4/28/2022

speaker
Operator

Thank you for standing by, and welcome to the Option Care Health First Quarter 2022 Earnings Conference Call. At this time, all participants are on listen-only mode. After the speaker's presentations, there will be a question-and-answer session. To ask a question at that time, please press star then 1 on your touchtone telephone. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host, Mr. Mike Shapiro. Sir, you may begin. Thank you.

speaker
Mike Shapiro

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, I'll turn the call over to John Rademacher, Chief Executive Officer.

speaker
John Rademacher

Thanks, Mike, and good morning, everyone. Overall, after initial sluggishness due to the widespread impacts of Omicron variant on our team members, customers, and patients, the 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'm 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 as we're 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 benefits that help 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 Omicron variant. This had a very disruptive impact on our referral patterns and local pharmacy operations. 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 volumes continue 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 therapies that were in short supply last year but are now available, including therapies for thyroid eye 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 was 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 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 fielding 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 Utah 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 SPINN. and we are excited about the national alternate site nursing platform we are establishing with our two recent acquisitions of Infinity Infusion Nursing 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. The option care health team had a preexisting and very constructive collaboration with SPIN, and it was a natural progression for us to seek a stronger integration of our capabilities. 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 best of both. 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 capability, 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'm confident in our ability to find attractive opportunities that will help further expand our presence in the ambulatory settings and post-acute space. So to wrap up my comments, while it is still early in the year, I'm 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?

speaker
Mike Shapiro

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, and the first quarter typically is a bit softer than subsequent quarters given modest seasonality in the business. Additionally, as John mentioned, the prior year 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 20.6% was the result of solid performance across the portfolio. The impact of our recently completed acquisitions, namely Infinity, Wasatch, and BioCure, 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. Chronic revenue growth of mid-20s was driven by a few factors. First, better supply chain dynamics enabled accelerated growth for certain therapies that were plagued by challenging supply chains 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 continued to aggressively manage SG&A in light of emerging inflationary pressures. Spending grew 11.6% and dropped as a percent of revenue to 14.6%. As John mentioned, we recognized approximately $5 million in one-time credits 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 8.5 percent of revenue and grew 49 percent 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 Bioscript 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 4.3%, 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 loans. 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 have 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, one-time spending benefits realized in the first quarter, combined with 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?

speaker
Operator

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star then 1 on your touchtone telephone. Again, if you'd like to ask a question, please press star then 1. Our first question comes from Matt LaRue of William Blair. Your line is open.

speaker
Matt LaRue

Hi. Good morning. Congrats on another impressive quarter here. Just on the growth, I understand this is somewhat challenging, but I'm curious if you could try to perhaps break out what was from easy comps or a return on the supply chain side versus just underlying growth. I guess specifically I'm interested in 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 you're grabbing even more market share of some of these newer therapies that are launched, again, where companies are looking to de-risk launches by looking for a reliable scale resource like yourself.

speaker
Mike Shapiro

Hey, good morning, Matt. I'll start, and John can obviously provide some color. Yeah, so we tried to unpack it a little bit. Obviously, we're thrilled with the 20% growth headline. Again, I would say a couple points of that were due to therapies that frankly weren't available or 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 acquisitions that were closed going into the first quarter. Again, SPIN wasn't included since we closed on that. And again, as you know, there's 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 allowed 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 our portfolio payers.

speaker
Matt LaRue

Okay. And then you mentioned SPIN, so I'm curious now with SPIN and Infinity under the option care hood, maybe just refresh us on how you envision incorporating those businesses in terms of both servicing option care volume as well as the broader market, and if perhaps anything has changed with that thought process over the last six-plus months as you've been stitching them together.

speaker
John Rademacher

Hey, Matt, it's John. Yeah, 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 platform as we move forward. A couple things we had mentioned before, but bears repeating, is, look, we think that there are 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. You know, when we did the work behind, you know, the SPIN acquisition, there wasn't a lot of overlap of the resources, so it really extends our access to, you know, a very critical resource. clinical capability in the nursing community. And, you know, so to expand that network and the size of that network, we thought was, you know, a competitive advantage moving forward. To your broader question, look, we're going to continue to use this platform to not only support our growth and think about how we're going to continue to have the resources necessary and the capacity to to continue to grow as we both take share and make share in the marketplace. But we're also going to continue to support, you know, the external market on that. We like the fact that we can use this platform as an 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.

speaker
Matt

Okay. Thank you. Thanks, Matt.

speaker
Operator

Thank you. Our next question comes from Lisa Gill of J.P. Morgan. Your line is open.

speaker
Lisa Gill

Thanks very much, and good morning. Mike, I just wanted to go back to your comment around rate pressure. Was that 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 you're seeing on the reimbursement side.

speaker
Mike Shapiro

Sure, Lisa. Actually, the reimbursement environment has been, I'd characterize as relatively stable. you know, again, as we entered into those collaborative relationships, especially with the national folks, they understand, you know, the value-based components of how we arrange and establish our relationships. Really, the rate pressure on gross margin that I was referring to is really around, you know, the mix shift of our revenue. You know, going forward, we've been pretty open that, you know, 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, in the first quarter, we were around 72% chronic, around 28% acute. 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 as very favorable.

speaker
Lisa Gill

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 having 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, that there was some amount of impact with Omicron in January and it got worse? better or were you still seeing referrals throughout the early parts of the virus in January?

speaker
John Rademacher

Yeah, like I said, Sean, look, as the quarter progressed, certainly the referral patterns got stronger. You know, there is a constant rhythm to the business in the referral patterns that we saw, but they were constrained. And, look, I think everyone was dealing in early January through probably mid-February, you know, challenges not only with their own staff, and the infection rates of the Omicron variant, but it did disrupt from that path. But, you know, given the national scale that we have, the markets kind of act independently on that. We saw, you know, 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, you know, near normal or whatever the new normal is from our perspective, both in impacts on our own staffing and some of the challenges from a labor standpoint with folks being infected, as well as the referral patterns starting to come back as we exited the quarter.

speaker
Lisa Gill

Great. That's very helpful. Thank you.

speaker
John Rademacher

You're welcome. Thanks, Lisa.

speaker
Operator

Thank you. Our next question comes from David McDonald. Your line is open.

speaker
David McDonald

Hey, good morning, guys. A couple of questions. First, just a clarification, Mike. Did you say that acute was, excuse me, and I realize that the comps were, you know, what they were, but that acute was up mid-single digit in the first quarter? Is that correct? Yeah, that's right, Dave. And I assume it's fair to say that, you know, January was probably, you know, either flattish, modestly up or modestly down. So, you know, again, if I look at, you know, some of the referral disconnect that you guys were having early in the quarter, it suggests, you know, really strong numbers in 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? 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?

speaker
Mike Shapiro

Yeah, 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 just given the Omicron wave. And I think we definitely saw, you know, a rebound throughout the quarter. And again, you know, we have a relentless focus on the acute referral sources. But, you know, again, that's a lower growth proposition. But in the first quarter, again, partially due to the easier comps last year. You know, that definitely helped us post the mid-single-digit growth, 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, you know, very pleased with the acute portfolio in the quarter.

speaker
John Rademacher

Yeah, and Dave, to your question around, you know, 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 commercial resources around the reach and frequency and the reliability that we've been able to demonstrate. with those referral sources over the last two-plus years throughout that process. So our focus as an organization has always been around the patient's experience and that patient satisfaction. You know, to previous questions that we've received, and I think kind of to your questions, we haven't seen a lot of movement back for patients that are on long-term care with us that are those chronic patients reverting back to those other sites. Now, we understand competitive dynamics and we don't take any of that for granted. We want to make certain that we're driving patient loyalty by the services that we're providing and the care that we're delivering. But as of this time, the retention rates of the patients seems to be solid and something that is a stable base from which we're building from.

speaker
David McDonald

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 to 18 months. And then I'm curious, as you guys were renewing with your major payers, Just any conversation during those contractual updates around the ambulatory infusion suites, site of care redirection, just anything incremental you can add there.

speaker
John Rademacher

Yeah, Dave, as we've talked about previously, we're 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 the ability to have high-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, you know, as we're looking at, you know, areas of investment as we move ahead, you know, we're 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 aspects of from that standpoint. You know, the other aspect, as we said, is, look, not going to necessarily 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, and we're always looking for the opportunity to expand our service lines or to look for additional ways to increase the value that we're delivering to our patients, to our referral sources, to the payer community, and really upstream to biopharma as well. And so, you know, we're going to continue to take a look, and as we've always committed, we'll be disciplined, but it's going to be both strategic and economic in 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 is before us to continue to look for ways to enhance the role we play in ambulatory settings and post-acute care.

speaker
David McDonald

Okay. Thanks very much, guys.

speaker
John Rademacher

Yeah. Thanks, Dave.

speaker
Operator

Thank you. Our next question comes from Brooks O'Neill of Lake Street Capital. Your line is open.

speaker
Matt

Good morning. I just have 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 you're seeing, you know, having difficulty filling roles or whether you're in pretty good shape in those two key areas.

speaker
John Rademacher

Hey, Brooks. Yeah, you know, look, we're not immune to the pressures, you know, in the marketplace, but I would tell you that our sense is that we're faring pretty well through that standpoint. You know, to your specific question, you know, part of the reasons for the acquisitions, you know, 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, you 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, you know, our recruiting and moving that forward. So, you know, 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 as opportunities arrive with open positions. And from the clinical standpoint, you know, the area 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, our part-time nurses, and then access to per diem and this network allows us to continue to meet market demand and continue to grow as we're looking forward.

speaker
Mike Shapiro

Hey, Brooks, this is Mike. Just to put a little more granularity around it, look, we have over 7,000 associates across the country. That's over half a billion dollars of labor costs. 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. I would characterize, like most organizations, our adjustments are a couple points higher than they have been in in previous years. And so that labor-related inflationary action, which again, as John always 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.

speaker
Matt

Okay. And just to clarify, and I appreciate all that color, no big problem finding pharmacists either? No.

speaker
John Rademacher

No. No, I mean, for the most part, look, I mean, there's market nuances, as you would expect, you know, from that standpoint. But in general, our ability to recruit and onboard team members has been strong.

speaker
Matt

Great. Thank you.

speaker
John Rademacher

You're welcome. Thanks, Bert.

speaker
Operator

Thank you. Our next question comes from Pito Chickering of Deutsche Bank. Your line is open.

speaker
Mike

Hi there. Uh, this is Kieran Ryan on torpedo. Thanks for taking my questions. Um, so if I were, if I, uh, add back the $5 million, excuse me, the, uh, the $5 million in credits that you called out in one queue, it looks like even a margin came in around 7.9% adjusted for that. Um, and then, Taking the midpoints of revenue guidance, it looks like you see about 8.6% through the rest of the year. So still some good sequential expansion, but that's about 30 basis points below 2Q through 4Q21. So I was wondering if you could kind of just talk about some of, like, what the biggest swing factor is between the low and high end of the guide as it relates to the cost side through the rest of the year.

speaker
Mike Shapiro

Sure, Kieran. It's Mike. And I think you're thinking about it. Right. Look, we try 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 were going the same way. And we always see some one-timers here and there. They typically net to nothing to write home about. But in the first quarter, we did have a net of around $5 million of We just wanted to underscore as folks think about that. So, yeah, if you back that off to kind of a normalized 72, and, again, I'll use that in air quotes since there's always a lot of puts and takes, yeah, the 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 is You know, there's $10 million to $12 million, a quarter of year-over-year inflationary pressures. which collectively $30 million in the back half, that's quite impactful. And so we do see that 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, really what we see going forward is continued commercial momentum and offset by what are, you know, unprecedented inflationary pressures. But yet we're still, you know, laser focused on expanding, you know, the EBITDA margin to the extent possible.

speaker
Mike

Got it. Thank you. Thank you. That's helpful. And then just one quick follow-up. I know we've asked you guys this before, but, you know, I think this is now the fifth straight quarter of, or the fourth straight quarter of gross margin expansion, despite the, the outsized growth and chronic. And I, you know, I know you guys are, are, are fighting for every dollar there, like you said, but just wanted to make sure that, you know, none of those dynamics have changed and you called out, you expect the gross margin contraction to, to, um, the gross margin pressure to continue to return through the rest of the year. So, Just wanted to make sure, was there anything specific in one queue that allowed for another quarter of expansion there or just still kind of just holding the line effectively? Thank you.

speaker
Mike Shapiro

Sure, Kieran. Yeah, you know, as I mentioned, I prepared remarks. You know, gross margin was within 10 bps of where it was last year, so, you know, 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 considerably higher gross margin profile. So that year-over-year growth definitely helped us on a year-over-year gross margin rate. You know, the reality is, and, again, you've heard us talk about it several times, you know, we're relentlessly focused on every basis, pointing on growing those gross margin dollars. But again, with that seismic shift towards the chronic portfolio, nothing's changed around our conviction that over time we will face some rate pressure.

speaker
Operator

Thank you.

speaker
Mike Shapiro

Thanks, Karen.

speaker
Operator

Thank you. Our next question comes from Joanna DeJonk of Bank of America. Your line is open.

speaker
Joanna DeJonk

Yes, good morning. Thank you so much for taking the questions here. So a couple of follow-ups. So when you were referring to, I guess, your guidance for the year, you said about, you know, expect quality trends to be flat versus prior. So can you clarify that you were referring to margins or something else? So how should we think about that? Because I guess you just kind of talk about the inflationary pressures picking up in the rest of the year. So I wasn't quite sure what you were talking about when you said flat versus prior years.

speaker
Mike Shapiro

Sure. Yeah, Joanna. So, you know, typically when we've, you know, when we've articulated the seasonality in previous years, there was a more pronounced step from Q4 down to Q1 and then a, you know, a 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, you know, successive revenue performance and EBITDA contribution. So a little bit of a flatter year relative to what we've seen in the past around seasonalities.

speaker
Joanna DeJonk

I know that makes sense, especially after you kind of talk about those inflationary pressures. You said $10 million, $15 million, I guess, per quarter. So I just want to clarify that. And then another clarification. So the spend acquisition rate was closing in April. That's right. So it wasn't in Q1, obviously. And then so for the year, I guess, is it adding maybe $3 million or so to EBITDA?

speaker
Mike Shapiro

Yeah, that's about maybe a little bit lighter than that. You know, we didn't, you know, we disclosed that obviously the purchase price was $60 million. We paid, you know, mid-teens, so think of it as a, you know, $4 million to $5 million contribution on an annualized basis. So, you know, with the transition and, you know, we'll realize around three-quarters of that. So around three, maybe a nudge less than that, but that's within the ballpark of it.

speaker
Joanna DeJonk

Okay. And I guess also, when you were talking about these inflationary pressures, the 10 to 12 minutes, it sounds like that was labor. But then you also talk about, you know, this other supply or cost of supply, you know, plastic and also transportation, some other services. So are they included in this number? If not, I guess, you know, are they also meaningful? Or I guess it's compared to that labor pressure, it's, you know, a number that you're not willing to quantify. Okay.

speaker
Mike Shapiro

Yeah, 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 the – whether it's medical supplies, transportation, et cetera. So that 10 to 12 is a rough estimation of the collective inflationary pressures.

speaker
Joanna DeJonk

Okay, that's helpful. Thank you. And I guess also the last clarification, when you talk about – you know, acquisitions, and obviously, you have a lot of free cash flow there. And, you know, so about balance sheets, balance sheet situation. And you mentioned something post acute care. So can you expand on that? I mean, if there's something you're looking at kind of outside of the core infusion, because I guess last time we talked, it sounded like you, 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 home infusion.

speaker
Mike Shapiro

Sure, Joanna. And, look, it means we reflect where we are. You know, at the onset of the merger, obviously one of the commitments John and I made was to rapidly de-lever and improve the capital structure. So, you know, as both of us mentioned, where we're sitting today, we feel very good that, you know, we're at three times net levered and we have considerable access to capital. That obviously doesn't lower the bar in terms of how we're thinking about strategic and economic investments. And I think, look, as John mentioned, what we've really established is 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 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 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 be a relevant partner to our payer and referral partners or providers in the field, not just maybe around the infusion in the home, but, you know, in the broader post-acute space.

speaker
Joanna DeJonk

Okay, great. And I guess one last one on cash flow. I guess you still have the NOLs, but when do you expect to start paying cash taxes?

speaker
Mike Shapiro

We do not expect to have a meaningful cash tax obligation this year. I mean, we'll revisit going into 2023, but for this year, we're quite confident that that won't be a meaningful outflow for us.

speaker
Joanna DeJonk

Okay, great. Thank you so much for answering the questions.

speaker
Mike Shapiro

Thanks, Joanna.

speaker
Operator

Thank you. Our next question comes from Jamie Pierce of Goldman Sachs. Your line is open.

speaker
Jamie Pierce

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're finding sustainable or incremental opportunities to do that?

speaker
Mike Shapiro

Sure. I mean, look, obviously entering the year, you know, there is some discretion around when, not if we make certain investments for future growth, you know, entering the year, frankly, you know, the balance is, you know, maintaining the current operations as well as, you know, finding the funding for future investments. And frankly, entering the year, you know, we we were a little more thoughtful on the pacing of some of those more discretionary categories. To your point, though, Jamie, I think, you know, we continue to push the team, you know, around finding ways to become more efficient, whether it's through technology to, you know, utilize more automation on the patient registration and onboarding and support processes around our billing and collecting efforts. like every other enterprise, we're looking at our bricks and mortar investment and looking at do we need all of 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 to become more efficient. And that doesn't light up and that doesn't ever stop. And so, I think that's That's as we've articulated the value of this business, and that gives John and I the confidence that going forward, you know, despite inflationary pressures, we're still highly confident we'll grow spending considerably slower than the gross margin dollars.

speaker
Jamie Pierce

Okay, and I want to follow up on the first part of your answer there, some of the investments that drive growth. Is that to say that at, you know, some point when the maybe macro environment is more stable, you can – reinvest in some of those opportunities and accelerate growth? Am I thinking about that right or just wanted to follow up on that comment?

speaker
John Rademacher

Hey, Jamie, it's John. So a couple things. One is Mike said, look, we have been investing in the technology infrastructure. And so, you know, we're utilizing, you know, some of the advanced tools around repetitive process automation. We're looking at machine learning and other aspects. 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. You know, 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. Where we are prioritizing our investments is on 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. But we're also disciplined. I mean, 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. I don't want you walking away thinking that we're 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.

speaker
Jamie Pierce

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 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 your approach would be helpful.

speaker
Mike Shapiro

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, each with their own growth and supply chain dynamics. No two metropolitan areas are created equally or operate equally. We model out several variables at a therapy level, on a geography level, as well as on a cost component level. You can imagine we model out a significant number of scenarios and you know, what we're obviously focused on doing is, you know, handicapping those and providing you all with thoughts that represents, you know, a conservative view, but yet also, to your point, acknowledges the fact that there are considerable, you know, variability in a very dynamic environment that we're operating in right now, which, you know, that's part of the lure of this industry and what we love about it, but it also you know, is something that we take to heart as we articulate. Obviously, we recognize our credibility is contingent on us doing what we say we're going to do. And so we're very, very thoughtful in how we model out a variety of the variables we're facing.

speaker
Jamie Pierce

All right. Thanks for all the color.

speaker
Mike Shapiro

Thank you.

speaker
Operator

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.

speaker
John Rademacher

Yeah, thanks, Valerie. Thanks for joining us today. As we discussed, we had a very strong Q1, and we are 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.

speaker
Operator

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.

Disclaimer

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