Q4 2022 Option Care Health Inc Earnings Call
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Hello, and thank you for standing by walking two options Chaos health fourth quarter 2022 earnings conference call.
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The speaker's presentation, there would be a question and answer session.
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I would now like to hand, the confidence over to you speak up for today <unk>, Sir you may begin.
Good morning. 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 in our Form 10-K filed with the SEC regarding this 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.
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.
And with that I'll turn the call over to John rather make our Chief Executive Officer.
Thanks, Bye and good morning, everyone as we reported in this morning's press release the afternoon care help team delivered another very solid quarter of results in the fourth quarter.
Despite ongoing challenges on many fronts that will discuss on this morning's call. The team was relentlessly the focus on delivering extraordinary care to the thousands of patients who rely on US every single day.
And reflecting on 2022 as a whole I am humbled by the dedication of the team and honored by the progress we've made over the last year. So advanced that our mission to help transform healthcare by providing unsurpassed care and superior clinical outcomes in the home are ambulatory setup.
During 2022, we continued to expand our relationships with payers providers and biopharma to offer the highest quality care at the most appropriate cost and.
And over this time period, we provided care to over 265000 unique patient and their family.
As always Mike will provide a more granular overview of the result, but in queue for regenerated revenue growth of over 10%.
With balanced growth coming from both are acute therapies. The crew in the mid single digits and double digit chronic therapy growth.
At the same time, we've generated adjusted EBITDA growth of eight 7% and importantly delivered an adjusted EBITDA margin of nine 2%.
Up sequentially 80 basis points from the third quarter. Despite continued inflationary pressures.
And not to steal my Thunder, but our balance sheet has never been stronger as we finished the year with $294 million in cash and our net leverage ended the year at two three times.
Entering 2022, I don't believe that anyone anticipated the inflationary pressures that the broader economy would endure R. As we have communicated previously the significant impact we felt across many of our input.
Throughout the year, we faced emerging cost pressures head on.
And we conservatively digested more than $40 million in year over year cost pressures in labor medical supply oil derived products and operating inputs.
We focused on offsetting those pressures to the best extent possible through technology enhancements and driving operating efficiencies as we also collaborated with our payer partners to seek reasonable rate increases where appropriate.
Our pursuit of operating efficiencies never ends and the team drove considerable leverage and what we believe is the new cost basis going forward.
We also continued to manage through a very difficult labor market with the acquisition of specialty pharmacy Nursing network last April combined with our Infinity infusion nursing network platform. We have established what we believe is the largest clinical infusion nursing network in the country.
And while recruiting key clinical disciplines remains challenging we are confident we are weathering the storm better than many and we continued to maintain our reputation as an employer of choice and a dependable partner to a referral sources as we can provide them with adequate clinical staffing capacity, allowing us.
To serve their patients.
During the year. We also opened 22, new ambulatory infusion centers, increasing our total comes to nearly 150 sites and added 63 infusion chairs, which increases are total to over 575.
With the expanded footprint in capitalizing on patient preference.
We continue to see greater percentage of our nursing visits and our infusion sweets now approaching 25%.
We will continue our expansion in 2023 with plans to open over 20 additional sites in key markets.
This will allow for greater operating efficiencies and continued high patient satisfaction scores.
In summary, 2022 was a very productive year as we've delivered $342 $9 million and adjusted EBITDA for the full year exceeding our original guidance of delivering $310 million to $330 million and adjusted EBITDA.
As we look ahead to 2023 I remain confident in our ability to deliver mid to high single digit topline leveraged bottom line growth and strong cash flow from operations through strong execution and deepening partnership with.
We will continue to focus on providing meaningful solutions to our key stakeholders as the marketplace evolves and new models emerge.
We will continue to work closely with the Payors to offer consistent high quality care at an appropriate cost and explore value base arrangements for their members requiring infusion services across the country.
We will partner with discharge planners and prescribers to provide seamless transition of their patients on the service with us and collaborate broadly as members of their extended carotene.
We will deepen our relationships with our patients to provide them unsurpassed support as they recover from an acute event or help them manage their chronic conditions. So they can live life to the fullest.
And we will provide the strongest clinical platform and broadest population access to pharma as they conduct clinical trials in support of novel New therapies are strengthened the data capture and analytics that we will provide for patients that are receiving their medicines.
And we will continue to invest in our people.
As we provide training development and opportunities for advancement.
To remain an employer of choice and the destination for passionate healthcare professionals.
Also in this morning's relief, we announced that we have received authorization from our board of directors to repurchase $250 million in shares as part of a multifaceted capital allocation strategy.
Mike will provide more color on this program. However, I wanted to highlight this is proof positive of how far we have common since the merger in August of 2019.
<unk> acknowledged the discipline, we have applied to unlock free cash flow strengthen our balance sheet and vastly improve our leverage profile.
And with that I'll turn the call over to Mike to review the results further Mike.
Thanks, John .
I'd like to start by providing some commentary on the fourth quarter results and closed out with some additional thoughts on our initial 2023 financial guidance as articulated in this morning's press release.
Revenue as John mentioned was quite strong in the fourth quarter with balanced growth across our acute and chronic therapy portfolios.
Note that is previewed on R Q3 call in late December we divested certain respiratory therapy assets that were acquired through the bio scrip merger in 2019.
Consequently, the fourth quarter included respiratory therapy revenue for effectively the entire quarter.
Gross margin of 22.5% reflect our mix of chronic and acute revenue as chronic therapy is comprised a bit over 70% of fourth quarter revenue as.
As well as the impact of inflationary cost pressures in our direct category.
Spending grew 8.5%, but dropped as a percentage of revenue to $14, 4% as we continued to drive spending leveraged to offset inflationary cost pressures.
Adjusted EBITDA $94.3 million represented nine 2% of revenue and while 20 basis points below prior year as we've discussed we've absorbed roughly $12 million to $15 million in quarterly cost pressure on a year over year basis.
Additionally, we are encouraged by the 80 basis points sequential improvement and adjusted EBITDA margin over the third quarter.
I wanted to take a minute to provide a bit more color on the respiratory therapy asset sale that we completed in late December .
Other income on our reported income statement includes a pretax gain on the net asset sale of $10.3 million, which we have also backed out of our adjusted EBITDA reconciliation included in the press release, So the game, which we recorded in other income did not benefit our adjusted EBITDA.
Nation and was excluded from operating result, all together.
As John mentioned, we finished the year with $294 million of cash on the balance sheet and our net debt of approximately $800 million represented a multiple of 2.3 time.
So our capital structure has never been in better shape and positions us well, but continue investing for the future and deploying capital for our shareholders.
To that end, we also announced this morning that our board of directors is authorized the repurchase of up to $250 million of common stock.
Given our cash flow generation and capital structure, we continue to believe that deploying capital through our M&A strategy will create value for our shareholders going forward.
However, as we evolve and continue to generate strong cash flow. We believe that share repurchases can provide additional optionality to complement our discipline to M&A strategy as we deploy capital for our shareholders.
We're not in a position at this time to provide a specific time horizon or repurchased guidance and wouldn't hesitate modest repurchases at first.
Again, we expect M&A to continue to be the primary area of focus for capital deployment.
Shifting to 2023 preliminary expectations, we expect to generate revenue for the full year of 415 to four $375 billion.
Revenue composition is quite dynamic and this year will be no different.
Our revenue guidance suggests top line growth of approximately 5% to 11%.
And that includes approximately two points of year over year headwind.
Due to specific therapies for <unk> and high risk pregnancy, and which we anticipate rapid decline.
Along with the revenue loss from the respiratory therapy asset sale.
Despite those headwinds our top line expectations affirmed the strength of our diversified revenue base and our national platform.
Adjusted EBITDA guidance of $370 million to $390 million implies growth of approximately 8% to 14% and.
And includes an estimated 15% to $20 million a year over year inflationary pressure.
As will annualize the cost pressures that emerged in 2022 and that we do not anticipate subsiding anytime soon.
Our cash flow from operations guidance of at least $240 million reflects our expectation of being a federal income taxpayer for all of 2023, and our cash flow guidance reflect the year over year increase in federal income tax payments, which we estimated at approximately $30 million.
Despite the change in taxpayer status, we still anticipate strong cash flow generation for the year.
So overall, we're quite encouraged by the momentum from the fourth quarter and expect 2023 to be another productive year for the option care health team.
And with that we're happy to take your questions operator.
Thank you.
As a reminder, ladies and gentlemen at Star one.
<unk> one one on your telephone to ask the questions.
Wait for your name to the announce to withdraw your question. Please press start one one again please.
Please stand by I'll I'll be compatible Kenny Lofton.
Our first question comes from the line of David Mcdonnell with choice.
<unk>.
Hey, guys just a couple of quick questions Mike.
I apologize on my line cut out there for a minute, but just.
On the inflationary pressures can you repeat what you guys are are assuming for 2023 and then.
Once we get past one Q.
Kind of annualized some of that $10 million to $12 million can you give us a sense of on a percentage basis, how we should think about.
What you guys are seeing on labor and just kind of overall cost trend.
You bet, Dave Good morning.
Yeah, So what we laid out as as we mentioned.
Inflationary pressures really started to emerge in Q2, so artists are.
Our guidance assumes that there is a buyer above.
Around $12 million of year over year inflationary, mostly in the first half of the year.
Affecting.
Q1.
<unk> inflationary pressures really didn't emerge until going into Q2. So we fully expect that that 12 to 15 by up an inflationary pressures.
Primarily in the earlier part of the year from.
From an inflationary pressure a rug made I think our presumption is that clinical labor. We've been very clear is going to continue to be.
To be tighter than John and his prepared remarks was spot on and that we believe we're performing better than most but.
Our guidance also reflects that we're going to continue to be competitive for clinical labor.
Throughout 2023 and beyond.
And then I guess a couple of other quick questions.
In terms of the year over year cash flow did you say the impact of moving in terms of the taxes is about $30 million and then is there anything else from just a working capital standpoint that we should be thinking about in terms of twenty-three relative to 2002.
Not really related to working capital again, we did lay out in our press release, we do expect interest expense, we do have $300 million.
Floating exposure so our guidance assumes probably in the neighborhood of $10 million of higher cash interest as well so between cash interest in the federal tax payments that we estimate to be a total impact of around $40 million a year over year.
And then guys just you talked about on the cost side, clearly being position better than most that would suggest that.
With regards to potential M&A pipeline.
Fair to think about you guys probably have more in Cummings and then secondly.
Just any generic comments in terms of Adjacencies and anything that you guys are seeing that would complement the business that looks interesting.
Yes, David <unk> good morning.
Alright look I think we're looking forward again, we feel really well positioned to your comment yes.
The pipeline of M&A activity continues to fell through that process and we've always talked about the disciplined approach that will take to M&A looking for those.
Those types of opportunities, where we believe it is going to bring some competitive advantage and and or.
<unk> existing infrastructure, so we'll continue down that path.
Feels like Rochester home infusion and others will will continue to pursue.
As we talked about before.
Broadly I mean, we really are excited about the work that's being done in our nursing network and.
The integration that's happening as we've moved.
Thus specialty pharmacy nursing network and Infinity infusion together.
Moving them onto the same platform so really appreciate.
Appreciate the great worked at the team's doing there and moving that ahead, we think that gives us.
An incredible platform is we're thinking about clinical resources moving forward certainly in the nursing area, but also as we're looking to expand beyond that and so we're continuing down that path.
We are continued the look to find adjacencies as we're thinking more broadly about the post acute space.
Certainly you saw or.
Or hurt in the commentary of the the overview.
The ambulatory infusion sweeps are incredibly beneficial to not only are operating efficiencies, but also our patient satisfaction scores and so we're going to continue down that path, we loved the strength of the balance sheet as we kind of outline.
We think that we have.
A lot of flexibility too.
Continue down the path of looking at M&A as being late to to drive value to shareholders and we're going to continue that path moving forward.
Hey, guys. Just last question on the ambulatory infusion sweets, if you're just kind of do the math around.
A higher percentage on chronic that's growing more quickly any reason to not think that that percentage should continue to grind.
100 basis points or so higher per year, and then secondly, just any thoughts around.
Sweet that potentially have a few more chairs can you talk about the potential leverage ability of that or not.
Yeah as you can pick up Dave were quite bullish on the infusion sweet strategy.
We're an investment mode. The team is really refined our thinking around how we geomapped get maximum coverage and convenience and what we found is typically these are three to four chairs. We do design them that if we had to expand and talk a few more chairs and we have that that flexibility.
And really.
Look when we really started this.
This is a strategy we were in the high teens and we're as John mentioned approaching a quarter of all of our.
Nursing events in the sweets over a couple of years and again given that these are generally more tuned towards our chronic patient cohorts and where and given the growth profile of those therapies, we would absolutely expected that our penetration of our nursing events will continue to accrete higher which again as John mentioned <unk>.
Alps us from patient access in satisfaction as well it helps us to offset some of the.
The inflationary headwinds.
Okay. Thanks, very much guys.
Thanks.
Thank you.
For our next question.
Our next question comes from the lineup with Wham Blair. Your line is open.
Hey, good morning.
One of the top on.
The contract over utilization from last quarter related to some more specific geographic market dynamics, just how did that strategy through the fourth quarter 10 year contract local utilization.
Do you expect that the Chinese turn 23, and then as you think about growing a clinician base and twenty-three how do you expect that to balance between full time, and those sort of spam and infinity platforms.
Hey, Mad at Mike.
In general.
As we've outlined before part of our labor strategy to Utilise contract Labor I would say relative to others in health care services.
Our reliance on contract Labor is is not as concentrated there's certain pockets and geographies where candidly.
It's more efficient for us to lean on contract relationships I think over time, our strategy has been to really build out our national platform.
And we track our nurse centers within our platform.
On a weekly basis in our nursing roles have increased throughout 2022.
And again the per diem nature of the majority of that Labour actually provides us with flexibility and it's one of our key recruiting attribute so in short we.
We feel good about using our employees nurses and we think that that will accrue to a higher penetration over time.
The team is energized now that we've brought this spinning infinity organizations to gather to create that truly unified national platform and.
And we would expect as we continue to add to our nursing roles that would predominantly be more.
More of a per diem nature, but also one of the things that the team's doing a spectacular job is providing incentives and motivations for those <unk>.
Two two.
Provide us with more of their our capacity so that not only re increasing the number of pretty of nurses, but we're also over time, increasing the number of hours that were that were getting out of those resources, yeah, and the only thing I would add to that Matt is look I mean, when we run our staffing models and take a look at it where we have density of <unk>.
Patient population, we will be recruiting fulltime nurses I mean, when we can leverage that effectively we we will and that is a big part of our strategy from that but now having the ability to augment that with the <unk> with with the nursing network moving forward and.
Continue to serve others in the marketplace.
Other market participants with that it just gives us a significant amount of flexibility to utilize our own fulltime nurses to the fullest, but then when we need additional capacity our first default to utilize that nursing network in the network of <unk> of resources that are available through that.
Okay and then.
The cost basis.
The new normal.
12 17 incremental.
Q as you think about your new normal cost base, where are the areas, where maybe there are pockets of persistent problems in terms of yoga inflation, where it might be some improvements and what our focus areas.
Art work on.
Export gaining leverage on this new cost base.
Yeah, I think the reality the way, we're thinking about of Mad as we don't see clinical labor costs going down we don't see medical supplies and transportation costs and mileage reimbursement rates going down miraculously as as some of those oil derivative supplies go up in price with oil miraculously the <unk>.
Vices don't drop.
As as oil recedes, and so look hour opera.
Chairman team is the best in the industry and they are laser focused on squeezing basis points, but I think our expectation is that this is.
The new World Order and we don't expect those key inputs to go down.
As always in one of those things that I think is is a benchmark of this team is how hard we fight to maintain quality, but also focused on efficiencies of running R. R.
Our pharmacies, an infusion center network a lot of that comes through the technology that we deploy to make sure that we are as efficient as possible Mclean rooms.
We're interacting with our patients as efficiently as possible and utilizing those finite clinical resources and minimizing way. So I think it's a little bit of all of the above it really comes from the.
The patient referral to administration of the therapy, we're constantly looking at every facet of our cost structure to figure out how we maintain superior quality in a more efficient manner.
Yes, and with them and the only other thing I would add is.
Look we deploy.
Enhancements to the technology.
On a regular basis as we do new releases of the different aspects of our platform team has done tremendous amount of work to look for.
Opportunities to taking repetitive process automation into our infrastructure to take a look and say how do we streamline those processes, where can we have our team members working at the highest level of their aptitude or the highest level of their licensure.
Wherever we can to take waste and cost out of the process.
Through technology deployment and automation with repetitive tasks that are kind of lower in that process certainly in the areas of revenue cycle management and some of the patient administration. There are areas in which we continue to push on there.
And as Mike said, the technology that we deploy within the four walls of the pharmacy allows us to become more efficient in the way that we are looking to compound Spence.
And distribute the products to the patient so all in all look we're going to push on every single level I think guys. We've talked about before I mean, we fight for every basis points of of cost improvement wherever we can and we believe that there's still opportunity for us too.
Around our policies procedures and the technology to make certain that we are utilizing our our team members.
As efficient and effective as possible.
Okay. Thank you.
Thanks, Matt Thanks, Matt.
Thank you please stand by for our next question.
Our next question comes from the lineup Lisa Gal with J P. Morgan Your line is open.
Good morning.
Finally got back to your comment.
2023, like I appreciate that that two per cent headwind that you talked about it.
I figured I'd like to add anything to our basic at 7% to 13% growth I understand that chronic occurring faster, but are there any new drugs or new therapy set that you're looking to when we think about that that revenue driver.
Six 2023, and then secondly, I think think about acute chronic at are you, giving similar guidance to what we've seen historically, which is kind of single digit growth cute and double digit growth. The chronic is there any changes around that trajectory. If you think about 23.
Yeah. Good morning, I'll start maybe led John provide some color commentary the other thing in our in our revenue base. We're actually looking at about a point of of ASP headwinds, we've seen some price compression and some of the antibiotics as well as the chronic inflammatories and infliximab categories, where again.
I think it underscores the fact that our revenue basis quite dynamic.
With dozens of therapy category.
<unk> and other dynamics, we don't break it out.
In two granular of Ah.
A manner, but we did want to highlight that like you know there's a couple of therapy that are are.
Being being disrupted through other other therapies and.
I didn't I didn't included in my prepared remarks, but.
Overall, we're probably going to see about a full point of of ASP headwind and again as we talked about the longer term trajectory of a high single digit enterprises, we've never really banked on any ASP tailwind or or headwinds because again there is always a lot of moves until we always try to anchor that just around.
High single digit volume growth, maybe I'll write John talked about some of the emerging therapies, yes, yes, Lisa we continue to work upstream with Biopharma and have a pretty robust pipeline of new products that are moving through.
Clinical trial phase and moving that forward things being short bowel syndrome things in.
Continued areas of neurological disorders et cetera.
And look we've got strong relationships with with some of the launches a product like Big Garden.
And others as those moved into the marketplace.
Our goal is we always look to have one to three.
New launches on on a yearly basis and the team is working efficiently and effectively in order to do that and so we we feel we've always gotta be focused around that regeneration of of the product portfolio as new products emerge as others at the end of their lives.
Cycle through the process and I think.
The team feels really good about the relationships that we built.
About the access to some of those products, whether it will be limited distribution.
Products or others, and I think you'll see <unk>.
Continued as we have historically a launch of anywhere between one and three new products that we go through 2023.
Okay.
Rock'n'roll.
When we first started packing a couple of years ago about the competitive landscape.
The hospitals are going to try to gain market share you know Covid press people.
Like option and then we hear about.
10 years, having issues around staffing et cetera.
And a much better position can you maybe it does help that squared away I had to think about the current competitive marketplace.
Thinking about that for a 2023 and beyond.
Comment that you weren't able to have reasonable rate increases with managed care for the wait how can that is carried that really happy with the services from option carrying keeping people I have a higher cost studying so any comments that you can get around and try to think about the competitive landscape.
[noise] helpful.
Yeah look.
Mike I get paid to be paranoid and and quite frankly, it is extremely competitive.
From that and we know that we've got to win every single patient.
In that process. However, when you look at the platform that we've created when you think of the consistency of.
The quality of care that we are able to deliver and our access to the clinical resources that are necessary to make that transition of care and then be able to serve those patients. We feel like we're in a really strong position to continue to deepen those partnerships with our referral sources and be a partner of choice as they're helping.
Two.
Decide how to transition patients on the characters look we're always going to have that tension with the hospital outpatient departments as they're trying to.
Add value.
Into their infrastructure and they are looking at ways to maintain the relationships where they can.
Our ability to have that flexibility and.
Ease of doing business with the clinical resources is a big part of where we win.
The depth of the relationships and the investments that we make in embedding.
Nurses into hospitals to help with that transition of care and do the training and education of the patients.
They're getting ready to be discharged.
Again help support the overall desire of everyone on the care team to deliver the highest quality care at the most appropriate cost. So we feel like we're well positioned again, we talked before about our commercial team and and their focus around reach and frequency of making certain that we have a clear.
Understanding of segmentation in the marketplace that we're calling on the right call points that we're investing in developing those relationships and so.
Look at.
I feel as good as you can't deal with.
With the position that we have but again, we win patient by patient we win.
Market by market we win.
Hospital by hospital or prescriber by Prescriber, and so we don't take anything for granted on that and we're going to continue to pursue.
What we think is above market growth.
Given the opportunities that we have and given the focus of our team in in developing the relationships and providing real solutions to our key stakeholders.
Okay. Thank you so much yeah.
Yeah Thankfully thankfully.
Thank you please stand by for unexpected.
Our next question comes from our lineup details <unk> with that you Bank. Your line is helpful.
Good morning, and thanks for taking.
My questions.
Back to Lisa's, so revenue growth questions again.
If you exclude respiratory therapy, well revenues had been growing for 2023.
Yeah. So we don't we haven't broken it out in great detail. It's in the neighborhood of $20 million to $25 million of of top line for that therapy line, It's a relatively limited.
Okay Fair enough and then.
Maybe initiative, but but to the question about what he has assumed for chronic growth of 2023 and acute growth of 2023 net of EAC pressures did you put extra numbers on that within better than guidance.
Yeah, No we don't break out specific guidance for the categories again, the way we have broadly characterize as peto is that obviously the acute portfolio is a slower growing more mature portfolio of therapy and the chronic is typically in that row double digit category again, there's a couple of disruptions from.
Some therapies that are that are being.
Disrupted with other therapies, but I would say those general.
Growth descriptor remain intact for 2003, Okay, perfect and then for the ESP pressure of being the 100 basis points, what's the EBIT impact of that.
Does that flow straight through or has a lot of that variable.
And what percentage of your portfolio August antibiotics is that the bulk of your Q portfolio.
No look Anna intravenous antibiotics as a key therapy for us, it's one of our larger therapy categories, but it's not the majority of our acute revenue.
And look obviously.
A lot of our revenue is comprised of our billing for the therapeutic which is may a sphere and AWP reference that also has a correlation to our our procurement. So is asp's increase or decrease there is a general correlation to our procurement costs. So.
I wouldn't necessarily assume that that point of revenue drops dollar for dollar.
Obviously, we make a margin on.
On Ah.
A drug revenue.
Percent of a smaller numbers a smaller number but.
There is some muting of the revenue impact through our procurement strategy.
Okay, Great and then last question targets or when it's when it's free New limited drug.
Distributions as are also the ones that age out is there any change in the ability to to get.
To land those deals is becoming more competitive more competitive or this is more of a timing issue.
No I mean, I think look as we as John mentioned his prepared remarks, one of the things that we really pride ourselves on invoke we have direct procurement relationships with biopharm, we are very.
<unk> and develop relationships, where we are supporting them both.
Pre approval as well as post and that's one of the reasons why we have been successful in building a portfolio of well over 50 limited distribution therapy.
I would characterize our discussions with biopharma as robust and we continue to speak with them on a number of not only new novel therapies, but also maybe some therapies, where they are looking for additional indications are broader.
Use against some of the categories, where we've seen some attraction over the last couple of years or.
Myasthenia gravis multiple sclerosis, some of the emerging chronic therapies for drug resistant HIV et cetera, we've consistently launched one to three of these a year again peto as you know as we like to characterize right out of the gate. These aren't homeruns, they're typically singles and doubles, but over time.
You can work with them post launch to continue to support commercialization efforts.
And I think that again, we don't commercialize everything this infuse it has to make sense for us strategically and clinically and economically as well and.
And we continue to expect to commercialize 1% a year.
Great. Thanks, so much guys.
Thanks mate.
Thank you please stand by for our next question.
Our next question comes from the line of Jamie tiers with Goldman Sachs. Your line is open.
Hey, good morning, guys.
Sorry to go back to the inflationary question I want I want to make sure I understand that the message that I get that you've got another quarter. So it's not a debate and so you've got to absorb.
The inflationary pressures that has.
Started last two Q.
From there is the message that you expect the rate.
Of growth of some of these cost inputs labor medical supplies et cetera to go back to normal or or are you expecting continued elevated inflation and some of those line items.
Yeah, Jamie good mornings, Mike So we don't expect to cost to subside, we don't see some of these categories getting considerably worse I think a lot of the areas of our cost structure have have plateaued, having said that we continue to expect that there's going to be some inflation going forward across a broad array.
Of categories, including Labor building and facilities.
Some of our medical supplies et cetera, and so.
Don't think credit expecting it to be high single digits as it was in the middle of 2022, and so our presumption going into it is there is going to still be.
As you mentioned, Jamie going back to normal rates I think our normal rates are there's going to be some modest inflation that we're going to have to continue to offset and tackle which is how we've formulated our guidance.
We're not expecting.
789% continued inflation in these categories, but even it platt towing they're staying relatively stable as you mentioned and as we tried to articulate there are still a buyer for the annual irritation of what we think is the new cost environment.
Okay.
That's helpful. And then just unweight increases reimbursement increases it seems like your tone has changed a little bit there you're now trying to get reasonable rate increases where appropriate.
Can you give us a sense of what you think reasonable means and how broadly it is appropriate.
Yeah.
I guess, let me start by saying look we've always look to get rate increase in appropriate I think the message that we're trying to deliver there is.
The ability for us to <unk>.
I actually have the conversations that yields outcome is increasing on the percentage of success right.
You don't have to go.
So far in picking up a newspaper to understand that everyone's dealing with.
Pretty high inflationary pressures, especially on clinical labor and so the ability that we have to bring date.
Data and insights to the payer community around some of those pressures and how we need to get offset for those pressures, especially around the nursing cost and the clinical per Dms.
Is being received.
With a different here than it had been historically when we were in low inflation period. So.
I can't say that we're batting a thousand by any stretch of the imagination, but.
Our team and market access is focused around making certain that we are having those conversations that we're looking to.
To take right into the marketplace and as we've talked about on previous pause. We're always looking at the balance is Mike previous comment.
There is a three legged to our stool between the reimbursement that we received for the drug in the drug spread what we get for a clinical <unk> and what we get for a nursing right in each of our contracts is a little bit different in the way.
Which of those.
The value that we extract out of those three legs and so we're really thoughtful about the way that we approach. It we're very formulaic and the way that we're trying to drive that appropriateness, but it's not a consistent across the board given that you've got these different dynamics on a contract by contract or a payer bypass.
<unk> level and the team is working to underwrite it in the appropriate way.
And looking to be able to.
Again be able to get rate increases that we feel are appropriate and are in alignment with the additional cost that we're bearing as well as the value that we deliver to to <unk>.
Their members.
And our patients through the programs that we administer.
Okay. Thanks, and last quick one for me just on SG&A.
A little bit higher than I think street model for this quarter is there any seasonality and that is that sort of the <unk>.
Base model for.
The next few quarters or just any help on this one time items.
Any considerations on SG&A. Thank you.
Yeah, nothing really of.
Substance again, I think it did reflect some of the inflationary pressures that flow through the indirect.
There's some kind of year and troops and things like health benefits et cetera, where we typically see some some adjustments at year end, but nothing really to see there and again I think more importantly, Jamie we continue to see salad.
Solid leverage in that line.
As a percent of revenue, which we would absolutely expect going into this year.
Okay. Thank you.
Thanksgiving.
Thank you.
Please stand by for our next question.
Our next question comes from a line of Joanna with Bank of America.
Hi, good morning, Thanks for taking the questions a couple follow up so I can send out.
Topic around that payment contracting your commentary.
Pushing for better rate, but also can you step back and talk about.
March payers in terms of the contract renewals.
Alright, there any coming up for renewal twin warranties contracts less.
And any kind of changes.
Kind of overall contracting.
With the permission pain.
Hey, Julianna, it's gotten yes, I think as we've outlined before look all of our contracts.
Are in really good space.
Most of our contracts are evergreen annual renewals through that process and so we don't feel that there is.
Any.
Significant risk of any of those most of the major payer contracts that we have are in the middle of multi year agreements that we have there. So we believe we are in a stable environment in 2023. However.
My previous comments I mean, we are continuing to have active dialogue across all of the payor community around some of the increased in the input costs.
R.
Our labor and med supplies and other things to try to find ways to to get some rate increased even in the interim periods of those of those agreements.
Okay. Thank you and.
I guess.
Other smaller pay here in terms of Medicare.
You know, where we stand with that 19.
19.
And would you expect to kind of more traction when maybe some of these new tracks.
Getting approved like that transfer primary tech would would you expect this to be and and patterns for something like that on to make to improve.
<unk> the coverage for each agent guarantee.
At home.
Yeah look at that.
<unk> said previously we continue to be active in Washington D. C. Both as part of the National Home Infusion Association as well as things that we do independently to try to move this forward.
There is continue.
Continued.
Pushing pressure from our standpoint.
Again, we have bipartisan support.
To move things forward, it's a matter of getting your prioritized as.
We rolled through January certainly with some of the changes in Congress and the Republican control.
There's a reset of Bob of committee leaves and other things that go through that process. So look we're always going to put this and try to put this front and center as part of the government relations.
What's that we have underway to try to move it or had it hard to add her to gas. There's a lot of moving pieces in Washington D. C is.
With with various.
Jen does as well as things like the.
The.
That feeling and other things that they are working through so we're going to be continued to be active.
I'm always cautiously optimistic because I know that offering high quality care at an appropriate cost in a setting in which seniors deserved to be served.
<unk>, it's a matter of finding how do how do they pay for it within the process to the broader question around or their catalyst out there potentially with.
The new Alzheimers indications and those yeah, I mean, we're going to look for every one of those can be an opportunity to.
To continue to articulate the value of delivering care to beneficiaries in the home, we're going to continue to use those as being.
Leverage points to change the dialogue and to get more receptivity of making that transition and so we'll try to utilize that or the opportunities that it will prevent as things move forward, but too early to tell.
Still as everyone waiting to see.
CMS does with some of those novel New agent says they've received FBA approval or there's others that are in the pipeline and so we think we have a viable solution, especially with the infrastructure that we have.
Both within our infusion sweet as well as in the homes to serve those those patients that would require an infusion.
And so.
We will continue to have dialogue, both with biopharma in the innovators as well as in Washington, and with CMS.
Around the value and virtues of home infusion as being part of that service model.
That makes sense and one more follow up on the discussion around constant efficiency and how do you.
You need to push for her to do more.
The question that you know aren't they spend more things that gets you trying to accomplish too tried to take the cost and in that context.
Is there an update on it.
For this expand that Ah well Sky partnership that I can see you announced that in December so any color on that thank you.
Yeah, Joanna rug, our pursuit of efficiencies and cost outs never ends rather there's inflation or not and that's something that's just part of the culture and part of our focus again there.
The compass heading as always towards unsurpassed quality and the best clinical care in the industry, but doing it in a more efficient manner and so the.
The team knows this is part of the routine and then something that that never ends gender of closer to the wireless Sky partnership I'll, let him add any color yeah.
Really excited about the partnership that we announced in again given the platform that they have in.
Our ability to work with them around driving operating efficiencies internally is something that we're really excited about to continue to push that forward. The other thing that the wall Sky team has has focused a lot of energy and we were early adopters intuitive around interoperability and using their platform.
Make certain that we're leveraging health information exchanges and leveraging the information to drive operating efficiencies for all of those transitions of care and giving deeper insights into the whole patient or the whole person through that process and so.
Our team has been working in close partnership.
With the team at while Skype around continue to push that forward. It highlights the work that we're doing with Elias hair as well as just being ways that we are working too.
Take industry leaders from a technology platform and helping them understand the needs of our business and then utilizing their platforms to drive that operating effectiveness in operating efficiencies that we know are going to be required for us to continue to look for ways to offset inflationary pressures and continues to be.
Offering highest quality of care in the settings that we deliver our carrier.
Thank you and the very last one now and follow up.
When it comes to influence extends Tonight increase.
Increasing.
And obviously a year.
Maverick to Asia came down ferry 19, but still any plans to pay down I mean, maybe.
Of this flooding rate that or at this point that at 2.3 kind of.
Outside.
If you're comfortable with that made any of them they.
They need to to Friday nowhere.
Excellent.
Yeah, Joanna look we feel great about the capital structure and being a two three times considering a few years ago with the merger. We started this journey at six two times feeling great about it of the 1.1 billion of gross that $800 million of it is fixed or we fixed it through through hedges, we do have $300 million.
Float three.
Three month LIBOR last year was at 50 bps. This year to 450 best so.
400 basis point of of increased on $300 million of of floating rate that it's about 1 million Bucks a month.
Look.
Obviously, managing the capital structure closely it provides us with considerable flexibility and frankly I think as we look forward from a value creation perspective.
I don't know that.
I don't know that paying off gross debt as a top priority again as we send our prepared remarks, clearly M&A continues to be what we believe is the top priority and I think not a testament to less confidence in our M&A opportunities really speaks to the testament of the strength of the balance sheet, we've just announced that were.
Adding a fast that where we have optionality around share repurchases, while which candidly I think is probably.
More attractive deployment than than paying down gross debt.
I appreciate that thank you.
Thanks Joiner.
Thank you.
I'm showing no further questions in the queue I would now like to turn to call back to management for closing remarks.
Yes. Thank you very much for joining our call. This morning, and we look forward to providing updates throughout the year as we continue to make progress against our goals. Thanks.
Thanks, everyone and have a great day.
Ladies and gentlemen disc will close today's conference call. Thank you for your participation you may now disconnect.
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