Q2 2020 Option Care Health Inc Earnings Call
Ladies and gentlemen, please standby yourself with cold begin momentarily once again, ladies and gentlemen, please stay on the line.
[music].
Ladies and gentlemen, thank you were standing by walks through the Optumcare <unk> second quarter 2020 earnings call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question answer session to asked a question during the session issued a press star one on your telephone if you require further assistance. Please press Star then zero I would like to disrupt this call mr. much superior you may begin.
Good morning, and thank you for joining us for the option care, how second quarter earnings call.
Joined this morning by John right to make or Chief Executive Officer.
Before we begin please note that during this call will make certain forward looking statements that reflect our current views related to our future financial performance future events and industry and market conditions. These forward looking statements are subject to risks and uncertainties that could cause actual results could differ materially from our comp.
Right.
We encourage you to review the information in their reports, we filed with the FCC regarding the specific risks and uncertainties.
You should also review this section entitled forward looking statements in this mornings press release.
During the call we will use non-GAAP financial measures when talking about the company's performance and financial condition.
I can find additional information on these non-GAAP measures in this mornings press release posted on the Investor Relations portion of our website.
That I'll turn the call over to John.
Thanks, Mike and good morning, everyone and thank you for joining us to review our second order.
As we sit here today two days ahead of the one year anniversary of the merger between option care and Bioscrip deformed Optumcare how.
It is quite remarkable the amount of progress we've made in creating a truly unique enterprise.
Reflecting on the amount of Brown, we have covered over the past year and the resilience of our organization during significant huh.
Gives us confidence in our ability to seize the opportunities in front of mind.
Clearly it has been an eventful period since we released our first quarter result on May seven in the pandemic has had a meaningful impact on Optumcare health and our operation.
This morning, I plan to focus on the current situation and how cobot 19 has affected.
More importantly, how we have responded.
Overall, our results reflect the value creation opportunities will be enterprise, we had been building over the past year and resilience of the clinically differentiated services, we offer our patient.
Given the pre announcement I will defer to my to review the financial result, but overall I'm very encouraged by the strong growth we delivered in the second quarter and the improved financial profile of the company during a very dynamic situation.
I honestly cannot expressed the pride and gratitude I feel towards the thousands of dedicated kidney care health team members.
Who have endured the challenge is the past month, the safely and effectively transition do patients onboard and its pure the continuity of care for patients that we start.
On the heels of a very strong corridor and having accelerated much of the integration left we're now squarely focused on lane the framework for continued longer term growth.
As I articulated on our first quarter call in response to the coal price. It we quickly established the command center to actively manage the pandemic situation and focused on the safety of our team ensure continuity of care for our patients and actively collaborate with referral sources to transition patients to the home.
One of our infusion suite.
Our efforts and proactive management have proven effective as we have weathered the storm well, despite many hurdles and unique challenges.
Our proactive supply chain management and procurement efforts have ensured adequate levels of personal protection equipment and vital drugs to ensure continuity of care and we did not turn away one referral or patient transfer in the quarter become because about being unable to supply.
Our dependability and this turbulent period, it's only strengthened our relationship with Payors and providers as a partner of choice.
As expected new patient referrals were negatively impacted by the cobot 19 pandemic.
Early in the second quarter, we thought a double digit decline in acute therapy referrals is a direct result of lower hospitalizations and the cancellation or postponement of scheduled procedures.
While we saw modest recovery in certain markets overall acute referrals remain below pre kobin levels, and we continue to see bearing degrees of recovery aftermarket level.
We expect acute referrals to gradually improve over time, but not uniformly across the country and not a b shaped recovery.
Our portfolio of chronic therapy is continue to perform very well in the second quarter with strong payer collaboration and patient transfers onto service with Dod from other sites of care drove low double digit growth in the second quarter.
We continue to actively worked with referral sources and payers to identify patients who will benefit from receiving therapy in the home or infusion suite, setting, which represents a lower cost site of care and frankly, it preferred by patients given the current situation.
In the second quarter, we also made considerable progress in our merger integration efforts.
Given our focus on tightening the belt like every other organization, we accelerated a number of integration related efforts to pull forward, both the operational and financial benefits.
Recall that we articulated a goal of at least $60 million in net cost synergies to be realized within 18 to 24 months post merger.
Sitting here today, one year from the merger we have achieved our goal of at least $60 million in that run rate synergies.
We will over achieve our synergy target, but as we get further from the merger date quantifying synergies versus inherent cost leverage will become less apparent.
Nonetheless, we will continue to drive cost savings and given recent learnings from cobot 19 situation, we will examine our business model for additional sources of efficiency.
As we begin winding down integration effort. This frees up my leadership team time and resources to intensify our focused on accelerating organic growth.
Underlying or integration efficiency and ability to quickly and effectively transfer patients over the past few months is our proprietary technology platform that we have built over the last several years.
Which leverages, leading platforms, including Oracle workday, well Sky, Salesforce dot com and a life care amongst others.
We have established a market leading suite of tools that expedite patient registration and onboarding.
Discharge coordination ensures best in class quality maximizes patient support and engagement as well as provide timely clinical feedback providers and payers.
Integrated suite of applications, it's highly scalable and provides a solid platform that will enable future growth for years to come.
Finally, we're making tremendous progress on our proactive engagement efforts with key payers to foster stronger partnership and mutually beneficial relationship.
We announced late last year that we entered into collaborative multiyear agreements as the preferred provider with both United healthcare in Atlanta.
Today I'm very excited to announce than we have recently entered into a strategic multiyear agreement with Humana and innovative care with whom we had the privilege to partner for several years and we're excited about the road ahead with that.
We take pride in our ability to collaborate with payers based on strategic focus on infusion therapy, our national scale, our clinical differentiation as well as our independence.
We remain the only scaled provider that is in network with all national payers and the new agreement with Humana reaffirms the value we can deliver in terms of better outcomes for patients providers and payers.
In closing the second quarter was extraordinary on many fronts. We successfully managed through what is arguably one of the most challenging and disruptive periods for U.S. health care and memory.
While accelerating merger related integration efforts delivering exceptional growth.
And laying the groundwork for future growth through our expander payer collaboration.
I have never been more confident in the future of Optumcare health.
Finally, I wanted to share a few thoughts regarding the sale of common shares two weeks ago.
On July 24, we sold 10 million common shares under our recently established shelf registration with the explicit 10 abusing the net proceeds to pay down a portion of our second lien knows.
At the same time, our primary shareholder also sold 8 million shares.
Mike will walk through some of the specific impacts of the offerings.
The company perspective, we are excited that we are making progress against our commitments the de leverage as well as increased the public float in shared.
Both of which.
We believe will be quite beneficial to our shareholders in the long run.
With that I will turn the call over to Mike to review the financial results in a bit more detail Mike.
Thanks, John.
As we initially announced on July Twentyth and reiterated this morning, we delivered strong financial results in the second quarter and re initiated full year earnings and cash flow guidance.
Just a reminder that the reported growth in this morning's 8-K is as reported in prior periods are comprised of only legacy Optumcare financial results I.
I will try to provide comparable growth where possible based on our estimated combined prior year result, and the impact of harmonized accounting policies.
Revenue in the second quarter of over $740 million represents comparable infusion revenue growth of approximately 7% driven by low double digit chronic therapy growth with which offset a modest decline in acute relative to the prior year.
Chronic benefited from the transfer of patients from hospital H O PD and other sites of care to the home are one of our infusion suites going forward. We anticipate continued softness in acute referrals given current hospital activity levels and expect a modest uptick in referrals heading into the fall given typical.
Seasonality trends.
Regarding our portfolio of chronic therapies, we also anticipate fewer new patient referrals as patient visits, especially for the treatment of chronic conditions continue to lag.
However, we continue to actively collaborate with health systems physicians and payers to drive new patient referrals.
Gross profit of $166 million represented 22.4% of net revenue and while comparisons to prior year challenging given the geography differences in the PNM was that the legacy organizations, we still expanded gross margin by 200 basis points over reported legacy Optumcare result.
Despite higher growth in lower margin chronic therapies.
Our operations team continued to drive efficiencies in our cost to serve patients and the realization of synergies also contributed to the margin expansion.
Spending of $124.9 million represented 16.9% of revenue and note that it includes approximately $9.8 million of integration related expenses, which is detailed in the reconciliation of adjusted EBITDA in this mornings press release.
We expect spending leveraged to further improve as integrated related expenses continued to decline and synergies take hold.
As we have mentioned on many occasions, we are confident in the scalability of our infrastructure and we expect spending leveraged to continue to improve especially as integration related expenses decline.
As we initially shared on July Twentyth, we exited the second quarter, having achieved our goal of at least $60 million in net cost synergies.
The team has been laser focused on accelerating integration efforts, while minimizing any patient disruption and we've made tremendous progress well ahead of our initial timeline.
Integration efforts continue behind the scenes to ensure that our technology platforms are harmonized and our clinical capabilities are optimized and we anticipate those activities will continue into early 2021.
But as we get further away from the merger date it becomes muddier regarding what is a merger related cost synergy and what is cost leverage as a result about doing our job.
Ultimately, we expect a modest overachievement of net cost synergies and thereafter, we'll continue to actively drive spending leverage across our operations.
Adjusted EBITDA of $54.6 million represented 7.4% of net revenue compared to an adjusted EBITDA margin of 4.8% in the second quarter 2019.
EBITDA margin is a vital metric we used to evaluate our ability to grow profitably and the second quarter results are encouraging and reaffirm our profit trajectory.
Shifting to cash flow, we generated $35 million in the quarter in cash flow from operations. Despite some strategic investments in drugs in medical supplies.
Free cash flow, which we define is a net change in cash balances with $40.9 million in the quarter, which as we disclosed does include a $11.7 million in cash receipts from HHS related to the cares Act grants.
Excluding the grant receipt in the second quarter free cash flow was still $29 million.
We finished the quarter with more than $250 million in total liquidity with no outstanding borrowings on our revolver.
Regarding the carriers at grant receipts after careful analysis in consideration of the programs intentions, we've decided to return the grand funds to HHS in their entirety.
We appreciate the responsiveness of the federal government and proactively supporting healthcare service providers. However, we have determined that the grant money is best utilize for other purposes.
The return of the grant funds will be reflected in our third quarter results as a financing outflow on our cash flow statement.
Subsequent to the second quarter, we successfully issued 10 million shares of common stock at a price or $12.50 on July 24 for estimated net proceeds of $118 million after underwriting discount and feeds.
As disclosed we will use the proceeds to retire a portion of our senior secured second lien Pik toggle floating rate notes due 2027.
Despite having a flexible and patient debt maturity profile. We're excited about the positive modification to our capital structure as the offering enables us to de leveraged quicker and will result in more than a million dollars a month and reduced cash interest going forward.
Our ultimate goal is to migrate to a leverage profile or below four times and we're well on our way.
Finally, given the strength of our results in the second quarter, we reinstated full year guidance of $200 million to $210 million in adjusted EBITDA and expect to generate more than $50 million in free cash flow for the year.
With that we will open the call for Q anyway.
Operator.
Ladies and gentlemen, if you have a question or comment at this time. Please press the star than the one key on your Touchtone telephone for your question has been answer to your single yourself from the Q. Please press the balance sheet.
Our first question comes from David Mcdonald Securities.
Good morning, guys.
Mike can you just remind us in terms of 2020 free cash flow guidance.
Some of the cash payment headwinds that are reflected in that number and then when we think about 2021 free cash flow.
As cash interest expense around 100 million in Capex around 30 million the right way to think about that.
Yes sure Dave Good morning, Thanks for that question, Yeah original free cash flow guidance, but to generate at least positive free cash flow. If you remember back on our year end car, we talked about cash flow from ops of at least $50 million and positive free cash flow and again, we define free cash flow is the net change in cash.
As we sit here today through halfway through the year, we generate an excess of 53 million in cash flow from UBS.
And obviously very strong free cash flow through the first half and so.
A lot of that is effective working capital management and accelerating some of the this synergy realization.
So as we think about for the year again, our guidance is at least free cash flow of $50 million, which is effectively where we are through mid year. We do have an outflow in the in the in the third quarter related to returning the grant funds.
Which we think we'll be able to more than covered and again.
We're going to be relentless around generating free cash and I think you should view $50 million as the floor.
As it relates to 2021, obviously.
Lot of ground to cover between our into 2021, but we would expect a meaningful decline in a cash interest not only are we going to retire a meaningful portion of the second lien we have some rate lock that fix the underlying rate on the second lien at around 2% knows MACI.
Sure.
End of the the fourth quarter. So that will also help us I would expect cash interest to be.
Below 100 million and as we've talked about this year capex of around $30 million I think thats, probably the high watermark, but conservatively I think consistent levels of investment for next year is a reasonable assumption.
And then just Mike can you quickly comment on the second lien Paydown and.
The additional flexibility that that provides in terms of.
Potential.
Further improvement in the capital structure.
Maybe anything or commentary around the rating agencies.
You know any help you could potentially get there just just how you think broadly about the remaining capital structure in place and what paying down a portion of the second lien does for you in terms of additional flexibility.
Sure Dave you bet, Yeah, I think look naturally taking out what's roughly half a turn of leverage as John I have consistently talked we are very focused on de leveraging overtime. Despite a very patient maturity profile.
We thought we could opportunistically improve the capital structure. This is accelerates our journey to get below four times, which we thought would be over the medium term I think that accelerates and I think within a couple of years, we should be.
Below four times.
Which I think just gives us additional flexibility and look between the rate locks maturing and taking out a portion of the second lien.
Thats more than $1 million of of cash in our pocket, which we can obviously strategically reinvest in the business. So it it just adds to our overall flexibility and I think you know with the rating agencies I think it.
I think it reaffirms our commitment and the fact that.
Yes.
Opportunity to utilize equity.
Average profile I think just reaffirms.
Actions speak louder than words.
Okay last couple just back on Humana and more broadly in terms of appear.
Engagement with payers.
When you are having these conversations are you seeing payers increasingly looking at narrowing networks.
And.
John in your prepared comments, you mentioned better outcomes for patients providers.
Is there any conversation in some of these.
Contractual chat about.
Tying a portion of either upside or the contracts to outcomes.
A portion of kind of a risk based outcome.
Yes, good morning, Dave Thanks for the question. So as we've said before the work that we're doing with the payers and and our ability to have these multiyear strategic relationships. The incredible foundation for us to be able to build problem and so when we embarked on this making certain.
We secured these large.
Payors certainly on the national was extremely important for us to be able to do.
We.
As an organization as I said, we put that as the foundation, we're really thrilled about that at this point in time most of the work that we're doing is more around performance guarantees we put our money where my hope is as an organization we are willing to stand behind those outcomes and stand behind that.
Partnership with with the payer community, we expect that will evolve over time.
No ultimately everyone's talked about value based reimbursement and things of that nature, we think that locking into these multiyear agreements with strategic partnership there.
Narrowing their networks and reassessing their their network profile as well as the first steps of performance guarantee.
We think the positive direction to tightening and building a stronger relationship.
I guess last question for me just given everything that's happened in the last handful of bonds.
Wanted to come back to the ambulatory infusion suites and is that an area, where maybe you guys think about some de novo spend in putting some additional dots on the map.
Or is the footprint pretty adequate at this point, just how you're thinking about that.
The ability to leverage that channel in a more meaningful way.
Good day.
Look we continue to take a look at that within the within the Capex profile that Mike outlined is.
Continued investments into the business and so we are looking for those opportunities we have.
A couple of things that we're doing certainly when we rebuild our facilities just part of our normal build out.
We're looking for opportunities to embed infusion suites within them a bit are of the highest standard from that standpoint. So there's some natural expansion with that as well as we're looking at Standalone de Novo in key markets. As we move ahead, we have found that through the pandemic I'm having a.
Great.
A focus us we that only is focused on infusion adds a level of comfort and confidence to our patients to be able to receive that care in one of our infusion suite. So we're continue to be very bullish on the the value that a drive.
And we're very very.
Confident that we're going to continue to expand our footprint as we identify demand and need in the market to be able to capitalize on that.
Okay. Thanks very much.
Thanks, David.
Our next question comes from Mettler with William Blair.
Hi, good morning.
You asked a little bit about.
What volumes it looked like here in July as some price cuts you have seen rising case counts and then you mentioned that recovery.
Has not been.
First of all sort of across the country, but in markets that have.
Hi sustained low cases at this point for some time and equity return to more normalized.
Healthcare interactions what are you seeing there from a trend standpoint relative to some of the parts the country, where there are still rising case counts.
Yes, good good morning.
So I would characterize that as we said in in kind of the prepared comments hub. It is as you said.
A little bit.
Eradicate across the country and certainly you know where we're seeing flare up we see corresponding tightening of.
The hospitalizations and deferment of scheduled procedures from that standpoint.
I'd say the positive trend is where we have seen markets reopen where we have been.
The the co bid.
You know piece count be moring control with that we see an uptick in the number of referrals.
Some of the major Metro's that were hit hardest in the early part of the quarter started to open up in the in the back half of the quarter and even into July and so.
We expect that's going to be.
In inconsistent across the country, we think that rural areas, we're seeing some increase in flow from those referral sources. We we expect that as we move over time, we'll have two things that should be.
Positive from that one is we know that there is seasonality and we see a normal seasonal uptick.
In the back half of the year and we expect that as.
Hospitals and health system.
It back into the rhythm being able to manage both coded patients as well as manage the general population that we will see some of the demand come back.
We said we have not seen a V shaped recovery, we think it's going to be more gradual overtime and.
Our goal is to make certain we are well positioned with our team of care transition specialists as well as our selling resources should be a partner of choice and the capture that demanded that returns to the market.
Okay.
Thanks, Thanks, and then I wanted to ask first quarter call you highlighted some technology capabilities, including.
Virtual Onboarding and also talked about in the referral sources and now footprint and the ability to take on patients quickly really led to taking a referral sources. So just wondering I understand from out of the woods, but just from sort of the capability standpoint things that you've taken away from corporate maybe to put.
Perhaps better competitive position moving forward.
Yeah, Matt I think we've learned a lot you know the old saying necessity. The mother of invention is as John talked about we've been investing in a very scalable sophisticated suite of tools I think it's really uncovered a lot of opportunity and a lot of the horsepower under the hood so to speak through.
Through the Cobot era.
As John mentioned, a lot of our technology is around virtual onboarding, it's around efficiency of making sure that patient in an acute care setting or in a physician's office is seamlessly and expeditiously transition through authorization benefit verification patient teach scheduling compounding and delivery of the therapy and.
So a lot of the the efficiency enablement tools that we have developed have really.
Come to the front burner through being able to especially in the northeast, which we highlighted on our first quarters, where we were able to really utilize our virtual technology and make sure that with with a Florida patient transfers that we could efficiently process, though so a lot of that's encouraging because again, we also highlight on the first call that Matt.
Technology helped us reach into some of the rural and smaller metro areas, where frankly, we didnt have the the coverage.
From our clinical team on the ground and so I think.
As we emerge I think that gives us more confidence that we can maintain the efficiency in the span of of reach.
We've proven over the last couple of months.
The only other thing I would add is.
We as we had highlighted we were.
Forming new relationships and expanding the referral source.
Through through really the first half a year part of that was just.
As we had reached that the selling theme as we've talked about.
Post merger of realigning and resetting we continue to see that trend being positive not only from the point of.
Of that reset of the team back in October but continuing through.
Really the first half a year and into the the second quarter. So we expect will hold the ground of those relationships that were building.
And our expectations are that reach and frequency will be an important aspect for our selling resources and we have the tool to be able to track their activities to make certain that we are providing adequate cover our coverage within those up within those markets.
Okay and last one from me.
My guess is we think about margin going forward, you mentioned increasingly difficult breakout specific synergies, but given that you've already hit.
The target USEC and May have some upside there and just delivered what had been strongest EBIT margins over the last four quarters, how should we think about the margin improvement.
In terms of that cadence.
Understand it will be a mix of core operating improvement as well as potentially some additional synergies.
Yeah, I mean, we've been very open that we see this is a high single digit EBITDA margin business and rest assured we're not going to stop at.
At high single digits I think the last 90 days is reaffirmed the scalability and spending leverage that's something we talk a lot about and.
Given the fact that we're confident that we can grow spending.
Considerably lower than the margin the gross profit dollars, that's going to continue to drive EBITDA expansion. So again, we're encouraged that the primary thesis or one of the primary pieces of the the merger was unlocking the cost synergies here. We are inside at 12 months, having achieved the cost leverage.
Again, as John mentioned, there, we will over achieve and again, we're relentless looking at spending leverage I think the last 90 days is also uncovered some additional areas, where we're going to go back and revisit the.
Operating model and see where else we can we can shake loose some some leverage so again, we're not stop and we're encouraged you're right. We've expanded EBITDA margins by more than 200 basis points year over year and.
It's only putting more wind at our sales.
Great. Thank you.
Thanks, Matt Thanks, Matt.
Our next question sorry question comes from Kevin Fischbeck with Bank of America.
Great. Thank you.
Wanted to ask about the guidance, obviously, you guys doesn't seem to be assuming very much improvement in the back half of the year out to we think about the synergies being.
Fully in that run rate in the back half of the year sounds like it for seasonal uptick.
Okay.
Mike we're going to be facing a quarter as difficult as Q2 operationally. So just wanted to see if there's something else that you would point to that would be kind of that headwinds in the second half of the year.
Or is it just conservative guidance.
Yes, Kevin Hey, it's John Thanks for the question Ed.
We were looking forward and that we are trying to be thoughtful about the way that we're looking at the back half of the year.
We do expect that there is going to be some inconsistency in the top line right is.
As we see the flare ups happened as we are preparing for.
The.
The inconsistency of the recovery within that process.
That I think is something that we as an organization we're trying to factor in its theres just a level of uncertainty there.
From that standpoint, as Mike said were relentlessly focusing around where we can squeeze cost where we can use and leverage the infrastructure effectively how we can.
Take on the volume that comes in in a very effective and efficient way and so we're cautiously optimistic that we're on the right path that we're continue to build the solid foundation to really drive that forward and that as an organization, we're well positioned to capture demand. It's just not knowing how that demand is.
Going to recover that I think has added a level of conservativism to the way that we're approaching it and the only thing I'd add Kevin, but we've obviously model the number scenarios in shock the topline.
Across therapies in geographies et cetera, and I think was important for us to reaffirm the floor of our original guidance at 200.
We obviously have a high degree of confidence that given the levers and optionality that we have the that we'll be able to still deliver a very productive year. So.
I think we we obviously want to go out with a conservative view and make sure that.
We're doing what we say Rick we're going to do.
Okay, Great and then I guess, if you get a little bit about.
How maybe that the competition has.
That would this I guess in prepared remarks, you commented about how you had.
Turned away a referral or patient demand is that something that you saw competitors do is there any.
And I'll keep you can tell maybe at least anecdotal evidence of gaining share from some of the smaller players during this period.
Yes, Kevin So a couple things and again, it's hard to get clear visibility on.
The key competitors within that environment. What we can say is we do know that there were situations, where given the strength of our procurement team and really strategic sourcing. We were ahead of the gain in making certain that we had assets adequate supplies of personal protection equipment in the process there were situations that we.
We were aware of where some of our competitors some of them in smaller side of the competitive range. We're unable to take patients on because of lack of have adequate supply there.
So we know that we.
I had the ability to really lean in given the position that we had to be that partner of choice to help with those transition of patients out of the hospital or out of Asia PV into one of our infusion suite and into the home so.
Our expectations are we will maintain and hold the ground that we gained on that and we believe that the stability and the reliability that we were able to demonstrate through a very difficult time will do.
I would be very positive in making us the partner of choice for referral sources moving forward, Yes, I think adding doing I'd add Kevin as I think reaffirms that scale truly does matter in the industry as John mentioned, given some of our procurement relationships with our direct.
Relationships with manufacturers and suppliers I think we had a higher degree of confidence in our ability to maintain the supply chain and another key strategic.
Advantage that we believe we have as we employ more clinicians and infusion nurses than anyone else in that country right of those infusion nurses had the same challenges that all of us have around kids at home and.
Challenging situations outside of work, but thats allowed us with the flexibility and to end the staffing model that we have to ensure again that not one patient was was.
As compromised in terms of service continuity I think it's a testament to our clinical team and I think frankly speaking relative to some of the smaller.
Competitors, that's just the challenge that was was difficult to overcome.
Okay, Great and then I guess.
Any thoughts on the.
Fusion.
Right.
Yes look we we continue to work.
In close collaboration and partnership with.
With any CCI eight.
And making certain that our voices heard on the hill.
Theres two prong approach right now that continues to move forward. One is the litigation that any tie a has.
It's taken against CMS than.
Expectations are that we should care about that shortly as well as we're working in partnership with bipartisan support.
To gain additional.
You know support and legislative.
Support for a better reimbursement mechanism and a fair reimbursement mechanism for home infusion either as part of.
The the co bid response as well as just the general improvements into Heels Act and some of the other aspects of that so we're going to continue to be allowed voice, we're going to continue to push.
As both in industry as well as the industry leader on that.
Our expectations are that there's been a high level of.
I got embracing of the home.
For.
Safety and effective delivery of care and we're hoping that.
CMS wise.
Get wiser to the the prospects and really the value that home infusion can provide to really what are the most vulnerable patient population that being be elderly.
And and those that are in the Medicare population.
Okay, great. Thanks.
Thank you.
Our next question comes from Brooks O'neil with Lake Street capital.
Good morning, guys. Congratulations on all you've accomplished in the first year and I'm looking forward to the future.
I wanted to start by asking Jan you commented a little bit about.
Leadership team focused on accelerating organic growth Im hoping you might give us some.
Areas you see the biggest opportunity and maybe you could even suggest what great. You think you could grow the topline overtime, 7% seems pretty consistent with industry growth, but maybe you could do a little better.
With your size and scale.
Yes, good morning Brooks.
Again I appreciate the question.
As as the organization had focused around the integration I again want to call out what an incredible job. The team has done in in realizing the value of the of the integration right. It starts with culture and really moved through all the big areas.
Both cost synergy realization and efficiency within the network and we still have work ahead of us so.
It's not as if.
That will stop Theres continued to work to do to harmonize, but again the the heavy portion of that lift I would say is behind us as Mike and I had had talked about in previous conversation, we didnt build a lot of revenue synergy into the plan.
Knowing that those are harder to track and in many instances take a little bit longer to achieve.
Through the process, but we have been relentless in our focus around repositioning our selling team to make certain that we had better coverage in the marketplace that we were stronger in the way that we were building those relationships and that we.
We're well positioned to capture demand in the acute area and and partner both upstream with manufacturers as well as downstream lift referral sources.
To help make the market AD market shift happened in the chronic area.
That I think it's probably the biggest area of focus now as we move forward with the leadership team, having a little more bandwidth moving away from all to be integrated air integration related effort to now being focused around clearly running the business and optimizing.
The value that we believe we can bring to patient to referral sources and to payers and.
I think thats going to be important over the long run.
To the direct question look my goal is and what the team is aligned around is.
Hey strength of this organization should be our ability to really drive that topline two to focus around the organic growth, we've seen and I think to have communicated before that we think that the industry is growing at five to 635% to 6% on a per annum basis and.
Helped push the team to grow better than that I mean, thats that is the goal. We think we are well positioned in order to do that we think now that we've.
Got a year under our belt in working together, we are really excited about the potential of the business and as I said in my opening comments I have never been more confident in the future of of auction care health and our ability to drive sustainable growth and create a really sustainable.
Vantage.
Great just following up on Kevin's question.
Medicare I'm curious if you could highlight any differences that you see from Medicare advantage payors versus traditional Medicare is there a bigger utilization of home infusion.
From from the commercial Medicare Payors relative to argue that the government.
Response to you guys.
Brooks, it's Mike it's a great. It's a great distinction because whereas we've been challenge to.
Establish a direct Medicare reimbursement benefit, which is economical and logical the amazing differences that when when we think about our portfolio of commercial payers and again more than 85% of our revenue is generated from commercial payers that includes Medicare advantage plans.
It was commercial payers see the extraordinary value that migrating patients to the home.
Can unlock both from a patient satisfaction better outcomes and obviously considerable cost saving so we see an aggressive pushed by our commercial payer.
Partners to ensure that Medicare advantage utilization is as high as possible. They see the value in the benefits of it which is why back to John's.
Earlier comments Thats, why we have such collaborative relationships because the services, we can bring to our commercial payer partners, whether it's in Medicare advantage. There commercial lives are managed Medicaid plans results in considerable savings for them.
Great and then Mike just following up with you does that 1 million per month reduction in interest expense assume any.
Effort to refinance the balance of year, Secondly, nodes said I think currently covered interest rate around 10% or the roll off of the hedges I'm just trying to clarify there. Thank you very much.
You bet Brooks that does not assume any refinancing again through simply taking out what is a an expensive tranche of debt.
Retiring.
More than $100 million of the second lien in the expiration of the rate locks on the second lien will result in more than a million dollars a month. So thats just the the change that we've talked about that doesn't contemplate any further adjustments to our leverage profile.
Great. Thank you very much and congratulations on all you're doing.
Thanks, Greg Thanks Brooks.
Again, ladies and gentlemen, if you have a question or comment at this time. Please press Star then the one key on your touched on telephone.
Our next question comes from Richard close from Canaccord Genuity.
Hey, Good morning, this is Brian on for Richard.
Wanted to drill down.
Humana.
He meant that you had announced is there anything else you can tell us about this agreement was this an expansion of coverage are you now considered a preferred provider.
Any commentary you have would be helpful. And then as a secondary question to that.
When we think back to the United an expansion you had announced those back in January.
I'm curious if you have any data points that you can call out with respect to how you may have benefited from those expansions so far this year. Thanks.
Yes, Brian it's John So I'll start with the Humana question. So we've had a long standing relationship with Humana.
And so we announced agreement really is an expansion or is an extension of that agreement.
In in a multi year.
Program.
Our expectations are and part of what we believe out of that is both is they're expanding their footprint and growing membership as well as our preferred position with them as being a partner of choice.
We will get benefits out of that but there really is though expansion other than as they grow we grow and continue to work with them around things like site of care initiative and identification of patient cohort.
We could add additional value if we would serve them into home or one of our infusion suite. So we're excited about the continued strong relationship there and we think that there are benefits that will be derived out of that as we continue to work in partnership with them.
As for the United and Aetna.
Don't have.
Specific data that I will do disclose on that but I can say that we have theme.
Considerable uptick in the number of members that we have brought on service now there is some distortion needless to say with all of the puts and takes with the co bid effect and and things moving around especially in the cute area.
And in some of the constraint that we saw in the referral patterns, there, but I can say in the chronic area and where we saw those transfers the ability for us to be a part of a.
Preferred network really allowed us to be well positioned to capture those transfers and to be a partner for United and for Aetna members as they were seeking to to transition out of the hospital into the home or out of a hospital outpatient into the home or what.
Our infusion suite.
And Brian It's Mike joined thing I'd add is look I mean, obviously, we're quite proud of the portfolio of forefront payers relationships that we've been able to establish and again, we we equate the payer agreements to deficient license. It doesn't guarantee the catch the trout you still have to go out and provide the level of service to the physicians in the health system.
To transition to patients in short the quality of service and and deliver on on your service promises and so.
We're encouraged by the doors that it's open to us and it really allows us to then compete.
With a referral sources to to deliver extraordinary care.
Great. Thank you and then one more for me on the gross margin Mike you touched on this a bit in the prepared remarks.
But given the decline in acute and then the double digit growth in chronic I would've thought that maybe there would be would have been more of a negative impact to gross margin, but it was.
Sequentially with the first quarter, So I think you called out.
Synergies as offsetting some of that mix shift but.
On the other commentary you have on that would be helpful. Thank you.
You bet, Brian look I think it you're absolutely right, our chronic portfolio therapies and again, we pride ourselves on the balance of both.
Our therapies as well as that the geographic dispersion of our commercial base, our commercial or our our chronic therapies are growing at a faster pace and those are the higher cost therapy regiment. The dollars are considerably higher per patient start, but it's at a lower nominal gross margin rate because.
Again, most of those are branded high cost therapies that will overtime with chronic growing faster than acute that we'll have downward pressure on our gross margin rate, but I think it's a testament to.
Our procurement strategies as well as our extraordinary operations team, who is driving for every dollar of efficiency again, the Holy Grail is absolutely no patient disruption in the quality will never be compromise, but behind the scenes through our technology and our national footprint, we've been able to drive tremendous leverage in the cost to serve.
And so again, we would expect that going forward, you're absolutely right, Brian we will continue to see therapy mix headwinds.
As we grow chronic faster, but those are also patients that on a cost to serve our moderately more efficient and so.
We're going to continue to drive for efficiencies and I think the gross margin rate holding flat. Despite a mix shift is just an extraordinary achievement on our operations team part.
Alright, congrats thank you.
Yes, Frank Frank.
And I'm not showing any further questions at the somewhat turn the call back over to John.
Great. Thank you in closing, we're very pleased with the progress we've made over the first year as Optumcare Hell and we're just getting started based on the dedication and commitment of the more than 5000 optic your health team members. We expect the back half of 2020 to be very productive as we build a truly unique platform poised for sustained growth going.
Forward.
Take care and stay safe and thanks for attending this morning.
Ladies and gentlemen concludes todays presentation. You may now disconnect have a wonderful day.