Q2 2023 Option Care Health Inc Earnings Call
Good day and thank you for standing by welcome to the option care Health second quarter 2023 earnings Conference call.
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I would now like to hand, the conference over to your Speaker today, Mike Shapiro Chief Financial Officer. Please go ahead.
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 future financial performance and industry and market conditions. These forward looking statements are subject to risks and uncertainties that could cause the actual results to differ.
For materially from our expectations. We encourage you to review the information in today's press release as well as an art 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 our website and with that I'll turn the call over to John ready to make our Chief Executive Officer.
Making good morning, everyone.
The second quarter was a very dynamic period for the auction care health team and we will discuss many of these items in our prepared remarks.
First and foremost I cannot be more grateful for our team or more proud of the execution and dedication that was demonstrated across the organization.
Their focus continues to enable us to provide unparalleled patient care and customer service, which translates into strong key performance metric achievement and financial results in the quarter.
It's always Michael reviewed the results in greater detail, but I'll cover some of the highlights.
The growth profile of the business continues to be strong as we've delivered solid results across the board.
Revenue growth of 9% was comprised of balanced growth across the acute and chronic portfolio and due largely to our strong execution and unique procurement benefits in the quarter. The microbe is Scott.
Yesterday, EBITDA was $110 million adjusted EBITDA margin exceeded 10%.
Building on the strength of our second quarter performance, we are tightening in raising our adjusted EBITDA target for the full year to $450 million to $425 million.
Over the quarter, we continued to be active on the business development front as well announcing.
Announcing a new collaboration with crystal biotech and preparing for potential emerging therapies to treat neurological disorders, such as all timers.
Our collaboration with Crystal biotech enables us to help provide a new and innovative gene therapy treatment for patients who suffer from <unk>.
<unk> <unk>.
We believe our ability to leverage our advanced capabilities and comprehensive pharmacy infrastructure to support this innovative gene therapy demonstrate.
Demonstrates the responsiveness in broad clinical capabilities with presents across our network and that these attributes are valuable to our farm of partners.
Although this product is for a rare disease that impacts roughly 3000 patients across the United States. The collaboration continues to validate the investments we have made in to our platform and the clinical capabilities necessary to support complex products and care plans.
We also continue to focus on the emergence of new infused treatments for all timers.
With the recent FDA approval <unk> can be we remain closely connected to patient pharma providers and payers to help ensure we are part of the solution to a potential revolutionary category of new therapies.
What would we remain cautious on the near term impact. These therapies may have on our business due to the expected patient adoption pace and reimbursement challenges I believe we are uniquely positioned to help ensure access to care for all payments patients and their families across the country.
We continue to work closely with key stakeholders to determine coverage.
Fair reimbursement and to advocate on behalf of patients to allow us to provide high quality care at an appropriate cost in a safe and convenient setting in which they want to receive their care.
Turning to M&A as you know in early May we announced our intention to merge with the <unk>, which we believed with a unique opportunity to create an innovative post acute platform that would help us transform the way care would be delivered in the hall.
As articulated over the course of the second quarter and reinforced by the continued positive results. We are reporting today. The merger was pursued from a position of strength as we believe our basement of using business has had a solid foundation and continued to perform quite well.
Since announcing our proposed merger with the medicine.
Mike and I have spent a significant amount of time engaging with many of our shareholders and others in the financial community.
We appreciate the opportunity to hear your feedback and perspective and look forward to continuing this conversation with you in the coming weeks.
In that vein, we made the discipline decision to terminate our agreement to merge with <unk> and accept 106 million dollar break fee.
Today, we are announcing that given the strength of our performance in cash position, we intend to deploy an additional $100 million through share repurchases over the near term.
Given the strength of our balance sheet and forward outlook. We believe it is appropriate to return essentially all of the break fee to our shareholders through our existing share repurchase program, which are board approved earlier this year.
R capital allocation strategy has been and will continue to be focused on generating favorable returns for our shareholders on a sustainable basis.
While we have consistently identified pursuing opportunistic M&A as a top capital allocation priority.
Over the near term, we expect that this will be limited to smaller tuck in type transactions designed to deepen our existing strategic position and deliver additional value to our stakeholders.
Provision of patient centric care.
Where circumstances allow we will also look for ways to return capital to our shareholders through continued share repurchases or other means.
Before I turn the call over to Mike I will finish where I started I believe the auction care health team is uniquely positioned in the post acute space.
To deliver extraordinary care and change lives for the better while also generating strong financial results.
We understand the privileged position, we possess and serving patients in their homes and one of our infusion suites and a trusted advisor roles that are clinicians play in supporting the care plan.
We will continue to work in a disciplined way to identify opportunities that deep in our expertise or broaden our capabilities to capture more share and play a more significant role in care delivery in the home or alternate site setting.
As evidenced in a revised guidance, we are expecting 2023 to be another solid year with double digit earnings growth and attractive cash flow generation and we will continue to focus our efforts to position opposite their health to serve more patients and provide significant value to all of our key stakeholders.
And with that Mike will provide additional color for on the results Mike.
Thanks, John overall.
Overall, the second quarter carry the momentum from the first quarter and their business continues to perform quite well <unk>.
Revenue growth of nine per cent reflects continued strong commercial execution, partially offset by the headwinds we articulated heading into the year, namely the divestiture of certain respiratory therapy assets. The decline of two key therapies, Roddick Karla and Mccain.
As well as some ASP declines in certain therapies.
Nonetheless utilization continues to be strong and reflects our efforts to be a partner of choice for a referral sources.
I would highlight that as we enter the back half of the year the impact of exited therapies and higher acute basslines due to competitive closures last year will be more pronounced than in the first half.
Gross margin of 23.5% reflects our continued focus on operational excellence as well as some distinct procurement benefits in the quarter.
On the execution front, we continued to drive efficiencies, including utilization of our ever expanding infusion sweet footprint.
In the quarter, we opened an additional four new centers and we exited the quarter with sweet utilization about 29% of all of our nursing visit.
As we've discussed on many occasions or procurement efforts are quite dynamic and effected by variability in pricing indices.
In the second quarter, we realized approximately $8 million to $10 million from favorable procurement dynamics that emerged due to the timing variances in reference prices that affect our costs relative to reimbursement. This.
This generated approximately 80 to 100 basis points of gross margin benefit.
We expect this dynamic to continue into the second half of the year and is reflected in our guidance how.
However, we do not anticipate that this will be sustainable in the medium term.
Excluding the procurement benefit gross margins continued to expand modestly despite that makes headwinds we've talked about.
Adjusted EBITDA of $110 million represented 10.3% of revenue and grew 29% over the prior year second quarter.
Again these results reflected the estimated $8 million to $10 million procurement benefit.
Excluding the benefit the business continues to perform quite well and still generated mid teens earnings growth.
Cash flow generation continues to be quite robust and a relentless focus on cash conversion continues to result in solid cash flow from operations.
Our leverage profile continues to improve and we are quite encouraged by our recent upgrade by Moody's to be a three which we believe is affirmation of the progress we've made around our capital structure.
In our results you will note that we recognized and non-operating net gain reflecting the receipt of the $106 million break fee offset by a crude deal related expenses.
All aspects of the merger activities, including the break fee and expenses and related tax impact had been adjusted out of our adjusted EBITDA results as reconciled in this morning's 8-K.
GAAP earnings per share is naturally inclusive of the merger related activities.
We received the break fee prior to the end of the quarter, which is also reflected in cash flow from operations.
As John articulated, we anticipate deploying $100 million through our share repurchase program in the near future.
Subject to market conditions and applicable legal requirements.
As a reminder, earlier this year, our board of directors authorized to share repurchase program.
Up to $250 million.
We have repurchased $75 million of stock year to date, and therefore have sufficient authorized capacity remaining under the board authorization.
Is John referenced earlier, we see a multifaceted capital deployment strategy focused on strategic M&A in share repurchases.
Optimal strategy to maximize shareholder value give.
Given the momentum and the base business, we expect that our near term focus will be on driving organic growth and potentially on pursuing smaller adjacent are tucked in acquisition.
Based on the strength of the second quarter, we are revising our guidance accordingly.
We now expect to generate revenue of 4.2 billion to $4.3 billion.
We expect to deliver adjusted EBITDA of $415 million to $425 million.
Inclusive of the near term procurement benefits I mentioned earlier that are expected to continue into the back half of the year.
While we do not provide quarterly guidance, we do expect the remaining quarters to be relatively flat the queue to with respect to net revenue and adjusted EBITDA, given a number of dynamics, including tougher prior year comps as well as the impact of the two declining therapies and divested respiratory therapy assets I referenced earlier.
Additionally, a revised cash flow guidance of at least $350 million includes the second quarter in flow from the merger break fee. So overall, we expect to deliver another very solid year of growth.
And with that we're happy to take your questions operator.
Thank you we will know conduct a question and answer session. As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
It was dry your question. Please press star one one again, please stand by while we compile the Q&A roster.
Our first question comes from the line of Lisa Gal of J P. Morgan. Please proceed with your question.
Thanks, very much good morning, and congratulations on a great clutter.
Understand just a couple of the comments that you made.
First off when I think about that revenue credit and a quarter I think mm. Neither microdyne you talked about it being more evenly split but <unk>.
There anything that that you would call out on either at that chronic or acute side and I'm. Just curious as more <unk> are shifting towards the outpatient setting for surgical procedures et cetera are you seeing that also translate into higher.
Higher acuity on your side would be my first question and then secondly, I know you're cautious around alzheimer, but this is a big opportunity is there any way you can frame.
<unk> of what could go through option care densely I'm thinking of this is probably more of a 24 opportunity than it back have a 23 opportunity and I'll stop there.
Yes, <unk>, it's Mike onside with some of the mechanics around revenue legwork thrilled with at 9% top line in the quarter.
As it consistent with what we shared on the first quarter that is comprised mid single digit acute low double digit chronic and again that after a little more than two full points of headwind given the <unk>.
Fact that last year, we had the respiratory therapy revenue, we did see a a meaningful decline throughout the quarter in the two exited therapies and we did start to see some tougher comps emerged later in the second quarter last year with some of the competitive closures. So.
The nine per cent is and again, we just like to go with the results that we post but there were.
Conservatively.
Conservatively 200 basis points of of top line headwind from those therapies and that comes from the prior year and Lisa you're the second part of your question both on procedures and what we're seeing from the acuity standpoint.
Again productive Porter.
We talk a lot about the reach and frequency of our team we think we're well positioned.
Especially as there seems to be a little bit more of an uptick of utilization.
In the in patient setting in the byproduct of that as we would be embedded resources that we have in our care transition specialists working closely with those discharge planners in case managers at the hospital.
Finding the opportunities to identify patients that safely and effectively can be transitioned onto care with option here health. So feel is it well positioned there and we'll continue to monitor the situation closely but.
Feel really good about what the team was able to do especially in the acute space.
And deepening the partnerships in the relationship that we have there.
I'm the Alzheimers front.
To kind of put a little more color on that.
Really excited for.
The revolutionary aspect of some of these therapies and that positive impact that it can have on in patients and the families that are suffering from <unk>.
Cognitive impairment at.
At this point in time the the.
<unk> come out with.
A high level of view of how they are looking at coverage determination, but many of the payers have not yet wolven it into their medical policy and have that come out with clear guidance around how to bring patients on the service we've called out before that the diagnostic aspect of this is going to be Ah.
Pretty heavy lift both in positron emission tomography <unk> <unk>.
Hands that are required as well as.
M R I's and so we want to be cautious and thoughtful around the wave that we're approaching it.
And the current Medicare.
For service model.
As you know there isn't a robust home infusion therapy reimbursement path and so.
We expect that plans will benefit from.
Our infrastructure rebuild out a significant amount of our our infrastructure with our infusion suites in order to support these types of emerging.
Products and therefore.
We get better clarity around the path to payment, we get better understanding.
Understanding around what are the prior authorization requirements and how that would fit within a normal flow. We think we are well positioned as being part of the solution of offering high quality care at an appropriate cost in a setting in which patients latter receive it so that's.
That's kind of where we are at this point in time, and we think it will develop as it moves forward and there's some better clarity around that coverage.
Coverage determination medical policy and then.
Reimbursement path.
And just to be clear that that's probably it 24 opportunity right.
Yeah 24 25.
It's it will start to build.
It's hard to anticipate right now the pace of uptake of the patients given some of the hurdles that will exist with with the diagnostic imaging and other components. Okay. Great. Thanks for all the comments.
Yeah, Thanks for <unk>.
Thank you.
<unk> for our next question.
Our next question comes from the lineup, Brian Tranquil out of Jeffrey. Please proceed with your question.
Hey, good morning, guys congrats on the quarter.
I guess.
I guess my question for you guys as I think about the durability of his strength and and.
Organic growth I I I just.
Like you've talked about southern moving parts of the gross margin language, how should we be thinking about your ability to sustain this level of performance going forward.
Yeah, Brian I think the quarter was very illustrative of how we've tried to articulate the growth proposition.
Of this platform.
High single digit top Brian translated into leveraged earnings growth at a pace greater than than top line and as we've tried to articulate and call out when there is some idiosyncrasies that we benefit from or that represent headwinds. That's why we wanted to call out that while we're thrilled with a quarter and we're thrilled to.
A clubs, 10% EBITDA margins that is with some benefit on the procurement line that is a bit transitory but.
Putting that aside.
I think just by some of the top line headwinds. This platform is still performing in line with how we've articulated in given some of the macro trends around where care is headed given the fact that when patients are given the option. This is the care setting in which they would prefer at a cost that is it.
Attractive to to payers, we think that's a a message and a platform that has durability to borrow your terminology and we'll resume for some time.
That's also like maybe that follow up as I think about it.
The proxy that that was filed related to the medicines deal right I mean, there was a.
Number or there is an EBITDA lumbra there for next year for 24 is it would have to give us guidance, but is it right to think that is given the strength this year prices.
Trisha push up a little bit as well.
Hi, I'm going to respond with why you would expect Brian which is at this point, we're in no way shape or form in a position to provide guidance into 24, nor should the proxy.
Interpreted as as longer term guidance I think again underscores the growth platform that that we've articulated.
Obviously, there's a lot of moving pieces.
In terms of some of the competitive closures in positions as well as our procurement position that we will gain better insight into in the back half of this year and we will update accordingly, but again.
As part of my prepared comments I did want to highlight some of the procurement benefits are more transitory in nature.
Yeah, I appreciate that decided <unk>. Thank you.
Now your bags.
Thank you our next question.
On this from the line.
<unk> William Blair airline is now open.
Good morning, Mike and John So it.
It might be a call that obviously, a procurement panic buttons on the gross margin lineup.
There are things affecting EBIT margin or utilization of.
The amatory please.
You are africom staffing side, both the acquisitions and then Nathan So you give us a quick flash on on utilization is asleep in the quarter, but.
Thinking about the back half of the year and then maybe as you're not contemplating a future here how do you feel about.
Kicking his are contributing and what more can you do with model Nathan platform on your album.
Hey Man, it's John I'll start with Nathan and Mike and put a little more color around how we're looking at.
In the overall performance aspect.
First and foremost really thrilled with with the progress we're making with me even house as we have talked before bringing those those two organizations together under that common umbrella and the investments that we're making into the technology infrastructure and and really the operating model, we feel is making a significant <unk>.
Aggress and.
At or above are.
Our expectations as the team is is really pulled that together we truly believe that this is part of the capacity.
Management as we're looking at our growth trajectory and we're looking at the ways that we can tap into squares clinical resources or have access too scared to clinical resources. This gives us.
An advantage in order to do that.
Mike said in the prepared in his pair paired remark really thrilled about 29% of our nursing visits were done in our infusion sweet.
As we've talked about that has been a focus for us again reminding folks that that's a we offer that choice to our to our patient. So it's one in which we believe that convenience.
And access is a big part of that story and part of the build out not only positions as well for some of the future therapies, but also gives choice to our patients and where they want to receive their care and stuff seem has done a great job in launching those new sites.
Spilling the chairs.
On that were over 600.
Infusion chairs today.
And so we continue to believe that that is a big part of.
Our ability to not only manage expenses and and drive some operating leverage but also provide better choice to our patients.
I'd add Mad is again just to underscore with John said, we we don't force patients into the centers, we make their we educate them on their care options and we provide them with are very <unk>.
Pleasing setting where they have a very favorable experience in it.
When we really embarked on our asks.
Initiative, we were in the 16 17 per cent penetration range. So we've added over 10 points of penetration on our nursing visit which is important because obviously that helps us on the operating leverage line. It also gives us that confidence to take on additional patients by better utilizing our clinical capacity and it also sets us up.
Well for future growth vectors in response to leases question around being ready for for new disruptive therapies in the pipeline.
Okay and then.
Following up on Alzheimer's obviously this opportunity is always had the caveat CMS reimbursement.
Seamless recently changed.
Tough right around pets cancer Emily.
And that was perhaps another factor so curious given the changes that would be it for home infusion uhm easy to decide the Tms.
More open to the changes that have you had conversations.
Perhaps in more progressive than they have in the past about potential changes.
Matt and we continue to have constructive conversations both as an industry. So.
Part of the National home Infusion Association as well as independently.
With with folks in Washington, trying to find a better path and better apps ask for home infusion uhm.
For Medicare beneficiaries, and yes, I do think that.
There is going to need to be a solution.
For the the size of the patient population that potentially could be treated by some of these old timers products and you know.
I think it is going to require some different thinking.
At the at the national level around how to provide access statement effectively at an appropriate cost or.
Or Medicare beneficiary, so I'm always cautiously optimistic Mike is always cautiously pessimistic.
And.
We'll continue that balance, but we truly believe that we are.
On the right side of this this conversation in that high quality care at an appropriate cost in a setting in which patients want to receive it seems to be in alignment with what Medicare beneficiaries want and what ultimately.
Federal taxpayers would want and so we're going to continue to have the conversations and continue to advocate.
Strongly on the benefits of home infusion as well as our Aif's.
Picture as being part of the long term solution.
Okay. Thanks.
Thanks, Matt Thanks, Matt.
One moment by next question.
Our next question comes from the line of David MC Donald's of truly. Please proceed with your question.
Hey come on guys just a couple left.
Guys can you talk a little bit about.
Utilization of different way in terms of the ambulatory infusion sweets I know you talked about the 29%, but if you look at running these things from what's a nine to five five days a week where are you relative to that are we still talking about maybe 20% to 25% or less utilization in terms of kind of.
The full range of hours that you could run these.
Just trying to get a sense of how quickly these things could scale up and how much capacity you have.
Yeah, that's the exciting thing Davis from our capacity perspective, we have tremendous additional capacity or disposed or when we opened the they're not open five days a week 12 hours a day, we typically ramp up and when they are not being used we turn out the lights and we lock the door, we've talked about in the team models the uptick in Utah.
Those Asian, and we have a very tight band of of of yield.
Given the proven successes we've had these they breakeven it about a year to 15 months, where the clinical labor savings offset the the rent utilities and and the cost of the facility and typically within two years, we're generating about 10% clinical labor productivity, which again.
Helps the bottom line, but it also think of it as it adds 10% more capacity through Nathan in our nursing.
Sure and so as we think about the road ahead virtually none of our our sights today are operating five to seven days a week.
10 hours a day and so.
And to generate that type of yield and productivity they don't have to so.
So as we think about whether it's demand shocks, whether it's additional volume of existing therapies or new therapy, we feel really good about the capacity and the chair volume that we can absorb within the existing centers as well as the ones that we have planned in the back half of this year and going into next year.
And then guys are you continuing to see dramatically higher uptake amongst new chronic patients as opposed to kind.
Kind of installed patients. So as that continues to grow this 29% should or could continue to drift higher.
Yeah David.
We see a higher yield.
From that perspective on on new patients that are being presented to us through that process. We do get some conversion of existing just because of convenience and as we started to build out a more comprehensive network.
Looking at the gravity maps of where our patient <unk>.
<unk> lives and works, we're getting some some some transitions into the infusion sweep.
Characterize it as you did in that the vast amount of where we see the.
The utilization is on those new patient as we're bringing them onboard and.
Presenting them with those opportunities and that's where we expect that as we continue to grow will continue to.
See that that move northward.
Above the 29% and our goal is to utilize it as efficiently and as effectively as possible.
Dave We're also seeing some expansion scope of therapies that are applicable in the center. For example, there may have been.
Injectables or short duration therapies that required healthcare professional oversight that in a normal home.
Economic model wouldn't make sense take something like a cabin nouveau, which is a a regular injection.
Drug resistant HIV it requires.
Healthcare professional oversight, but it's a relatively short duration therapy, one that wouldn't justify sending a nurse.
On a on a two hour round trip those economics are much more attractive if you have the infrastructure and the clinical labor in a setting and so we've been able to expand our our therapy capacity at the same time.
Okay and then just last question I know you guys have talked about kind of year over year inflation and cops and stuff like that are there any you got one or two areas that you'd call out is still kind of stubbornly painful on the cost side.
You know look I guess as as as John added properly labeled me as cautiously pessimistic.
We are always operating under the premise that the cost challenges are part of our our our structural.
Clinical labor is going to continue to be a challenge we need to recruit are clinical teams and are brought our teams every single day.
And that the overall cost of operating the facilities maintaining clean rooms.
Working with our suppliers to make sure we have adequate supplies at.
Our working presumption is that this is the new world order and that the higher inflationary cost as an arena that we use as a rally cry for the team to continuously look for for operating efficiencies.
Okay. Thanks, very much appreciated.
Thanks.
One moment climax question.
Our next question comes from the line of <unk>.
<unk> <unk> Deutsche Bank. Please proceed with your question.
Yeah. Good morning, guys are too quick questions here.
As you look at capital allocation you are quite clear that you can return the breakup fee to shareholders and Ah repurchase.
Doing small tucking in acquisitions I think he used to work near term in the script I just wanted to explore that in this in the medium term or long term you look to do another transformational tales.
Hey, it's gone.
So.
From our perspective, our responsibility is to always look for.
Sustainable growth for our shareholders and all our our key stakeholders, we know that the healthcare ecosystem is going to continue to evolve we know that.
Here in the home is going to continue to be a center of focus we know that we've got to continue to identify opportunities to increase our relevance in and expand our capability first through that process and.
As we as I called out in my prepared comments.
In the near term, we will be focusing a little bit closer to the core around that but we're always going to take a look to understand what capabilities are going to be required to build that sustainable durable long term growth.
For the business and best position option care health.
To continue to be a leader in home an alternate site infusion services. So.
We will continue to take a look at that and as we have done before use a very disciplined approach.
Which we.
Stack up of the opportunities that fit before us and make certain that we are hearing the voice of our customer and the voice of our patients in the voice of all of our key stakeholders as we're determining that best path forward. So that that's kind of what the comments were and I believe that's our responsibility.
Is to look for those opportunities to build bat durable sustainable long term growth trajectory for object their help and our shareholders.
Okay, Great and then Mike enormous question for you.
That the head with a tailwind for 2024 and what you provided so far today.
Headwinds how do we think about the procurement growth pricing for tailwind twenty-three is that headwind for next year and how does that impact margins and then finally on acute side, it's acute business or normalizes out next year or how does that impact on the top line. The bottom line. So I guess when you put all these things together how it can be the master of 2024 research typical year is it.
In line with revenues and margins as one higher one lower just as loudly in price just Wanna make sure I understand housing by the launch pad at 24 that you provided today.
Yeah piano as as you can imagine I'm going to preface my comments, it's way too early we were just simply not in a position to be providing any granular thoughts on 24 at this point. Obviously, we're just getting started with our with our budgeting processes for next year I think the fundamental.
Take away our message and I would say is back to my comments I made a few minutes ago around our underlying conviction around that way, we have socialized big growth profile of this business remains intact. We've said that we see the acute growing in the low to mid single digits and the chronic growing in at the other end of the bar Valley.
And the low double digits.
Given us confidence that this is a high single digit top Brian Enterprise I don't think that changes next year and again, if there are idiosyncrasies that affect that will call that out as we as we have done this year.
And look as it relates to how we translate that into leveraged growth. There is a lot of moving pieces, we need to quantify.
Not exclusively but including our procurement dynamics as we head into that year and it you know better than I do that.
With Asp's Awp's and procurement dynamics it's.
Unfortunately, not in a position to provide you a lot of guidance what I would just underscore is.
As John I said in our prepared remarks or conviction and the underlying growth profile of this business, which is founded on our ability to be that referral partner of choice for health systems and payers remains very much intact.
And we think that that fundamental profile.
Per cent.
Great. Thanks, so much.
Thanks. Thanks.
One moment by next question.
Our next question comes from the line of Jamie part of Goldman Sachs. Please proceed with your question.
Hey, Thanks, Good morning, I, just wanted to spend a minute on <unk>.
<unk> pressures and gross margins.
So with the inflation pressures having anniversaried.
Guess related questions just had to think about Cogs growth going forward in the back half of the year and then on the procurement benefits it.
It sounds like there's a transitory, but not isolated to to queue. So just to any color on how much that continues in the third quarter.
And I've got one follow up.
Yes, Jamie maybe maybe I'll I'll I'll turn look on the on the inflationary pressures Brooke.
Look it's it's a constant battle as we think about the cost environment domain, obviously as we highlighted last year like every other enterprise.
We are facing once in a generation inflationary impact across the board. We think that we've we've put a fence around those and we've remained subject to what I would characterize as ordinary course inflationary pressures and there's additional emerging areas, whether it's health benefits continued.
Wages in certain pockets with certain disciplines that again, we're going to continue to be battling so the one connotation I don't want to leave the audience with is that costs are completely flat or isolated. It. It's just the the new arena in which in which we're operating how that translates into Cogs gross I mean the operate.
<unk> team has done a spectacular job of uncovering every rock to make sure that we're providing unsurpassed patient care in a more efficient setting and managing all aspects of the supply chain and we would expect that to continue.
Again on the procurement benefit again.
Our estimate and again, it shifts with with payer dynamics and with utilization in certain settings, but.
The $8 million to $10 million that we estimate we saw in the in the second quarter, we would expect to continue.
<unk> for the next quarter again, we characterize it is continuing to the back half as you know it isn't a light switch where one day, we have it in one day, we don't but.
To the best of our modelling abilities, we would expect a relatively similar benefit at least in Q3.
Okay. Thanks for that and then on SG&A it's.
Historically been a big source of of operating leverage for you guys. It's up about 9% in in the first half of the air not far below where revenue is growing.
Are you, making specific investments right now at a time when when gross margin. These guys. Some of these offsets on gross margin and a related to some of the preparing for that can be type of comments are just.
Any investment you're making at this point and.
Those are at Leverageable in the in the back half and into 24.
Yeah. It's a great question I appreciate you asking Jamie because you are absolutely right one of the things we pride ourselves on is the discipline around expense management and delivering leveraged growth, but the reality is at the same time, it's our responsibility to be making investments for sustainable durable growth going out.
Perfect example is our infusion suites are SG&A is is where we report all of our facilities expenses. So as we've.
Expanded meaningfully are sweet presence in the first half of the year all of that rent utilities insurance for those new centers when we flip the right switch on that all hits SG&A.
We're investing in other capability.
Internally.
To make sure that we're supporting as John mentioned, the business development investments bit commercialized new therapies like the <unk>.
And make sure that we're manning.
Manning the gun so to speak with with all timers on on the horizon. So there's absolutely a number of investments, we're making that will either pay off later this year are frankly in 24, and 25, and that's where we need to manage for the near term as well as the medium term.
Okay, just to just to clarify on that real quick I mean, just.
You talked about on the capacity you have and the and <unk> a few minutes ago. So is it right to think that you don't have to kind of continue growing S. S.
<unk> at this pace in the back half and in 24 as you grow into that capacity or are you still actively opening new centers and chairs and that will drive the SG&A.
Jamie It's done will continue to make investments into the the network and the footprint when we talk about the capacity certainly that is within the market.
We'll we'll look for utilizing that with with growth as we're driving that forward and certainly as we bring on more and more patients within those communities, but we also take a look and understand if the local market level, what that network of infusion sweeps needs to be captured.
Sure.
The patients as we're looking at.
Being conveniently located and along the lines of where the gravity map show patient density either where they live or where they work. So we're going to continue to make investments into the infrastructure there are market Metro's <unk>.
Markets that will require some additional sweet in order for us to truly capitalize on the network and optimize the network design through that process.
At some point in time I would say 24 25, it may start to slow, but we expect that we're going to have a.
Investment that's going to be required at least over the the near to medium term on that.
Okay. That's helpful. Thank you.
Engineering.
One moment for our next question.
Our next question comes from the line of Michael Staticity Ave. Barrington Research. Please proceed with your question.
Hey, Hey, guys.
Thanks for taking the question and really appreciate the car.
Commentary prepared comments and Q&A, so I want to follow up on on a couple of things related to sort of capital allocation and external growth opportunities. So.
Just a real quickly.
Preface.
The rumor out there you know year or so ago about you guys' potentially pursuing.
<unk>, a health risk assessment business stock acted poorly.
I guess under the shadow of that the medicine.
Was.
Less than universally logged and I guess I guess my question is understanding that these are potentially pursuing.
Assets that that'll help and.
Future of health care and value based care and all the rest I think everybody gets that but I think.
Concerns essentially around the size of the deals and the risk associated with deal from that five.
And as you've talked to shareholders I guess I'm wondering.
Future deals, where maybe you are looking to position the company for the future of health care I mean would you more consider partnerships at work.
M&A or smaller deals essentially waiting until the pool as opposed to jumping into the deep end as you look at assets. Thanks.
Michael.
Ill.
I'll try to answer that question. So I guess first and foremost our focus has been organization is.
Making certainly we are well positioned to deliver extraordinary care for the patients that we serve and we're always going to look for opportunities to invest to either deep in our.
Capabilities within a market or to broaden the capabilities. If we can offer while we're in the home and we believe we're in a privileged position in order to do that and that trusted advisor role that we play with with patients and their prescribers as we're executing around the care plan and that is the focus of the of the leader.
<unk> and certainly for Mike and eyes were thinking about strategically how we want to move that forward.
Forward as I said my prepared remarks are focused over the near term. It certainly is going to be around probably closer to the core of looking at tuck in an additive aspect of that and we're going to continue to evaluate.
What opportunities as as we look at how the healthcare ecosystem evolves, we have very productive relationships with the managed care organizations and health plans and we listened to their voice around where they have needs and how they want to manage their patient populations and we want to be part of that solution as we move ahead.
We're going to continue to look at those opportunities will be disciplined in our approach we will certainly.
Have conversations with all of our key stakeholders and.
I would tell you that.
As we went through the process and certainly as we announced via Madison deal. We got a wide range of feedback from our shareholder base around understanding how that fit into the long term strategy in.
And how that creep a different model and durable as the healthcare ecosystem is evolving and dust I think as an organization. We demonstrated that we can take on.
Big Big transactions, we're coming up almost to the four year anniversary of.
The bio scrip merger and.
As an organization we have.
Execute extremely well on that and we're going to continue to focus around our ability to thrive meaningful.
Growth.
And and sustainable growth for our shareholders.
Through the appropriate.
Capital allocation strategy and stuff.
I feel really good I mean, we are disappointed that the <unk> <unk>.
Transaction when in a different direction, but.
Also hopefully folks understand the discipline that we apply.
In the way that we look at acquisitions and the additive nature, but that can bring to.
To the business.
But also in a very disciplined and focused way.
Okay very good congrats on the great quarter. Thanks.
Yeah. Thank you thanks bye.
Okay.
At this time I would like to turn the call back over to management for closing remarks.
Yeah. Thank you Rebecca Thank you very much for joining us on this call. This morning as you heard we had a very solid quarter and first half of the year and expect to carry this momentum in the third quarter and back have we look forward to providing you with further updates as we execute our strategies and deliver extraordinary care to more and more patients and their families. Thank you everyone and I hope you are.
Have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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