Option Care Health, Inc. Q3 FY2024 earnings call

Key Points

• Third quarter results were encouraging with double-digit revenue growth and sequential improvement in gross profit.
• Recovered operationally from Change Healthcare incident but still working on patient payment obligations delayed by earlier disruption.
• Cash flow generation strong, with net debt-to-EBITDA leverage ratio at 1.5x, lowest since 2019.
• Impact of Hurricanes Helene and Milton on operations, particularly IV bag supply chain disruption affecting acute patient onboarding.
• STELARA manufacturer's pricing actions expected to materially impact gross profit from early 2025.
• Mike Shapiro provided details on financial results: 17% revenue growth, SG&A down almost 1% compared to prior year, adjusted EBITDA 9% of revenue, strong cash flow, and balance sheet strength.
• Started reporting adjusted earnings per share as a key financial metric and updated 2024 guidance for revenue and adjusted EBITDA.

Revenue growth of 17% was seen, with strong growth in rare and orphan portfolios and established therapeutic categories. Gross profit dollar generation improved sequentially, with approximately $7.3 million more generated in the third quarter than the second. Adjusted EBITDA was $115.6 million, representing 9% of revenue and 5.3% growth over the prior year. Cash flow from operations was $160.4 million. Chronic therapies roughly represent 75% of revenue, while acute therapies are approximately 25%.

2024 Guidance

• Expected revenue of $4.9 billion to $4.95 billion and adjusted EBITDA of $438 million to $443 million.
• Expect to generate at least $300 million in cash flow from operations.

2025 Guidance

• Initial guidance to be provided in late February 2025 call, incorporating dynamics discussed, including STELARA pricing and IV supply chain.

• Supply chain disruption from Hurricane Helene affecting IV bag supply, limiting ability to onboard new acute patients.
• STELARA manufacturer's pricing actions expected to materially impact gross profit starting in early 2025, with negotiations ongoing and uncertainties.

Q: About IV supply, how has supply trended since the hurricane and when can we expect resolution?

A: Immediate actions taken for inventory conservation and supply chain engagement. Seeing encouraging signs of increased supply, but exact resolution timing hard to predict.

Q: About pharmacy exits by a major competitor, potential opportunity?

A: Investments in infrastructure position us well to capture market demand as a partner of choice for referral sources, but IV supply disruption needs to resolve first.

Q: STELARA revenue detail and pricing negotiations deviation from precedent?

A: Chronic inflammatory therapies including STELARA represent ~20% of revenue. Negotiations are atypical as spread off reference price is to be drastically reduced, unlike historical biosimilar scenarios.

Q: EBITDA reduction in fourth quarter and other impacts?

A: IV solution supply chain and hurricane impacts are meaningful variables, with some inefficiencies from Milton early in the quarter.

Q: STELARA impact on 2024 and go-forward growth?

A: No 2024 impact, expect material impact in 2025. Encouraged by top-line momentum, including chronic therapy portfolio and rare/orphan products.

Q: STELARA biosimilar impact and M&A?

A: Conversion rate to biosimilars, economics of biosimilars, and M&A considered in 2025 guidance. Balance sheet strength allows for share repurchase and M&A opportunities.

Q: Acute IV shortage and gross profit recovery?

A: Acute antibiotics and nutrition most affected. Confident in unique platform and investments, but recovery contingent on supply chain.

Q: STELARA patient types and gross profit impact ranges?

A: Majority of STELARA patients need clinical oversight. Not in position to provide specific ranges on gross profit impact.

Q: Infusion suites update?

A: Added three infusion suites in the quarter, driving utilization, patient satisfaction, and operating efficiencies, with plans to continue investments.