Le Lézard
Classified in: Business, Covid-19 virus
Subjects: EARNINGS, Conference Call, Webcast

Oak Street Health Reports Second Quarter 2020 Financial Results


Oak Street Health, Inc. (NYSE: OSH) (the "Company"), a network of value-based, primary care centers for adults on Medicare, today reported financial results for its second quarter ended June 30, 2020.

"We were pleased with our second quarter financial results, which highlighted both our strong organic revenue growth and the resiliency of our model despite the impact from the COVID-19 pandemic. I credit our team members, all of whom acted swiftly to implement adjustments to our operations while maintaining our commitment to exceptional patient care," said Mike Pykosz, Chief Executive Officer of Oak Street Health. "Looking forward, we expect the proceeds from our recently completed initial public offering to help us execute on our vision of extending our value-based care platform to Medicare beneficiaries across the country."

Second Quarter 2020 Financial Highlights

__________________

(1)

Platform contribution is a non-GAAP financial measure that is presented as supplemental disclosure and is reconciled to loss from operations as the most directly comparable GAAP measure as set forth in the accompanying "Platform Contribution Reconciliation" section. We define platform contribution as total revenues less the sum of medical claims expense and cost of care, excluding depreciation and amortization.

 

 

(2)

Adjusted EBITDA is a non-GAAP financial measure that is presented as supplemental disclosure and is reconciled to net loss as the most directly comparable GAAP measure as set forth in the accompanying "Adjusted EBITDA Reconciliation" section. We define adjusted EBITDA as net loss, excluding other income (expense), depreciation and amortization and unit-based compensation.

"Since the end of the second quarter, we have executed several strategic initiatives," commented Tim Cook, Chief Financial Officer of Oak Street Health. "First, on August 6, our successful initial public offering raised $351.7 million in net proceeds. Second, on September 1, we announced a strategic collaboration with Walmart to bring Oak Street Health centers to three Walmart locations in the Dallas-Fort Worth area later this year. Lastly, although COVID-19 caused us to temporarily pause new center openings during the second quarter, we are pleased to report that we have opened 12 new centers in the last six weeks alone, expanding our total footprint to 66 centers."

Financial Outlook (dollars in millions)

 
 

Three Months Ending

 

 

Twelve Months Ending

 

September 30, 2020

 

 

December 31, 2020

 

Low

 

High

 

 

Low

 

High

 

(dollars in millions)

Centers

 

66

67

 

72

74

At risk patients

 

58,500

59,000

 

61,000

63,000

Revenue

 

$210

$214

 

$843

$853

Adjusted EBITDA

 

($35)

($30)

 

($110)

($100)

We have not reconciled guidance for Adjusted EBITDA to net loss, the most directly comparable GAAP measure, and have not provided forward-looking guidance for net loss, because of the uncertainty around certain items that may impact net loss, including stock-based compensation, that are not within our control or cannot be reasonably predicted. However, for the third quarter of 2020 and full year 2020, depreciation and amortization expense is expected to be $2.8 million and $11.0 million, respectively.

Webcast and Conference Call

The Company will conduct a conference call Thursday, September 17, 2020 at 8:00 AM Eastern Time to discuss these results and management's outlook for future financial and operational performance. The conference call can be accessed by webcast or by dialing (833) 529-0224 for U.S. participants, or +1 (236) 389-2153 for international participants, and referencing participant code 6986226. A replay of the call will be available via webcast for on-demand listening shortly after the completion of the call at https://investors.oakstreethealth.com.

About Oak Street Health

Founded in 2012, Oak Street Health is a network of value-based, primary care centers for adults on Medicare. With a mission of rebuilding healthcare as it should be, the company operates an innovative healthcare model focused on quality of care over volume of services and assumes the full financial risk of its patients. Oak Street Health currently operates more than 60 centers across Illinois, Michigan, Indiana, Pennsylvania, Ohio, Rhode Island, North Carolina, Tennessee and Texas. To learn more about Oak Street Health's proven approach to care, visit oakstreethealth.com.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements include statements regarding our future growth and our financial outlook for the third quarter of 2020. Forward-looking statements are subject to risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance.

Important risks and uncertainties that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: (i) changes in laws and regulations applicable to our business model; (ii) changes in market or industry conditions, regulatory environment and receptivity to our technology and services; (iii) results of litigation or a security incident; (iv) the loss of one or more key customers or partners; (v) the impact of COVID-19 on our business and results of operation; and (vi) changes to our abilities to recruit and retain qualified team members. For a detailed discussion of the risk factors that could affect our actual results, please refer to the risk factors identified in our SEC reports, including, but not limited to the amended Registration Statement filed with the SEC dated August 5, 2020 and the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020 expected to be filed with the SEC on September 16, 2020. All information provided in this release and in the attachments is as of the date hereof, and we undertake no duty to update or revise this information unless required by law.

Condensed Consolidated Balance Sheets

(in thousands)

As of

 

As of

June 30,

 

December 31,

ASSETS

2020
(unaudited)

 

2019

Current assets:

Cash

$ 185,561

$ 33,987

Restricted cash

10,391

8,266

Other patient service receivables, net

789

729

Capitated accounts receivable

243,227

167,429

Prepaid expenses

2,519

1,382

Other current assets

4,939

8,028

Total current assets

447,426

219,821

 

Property and equipment, net

70,479

67,396

Security deposits

1,414

1,494

Goodwill

9,634

9,634

Intangible assets, net

3,159

3,352

Other long-term assets

115

125

Total assets

532,227

301,822

 

LIABILITIES AND MEMBERS' DEFICIT

Current liabilities:

Accounts payable

$ 3,875

$ 10,757

Accrued compensation and benefits

22,619

28,610

Liability for unpaid claims

235,856

170,629

Other liabilities

17,078

11,001

Current portion of long-term debt

-

18,507

Total current liabilities

279,428

239,504

 

Deferred rent expense

13,015

12,901

Other long-term liabilities

13,970

10,816

Long-term debt, net of current portion

82,126

62,840

Total liabilities

388,539

326,061

 

Redeemable Investor Units

545,001

320,639

Members' deficit:

Members' capital

3,454

4,192

Accumulated deficit

(409,618)

(354,355)

Total members' deficit allocated to the Company

(406,164)

(350,163)

Noncontrolling interests

4,851

5,285

Total members' deficit

(401,313)

(344,878)

 

Total liabilities, redeemable investor units, and members' deficit

$ 532,227

$ 301,822

 

Condensed Consolidated Statements of Operations

(in thousands, except unit and per share data, unaudited)

 

Three Months Ended

 

Six Months Ended

June 30,

 

June 30,

2020

 

2019

 

2020

 

2019

Revenues:

Capitated revenue

$ 207,997

$ 123,054

$ 404,587

$ 238,383

Other patient service revenue

6,385

3,434

11,580

5,482

Total revenues

214,382

126,488

416,167

243,865

 

Operating expenses:

Medical claims expense

155,460

84,345

287,745

161,619

Cost of care, excluding depreciation and amortization

39,526

31,429

83,294

59,073

Sales and marketing

10,102

11,253

21,973

19,928

Corporate, general and administrative expenses

31,038

16,045

55,419

27,956

Depreciation and amortization

2,674

1,856

5,178

3,581

Loss from operations

(24,418)

 

(18,440)

(37,442)

(28,292)

 

Other income/(expense):

Interest expense, net

(2,448)

(1,867)

(4,874)

(1,876)

Other

22

22

117

84

Net loss

(26,844)

(20,285)

(42,199)

(30,084)

 

Net loss attributable to non-controlling interests

79

124

434

(72)

Net loss attributable to the Company

(26,765)

(20,161)

(41,765)

(30,156)

 

Undeclared and deemed dividends

(12,230)

(7,188)

(21,802)

(14,302)

Net loss attributable to common unitholders

(38,995)

(27,349)

(63,567)

(44,458)

Weighted-average number of common units outstanding, basic and diluted

537,654

620,068

578,861

620,068

Net loss per unit, basic and diluted

$ (72.53)

$ (44.11)

 

$ (109.81)

$ (71.70)

 

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)

 

Six Months Ended

June 30,

2020

 

2019

Cash flows from operating activities:

Net loss

$ (42,199)

$ (30,084)

Adjustments to reconcile net loss to net cash

used in operating activities:

Amortization of discount on debt and related issuance costs

778

509

Depreciation and amortization

5,178

3,581

Unit-based compensation, net of forfeitures

5,157

541

Change in fair value of bifurcated derivative

297

(489)

Change in operating assets and liabilities:

-

-

Accounts receivable

(75,858)

(21,611)

Prepaid expenses and other current assets

1,951

168

Security deposits and other long-term assets

91

(288)

Accounts payable

(6,907)

(491)

Liability for unpaid claims

65,227

21,357

Accrued compensation and benefits

(5,991)

3,073

Other current liabilities

6,077

1,216

Other long-term liabilities

2,857

(826)

Deferred rent expense

114

3,787

Net cash used in operating activities

(43,228)

(19,557)

 

Cash flows from investing activities

Purchase of business

-

(166)

Purchases of property and equipment

(8,043)

(12,268)

Net cash used in investing activities

(8,043)

(12,434)

 

Cash flows from financing activities

Proceeds from issuance of redeemable investor units

224,363

1,500

Proceeds from long-term debt

-

29,457

Capital contributions from non-controlling interests

-

2,646

Tender offer

(19,393)

 

-

Net cash provided by financing activities

204,970

33,603

 

Net change in cash, cash equivalents and restricted cash

153,699

1,612

Cash, cash equivalents and restricted cash, beginning of period

42,253

72,067

Cash, cash equivalents and restricted cash, end of period

$ 195,952

$ 73,679

Non-GAAP Financial Measures

Certain of these financial measures are considered "non-GAAP" financial measures within the meaning of Item 10 of Regulation S-K promulgated by the SEC. We believe that non-GAAP financial measures provide an additional way of viewing aspects of our operations that, when viewed with the GAAP results, provide a more complete understanding of our results of operations and the factors and trends affecting our business. These non-GAAP financial measures are also used by our management to evaluate financial results and to plan and forecast future periods. However, non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. Non-GAAP financial measures used by us may differ from the non-GAAP measures used by other companies, including our competitors. To supplement our consolidated financial statements presented on a GAAP basis, we disclose the following Non-GAAP measures: patient contribution, platform contribution and Adjusted EBITDA as these are performance measures that our management uses to assess our operating performance. Because Adjusted EBITDA, patient contribution and platform contribution facilitate internal comparisons of our historical operating performance on a more consistent basis, we use these measures for business planning purposes and in evaluating acquisition opportunities.

Adjusted EBITDA Reconciliation

Adjusted EBITDA is a non-GAAP financial measure that we calculate as net loss adjusted to exclude (i) unit/stock-based compensation expense, (ii) depreciation and amortization, and (iv) other income (expense). Our management team uses Adjusted EBITDA as a performance measure in order to assess our operating performance. Because adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning purposes and in evaluating acquisition opportunities. The following is a reconciliation of our net loss, the most directly comparable GAAP financial measure, to Adjusted EBITDA, for the three and six months ended June 30, 2020 and 2019.

Three Months Ended

 

Six Months Ended

June 30,

 

June 30,

2020

 

2019

 

2020

 

2019

(in thousands)

Net loss

$ (26,844)

$ (20,285)

$ (42,199)

$ (30,084)

Add:

Other (income) expense

2,426

1,845

4,757

1,792

Depreciation and amortization

2,674

1,856

5,178

3,581

Unit based compensation

4,108

543

5,986

799

Adjusted EBITDA

$ (17,636)

$ (16,041)

$ (26,278)

$ (23,912)

Platform Contribution Reconciliation

Platform Contribution is a non-GAAP financial measure that we define as total revenues less the sum of medical claims expense and cost of care, excluding depreciation and amortization. The following is a reconciliation of our loss from operations, the most directly comparable GAAP financial measure, to Platform Contribution, for the three and six months ended June 30, 2020 and 2019.

Three Months Ended

 

Six Months Ended

June 30,

 

June 30,

2020

 

2019

 

2020

 

2019

(in thousands)

Loss from operations

$ (24,418)

$ (18,440)

$ (37,442)

$ (28,292)

Add:

Depreciation and amortization

2,674

1,856

5,178

3,581

Corporate, general and administrative

31,038

 

16,045

 

55,419

 

27,956

Sales and marketing

10,102

11,253

21,973

19,928

Platform contribution

$ 19,396

$ 10,714

$ 45,128

$ 23,173

Source: Oak Street Health


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