Oak Street Health Reports Third Quarter 2020 Financial Results

CHICAGO--()--Oak Street Health (NYSE: OSH) (the “Company”), a network of value-based, primary care centers for adults on Medicare, today reported financial results for its third quarter ended September 30, 2020.

Our strong third quarter results were highlighted by 38% growth in at-risk patients, 57% revenue growth, and the resumption of new center openings, as we opened 13 centers during the quarter amidst continued uncertainty related to the COVID-19 pandemic,” said Mike Pykosz, Chief Executive Officer of Oak Street Health. “Since the end of the third quarter, we have opened four additional standalone centers, including our first locations in New York City and Mississippi, as well as the first of three Walmart pilot locations in Texas. Looking ahead, we continue to be excited by the ample opportunity to drive continued de novo expansion across both new and existing markets, as well as the complementary growth opportunities presented by our Walmart collaboration and CMS’ Direct Contracting program.”

Third Quarter 2020 Financial Highlights

  • Total revenue was $217.9 million, up 57% year over year
  • Capitated revenue totaled $211.8 million, up 59% year over year
  • The Company cared for approximately 59,500 at-risk patients, representing 66% of its total patients
  • Loss from operations 1 was ($55.3) million, compared to ($31.6) million in the third quarter of 2019
  • Platform contribution2 was $20.1 million, up 387% year over year
  • Net loss was ($59.2) 1 million, compared to ($33.4) million in the third quarter of 2019
  • Adjusted EBITDA3 was ($22.8) million, compared to ($28.1) million in the third quarter 2019
  • As of September 30, 2020, the Company operated 67 centers, compared to 46 centers as of September 30, 2019

__________________

(1)

Includes stock and unit-based compensation of $29.7 million and $1.4 million as of the third quarter of 2020 and 2019, respectively. Much of the year-over-year increase is due to the modification of vesting terms related to equity converted as part of the IPO and is not due to incremental grants of equity in the quarter.

(2)

Platform contribution is a non-GAAP financial measure that is presented as supplemental disclosure, defined as total revenues less the sum of (i) medical claims expense and (ii) cost of care, excluding depreciation and amortization. This measure is reconciled to loss from operations as the most directly comparable GAAP measure as set forth in the accompanying “Platform Contribution Reconciliation” section.

(3)

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 stock-based and unit-based compensation.

Financial Outlook

 

Twelve Months Ending

 

December 31, 2020

 

Low

 

High

 

(dollars in millions)

Centers

73

 

75

At risk patients

61,500

 

63,000

Revenue

$854.0

 

$858.0

Adjusted EBITDA

($99.0)

 

($93.0)

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 loan ss, including stock- based and unit-based compensation, that are not within our control or cannot be reasonably predicted. However, for the year ended December 31, 2020, depreciation and amortization is expected to be $11.0 million.

Webcast and Conference Call

The Company will conduct a conference call Tuesday, November 10, 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 6765428. 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 70 centers across Illinois, Michigan, Ohio, Pennsylvania, Texas, Indiana, North Carolina, Rhode Island, Tennessee, New York and Mississippi. 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 fourth quarter and fiscal year 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 final Registration Statement filed with the SEC on August 5, 2020 and the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2020 expected to be filed with the SEC on November 9, 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

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

(unaudited)

 

 

2019

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

474,631

 

$

33,987

Restricted cash

 

 

10,391

 

 

8,266

Other patient service receivables, net

 

 

278

 

 

729

Capitated accounts receivable

 

 

224,175

 

 

167,429

Prepaid expenses

 

 

9,424

 

 

1,382

Other current assets

 

 

6,120

 

 

8,028

Total current assets

 

 

725,019

 

 

219,821

 

 

 

 

 

 

 

Long-term assets:

 

 

 

 

 

 

Property and equipment, net

 

 

72,190

 

 

67,396

Security deposits

 

 

1,388

 

 

1,494

Goodwill

 

 

9,634

 

 

9,634

Intangible assets, net

 

 

3,062

 

 

3,352

Other long-term assets

 

 

86

 

 

125

 

 

 

 

 

 

 

Total assets

 

$

811,379

 

$

301,822

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY/ MEMBERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

5,577

 

$

10,757

Accrued compensation and benefits

 

 

23,434

 

 

28,610

Liability for unpaid claims

 

 

257,227

 

 

170,629

Other liabilities

 

 

22,111

 

 

11,001

Current portion of long-term debt

 

 

-

 

 

18,507

Total current liabilities

 

 

308,349

 

 

239,504

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

Deferred rent expense

 

 

13,317

 

 

12,901

Other long-term liabilities

 

 

18,769

 

 

10,816

Long-term debt, net of current portion

 

 

-

 

 

62,840

 

 

 

 

 

 

 

Total liabilities

 

 

340,435

 

 

326,061

 

 

 

 

 

 

 

Redeemable investor units

 

 

-

 

 

320,639

Stockholders' equity/ Members' deficit:

 

 

 

 

 

 

Members' capital

 

 

-

 

 

4,192

Preferred stock

 

 

-

 

 

-

Common stock

 

 

241

 

 

-

Additional paid-in capital

 

 

928,805

 

 

-

Accumulated deficit

 

 

(468,730)

 

 

(354,355)

Total stockholders' equity/ members' deficit allocated to the Company

 

 

460,316

 

 

(350,163)

Non-controlling interests

 

 

10,628

 

 

5,285

Total stockholders' equity/ members' deficit

 

 

470,944

 

 

(344,878)

 

 

 

 

 

 

 

Total liabilities, redeemable investor units and stockholders’ equity/ members' deficit

 

$

811,379

 

$

301,822

Condensed Consolidated Statements of Operations

(in thousands, except per share data, unaudited)

 

 

 

Three-Months Ended

 

 

Nine-Months Ended

 

 

September 30,
2020

 

 

September 30,
2019

 

 

September 30,
2020

 

 

September 30,
2019

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capitated revenue

$

 

211,789

 

$

 

133,073

 

$

 

616,376

 

$

 

371,456

 

Other patient service revenue

 

 

6,107

 

 

 

6,067

 

 

 

17,686

 

 

 

11,548

 

Total revenues

 

 

217,896

 

 

 

139,140

 

 

 

634,062

 

 

 

383,004

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical claims expense

 

 

154,564

 

 

 

98,003

 

 

 

442,308

 

 

 

259,622

 

Cost of care, excluding depreciation and amortization

 

 

43,190

 

 

 

36,997

 

 

 

126,484

 

 

 

96,069

 

Sales and marketing

 

 

15,474

 

 

 

12,002

 

 

 

37,447

 

 

 

31,930

 

Corporate, general and administrative expenses

 

 

57,136

 

 

 

21,671

 

 

 

112,555

 

 

 

49,627

 

Depreciation and amortization

 

 

2,881

 

 

 

2,053

 

 

 

8,059

 

 

 

5,634

 

Total operating expenses

 

 

273,245

 

 

 

170,726

 

 

 

726,853

 

 

 

442,882

 

Loss from operations

 

 

(55,349

)

 

 

(31,586

)

 

 

(92,791

)

 

 

(59,878

)

Other income/(expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(3,862

)

 

 

(1,813

)

 

 

(8,736

)

 

 

(3,689

)

Other

 

 

35

 

 

 

(25

)

 

 

152

 

 

 

59

 

Total other expense

 

 

(3,827

)

 

 

(1,838

)

 

 

(8,584

)

 

 

(3,630

)

Net loss

$

 

(59,176

)

$

 

(33,424

)

$

 

(101,375

)

$

 

(63,508

)

Net loss attributable to non-controlling interests

 

 

64

 

 

 

224

 

 

 

498

 

 

 

152

 

Net loss attributable to the Company

$

 

(59,112

)

$

 

(33,200

)

$

 

(100,877

)

$

 

(63,356

)

Undeclared and deemed dividends

$

 

(5,418

)

$

 

(7,420

)

$

 

(27,220

)

$

 

(21,722

)

Net loss attributable to common stock/unitholders

 

 

(64,530

)

 

 

(40,620

)

 

 

(128,097

)

 

 

(85,078

)

Weighted average common stock outstanding - basic and diluted1

 

 

218,261,866

 

 

N/A

 

 

 

218,261,866

 

 

N/A

 

Net loss per share – basic and diluted1

$

 

(0.15

)

 

N/A

 

$

 

(0.15

)

 

N/A

 

__________________

1 The Company analyzed the calculation of earnings per unit for the periods prior to the IPO (completed August 10, 2020) and determined that it resulted in values that would not be meaningful to the users of these consolidated financial statements. Therefore, earnings per share information has not been presented for the three and nine-months ended September 30, 2019. The basic and diluted earnings per share for the three and nine-months ended September 30, 2020 is applicable only for the period from August 10, 2020 to September 30, 2020, which is the period following the IPO and related restructuring transactions and presents the period that the Company had outstanding common stock.

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)

 

 

 

 

 

 

 

Nine-Months Ended

 

 

 

September 30,

2020

 

 

September 30,

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(101,375

)

 

$

(63,508

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Amortization of discount on debt and related issuance costs

 

 

4,215

 

 

 

905

 

Depreciation and amortization

 

 

8,059

 

 

 

5,634

 

Stock and unit-based compensation, net of forfeitures

 

 

34,459

 

 

 

1,834

 

Change in fair value of bifurcated derivative

 

 

152

 

 

 

519

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(56,295

)

 

 

(36,721

)

Prepaid expenses and other current assets

 

 

(6,133

)

 

 

(1,242

)

Security deposits and other long-term assets

 

 

145

 

 

 

(257

)

Accounts payable

 

 

(5,939

)

 

 

2,498

 

Accrued compensation and benefits

 

 

(5,176

)

 

 

5,824

 

Liability for unpaid claims

 

 

86,597

 

 

 

57,217

 

Other current liabilities

 

 

10,719

 

 

 

3,403

 

Other long-term liabilities

 

 

7,801

 

 

 

(2,182

)

Deferred rent expense

 

 

416

 

 

 

5,162

 

Net cash used in operating activities

 

 

(22,355

)

 

 

(20,914

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of business

 

 

-

 

 

 

(166

)

Purchases of property and equipment

 

 

(12,564

)

 

 

(20,160

)

Net cash used in investing activities

 

 

(12,564

)

 

 

(20,326

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from initial public offering

 

 

377,344

 

 

 

-

 

Payments of underwriting fees, net of discounts and offering costs

 

 

(24,963

)

 

 

-

 

Proceeds from long-term debt

 

 

-

 

 

 

29,457

 

Principal payments on long-term debt

 

 

(80,000

)

 

 

-

 

End of term charge and prepayment penalties for debt paydown

 

 

(5,563

)

 

 

-

 

Proceeds from issuance of redeemable investor units

 

 

224,362

 

 

 

1,500

 

Capital contributions from minority interest partners

 

 

5,943

 

 

 

2,646

 

Capital distributions to minority interest partners

 

 

(102

)

 

 

-

 

Tender Offer - Common Units

 

 

(19,393

)

 

 

-

 

Proceeds from exercise of options

 

 

60

 

 

 

-

 

Net cash provided by financing activities

 

 

477,688

 

 

 

33,603

 

 

 

 

 

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

$

442,769

 

 

$

(7,637

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

42,253

 

 

 

72,067

 

Cash, cash equivalents and restricted cash, end of period

 

$

485,022

 

 

$

64,430

 

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 patient contribution, platform contribution and Adjusted EBITDA 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.

Patient Contribution Reconciliation

Patient Contribution is a non-GAAP financial measure that we define as capitated revenue less medical claims expense. The following is a reconciliation of our loss from operations, the most directly comparable GAAP financial measure, to Patient Contribution, for the three and nine months ended September 30, 2020 and 2019.

 

 

Three-Months Ended

 

 

Nine-Months Ended

(dollars in thousands)

 

September 30,

2020

 

 

September 30,

2019

 

 

September 30,

2020

 

 

September 30,

2019

Loss from operations

$

 

(55,349

)

$

 

(31,586

)

$

 

(92,791

)

$

 

(59,878)

Other patient service revenue

 

 

(6,107

)

 

 

(6,067

)

 

 

(17,686

)

 

 

(11,548)

Cost of care, excluding depreciation and amortization

 

 

43,190

 

 

 

36,997

 

 

 

126,484

 

 

 

96,069

Sales and marketing

 

 

15,474

 

 

 

12,002

 

 

 

37,447

 

 

 

31,930

Corporate, general and administrative expenses

 

 

57,136

 

 

 

21,671

 

 

 

112,555

 

 

 

49,627

Depreciation and amortization

 

 

2,881

 

 

 

2,053

 

 

 

8,059

 

 

 

5,634

Patient contribution

$

 

57,225

 

$

 

35,070

 

$

 

174,068

 

$

 

111,834

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 nine months ended September 30, 2020 and 2019.

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

($ in thousands)

 

September 30,

2020

 

 

September 30,

2019

 

 

September 30,

2020

 

 

September 30,

2019

 

Loss from operations

 

$

(55,349

)

 

$

(31,586

)

 

$

(92,791

)

 

$

(59,878

)

Depreciation and amortization

 

 

2,881

 

 

 

2,053

 

 

 

8,059

 

 

 

5,634

 

Corporate, general and administrative

 

 

57,136

 

 

 

21,671

 

 

 

112,555

 

 

 

49,627

 

Sales and marketing

 

 

15,474

 

 

 

12,002

 

 

 

37,447

 

 

 

31,930

 

Platform contribution

 

$

20,142

 

 

$

4,140

 

 

$

65,270

 

 

$

27,313

 

Adjusted EBITDA Reconciliation

Adjusted EBITDA is a non-GAAP financial measure that we calculate as net loss adjusted to exclude (i) stock and unit-based compensation expense, (ii) depreciation and amortization, and (iv) other income, net. 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 EBTIDA, for the three and nine months ended September 30, 2020 and 2019.

 

 

Three Months Ended

 

 

Nine Months Ended

 


($ in thousands)

 

September 30,

2020

 

 

September 30,

2019

 

 

September 30,

2020

 

 

September 30,

2019

 

Net loss

 

$

(59,176

)

 

$

(33,424

)

 

$

(101,375

)

 

$

(63,508

)

Other expense

 

 

3,827

 

 

 

1,838

 

 

 

8,584

 

 

 

3,630

 

Depreciation and amortization

 

 

2,881

 

 

 

2,053

 

 

 

8,059

 

 

 

5,634

 

Stock and unit-based compensation

 

 

29,655

 

 

 

1,405

 

 

 

35,641

 

 

 

2,204

 

Adjusted EBITDA

 

$

(22,813

)

 

$

(28,128

)

 

$

(49,091

)

 

$

(52,040

)

Source: Oak Street Health

Contacts

Media:
Erica Frank
Vice President of Public Relations
(330) 990-5026
Erica.Frank@oakstreethealth.com

Investors:
Constantine Davides
(339) 970-2846
constantine.davides@westwicke.com

Release Summary

Oak Street Health Reports Third Quarter 2020 Financial Results

Contacts

Media:
Erica Frank
Vice President of Public Relations
(330) 990-5026
Erica.Frank@oakstreethealth.com

Investors:
Constantine Davides
(339) 970-2846
constantine.davides@westwicke.com