Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to our one RCM third quarter earnings call.
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I would now like to hand, the conference over to your speaker today to frame head of Investor Relations.
Please go ahead.
Good morning, everyone and welcome to the call certain statements made during this call maybe considered forward looking statements pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 in particular any statements about or future growth plans on performance, including statements about our forecast for 2019 and 2020, our ability to successfully.
With new technologies and platforms expected uses of cash expected timing of new business deployment unexpected new business are forward looking statements. These statements are often identified by the use of words such as anticipated believes estimates expects intend design May plan project Ward and similar expressions are variation and that's.
As a caution not to place undue reliance in such forward looking statements. All forward looking statements made on today's call involve risks and uncertainties well we may elect to update these forward looking statements at some point in the future. We have no current and consider doing for except to the extent required by applicable law.
Actual results and outcomes could differ materially from those included in these forward looking statements as a result of various factors, including but not limited to the factors discussed under the heading risk factors in our annual report on our latest Form 10-K , no I'd like to turn the call over to John .
Thanks, all too good morning, everyone and thank you for joining us.
Our third quarter results were once again driven by continued strong operational performance.
For the quarter was 301.2 million up 20% year over year and adjusted EBITDA was 48.9 million up 28.5 million from a third quarter of last year strong performance on air related metrics technology, driven productivity improvement and the transitional work to our shared service.
Centers have progressed smoothly and ahead of our expectations in 2019.
The combination of these operational drivers has contributor to EBITDA upside this quarter as well as the increase in EBITDA guidance earlier this year.
The team overall has done a superb job of delivering on our customer commitments.
The plants, we had entering 2019.
The high quality results prove to levered or being reflected in reference trucks performed by potential new customers and this is translating to a continued increase in activity on the commercial products.
I'm pleased to announce that in the third quarter, we signed a new operating partner agreement with a large physician organization with annual NPR approaching $700 million.
The agreement is for a seven year term and covers our full suite of end on services deployment activities began in early October and we expect the steady state financial contribution from this contract to be better was down the operating partner economics. We are provided in the past for an equivalent 700 million managed NPR contract.
This is an important win for us on true dimensions.
It demonstrates the value proposition of our operating partner model, where we are seeing increased interest in transitioning full control of operations to our built for purpose platform, which delivers a comprehensive suite of technology global delivery infrastructure and a best in class operating system to drive performance.
Secondly, it demonstrates the growth potential and our continued momentum in a position market as discussed on her last earnings call. We have developed a comprehensive a differentiated offering for large physician groups underpinned by our robust technology architecture, a dedicated team within our deployment function and the performance.
Driven contracting framework, we view the dynamics in a position murkiness highly favorable driven by faster growth relative to the acute care end market and the highly fragmented vendor landscape with limited scale leverage which represents a great opportunity for us to deliver meaningful value to the submarket.
We continue to invest in building out our capabilities and market presence in this scenario and last week, we announced the appointment of BJ coattails as executive Vice President of physician services.
He joins us from Davita Medical group were most recently he was the chief value ops are responsible for strategy M&A contracting and performance and operations.
Prior to that he was the CFO Davita Medical group PJ brings over 20 years of health care experience to our one with especially deep expertise and developing and managing value based payment models for providers and payers.
We're excited to have BJ with us on the call an alternate over to him for a few words.
Thanks, Joe I'd like to start by extending my congratulations to the team for signing the physician business. Joe just referenced it's a great time to join our one and I'm excited to joined as high performing team, which I've known from the outside for a long time.
My assessment after just a few weeks on the ground is that a lot has been accomplished since the intermedics acquisition 18 months ago.
We capabilities across more than 80 specialties, and 30 million patient encounters annually. There the scale platform with a very strong set of capabilities to serve the market.
I've also been encouraged by the strength of client relationship representing some of the most for thinking groups in the space.
Which span from some of the largest medical groups in the country to small groups.
It's early for me to provide views on any changes to our future plans strategy et cetera, but given current market dynamics and the opportunity ahead of us, we're well positioned to support our clients in the market at large whether current technology expertise and infrastructure.
As a market transitions that value based reimbursement models, we want to be in a position to deliver a robust highly differentiated solution to providers, regardless of their size or where they are on their VB our journey.
Many of the capabilities required to support DVR are in place our one.
Given my background in developing and managing value based payment models for providers and payers. This is where I can add the most value.
For the contributing to our ones growth in updating you in the future.
Thank you BJ to emphasize we just comment about the transition to value based reimbursement many of our customers already have some form of BPR contracts in place, we predominantly see one sided risk contracts, which involve incentive payments for preventative care or for reporting on quality metrics, however value based care.
Trucks can be configured in several ways, each with unique administrative or revenue cycle needs, regardless of the payment model, we want to be positioned to deliver a solution architecture that is agile and can respond to the evolving payment landscape and deliver superior outcomes for our customers. In addition to the momentum we are seeing on.
The physician funds our pipeline of end to end and modular deals with large health systems also continues to grow.
Over the past quarter, we've added several new opportunities to our qualified pipeline and we've been working intimately with several systems as they conduct deep diligence to understand the breadth of our capabilities and the value. We can create for them. We're very encouraged by the momentum that has been created and continued to see multiple pathways to.
Fulfilling our full year expectations.
Next let me turn to our digital transformation effort.
He also many successful set of initial proof points and a thoughtful analysis of the opportunities.
Your goal, we made the decision to invest in the creation of a digital transformation office or detail. The goal of this investment was to comprehensively digitized and automate our operations, which would result in the next wave or performance improvement for our customers and their patients.
With this investment decision, we established a dedicated internal team comprised of handpicked experts within our organization complemented by best in class strategic partners.
His team has applied a systematic approach to prioritize the opportunity side with a goal of sequencing our activities to maximize financial outcomes and patient satisfaction for our customers, while ensuring that the automation routines, we've built our scalable across our operations today and support our future growth trajectory.
We believe our built in capability is distinctly different relative to other automation capabilities on the market, which largely rely on a piecemeal approach operational control over revenue cycle processes, along with deep domain expertise and in house develop software creates a rapid feedback will win.
Continuous improvement approach, we believe this in conjunction with our scale delivery infrastructure creates a sustainable competitive advantage for us.
2019 has been a heavy Europe lifting from an automation standpoint.
In Q1, we developed a pipeline of executable opportunities across our 13 core revenue cycle processes. These words is still down to 30 process level routines prioritized across three dimensions financial return speed and ease of deployment.
And value to us and our customers.
For context, one example of a process level routine is the end to end automation of cash closely.
This includes multiple complex components, such as the importation balancing and posting a detailed digital remittance files and big statements between payers financial institutions are one and our customers.
Automating this complex process in its entirety as an example of one of the process level routines referenced.
Over the course of the first three quarters of 29 team. We brought 20 of these 30 routines ended development ore production, increasing our automated test volume to over 15 million annually.
In aggregate the results, we've seen to date meet or exceed our expectations.
In addition to automation the second prong of our detail effort involves digitization of patient registration and scheduling processes encompassed in RPX platform. We currently have close to 70 locations live on the solution and expect to have more than 100 line by the ended the year.
The receptivity an uptake of this solution has been very encouraging.
In August we crossed the 50000 mark for the number of patients per month successfully using our self service digital platform to complete all of their registration financial clearance activities, obtaining patient liability estimates and check and for their schedule deployment.
Patient wait times have decreased 58% from pre implementation baselines and the net promoter score has improved from approximately 30 to 75 significantly above healthcare industry Comparables. The PX team continues to innovate around additional use cases, where patient and provider focus groups have indicated.
This solution could further improved customer revenue and the patient experience. The authorization process is key example of an additional use case. This is a major pain point for our customers given a myriad of complicated payer requirements regarding the need for prior authorization of clinical procedures.
Getting resulting in delayed or denied payment.
We believe we are uniquely positioned to address this problem by combining our deep revenue cycle expertise with automation and the scheduling functionality in our POS platform. This digital integration of clinical orders with a comprehensive authorization rules library, and our market leading automation capabilities enables us.
To automate the majority of authorization requests on behalf of our providers accurately and well in advance of the date of service. This stands to reduce both the administrative burden on our customers clinicians staff and the potential for revenue leakage.
As a direct result of the systematic comprehensive and disciplined approach we have taken as we sit today, we expect adjusted EBITDA contribution margin for our operating partner contracts at steady state to increased by four percentage points from 26% to 30% when the PX platform and all 30 automation.
Routines in our original pipeline are at their full run rate in the 2021 timeframe. This translates to a 15% to 20% improvement to our studies. These adjusted EBITDA margin profile in 2020, we expect $15 million to $20 million contribution to adjusted EBITDA from the automation efforts currently underway.
While we expect to complete the implementation of the original pipeline by the end of Q1 2020, we continue to uncover opportunities for both net new automations and to extend existing automations to capture incremental value. We continue to have a robust pipeline heading into 2020 and expect to.
Continue to scale, our automation center of excellence to respond to this demand.
Now, let me turn to our deployment efforts at Quorum Health. We started the transition of work to our shared service centers on October 1st all major functions, including billing follow up cash posting and customer service have now been successfully transition.
We plan to onboard patient facing services, along with our one hub technology suite over the remainder of the fourth quarter.
We will also start deploying RPX platform in early 2020, which should deliver further efficiencies and improvement in patient satisfaction for core.
Overall activities, our quorum, we're off to a strong star and the team on the ground is starting to shift its focus to vendor rationalization and standardization of on site processes.
At our other customers, including the Ascension inner mountain and present, some meta our teams on the ground continue to do a fantastic job driving operational performance, which hasn't turned driven our EBITDA outperformance this year.
On a consolidated basis across these customers, we have transitioned 95% of work that can be performed out of centralized locations.
Rationalized, 84% of targeted third party span and implemented our our one technology stack at 89% of customer sites. These are encouraging stats. When you consider they also include presence and a meta where the majority of employee transitions began in early 2019.
Our disciplined deployment approach and ongoing focused on execution are the critical drivers here and we believe the results. We are generating are delivering meaningful sustainable benefits for our customers.
In closing as we wrap up to your and look to 2020, we continue to remain very optimistic about the business, we're seeing meaningful traction and engagement with our end markets for end to end partnership models as well as for our modular offerings. We have significant scale advantage, which is translating the strong operational execution.
Benefiting our customer base.
With our GTL effort well underway, we're pleased to be in a position to quantify the expected financial benefit to our margin profile and lastly, as we've commented before our contracted book of business presents additional EBITDA growth beyond 2020, as we ramp up profitability to steady state margins on our contract.
Book of business with the new business. We've signed we expect to have just over 13 billion of NPR and the margin ramp phase exiting 2020.
Now I'd like to turn the call over to Rick to review, our financial results in more detail.
Thank you Joe and thank you all for joining us.
I'd like to remind everyone that we will be referencing non-GAAP metrics on todays call. The adjusted cost of services and adjusted EPS DNA numbers exclude stock based compensation and DNA expense.
Adjusted EBITDA excludes stock based compensation expense strategic initiative, a portion of DTR related expenses severance and certain other costs.
A reconciliation of GAAP to non-GAAP financials is available in todays earnings press release.
Now turning to our Q3 results.
Revenue for the quarter with $301.2 million up 50.8 million, our 20% year over year, driven by a $30.1 million increase in net operating fees as a result, new customers Onboarded in the last 12 months as well as organic growth across our customer base.
Relative to Q2 2019 revenue was up 6.2 million driven primarily by organic growth at our customers.
From a cost standpoint, adjusted cost of services in Q3 was $227.7 million compared to 232.5 million last quarter and 206.5 million a year ago. The sequential decrease was primarily driven by productivity improvements in the delivery of our services.
Relative to Q3 of 2018 cost of service has increased due to an increase in costs associated with new customers.
Boarded in the last 12 months, partially offset by productivity improvements and our steady state portfolio.
Adjusted EPS unique expenses in Q3 were 24.6 million up 2.79 sequentially, partly due to investments and corporate IP in human resources infrastructure to support our growing footprint on a year over year basis, SDN expenses increased $1.2 million also primarily due to investments a corporate identity and human resources infrastructure.
As well as sales and marketing expenses related to increased efforts to pursue new business.
Adjusted EBITDA for the third quarter was 48.99 compared to 40.6 million in the second quarter and up 28.5 million from $20.4 million a year ago, the sequential and year over year increases were driven by continued progression of our operating partner customers along the profitability curve offset partly by onboard.
And cost for new customers.
Lastly, we incurred $7.4 million and other costs in Q3, primarily related to strategic initiatives and our digital transformation office.
Turning to the balance sheet net debt at the end of September inclusive of it restricted cash was 314.89 compared to net debt of 304.4 million at the end of June we repaid 14 million of debt in the third quarter, including a 4 million dollar mandatory repayment of our term loan.
Net interest expense in the third quarter was 5 million down from 9.9 million in Q2, driven by favorable borrowing rates. Following the completion of our refinancing in late June .
Cash generated from operations was flat in the third quarter with improved operating performance offset by the timing of customer payments capex in the quarter with $10.8 million related to capitalize softer and purchases of software licenses and computer equipment.
Turning to our outlook for the remainder of 2019, we are reaffirming our revenue guidance of 1.175, the $1.2 billion, we expect revenue to ramp up in the fourth quarter driven by the Onboarding of the core him contract. In early Q4. We are also reaffirming our adjusted EBITDA guidance of $165 million to $170 million.
Which takes into account onboarding costs are coram and the new physician customers signed in the third quarter.
Looking out to 2020, our current adjusted EBITDA guidance does not include the $15 million to $20 million contribution from Dts, Joe referenced we anticipate providing updated guidance in early 2020 to reflect this contribution from the DTA as well as any other moving parts as we complete our budget process.
In closing I am proud of our teams steady focus on execution and delivering on our customer commitments, which is driving our financial results.
Three quarters of the year behind US we remain confident in our ability to deliver on our performance and growth goals for 2019 and look forward to another strong year in 2020, now I'll turn the call over the operator for Q in AG operator.
Thank you.
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Our first question. This morning comes from Charles Rhyee from Cowen. Please go ahead.
Yes, Hey, thanks, guys. Thanks for taking the questions and congrats on the quarter here.
Joe maybe just talk about obviously a great win here.
You know kind of getting towards the target of 3 billion. Obviously, we look out about two months left here you talked about multiple ways you see to get there maybe can you kind of characterize sort of.
What's in the pipeline right now give us a little bit more.
Sense on the stages. Some of these clients are added and maybe sort of you'd say the mix between more traditional kind of hospital clients and some of these more physicians large physician groups.
Yes, Thanks, Charles just some comments among the first thing I would say that underpins.
Our continued view that we've got line of sight to hit.
Some of our 19, new signings targets is just a very very healthy.
Progression of deals in our pipeline and what I would emphasize there is we have several of those deals or opportunities that are deepened the diligence.
By customers on us and as I've said before those are some of the markers that form our view of forecast ability on these operating partnership. So we're very very encouraged along those lines to see that progression.
The intensity of activities on some of those specific to opportunities increasing.
The second thing I would say is in terms of mix of the pipeline I would still characterized the mix as more skewed towards I'd ends or large health systems.
Again with the predominance of opportunities in our operating partnership pipeline in that 1 billion to 5 billion range and Thats been consistent the past couple of quarters now with VJ, joining and with some of the efforts we've been putting we are seeing an increasing activity in a positive way.
From the physician end markets and we're seeing the size of those opportunities increase and Thats parcel, we partially driven by where we want to focus our commercial efforts.
Gary on the team and partially driven by the value prop and what our value propositions itself to in terms of size. So that's that's kind of what forms our view on the your and then contextually that what that's what forms some of our characterization of continued encouragement that we're seeing.
Within these end markets.
Thanks for that.
These large physician organizations is the implementation times faster relative to traditional IDN or is that given their size at that point, they kind of onboard at a similar rate.
No I would say the implementation time frames and.
Underlying complexity of deployment is similar to our idea inspect and what really drives some of the complexity you've got.
I'll.
Much greater number of stakeholders, when you think about that physician footprint and the distributed nature of that physician footprint.
And then you've got a technology dependency were which plays to our strengths. We have a very sophisticated technology deployment organization well, we are conducting into a number of different.
External systems in the final driver that I would say as many of these physician organizations continue to be quite acquisitive and so.
Were valued partner with our deployment capabilities both in the initial deployment of their footprint, but in the ongoing support of their strategic efforts as it relates to M&A to be able to manage that complexity. So it's it's.
It's in many ways a different scale, but very similar drivers of complexity and so I would characterize deployment timeframe says some generally similar to what we see on the IDN side.
And maybe Rick a question for you here.
Obviously strong EBITDA performance when I look at the cash flows has been a little bit lumpy.
Kind of Big cash was the first quarter down second quarter more flattish year third what are you kind of what should we think about for full year as we get towards the end of the year.
No we had the big data center launch.
It's all exit early in the year.
As we then by the relative to our 2020 numbers. Thanks.
Yes, I think from a cash flow perspective, I think we had a couple timing issues here in the quarter that resolve themselves really from an operating cash flow standpoint, I think a lot of our capex spend for the year. They would expect some of that to kind of decrease here in Q4, I think some of the are that we had with invoicing mechanics, where we've gone through.
Collect that accounts receivable here in in the in the fourth quarters I'm expecting positive cash flow here in Q4 and that will lead us into the 2020 timeframe.
Okay, Great I'll stop there. Thank you.
Thanks Charles.
Our next question comes from Matthew Gilmore from Baird. Please go ahead.
Hey, Thanks for the question, maybe a couple of follow ups here to to Charles.
For the new physician group operating partner, you announced I was hoping to get up a couple of more details on that relationship.
Would you mind, giving us a sense for sort of how that came together was it a competitive process and are they focus on any particular specialty like emergency room, or anesthesiology and and it sounds like they are an acquisitive group, but I was hoping to confirm that as well.
Sure I'm not going to I want to be a little bit careful Matt in the amount of context I provide on them as a profile just out of respect for for their request.
To allow them to manage.
Some of the sensitive communications, they're working through internally.
What I would say.
Some color on that pursuit.
Really we were able to give them an alternative so there.
Kind of.
Original plan to in source on their scale and drive an internal infrastructure to manage their revenue cycle. I think this is a great example of how we intend to differentiate in these large physician independent physician organizations that are acquisitive historically they have felt.
They are only option to drive really value real revenue cycle excellence is to make those investments themselves because I've said before the general market options for them are very fragmented and the pricing constructs are not that sophisticated or said differently. There are not that ally.
So the customer success and so as we've analyzed this market. We feel strongly there was an ability for us to put a value prop very similar to the value prop. We have historically offered to our integrated delivery systems, whereby we extend our scale in our infrastructure and then a lie.
Fashion and give them an alternative to building it themselves that helps them with speed the value that helps them with allocation of their mind share to other strategic priorities allocation of their capital.
And where were the highest returns are et cetera, and that is really kind of the characterization of this pursuit. So it wasn't necessarily come positive to an ex turtle vendor. It was really where we were able to step in and demonstrate.
A true partnership.
And.
And then aligned approach that they got comfortable with to change their approach to.
So there are the two an internal pathway.
Got it and then on the pipeline commentary it sounds like you've got good line of sight on on some deals.
Through year end I was curious if you could sort of help us understand.
What happens with these deals after they are doing due diligence on our one and I know you may not have a big enough history, but.
I have the close rates when you got to this point then been pretty eye on those types of deals.
They have what happens I would say that.
These are.
Very complex transactions when you think about it I would I would compare there are more to an M&A transactions on the typical contractual relationship and a buy sell.
Mode of operation and so there is very deep diligence that's done because it's a partnership thats being consummated and it's a transition of control.
That's that's that's that's inside of that partnership of a very very critical process.
So you know as we progress through diligence Theres obviously.
All of the contracting which I've said before most often includes internal and external.
Advisors spend.
And then there's all the approval dynamics on both sides the customer side than that on our side. So.
Most often most approval dynamics include board meetings and board scheduling etcetera, and so some of those dependencies our Watson.
Just drives the Lumpiness, if you will or the lack of precision that we can place on an exact.
In which these will convert but but.
We.
We generally have what I would say is.
Good markers that every pursuit, we have contributed to our thoughtfulness on on the forecast ability of of these pursuits and.
And it's those markers that are informing our encouragement as we look to close out the year and head into 2020.
And then last one I wanted to ask about the DTA.
In automation initiative, obviously pretty meaningful impact to your margins, especially as we think about 2021.
I was curious if that these initiatives do they also speed up your ability to.
Ramp margins with new clients as we think about that sort of traditional three year ramp and also could you give us some sense for.
Does it actually improved quality of the other product care delivering to these health systems.
Yeah. So.
In my prepared comments I'm, one of the things that I highlighted as we assessed and prioritized what we were going to work on.
And the sequencing of of of those.
Team says we've characterized.
It's the scale ability of or the reuse ability of that have that automation or that.
Technology development effort and so I do anticipate.
I would think about this probably second half of 2020 entering 2021 that we start to see some compression in the speed of us hitting.
Those operating partner milestones for profitability, So I do think.
That that should contribute positively to compressing time to value along those lines.
So we've got to get through.
The the launch of all of these we've got.
Make sure that we drive the execution as we as we've characterized on this call that we expect to see that contribute financially.
But but I think I think thats, absolutely, probably something that we will target internally and in due course communicate externally.
I'm most excited.
About the strengthening of the value prop to customers.
So it's great the financial leverage that we get off of this but I think from a competitive differentiation.
Whether that be patient satisfaction, we highlighted some of.
Those numbers that we're seeing in terms of positive impact on patient satisfaction, which in turn and turn contributes to.
The the competitive differentiation of our customers whether that be the acceleration of working capital or the reduction of revenue leakage.
These have.
Probably a greater impact on those drivers on a relative basis than they do on our our core financials and I think that's that's very very encouraging because we think it's early innings in this market and we think theres a lot of opportunity.
For solution architectures that bring meaningful value to customers as it relates to transform into revenue cycle.
Okay. Thanks very much.
Thanks, Matt.
Our next question comes from Donald Hooker from Keybanc. Please go ahead.
Great.
Thanks for that question. So I guess, you've seen the optimistic I mean, congrats on the on the physician organization deal.
And you commented that there were some other.
End to end up for opportunities in the pipeline.
Is there a chance we could see something before year end or just thinking about.
Sort of what sort of next in your sales pipeline insofar as it might impact your 2020 EBITDA. If you have to bring on something new in could pressure EBITDA.
Yes.
In two things I think as we said weve.
We've got the right amount of activity that our view is that you know, we called and we have line of sight.
To getting.
Additional announcements out before year end, it's always like I said hard for us to predict with precision but to the best.
We can assess the stage of the opportunities and the specific specificity of the work going on between the two teams Thats what forms our view maybe equally if not more importantly.
The the progression of activity in all phases of our pipeline activity as we head into 2020.
Makes us feel really good about.
2020 targets.
And Don though what I would say is that.
The deployment costs associated with those targets are are included in our guidance.
That we've got out on 2020 and as as Rick commented, we'll be updating.
In in January as we normally do.
And we've also provided pretty specific color on what we expect DTR to contribute.
Incrementally to 2020 on this call. So I think I think you know.
The deployment costs associated with growth are are all included in in those views on 2020.
Okay Super and then any any update on the inner mountain.
Potential purchase of some davita facilities that could be revenue for you.
Im not going to comment I've got BJ here with me and on the heels of this question maybe it's a good opportunity for me to I'll turn it over to VJ and the second we were not in a position to comment on inner mountain and as a general matter. We don't we don't want to be talking on behalf of our customers I would only say that.
Our the strength of our relationship inner mountain is as good as it's ever been we're excited to serve them, they're truly a model healthcare organization and we're lucky to have divested operating partner and that's how we operate.
Everyday with within our mountain.
I do think may make sense given VJ. His background is just for him to.
Provide some context contacts term perspective.
Not specific to inner mountain and Davita, but more to the infrastructure opportunity to help customers navigate risk based arrangements, yes. Thank you.
I think as we look at the marketplace, one large right in the physician space in those specifically in the value business.
There is a multiple multitude of groups and opportunities for them to participate and there's a huge gap in being able to support those groups as they're moving through the.
I guess, a spectrum of fee for service to value.
Our skill set and as I've joined the team really got deep into it really stems from optimizing what their current relationships are so understanding where theyre at and how they can perform better in have greater results and so that that's the hard work right. There's a lot of companies out there who we're talking about the analytics and give you the data what our one.
It's been good AD is really looking at restructuring workflows and getting into that Nitty gritty to change management, which makes a difference and so as we progress with those partners and different medical groups around the country, especially with the IDN.
We hope to be able to help them not only optimize their can contact but help them in design, what the new relationships could be and so as as we look at our partners in essentially inner mountain and others. As we can help support that I think we're well positioned to do so and in the coming in a month and over the coming quite.
As you start to learn more about how we're developing that solution as a more deployable.
Product for other others to be able to purchase.
Thanks, James Thank you.
Thanks, Don Thank you.
Our next question comes from Steve Halper from Cantor Fitzgerald. Please go ahead.
Hi, Good morning, just a housekeeping question could you walk us through the mechanics around.
Around the diluted share count numbers since it increased in the quarter.
Yeah. Thanks, Steve.
What we really have here as a function of the fact that the company is profitable from a GAAP perspective, and so in that situation. Then when you go through and you work basically the.
You have to take into account the warrants that now working the diluted share count now.
Those warrants have an exercise price of $350 million to $60 million.
Excuse me 60 million warrants until those now factoring the to the diluted share count and previously all of the equity awards that had been anti dilutive when we were reporting GAAP net losses.
Those were excluded those are now included in there right now and so that in those two factors in themselves add to about 50 to 55 million shares in the share count in the overall diluted calculation since really I mean again from from Neulasta net income and those things now work into the EPS calculation.
Right and you use your you're using the treasury stock method.
Okay, and then but just to be.
Obviously, the convertible preferreds are assuming that they're not converted yet in that share count that's correct.
But the 50 to 55 is net of the Treasury stock method correct. Okay, great. Thank you.
Yep.
Thanks, Steve.
Sure.
Please press star one in order to ask your question.
Our next question comes from the line, it's definitely Demko from Citi. Please go ahead.
Hi, guys. Thank you for taking my question congrats on the land.
Thanks, Stephanie you.
Team has been very positive on your NPR targets on the really.
Surprise me, if not just between 19, but 2020.
So.
Asking him with a solid Milky way what gives you confidence.
Well or 2020 mph target and being able to meet them.
I really think what gives us confidence I've got Gary here as well.
Gary long with split.
But but obviously, we we spend that we spent a fair amount of time on this call talking about.
Closing the year and line of sight, what forms line of sight on closing the year that being 19 on some of our targets as we open the aperture of that to your question what really gives us very very encouraging signs is just the amount of activity.
We have an all phases of our commercial pursuits and.
I would characterize activity as increasing quarter over quarter and add that increases really coming from some of the larger.
Integrated delivery systems, which plays to our strengths and obviously has as a more meaningful contribution potential financially. So.
As we look to 2020.
Even beyond.
That's that's what forms some some of our teams.
Encouragement excitement that if you will and it also for forms the basis of our characterization that this market is pretty early and still in its formative stages, which I think represent some a quite interesting opportunity all looking forward.
Understood understood and that's certainly Matt you spoke about putting out a new long term guidance refresh in the fourth quarter two given some of the turn over the CFO , Steve is that still on track or would that be pushed out.
No I think our plan our plan all along Stephanie and maybe we had some confusion our plan all along has been to really update long range guidance.
Most likely in January when we update 2020 guidance on the logic anchor on that is twofold. One. This is a long cycle business and we have as we've always said a fair amount of visibility on our contracted book of business.
And as we head into 2020, the long range guidance that we've had out for the better part of the past three years now will be in your guidance and so so we would expect nothing related to the CFO transition has changed that view, it's always been our view that we would do that in conjunction with updating two.
2020, and along those lines I would just emphasize as we exit 2020.
With the with the wins, we've announced to date, we still have 13 billion of managed NPR. That's in its margin optimization phase has not fully optimized and so we have a fair amount of visibility and I think I think in a positive sense.
Characterizing the long range potential of that inclusive of detail is what we intend to do and in early Q1.
Understood that CTO could make as Mike mentioned story. Thank you for taking my question. Thank.
Thank you Stephanie.
We have no one left in queue at this time I'll turn the call back to Joe for closing remarks.
Thanks, Carol and I'd like to thank everybody for joining us today as commented we're very encouraged by the progress we've made to date, whether it's our detailed effort underlying operational execution.
And then continued momentum and traction on the commercial front. So as we close we're super excited about these developments and we look forward to updating everybody on future calls.
Operator, thanks for all your help and we can close call.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.