Q2 2021 Option Care Health Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to stay and buy and thank you for your patience.
[music].
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to option care Health second quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question and during the session you will need to press Star then 1 on your telephone if.
If you require any further assistance. Please press star then zero.
I would now like the hand, the conference over to your speaker for today, Mike Shapiro you may begin.
Good morning, and thanks for joining us this morning.
Before we begin please note that during the call we 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 to differ materially from our comments we incur.
For you to review the information and the reports we file with the SEC regarding the specific risks and uncertainties. You should also review the section entitled forward looking statements in this morning's press release during the call. We will use non-GAAP financial measures when talking about the company's performance and financial condition, you can find additional information.
And these non-GAAP measures and this mornings press release posted on the Investor Relations portion of our website with that I'll turn the call over to John <unk>, Our Chief Executive Officer.
Thanks, Mike and good morning, everyone. As you can imagine we are quite pleased with the overall progress we are making the expanded number of patients we are serving and the financial results. The team has delivered and the second quarter.
And our confidence and this enterprise has never been higher.
We continue to translate strong revenue expansion into leveraged earnings growth and our scalable platform.
And as we sit here today, we are increasing our growth and earnings expectations for the full year based on the first half momentum.
Equally important we continue to invest and strategic initiatives to build upon our unique national platform.
As we entered 2021, we remained in the midst of the pandemic second wave and we were also managing supply chain dynamics for certain therapy.
Consequently, we guided to 6% to 7% revenue growth.
Over the past few quarters, we've seen referral patterns return to pre COVID-19 levels and in some instances, including several of chronic therapies, we've seen referrals considerably above pre COVID-19 levels.
The team has remained on offense, so to speak and we've focused on balanced growth across both our acute and chronic portfolios through collaboration with our payer partners and referral sources.
And the second quarter, we saw strong sequential growth over the first quarter and both therapy portfolios as momentum has clearly increased.
Recall, the comparative quarter for 2020 is challenging given the disruptive referral patterns with the onset of the pandemic.
Regardless, we saw high single digit acute growth over prior year and high teens chronic growth with particular strength and newer therapies for multiple sclerosis, and myasthenia gravis.
Our topline results affirm that our unique value proposition is resonating with manufacturers payers and referral sources.
And for the full year, we now expect to generate double digit topline growth based on the momentum generated in the first half.
Despite our strong topline results, we remain in a very dynamic environment.
Our supply chain situation is clearly improving especially with respect to immunoglobulins, which we highlighted as a risk entering into the year.
Like most companies, we are facing challenging labor market and given our strategic investments and clinical expertise, we continue to manage tight labor conditions for skilled clinicians.
We have been able thus far to successfully navigate the challenging labor market.
And to maintain our reputation of dependability with referral sources that has been the hallmark of the option care health team over the challenging pandemic situation.
We continue to monitor the situation closely and we are proactively addressing the situation through talent development and technology enhancements labor efficiencies and deepening partnership with home health agencies.
Aside from the solid growth and the second quarter, we continued to invest and future growth catalyst.
Early in Q2, we closed on the biofuel of acquisition and I'm pleased to report that the integration is already complete.
This complementary tuck in and has reinforced our go to market effort and strengthened of number of key geographic markets for us.
We also recently announced the technology collaboration with Elia care, 1 of our existing trusted technology partners to co develop market, leading patient engagement and clinical management software.
As we have articulated on many occasions, we have invested tens of millions of dollars into our integrated technology suite to optimize the patient experience and maintain and efficient operating model.
Our life care has been in the trenches with us for quite a while and we are excited to introduce additional tools to improve the therapy experience for our patients and their families.
Over the past 6 months, we've invested and and additionally, infusion suite capacity and are aggressively moving to open 10 to 15 additional standalone infusion centers by year end and.
The fusion center capacity is a key growth, enabling initiative to improve the patient experience and optimize our clinical workforce.
And my earlier point infusion center capacity provides additional labor efficiency and partially mitigate the challenging labor market. We currently face.
I'm also thrilled with the addition of Dr. Cmos and <unk> to the newly created role of Chief Medical Officer.
The patient experience is at the forefront of everything we do and Sema brings a unique perspective and my leadership team as we continue to raise the clinical bar in this industry.
Mike will impact the results and a few minutes, but I'm very encouraged by the top line growth and our ability to leverage our infrastructure to deliver higher levels of profitability.
As we announced and the release. This morning, we have significantly increased our guidance for the full year for both revenue and adjusted EBITDA based on the momentum of the team established and the first half of the year.
The midpoint of the guidance range imply and EBITDA margin north of 8% for the year and we're only getting started.
And our ability to translate earnings to cash flow has been quite strong delivering over $70 million of cash flow from operations and the quarter.
We also achieved our full year leverage target of 4 times at mid year.
Again, I couldnt be prouder of the team and how they continue to execute our strategy in light of continued market dynamics.
Before I turn it over to Mike I want to spend a few minutes and the recent approval of <unk> for Alzheimer's.
And as an organization that serves patients with challenging chronic conditions. Every day. We are encouraged that new therapies are emerging for what is the devastating condition for patients and their families and.
And clinically the profile of edge of helm fits quite well with the alternate site setting given an older patient population, many with complicating conditions and of preference for limited travel for therapy.
However, the reimbursement pathway for the emerging therapy remains challenging and the home and alternate site settings as the far majority of the targeted population is covered by Medicare.
And as we have communicated on multiple occasions, Medicare currently does not adequately reimbursed for home infusion at levels to support care.
We continue to monitor CMS and the payers approach the coverage determination and separately work with the industry coalition to seek a legislative improvement to reimbursement for home infusion.
And the current landscape, we do not see edge of home is the near term opportunity until the Medicare reimbursement environment changes.
Consequently, none of our guidance reflects any benefit from edge of helm at this time.
So overall I am very pleased with the second quarter results the performance by the entire team and where we are positioned heading into the second half of the year.
Youll recall and the first quarter call I commented that we were quickly pivoting from integration to acceleration and clearly we've made that turn.
With that I'll turn the call over to Mike to review the results and a bit more detail Mike.
Thanks, John and good morning, everyone.
Overall, the second quarter can be summed up in strong top line growth that translated into margin expansion and spending leverage to deliver accelerated earnings growth and cash flow generation.
Remember that similar to virtually all health care enterprises. The second quarter of 2020 is an atypical comp as we saw and initial spike and patient referrals, followed by a stagnant period as individuals stayed away from medical facilities.
Nonetheless, we generated 16% top line growth overall with high single digit growth and acute and high teens growth and the chronic portfolio sequentially, we generated a little over $100 million and revenue over the first quarter as referral volumes continued to rebound off of the pandemic lows.
Our results continue to reflect some ASP headwind for certain therapies, but clearly the volumes more than offset.
Despite the faster growing chronic portfolio, we drove our gross margin rate expansion and the quarter as we continue to drive network efficiencies and managed our procurement strategies within each portfolio.
We don't talk much about bad debt as it has considerably improved over the past few years, but in the quarter, we drove bad debt down to a little over 2%, which represents about a half a percentage point improvement over the prior year.
And that improvement drops straight through that helped offset the chronic mix headwind at the margin line again the team fights for every basis point of leverage at the gross margin line and thus far we have been able to offset the mix impact.
Spending leverage continued to improve as SG&A as a percentage of revenue dropped by 130 basis points driving and EBITDA margin of 8.5%. This is the first quarter that we've delivered of margin north of 8 and as John mentioned, we're just getting started.
Cash pays the light bills, not EBITDA and our ability to translate earnings into cash flow continues to accelerate.
In Q2, we generated cash flow from operations of more than $73 million and increased cash balances by $48 million, despite deploying more than $18 million to acquire <unk> and.
And we finished the second quarter with a net debt to leverage ratio of 4.0 times, which was our full year commitment.
So our cash and working capital profile continues to improve and provides considerable flexibility as we opened the aperture on inorganic opportunities.
And just a reminder, that we maintain a favorable covey light debt structure with no maturities until 2026.
As we think about the back half, we clearly expect revenue to exceed previously communicated guidance. We anticipate continued sequential improvement, albeit not at the level. We saw from Q1 to Q2 with.
With solid acute levels maintained and chronic acceleration, we see full year revenue growth of 10% to 15% based on the revised guidance issued this morning.
And we are increasing profit expectations based on the solid topline and our increasing EBITDA expectations to 275 million to $285 million.
Relative to our initial guidance back in March we've increased our EBITDA midpoint by approximately 11% based on better visibility around revenue trends and our procurement strategies.
That will translate into higher cash flow generation, and and improved leverage profile before potential capital deployment.
We remain active on the M&A front and our guidance does not incorporate any inorganic contribution and the back half other than the <unk> acquisition.
Before we wrap our prepared remarks and open the call. The Q&A I wanted to clarify a few items regarding the most recent secondary share offering by our primary shareholder and June.
At the time of the merger of 2 years ago and entity formed by Madison Dearborn Partners and Walgreens Boots Alliance held approximately of 136 million shares excluding escrowed shares that have since been canceled or approximately 80% of the total outstanding shares.
Over the past year through a series of secondary offerings that entity, which has been and continues to be controlled by Madison Dearborn has sold of approximately 68 million shares and has reduced its investment as of today to approximately 68 million shares or just under 38% of the total outstanding share.
<unk>.
Until the most recent secondary offering Madison Dearborn, and Walgreens allocated the proceeds from such offerings based on their pro rata interest and the entity or approximately on a 50.248 basis respectively.
However, with the recent offering of $17.2 5 million shares Madison Dearborn, and Walgreens agreed in principle to allocate all of the offering proceeds to Madison Dearborn and other shareholders.
Thus.
As of today, Walgreens has and indirect financial interest and approximately 21% of the total outstanding shares of option care health with Madison, Dearborn and affiliates indirectly holding the remaining 17%.
While we wanted to clarify their respective financial positions given the recent dynamics. We don't have any further comment on their investment strategy or any insight on future intentions by either of the shareholders.
So in closing we are very encouraged by the strength of the second quarter results and of raise our expectations considerably and the second half based on the first half momentum.
And with that we'll open the call the Q&A operator.
Thank you.
Ladies and gentlemen, as a reminder to ask the question you will need to press Star then 1 on your telephone.
Joel Your question press the pound key.
Again, Thats star 1 to ask the question.
Please stand by while we compile the Q&A roster.
Our first question comes from the line of Tito Chicken range.
And with Deutsche Bank. Your line is open.
Hey, good morning, guys. Thanks for taking my questions just a couple of ones here on.
On the topline.
Growth this quarter, obviously extremely strong can you give us of just some more color on sort of.
Chronic versus the acute and then within the chronic you mentioned and.
I think of multiple sclerosis is a growth area and just give us some more details as to what really outperformed this quarter, what are the sequentially or versus the year over year.
Hey, good morning, it's John Yeah, So first and foremost really pleased with the balance that we saw across both the acute and chronic portfolio I think as we've talked about before and as we.
<unk>.
Things to start opening up within the hospital and.
Patients returned to receiving care.
We saw increased flow of referrals.
As we had mentioned and and really some strength and the acute area.
And in some ways had been lagging through that process. So.
Referrals increased as we had called out.
We've done a really good job of converting those referrals the starts.
And I think that some of the investments we made to increase our reach and frequency are starting to pay dividends as things open up on the <unk>.
The next side again, good execution by the team.
We continue to see strength across the portfolio there.
Do believe that as we called out.
We were able to navigate the.
And the IAG marketplace.
Pretty adept Lee and so really didn't feel any constraints from the <unk> side because of supply chain issues. So all in all very balanced all and all good execution by the team and deeply.
Deepening those relationships with the referral sources.
To be their partner of choice of Theyre looking for opportunities to <unk>.
And <unk> patients on the care with us.
It might be only thing I'd add is look as we mentioned obviously the the prior year comp is a little wonky given the given the results from the second quarter and just the state of of the market back then and I think as John said on the chronic side great.
Great payer collaboration more of the same.
And the value proposition is resonating and on the acute side.
Again, we had an easier comp.
And I think as we've said, we prided ourselves on our dependability and reliability and what remains a very challenging market dynamic and so.
Relative to the first quarter and prior year Theres more trips into the Batter's box and I think based on the phenomenal team and the field and their focus.
And we're getting more hits every time, we're walking into the Batter's box.
On a full of question free on on margins for SG&A.
And obviously huge topline growth here.
We've got some SG&A leverage and I guess sequentially I guess I'm trying to the standard for how much leverage that we should be modeling.
And the SG&A line when he has for the big revenue beats or where is the conversion ratio kind of as you think about the next year or 2 can help us understand and U as revenues continue to grow at these levels or what is the fixed variable component was in SG&A and kind of.
Just assuming that asking and the primary margin driving and driver going forward. The next couple of years.
Yes, the spending leverage is really part and parcel to our overall strategy, where going forward based on the infrastructure that we've established over the last several years and we've estimated day within our SG&A.
Online, it's roughly 75%, 80% fixed theres, obviously, some natural inflation and there is some variable components, but that gives us the confidence that.
With this with the top line growth outlook that we have we are highly confident that spending will grow at a pace meaningfully below the top line and that gives us the confidence obviously and margin expansion.
And we're never going to give up on driving spending leverage.
And I think going forward, we have even more confidence that we'll continue to be able to drive that again also and the disclosure of this morning.
Our integration cost, which are included in that line of really starting to decelerate as well and.
And as we look going forward again, I don't think we have a spending as a percentage of revenue leverage. We just have a very high degree of confidence that it will continue to drop maybe not at the pace that we've realized over the last year, because again remember and the second quarter of of 2020, we were still and the process of harvesting SG&A.
The synergies, but nonetheless, and like every other organization, we've learned a lot during the pandemic about how much more efficiently. We can operate and we will continue to look for those cost outs.
And then a quick follow up I understand that you guys are not guiding to any impact of this year for alzheimers, but just curious sort of.
2 questions number 1 on the commercial.
The customers.
Those should be able to sort of fall within home infusion and although there are much smaller customer base relative to all of Alzheimers, but is all timers.
Does this gross margins track generally in line with the chronic business and just any color of what are you seeing on the commercial side of business.
Managed care or because of.
And some pushback thanks, so much.
Yeah look I think it's too soon to tell on some of Thats the piano.
Sure.
And I said in my prepared remarks, I mean, we're trying to be very thoughtful and the way that we look at this.
There are still of lot of questions around coverage determination and which payers are going to.
No.
And to allow this from authorization standpoint so.
At this point and time without knowing kind of what payers are in and how they're actually going to.
Provide coverage determination really don't have an answer to that question, which is why we were conservative in our approach of.
Not really and our guidance and in the near term, we don't expect a significant amount of value but.
But I will say as I said in my opening comments.
Look we do think that we have a really great platform in order to support these types of products and it's a matter of making certain that we're working both in Washington, as well as with our payer community to let them understand the value that we can bring to this patient population.
Alright. Thanks.
Good luck, guys and excellent quarter.
Thank you David.
Thank you.
Next question comes from the line of Matt <unk> with William Blair. Your line is open.
Hi, good morning, and congratulations on the quarter I just wanted to follow up on the comments you made I think you mentioned there were several chronic therapies that we're trending well above pre COVID-19. So could you maybe give us a sense for where in particular and we're seeing strength and.
Is that from payer.
Net of care redirection efforts is that new therapies are and Walton.
Just any more color and everybody would be interesting.
Yes, good morning, Matt It's John.
No.
Typically to your question. So a couple of areas in chronic inflammatory disease, we've seen that.
And move ahead.
<unk> of where we were from a historical basis.
A lot of that is in payer collaboration and working around site of care initiatives and helping support patient choice.
And as Theyre, making decisions around where to receive care.
Sometimes out of hospital outpatient departments, and and physician practices on the service with us so.
We continue to work closely across the payer community <unk>.
To identify those opportunities and find ways to deepen our partnership and supporting their goals of providing high quality care and appropriate cost so.
And that's been part of our overall strategy and.
<unk>.
The execution was.
Was strong and the second quarter.
Okay.
And sustainable.
The second 1 again interesting comments, John and Mike you both made today payable.
We're just getting started in terms of the EBIT margin build and off levels from today and I think just a couple of years ago. The idea was getting to the sort of 8.9% level and for some time so.
And as bullish as I've heard you on the long term margin picture. So I guess, maybe just if you could expand on the we're just getting started comments and 1 in particular, you've been encouraged by there.
Sure Matt It's Mike.
When we put these organizations together, we were making a lot of.
Expectations around the margin expansion and those were comments made and the locker room, so to speak and now that we've been out on the paint for a number of quarters and have been able to truly.
And demonstrate how scalable of this platform is.
It just gives us the higher level of confidence and the middle of the integration.
We've got a couple of curve balls with the pandemic and I think we just continue to learn around.
How much bricks and mortar we need and how virtually we can operate that business and I think it continues to add to the number of areas, where we think we can leverage technology and infrastructure, we announced the collaboration with Elia care, which has been just the phenomenal technology partner of ours, and we see additional areas where we can.
A improve the patient experience at the same time that we can.
Provide that value to payers and patients and at the same time doing and a more efficient manner and so look the.
And the reality is as we go forward, we continue to believe that the chronic portfolio will grow faster than the acute.
And again, we got we received some some benefits and been able to offset that mix shift with with bad debt and.
Procurement strategies.
But regardless of what we view as the reality of <unk>.
Portfolio of mixed headwinds.
We are highly confident that we will be able to grow the spending components of this business and the capital efficiency of this business considerably below the top line and so I.
And I don't think we will see the the EBITDA expansion of the big steps that we have seen over the last.
2 years is we're almost at the 2 year anniversary of the merger, but nonetheless.
I think were the high degree of confidence, we'll continue to chip away at a higher and higher EBITDA margin and I wouldn't put upward limit on what that could be.
Okay, that's great. Thanks.
Thanks, Matt.
Thank you.
Our next question comes from the line of David Macdonald with true Lewis Your line is open.
Thank you good morning.
Guys just a couple of questions first.
And on home health, we have seen some interesting announcements out of some of the bigger home health guys about treating of more acute patients.
And when you look at the services that they are bringing home infusion is really a whole across the board. So can you just talk about the opportunity to work more collaboratively with the major home health players and you mentioned a little bit during the prepared remarks around staffing et cetera, but.
But if you could just spend a minute on that that'd be helpful.
Hey, Dave Good morning.
Look.
We continue to look for those opportunities to deepen the relationships I think as Youll recall, we had announced earlier.
Late last year, and then again earlier this year around some of the work we are doing with the medicine on the monoclonal antibodies.
We do think there is opportunities for us to be of partner in the process.
Both.
Looking at opportunities to leverage clinical.
Of resources.
As we did with the of medicine team as well as the support their patient population. So.
And we're pleased at the position that we're in we think there are opportunities for.
Some of the additional deepening of partnerships.
And creation of new ones there.
And.
We're well positioned in order to participate in that activity.
As we move forward.
Okay.
Secondly, you talked about 10 to 15, new infusion centers by year and can you give us a sense either percentage of revenue of percentage of nursing hours or whatever you think the best metric.
And are currently running through the centers and then.
How much do you think you can potentially pushed debt just given the pretty significant.
The leverage in around labor.
And those centers.
Yes, Dave.
But we continue to monitor and track and I think as we've talked about before we.
We look at the the percentage of nursing visits that we conduct in those facilities as opposed to and the home we had been running and the high teens.
And we've been really focusing on that through the second quarter. We were at 20% of our nursing visits were being done in 1 of our infusion suites, our expectations as we move forward as we can be pushing that both by the expansion that we talked about of opening more centers and having.
More convenient facilities available for the patient population as well as the growth.
That we're seeing and.
The in the patient census, especially on the chronic side.
We're looking to push north of that whether we can get to 23% to 25% I think those are realistic and thats.
And of the goals that we're pushing the organization on that.
There is the level of patient satisfaction and convenience that we're.
Factoring into not only the the efficiencies that we can gain out of that just the retention and satisfaction of the patient population.
Given the facilities and the features and benefits that we build and there so.
And we've talked historically around look we had a lot of work to do on the integration.
And a lot of work to do to rationalize some of the redundant infrastructure that we had there so as we move past that integration effort and now really start focusing around these growth levers.
We expect that this will be.
A bigger part of our go to market strategy and a bigger part of our point of care service model as we're looking at the opportunity ahead and.
We're building that into our Capex plans as we move forward so.
It's not a deviation from kind of what you've seen historically.
As we're pretty efficient and being able to stand the used up and a and.
A capital light way.
Okay and then just last question from me if I look at.
Net debt to the mid point of 21, EBITDA guidance, it's actually south of 4 times.
When you think about kind of the long term outlook here and what range would you like to run the business and in terms of leverage and.
And then on a go forward basis is it fair to assume further deleveraging will be more growing the.
The denominator as opposed to shrinking the numerator.
Thanks, Dave I was waiting for the leverage question. So I owe you 1 but we're through.
Drilled with the capital efficiency and the cash flow generation of the business I mean, we we.
We mentioned, we wanted to be at or below 4 times net levered by the end of the year, where theyre at mid year and that's in a quarter, where we deployed $18.5 million for M&A and so that's another area, where we get really excited because.
We.
With cash interest dropping and with Capex relatively static we see the incremental earnings to incremental cash flow.
And quite significant I think we and we expect to operate this business below 4 times, how far below it.
That will be dictated partially by 1 of the strategic opportunities that lie ahead of us and I would tell you that the.
M&A activity is robust and.
And I think it's more likely than not that we will have.
I have some additional news to share before the end of the year and I think thats thats and exciting aspect and a series of responsibility that we take in terms of how do we best deploy capital to.
And to create value for the shareholders and I think given where we are of mid year.
And given the fact that were we.
We will continue to drift south, but just based on the earnings and cash flow trajectory.
Access to capital will be substantial and so more to come on that front.
Okay. Thanks congratulations.
Thanks, Dave Thanks, Dave.
Thank you.
Our next question comes from the line of Jamie Pierce with Goldman Sachs. Your line is open.
Hey, good morning, John and Mike.
And I wanted to just touch on the long term growth algorithm and level set how you guys are all thinking about that just given the step up and growth this quarter. The growth investments you talked about the new infusion suites.
The time to kind of.
Level of set us on where you think this business can grow long term.
Yes, Jamie look obviously, we're not and are positioned to provide longer term guidance, but the way we've characterized it as we see this industry and the mid to high single digit top line I think we've tried to establish a reputation of of <unk>.
Laying out in <unk>.
<unk> that we have and extremely high degree of confidence that we will deliver.
We also believe over the last couple of years. We've demonstrated we think we can grow faster than that and then the market just based on the unique aspect of this model and.
And we've said that we see that and as the base case before inorganic capital deployment of somewhere in the.
And the low to mid teens.
This year, we are thrilled with the momentum and the business that we've built again.
1 note of caution just around relative to the comp of 2020, it gets a little.
And it gives the literally typical I guess is the term I would like to use and so look as we go forward I think we of.
High degree of confidence and that base case.
And as we get closer to 2022.
We will revisit that but for now and I still think that longer term is still a logical zip code to focus on.
Okay fair enough.
Wanted to come back to the Medicare reimbursement and the issues there I know that the barrier to increased confidence on the agile and side I'm wondering if that were to improve what that would mean to the base business. So forgetting Alzheimer's care for the moment.
How could that change the the number of therapies.
And are addressed and these alternate site and your outlook for the business.
Yes, Jamie look.
As we've talked about before the the current way that Medicare reimburses and especially in the home.
It's just the inadequate for the care that is provided we are working on multiple.
Approaches to that both with the industry and independently through.
Through the process of.
Getting a better.
Reimbursement scheme that reflects not only the the.
Care plan and oversight as well as the nursing intervention debt that we provide not just the drug.
And the drug reimbursement.
Per their process.
Look.
On the near term our focus is getting the calendar day fits around getting of per diem for when a patient is is truly under our care and and we're managing them through that process and that's been the focus.
More broadly we will continue to look for expansion.
Opportunities to expand access to the Medicare population.
This is going to take time and and it's pretty complex given all of the different.
Priorities in Washington, and these days.
Okay. Thank you congrats on the quarter and Kevin.
Thanks, Jamie.
Thank you.
Our next question comes from the line of Lisa Gill with Jpmorgan. Your line is open.
And thanks, It's actually Mike mentioned accounts are Lisa. This morning, just a couple of questions. So first with respect of gross margins and you're clearly very strong quarter, there with nice year over year of growth I'm. Just wondering if you could comment at all and sort of the trends you saw within both segments of the business was it was the growth there sort of more mixed driven or given the pick up of growth and the acute therapies are you seeing.
Low margin trends within both categories and if so maybe what are the key drivers there.
Hey, Mike.
Shapiro I'll start so look I think a couple of key dynamics within gross margin first and foremost we continue to aggressively drive down bad debt.
And any amount of bad debt is unacceptable and we've driven it down.
A couple of full percentage points over the last year and so as we've as we've seen and bad debt drift down towards 2%.
And that's an immediate gross margin benefit aside from that within each of the therapy categories. We have been aggressively working on our procurement strategies and we've got of procurement team. The second to none and we also continue to work with our with the manufacturers and suppliers again.
And we benefit from having direct relationships with most of our suppliers and as we collaborate with them on market expansion and and.
And.
Promoting the the therapies that debt.
And can result in better margins.
Within each of those categories, So I would say.
We still saw some ASP headwind, we still saw some mix headwind from chronic growing a little faster than acute again acute did benefit from and easy comp in terms of the year over year, but I think the way I would characterize it as probably a year of ladder. Our assertion that we saw good margin traction within each of the.
Individual portfolios.
Thank you Eric.
Our next question comes from the line of Kevin Fischbeck with Bank of America. Your line is open.
Hey, good morning, actually and this is Joanna.
Joanna <unk> filling in for Kevin today, Thanks for taking the questions 1 of them.
Follow up on the couple of these things.
Discussing.
The 4 on debt infusion suites.
Expect to add 10 to 15.
It sounds like and the second half of this year so.
For the kind of reference point can you talk about cash.
Many of the suites and you add.
This year over the last 12 months and maybe before the pandemic kind of.
Net of sense of Fox.
The acceleration seen.
And dose being added and.
Good day.
You mentioned that day.
And the cost efficient way of Gabon.
Moving to <unk>.
Can you give us the ballpark I guess of Capex expectations for the year.
Sure. It's Mike So today, we have a little north of 120 and infusion suites.
Almost 400 chairs coast to coast and again a lot of these are stand alone and a lot of these are incorporated into our care management centers and pharmacies and this is John mentioned units a day roughly 20% of our nursing events occur and 1 of our suites again. This is we view this as both a clinical labor efficiency strategy is.
Well as the growth support platform as the.
Suites R R.
Quite amenable to many of the chronic conditions and patient cohorts the cohorts that we support and so as we think about we've added some and the first half.
We have and aggressive expansion plan and in the back half of these are relatively efficient investments and I would tell you. The as we've characterized our capex is and the $25 million to $30 million range.
That has been and will continue to be absorbed and funded through what we view as a very efficient capital investment.
Amount on an annual basis, and we don't see that 25% to 30 really growing.
And we can accommodate quite of few sweet expansions. In addition to our other technology and infrastructure projects.
Within that estimate.
Okay.
What I was getting out of it.
Have you got it this is the ads.
The suites of because it's clearly growing faster than the market share.
And I enjoy it.
What is driving that and it sounds like.
And sustainable.
But just any color there whether.
Adding the suites the less.
The couple of quarters maybe.
And that the reason.
2 of to think of those markets for a day.
And staying at home.
Yes. It is John I guess, I would I would respond to that in 2 ways certainly the and.
Infusion suites and adding the additional.
Sure. So we did certainly give broader access and and we.
And we will capitalize on that.
But the growth of lot of that was driven by again the deepening partnerships that we have with the payer community. The deepening partnerships, we have with the referral sources and the focus of our commercial team to make certain debt from our reach and frequency that they are getting out into the market and that they are capitalizing on and on.
And the platform that we have so.
It's just 1 component of what is the comprehensive go to market strategy.
And our expectations are that.
Given the investments we've made into the team given the training that we have provided them that we're going to be well positioned to continue to capture our fair share of demand and the marketplace and.
And look for those opportunities to continue on the growth momentum.
And follow up on something you said also on the topic of market share can you talk about.
Our relationships with the when you payors or is there for the year.
Sure.
The drive for these payers to shrink their networks and I guess, yeah. Thank you.
And the beneficiary of that dynamic.
Yes look.
The Bill will give you their strategy from our perspective look if we are offering high quality care at an appropriate cost and a setting in which patients want to receive the care. We think we're really well positioned on that the national network that we have gives them the confidence that the patients or their members of <unk>.
Artless of their location will be well served and.
And have superior clinical outcome based on the capability set that we have and so.
Look we think we're on the right side of narrowing of networks, because we should be a preferred partner for them there and.
Our focus is around patient satisfaction and high quality outcomes and if we do that we expect it will be on the right side of any of those conversations.
Yes definitely.
And is there anything that's really a unified.
The quality, scoring system from home infusion of about I guess.
So maybe more about the.
The payer relationships and I guess, when you deliver it to them and I guess how this.
The relationship so this debt.
Got it and thank you for answering.
And the question.
Awesome.
Thank you.
Next question comes from the line of Mike <unk> with Barrington Research. Your line is open.
Good morning, guys couple of questions Mike.
Mike I guess on the.
And the bad debt expense improvement.
Yes.
Was that.
Driven by maybe some of the old bio script stuff being cleared out of cleared through and gone through or things that you guys have done and then I guess.
And I think I had always thought that maybe 2% was about as good as it could get there and I am just curious if you think there's meaningful room there.
Below 2%.
Yes.
All of the range of call with our revenue cycle team, who will assure you that 2% is way too high.
All kidding aside Mike look this is what we've focused on for the last 5 years revenue doesn't pay the light bill converting at the cash and getting cash and the bank and so.
Through our technology.
We have we have dramatically improved our collectability both on the option care side as well as what I would call of the legacy <unk> side, and so I would say it's more around when.
And we're providing the services.
Making sure that we're presenting clean claim and following up with payers of the Amazing thing is if you if you present and accurate timely claim 2 of payer.
Hey, you're very timely and so that's that's as complex as it gets and we've just become relentlessly focused on doing so and if you look since the merger our accounts receivable came down dramatically on a combined basis and.
There is some modest growth, but nowhere as close as the as revenue and so our DSO continues to improve and I would say, 2% might've been the the theoretical low I will tell you that we've got a team that is just getting started on that front and.
I would expect that will dip below 2% how far what really matters is just getting that cash and the bank.
Okay terrific and then John I guess.
You guys along with a lot of other health care companies.
Have expressed that they learn things about their businesses during COVID-19.
2020 and into early 'twenty, 1 and I'm. Just curious are there things that you can sort of call out debt.
And if this delta variant or another variant and becomes.
It comes off the thing.
For at least the period of time that you guys learned last year or earlier this year the debt that you feel well positioned.
Well as the deal with any challenges related to a variant.
Thanks.
Yes so.
All of things that we've talked about previously some of the investment and the technology stack allows us to be efficient.
And in.
And.
And in discharge is on a virtual basis on virtual teachers on the ability for us to utilize that tool to improve patient engagement and support so we're going to continue to leverage that where appropriate our team has become very adept at.
Being able to capture the demand and the marketplace, even though for.
For awhile, we werent allowed into the facilities or we had restricted access and so we're going to continue to execute around those paths I think from Mike called outlook from an operating standpoint, we have.
Figured out how to be very effective with remote workforce and.
And leveraging the technology to collaborate and waves.
The.
Honestly, we just werent doing and.
Advance of the pandemic and we're going to continue those as we move forward because we expect the.
It will continue to get the efficiency and the effectiveness of those collaboration tools as we look ahead.
Can I just ask.
According to an article I think I've read this morning, it looks like the.
The Delta variant is sort of rip and through a couple of key states.
Bigger states have you guys noticed any.
Meaningful.
Dip and patient referrals or anything else and.
And the states that appear to be hit the hardest with the variant.
Yeah look, we certainly feel impact as hospitals of reset.
They moved towards reducing or eliminating.
Elective surgeries or the move towards being more responsive to 2 of the pandemic in their marketplace.
Feel the impacts of that we also feel the impact when patients aren't going to specialists for for diagnosis or for care and so.
Yes.
And we kind of monitor on a market by market basis.
And when we feel the impact of those.
But the <unk>.
Right now it's been a pretty short duration for the variant and we're trying to.
Monitor and manage that very closely.
Okay. Thanks, guys.
Thanks, Mike.
Thank you.
Our next question comes from the line of Richard close with Canaccord. Your line is open.
Great. Thanks, and congratulations on a great quarter, a lot of questions been asked here, but.
First of all of them, Mike I would ask you made some comments with the route.
With respect to your conservatism.
In the past, obviously because the the.
The merger first and foremost and then obvious and Covid last year, just to be clear, you're sort of conservative stance hasn't necessarily changed despite your updated guidance correct.
I think Thats fair.
Okay.
And then maybe just the dive in on the technology side, a little bit.
You talked about.
Technology with respect to the bad debt.
And then on this new collaboration for engagement and I'm just curious on the tens of millions of dollars. You spent previously do you think you realized all of the benefits from that technology.
As of now.
And then looking forward on this collaboration.
Where do you see the benefits coming from the technology and and maybe of how quickly.
Yeah, So first and foremost.
We are.
And our process, we will fully deploy the technology here in August across all of our platforms. So there is still some opportunity that we see from interoperability and kind of tightening.
Some of the process inefficiencies that we can receive out of that.
Really excited about the opportunity to have that patient interface, and and drive a better patient experience and engagement through the collaboration with a like here and the co development. There. So look we we still see some additional opportunities to drive efficiencies and effectiveness and and.
In many instances of better engagement and the outcome for the patient population I think from a return perspective, Richard I think we absolutely have as we've talked about throughout the merger and integration process, we started years ago with.
<unk>.
Very scalable platforms using market, leading platforms, and we've retooled and replace a lot of clean rooms, and pharmacy infrastructure and I think.
No.
Pre merger the.
The EBITDA margins were and the mid single digit range and we're now we just printed and of Nate and I would say that from the cash and from the earnings Roy I think we have absolutely generated the returns or greater than we expected and I think those platforms continued to be highly scalable going forward.
Okay. That's very helpful and then John and I, just wanted to touch on the labor market.
You did mentioned that quite a bit in your prepared remarks is that the biggest headwind for you guys. As you look forward just managing the.
And the labor component of interest or any thoughts there is helpful.
Yes, I mean look it certainly is a headwind and you don't pick up many many newspapers that don't.
Highlight some of the constraints it is market by market driven.
Some of the clinical resources nursing.
Being 1 of those areas that we're watching closely we like our model in the sense of we have full time part time per diem and then the strength of some of our agency relationships that allows us the black.
Through that process, but yes, I mean that is an area that we are keeping our eye on I think the other thing that we're keeping our eye on as we just talked about was the delta variance and how that's going to have impact and the second half of the year.
Okay, great. Thanks congratulations.
Thanks, Chris.
Thank you.
Our next question comes from the line of Frank <unk> with Lake Street Capital Markets Day line is open.
Hey, Thanks for taking my questions and congrats on the quarter, a lot's been covered and I'll keep it to 1.
Relatively simple and Mike can you just remind us on interest expense thoughts as well as any potential or likelihood of of refinance I think theres a rate lock exploration coming up so just maybe give us a.
Overall thought process around interest expense as we think about the back half of this year and into 2022.
Sure Frank so when.
When we started this journey, we were burnt and about $110 million and in cash interest.
Right now and the second quarter at an annual rate and the low sixty's debt still includes.
As you always keep me honest it includes a a rate swap debt swaps out our our rates of 2% fixed that expires near the end of the third quarter and at that time going into the fourth quarter, we should take another meaningful step down to.
Somewhere depending on where LIBOR and rates are somewhere in the low to mid fifties, which represents a 50% cut and our cash interest from from a couple of years ago. So very.
Very very good decline again goes back to our comment around converting incremental earnings to cash flow regarding the refinancing look as I mentioned in my prepared remarks, we've got a great cap structure Thats Covey light, we have no maturities for 5 years.
And it's all at L. Plus 375, we will continue to look opportunistically at our cap structure and if there is opportunities to further improve it.
Can you can bet, we will we will absolutely capitalize on those opportunities.
Perfect, Thanks, and congrats again on the quarter.
Thanks, and thanks, Thanks, Brian.
Thank you.
I'm showing no further questions and the queue I would now like to turn the call back over to John for closing remarks.
Great. Thank you and closing look I'm very pleased with the performance of the team and the strength of our first half results. Our focus remains on providing extraordinary care to the patients that we serve and capitalizing on the momentum we are gaining even in this dynamic environment. Thank you for joining us This morning, and please stay safe.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Yes.
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