Option Care Health, Inc. (NASDAQ:OPCH) 2023 Q4 Financial Results Call Record February 22, 2024
Option Care Health, Inc.'s profits exceeded expectations. Reported EPS was $0.32, compared to estimate of $0.29. Option Care Health, Inc. wasn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (Please see here for the detail).
operator: Hello. Thank you for always being by my side. Welcome to his Q4 2023 earnings conference call for Option Care Health. All participants are currently in listen-only mode. After the speakers' presentations, there will be time for questions and answers. [Operator Instructions]. Please note that today's meeting is being recorded. I would now like to turn the conference over to today's speaker, Chief Financial Officer Mike Shapiro. Please move on.
Mike Shapiro: good morning. Please note that today's discussion includes certain forward-looking statements that reflect the Company's current assumptions and expectations, including those relating to the Company's future financial performance and industry and market conditions. . These forward-looking statements involve 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 and the information in our Form 10-K filed with the SEC regarding certain risks and uncertainties. We undertake no obligation to update any forward-looking statements, except as required by law. During the conference call, we use non-GAAP financial measures when discussing our results of operations and financial condition.
Additional information regarding these non-GAAP measures can be found in this morning's press release posted on the Investor Relations section of our website. I will now turn the call over to our Chief Executive Officer, John Rademacher.
John Radmacher: Thank you, Mike, and good morning everyone. It's no exaggeration to say that 2023 was an eventful year for Option Care Health. It's been a dynamic year for our team, setting the pace for home and alternative infusion therapy, delivering innovative services aimed at improving outcomes, reducing costs, and delivering hope to patients and their families. By providing more patients, we have advanced our mission to treat more patients. In 2023, we will have treated more than 270,000 different patients and expanded our portfolio of life-saving treatments through collaboration with referral sources, payers and biopharmaceutical partners. As always, Mike will take a few minutes to dive into the financials, but we couldn't be more pleased with the hard work, dedication, and results produced by our dedicated colleagues at Option His Care Health.
For the full year, the company achieved revenue of $4.3 billion, representing 9.1% year-over-year growth. Adjusted EBITDA of $425 million represented 24% growth over 2022 and significantly exceeded the company's initial expectations in early 2023. Since our merger in August 2019, the Option Care Health team has consistently delivered strong growth and met or exceeded our commitments to our shareholders. . Looking back at 2023, I would like to go beyond our solid financial results and highlight some key achievements and milestones. In the second quarter, he launched Naven Health, one of the industry's largest infusion nursing platforms comprised of more than 1,500 clinical professionals. Naven is a key element in our mission to serve more patients, and strategically this platform is critical to our continued success.
We continue to invest in our outpatient infusion suites and footprint, expanding our network to 164 suites and more than 660 chairs nationwide in 2023. Again, this is a significant investment strategy designed to enable continued growth while increasing clinical workforce efficiency. We advanced the use of advanced analytics and automation of repetitive processes in our pharmacy and revenue cycle management operations to reduce waste and increase the speed of cash inflow. We also recently announced a multi-year collaboration with Palantir to bring the company's artificial intelligence technology across our operations to increase efficiency and improve the patient experience. Through our partnership with BioPharma, we hope that in 2023 he will receive VYJUVEK, VYVGART, [indiscernible] Cabenuba to name a few.
We continue to expand our portfolio as our integrated international network of state-of-the-art pharmacies and the growing number of infusion suites combined with clinical know-how and cutting-edge technology platforms continue to resonate with our biopharmaceutical partners. I believe we are in a good position to do so. Every member of the Option Care Health team believes that behind every administration is a loved one, and that behind the scenes we have a comprehensive team of pharmacists, pharmacy technicians, dietitians, infusion nurses, patient support specialists, and supply chain specialists. We understand that we have a strong team. Their focused dedication and collaboration allows us to ensure we provide unparalleled care in the comfort and convenience of our patients' homes and infusion suites. Ensuring that we are an employer of choice and a destination for healthcare professionals is also critical to our continued success.
In 2023, we are thrilled to have earned Gallup's Great Places to Work and Military Friendly Employer designations. These recognitions validate our team's relentless focus on providing exceptional care to our patients every day. As the old saying goes, doing good can go well, and we believe our 2023 financial results demonstrate just that. As we enter 2023, our balance sheet is stronger than ever and our liquidity position is in excellent shape. During 2023, both S&P and Moody's upgraded our credit profile to our highest rating ever. Our net debt leverage profile is well below 2x, and we generated operating cash flow of over $370 million in 2023, with $250 million dedicated to share repurchases.
Looking back to 2023, we continue our strong growth as we invest in this unique platform and our ability to enable sustainable growth. As we outlined this morning in our 2024 guidance, we expect this trend of strong financial performance to continue as we grow and serve more patients. I have never been more proud of our Option Care Health team and the level of service we provide to our patients every day. Mike then adds additional color to the result. microphone?
Mike Shapiro: Thank you and good morning, everyone. As John mentioned, we are very encouraged by the strong finish to 2023. Revenue for the fourth quarter was $1.124 billion, representing a growth of 9.5% compared to the fourth quarter of 2022. Overall portfolio performance was solid and execution in this area was very strong. Full-year sales were just over $4.3 billion, an increase of 9.1% despite many of the headwinds we've talked about throughout the last year, including the impact of two discontinued treatments and the divested respiratory therapy assets. Overall, we're very happy with the top-line performance. Gross margin of 22% in the fourth quarter represented 6.9% dollar growth due to the impact of chronic portfolio mix shifts and lower procurement margins in the quarter.
In recent quarters, I've talked about the favorable procurement dynamics that continued into 2023, and I estimate that we realized approximately $8 million in benefits related to this dynamic in the fourth quarter. For the year, he estimates he realized $33 million to $35 million of these one-time procurement gains, but he doesn't think this will last until 2024. SG&A expenses of $147.8 million actually decreased compared to his fourth quarter of 2022, and expense leverage improved to his 13.1% of revenue. We believe that this supports the scalability of the platform. Adjusted EBITDA for the quarter was $111.6 million, representing 9.9% of sales and increasing 18.4% year over year. Again, adjusted EBITDA for the fourth quarter includes approximately $8 million in funding gains. In addition to our profit and loss, we generated more than $370 million in annual cash flow from operations. This also includes approximately $85 million in Amedisys transaction termination fees, net of related costs.
Despite spending $250 million on stock repurchases during the year, the company still ended the year with approximately $344 million in cash and a net leverage ratio of 1.8x. This is the fifth fiscal year-end that we have reported as Option Care Health, and looking back to 2019, when we completed the merger, the combined company had revenues of approximately $2.7 billion and professional revenues of approximately $200 million. It was recognized to generate forma adjusted EBITDA. Four years later, revenue has increased by 50% to $4.3 billion, and adjusted EBITDA has more than doubled to $425 million. We also drove dramatic improvements to our balance sheet, reducing our leverage profile by more than two-thirds, from 6.2x to 1.8x, and reducing our net interest expense by more than half, from $110 million to $51 million.
We're proud of our journey so far, and equally excited about the journey ahead. As disclosed in this morning's press release, we look forward to another year of strong growth for our shareholders. In 2024, he is expected to earn $4.8 billion from $4.6 billion. Adjusted EBITDA is expected to be between $425 million and $450 million. We also expect to generate at least $300 million in operating cash flow to provide additional data points, net interest expense of $55 million to $60 million, stock-based compensation expense of approximately $45 million, and effective tax rate. is expected to be between 26% and 28%. . Overall, 2023 was a very productive year and we expect our track record of leveraged growth to continue in 2024. Therefore, we are happy to answer any questions you may have.
operator?
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