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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-39427

 

Oak Street Health, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

84-3446686

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

30 W. Monroe Street

Suite 1200

Chicago, Illinois 60603

60603

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (844) 871-5650

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class 

 

Trading

Symbol(s) 

 

Name of each exchange

on which registered 

 

 

 

 

 

Common Stock, $0.001 par value

 

OSH

 

NYSE

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes      No  

As of April 28, 2022, the registrant had 241,074,229 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

 

 

PART I.

FINANCIAL INFORMATION

5

 

 

 

Item 1.

Financial Statements

5

 

 

 

 

Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021

5

 

 

 

 

Consolidated Statements of Operations for the Three-Months Ended March 31, 2022 and 2021 (unaudited)

6

 

 

Consolidated Statements of Comprehensive Income/(Loss) for the Three-Months Ended March 31, 2022 and 2021 (unaudited)

7

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity/Members’ (Deficit) for the Three-Months Ended March 31, 2022 and 2021 (unaudited)

8

 

 

 

 

Consolidated Statements of Cash Flows for the Three-Months Ended March 31, 2022 and 2021 (unaudited)

10

 

 

 

 

Notes to Consolidated Financial Statements

11

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

37

 

 

 

Item 4.

Controls and Procedures

37

 

 

 

PART II.

OTHER INFORMATION

38

 

 

 

Item 1.

Legal Proceedings

38

 

 

 

Item 1A.

Risk Factors

38

 

 

 

Item 2.

Unregistered Sale of Equity Securities and Use of Proceeds

39

 

 

 

Item 3.

Defaults upon Senior Securities

39

 

 

 

Item 4.

Mine Safety Disclosures

39

 

 

 

Item 5.

Other Information

39

 

 

 

Item 6.

Exhibits

40

 

 

 


 

 

FORWARD-LOOKING STATEMENTS

Throughout this Quarterly Report on Form 10-Q, we make “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as “may,” “will,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect,” “anticipate,” “target,” “should,” “could,” “potential,” “opportunity,” “goal” or similar terminology. The forward-looking statements contained in this Quarterly Report on Form 10-Q are generally set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” but may be found in other sections as well. These statements are based upon management’s current expectations, assumptions and estimates and are not guarantees of timing, future results or performance. Therefore, you should not rely on any of these forward-looking statements as predictions of future events. Actual results may differ materially from those contemplated in these statements due to a variety of risks and uncertainties and other factors, including, among other things:

 

our history of net losses and our ability to achieve or maintain profitability in an environment of increasing expenses;

 

the impact of the Coronavirus disease 2019 (“COVID-19”) pandemic or any other pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide on our business, financial condition and results of operations;

 

the effect of our relatively limited operating history on investors’ ability to evaluate our current business and future prospects;

 

the viability of our growth strategy and our ability to realize expected results;

 

our ability to manage our growth effectively, execute our business plan, maintain high levels of service and patient satisfaction and adequately address competitive challenges;

 

our ability to attract new patients;

 

the dependence of our revenues and operations on a limited number of key payors;

 

the potential adverse impact of legal proceedings and litigation;

 

the risk of termination or non-renewal of the Medicare Advantage contracts held by the health plans with which we contract, or the termination or non-renewal of our contracts with those plans;

 

the impact on our business from changes in the payor mix of our patients and potential decreases in our reimbursement rates;

 

our ability to compete in the healthcare industry;

 

our ability to timely enroll new physicians and other providers in governmental healthcare programs before we can receive reimbursement for their services;

 

the impact on our business of reductions in Medicare reimbursement rates or changes in the rules governing the Medicare program;

 

our dependence on reimbursements by third-party payors and payments by individuals;

 

our assumption under most of our agreements with health plans of some or all of the risk that the cost of providing services will exceed our compensation;

 

the impact on our business of renegotiation, non-renewal or termination of capitation agreements with health plans;

 

risks associated with estimating the amount of revenues and refund liabilities that we recognize under our risk agreements with health plans;

 

the impact on our business of security breaches, loss of data or other disruptions causing the compromise of sensitive information or preventing us from accessing critical information;

 

the impact on our business of disruptions in our disaster recovery systems or management continuity planning;

 

the impact of reductions in the quality ratings of the health plans we serve;

 

the risk of our agreements with the physician equity holder of our practices being deemed invalid;

 

our ability to maintain and enhance our reputation and brand recognition;

 

our ability to effectively invest in, implement improvements to and properly maintain the uninterrupted operation and data integrity of our information technology and other business systems;

 

our ability to obtain, maintain and enforce intellectual property protection for our technology;

3


 

 

 

the potential adverse impact of claims by third parties that we are infringing on or otherwise violating their intellectual property rights;

 

risks associated with existing securities class action litigation;

 

our ability to protect the confidentiality of our trade secrets, know-how and other internally developed information;

 

the impact of any restrictions on our use of or ability to license data or our failure to license data and integrate third-party technologies;

 

risks associated with our use of “open-source” software;

 

our dependence on our senior management team and other key employees;

 

the concentration of our primary care centers in Illinois, Michigan, Pennsylvania, Ohio and Texas;

 

the impact on our business of an economic downturn;

 

our ability to attract and retain highly qualified personnel;

 

our management team’s limited experience managing a public company;

 

the impact on our business of the termination of our leases, increases in rent or inability to renew or extend leases;

 

the impact of failures by our suppliers, material price increases on supplies, lack of reimbursement for drugs we purchase or limitations on our ability to access new technology or products;

 

our ability to maintain our corporate culture;

 

the impact of competition for physicians and nurses, shortages of qualified personnel and related increases in our labor costs;

 

our ability to attract and retain the services of key primary care physicians;

 

the risk that our submissions to health plans may contain inaccurate or unsupportable information regarding risk adjustment scores of members;

 

our ability to accurately estimate incurred but not reported medical expense;

 

the impact of negative publicity regarding the managed healthcare industry;

 

the impact of state and federal efforts to reduce Medicaid spending;

 

the impact on our centers of adverse weather conditions and other factors beyond our control;

 

factors related to our recent issuance of Convertible Senior Notes (as defined later within this Quarterly Report on Form-10-Q); and

 

our ability to develop and maintain proper and effective internal control over financial reporting.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled “Risk Factors” in our Form 10-K for the year-ended December 31, 2021 (“2021 Form 10-K”) and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Form 10-K and this Quarterly Report on Form 10-Q. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other filings with the Securities and Exchange Commission (“SEC”) and public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

4


 

PART I

FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

 

OAK STREET HEALTH, INC.

CONSOLIDATED BALANCE SHEETS

($ in millions, except shares/units and per share data)

 

 

March 31,

2022 (unaudited)

 

 

December 31,

2021

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

108.4

 

 

$

104.7

 

Restricted cash

 

 

16.9

 

 

 

15.7

 

Other receivables, net (Humana comprised $0.2 as of December 31, 2021)

 

 

2.5

 

 

 

3.1

 

Capitated accounts receivable (Humana comprised $105.0 as of December 31, 2021)

 

 

697.0

 

 

 

559.4

 

Marketable debt securities

 

 

551.6

 

 

 

671.1

 

Prepaid expenses and other current assets

 

 

15.2

 

 

 

14.0

 

Total current assets

 

 

1,391.6

 

 

 

1,368.0

 

Property, plant and equipment, net

 

 

166.5

 

 

 

144.8

 

Goodwill

 

 

152.9

 

 

 

152.9

 

Intangible assets, net

 

 

10.4

 

 

 

10.8

 

Operating lease right-of-use assets (Humana comprised $70.9 as of December 31, 2021)

 

 

174.6

 

 

 

157.7

 

Other long-term assets

 

 

7.2

 

 

 

6.9

 

Total assets

 

$

1,903.2

 

 

$

1,841.1

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

27.9

 

 

$

22.1

 

Accrued compensation and benefits

 

 

49.3

 

 

 

41.7

 

Liability for unpaid claims (Humana comprised $99.1 as of December 31, 2021)

 

 

635.9

 

 

 

556.3

 

Other liabilities (Humana comprised $19.3 as of December 31, 2021)

 

 

62.8

 

 

 

44.0

 

Total current liabilities

 

 

775.9

 

 

 

664.1

 

Long-term debt

 

 

902.5

 

 

 

901.4

 

Long-term operating lease liabilities (Humana comprised $66.0 as of December 31, 2021)

 

 

179.4

 

 

 

164.2

 

Other long-term liabilities (Humana comprised $43.1 as of December 31, 2021)

 

 

47.8

 

 

 

55.4

 

Total liabilities

 

$

1,905.6

 

 

$

1,785.1

 

Commitments and Contingencies (Note 10)

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Preferred stock, par value $0.001; 50,000,000 shares authorized as of March 31, 2022 and December 31, 2021; no shares issued and outstanding as of March 31, 2022 and December 31, 2021

 

 

-

 

 

 

-

 

Common stock, par value $0.001; 500,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 241,071,816 and 240,937,465 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

0.2

 

 

 

0.2

 

Additional paid-in capital (Humana comprised $50.0 as of December 31, 2021)

 

 

1,058.6

 

 

 

1,017.9

 

Accumulated other comprehensive loss

 

 

(4.4

)

 

 

(1.4

)

Accumulated deficit

 

 

(1,061.8

)

 

 

(965.3

)

Total stockholders' equity allocated to Oak Street Health, Inc.

 

 

(7.4

)

 

 

51.4

 

Non-controlling interests

 

 

5.0

 

 

 

4.6

 

Total stockholders' equity

 

$

(2.4

)

 

$

56.0

 

Total liabilities and equity

 

$

1,903.2

 

 

$

1,841.1

 

The accompanying notes are an integral part of these consolidated financial statements.

5


 

OAK STREET HEALTH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

($ in millions, except shares/units and per share data)

 

 

 

Three-Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Revenues

 

 

 

 

 

 

 

 

Capitated revenue (Humana comprised $121.4 for the three-months ended March 31, 2021)

 

$

506.1

 

 

$

291.2

 

Other revenue (Humana comprised $1.2 for the three-months ended March 31, 2021)

 

 

7.7

 

 

 

5.5

 

Total revenues

 

 

513.8

 

 

 

296.7

 

Operating expenses

 

 

 

 

 

 

 

 

Medical claims expense (Humana comprised $73.0 for the three-months ended March 31, 2021)

 

 

379.4

 

 

 

199.7

 

Cost of care, excluding depreciation and amortization (Humana comprised $2.0 for the three-months ended March 31, 2021)

 

 

95.2

 

 

 

60.3

 

Sales and marketing

 

 

33.8

 

 

 

24.1

 

Corporate, general and administrative

 

 

88.7

 

 

 

73.1

 

Depreciation and amortization

 

 

7.8

 

 

 

3.3

 

Total operating expenses

 

 

604.9

 

 

 

360.5

 

Loss from operations

 

 

(91.1

)

 

 

(63.8

)

Other income (expense)

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(0.6

)

 

 

(0.2

)

Other

 

 

(5.0

)

 

 

-

 

Total other income (expense)

 

 

(5.6

)

 

 

(0.2

)

Net loss

 

 

(96.7

)

 

 

(64.0

)

Net loss attributable to non-controlling interests

 

 

0.2

 

 

 

0.6

 

Net loss attributable to Oak Street Health, Inc.

 

$

(96.5

)

 

$

(63.4

)

Weighted average shares outstanding-basic and diluted

 

 

225,645,420

 

 

 

220,736,845

 

Net loss per common share - basic and diluted

 

$

(0.43

)

 

$

(0.29

)

The accompanying notes are an integral part of these consolidated financial statements.

 

6


 

 

OAK STREET HEALTH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

($ in millions, except shares/units and per share data)

 

 

 

Three-Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Net loss

 

$

(96.7

)

 

$

(64.0

)

Other comprehensive (loss) income, net of tax

 

 

 

 

 

 

 

 

Net unrealized (loss) gain on marketable debt securities, net of tax

 

 

(3.0

)

 

 

-

 

Comprehensive (loss) income

 

 

(99.7

)

 

 

(64.0

)

Less: Comprehensive loss attributable to non-controlling

   interests

 

 

0.2

 

 

 

0.6

 

Comprehensive loss attributable to Oak Street Health, Inc.

   common shareholders

 

$

(99.5

)

 

$

(63.4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7


 

 

OAK STREET HEALTH, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’ EQUITY/MEMBERS’ (DEFICIT)

(Unaudited)

($ in millions, except shares and per share data)

 

 

Three-Months Ended

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

Issued

 

 

Amount

 

 

Additional Paid-In Capital

 

 

Accumulated

Deficit

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Non-controlling

Interest

 

 

Total

Equity/Deficit

 

Balances December 31, 2020

 

 

240,756,714

 

$

 

0.2

 

$

 

971.8

 

$

 

(555.8

)

$

 

-

 

$

 

7.0

 

$

 

423.2

 

Purchase of capped calls

 

 

-

 

 

 

-

 

 

 

(123.6

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(123.6

)

Issuance of common stock upon vesting of restricted stock units

 

 

17,864

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock upon exercise of options

 

 

53,307

 

 

 

-

 

 

 

1.2

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1.2

 

Forfeitures

 

 

(43,447

)

 

 

-

 

 

 

(0.1

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(0.1

)

Stock compensation expense

 

 

-

 

 

 

-

 

 

 

42.4

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

42.4

 

Payments to non-controlling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1.1

)

 

 

(1.1

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(63.4

)

 

 

-

 

 

 

(0.6

)

 

 

(64.0

)

Balances March 31, 2021

 

 

240,784,438

 

$

 

0.2

 

$

 

891.7

 

$

 

(619.2

)

$

 

-

 

$

 

5.3

 

$

 

278.0

 

8


 

 

 

 

Three-Months Ended

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

Issued

 

 

Amount

 

 

Additional Paid-In Capital

 

 

Accumulated

Deficit

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Non-controlling

Interest

 

 

Total

Equity/Deficit

 

Balances December 31, 2021

 

 

240,937,465

 

$

 

0.2

 

$

 

1,017.9

 

$

 

(965.3

)

$

 

(1.4

)

$

 

4.6

 

$

 

56.0

 

Issuance of common stock under the employee stock purchase plan

 

 

63,284

 

 

 

0.0

 

 

 

1.8

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1.8

 

Issuance of common stock upon vesting of restricted stock units

 

 

49,395

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock upon exercise of options

 

 

116,539

 

 

 

0.0

 

 

 

2.2

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2.2

 

Forfeitures

 

 

(88,446

)

 

 

-

 

 

 

(1.2

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1.2

)

Shares withheld related to net share settlement of stock-based awards

 

 

(6,421

)

 

 

0.0

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock compensation expense

 

 

-

 

 

 

-

 

 

 

40.6

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

40.6

 

Purchase of joint venture minority interest

 

 

-

 

 

 

-

 

 

 

(2.7

)

 

 

 

 

 

 

-

 

 

 

0.6

 

 

 

(2.1

)

Net unrealized loss on short-term marketable debt securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3.0

)

 

 

-

 

 

 

(3.0

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(96.5

)

 

 

-

 

 

 

(0.2

)

 

 

(96.7

)

Balances March 31, 2022

 

 

241,071,816

 

$

 

0.2

 

$

 

1,058.6

 

$

 

(1,061.8

)

$

 

(4.4

)

$

 

5.0

 

$

 

(2.4

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 


 

9


 

 

OAK STREET HEALTH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

($ in millions)

 

 

March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(96.7

)

 

$

(64.0

)

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

 

 

 

 

 

 

 

 

Fair value adjustment to contingent consideration

 

$

5.0

 

 

$

-

 

Depreciation and amortization

 

 

7.8

 

 

 

3.3

 

Amortization of discount on debt and related issuance costs

 

 

1.1

 

 

 

0.2

 

Accretion of discounts and amortization of premiums on marketable debt securities

 

 

2.3

 

 

 

-

 

Share-based compensation expense, net of forfeitures

 

 

39.4

 

 

 

42.3

 

Non-cash operating lease costs

 

 

5.0

 

 

 

3.5

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(136.9

)

 

 

(38.2

)

Other assets

 

 

(1.6

)

 

 

(0.9

)

Accounts payable and accrued compensation and benefits

 

 

4.3

 

 

 

8.9

 

Liability for unpaid claims

 

 

79.6

 

 

 

12.5

 

Operating lease liabilities

 

 

(4.5

)

 

 

(3.0

)

Other liabilities

 

 

4.0

 

 

 

6.6

 

Net cash used in operating activities

 

 

(91.2

)

 

 

(28.8

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sales and maturities of marketable debt securities

 

 

288.2

 

 

 

-

 

Purchases of marketable debt securities

 

 

(174.2

)

 

 

-

 

Purchase of business, net of cash acquired

 

 

-

 

 

 

(1.0

)

Purchases of property and equipment

 

 

(19.8

)

 

 

(7.8

)

Net cash provided by (used in) investing activities

 

 

94.2

 

 

 

(8.8

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of convertible senior notes, net

 

 

-

 

 

 

898.2

 

Purchase of capped calls

 

 

-

 

 

 

(123.6

)

Distributions to non-controlling interests

 

 

-

 

 

 

(1.1

)

Proceeds from exercise of options

 

 

2.2

 

 

 

1.2

 

Proceeds from issuance of common stock under the employee purchase plan

 

 

1.8

 

 

 

-

 

Purchase of joint venture minority interest

 

 

(2.1

)

 

 

-

 

Net cash provided by financing activities

 

 

1.9

 

 

 

774.7

 

Net increase in cash, cash equivalents and restricted cash

 

 

4.9

 

 

 

737.1

 

Cash, cash equivalents and restricted cash at beginning of the period

 

 

120.4

 

 

 

419.7

 

Cash, cash equivalents and restricted cash at end of the period

 

$

125.3

 

 

$

1,156.8

 

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Unpaid debt offering costs in accounts payable and accrued liabilities

 

 

-

 

 

 

0.3

 

Additions to construction in process funded through accounts payable

 

 

9.2

 

 

 

0.6

 

The accompanying notes are an integral part of these consolidated financial statements.

10


 

OAK STREET HEALTH, INC.  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. ORGANIZATION AND NATURE OF BUSINESS

Description of Business

Oak Street Health, Inc. (collectively with its consolidated subsidiaries is referred to as “Oak Street Health,” “OSH,” “we,” “us,” “our,” or the “Company”) was formed as a Delaware corporation on October 22, 2019 for the purpose of completing a public offering and related reorganization transactions (collectively referred to as the “IPO”) in order to carry on the business of Oak Street Health, LLC (“OSH LLC”) and its affiliates. On August 10, 2020, we completed our IPO. As the managing member of OSH LLC, Oak Street Health, Inc. operates and controls all of the business affairs of OSH LLC and its affiliates.

The Company operates primary care centers serving Medicare beneficiaries. The Company, through its centers and management services organization, combines an innovative care model with superior patient experience. The Company invests resources into primary care to prevent unnecessary acute events and manage chronic illnesses. The Company engages Medicare eligible patients through the use of an innovative community outreach approach. Once patients are engaged, the Company integrates population health analytics, social support services and primary care into the care model to drive improved outcomes. The Company contracts with health plans to generate medical costs savings and realize a return on its investment in primary care. As of March 31, 2022, the Company operated 140 centers.       

Basis of Presentation and Consolidation

The accompanying unaudited interim consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such regulations. These financial statements have been prepared on a basis consistent with the accounting principles applied for the fiscal year ended December 31, 2021 in the Company’s 2021 Form 10-K filed with the SEC on February 28, 2022. In the opinion of management, all adjustments (consisting of all normal and recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-months ended March 31, 2022, including the impact of COVID-19, are not necessarily indicative of the results that may be expected for any other interim period or the full year ending December 31, 2022.

The consolidated financial statements of the Company include the financial statements of all wholly owned subsidiaries and majority-owned or controlled companies, which include the variable interest entities (“VIE”) in which OSH has an interest and is the primary beneficiary. See Note 11, “Variable Interest Entities.” For those consolidated subsidiaries where our ownership is less than 100%, the portion of the net income or loss allocable to the non-controlling interests is reported as “Net loss (gain) attributable to non-controlling interests” in the consolidated statements of operations. Intercompany balances and transactions have been eliminated in consolidation.

In addition, Oak Street Health owns the majority interest in two joint ventures: OSH-PCJ Joliet, LLC and OSH-RI, LLC, which are consolidated in the Company’s financial statements. In January 2022, the Company paid its former joint venture partner, Evangelical Services Corporation (“ESC”), $2.1 million to acquire their 49.9% ownership in OSH-ESC Joint Venture, LLC. As such, OSH owns 100% of this entity as of March 31, 2022, and the joint venture was effectively dissolved.

 Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company bases its estimates on the information available at the time, its experiences and various other assumptions believed to be reasonable under the circumstances including estimates of the impact of COVID-19. The areas where significant estimates are used in the accompanying financial statements include revenue recognition, the liability for unpaid claims, stock-based compensation, valuation and related impairment recognition of long-lived assets, including intangibles and goodwill and the valuation of stock options. Actual results could differ from those estimates.

11


 

 

COVID-19

Even as the COVID-19 pandemic subsides, disruptions caused by the pandemic, including labor shortages and inflationary pressures, may continue and could, in turn, have a negative impact on the Company. Further, recurring COVID-19 outbreaks, including outbreaks caused by different virus variants, could have the potential to impact the Company and its future results of operations, cash flows and financial position. Over 98% of our total revenues are recurring, consisting of fixed monthly per-patient-per-month capitation payments we receive from Medicare Advantage plans.

On March 27, 2020, the United States President signed into law the Coronavirus Aid, Relief and Economic Securities Act (“CARES Act”) which provides economic assistance to a wide array of industries, including healthcare. This legislation did not have a material impact on our financial statements as of and for the quarter ended March 31, 2022. Refer to our 2021 Form 10-K for details on the prior year impact of the legislation.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company described its significant accounting policies in Note 2 of the Notes to Consolidated Financial Statements for the year ended December 31, 2021 included in its 2021 Form 10-K. During the three months ended March 31, 2022, there were no significant changes to those accounting policies, other than the below and those policies impacted by the new accounting pronouncements adopted during the period and further described below.

Stock-based compensation

The Company accounts for stock-based compensation as an expense in the statements of operations based on the awards' grant date fair values. The Company estimates the fair value of options with service conditions granted using the Black-Scholes option pricing model. Stock options that include service and performance conditions are valued at their grant date using the Black-Scholes model and estimates regarding the probability of achieving the performance metrics. The Black-Scholes option pricing model requires inputs based on certain assumptions, including (a) the fair value per share of the Company's common stock (b) the expected stock price volatility, (c) the expected term of the award, (d) the risk-free interest rate and (e) expected dividends.

The fair value of stock-based payments is recognized as compensation expense, net of actual forfeitures, over the requisite service period, which is generally the vesting period, with the exception of the fair value of stock-based payments for awards that include service and performance conditions which is recognized as compensation expense over the requisite service period as achievement of the performance objective becomes probable.

The Company issued certain performance stock options (“PSOs”) during the first quarter of 2022, that vest based on the satisfaction of certain service and performance-based conditions. The Company estimates compensation expense based on the grant date fair value of the awards and recognizes the expense on a graded vesting basis over the vesting period of the awards. Compensation expense for these awards is recognized only if the Company has determined that it is probable that the performance condition will be met. The Company reassesses the probability of vesting at each reporting period and adjusts compensation expense based on its probability assessment.

 

Recently Adopted Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. The new standard is effective for our fiscal year beginning after December 15, 2022. Early adoption is permitted. The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the effective date of adoption, and the impact in future periods will depend on the contract assets and contract liabilities acquired in future business combinations. The Company will adopt this guidance in the event of a business combination subsequent to the effective date of the guidance.

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In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This standard is effective for fiscal years beginning after December 15, 2021 and should be applied prospectively or retrospectively. We have adopted ASU 2021-10 as of January 1, 2022 using the prospective method. This adoption did not have a material impact on our consolidated financial statements or notes to the consolidated financial statements.

 

NOTE 3. REVENUE RECOGNITION

The Company earns revenue from our capitated arrangements with health plan payers and other revenue arrangements. Other revenue is comprised of ancillary fees earned under contracts with certain managed care organizations for the provision of certain care coordination and care management services; license subscription and fees; and fee for service revenue. Both our capitated and fee-for-service revenue generally relate to contracts with patients in which our performance obligation is to provide and/or manage healthcare services to the patients. Revenues are recorded during the period our obligations to provide healthcare services are satisfied as noted below within each service type.

Our care coordination services include a single performance obligation to stand ready to provide care coordination services to patients, which constitutes a series of distinct service increments. Payments received are recognized in other revenue ratably over the length of contract terms and are refundable on a pro-rata basis to Humana if the Company ceases to provide services at the centers within the length of the term specified in the contracts. Under our care management services, we have a single performance to stand ready to provide care management services, which constitutes a series of distinct service increments.

The Company acquired RubiconMD Holdings, Inc. (“RMD”) on October 20, 2021. RMD is a healthcare technology firm specializing in an online eConsult platform which enables primary care providers to easily access same-day insights from top specialists in order to provide better care for the patients. RMD generates revenue through subscription licenses to access the eConsult platform, as well as providing integration, training and other ad-hoc services. We have identified the performance obligation to be standing ready to provide access to the eConsult platform. Subscription license revenue is recognized when the performance obligation is met over time by either the straight-line method or when services are performed over the terms of the applicable contract. RMD also provides services to assist customers with initial usage and training of the platform. These services are typically provided for a fixed fee and do not have a variable component. We identified the performance obligation is to provide the other professional services, which is typically achieved over time.

Capitated Revenue and Accounts Receivable

The Company had capitated agreements in place with the payors listed below, and the capitated revenue balances by payor for each period presented were as follows:

 

 

For the Three-Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Humana

 

 

32

%

 

 

42

%

Wellcare/Meridian

 

 

16

%

 

 

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