Q1 2022 Option Care Health Inc Earnings Call
Thank you for standing by and welcome to the option care Health first quarter 2022 earnings Conference call. At this time, all participants are in listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
To ask a question at that time. Please press Star then one when you touch tone telephone.
As a reminder, today's conference call is being recorded.
I would now like turn the call over to your host Mr. Mike Shapiro, Sir you may begin.
Good morning, before we begin please note that today's discussion will include certain forward looking statements that reflect our current assumptions and expectations, including those related to our future financial.
Performance 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 expectations. We encourage you to review the information in today's press release as well as our Form 10-K filed with the SEC regarding the specific risks and uncertainties, we do not undertake any duty to update any forward looking statements.
Except as required by law 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 the website with that ill turn the call over to John Rademacher, Chief Executive Officer.
Thanks, Mike and good morning, everyone.
Overall after initial sluggishness due to the widespread impact of omicron variant on our team members customers and patients.
First quarter proved to be a very productive start to the year for the option care health team.
We continue to invest in our future growth strategy, while navigating a challenging economic environment to ensure we provide unsurpassed patient care.
As Mike will review in a few minutes, our first quarter financial results were very strong and I am pleased by our performance across the spectrum of financial and operational metrics, we use to manage the enterprise.
Specific to the first quarter of this year.
Note that the prior year comparable period was quite soft.
We are just starting to see Covid vaccine distribution in the second half of the first quarter of 2021.
We also benefited this year from a few one time expense benefit that helped drive leverage in the P&L that we do not believe are likely to repeat.
So while reported growth is very strong in the first quarter as we anticipated we believe the comps will balance out in the back half and we anticipate our growth profile normalizing to a greater extent.
Nonetheless based on our momentum coming out of the first quarter, we are raising our financial guidance for the year Accordingly, as Mike will discuss shortly.
As we entered the year.
We were in the midst of the Covid resurgence related to the <unk> Barry.
This had a very disruptive impact on our referral patterns and local pharmacy operation.
Given the resilience of our teams in the field, we were able to quickly respond after the omicron cases subsided and we saw a return to normal operations by the end of the first quarter.
While acute referral volume continued to lag in certain geographies, we did see a gradual reopening in many of our referral sources.
Our chronic revenue was especially strong in the quarter and was driven by our portfolio of chronic inflammatory therapies and newer therapies for multiple sclerosis, myasthenia gravis muscular dystrophy and others.
We also saw a few points of growth from <unk> that were in short supply last year.
Are now available including therapy for <unk> disease.
As we discussed on our prior earnings call. We also entered the year with unprecedented inflationary pressures across the broad spectrum of goods and services we utilize.
While the collective inflationary pressures with somewhat muted in the first quarter, we do see an increased impact in the balance of the year.
We continue to thoroughly assess our labor competitiveness and we adjust compensation primarily at the end of the first quarter as part of our annual cycle.
So the compensation increases that are not fully reflected until after Q1.
We are also seeing broad cost increases in key procurement categories, including transportation medical plastics, and key supplies business services and others.
As always the team is focused on finding new sources of efficiency to mitigate the inflationary pressures to the greatest extent possible, while ensuring the highest level of quality and patient care.
The labor situation remains challenging, but we continue to recruit our team members every day and we are making investments to remain competitive both from a compensation and career development perspective.
I believe we will continue to weather the storm reasonably well, while maintaining focus on building the best clinical team in the industry.
Aside from the dynamics in the first quarter, we continue to invest in future growth initiatives.
The team is making good progress on integrating the Wasatch infusion acquisition, which we believe provides a tremendous platform in the growing <unk> market. While also adding a unique patient infusion experience to our portfolio from which we can learn a great deal.
We recently also closed on our acquisition of specialty pharmacy nursing networks or spin and we are excited about the national alternate site nursing platform. We are establishing with our two recent acquisitions of infinity infusion dosing and spin.
We continue to believe this clinical platform will not only differentiate our nursing capabilities in the marketplace, but will also help enable future growth, especially amongst our chronic therapies.
Regarding the spin acquisition. This is a unique team that has created a very robust clinical model to serve a broad array of customers, including infusion pharmacies specialty pharmacies clinics and biopharmaceutical manufacturers.
<unk> team had a preexisting in very constructive collaboration with spin and it was a natural progression for us to seek a stronger integration of our capabilities we.
We believe their model is distinct and highly complementary to our capabilities of our Infinity organization and we are just beginning to write the script on our unique national clinical platform, taking the basketball.
Reflecting back over the past 12 months. The team has executed on four strategic and economic acquisitions that have built upon the foundation we've established.
Funded solely through free cash flow generation. These transactions have added commercial capabilities to our chronic strategy helped establish a national infusion nursing platform and expanded our infusion suite capabilities and we're just getting started.
With our capital structure and strong cash flow, we continue to focus intensely on attractive acquisitions to further accelerate our growth.
With our technology Foundation, and clinical expertise I am confident in our ability to find attractive opportunities that will help further expand our presence in the ambulatory setting and post acute space.
So to wrap up my comments, while it is still early in the year I am quite encouraged by the momentum coming out of the first quarter and the team is on track to deliver a very solid year.
Despite a number of variables and risks that we continue to manage we expect to perpetuate our track record of strong growth and accelerating cash flow in 2022.
With that I'll turn the call over to Mike to review the results in a bit more detail Mike.
Thanks, John before jumping into the specific results for the quarter I wanted to provide a few high level perspectives as there are a number of dynamics in the first quarter first recall that we do not provide quarterly guidance in the first quarter typically is a bit softer than subsequent quarters, given modest seasonality in the business. Additionally, as John mentioned.
And the prior year fourth first quarter was especially soft due to the continued pandemic impact with flat acute revenue growth and low double digit chronic revenue growth in that quarter. So the softer prior year comp amplifies our year over year reported growth to an extent.
We believe those considerations are key as we review the growth profile in the first quarter.
Revenue growth of 26% was the result of solid performance across the portfolio the impact of our recently completed acquisitions, namely Infinity, Wasatch and bio cure, none of which were in our prior year numbers represented approximately 250 basis points of revenue growth.
Acute revenue was up in the mid single digits as we saw referral trends rebound throughout the first quarter and again due to easier comps to last year.
Clinic revenue growth of mid twenties.
It was driven by a few factors first better supply chain dynamics enabled accelerated growth for certain therapies that were plagued by a challenging supply chain and product shortages in the prior year, especially thyroid eye disease and immune globulin therapies.
As John mentioned, we also saw very strong execution across our chronic inflammatory portfolio as well as from our newer chronic therapies.
Gross margin dollars grew similarly at 21, 4% and gross margin rate was flat year over year as our continued focus on operational leverage offset the mixed headwinds related to our faster growing chronic portfolio.
As we've consistently articulated we fight for every basis point, but we do see gross margin rate pressure going forward, given our revenue mix as well as the ongoing labor and supply chain inflationary pressures.
Spending was well controlled in the first quarter as we continue to aggressively manage SG&A in light of emerging inflationary pressures.
Lending grew 11, 6% and dropped as a percent of revenue to 14, 6%.
As John mentioned, we recognized approximately $5 million in one time credit related to a variety of items, including reserve adjustments and vendor credits.
This obviously benefited the first quarter and I do not expect those to persist into the second quarter.
Adjusted EBITDA of $77 $8 million represented eight 5% of revenue and grew 49% over the prior year driven by factors previously discussed.
Shifting to the capital structure, we generated $32 $7 million in cash flow from operations and cash balances increased over $145 million at quarter end.
Our net debt to leverage ratio declined to 3.0 times.
Less than half our leverage profile at the time of the merger with bio script less than three years ago.
Additionally, I want to address some recent questions regarding our exposure to rising interest rates.
Recall that last fall, we opportunistically refinanced and extended our entire capital structure under very favorable terms.
As of the end of the first quarter, we had approximately $1 1 billion of total debt outstanding $500 million, consisting of fixed rate senior unsecured notes at three 8% and $600 million in term loans with a floating rate of 275 bps over LIBOR.
As outlined in our most recent 10-K in conjunction with the refinancing we entered into $300 million in interest rate caps on the term loan so.
So effectively $800 million of our $1 1 billion is fixed or approximately 70% as a result, our exposure to elevated interest rates is relatively muted.
So we feel really good where we're sitting from a capital structure perspective.
As well as our access to capital to continue investing in the enterprise.
Finally based on a number of factors, including our first quarter results the momentum of the business our views on impending inflationary pressures as well as the impact of the spin acquisition, we are increasing our expectations for the full year.
For the year, we now expect to generate revenue of $3 75 billion to $3 9 billion.
We've increased our adjusted EBITDA expectations to $320 million to $335 million.
And while we do not provide quarterly expectations, given the tougher comps throughout the year onetime spending benefits realized in the first quarter combined with an increasing inflationary pressures, we would anticipate the quarterly trend to be relatively flatter as compared to previous years.
So as John mentioned, we continue to anticipate delivering a very strong year in terms of growth and cash flow generation.
And with that we'll open the call for Q&A operator.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your Touchtone telephone.
Again I'd like to ask a question. Please press Star then one.
Our first question comes from Matt level of William Blair. Your line is open.
Hi, good morning.
Congrats on another impressive quarter here just on the growth in the quarter I understand this is somewhat challenging but curious if you could try to perhaps break out what was from <unk>.
<unk> comps or a return.
The supply chain side versus just underlying growth I guess, specifically I'm interested in.
How do you feel like you're gaining even further traction with some of the payers you've signed.
Agreements with in recent years, and do you sense that youre, creating even more market share of some of these newer therapies that are launched again wire where companies are looking to derisk launches by.
Looking for a reliable scale resource that yourself.
Hey, good morning, Matt I'll start and John can can obviously provide some color. Yes. So we tried to unpack it a little bit obviously, we're thrilled with the 20%.
Growth headline again, I would say a couple of points of that were due to therapies that frankly, werent available or were had compromised supply chains and led to referral sources being reluctant to put new patients on service about 250 basis points were from the three <unk>.
Acquisitions that were closed going into the first quarter against spin wasn't included since we closed on that so and again as you know theres a lot of moving pieces, but if you back those out it would imply mid teens growth.
And frankly, I think a couple of factors, obviously as we mentioned things definitely improved throughout the first quarter.
And I think you hit on a couple of the themes, which is number one I think just our dependable presence.
Loud us to maintain and build upon our referral source relationships and entering into the quarter, we had extended and renewed all of our major payer contracts and I can assure you that the team is laser focused on growing and fostering deeper relationships with with our portfolio of payers.
Okay.
And then you mentioned <unk> spend so I'm curious now with spin.
Under the option care could you maybe just refresh us on how you envision.
Those businesses in terms of both servicing option care volume as well as the broader market.
Perhaps anything else.
Changed.
With that thought process over the last six plus months as <unk> been stitching them together.
Hey, Matt its John Yes look.
Really excited to close on spin and to start the process as you would expect it's early days and.
We're really going to spend time, working both with the infinity and spin team to make certain that we maximize that.
Our platform as we move forward a couple of things we had mentioned before but.
Bears repeating is look we think that there.
The similarities of the platform are fantastic. It's complementary in nature. There are some unique things that both of those organizations bring and we're going to capitalize on that as we move forward what we did the work behind.
The spin acquisition, there wasn't a lot of overlap of the resources. So it really extend our access to the.
Very critical clinical capability in the nursing community and.
So to expand that network and the size of the network, we thought was a compare.
Competitive advantages are moving forward to your broader question look we're going to continue to use this.
That form to not only support our growth and think about how we're going to continue to have the resources necessary and the capacity to continue to grow as we both take share and make share in the marketplace.
We're also going to continue to support.
The external market on that we like the fact that we can use this platform as a aggregator in the marketplace.
It gives us an opportunity for us to.
To really capitalize on market demand to be able to.
Bring those resources forward and this is a unique differentiated national platform that really allows us to continue to extend our leadership position.
Okay. Thank you.
Thanks, Matt.
Thank you. Our next question comes from Lisa Gill of Jpmorgan. Your line is open.
Alright, thanks, very much and good morning, Mike.
Mike I just wanted to go back to your comment around rate pressure.
Specific to your comment on the faster growing chronic portfolio.
Or is it something that relates to the renewal of the payer contracts that you talked about so maybe if you could just talk a little bit about what youre seeing on the reimbursement side.
Sure Lisa actually the reimbursement environment has been I would characterize it as relatively stable.
<unk>.
Again, as we entered into those collaborative relationships, especially with the national folks they understand that.
<unk> based components of how we how we arrange our and establish our relationship really.
The the rate pressure on gross margin that I was referring to is really around the mix shift.
Our revenue.
Going forward, we've been pretty open that we see that acute portfolio growing in the low single digits, obviously, the chronic portfolio, which bears.
A considerably lower gross margin profile, we expect to grow in the double digits and so over time.
No.
In the first quarter, we were around 72% chronic around 28%.
Over time, as we shift more towards that chronic portfolio that will have considerable gross margin rate pressure although.
We view the chronic gross margin dollar growth opportunity is very favorable.
And then just my second question would really just be around the referral trends that you saw in the first quarter. Obviously, you guys came out really well when we think about COVID-19 .
A strong impact overall in January kind of waning as we went into February and March was that the same that you saw in your business.
There was some amount of impact with omicron in January and it got better or what are you still seeing referrals.
The early parts of it.
The virus in January .
Yes, Lisa it's John .
Look.
As the quarter progressed, certainly the referral patterns got stronger.
There is a constant rhythm to the business and the referral patterns that we saw.
But they were constrained and look I think everyone was dealing in early January through.
Probably mid February challenges, not only with their own staff.
The infection rates of AUM upon variant, but it did disrupt from that path.
Given the national scale that we have the market's kind of act independently on that we saw.
Probably a bigger impact in the coast in the December timeframe and then it started to wane by the time, we got to the end of January and some of the Midwest lagged behind that so it got stronger and stronger and certainly we saw as I said in my prepared remarks by the time, we got to the end of March things had gotten back to.
<unk>.
Normal or whatever the new normal is from our perspective, both in impact on our own staffing in some of the challenges from a labor standpoint with.
With both being impacted as well as the referral patterns starting to come back.
We exited the quarter.
Great. That's very helpful. Thank you.
You're welcome Thanks Lisa.
Okay.
Thank you.
Our next question comes from David Macdonald Choice. Your line is open.
Hey, good morning, guys.
Couple of questions first just a clarification Mike did you say that acute was excuse me and I realize that the comps were what they were but that acute was up mid single digits in the first quarter is that correct yes.
Yes, Thats right David.
And is it.
And I assume it's fair to say that January was probably either flattish modestly up modestly down so.
Again, if I look at.
Some of the referral disconnect that you guys are having early in the quarter. It suggests really strong numbers.
And the last two months or at least in March I guess my question is.
Are you guys holding on to more volume in both businesses that may have used a different site of care pre COVID-19 .
And what are you doing on the sales side to potentially make those referrals more sticky and keep them being driven towards a different site of care.
Yes, Dave I think the way you characterized the progression throughout Q1 is right I think as John mentioned clearly January was pretty sluggish out of the gate is given the omicron wave and I think we definitely saw.
A rebound throughout the quarter and again.
We.
We have a relentless focus on the acute referral sources, but.
Again, that's a lower growth proposition, but in the first quarter again.
Partially due to the easier comps last year.
That definitely helped us post the mid single digit growth, which which we're thrilled with and again I think throughout the year as acute rebounded last year, the comps will become a little tougher but nonetheless.
Very pleased with the acute portfolio in the quarter, yes to your question around the.
The stickiness of the referrals and the patient base look we've spent a lot of time as an organization focusing around the quality of the care that we deliver certainly with our our commercial resources around the reach and frequency and the reliability that we've been able to demonstrate.
Those referral sources over the last two two plus years.
Throughout that process so.
Our focus as an organization has always been around the patient experience and that patient satisfaction.
Two.
Previous questions that we've received and I think kind of to your question, we haven't seen a lot of.
Movement back for patients that are on.
Long term care with us.
Are those chronic patients.
Turning back to those other sites now.
We understand the competitive dynamics and we.
Don't take any of that for granted we want to make certain that we are driving patient loyalty by the services that we're providing and the care that we're delivering.
But as of this time.
Our retention rates of the patient seems to be solid and something that is a stable base from which we are building from.
Okay and then just one other question guys you mentioned ongoing investment a couple of times in the prepared remarks I was wondering if you could give a couple of what you view as the key areas of investment over the next 12 months to 18 months and then I'm curious as you guys were renewing with your major payers just any conversation during those.
Actual updates around the ambulatory infusion suites.
<unk> of care redirection just.
Anything incremental you can add there.
Yes, David.
We've talked about previously.
Continuing down the path of building out a comprehensive network of infusion suites and in the conversations that we're having kind of across the spectrum with the payer community. There is a high level of interest there knowing that.
Our ability to have.
The quality care at an appropriate cost in a setting in which patients want to receive it we're on the right side of that conversation both in the home, but also in the infusion suite and so as we're looking at.
Areas of investment as we move ahead, we are committed to continue to expand that out and to build out a comprehensive network in order to serve the needs of our patients and partner closely around site of care initiatives and other aspect from that standpoint. The other aspect as we said is look not.
Unnecessarily unveil our strategic.
Playbook, but we're looking for other areas to augment what we're doing we know that we have a privileged position of being able to provide care in the home or in one of our infusion suites that we're always looking for the opportunity to expand service lines or to look for additional ways to increase.
The value that we're delivering to our patients to our <unk>.
Referral sources to the payer community and really upstream to biopharma as well and so we're going to continue to take a look and as we've always committed to will be disciplined, but it's going to be both strategic and economic and any moves that we make but we really.
Feel fortunate about the position we're in from a capital structure, and we think that the opportunity before us to continue to look for ways to enhance.
The role we play in ambulatory settings and post acute care.
Okay. Thanks, very much guys.
Yes, Thanks, Dave.
Thank you. Our next question comes from Brooks O'neil of Lake Street Capital. Your line is open.
Good morning.
One question I'm, hoping you could just talk a little bit about labor pressures labor shortages, particularly as it relates to nursing availability and pharmacists and whether youre seeing.
Having difficulty.
Filling roles or whether youre in pretty good shape in those two key areas.
Hey, Brooks.
Yes.
Look we're not immune to the pressures.
In the marketplace, but I would tell you that our sense is that we're faring pretty well through that standpoint to your specific question part of the reasons for the acquisition.
Within Infinity and spin was to expand our nursing network and at this point in time, we really don't have not run into capacity constraints.
Or had to turn away patients on that the other thing is look we've increased our clinical team size.
Just naturally through Q1 based on our recruiting and moving that forward. So on a positive basis, we've seen our time to fill.
Moving downward and so we continue to be able to attract talent to the organization is as opportunities arrive with open positions and from a clinical standpoint.
I think that has got the biggest constraint is really around nursing and we feel that our model has that flexibility of our full time nurses are part time nurses and.
Then accessed it per diem and this network allows us to continue to to meet market demand and continue to grow as were looking forward.
Brooks, it's Mike only thing I'd add is just to put just to put a little more granularity around it look we have over 7000 associates across the country. That's over half a billion dollars of labor costs and so as John mentioned, just to remind and reiterate that we take most of our merit and adjustment.
Actions at the end of the first quarter and so I would characterize.
Most organizations are adjustments or a couple of points higher than they have been in previous periods.
Years.
So that that labor related inflationary action, which again is January says we need to focus on recruiting our team every single day, that's going to start to impact us more in the second quarter.
Okay, and just to clarify.
Appreciate all that color.
No no big problem, finding pharmacists either.
No no I mean for <unk>.
For the most part look I mean, there is market nuances as you would expect.
From that standpoint, but in general our ability to recruit.
And onward teams the team members had been strong.
Great. Thank you.
Youre welcome.
Thank you. Our next question comes from <unk> Chickering of Deutsche Bank. Your line is open.
Hi, there this.
This is Karen.
Thanks for taking my question.
So if it's.
Add back $5 million.
Yes.
The $5 million in credits that you called out in one queue. It looks like EBIT margin came in around seven 9% adjusted for that.
Taking the midpoint of revenue guidance. So it looks like you see about eight 6% through the rest of the year. So still some some good sequential expansion, but that's about 30 basis points below Q2 through four Q2 1. So I was wondering if you could kind of just talk about some of like what the bigger.
Swing factor between the low and high end of the guide as it relates to the cost side all through the through the rest of the year.
Sure Karin, it's Mike and I think Youre thinking about it right look we tried to provide as much transparency as we can and while we're thrilled with the $77 million that we delivered in the first quarter again, there was in the first quarter. The stars aligned the signs we're going the same way and we always see some one timers here and there they tip.
<unk>.
Net to nothing to write home about but in the first quarter. We did have a net of around $5 million of benefits that we just wanted to underscore as folks think about that so yes. If you back that off to a kind of a normalized 72 and again I'll use that in air quotes and Theres always a lot of puts and takes.
Yes.
Balance of the year would imply high single digit earnings growth and frankly as John mentioned, we're seeing.
Very strong.
Momentum on the commercial side, but the reality is the best of our.
Estimates.
$10 million to $12 million a quarter of year over year inflationary pressures.
Which collectively $30 million in the back half that that's.
Thats quite impactful and so we do see that with with the labor adjustments emerging.
The impact of crude oil derivatives on everything from medical plastics to mileage reimbursement for our clinical teams in the field that really ramped up in the first quarter and so to simplify what we see going forward is continued commercial momentum offset by what are unprecedented and inflationary pressures.
But yet we're.
We're still laser focused on expanding.
The EBITDA margin to the extent possible.
Okay. Thank you that's.
That's helpful. And then just one quick follow up.
I know we've asked this before.
But I think this is now.
The fifth straight quarter of.
For the fourth straight quarter of <unk>.
Gross margin expansion despite the size.
<unk> growth in chronic.
I know you guys are.
For every dollar Theyre like you said, but just wanted to make sure that none of those timeline et cetera.
And you called out you expect.
This margin contraction in Q2.
Gross margin pressures continue and can return through the rest of the year. So just wanted to make sure was there anything specific in <unk> that allowed for another quarter of expansion there or origin.
Still kind of just holding line effectively.
Sure Karen.
As I mentioned my prepared remarks gross margin was within 10 bps of where it was last year, so relatively flat year over year part of the tailwind in the first quarter was that nice year over year growth on the acute.
Portfolio, which again is as.
Is considerably higher gross margin profile, so that year over year growth.
<unk> helped us on a year over year gross margin rate.
The reality is and again, you've heard us talk about it several times, we are relentlessly focused on every basis point and on growing those gross margin dollars, but again with that seismic shifts towards the chronic portfolio nothing's changed around our conviction that over time, we will face some rate.
Some rate pressure.
Thank you.
Thanks, Karen.
Thank you our.
Our next question Carlos.
John .
Think of America. Your line is open.
Yes. Good morning. Thank you so much for taking the questions here. So a couple of follow ups.
So when you were referring to.
Yes.
Your guidance for the year you expect.
Trends to be flat the sky here, So can you clarify that.
Taylor.
To margins or something else. So how should we think about that because I can see just kind of talk about the.
The inflationary pressure is picking up into the rest of the year. So I wasn't quite sure. What you were talking about when you said.
Alright.
Sure, Yes, Joanna so.
Typically when we've.
When we've articulated the seasonality in previous years, there was a more pronounced.
Step from Q4 down to Q1, and then a <unk>.
Considerable improvement throughout the year I think with some of the dynamics what I was trying to articulate is with some of.
The benefits and the easy comps last year relative to as John articulated increasingly tougher comps throughout the year, we would expect as we reflect on our outlook for this year that it would be a relatively flatter year from a revenue successive revenue.
Performance and EBITDA contribution so a little bit of a flattish year.
Relative to what we've seen in the past around seasonality.
Alright that makes sense, especially after you kind of talk about that that those inflationary pressures.
$15 million headwind I guess that quarter.
I just want to clarify that and then another clarification so.
That acquisition closed in April .
It wasn't in Q1, obviously and then for the year.
I guess is it adding maybe $3 million or sell to EBITDA.
Yes, that's about maybe a little bit lighter than that we didn't we disclosed that obviously the purchase price was $60 million, we paid mid teens, so think of it as a.
$4 million to $5 million contribution on an annualized basis. So.
The transition, we'll realize around three quarters that so.
Around three maybe.
Nudge less than that but.
Within the ballpark.
Okay and I guess also when you were talking about these inflationary pressures that 10 to 12 months. It sounds like that was LIBOR. But then you also talk about just out there.
<unk> a question of supply and plastic also transportation for micro services.
So are they included in this number if not I guess.
They also meaningful or I guess, it is compared to that labor pressure.
It's a number that you are not.
Willing to quantify.
Yes.
When I use the ballpark range of 10 to 12 that would include our higher than typical inflationary pressures on labor as well as all of it whether it's medical supplies transportation et cetera. So that 10 to 12 is a rough estimation of the collective inflationary pressures.
Alright Thats helpful. Thank you and I guess I would say black clarification, when you talk about that.
Acquisitions, and obviously you have a lot of free cash flow there.
Sorry.
Our balance sheet situation.
And you mentioned something post acute care.
So can you expand on that I mean is there something youre looking at kind of outside of the core infusion because I guess last time, we call. It sounded like you're still kind of more focused on infusion, but I don't know, whether there's anything else you're kind of considering outside of the core.
Thank you Shannon.
Sure Joanna and look I mean, as we reflect where we are.
At the onset of the merger obviously, one of the commitments John and I made was to rapidly delever and improve the capital structure. So as both of US mentioned, where we're sitting today, we feel very good that we're we're at three times net levered and we have considerable access to capital that obviously does.
Lower the bar in terms of how we're thinking about strategic and economic investment and I think look as John mentioned, what we've really established as a differentiated national clinical platform now with.
One of the largest clinical teams in the field with the largest independent pharmacy footprint to really support the post acute space and I think as we reflect on the transactions that we've we've executed on we built a national per Diem nursing network, that's second to none.
With Wasatch, we've expanded our patient experience in the infusion suite setting, which is going to provide learnings for for years to come for the broader organization. So I think.
Where we're trying to Orient folks is with that differentiated national clinical platform.
I think it gives us a broader array of opportunities how to how to be a relevant partner to our payer and referral partners.
Providers in the field.
Not just maybe around the infusion in the home, but in the broader post acute space.
Okay great.
I guess, one last one on.
Cash flow I guess, you still have Nols, but when do you expect to start paying cash taxes.
We do not expect to be.
Meaningful cash tax to.
To have a meaningful cash tax obligation. This year I mean, we'll revisit going into 2023, but for this year.
Quite confident that.
That won't be a meaningful outflow for us.
Okay, great. Thank you so much for answering the questions.
Thanks, Sean.
Thank you. Our next question comes from Jamie Paris of Goldman Sachs. Your line is open.
Hey, Good morning, guys. Two quick questions from me, Mike you talked about aggressively managing SG&A just given the environment.
Can you talk about where you are finding sustainable or incremental opportunities to do that.
Sure I mean look obviously entering the year there is some discretion around when not if we make certain investments for future growth entering the year frankly.
Balances maintaining the current operations as well as.
Finding the funding for future investments and frankly entering the year.
We were a little more thoughtful on the pacing of some of those more discretionary category to your point, though Jamie I think we we continue to push the team.
Around finding ways to become more efficient whether it's through technology to <unk>.
Utilize more automation.
On the patient registration and Onboarding and support processes around our billing and collecting efforts.
Every other enterprise, we're looking at our bricks and mortar investment and looking at do we need all of the.
The administrative facilities and capabilities that we need and so look I mean through the technology.
We continue to find value on the margin around how it could become more efficient and that doesn't ride up and that doesn't have ever stop and so I think that's that's as we've articulated the value of this business and that gives Jon and I the confidence that going forward.
Despite inflationary pressures, we're still highly confident we'll grow spending considerably slower than the gross margin dollars.
And I want to follow up on the first part of your answer there is some of the investing.
<unk> growth is that to say that at some point when the macro environment is more stable you can.
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Reinvest in some of those opportunities and accelerate growth in my thinking about that right or just just wanted to follow up on that comment.
Jamie It's John So a couple of things one as Mike said look we have been investing in the technology infrastructure and so we are utilizing.
Some of the advanced tools around repetitive process automation, we're looking at machine learning and other aspect to really drive efficiency in the way that we're operating.
To that look we continue to take a look at not only the structure and design, but the reach and frequency of our commercial team and our commercial resources as well as thinking about different ways to partner up and down the value chain from biopharma manufacturers to the patients themselves and looking for.
Those opportunities for efficiency.
Any of the things that we're doing on the SG&A side just to be clear, we're not doing anything at this point in time, that's constraining our ability to grow.
We are prioritizing our investments is down in areas of productivity efficiency and expanding our reach into the marketplace. We understand the unique position that we're in and we want to capitalize on that.
We're also disciplined there are things, where we can be thoughtful around the way that we're adding overhead staff as opposed to production staff. There's ways that we can take a look.
At the needs of the business and reorient around it in a more efficient way. So I don't want you walking away thinking that we are.
We are holding back on making investments or spending dollars to continue to capitalize on.
The privileged position that we hold.
In the unique position as the only national provider of infusion services.
Okay understood. My last question is just around your approach to guidance.
It's a dynamic macro environment modeling these days is as hard as ever.
How do you see some of these macro dynamics just impact your approach to guidance are you.
Just incorporating more room for unknowns and things like that into guidance. This year, just any color on on your approach would be helpful.
Sure Jamie look I mean, obviously as you know John and I would tend to be more conservative in how we approach our thoughts externally.
We operate in a very robust forecasting mindset, where.
Every single quarter, we're looking at dozens of distinct therapies with each with their own growth and supply chain dynamics no. Two metropolitan areas are created equally or operate equally and so we model out several variables out of therapy level on a geography level as well as on our <unk>.
Cost component level and so.
You can imagine.
We model out.
A significant number of scenarios and.
We're obviously focused on doing is handicapping, those and providing you all with thoughts that represents a conservative view, but yet also to your point acknowledges the fact that there are.
Considerable.
Variability in.
In a very dynamic environment that we're operating in right now.
That's part of the allure of this industry and what we love about it but it also.
That we take to heart as we articulate obviously.
We recognize our credibility as is contingent on us doing what we say we're going to do in and so were very very thoughtful on how we model a variety of the variables we're facing.
Alright, thanks for all the color.
Thank you.
Thank you I'm showing no further questions at this time, let's turn the call back over to John Rademacher for any closing remarks.
Yes, thanks, Valerie thanks for joining us today as we discussed we had a very strong Q1, and we're looking forward to continuing with the momentum as we move through the year I Hope you have a wonderful day and please stay safe thanks, everyone.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may now disconnect have a great day.
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