Q4 2021 Option Care Health Inc Earnings Call
[music].
Thank you for standing by and welcome to the option care Health fourth quarter 2021 earnings Conference call. At this time all participants are in 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 as a reminder, today's program may be recorded.
And now I'd like to introduce your host for today's program, Mike Shapiro, Chief Financial Officer, and Senior Vice President you may begin.
Good morning, before we begin please note that 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 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 this morning's press release. During this call we will use non-GAAP financial measures when talking about the <unk>.
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. Finally I wanted to highlight that we have posted a brief presentation to our investor website to augment our comments on this mornings call with that I will turn the call over to John <unk>.
Our Chief Executive Officer.
Thanks, Mike 2021 was quite a dynamic year to say the leaf and despite many challenges the option care health team continues to deliver extraordinary care for patients and strong financial results for our shareholders.
As Mike and I will discuss this morning, we continue to manage through a challenging environment, but nonetheless, we could not be prouder of the dedication and focus of the thousands of Boston care health team members.
We continue to build on our reputation as a trusted partner for payers and health systems physicians and patients as well as a team that delivers on our financial commitments, while expanding access to care in setting the standard on patient care in the industry.
We entered 2021 and an environment of optimism as COVID-19, vaccines and improved treatments were being introduced and yet we exited the year in an environment that in many ways was more disruptive.
With the emergence of the Omicron Berrien.
We experienced more widespread disruption in our labor models and volatility in our referral patterns.
As we sit here today, we continue to manage through a difficult environment with broader labor disruptions and challenges in engaging with our referral sources.
The resurgence of Covid late last year, clearly impacted our results as we exited December and has also resulted in a disruptive start to the first quarter.
Despite all of the challenges the team is space. We are very pleased with the financial results we delivered in 2021.
For the year, we drove mid teens top line growth with improved performance across both our acute and chronic portfolios.
Our chronic therapies that continues to be the biggest contributor to the top line growth as we expanded our therapy portfolio and increased our engagement with referral sources to ensure unsurpassed clinical care for their patients.
At the same time, we've translated topline growth into leveraged earnings growth with EBITDA margins expanding to over 8% for the year, which is up approximately 200 basis points since the merger and adjusted EBITDA growth of over 30% above the prior year.
And as Mike will expand upon we have dramatically improved our capital structure and leverage profile, while deploying over $100 million in capital investments and M&A in 2021 with more progress to come in 2022.
While we continue to focus on near term execution. We also continue to invest for future growth in 2021, we invested in improving our existing care management center footprint.
Opened three new state of the art facilities in Chicago, Cleveland, and Northern New Jersey, and opened 11, new Standalone infusion centers, increasing our infusion care capacity by 10% to more than 500 chairs across the country.
These centers offer logistically convenient and aesthetically pleasing infusion suites for our patients and are a critical component to both our clinical.
And operational efficiency strategy.
We continue to make progress on expanding this network of connected and technology enabled facilities.
With the merger integration squarely in our rearview mirror, we pivoted in 2021 from integration to acceleration by focusing our M&A efforts to expand our capabilities and I am very pleased with our progress.
We've executed on three complementary acquisitions and have one more in flight as we sit here today.
In December we acquired Wasatch infusion, the infusion center market leader in Utah, which is highly complementary to our existing operations in Utah and the mountain West.
The Wasatch team has created a unique patient experience across their network for infusion centers and we've already learned a great deal from the Wasatch team.
Although this acquisition is relatively new the early read is quite encouraging.
As previously announced in October we acquired Infinity infusion nursing to broaden our clinical capabilities and increased access to clinical resources in support of our growth objectives.
While the assimilation efforts are ongoing the.
The progress to date has been tremendous.
Again Infinity focus on nursing excellence at the point of care is complementary to our pharmacy infrastructure and will allow us to capitalize on additional vectors of growth.
This business has a unique care model that supports other market participants and uses its network of highly qualified infusion nurses to meet aggregated market demand.
As an organization that is built by infusion nurses for infusion nurses it improves access to alleviate some of the labor pressures, we are experiencing in nursing resources.
On the heels of the Infinity acquisition. This morning, we've announced that we have signed a definitive agreement to acquire specialty pharmacy nursing that work or spin.
It's been as a national leader in providing infusion nursing services and is highly complementary to infinity.
And we anticipate closing on the acquisition later this year.
Spins additional focus on providing clinical services and support our biopharmaceutical manufacturer collaborations broadens the aperture of nursing services, we can provide while clearly expanding our network of infusion nursing resources at the same time.
Upon the consummation of spin we will have created a unique national nursing network that will support our growth and deepen our relationship up and down the pharmaceutical administration value chain.
So we have achieved solid progress on our M&A efforts to date in executing our strategy to help transform healthcare by re imagining the infusion care experience that improves outcomes reduces cost and delivers hope to our patients and their families.
We expect the momentum to continue in 2022.
Before turning the call over to Mike I wanted to spend a few minutes on the current pandemic and labor situation.
As we have stated previously there isn't a simple uniform statement to describe the pandemic situation on our enterprise.
In late Q4, we saw considerable variability and referral patterns with the onset of OMA crop with numerous referral sources closing doors and several acute care facilities reverting back to delaying procedures.
We also saw in continue to experience a broader disruptions to our labor force given the nature of the omicron bearing in and the widespread infection rates.
We have attempted to the best of our ability to lean out our redundant operational network and dynamic staffing model, but it has impacted us nonetheless.
At the same time, we are not immune from the labor scarcity dynamic that has affected almost every enterprise across the economy.
This is impacting access to resources and also placing pressure on wages, we remain proactive in managing our labor force with particular focus on our pharmacy and nursing resources, but it remains a very challenging environment.
We continue to take steps to recruit and retain our talented team members daily and to remain an employer of choice through our diversity inclusion initiatives health and well being programs and various employee support and training program.
Given the commitment of our team and our focus on working closely with our referral sources. Thus far although we have had some market level disruptions, we continue to build on our reputation as a trusted partner.
We will continue to actively manage through the situation to try to minimize the impact.
Significant investments and Wasatch Infinity and spin are clear examples of how we are taking proactive steps to have a nimble and resourceful operating model.
So while we are very encouraged by the strong results in 2021 and the platform. We are building we remain cautious as we enter the new year and the adjusted EBITDA guidance range of 310 million to $330 million we.
Kate This morning reflects the dynamic environment in which we find ourselves with that I'll turn the call over to Mike to review the results in a bit more detail Mike.
Thanks, John .
Fourth quarter revenue of $927 million represented 15% growth over Q4 of 2020 and was led by our chronic portfolio, which grew in the high teens, while our acute portfolio grew in the low single digits.
The chronic portfolio continues to perform well and we saw balanced growth across established therapies as well as solid contribution from newer therapies for MFS myasthenia gravis and chronic inflammatory conditions.
Despite mixed shift towards lower margin rate chronic therapies, we held the line in Q4 on gross margin rate of 22, 9%, which expanded 10 bps over the prior year. The team continues to focus on operational efficiencies to offset inflationary pressures and mix headwinds, but we do not anticipate.
Sustainable gross margin expansion going forward.
Adjusted EBITDA of $86 $8 million grew 28% over prior year or almost two times revenue growth.
EBITDA margin exceeded 9% for the first time at just under nine 4% and reaffirms the leverage ability of the foundation that we've established.
Note that in our reported net income and earnings per share. This morning, we've recognized a onetime gain in the fourth quarter, resulting from the utilization and reversal of most of the valuation allowance on deferred tax assets on our balance sheet with a net impact of $30 million.
As required we regularly reassess our ability to utilize deferred tax assets and based on our improved profitability. We have reverse substantially all of the reserves in Q4, resulting in the one time gain.
Cash flow continues to be very strong and for the year, we exceeded $208 million of cash flow from operations.
We thoughtfully deployed most of the inflow through capital expenditures reduction of indebtedness and deployment of more than $80 million across three acquisition.
And we feel really good about where we exited the year from a capital structure perspective, with the recent maturity extension and improvement of our debt profile and the fact that we exited the year with a net debt to EBITDA ratio of three four times.
As we develop the guidance has articulated this morning, we obviously incorporated many of the dynamics that John articulated earlier on a preliminary basis, we expect to generate $3 65 billion to $385 billion.
Of revenue or 6% to 8% top line growth.
Our EBITDA range reflects the top line expansion as well as continued inflationary and operational challenges that emerged in later 2021, we.
We have yet to fully contained some of the inflationary cost pressures, which go beyond just labor and include everything from corrugated to transportation to medical plastics and PPE.
Also note that our guidance does not incorporate any contribution from the pending acquisition of spin as that transaction has not yet closed.
Finally, we expect to generate at least $230 million in cash flow from operations and would anticipate the primary use is to continue to be capital expenditures on our infrastructure as well as continued focus on M&A opportunities, we will naturally provide updates to our guidance throughout the year.
And with that we will open the call for Q&A operator.
Certainly and ladies and gentlemen, once again, if you have a question at this time. Please press Star then one on your Touchstone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key.
First question comes from the line of David Macdonald from Truest. Your question. Please.
Good morning.
So a couple of questions first.
Just on the staffing can you guys just provide a little bit more detail on you know what infinity has done for you since the acquisition and then spin it sounds like has some capabilities that may angle, a little bit more towards the chronic book on the specialty side can you just talk about kind of the.
Incremental capabilities those bring in and how it complements infinity.
Hey, Dave Good morning, It's John Yeah, first and foremost really thrilled with with Infinity and the announcement this morning with spin.
First and foremost.
We know firsthand that having access to nurses as a critical path of our growth trajectory and so the ability for us to have access to a broad network of qualified infusion nurses is front and center part of our strategic imperative and so these two moves.
Really augment our the strength of our existing team and give us a lot of flexibility we've talked about the.
The model that we operate with having full time part time per diem and then the utilization of these these agencies to augment and to really fill in especially where we don't have density of patient census to be able to utilize these resources and so.
Early stages of the.
The assimilation with with Infinity, but we've seen really positive.
<unk>.
Access with that and being able to utilize that team, we're fully and as you called out with the team at spin.
Little bit different angle that they had certainly focusing around chronic.
Biopharmaceutical manufacturer collaboration that they have just open that aperture and gives us an opportunity to participate up and down the value chain in a much greater.
Greater basis.
And then and then guys just a couple of other questions one on chronic.
Just the strength in terms of the growth there.
Im wondering if youre seeing any further narrowing of networks as part of this the sales team I know you guys made some some investments there in 2021.
Increasingly hitting stride, just just anything that you'd call out in terms of the ongoing strength in chronic.
Yes look I do think although it does disruptive year with.
The openings and closings and some strains on the referral pattern.
I think the team did a very good job of increasing reach and frequency, but somebody is part of the investment that we made in that chronic sales team I would say look theres still is a movement towards the home as being the center of care in which we have gotten some of the benefit of that and given the position that we hold and so.
Working with our payer partners and continuing to have the conversations at that level, David They are looking to <unk>.
Right site care wherever they can and look to get that balance of cost and quality and I think we've been able to capitalize on the position that we hold and the strength of the platform.
And the reach that we have to be able to reach 96% of the U S population.
And then Mike just a couple of quick numbers questions it looks like.
Usually sweet number will pick up in.
2022.
Capex should we think about it still in that kind of $25 million to $30 million range and then secondly.
Just with what sounds like it's a little bit of chop coming out of year end I think last year adjusted EBITDA in the first quarter was 17, 18% of the full year should we think about that being a touch slower in terms of just kind of the percentage of full year EBITDA.
Yes sure Dave.
On Capex, we would expect capex to be in the $25 million to $30 million range.
We're on offense around expanding our infusion suite.
Capacity. These are relatively efficient build so we can absolutely accommodate that within our base run rate on.
In the first quarter Youre going to Youre going to expect my normal caveat that we don't give quarterly guidance, but yes, I mean look.
For Q4 is typically the strongest Q1 is typically the lightest in.
Again, given some of the.
This sluggishness at the beginning I think that that trend will hold true for this year as well for sure.
Okay and then just last question guys look with some of the pressures we're seeing out there have you seen I've got to imagine this is killing some of the smaller regional folks have you guys seen a noticeable uptick in terms of just.
Incoming phone calls and potential M&A activity.
Yes.
As you can imagine I think one of the things as John really touched on in his remarks is the redundancy and the scalability. So that if we have disruptions in certain areas. We've got there.
The interconnected network, which really just gives us.
Higher degree of confidence to be that dependable partner and I think frankly.
That's something that a number of participants are lacking and so I think a lot of folks are are having more challenging environments. Obviously, one of the keys is access to clinical labor and we've remained on offense to ensure we have the best and broadest nursing team in the industry and.
I think that has posed challenges and as you would expect.
The number.
<unk> of inbounds remains robust for sure.
Okay. Thanks, guys. Thanks.
Thanks, David.
Thank you. Our next question comes from the line of Joanna <unk> from Bank of America. Your question. Please.
Hey, good morning. Thanks, so much for taking my question. So I guess, just a couple follow ups here on the different topics, but I.
I guess.
Good to see.
I believe these acquisitions and I guess you are expanding your access.
Aerospace, which is great and obviously you flagged you've seen some pressure on labor.
Can you give us a sense of.
The magnitude of things you've seen.
In your business and I guess is it.
Is it correct to assume you know labor is maybe 10% to 12%.
Revenues and I guess.
Within that yet kind of what trends have you seen how bad I guess he got in terms of employees in quarantine and how you're seeing it.
So far in this quarter.
Yes, Joanna it's John .
Look we as everyone else is feeling a bit of the strain of.
Some of the challenges in the labor market I'll start first with the last part of your question look with the community level of infection rate that we saw with omicron and how quickly that spread needless said that had impact on our team members as well as <unk>.
Our team members themselves or family members.
Were diagnosed with the omicron variant.
What we had to do for <unk> and the disruption that that created.
It certainly need to call out the great work that our team did in the field and being very nimble and responsive and really a situation that was not in their control not knowing who the next person that was going to be out on foreign team.
So we have a dynamic model, we've got a technology enabled platform that allows us to kind of be back to you from that standpoint. The overall inflationary pressures look we feel it as everyone else does.
As we outlined in our in my comments, we have a lot of programs going on more broadly than just wages to make certain that we are an employer of choice and that our team.
Has access to training and education and development and so.
We'll continue to focus on that.
We have a saying around here, where we recruit our team members every single day, that's the expectation of the leadership team and our managers.
We're going to continue to effectively.
Manage through that process, but we will feel well pressures from increased wages, but it might also outlined inflationary pressures on other aspects in the cost of goods that include med supplies and other aspects.
So would you be willing to share.
And Tim Brazil.
Alright, this labor cost outlook for this year.
<unk> been going on.
And meaningful acceleration versus historical.
Yes look I mean, we're not.
We're not in a position to specifically.
Articulate what our labor inflation rate is because a lot of moving pieces with that I mean look we're very thoughtful around their certain disciplines, especially around our clinical teams where frankly the labor.
Inflation is a little bit higher than other categories, but it's also a rally cry for US just to continue to drive more efficiencies and and try to offset that so look like every other enterprise across the economy, we're struggling with.
Labor inflationary pressures, which again is.
Is just the rally cry to continue to drive more efficiencies.
Okay, great. Thank you thanks for that and I guess.
When you when you mentioned that this acquisition depending acquisition that it.
Complementary to the asset that you acquired previously infinity.
So.
Any way for us to.
To kind of understand the size of that or any of you can write it in terms of the margin profile of Florida multiple your pets only expect to pay for that asset.
Yes, John .
As we mentioned we signed the definitive agreement, we will naturally be in a position to provide a little more color. Once we actually consummate the transaction, which again, we would hope would be here in the dark.
Not too distant future so.
Hang tight and we'll definitely provide more color on the specifics around on spin when we actually get into the end zone.
Okay that makes sense.
And I guess my my last question I.
I guess Sam.
You know chronic business growing very nicely you touched a little bit about the I guess the efforts there in terms of the sales force, but at the other side of this equation.
Payer contracting in terms of debate.
Uh huh.
Has your business with United.
So good they're only efficient capabilities and kind of any I guess.
Data on pay up contracting thank you.
Yeah, Julien look the thing I think I would be most pleased about is the fact that we've seen growth across all of our peer platform. So when we look at the top 10 payers that we have and really all of the national payers.
We've seen growth across all of those and so.
That has been.
I think the testament to just the team and the platform that we put together.
With that look we don't necessarily go into.
The rates.
At a payer level given the fact that there is a lot of moving pieces, we have over 800 payer relationships and over 1400 contract Theres puts and takes that happened with all of that.
As prices.
In the marketplace, but one.
We're really pleased and we feel like we have strengthened the relationship.
The entire portfolio of payers given the work of our market access team.
We thank you for taking the question.
Thanks Joanne.
Thank you. Our next question comes from the line of <unk> Chickering from Deutsche Bank. Your question. Please.
Hey, good morning, guys. Thanks for taking my questions.
First one is on an EBITA margins for 2022 does.
You got to be flat versus 'twenty. One can you walk us through is there any changes to the acute gross margins versus chronic gross margins within guidance and how we should model. The natural gross margin pressure is chronic roes on the same topic can you refresh us as the fixed versus variable component of SG&A costs.
'twenty, one you've got to 40 basis points of margin expansion and SG&A, how much pressure should we see there from labor or supply pressures.
Okay, Peter Hey, it's Mike one question in 15 parts keep me honest to make sure I South Korea here look I mean, obviously, our EBITDA margin, we're treading cautiously as most folks given some of the dynamics of this year, we still believe in the leverage ability of the business.
But one of the things that we.
We are expecting going forward is that obviously as John mentioned chronic is going to continue to outpace the acute the acute portfolio, we see as growing in the low single digits.
We had some nice growth in 2021, because frankly, we had a lower base in 2020 with the initial onset in disruptive nature of the pandemic and so we don't we don't provide gross margin.
Guidance, but.
And not to sound defeatist, because the team fights for every basis point of cost leverage, but clearly with that price growing significantly faster with it with the margin profile over time I think it's realistic to expect some modest gross margin rate declined even though again, we still expect robust grow.
Margin dollar growth to your question around.
The fixed versus variable look within our SG&A base given the investments we've made in especially on the technology infrastructure, we estimate that approximately 80% of our SG&A is relatively fixed now that's fixed in terms of.
Functional support there are some inflationary pressures around wages et.
<unk> et cetera within that within that component, but overall that gives us the confidence that the SG&A will continue to grow at a pace significantly lower than than those gross margin dollars and so that again gives us the confidence that.
Over time, we will continue to expand and accrete to a better EBITDA margin I think as as.
We outlined our initial guidance today again that doesn't undermine our confidence in that leverage ability I think it just reflects a cautious tone given what frankly is unprecedented and inflationary pressures facing all of us.
Okay.
And then so.
I guess two sub questions.
Just a follow up to last one what percent of your total costs come from clinical labor.
We don't break out that specifically, we've talked about having.
More than 500.
Nurses again, which that combined with our.
The per diem folks that we added with infinity.
The majority of our of our team is of a clinical in nature, including not only nurses, but pharmacist farm tax.
Registered dietitians respiratory therapists et cetera. So.
It's more than half of our team are comprised of clinicians.
Okay, and then last question here.
There's definitely been a lot of disruptions due to COVID-19 to last for a year and beginning of this year I guess what percent of your revenues came from chronic or acute in 'twenty, one and kind of what are you assuming that for for 2022.
Yes were right around 70 30.
Chronic.
And again that was around 60 40 at the time of the merger. So again, we don't give guidance around those two but we have said and obviously.
If you interplay that we think the acute.
Portfolio is going to grow in the low single digits that implies obviously the other end of the barbell, where chronic will be growing faster.
Okay, and then last just a quick numbers question DNA.
Ticked down throughout throughout 'twenty one.
As you're building more kitchen suite, just curious what wuxi bottling for D named between two.
Yeah, I think DNA will continue to decline modestly I mean, I think if you modeled flat to down slightly and again, it's not that we're under investing it's just that we've made so many significant investments in the technology and pharmacy infrastructure over the last several years that.
We're we're in a state where 25% to $30 million of Capex is more than adequate to maintain the infrastructure, we built as well as continue to invest in growth initiatives and so.
I think just given that.
I don't I don't expect D&A to increase from where it is right now okay. And then the two deals that you announced today are you include those in guidance and kind of how much they have added to 'twenty to 'twenty two guidance. Thanks, so much.
So obviously infinity is as well as Wasatch Bill.
Really excited about the Wasatch acquisition again is that we disclosed this morning, we paid $18 million you can think that we paid low double digits.
From a overall impact it's not more around the immediate benefit but as John mentioned, it's just an extraordinary team and.
We're really excited about incorporating their patient experience in their model into our broader infusion suite strategy.
So yes. The short answer is both both infinity as well as Wasatch are incorporated into our guidance as I mentioned spin is not to date, because we have not yet closed.
Thanks, so much guys.
Thanks Peter.
Thank you. Our next question comes from the line of Matt <unk> from William Blair. Your question. Please.
Hi, good morning.
Your comments around disruption on the labor side I'm curious just you have a challenge selling referrals that you were getting that lead to any uptick in <unk>.
Contract labor that was kind of be part one the second piece of that would be have you yet been able to preferentially preferentially allocate any of the infinity resources to option care referrals to deal with those staff shortages.
Hey, Matt it's John .
First and foremost.
Look we have a pretty dynamic model as we've talked about and the ability to move work across the network.
Is one way in which the operations team has gotten very adept at so as we kind of outlined look there were some market level disruptions where.
You come in on a Monday and everyone's there and you come in on a Tuesday and.
A third of your team is out because they have the omicron variant needle to put stay that puts a little bit of strain on that local market and there may have been some referral disruptions at that level, but we quickly responded behind that and certainly prioritize.
Any of that work to make certain that where we could work with our referral partners to delay a start or to kind of move things around we did and did that very effectively and as we said in our comments. We believe that we continue to be a partner a trusted partner for those referral sources.
As for the Infinity question and what we have there is look we are continuing to work very aggressively to assimilate them into the organization and as we said part of that model is that it does.
Yeah.
Support market participant beyond option care that allows us to aggregate market demand and so.
We're continuing to work down that path.
We certainly utilize them wherever there is capacity and tap into their broad network of nurses that are qualified for infusion services.
Seen great early uptake on that and needless to say.
We'll use our full time and part time that are on the option care side of the house first wherever we can and utilize them Felipe Max.
Maximize.
And leverage that incredible asset that we have but then quickly behind that we will be working with Infinity, and then post close with spin to be able to augment that and continue to.
Feed our growth trajectory.
Okay Miss in terms of the utilization of the ambulatory.
I think you're exiting Q3 at about 20% you've talked about 25% longer term.
Maybe just give us a sense for where you exited the year.
Kind of what would you be expecting for 'twenty two.
Yes, Matt look.
We continue to add more facilities into the into the mix.
Yes.
<unk> entered or exited the year and we're going to continue in this year. So it's a little bit into work and the sense of you've got startup and other things that are in there I mean look I think we saw really strong progress on working towards achieving those goals, bringing those those additional facilities online. We think it's fantastic and we don't see anything at this.
Point in time that would change our perspective around the amount of utilization that we could drive.
Okay, I'll jump back and let others ask questions.
Matt Thank you Matt.
Thank you. Our next question comes from the line of Lisa Gill from Jpmorgan. Your question. Please.
Thanks, very much good morning, John and Mike.
Let me just start with the guidance I just wanted to understand when they think about the change on each side what are the key drivers to getting to the upper end of the guidance range for both revenue and EBITDA.
Sure Lisa good morning.
Obviously, there is a broad array of variables, we're trying to model as we enter the year.
The short answer is that the two key things are referral patterns and the inflationary pressures.
With the onset of the Omicron, we saw as John mentioned, a pretty quick disruption around some of the referral sources shutting doors restricting asset et cetera, one of the benefits of our of our chronic portfolio as you know is.
That's a longer duration therapy. So you have more forward look and so the things we're watching here in Q1, as we think about the various scenarios that get us to the higher or the lower end of our guidance range are primarily.
<unk> patterns, how quickly our commercial teams can get back in front of referral sources and replenish those new patient referrals on the other side of that obviously it is.
Real time management on the.
The disruptions to the supply chain managing through transportation costs cost of corrugated et cetera.
And in many of our suppliers arent without supply chain challenges that they're facing so.
Those are the key things that we're trying to model out where admittedly.
Being a little cautious entering the year.
And historic historically, we've tried to tighten.
And narrow our thoughts as we move throughout the year and we'd expect to do that as well.
As we sit here at the end of February obviously hopefully.
It feels like it's kind of moving in the rearview mirror, who knows if we'll have another variant but are you starting to see referral patterns pick up.
As the virus starts to wane, a little bit in different areas of the country.
Yes, Lisa it's John Yeah look as.
Things start to go back to normal we start to see that rebound theres, a little bit of latency as people start going back to the hospital or things get rescheduled.
With thought with Austin office visits et cetera, but yes, we would normally see that pattern.
Kind of follow a little bit behind what youre seeing in the infection rates within the local markets and so again as we've said before it's not consistent across the country. So it is really market by market, but we we start to see that and and it's following the pattern that we saw before with Delta and other of the variance.
Okay, Great just one last question for me.
Just two areas, how do I think about them limited distribution drugs for 2020, and then biosimilars to either have any kind of meaningful impact as we think about 2022.
Yeah look I.
I think as we've always said the limited distribution drugs.
Launch they have a limited impact on the year, but the kind of build as they move forward and we've got a dedicated team.
Working it from a business development standpoint upstream with Biopharma in order to help with those launches and really to support.
Them through that process, and we expect and we've.
Before we normally do one to two.
Two to three a year on that and so we expect that pattern to remain as we go through the year on Biosimilars look.
As they get introduced.
It certainly has.
Opportunity and impact for us.
Continuing to move those forward and given the portfolio of therapies that we have.
Those kind of move in again, they don't follow the traditional pharmaceutical generic event given that they are kind of a unique product through that process and not the equivalent.
But we do see that and we expect we will manage that through as those get launched.
And be able to provide them as part of the overall portfolio in the different therapy.
We provide service to.
Great. Thanks for the comments.
Thanks Peter.
Thank you. Our next question comes from the line of Jamie <unk> from Goldman Sachs. Your question. Please.
Hey, good morning, guys I wanted to start with just the comments on <unk>, the labor disruption and the referral patterns from micron.
How much did that impact topline growth in <unk>, where the impact more weighted to.
The first quarter, just given the timing of when infection starting to pick it up.
Yes, Jamie it really affect it I mean, if you think about it it was really in December and really in the second half of December when we saw the astronomical increase than in the.
In the infection rates. So it really was impacting more of our late call. It even late December referral patterns, which again that's the.
The rolling momentum into Q1, so it really didn't affect the the reported results in Q4 as much as it did the momentum.
Okay. That's helpful. And then just on labor can you talk about what youre seeing from a turnover perspective across the last year and more recently and if you can comment on if staff that are leaving are leaving in health care or exiting health care.
Yes.
We monitor and manage that.
All the time and look we continue to make.
<unk> into our team we put in.
In place programs for.
For bonus programs and other aspects that.
Allow our team members across the organization to participate in the value accretion that we've had as an organization. We continue to monitor that as we move forward we saw some really good.
Turnover rates post merger as we really consolidated the.
The organization and got everyone focused around the mission and vision that we had articulated and look we've seen a little bit of an uptick as others have seen certainly theres different job categories that have.
Different turnover rates there, but all in all I think look we're managing it effectively we're investing in our people we really focused around.
Making certain that we are an employer of choice then as I said, we focus on trying to recruit our team members every single day, we believe we got a great causes an organization knowing the.
The care that we deliver and that Theres a loved one on the receiving end of every dose that we are dispensing. We know that we've got to be competitive from a compensation standpoint, and we know that we've got to create a environment in which our team feels like they are cared for and that we're helping them develop.
And really being able to meet their career aspirations and so we're investing in all of those areas.
Knowing that as an organization our team rallies around the fact that what we do.
It helps to change lives for the better and.
And Thats, a really good mission and in order to star that drives us.
Okay, Great and then just on the EBITDA guidance.
I know you are adding a bunch of centers last year and this year can you give us a little bit of detail on what the EBITDA headwind from that is.
Is in year, one as you ramp up.
Relative to 2021 is it greater or smaller in 2022, and then kind of same question on sequestration and any other government.
Headwinds you expect in 'twenty, two and guidance sorry.
Sorry, Jim I missed the first part of year, what the headwinds were on the guidance I missed the first part of your question.
Yes.
As you add new centers.
On EBITDA like what what's the drag it has a greater than 22% in 'twenty, one or smaller comments on impact there and then yeah. It is maturation and government programs.
Yeah, No I got you.
Look as we ramp these up it's a good question I'm glad you asked it because as we bring new centers online. There is a fixed cost you've got the rent utilities cam charges the infrastructure.
For the turnkey and so these are typically breakeven around 18 to 24 months. So.
The new centers, we are bringing our mind is really around <unk>.
Fueling future growth not a big burden, it's a couple million dollars of SG&A.
That will be bringing on incrementally in 2022 relative to 2021, which was a couple of million dollars to bring on online.
The centers that we've opened and so theres a little bit of a lagging benefit up in the gross margin efficiency, but yes, there will be a couple million dollars of incremental cost for that infrastructure.
Okay, and then on the sequestration.
Not assuming any major change in.
And again as you know, there's not a material price of our business that has direct pen stroke risk since 88% of our of our revenue are with commercial counterparts. So.
Not expecting any material impact from any any government programs.
Okay. Thanks for the color.
Thanks, Jamie.
Thank you. Our next question comes from the line of Mike Pitofsky from Barrington Research. Your question. Please.
Hey, good morning, guys a couple of questions Mike.
Mike on the it looks to me like based on your guidance commentary. This morning, maybe about $200 million of free cash flow can you just talk about.
Priorities of debt pay down M&A internal investment tell he would stack rank those.
Priorities in terms of your free.
Free cash.
Sure Mike Good morning, I think as I mentioned, I think our top priority and we think the best way to create value for our shareholders is primarily through M&A deployment.
We brought the capital structure, just to an extraordinary level with no maturities now until.
2028, our cash interest burn is now around $50 million or maybe a nudge less and then I had a leverage profile of three four times with growth we're going to continue to just naturally drift southward and so we've said that we are very comfortable operating in the three to four times range.
And so look with a very capital efficient model, we expect capex to be around $30 million, maybe a little bit less this year.
And so that affords us.
Federal capital to continue doing what we're doing which is looking for both strategic and economic opportunities to leverage the platform and we think there's a a robust universe of opportunities out there for us.
Would you would you guess that the absolute total debt number would be lower though at the end of 'twenty.
<unk> 22 that is than it was at the end of 'twenty one.
Given the leverage profile that we have we've got a pretty straightforward <unk> got $600 million of loans and half a billion dollars of senior unsecured notes.
I don't know that paying down additional gross debt is is it a top priority at this point.
And just given the fact that we've got considerable cash.
Okay.
I don't see paying down additional indebtedness at this point as being a top priority of ours.
Okay, Great that's helpful and then.
We've talked a lot about COVID-19 related headwinds and inflationary pressures et cetera.
I think theres, a thought or at least I haven't thought that possibly you guys benefited in 'twenty one from site of care sort of shifting from hospital to home or alternate site and I guess first did you. If you did is there any way to quantify that and as.
As you think about 'twenty two if if any of that's true.
Does that impact 'twenty, two could you actually see a reversal on the sort of that.
Site of care shift.
Thanks.
Yes, Mike It's John look.
It's hard to quantify it in totality as you would expect.
But anecdotally, yes, we believe that both.
From a preference as a patient standpoint, as well as some of the site of care initiatives from the payer perspective.
There were some forces that help move those patients out of the hospital and hospital outpatient Department for service in the home or one of our infusion suites and so.
We are well positioned to.
To take on that volume as it came available. We also know though that the number of office visits have been constrained the number of new diagnosis had been constrained.
So I think as we move through the year.
Expectations are those those puts and takes are kind of still be out there and we fully expect that some of the hospitals are going to try to.
Some of that business back we expect that integrated delivery networks that are looking at how they operate within the communities are going to continue down that path.
Identifying where they can play.
We will still be a partner of choice. We think we've got a incredible offering we think that from a consumer centric.
Point of view that patients want to be served in the home or one of our infusion suites and so look we're going to continue to operate as we have we're going to continue to have feet on the street and be out there to capture the market demand that's being created and we feel like we're in a really good position.
But we also recognize that it's a competitive environment and we've got a fight for every referral and we've got a fight for every start.
Alright, very good thanks, guys.
Thanks, Mike.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to management for any further remarks.
Yes, Thanks, Jonathan look as we outlined today, we're very proud of the performance of our team and pleased with the progress. We've made in 2021, we look forward to a very productive 2022, as we work through the near term market dynamics and capitalize on the platform that we've created.
Thank you for joining us this morning, and please stay safe and take care everyone.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Sure.
Yes.
Yes.
Yes.
Yes.