' to 'OPCH' and moved to Nasdaq Global Select Market on February 3, 2020[146] - As of March 8, 2021, there were 142 stockholders of record[147] - The company has never paid cash dividends and does not anticipate doing so in the foreseeable future[148] Stock Performance (2015-2020) | Years Ended December 31, | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | | :----------------------- | :------ | :---- | :------ | :------ | :------ | :------ | | Option Care Health, Inc. | $100.00 | $59.43 | $166.29 | $204.00 | $213.14 | $223.43 | | Nasdaq Composite Index | $100.00 | $107.50| $137.86 | $132.51 | $179.19 | $257.38 | | Nasdaq Health Services Index | $100.00 | $83.09 | $100.79 | $96.59 | $121.54 | $158.04 | Item 6. Selected Financial Data Selected consolidated financial data for 2016-2020 reflects new accounting standards and the BioScrip merger, impacting comparability Selected Consolidated Balance Sheets Data (thousands USD) | Metric | 2020 | 2019 | 2018 | 2017 | 2016 | | :---------------------- | :---------- | :---------- | :---------- | :---------- | :---------- | | Working capital | $222,989 | $228,650 | $227,428 | $226,535 | $227,763 | | Total assets | $2,647,439 | $2,589,547 | $1,428,211 | $1,429,542 | $1,405,285 | | Total debt, net | $1,124,353 | $1,286,496 | $539,375 | $540,346 | $541,500 | | Stockholders' equity | $1,015,724 | $906,827 | $602,825 | $606,105 | $600,770 | Selected Consolidated Statements of Comprehensive Income (Loss) (thousands USD, except EPS) | Metric | 2020 | 2019 | 2018 | 2017 | 2016 | | :------------------------------ | :---------- | :---------- | :---------- | :---------- | :---------- | | Net revenue | $3,032,610 | $2,310,417 | $1,939,791 | $1,828,046 | $1,711,438 | | Gross profit | $682,264 | $512,999 | $422,215 | $445,999 | $449,307 | | Operating income (loss) | $110,755 | $(319) | $38,269 | $27,279 | $52,448 | | Net (loss) income | $(8,076) | $(75,920) | $(6,115) | $3,878 | $3,910 | | Net comprehensive (loss) income | $(12,053) | $(83,959) | $(5,341) | $3,936 | $3,910 | | Net (loss) earnings per share, basic and diluted | $(0.04) | $(0.49) | $(0.04) | $0.03 | $0.03 | | Weighted average common shares outstanding, basic and diluted | 180,971 | 156,280 | 142,614 | 142,614 | 142,614 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews Option Care Health's business, COVID-19 impact, merger integration, financial performance, liquidity, and critical accounting policies - The Merger of Option Care and BioScrip on August 6, 2019, created an expanded national platform, driving cost synergies through procurement savings, facility rationalization, and administrative cost streamlining, achieving at least $60 million in net cost synergies in 2020[170] - The COVID-19 pandemic negatively impacted new patient referrals for acute and chronic conditions but saw an increase in patient transfers from hospital settings, with acute revenues flat year-over-year and chronic revenue growing in the mid-teens in 2020[167] - In January 2021, the company amended its First Lien Term Loan, issuing an additional $250.0 million to prepay the remaining $245.8 million of Second Lien Notes, reducing the interest rate on the First Lien Term Loan from LIBOR plus 4.25% to LIBOR plus 3.75%[208][401] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on variable debt, mitigated by swaps, with inflation having no material effect - Primary market risk exposure is to changing LIBOR-based interest rates on variable rate debt[234] - To minimize interest rate risk, the company entered into two interest rate swap contracts: one for $925.0 million notional on the First Lien Term Loan (effective through August 2021) and another for $400.0 million notional on the Second Lien Notes (discontinued hedge accounting in May 2020 and matured in November 2020)[235] - A 100-basis point increase or decrease in market interest rates would result in a $6.4 million change to interest expense over a twelve-month period[236] - Inflation has not had a material effect on operating results[237] Item 8. Financial Statements and Supplementary Data This section presents audited consolidated financial statements for 2018-2020, including balance sheets, income statements, cash flows, and notes, with a critical audit matter on revenue recognition - KPMG LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2020[240][241] - A critical audit matter identified was the evaluation of transaction price adjustments related to revenue recognition, requiring subjective and complex auditor judgment[247][248] Consolidated Balance Sheets Data (thousands USD) | ASSETS | December 31, 2020 | December 31, 2019 | | :------------------------------ | :---------------- | :---------------- | | Cash and cash equivalents | $99,265 | $67,056 | | Accounts receivable, net | $328,340 | $324,416 | | Inventories | $158,601 | $115,876 | | Prepaid expenses and other current assets | $70,806 | $51,306 | | Total current assets | $657,012 | $558,654 | | Property and equipment, net | $121,149 | $133,198 | | Operating lease right-of-use asset | $68,795 | $63,502 | | Intangible assets, net | $351,052 | $385,910 | | Goodwill | $1,428,610 | $1,425,542 | | Other noncurrent assets | $20,821 | $22,741 | | Total noncurrent assets | $1,990,427 | $2,030,893 | | TOTAL ASSETS | $2,647,439 | $2,589,547 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $282,913 | $221,060 | | Accrued compensation and employee benefits | $58,899 | $45,765 | | Accrued expenses and other current liabilities | $64,075 | $33,538 | | Current portion of operating lease liability | $18,886 | $20,391 | | Current portion of long-term debt | $9,250 | $9,250 | | Total current liabilities | $434,023 | $330,004 | | Long-term debt, net | $1,115,103 | $1,277,246 | | Operating lease liability, net | $70,776 | $58,242 | | Deferred income taxes | $3,339 | $2,143 | | Other noncurrent liabilities | $8,474 | $15,085 | | Total noncurrent liabilities | $1,197,692 | $1,352,716 | | Total liabilities | $1,631,715 | $1,682,720 | | Total stockholders' equity | $1,015,724 | $906,827 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $2,647,439 | $2,589,547 | Consolidated Statements of Comprehensive Income (Loss) (thousands USD, except per share amounts) | Metric | 2020 | 2019 | 2018 | | :------------------------------ | :---------- | :---------- | :---------- | | NET REVENUE | $3,032,610 | $2,310,417 | $1,939,791 | | COST OF REVENUE | $2,350,346 | $1,797,418 | $1,517,576 | | GROSS PROFIT | $682,264 | $512,999 | $422,215 | | Selling, general and administrative expenses | $500,199 | $459,628 | $345,884 | | Depreciation and amortization expense | $71,310 | $53,690 | $38,062 | | Total operating expenses | $571,509 | $513,318 | $383,946 | | OPERATING INCOME (LOSS) | $110,755 | $(319) | $38,269 | | Interest expense, net | $(107,770) | $(73,724) | $(45,824) | | Equity in earnings of joint ventures | $3,313 | $2,840 | $1,020 | | Other, net | $(11,541) | $(6,991) | $(2,233) | | Total other expense | $(115,998) | $(77,875) | $(47,037) | | LOSS BEFORE INCOME TAXES | $(5,243) | $(78,194) | $(8,768) | | INCOME TAX EXPENSE (BENEFIT) | $2,833 | $(2,274) | $(2,653) | | NET LOSS | $(8,076) | $(75,920) | $(6,115) | | OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX | $(3,977) | $(8,039) | $774 | | NET COMPREHENSIVE LOSS | $(12,053) | $(83,959) | $(5,341) | | Net loss per share, basic and diluted | $(0.04) | $(0.49) | $(0.04) | | Weighted average common shares outstanding, basic and diluted | 180,971 | 156,280 | 142,614 | Consolidated Statements of Cash Flows (thousands USD) | CASH FLOWS FROM... | 2020 | 2019 | 2018 | | :------------------------------ | :---------- | :---------- | :---------- | | Operating Activities | $127,392 | $39,467 | $24,428 | | Investing Activities | $(26,334) | $(727,826) | $(37,003) |\ | Financing Activities | $(68,849) | $719,024 | $(4,150) |\ | NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | $32,209 | $30,665 | $(16,725) |\ | Cash and cash equivalents - end of period | $99,265 | $67,056 | $36,391 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure were reported[403] Item 9A. Controls and Procedures Management assessed disclosure controls and internal control over financial reporting as effective, noting significant changes due to the BioScrip merger integration - Management concluded that disclosure controls and procedures were effective as of December 31, 2020[404] - Internal control over financial reporting was assessed as effective as of December 31, 2020, based on COSO criteria[406] - The merger with BioScrip in August 2019 led to significant changes and integration activities in internal controls, particularly in areas like business combinations, income taxes, treasury, and compensation[408] Item 9B. Other Information The company reported no other information required by this item - No other information was reported[419] PART III Item 10. Directors, Executive Officers and Corporate Governance The company has a Code of Ethics for all personnel, with additional information incorporated by reference from the 2021 proxy statement - A Code of Ethics applies to all directors, officers, and employees, available on the company's website[421] - Additional information is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement[422] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement - Information on executive compensation is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement[423] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and related stockholder matters is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement - Information on security ownership and related stockholder matters is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement[424] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2021 proxy statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement[425] Item 14. Principal Accounting Fees and Services Information concerning principal accounting fees and services is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement - Information on principal accounting fees and services is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement[426] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists financial statements from Item 8 and provides an index of exhibits, including agreements and corporate governance documents - Financial statements are listed as appearing in Part II, Item 8, including the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Comprehensive Income (Loss), Stockholders' Equity, Cash Flows, and Notes[429] - An index of exhibits is provided, detailing various agreements (e.g., merger, stock purchase, credit), corporate documents (e.g., certificate of incorporation, bylaws), and certifications (e.g., CEO/CFO certifications)[431][432][433] Item 16. Form 10-K Summary The company reported no summary for Form 10-K - No Form 10-K Summary was provided[434] SIGNATURES SIGNATURES The report was duly signed on March 11, 2021, by authorized representatives of Option Care Health, Inc., affirming compliance with the Securities Exchange Act of 1934 - The report was signed on March 11, 2021, by the Chief Financial Officer, Chief Executive Officer, and other directors and officers[437][438][439]