Q3 2021 Option Care Health Inc Earnings Call
Yeah.
Today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience again todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Good day and thank you for standing by welcome to the option care Health third 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 a question. During the session you will need to press star one on your telephone please be advised today's.
Conference May be recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your host today, Mike Shapiro. Please go ahead.
Good 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.
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 encourage you to review the information in the reports we file with the SEC regarding the specific risks and uncertainties. You should also review the section entitled forward looking statements in there.
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 on these non-GAAP measures in this morning's 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 of.
Operator.
Thanks, Mike and thank you for joining us this morning, let.
Let me start by stating how pleased we are with the performance of our business our team and their ability to navigate very dynamic and challenging market conditions.
Overall, the third quarter was very productive as we continued to deliver profitable growth generate meaningful cash flow and reinvest back into the business to lay the groundwork for sustainable growth.
We continue to translate strong revenue expansion into leveraged earnings growth on our scalable platform.
Equally important we continue to invest in strategic initiatives that enhance our service lines expand access to critical resources and position us to win.
As always Mike will review the financials in a few minutes, but I wanted to share a few thoughts.
As we announced in the release. This morning, we have raised and tightened our adjusted EBITDA guidance range for the full year based on the continued momentum of our team.
In the third quarter, we saw strong sequential and year over year growth.
Top line was very solid with revenue growth of nearly 14%.
We saw robust growth across the portfolio and throughout the country, while leveraging our national infrastructure to deliver our highest EBITDA margin on record.
Adjusted EBITDA of $78 million was nearly 32% growth over the prior year and an eight 7% EBITA margin.
These results are only possible through the relentless focus of our team on delivering extraordinary care to more patients and through focused execution that continues to improve productivity in our operating platform.
Overall patient referrals continue to gain momentum across both our acute and chronic therapy portfolios.
With mid single digit acute growth driven by our collaborations with health systems to seamlessly transition patients out of the acute care setting.
And more robust high teens growth in our product portfolio.
We've seen improved supply chain dynamics for certain therapies, and we continue to actively collaborate with manufacturers as a channel partner of choice on newer therapies.
Although we continue to see some sporadic constraints our supply chain situation is clearly improved.
We will continue to monitor the situation closely and will work in partnership with our suppliers and product manufacturers in order to reduce or eliminate any impact from supply chain disruption.
Find every dollar of revenue is an extraordinary team committed to unparalleled patient care.
Including a clinical team of over 3000 nurses pharmacists pharmacy technicians respiratory therapist and dietitians.
Their dedication and expertise are frankly, what makes us different.
Ensuring that we maintain a highly skilled team to deliver extraordinary care thousands of times a day is our most critical priority.
Although we are not immune to the challenging labor market that persist across the broader economy. Thus far we have been effective and ensuring we have the right disciplined resource despite many challenges.
We have seen wage pressure for certain job categories in certain geographies and we continue to monitor market conditions and are taking action where necessary to ensure we remain competitive.
But at the same time, we are aggressively focused on realizing labor efficiencies through our technology investments and footprint expansion.
Streamlining workflows minimizing administrative tasks and leveraging our network of more than 125 infusion centers are examples of how we are partially mitigating labor challenges with operational efficiency.
We do not expect the challenges of the labor market subside in the near term and we continue to manage through the situation.
On the topic of infusion suites, we remain on track to open more than a dozen new infusion centers, which will expand our capacity by over 50 carriers. This year and will continue to actively expand our network nationwide.
Again infusion suites are integral part of our strategy to drive higher patient satisfaction and clinical labor efficiency as I've mentioned, but also to support continued growth, especially within our chronic portfolio.
We have a dedicated team focused on suite expansion and this will continue well into 2022 and beyond.
I'm also very excited to share a few thoughts on the recent acquisition of Infinity infusion nurses.
As we pivot from integration to acceleration one of the key areas. We've highlighted is our increased focus on strategic M&A to further expand our capabilities and fueled growth.
Prior to the acquisition option care had a deep relationship with Infinity, who provided per diem nursing resources for us throughout the country to supplement our own team of infusion nurses.
Based on our tremendous respect for the team and the cultural similarities which placed patient care above all else. It became obvious putting these two organizations together made a lot of sense.
With a national network of more than 1300 highly skilled infusion nurses. This acquisition takes our clinical capabilities to a new level.
As we've articulated we will maintain infinity is a separate operation and support their focus on expanding their clinical resources and client portfolio, including clinical research organizations and biopharmaceutical manufacturers with therapies in clinical development.
Infinity was established by infusion nurses or infusion nurses and we intend to maintain their clinical focus and entrepreneurial culture.
At the same time, we will leverage our expertise around building nursing network on a national and regional level and we've already begun leveraging their network to better serve option care health patients.
The Infinity acquisition also highlights that we are focused on deploying capital through M&A on a broad span of opportunities.
While we will continue to keep an ear to the rail for infusion assets. We continue to believe there is a broader array of assets that complement our infrastructure and focus on clinical care and post acute settings.
So as we sit here a little over two years since completing the merger I could not be prouder of the team in terms of their dedication to this enterprise we've collectively built.
Their unwavering focus on extraordinary patient care as we continue to increase momentum and the number of patients that we serve.
With that I'll turn the call over to Mike to review the results in a bit more detail Mike.
Thanks, John.
As mentioned in the third quarter was very productive and the results reflect the continued strength of the platform net revenue growth of 14% was led by our portfolio of chronic therapies, which collectively grew 18% and represented approximately 70% of the third quarter revenue.
New therapies grew in the mid single digits as we experienced modest sequential increase over the second quarter and the acute comps from last year remain a favorable comparison.
Gross margin dollars grew more than 16% in the quarter outpacing topline as gross margin rate expanded approximately 50 basis points over the prior year third quarter.
Despite labor challenges and mixed pressure efficiencies and procurement initiatives more than offset the headwinds again, we fight for every basis point and we continue to modestly expand gross margins in a challenging environment.
SG&A declined as a percent of revenue by 60 basis points to 15, 1%. Despite absorbing some of the labor challenges and inflationary pressures John referred to.
As we have repeatedly emphasized we have a highly scalable platform and even though there are variable components within our spending base. We have a high degree of confidence that we can grow spending at a rate below gross margin dollar growth, thereby generating leveraged growth and an expanding EBITDA margin.
On that note, we delivered $78 million of EBITDA in the quarter and expanded margins in the third quarter to eight 7%.
Roughly 30 basis points above Q2, and over 100 basis points over prior year.
We are also very encouraged by the cash flow generation and further capital structure improvements in the quarter year to date, we've generated $140 million in cash flow from operations and exited the quarter at a net debt multiple of three five times.
On the heels of a strong quarter I Trust, you've all seen our recent debt refinancing effort from two weeks ago, which further enhances our capital structure provides additional flexibility and extends our maturity profile for 2028 and beyond.
Our current cash interest burn rate is approximately $50 million less than half our run rate of more than $100 million at the time of the merger.
Finally on the heels of a very solid quarter, we are narrowing and raising our full year adjusted EBITDA guidance range as outlined in this morning's press release.
For the full year, we now expect to generate adjusted EBITDA of $283 million to $288 million.
Representing approximately 28% full year growth at the midpoint of our guidance range.
We also expect to generate more than $180 million in cash flow from operations.
Our revenue expectations of 335 billion to $3 5 billion remains unchanged.
So overall, we're very excited that 2021 is shaping up to be a very productive year and is expected to continue our record of generating profitable growth and meaningful cash flow.
And with that we'll open the call for Q&A operator.
Thank you if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
And our first question comes from the line of Matt <unk> with William Blair. Your line is open. Please go ahead.
Hi, Good morning, guys. Thanks for taking the question so second straight quarter here of high teens growth on the chronic side.
Obviously last year, you had called out some COVID-19 benefit at some point, but there is also a high degree of recurring revenue here and there's a sense I think that is a sustainable shift in the site of care for a lot of these patients. So could you maybe just give a sense for.
What are you kind of seen this momentum build and how sustainable you think it is.
Hey, good morning, Matt It's John Yes, Thanks for the question.
First and foremost look.
The comps on a year over year basis, as we continue to say there are a little bit choppy and hard to us.
Really zone in on given.
All of the disruption last year and what we're seeing we did have some new therapies that were introduced that we continue to see traction.
Moving forward and I would also say look our team has been focused around reach and frequency and making certain that we are.
Targeting or our call patterns around where.
Key referral sources and really the key targets from that standpoint. So I think it was strong execution I think it was those new therapies as well as some favorable comps when we're looking at a year over year basis.
We were pleased though with some of the sequential gains that we saw.
And we know there is seasonality to this business.
It builds towards the second half of the year and so I'm pleased with the momentum that we saw in third quarter and.
Expectations as we kind of outlined are that we're going to continue to see that as we as we finish out the remainder of the year.
Okay, and then just on the ambulatory suites.
Obviously, the tenure of over a dozen their networks.
As the pandemic changed at all what you think the upper end of the range of potential patients that might prefer or are we better off being seen in an ambulatory clinic and then maybe just give us a sense for where that is today and remind us where you think that that brand is.
Yes so.
Yes.
We are very bullish around.
The utilization of the infusion suites as we move forward a couple of things with that Matt.
<unk> one is we do think.
A patient satisfaction standpoint, and a patient choice it fits in alignment with our goals around.
The overall patient experience.
We do think that with Covid.
It certainly has opened up the opportunity to utilize these facilities in a much more robust way and we also are expanding our portfolio of therapies been aligned with with serviced in the infusion suite. So.
I believe when we started this year.
From previous conversation that we've had an earnings call I think we started the year in let's call. It the mid teens.
Of utilization for our nursing visit in the infusion suites are expectations are.
Right now I think we ended the quarter about 20% of our nursing visits were done in our infusion suites and our goal is that we would be pushing 25.
Percent or higher of our nursing visits in the infusion suites as we start to.
As we start to expand the footprint as well as the therapy side I don't know Mike. If you have additional comments hey, good morning, Matt. The only thing I'd add is look the suites are really integral part of our strategy for a couple of reasons I think you've heard us articulate. This previously first and foremost is efficiency as John mentioned, we have a very.
We have limitations on our clinical resources today, and so driving the driving efficiencies within our nursing team, especially.
Less windshield time concurrent infusions. It just creates a much more efficient labor force. It also gives us the.
Confidence to launch and support newer therapies on the chronic side, where the patients are more ambulatory.
Some of the new therapies used even advertise on TV like acre this prepares us to Laura where those patient cohorts.
For new growing therapies.
Our accommodated quite well in a suite setting so just a very good arrow in the quiver for driving growth going forward.
Alright, I appreciate the update and congrats Backorder, yes.
Yes, Thanks, Matt.
Thank you and our next question comes from the line of Brooks O'neil with Lake Street Capital markets. Your line is open. Please go ahead.
Good morning, guys nice quarter.
I guess I'd start with.
My sense from sort of the.
The National media is a lot of disruption.
<unk> three <unk> related to the Delta.
Delta Spike postpone a bowl hospital procedures, but do you guys think.
Navigated that pretty well can you comment on.
How you did that would be what youre seeing out there now.
Yes, good morning Brooks.
Okay.
I do think that the.
We have of a national provider gives us a little bit.
Broader view.
Each market kind of operated differently. When we went through the quarter and certainly we felt impact.
At March at a market level of some of the constraints that were put because of delta.
And the impact that it had on the healthcare.
Services ecosystem within those markets.
We've been able to navigate as again.
Given the national footprint and given that not all market to operate.
The same way, we capitalized on where there was demand. We also as you saw in the report.
We filed today.
Stronger chronic.
Results that.
Continued to be bonds in which.
Those patients are coming on to service.
Our with us for months years and in many instances a lifetime. So we're building up that patient census.
It allows us to continue to move that.
That forward as we also are bringing new patients on board so.
All in all I think it was a strong quarter.
The thing I'll point out is.
That also there were implications for them.
At a market level with some of the disruption from hurricane Ida and other aspects in which the team just did a fantastic job of helping to navigate around some of the disruption that caused within the Louisiana market, but also leveraging the strength of our network at our platform in order to.
Two.
Step around in and continue to serve the patients and their needs.
Alright.
And then.
Yes.
Sort of the end of an era.
Your relationship with MVP.
I assume that probably positive.
But can you comment on any changes you might expect you might see over the next year or two as a result of being untethering from that chain.
Hey, Brooks.
Mike.
We have a great relationship as you know with Madison Dearborn.
<unk> supported from day, one of all the investments that the leadership team outlined as we've transitioned we articulated at the time of the merger one of our intention was to over time transition to a truly public float.
Company and I think we did that quite efficiently.
They still are quite active in terms of representation on our board of directors, we'd expect that to continue and.
From the day to day and from articulating and executing on the strategy. The leadership team has been.
Has been making it happen and so with the full support of the board and two.
To a great extent, the Madison Dearborn team and we really would expect it to be quite seamless and from our perspective, we're excited because it's just that much more as youll remember since you've been around since day. One one of the challenges was we didn't have a lot of public float out there and so.
Now, it's just a more a more liquid security so overall I think.
Generally.
Very much a positive.
Absolutely that makes total sense. So the last question I have is.
With the refinancing of the debt.
Which I think is a huge positive.
Are there any changes that you see with regard to the strong cash generation.
Use of cash going forward.
No I think and thanks for bringing that up we're thrilled because it really sets out a much more patient and flexible cap structure again, our cash interest has dropped from around 110 down to around 50 in two years, that's just additional free cash.
In addition to what we're generating out of the operation So.
But just because we're generating more cash which is a relentless focus it doesn't mean, we're getting soft in terms of capital allocation, we still believe.
Getting back to John's comments, we think Theres a robust.
The pipeline of M&A opportunities that can really enhance the value creation and growth.
At this point, we're now at around three five times Levered, we're very comfortable with the leverage profile. Appreciate the affirmation from the agencies and I think going forward. Our primary focus at this point is on M&A.
Alright, perfect keep up all the bricks.
I'm excited for you.
Thanks, Craig Thanks, Ross I appreciate it.
Thank you and our next question comes from the line of Lisa Gill with Jpmorgan. Your line is open. Please go ahead.
Thanks, and good morning, its actually might've been check on for Lisa This morning.
Just two questions one with respect to your chronic therapy portfolio just wanted to ask about manufacturer relationships.
Given your scale footprint and clinical capabilities, you are clearly well positioned for preferred distribution relationships new therapies that are approved or are you seeing any increased willingness for manufacturers to utilize limited distribution panels and perhaps has there been any change in the composition of those panels are manufacturers looking to narrow them even more.
Hey, Mike It's John Yeah.
First thanks for the question as an organization I think we've mentioned before we have a dedicated team and business development that really fosters those relationships upstream with biopharma and and continue to cultivate those.
We think we are well positioned given the platform that we have.
Where this fits into kind of the overall strategy because as we're building out the AIC network for our infusion centers. It also expands the ability to support their needs as they are thinking about opportunities moving forward.
Areas now with.
I mentioned in my comments with the addition of the Infinity infusion nursing asset as part of our team.
<unk> into support of clinical trials and really.
Development items that can lead to either limited distribution or exclusive distribution relationships.
Relationships, we think is part of the longer term strategy and opportunities that would present themselves as we move forward. So we're really excited about really the work that we've done in those direct relationships that we have today, but we think that with the platform and now with the expanded clinical capabilities with infinity.
That we have.
A really important platform that can be utilized as we move forward I don't know Mike. If you have additional thoughts yeah, Mike the only thing I would add is look one thing. We've reiterated is because we have a direct supply chain relationships with manufacturers were not going through wholesalers for the most part that gives us a much better position with them.
Both in terms of being able to articulate our clinical capability move upstream as John mentioned with with more nursing resources to support them in preclinical stages, but also in times of.
Supply chain challenges like we've seen with the <unk> supply, having a direct relationships.
Is absolutely vital because just gives us a better ear to the rail.
The supply chain dynamics, so we think those direct relationships and collaborations many instances in a limited manner.
Just gives us a strategic edge.
Got it appreciate the color there and then just as a follow up as we look ahead I know youre not providing a preliminary outlook for 2000 fiscal 'twenty two at this point, but just wondering if you could provide some broad color on whether there are any key headwinds or tailwind that we should be thinking about for next year.
Yes, I mean look we we arent in a position to really provide much much guidance.
Anything that would happen in the colder months as we move back indoors and whether that's going to have impact around some spikes in in.
Independent Demick and.
Isn't COVID-19. So I don't know if you have yeah. The only thing I would add Mike is like I mean at this point, we're obviously trying to aggregate our thoughts on physical twenty-two, we'll we'll provide much more granular thoughts and guidance when we reconvene in the first quarter.
I think I'll stay because again as John Edwards not in a position to provide any anything substantive as we've articulated we see this as a mid to high single digit topline low to mid teens.
<unk> enterprise again aggregating all of this aspie moves and Labour trend, we haven't seen anything yet that has bumped us from that base expectation.
Which again is kind of our longer term.
That's on the growth trajectory of the business.
Got it that's very helpful. Thank you.
Thanks Bye thanks, Mike.
Thank you and our next question comes from the line of Kevin can check with America. Your line is Authenticates go ahead.
Hey, guys. This is actually adamant for Kevin.
Quick question I guess around that.
Unity confusion nursing asset.
Kind of cover the staffing company then they generally have higher margin. So is it fair to assume next year.
Some slight accretion to EBITDA given that your margins are kind of lower than 10 to 15, we'd expect.
Yeah, Adam So again, we paid $50 million.
Cash upfront for the enterprise, we paid they were generating.
The neighborhood of $4 million of EBITDA, So we paid around 12.
And they were low teens EBIT margin. So you can kind of back into it and from a.
From a both from evaluation multiple it should be.
<unk> accretive against smaller dollar amounts but.
From an EBITDA margin in the low teens that should be modestly helpful on EBITDA margin.
Alright, great and then just.
Just kind of like looking at the motivation of the deal have you had to rely more.
Contract labor and so.
As those cost increase you look to outside to kind of.
Worrying that in with a stack.
Is there any way to quantify.
The reliance on.
Contract labor today versus maybe prepandemic.
Adam It's John.
Look we've been we've had a relationship with infinity for a while now so it wasn't really in response to an acute situation.
In the marketplace.
What we truly believe is that.
That too.
The clinicians is going to be a critical success factor as we're looking at our growth trajectory. So we've talked about our strategy around nursing.
In previous call, where we have full time part time per diem and then we use agencies to augment around that self give.
Given the the relationship and.
That we had given the alignment of culture and focus that we saw with them that really aligned with our our mission and our purpose and given the opportunity to.
Really be well positioned for the growth that we're seeing as a business by having expanded access to these clinical resources, where all the motivation behind why we did the deal so.
It's certainly expand.
Our capability sat.
And gives us access to those critical resources.
But.
We continue to have a very robust team that's part of the option care health Enterprise will continue to do that as we move forward.
Alright, and then one more for me it's kind of.
Early stage, obviously, but the Democrats kind of announced preliminary drug pricing deal seem.
Seems to be focused on the top 10.
Rugs negotiated through Medicare and I think Remicade keytruda would be included in that.
So just wondering if you have any initial thoughts on what that would look like for Ya.
Yeah, Adam look.
We are we like everyone else are are picking up the news on a daily basis and trying to understand the implications of that.
Point in time, it's really hard to really understand I mean.
The high level, there isn't a lot of detail around how this would be executed and or what would be the drugs that would be included or excluded from itself a little too early at this point in time to really even hazard a gas around the implications that it could have.
As we look at this moving forward so.
Look we're still focused around the key areas that we are and we continued to do our work as well as in alignment with the National home infusion Association of making certain that we get fare reimbursement.
For the services and the value that we can provide and expand access to Medicare participants at.
At this point in time beneficiaries don't have broad access to home infusion and therefore, our focus is really around expanding that access and being paid barely.
Through it.
With calendar day definition as well as the service rap.
Around the product. So that's been our focus that will continue to be our focus and I think.
Legislative Cat.
And more details will become available will continue to our staff and then identify.
Risks and opportunities that may come out of any legislation that actually.
Actually get some past.
Fair enough. Thanks.
Thank you and our next question comes from the mind.
Parents think Goldman Sachs January 9th open. Please go ahead.
A good morning is John first couple for you.
Just wanted to get a sense of what you think the growth and the chronic market is and if you're taking schering essentially related to that.
Your thoughts on pay your behavior, you seen incrementally narrow networks, helping you.
He can call out on that front and then without any more color you can provide on some of their collaborations with with health systems. I think you mentioned that on the acute business, how how should we think about that going forward.
Yeah, So I'll start with just the chronic I.
I think as we have defined.
The market is 100 billion dollar have been used drugs or they're they're so.
That is available we do think that there is an opportunity for the part of the pie that is.
Service by home infusion continues to expand and and some of the comments that we've made.
The expansion of additional products.
Into our portfolio as well as our network per infusion suite kind of expand our opportunity to participate in that broad market and so we think there's opportunities for that as we continue to move forward as Mike had mentioned products like octopus and still are.
Just kind of highlight the ability for us to expand beyond kind of what were the traditional home infusion products.
The second part of that is look we invested a lot into our commercial team to make certain that we increased reach and frequency and we targeted.
Where they were spending their time to make certain that we were getting the highest yield and.
It was disrupted a bit through.
Covid and Lockdowns and things of that nature, and so I think that they are finding their way and we're building those relationships and we have an opportunity to continue to focus around where that is self look we defined it as really being a low double double digit.
Type of growth trajectory, we liked the broad.
Portfolio that we have therapies, and we think that expands.
There's always going to be some puts and takes on that right. There is going to be some areas that are going to.
Advanced and some that are going to decline, but all in all we liked that portfolio of products and the opportunities that it's going to bring us as we move forward. So.
From from that perspective.
I'm sorry, the second part of your question just.
Just on the partnerships you have we have health systems, and how that might impact in queue.
Yeah.
Look we we really like.
The alignment that we have with the health system.
I think we've talked about before we have dedicated team members that are part of the care transitions.
Within the hospital and part of that transition team.
Work tirelessly throughout the pandemic to kind of navigate the challenges that they're having at the health system.
And I believe have deepened our relationship given the consistent high quality care that we've been able to deliver even in the times of of significant challenge. So.
The ability to help to identify those patients that can safely transition out of the hospital and moving them directly to the home.
We think that again, we've been able to demonstrate that and work collaboratively with the health system.
Really to drive that forward itself that.
Again, we think will continue to move forward, we think that as hospitals and they've done a very good job of being able to navigate some of the challenging of being able to serve COVID-19 patience. While they also continue to manage their operations for non Covid care.
As we think that starts to download starts to move a little bit more towards that non COVID-19 care and go back to consistency around scheduled procedures.
And.
And just the normal clothes.
We expect to be well positioned to continue to be a partner of choice as they are looking at transitioning the patient into the post acute.
Care and into the post acute service providers.
On your question around Payors.
Look continue to have really strong relationships across the board.
I think we watched the tape as you guys do as well knowing that there are a lot of the players are struggling a little bit with better Mlr's right. Now we know that we're on the right side of.
The cost quality equation and are a meaningful value creation for them as they are trying to manage the overall total cost of care and so we continue to have really good dialogue across the board.
We keep.
Thinking about innovative ways in which we can partner with them focusing around their affordability efforts and making certain that there.
Accusing those goals as we continue to achieve ourself.
I think we're really pleased about the the relationships that we fostered in the deepening of that and we thank.
Things continue to move forward, whether it's value base or outcomes rewarded care away from fee for service will be very well positioned to to continue to partner and to be part of their network of service providers.
Alright, thanks for that and Mike once that you just on the margin performance.
And that's been really strong I think a new high watermark in the quarter, despite the growth and chronic which comes into lower margin. So can you. Please that apart for us just what kind of.
Margins are you are you kind of offsetting from that Nick Shafter.
Coming from and can you mentioned the better margins for infusion and the percentage of is it an infusion sites going out maybe that's part of it but would just love any more color you can provide on how you are getting to these these margin levels. Despite the chronic growth.
As John is a great question Jamie.
The just the the pride of the team in the field I mean, the operations folks have taken this as a rally cry I mean, we've been very explicit that as we grow chronic factor, we will face a margin rate headwind.
In addition to that with the challenging labor market.
Which again has been universal across all disciplines in our geographies, but net net it's been it's been a challenge in the third quarter and the team took that as a challenge and so a couple of things we as we've already said we fight for every basis point and it's been through Labour efficiencies through utilizing our suites, it's been through.
True procurement strategies to continue to work to shave every penny off of the drug and medical supply costs and so.
So even though we have that seismic shift.
Over time towards chronic therapies, which are lower margin right.
Chairman and sourcing teams are relentlessly focused on fighting for every basis point in which it within each of those therapies. So.
Net net.
We couldn't be more thrilled that.
We're continuing to offset and obviously worth broke with the expansion.
And we're going to continue to fight like Hell to keep every basis point the gross margin line.
Alright I appreciate it thank you.
Thank you and our next question comes from the line Peter Greenland. Thank you think Caroline that's how can you. Please go ahead.
Hey, guys. This is Karen Ryan also peto, thanks for taking my questions.
I was hoping to dig into labor a little more could you just talk a little bit about kind of the pressure you saw there in three Q, obviously margins can't increase strong so it looks like you're handling it pretty well, but just kind of sequentially from two Q.
That dynamic change than just having any issues staffing demand your orders that kind of in a good spot.
Yeah.
It's a challenging market I mean I think.
Everyone's kind of cold that out.
Through the process and we're not immune to it I do think that the team has done a tremendous job of making certain that we're recruiting every day that we are focused around spilling open positions as timely as possible when we have them and continue to be in a position to.
Expanding grow the business through that process.
Mike mention.
[noise] mentioned previously and some of our prepared comments as well look.
Certain disciplines and certain geographies are feeling pressure in different ways, it's not consistent across the country.
As an organization have been very active in in some instances proactive to make certain that we remain competitive.
We continue to focus around.
The opportunities that exist too.
To be an employer of choice and the market has been to continue to utilize the programs that we have.
To emphasize why being part of the option care how theme.
Is a great place to be so.
Look we're going to continue to feel the pressures as we move forward, we're going to continue to.
Be active and proactive where necessary and we're going to continue to utilize the investments we've made into our technology into our facilities into.
Into the expansion of our footprint to help to mitigate an offset some of the pressures that will feel from wage inflation and or.
No.
Other inflation in the marketplace like gasoline and and medical supplies that could also feel some of the pressures of inflation.
Okay cool.
And quick follow up could you just try and update on bio care acquisition, just wondering how integration, let's go on there and if that had any impact on here.
Good marketing strategy.
Sure carrying it.
We're effectively complete.
Think that's one of the one of the things that we loved about the transaction was.
It was relatively modest in size, we were able to integrate it literally within a matter of weeks given our technology infrastructure.
So we've integrated the commercial resources.
Patient cohort.
Again, as we said our front while it wasn't the biggest M&A transaction. It was highly complimentary because they had some interesting Iga go to market strategies that we've definitely integrated into our commercial strategies and I think.
Overall again, while it.
It's not the biggest headline from earnings contribution perspective.
It's been very seamless and very smooth.
Thanks, a lot.
Thanks, Karen.
Thank you and our next question comes from the line Husky with Bang can restart your line is open. Please go ahead.
Hey, good morning, guys.
So.
Like I have looked at looked at the really five times and I still can't find shares outstanding shares outstanding.
I don't think the key was out yet.
Yes.
It's coming out later today, we're going to file our queue. Later, so there's no no meaningful change and share count from.
From the second quarter, but that that detail you didn't miss it it wasn't in the <unk>.
But it will be in the queue that our post later today, okay perfect and.
And then I guess on.
On.
Q for when you when you guys think about sort of flu and maybe maybe heavier flu season, maybe he'll lighter covered season I don't I don't think I should be predicting that but maybe.
How do you just think about sort of that combination and how that may affect you guys in.
Q4 relative to historic fourth quarters.
Yeah. So as we think about the fourth quarter make a couple of thoughts. One obviously you can you can back into that we're expecting a <unk>.
<unk>, we're guiding to a modest sequential bump up from Q3, you typically see that in this industry, where Q1 is is admittedly the weakest quarter of the year and usually you see a a gradual uptick throughout the year. So we would expect that the other thing is you know on a chronic.
Portfolio whenever in any quarter more than three quarters of our of our chronic revenue or for patients that are on service because we have a lower turnover that gives us the benefit of revenue visibility entering a quarter not that we're not there we're on autopilot going into any quarter, but with that higher level forward view on the cross.
<unk> sighed that gives us a little bit more confidence with the acute portfolio.
Again, writing as John mentioned, some interesting comps from the prior year typically in this business you'd see a modest uptick for reasons that you said.
Or the colder out before hitting the physician a little more frequently.
The flu and pneumonia season, typically ramp up a little bit, but it's nothing nothing.
Overly dramatic, but we would expect to see that.
Here this fourth quarter as well.
Okay, Great and then just one more I guess, maybe more longer term I mean, historically and I understand that most of your businesses reimbursed.
Commercially non-government pay but when you think about CMS and how they've sort of price infusion services historically.
Do you feel like.
Anything is getting through in terms of maybe a a fair way of pricing.
Government.
Infusion services longer term thanks.
Yeah.
As I mentioned earlier look we are working collaboratively with any.
As well as independently to to get a a spare reimbursement for Medicare beneficiaries based.
Based on.
What we know and the fact that the commercial market has a.
Adapted and really expanded use of.
The home and home infusion, especially in the email.
Space. So we're going to continue down that path of beating that drum I mean.
It is frustrating I think for everyone involved knowing that we're on the right side of that conversation in operating high quality care at appropriate cost in a setting in which patients want to receive their care and the Medicare beneficiaries.
Especially through the Covid.
Pandemic.
The most vulnerable.
The least access to care in a setting that would've helped to isolate them.
From from exposure to to Covid. So look hope springs eternal will continue to.
Have that the conversations we have bipartisan support.
Four.
Legislation moving forward, we're trying to figure out how to attach it to.
To the things going on in Washington, whether it's the.
The infrastructure bill or the build back better Act.
And tried to get it as part of that.
But it's Washington, it's hard to hazard a guess on.
On which way things are going to go but we will be relentless because we know we're on the right side of that conversation.
Absolutely just a quick one for Mike.
Mrs. But did you update capex guidance or do you have any comment around capex for this year. It seems like it's trending lower than.
Thanks.
Yeah, No we didn't give any it's good question, Mike we didn't give any capex guidance, we've said that we would expect.
Capex for the year to be around $25 million.
No change in that guidance admittedly with some of the challenges around construction and building material. Some of our pharmacy initiatives have been a little more delayed but we would expect a lot of that to catch up so still in the same range that we've traditionally guided folks too.
Okay fair enough, thanks, guys great product.
Thank you and I'm showing no further questions and I would like to turn the conference back Okay.
Is there any further remarks.
Yes. Thanks, Michele Thank you for joining us this morning, as we outlined very strong and productive third quarter, we continue to feel the momentum of.
The business building certainly recognize the hard work of our team members across the country that continued to navigate some challenging times, but also serve more patients. So.
Really excited about where we are but more importantly excited about where we're going so thanks for your attendance this morning and take care.
Yes concludes today's conference call. Thank you for participating you may now disconnect. When you have a great day.
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