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Option Care Health, Inc.
2/22/2024
Good day, and thank you for standing by. Welcome to the OptionCare Health Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is erased. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. 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 our future financial performance and industry and market conditions. These forward-looking statements are subject to risks and uncertainties that could cause actual results that 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 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 conditions. 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. With that, I'll turn the call over to John Rademacher, Chief Executive Officer.
Thanks, Mike, and good morning, everyone. To say that 2023 was an eventful year for OptionCare Health is quite the understatement. It was a dynamic year for the team. And we advanced our mission to set the pace in home and alternate site infusion care and treat more patients by providing innovative services designed to improve outcomes, reduce costs, and deliver hope for our patients and their families. In 2023, we treated more than 270,000 distinct patients and expanded our portfolio of life-saving therapies through our collaboration with referral sources, payers, and biopharma partners. As always, Mike will dive into the financials in a few minutes, but I could not be more pleased with the effort, dedication, and results generated by my devoted colleagues at OptionCare Health. For the full year, we delivered a revenue of $4.3 billion, representing 9.1% growth over the prior year. Adjusted EBITDA of $425 million represents 24% growth over 2022, and significantly exceeded the initial expectations we articulated in early 2023. Since the merger in August of 2019, the OptionCare Health team has consistently delivered solid growth and met or exceeded our commitments to our shareholders. Reflecting back on 2023, beyond the solid financial results, I'd like to highlight a number of key accomplishments and milestones. In the second quarter, we launched Navin Health, one of the largest infusion nursing platforms in the industry, comprised of more than 1,500 clinical professionals. Navin is a critical component in our mission to serve more patients, and strategically, the platform is vital to our continued success. We continue to invest in our ambulatory infusion suites, footprint, and in 2023, we expanded our network to 164 suites. and over 660 chairs nationwide. Again, this is a key investment strategy designed to enable continued growth while unlocking clinical labor efficiency. We advanced our use of advanced analytics and repetitive process automation within our pharmacy and revenue cycle management operations to reduce waste and improve cash velocity. We also recently announced our multi-year collaboration with Palantir to deploy their artificial intelligence technology across our operations to drive efficiencies and improve the patient's experience. We launched a number of new therapies in 2023 through our collaborations with Biopharma, including BiJuvik, VivGuard, BiEfti, and Cabinuba, to name a few. We believe our integrated national network of state-of-the-art pharmacies and expanded number of infusion suites combined with the clinical know-how and our leading technology platform, continues to resonate with the biopharma partners and positions us well to continually expand our portfolio. Every member of the Option Care Health team understands that behind every dose is a loved one. And behind the scenes is a comprehensive team of pharmacists, pharmacy technicians, dieticians, infusion nurses, patient support professionals, and supply chain experts. Their focused dedication and collaboration help ensure that we deliver unparalleled care in the comfort and convenience of our patients' homes or in one of our infusion suites. Making certain we are an employer of choice and a destination for healthcare professionals is also critical to our continued success. In 2023, we were thrilled to have earned the designations of a Gallup Exceptional Workplace and a Military Friendly Employer. These recognitions affirm our relentless focus on recruiting our team every day and delivering extraordinary care to our patients. As the old saying goes, you can do well by doing good, and we believe that our financial results for 2023 demonstrate that we are doing just that. Exiting 2023, our balance sheet has never been stronger, and our liquidity position is in great shape. During 2023, both S&P and Moody's upgraded our credit profile to the highest ratings yet. Our net debt leverage profile is well under two times, and we generated more than $370 million in operating cash flow in 2023 and deployed $250 million towards the share repurchases. So reflecting on 2023, we continue to deliver strong growth while investing in this unique platform and our capabilities to enable sustainable growth. As we outlined in our 2024 guidance this morning, We expect to continue this trend of delivering strong financial performance as we grow and serve more patients. I've never been prouder of the option care health team and the level of service that we deliver to our patients every single day. And I remain confident in the road ahead. With that, Mike will provide additional color on the results. Mike.
Thanks and good morning, everyone. As John mentioned, we're quite encouraged by the solid finish to 2023. Fourth quarter revenue of $1,124,000,000 represented 9.5% growth over Q4 of 2022. Performance was solid across the portfolio and execution in the field was very strong. Full year revenue of just over $4.3 billion was up 9.1% despite a number of headwinds we've talked about throughout the last year, including two exited therapies and the impact of the divested respiratory therapy assets. So overall, we're quite pleased with the top-line performance. Q4 gross margin of 22% represented dollar growth of 6.9%, as we saw some makeshift impact towards the chronic portfolio, as well as a smaller procurement benefit in the quarter. In recent quarters, I've spoken about the favorable procurement dynamics that persisted in 2023, and in Q4, we estimate we realized approximately $8 million in benefit related to the dynamics. For the year, we estimate that we realized $33 million to $35 million of these transitory procurement benefits, which we believe will not continue into 2024. SG&A of $147.8 million actually declined versus Q4 of 2022, and spending leverage improved to 13.1% of revenue, which we believe affirms the scalability of the platform. An adjusted EBITDA of $111.6 million in Q4 represented 9.9% of revenue, and was up 18.4% over the prior year. Again, Q4 adjusted EBITDA included roughly an $8 million procurement benefit. Beyond the P&L, we generated more than $370 million of cash flow from operations for the year, which again includes approximately $85 million from the emeticist transaction termination fee, net of related expenses, During the year, we deployed $250 million towards share repurchases and still finished the year with approximately $344 million of cash on hand and a net leverage ratio of 1.8 times. This is the fifth year end that we have reported as OptionCare Health. And reflecting back to 2019 when we completed the merger, we socialized the combined enterprise at the time as generating roughly $2.7 billion in revenue, and roughly $200 million in pro forma adjusted EBITDA. Four years later, we've increased revenue by 50% to $4.3 billion and more than doubled adjusted EBITDA to $425 million. We've also driven dramatic improvements in our balance sheet, reduced the leverage profile by more than two-thirds from 6.2 times to 1.8 times, and slashed net interest expense by more than half from $110 million to $51 million. And while we're proud of how far we've come, we're equally excited about the road ahead. As disclosed in this morning's press release, we anticipate delivering another year of solid growth for our shareholders. In 2024, we expect to generate revenue of $4.6 billion to $4.8 billion. We expect to generate adjusted EBITDA of $425 million to $450 million. And we expect to generate cash flow from operations of at least $300 million. To provide some additional data points, we expect net interest expense of $55 million to $60 million, approximately $45 million in stock comp expense, and an effective tax rate of 26% to 28%. So overall, 2023 was a very productive year, and we expect to continue our track record of leveraged growth into 2024. With that, we're happy to take your questions. Operator?
As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Lisa Gill with JPMorgan. Your line is now open.
Thanks very much and good morning and congratulations. Just really want to understand a couple of things a little bit better as we think about 2024. And the first would be just the mix. So I think, Mike, you noted in the quarter, you know, stronger growth in chronic versus acute, which had an impact on the mix. How do we think about mix going forward would be my first question. And then secondly, As it plays into that, how do we think about the swing factor between the 425 and 450 on the EBITDA line for guidance?
Yeah, good morning, Lisa. Maybe I'll give it a start here. Look, I mean, as we've talked about consistently, You know, within our two portfolios of therapies, we see the growth trajectory of the chronic portfolio being in that low double digit zip code with the acute therapies being, you know, those therapies are really a more mature category that's growing in the low single digits. Having said that, obviously, during 2023 and 2022, there were some pretty interesting market dynamics with some competitive closures, which accelerated some of the reported acute growth. I think as we're going into 2024, you know, absent any of those large shocks to, you know, the comparables or like the exit therapies we talked about, I think we're back to what we see are the underlying therapy growth dynamics, which is to say we see, you know, that acute category growing in the low single digits and at the other end of the barbell, the chronic therapies are growing, you know, low double digits. Given the fact that the chronic, as we talked about, consistently carries a lower gross margin rate, we would expect going forward that there's going to be some mixed shift towards that lower chronic therapy profitability profile. Having said that, obviously, you know we fight for every basis point, and the way we really focus is on maximizing the dollar growth. And look, I think I'd say about 425 to 450. Look, there's a lot of dynamics. Obviously, we have some new emerging therapies that we're still ramping up, you know, given the fact that, you know, on the acute side, you know, the duration of our therapy is from two to six weeks. You know, we haven't met the majority of the acute patients that we'll have the privilege of treating this year. And so... And behind the scenes, there's always a million moving dynamics that we're trying to manage on the procurement and payer and local competitive front. So I wouldn't attribute it anything more than just the typical volatility of the markets that we're operating in.
And then just last quarter, you talked about, again, strong cash flow, and you've obviously just guided to strong cash flow of $300 million for 2024. You know, John, when we think about the strategy around acquisitions, I know the last quarter you talked about, look, there's kind of a sweet spot for us, Tuckin and some other things, but maybe can you just update us on how you're thinking about capital allocation and how you're thinking about any kind of potential strategy around acquisitions in 24?
Yeah, Lisa, good morning. We continue to do a lot of work to understand those market dynamics and what's what's in the pipeline for consideration as we move forward. I think one of the biggest things Mike and I have talked about, we talked about it on the last quarter, you know, call as well, is being very disciplined in the approach that we take. We are looking at things both strategically and economically. It must meet those hurdles on both ends as we're looking at that. And, you know, we're going to kiss a lot of frogs before we find a prince in that process. And, We really pride ourselves in the discipline that we adhere to as we're looking at that. There aren't many books that are out there that we don't get a look at. We have been very active in our corporate development process and the ability to take a look at opportunities. But we apply that discipline, and we're going to continue to do that. As we've talked about before and as we outlined in the third quarter and the press release coming in the fourth quarter, we exhausted the $250 million of the original authorization. We have an additional authorization of $250 million per share repurchase. We will continue to balance that priority of making certain that we're doing everything we can to maximize the value to our shareholders and whether that through deployment for M&A or whether it's through continued share repurchase, as well as, you know, from our investments into our businesses, part of our normal flow of CapEx, we will continue to balance across those dimensions and maximize the value for our shareholders.
Great. I appreciate the comments.
Thanks, Lisa. Thank you.
One moment for our next question.
Our next question comes from Peter Chickering with Deutsche Bank. Your line's now open.
Hey, good morning, guys. Thanks for taking my questions. Looking at the midpoint of 24 guidance, if we exclude the, say, $34 million procurement benefit, EBITDA guidance is about 11.8% growth. Are there any one-timers in next year that we should be thinking about as we think about 2025? Does the procurement benefit just really stop on January 1st? And on the chronic side, what are the new therapies you just referenced, and are there any therapies that we should be aware of on the negative side? And on the chronic side, we saw pretty strong inpatient, you know, in 2023, to use them that continues into 2024.
Thanks, Pito. Wow, one question in 15 parts. Appreciate it. Hey, listen, look, at the midpoint, the good thing, and I think you've heard this in some of our public comments, a good thing going into 2024, we don't have, you know, the prior year comp challenges, the exited respiratory therapy assets, the exited therapies. So I think the growth algorithm and the story is a lot cleaner and a lot more digestible for all of you to to get your hands on. Naturally, the one thing I would say is, look, growth is going to be a little more muted in the first half. Um, just given the fact that we did have some of those, you know, Makina and Rodacaba revenue in the first half of the year. So, um, but, but overall, um, I think it's just a much, it's a much cleaner story, um, you know, going forward. So the short answer is, you know, no, uh, no big boxcars on the track that you guys have to try to model with and without.
Yeah, and, you know, on the chronic side and some of the therapies that we outlined, you know, we continue to see, you know, a strong progress from our commercial team. You know, our focus around reach and frequency and making certain that we are developing those relationships and deepening them with our referral sources, you know, continues to be a high priority and an execution path for the team. You know, we continue to see a focus by the payers around thinking about site of care and making certain that they're maximizing wherever they can achieve high quality care at an appropriate cost in a setting in which patients want to receive it. So, you know, we think that the market dynamics will remain, you know, strong for us on that, and we're going to continue our execution path of being that partner of choice and being able to onboard those patients and continue to provide them care.
And, Peter, the only thing I'd add is, look, specific on your question around any positives, negatives, look, there's always going to be some incremental therapies that we're looking at. I wouldn't say there's anything in the hopper that I would say is a is a major needle mover in the first year. And on the negative side, look, and we've had this conversation with folks repeatedly, this is a dynamic marketplace, and there's always therapies that will be, you know, going subcutaneous that will have different delivery methodologies, and that's all something that, you know, we're never surprised by that, and that's fully accommodated in our guidance range.
Okay, great. And then sort of, John, you know, a follow-up to the peer commentary is, Are you seeing any different behavior from the payers that own infusion companies? So CVS, Satin, now are obviously United and now Elevance with their infusion. Have you seen any changes of how those referrals are changing now that they're maybe, you know, have their own options as well? Thanks so much.
Yeah. You know, we always, you know, they're vigorous competitors. And so we take all of that, you know, into, you know, full view as we're approaching the marketplace. And You know, one of the things that we bring to all of the payer community is that consistency of care. We've talked before about our ability on a national basis to leverage our platform to provide that high consistency and high quality care, whether you're a patient in Portland, Oregon or Portland, Maine. And so that ability that we have to provide consistent high quality care across the country is is something that they seek. Our ability to be in-network with those payers is something that we work very hard to make certain that we achieve, that we're focusing around key areas of delivering high-quality care of providing access to their members, of driving high member satisfaction or patient satisfaction when we have the opportunity to serve their members. And so we will never discount the competitive dynamics that we operate within. But on the other side of that, we provide a very valuable service, especially when you look at the breadth of the product that we can provide on both the acute and the chronic portfolio, and we will continue to foster those relationships and be a partner of choice for the plans as they're trying to find place for their members to receive high-quality care.
Great. Thanks so much.
Thanks, Beto.
Thanks, Beto. Thank you. One moment for our next question. Our next question comes from Brian. Tank Killett with Jefferies. Your line is now open.
Hey, good morning, guys. I guess my first question, maybe sort of a follow-up to Peter's question. As we think about, Mike, kind of like the normalized growth rate going forward, obviously there are a few moving parts for 2024. How are you thinking about how investors should be modeling or thinking about your growth going forward and what those drivers should be?
Yeah, Brian, thanks for the question. Look, the way we've consistently articulated what we view as a reasonable way to think about the growth horsepower of this platform is we see this as a high single-digit top-line enterprise. That's on a broader market growth, and I know you ask 15 people what they think the infusion market's growing, you'll get 20 answers. But as we look at the therapies and the areas of focus, we see this industry growing in the mid-single digits, call it the 5% to 7%. We think with our unique platform and competitive strengths, we think folks should expect us to consistently deliver in the high single digits on the top line. Given the scalability of the platform and the investments we've made, we think we can consistently deliver leveraged growth. And on an organic basis, that should manifest in low double-digit earnings growth as kind of a a medium-term growth outlook.
Got it. And then, you know, during the quarter, it's clear that, you know, the G&A line was very well managed. So as we think about that, right, I think some of that is probably the benefits from your infusion suite strategy. So how should we be thinking about the remaining opportunity to open infusion suites and to offset expected gross margin compression from, you know, just the growth in chronic
Yeah, look, I'll start and let John jump in. Look, we fight for every dollar, and we always have and we always will. With the spending actually coming down versus the prior year, admittedly, we did move some of the investments, some of the more discretionary investments, new programs earlier in the year as we knew that we had some margin favorability. Of note, in the fourth quarter, that does have some year-over-year burden from the 20 or so infusion suites that we open during the year. And again, from a P&L geography, the cost of those facilities resides in SG&A, the rent utilities, insurance, et cetera. The benefit through the nursing leverage actually is in the gross margin line. So With the SG&A, as we reported, it has the gross increase from the infusion suite investment, but the benefit is actually north up in the gross profit line. So look, we're going to continue to drive leverage growth at the SG&A line, and a lot of the results in the fourth quarter beyond some of the entry year timing are the efficiencies, and as John mentioned, the investments in you know, in technology and automation, which has manifested in much more efficient spending.
Yeah, and the only other thing I did, Brian, is on the InfusionSuite side, you know, continued really great progress by the team of, you know, opening the new facilities. As we've talked before, we do a thorough analysis when we're looking at the market. We look at density maps of patient populations, and we're really selective in the way that we're looking at where we place them and how to utilize them. In the quarter, about 30% of our nursing interventions were done in one of our infusion suites with that growing population of chronic patients, as well as our ability to serve some of the acute patients that may need a dressing change or a lab draw or those types of things. We're going to continue to maximize that as we move forward. As we built out the network, we're getting closer and closer to having the fulsomeness that we want there. We'll continue to make investments on that, but I would set the stage that that may start to slow as we're then utilizing and optimizing the infrastructure that we have. We added over almost 100 chairs today. you know, over the year. And so, you know, now the trick for the team is really to focus around the execution of utilizing capacity that we have there as we continue to build out probably at a bit slower pace than what you've seen over, you know, 22 and 23. Awesome.
Thank you.
Thanks, Brian. Thank you.
One moment for our next question. Our next question comes from Matt LaRue, who is William Blair.
Your line's now open.
Good morning. I wanted to ask about kind of the other piece of the gross profit line beyond procurement, which would be labor costs and maybe a sense for what your expectations are in 2024 and sort of within that question, maybe an update on how Navin Health is helping you better manage your labor needs.
Hey, good morning, Matt. Look, we've tried to be as transparent as possible. And again, this isn't binary. In the fourth quarter, as expected, we saw that transitory situation that we tried to be as open as we could from a competitive perspective. It pretty much dissipated down to nothing by the end of the fourth quarter. And so, look, it was real. It was a great milestone for our procurement team, who we think are the best in the business. And Look, part of it is our direct relationship with manufacturers and BioPharm that John talked about in the prepared remarks. Going forward, we're always looking for coins in the sofa cushions, and the procurement team is constantly looking. And as we've said, there's always procurement puts and takes. It typically nets in a typical year to a modest tailwind, well below the numbers we talked about in 2023. And I think that's kind of how we're expecting you know, 2024 to shape up. So, I mean, it was great while it lasted. It manifested in real earnings and cash in the bank. And, you know, the team gets off, dusts off, and looks for those next opportunities.
Yeah, Matt, it's John. On the Navin standpoint, again, continued really great progress from that platform standpoint. We've made investments into the technology that continues into 2024. We're really excited about some of the efficiencies and effectiveness that that can help to, you know, maximize the capacity and the utilization of that workforce to support not only OptionCare Health, but other market participants from that platform. You know, that has been part of our overall growth story is, you know, the ability to have access to highly qualified nurses to be able to oversee the infusions and oversee the care for our patients is something that you know, enables us to continue to grow. So a lot of, you know, focus not only internally on option care health around recruiting our team members every day of recruiting and creating a great place to work, but then also the investments that we're making in Navin will allow us to have that additional capacity and that additional, you know, growth driver for us as we move ahead. You know, a question that has been asked before is, you know, from a turnover and from that standpoint, just across the board, we have seen, you know, a significant improvement really from 22 as we exited 23 around, you know, our retention rates and reducing of overall turnover. We do a lot of work to focus around the employee value proposition and, you know, we have a really great dedicated team of HR professionals that are thinking about what are the total rewards and what are the type of programs to not only invest in our people to help them develop and grow in their roles and responsibilities, but also the culture and those aspects that make it a great place to work. As I announced in my prepared remark, really excited about some of the designations that we were awarded in 2023. And we know that as much as we invest into our technology, we are a people business. We need highly skilled clinicians and we need highly skilled professionals across our organization. And that will continue to be a top priority for me and the leadership team to make certain we're doing everything we can to be an employer of choice.
Okay, thank you. And then the follow-up is on GSA. Obviously down nearly 10 million sequentially in the fourth quarter and down year over year. I just want to make sure we have the right sort of jumping off point if there were any one-time benefits in that quarter, if there's anything from the fourth quarter to the first quarter with respect to, you know, incentive comp reset or other dynamics. you know, we've kind of given us the procurement piece on the gross margin line, but, but anything to think about as we model out GNA for the year?
Yeah, not, not so much, Matt. It's a good question. You know, some of it has to do more with the fourth quarter of 22. Remember we had a respiratory therapy business that did have some SGNA burden, um, you know, that obviously went away as we right-sized from that. We scaled a little bit and shifted some dollars after we exited a couple of therapies. But for the most part, I think it's a pretty clean jump off.
Okay. Thank you. Thanks, Matt.
Thank you.
One moment for our next question. Our next question comes from David McDonald with Truist. Your line is now open.
Hey, guys. Good morning. I apologize if all of these were asked, but I apologize for a minute. But just a couple of quick questions. One is to ask about just the durability of profitability improvement given, you know, kind of the ongoing growth in chronic relative to acute. It sounds like you guys aren't expecting anything meaningful in terms of percentage growth between acute and chronic in 2024. I was wondering if you can talk about the ambulatory infusion suite footprint. And as that matures, is your labor productivity further improving from either increased utilization of existing footprints to maturation locations? I know you guys have tried to talk about a roughly 10% lift historically be a little bit better than that. Just wondering if you could comment on that.
Yeah, Dave, good morning. Listen, you know, as we've talked about, and we always get challenged a little bit around, hey, 10% labor productivity for these investments seems, you know, seems a little conservative. Just a quick reminder, you know, we've really only started our infusion suite aggressive expansion strategy. We've been at it for just a hair over two years. And so, you know, we're seeing in some of those more mature centers clinical labor productivity of 20% or more. Again, we're not paying for windshield time. With many therapies, we can, you know, infuse concurrently. And so... you know, those later tranches or the earlier tranches, which are really only around two years old, you know, we're still ascending to cruising altitude and we still have capacity in those centers remarkably. And so, you know, the ultimate target for how we think about those from unlocking labor productivity, which not only helps our margins, it also obviously, you know, it's like creating 10 to 20% more nursing labor units. That's why you hear us talking so much about about the strategy and I would just finish. Look, not only does it help us from an economies of scale, but it helps us from an economies of scope because as we think about other therapies like infusibles that require healthcare professional oversight, utilizing those as a strategic platform to think about therapies that frankly you wouldn't send a nurse four hours in the car to administer, all of a sudden clinically and economically are viable in the suites, and that's something that's helped us from a portfolio management perspective.
Yeah, the only other thing I'd add to that, Dave, is certainly along the questions that you asked for the infusion suite and utilization and helping to drive that, We also focus a lot around just the productivity of our entire labor force, right? So we're always working through and looking for ability to drive that productivity and efficiency across the platform. And we talked before about some of the deployment of the technology, both in the prepared remarks, but in previous conversations. comments around repetitive process automation and efficiencies to really help our teams take some of the more routine and rote aspects out and drive higher productivity and efficiency across the platform. And we'll continue to focus on that in 24. We believe there's still opportunities for us to drive those operating efficiencies, and with every deployment of technology or the releases that our technology team is putting into the environment, we're looking for ways to maximize the licensure of our workforce, of the capabilities and capacity of the workforce, and we'll continue to do that unrelenting because we know there's opportunities to take cost and waste out of the process.
And guys, I guess just kind of follow up on the ambulatory infusion. Is there a specific timing where you point, you know, let's say 12 months, 18 months for you to start to see that 10% lift started to drift higher towards the 20. And, you know, then it sounds like they've obviously meaningfully expanded the footprint over the last couple of years. As it sounds like that flows in touch, you guys digest more of these. Is there any reason to think that the overall book, just because you'll have fewer, you know, new starts, so to speak, shouldn't continue to lift higher in terms of nursing productivity?
Yeah, I mean, look, we have a very disciplined model with expectations on, you know, utilization and adoption. That's one of the reasons why, you know, we don't just go out and open 600 of these overnight, because as you know, we're being rather surgical and methodical and local ops and commercial leadership are held accountable to fill the centers. And so, you know, what we've said is, you know, typically by the first anniversary, on average, these are breaking even. So the nurse productivity covers the cost of rent insurance utilities and just operating costs. And typically, you know, by that 18 to 24 months, they're generating a net 10% profit. We've had some that have moved faster, but, you know, we... we make sure they're following the expected trajectory. And so I'd say conservatively, you know, somewhere after the second anniversary, and again, it's not an exact science, you know, those are going to, you know, be close to that 20% productivity uplift. The great thing is, you know, as John highlighted, you know, we opened, you know, 20 new centers in 2023. We still have a tremendous amount of capacity within the you know, roughly 170 centers we have across the country. And so, you know, it's not as our ability to drive leverage and value from these isn't necessarily corresponding to how many are we opening every single quarter to now that we have a truly national network of 170 centers across the country, how do we also continue to drive utilization within the existing footprint? And so I think that, you know, at some point we'll hit a point where we feel good, but You know, we're not capital constrained, and if we see an opportunity at a local market, we'll be very quick to open an additional center.
And then, guys, just last question. You mentioned earlier this kind of conversations with payers. I'm curious in those conversations, are you seeing a willingness by the payers to put a little bit more teeth around site of service redirection, whether that's plan design or whatever? And then with regards to the ambulatory infusion suites, Is there an opportunity? I mean, you talked about some other services outside of infusion, but, you know, is there an opportunity and an appetite for potential non-infused drugs, maybe some injectables where there's a nursing component, you know, just anything that would be helpful?
Yeah, Dave. So, you know, the conversations that we've had and continue to have with the payer community around site of carry, you know, I would say there's a broad range of those conversations. We are seeing certain circumstances where some of the payers are directing with a sites of care and putting that into the way that they're managing their membership. I wouldn't say that's widespread across the entire industry, but we are starting to see that uptake in local pockets or some of the more regional players on that. So we're trying to stay ahead of that. We are in active conversations. And we believe that, you know, with some of the focus around medical loss ratios, especially in some of the calculated programs that, you know, the payers are dealing with, you know, we offer a really valuable solution to them of offering that high-quality care program. at a more appropriate cost than some of the other settings in which the patients could receive it. So we expect that that will be an impetus for us to have those conversations, and we're going to continue to talk about the values and the virtues that we can bring to them through that process. The second part of your question, you know, we are doing that today, Dave, where, again, we take a look at the portfolio within the infusion suite itself, where there are either, you know, products that may not be infused, but they may be injectables that require a healthcare professional oversight. We are doing those in the infusion suite. One of the products that I called out, the Cabinuva product, is a product that really fits within that category that requires that HCP to provide that oversight. And we'll continue to look for those opportunities and continue to partner upstream with Biopharma as being a channel partner for those type of products, as well as continue to discuss the cost value of you know, being able to provide care to their members, to the payers, and why they should help to choose that as a site of care as they're moving forward.
I guess, John, the better way to ask that would have been just, you know, in terms of the growth around that, you know, kind of the non-infused products. Are you seeing any kind of meaningful acceleration, increased acknowledgement of the services that you guys provide, increased appetite from manufacturers, et cetera?
You know, it's incorporated in the guidance that we provided. I mean, there's some positive aspects of that, but nothing that I'd say is a major needle mover on that or disproportionate. But we're going to continue to look for every opportunity we can to, as Mike said, fill the chairs and utilize the capacity that we have in an efficient and effective way. Okay.
Thanks very much. Thanks, David.
Thank you.
One moment for our next question. Our next question comes from Joanna Kashuk with Bank of America.
Your line is now open.
Hey, good morning. Thanks so much for taking the question. So I guess first, in the follow-up, just to clarify, so you said the procurement benefit was 8 million. So this sounds like maybe a little bit less than what you were expecting. So I guess, is that right? And then, you know, why is that? And also, can you remind us, what was it for the full year? And also with that, you know, do you still assume like zero, you know, benefit in January or in Q1? Exactly.
Good morning, Joanna. Yeah, it's Mike. Yeah, so in my prepared remarks, I mentioned that we estimate, and again, this isn't an exact science because, you know, you have moving patient census. It's multiple codes across a number of different payers, some that are ASP, some that are AWP. But to the best of our estimation, we estimate that we had approximately $8 million of benefit in the quarter. And so, you know, our best estimate is when you look in the 425 estimate, We reported there's roughly, you know, 33 to 35 million of total benefit. Again, it doesn't show up the first day of a quarter. It doesn't go away the last day of the quarter. And so it really dissipated throughout Q4 as we had expected. And so, again, I think as we talked about on our third quarter call, I think our commentary that, you know, using roughly a 390 jump-off point normalizing for those transitionary benefits is a logical thing. a baseline. There are no benefits going into, specific to this situation, there are no benefits going into 2024. So it'll be a clean break.
Great. Thank you for that. And I guess it's somewhat related, because you mentioned by the 24, it's more of a normalized year. You don't have like any major headwinds or tailwinds like you had in 23, because on one hand you exited business, then there were some therapies going away, but then you had this benefit from procurement, but 24 maybe not. But I guess there are a couple of things that are going around in the market. So there's a bias similar, I guess, for one of the infusion drugs to Sabri coming to the market. So I guess how meaningful this could be, or maybe that's just a wash because maybe there's new therapies coming in. And I guess Antavia or Crevice, right, the makers of those drugs are also working on subcutaneous formulations. Maybe those are not coming 24 maybe later, but I guess as it relates to subcutaneous, kind of what do you expect the lunches to actually happen and how would this impact your business? And to the last point you were making around sweets and using those for injectables, are you know, is this something that you would, you know, have the anterior and converse, for example, subcutaneous formulations being utilized in those locations? Thank you.
Yeah, Joanna, look, the one thing that we try to underscore as we engage with investors is this is a very dynamic marketplace. It is not a static portfolio of therapies. And if you look at what we will infuse and inject into our patients in 2024. It's markedly different than it was five years ago, and it's probably markedly different than what it will be five years from now. Our business development team, again, we have very direct lines into manufacturers. Nothing comes to market, no new administration method, no filing is hitting that is of a major surprise to us. And so, you know, as we look you know, whether it's two months or 20 months out, we're constantly trying to anticipate, you know, the dynamics in the marketplace. And so, you know, a lot of the manufacturers you talked, whose products you quoted, we have regular dialogues with them and we fully anticipate and have incorporated into our guidance therapies that will go subcutaneous or that will eventually have biosimilar entrants. And so that's something that we stay well ahead of. You know, when something, and again, just to remind, just when something goes subcutaneous, to John's point, you need to read the labels because sometimes something goes subcutaneous, it still requires healthcare professional oversight. And so, and even if it doesn't require an HCP oversight, you know, that still remains within our clinical model, admittedly, maybe with some different economics. And so, All of those are developments that we're constantly anticipating and incorporating into our commercial and operational strategies.
Thank you. And if I may, last follow-up, I guess, on the commentary around, you know, very strong cash flow. You still expect for 24, right, obviously, there's a year-over-year headwind of the termination fee that you got in 23. that's not going to repeat. But when it comes to acquisitions, kind of any latest updates in terms of things that will be of interest? You know, how far away are you willing to veer off of the core home infusion business? You know, any considerations for for You know, maybe expanding the drugs that you deliver, say, I mean, we talk about the injectables, but, you know, maybe more of the oncology drugs. So any color of things kind of, you know, you're looking at would be good to hear. Thank you.
Yeah, Joanna, look, I mean, we're constantly focused on how do we grow. And we think that driving top line and bottom line growth is a surefire way to create value for our shareholders, whether it's organic and utilizing our suites and infrastructure to add therapies to the bag, so to speak, or deploying capital through an M&A strategy. And I think, look, I think we've tried to alleviate concerns and reinforce our strategy on the corporate development front, which is to say, look, you know, simply by generating more cash that doesn't lower the bar, and John has preached that things have to be both of strategic and economic value that we can articulate to our shareholders. We're very active on that front. We're going to be very, very disciplined. There's a lot that we could do that's strategic that doesn't represent an economic proposition and vice versa. We see a number of opportunities. I think, frankly, without laying out our playbook, we're going to be disciplined and patient. The great thing is the base business we expect, based on our guidance, to perform very well this year. And so there isn't the anxiety or pressure to do a deal just for the sake of doing a deal. And given our capital structure, I think we're in a very advantageous position. And as John also highlighted, we also have the pressure valve of a share repurchase authorization. That's another channel through which we can deploy capital for our shareholders.
Thank you. Thanks for the question.
Thank you, Joanna. Thank you, Joanna. Thank you.
One moment for our next question. Our next question comes from Jamie Percy with Goldman Sachs.
Your line is now open.
Hey, thanks. Good morning. John, you rattled off a number of therapies that are driving chronic growth at the moment. Can you spend a little more time on a few of those, you know, the faster growing or larger categories and where you think they are in their own life cycle, what visibility that gives you for chronic growth over the next, you know, couple years, and just your sense of innovation upstream with biopharma for infusible drugs?
Yeah, so, you know, in prepared remarks, I called out, you know, some of the products, you know, that we had launched. We had talked about BiJuvik in previous earnings calls, you know, BiEfti, VivGuard, as well as Cavanuva. I wouldn't say these are outsized growth proportion on it. We feel, you know, privileged to have the partnerships that we do with an organization like Crystal and helping to, you know, be a channel partner to serve, you know, their patients, you or patients that require their gene therapy. You know, across the entire fleet on the chronic side, again, we continue to have a very diverse and a broad portfolio of products there. And, you know, as Mike just called out, they don't move in tandem. You know, we have things that are moving up. We have things that are moving down. It's a dynamic environment there. What we really appreciate and what we continue to hear and work with the biopharma partners is around the platform that we're able to provide, that high-quality clinical knowledge and know-how, the logistics and the national platform in which we can serve patients, and that ability now to have an expanded capability set to not only serve patients in the home but in one of the infusion suites. all puts us in a really, you know, strong position to continue to work with Biopharma to be a channel partner and to be able to continue to expand our list of limited distribution drugs or expand the list of products that we have within our portfolio. So, you know, the focus of our business development team is around those relationships of continue to focus around you know, maximizing the value of our platform, and, you know, we'll continue to look for those opportunities with new and emerging products. As you, you know, second part of your question, we're actively managing and monitoring what is that pipeline of new products, what of those products have the characteristics that fit well within our platform, and are active in conversations with those biopharma partners around the role that we can play in helping to support the launch of those products, the support of existing products, and the ability to serve the patients in one of the settings that our clinical team is well-equipped to serve.
Okay, great. And then, Mike, I have one follow-up on the procurement benefits. I know you guys were hesitant to talk about this too much while you were in the midst of getting those benefits. But at this point, are you able to say if the benefits came from a branded drug or biosimilar? And on a question I know you guys have been asked many times over the years, just the impact on gross margin from biosimilar or generic events, does this experience of the last six months give us a signal on how those events might impact your profitability?
Yeah, Jamie, look, I mean, obviously, for competitive purposes, we're going to be reluctant. All I'll say is, you know, it wasn't one drug. It wasn't one code. You know, it was a little bit of a confluence of a limited number of therapies that have, you know, gone away. And again, I always say, you know, we always have some puts and takes. There's also some areas last year where we had some procurement headwinds on some of the nutritional therapies that we support. you know, and the team tries to do their best to mitigate. Look, and on the biosimilar front, again, no two biosimilar events are exactly the same. It typically isn't a bad development from our perspective. You know, we provide therapy and we bill payers based on an ASP, AWP, or WAC spread. So as as a category becomes more competitive. Typically, there's ASP and AWP pressure over time. It's not overnight, which typically has headwinds on our revenue. However, when you have multiple manufacturers and providers, that typically tips the scale from a procurement leverage, and we can typically drive a gross margin rate expansion. How that manifests in dollars All I'll say is, you know, look, it's very much more of a revenue event for us than it is a gross profit dollar event. And from a supply chain risk management, it typically de-risks our supply chain. And given our direct relationships with virtually all of the manufacturers, we can be very responsive as payers want to actively manage formularies and can pretty much turn on a dime.
Okay, great. I'll leave it there. Thank you.
Thanks, Jamie.
Thanks, Jamie.
Thank you.
One moment for our next question.
Our next question comes from Michael Petusky with Barrington Research. Your line's now open.
Good morning. Hey, I was worried that you were maybe not tired of answering procurement questions. Let me ask one more real quick. The, you know, the 33 of 35, obviously you guys have been talking about this issue throughout, it feels like, most of 23. But you did say, I think, Mike, that typically you do get sort of in a more normalized year some bit of tailwind because of your scale and, you know, contract and all the rest of it. Can you just talk about what historically, I mean, that number has been in terms of tail, I mean, like 5 million, 10 million? What's a typical procurement tailwind for you guys in a more normalized year?
I mean, it's probably in the zip code, Mike. I mean, again, there's puts and takes every year. You know, on the scale that we have, it's somewhere in the zip code of what you articulated.
Great. And then just one more quick one. Just in terms of, you know, you sort of gave the history since 2019, you know, and obviously a great history of high levels of execution. Has anything in terms of 24 guidance your methodology for providing it, I mean, gotten more, more aggressive or, or essentially the methodology that you've historically used to get to your, you know, initial guidance for a given year. Has that remained the same?
Okay. Thanks, Mike. Look, I think it's not lost on us that, you know, we built a reputation of laying out expectations that we have a high degree of confidence going into the year that, that we can deliver. And, um, You know, our track record is one that we're proud of. You know, we have a very robust process looking at a number of dynamics that, you know, as we get bigger, you know, there's a little bit of a bigger range from a plus-minus perspective. But the fundamental approach of how we approach communicating expectations for the year has not changed. Excellent.
Thanks, guys. Congrats on a great year. Thanks.
Thanks, Mike.
Thanks, Mike. Thank you. I'm showing no further questions at this time. I would now like to turn it back to management for closing remarks.
Thank you all for joining us this morning and participating on our call. As we outlined, 2023 was a very productive year, and our team continued to execute at a very high level. We understand the important role that we play in delivering care to our patients and their families, and we look forward to serving even more patients in 2024. Take care and have a great day. Thank you.
This concludes today's conference call. Thank you for participating.
You may now disconnect. Thank you. you Thank you. Thank you.
Good day, and thank you for standing by. Welcome to the OptionCare Health fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is erased. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. 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 our future financial performance and industry and market conditions. These forward-looking statements are subject to risks and uncertainties that could cause actual results that 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 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 conditions. 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. With that, I'll turn the call over to John Rademacher, Chief Executive Officer.
Thanks, Mike, and good morning, everyone. To say that 2023 was an eventful year for OptionCare Health is quite the understatement. It was a dynamic year for the team. And we advanced our mission to set the pace in home and alternate site infusion care and treat more patients by providing innovative services designed to improve outcomes, reduce costs, and deliver hope for our patients and their families. In 2023, we treated more than 270,000 distinct patients and expanded our portfolio of life-saving therapies through our collaboration with referral sources, payers, and biopharma partners. As always, Mike will dive into the financials in a few minutes, but I could not be more pleased with the effort, dedication, and results generated by my devoted colleagues at OptionCare Health. For the full year, we delivered a revenue of $4.3 billion, representing 9.1% growth over the prior year. Adjusted EBITDA of $425 million represents 24% growth over 2022, and significantly exceeded the initial expectations we articulated in early 2023. Since the merger in August of 2019, the OptionCare Health team has consistently delivered solid growth and met or exceeded our commitments to our shareholders. Reflecting back on 2023, beyond the solid financial results, I'd like to highlight a number of key accomplishments and milestones. In the second quarter, we launched Navin Health, one of the largest infusion nursing platforms in the industry, comprised of more than 1,500 clinical professionals. Navin is a critical component in our mission to serve more patients, and strategically, the platform is vital to our continued success. We continue to invest in our ambulatory infusion suites, footprint, and in 2023, we expanded our network to 164 suites. over 660 chairs nationwide again this is a key investment strategy designed to enable continued growth while unlocking clinical labor efficiency we advanced our use of advanced analytics and repetitive process automation within our pharmacy and revenue cycle management operations to reduce waste and improve cash velocity we also recently announced a our multi-year collaboration with Palantir to deploy their artificial intelligence technology across our operations to drive efficiencies and improve the patient's experience. We launched a number of new therapies in 2023 through our collaborations with Biopharma, including BiJuvik, VivGuard, BiEfti, and Cabinuva, to name a few. We believe our integrated national network of state-of-the-art pharmacies and expanded number of infusion suites combined with the clinical know-how and our leading technology platform, continues to resonate with the biopharma partners and positions us well to continually expand our portfolio. Every member of the Option Care Health team understands that behind every dose is a loved one, and behind the scenes is a comprehensive team of pharmacists, pharmacy technicians, dieticians, infusion nurses, patient support professionals, and supply chain experts. Their focused dedication and collaboration help ensure that we deliver unparalleled care in the comfort and convenience of our patients' homes or in one of our infusion suites. Making certain we are an employer of choice and a destination for healthcare professionals is also critical to our continued success. In 2023, we were thrilled to have earned the designations of a Gallup Exceptional Workplace and a Military Friendly Employer. These recognitions affirm our relentless focus on recruiting our team every day and delivering extraordinary care to our patients. As the old saying goes, you can do well by doing good, and we believe that our financial results for 2023 demonstrate that we are doing just that. Exiting 2023, our balance sheet has never been stronger, and our liquidity position is in great shape. During 2023, both S&P and Moody's upgraded our credit profile to the highest ratings yet. Our net debt leverage profile is well under two times, and we generated more than $370 million in operating cash flow in 2023 and deployed $250 million towards the share repurchases. So reflecting on 2023, we continue to deliver strong growth while investing in this unique platform and our capabilities to enable sustainable growth. As we outlined in our 2024 guidance this morning, We expect to continue this trend of delivering strong financial performance as we grow and serve more patients. I've never been prouder of the option care health team and the level of service that we deliver to our patients every single day, and I remain confident in the road ahead. With that, Mike will provide additional color on the results. Mike?
Thanks, and good morning, everyone. As John mentioned, we're quite encouraged by the solid finish to 2023. Fourth quarter revenue of $1,124,000,000 represented 9.5% growth over Q4 of 2022. Performance was solid across the portfolio and execution in the field was very strong. Full year revenue of just over $4.3 billion was up 9.1% despite a number of headwinds we've talked about throughout the last year, including two exited therapies and the impact of the divested respiratory therapy assets. So overall, we're quite pleased with the top line performance. Q4 gross margin of 22% represented dollar growth of 6.9%, as we saw some mixed shift impact towards the chronic portfolio, as well as a smaller procurement benefit in the quarter. In recent quarters, I've spoken about the favorable procurement dynamics that persisted in 2023, and in Q4, we estimate we realized approximately $8 million in benefit related to the dynamics. For the year, we estimate that we realized $33 million to $35 million of these transitory procurement benefits, which we believe will not continue into 2024. SG&A of $147.8 million actually declined versus Q4 of 2022, and spending leverage improved to 13.1% of revenue, which we believe affirms the scalability of the platform. An adjusted EBITDA of $111.6 million in Q4 represented 9.9% of revenue, and was up 18.4% over the prior year. Again, Q4 adjusted EBITDA included roughly an $8 million procurement benefit. Beyond the P&L, we generated more than $370 million of cash flow from operations for the year, which again includes approximately $85 million from the emeticist transaction termination fee, net of related expenses, During the year, we deployed $250 million towards share repurchases and still finished the year with approximately $344 million of cash on hand and a net leverage ratio of 1.8 times. This is the fifth year end that we have reported as OptionCare Health. And reflecting back to 2019 when we completed the merger, we socialized the combined enterprise at the time as generating roughly $2.7 billion in revenue, and roughly $200 million in pro forma adjusted EBITDA. Four years later, we've increased revenue by 50% to $4.3 billion and more than doubled adjusted EBITDA to $425 million. We've also driven dramatic improvements in our balance sheet, reduced the leverage profile by more than two-thirds from 6.2 times to 1.8 times, and slashed net interest expense by more than half from $110 million to $51 million. And while we're proud of how far we've come, we're equally excited about the road ahead. As disclosed in this morning's press release, we anticipate delivering another year of solid growth for our shareholders. In 2024, we expect to generate revenue of $4.6 billion to $4.8 billion. We expect to generate adjusted EBITDA of $425 million to $450 million. And we expect to generate cash flow from operations of at least $300 million. To provide some additional data points, we expect net interest expense of $55 million to $60 million, approximately $45 million in stock comp expense, and an effective tax rate of 26 to 28%. So overall, 2023 was a very productive year, and we expect to continue our track record of leveraged growth into 2024. With that, we're happy to take your questions. Operator?
As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from Lisa Gill with J.P. Morgan. Your line is now open.
Thanks very much and good morning and congratulations. Just really want to understand a couple of things a little bit better as we think about 2024. And the first would be just the mix. So I think, Mike, you noted in the quarter, you know, stronger growth in chronic versus acute, which had an impact on the mix. How do we think about mix going forward would be my first question. And then secondly, as it plays into that, how do we think about the swing factor between the 425 and 450 on the EBITDA line for guidance?
Yeah, good morning, Lisa. Maybe I'll give it a start here. Look, I mean, as we've talked about consistently, you know, within our two portfolios of therapies, we see the growth trajectory of the chronic portfolio being in that low double digit zip code with the acute therapies being, you know, those therapies are really a more mature category that's growing in the low single digits. having said that, obviously during 2023 and 2022, there were some pretty interesting market dynamics with some competitive closures, which accelerated some of the reported acute growth. I think as we're going into 2024, you know, absent any of those large shocks to, you know, the comparables or like the exit therapies we talked about, I think we're back to what we see are the underlying therapy growth dynamics, which is to say we see you know, that acute category growing in the low single digits and at the other end of the barbell, the chronic therapies are growing, you know, low double digits. Given the fact that the chronic, as we've talked about, consistently carries a lower gross margin rate, we would expect, you know, going forward that there's going to be some mixed shifts towards that lower chronic therapy profitability profile. Having said that, obviously, you know we fight for every basis point, and the way we really focus is on maximizing the dollar growth. And look, I'd say about 425 to 450. Look, there's a lot of dynamics. Obviously, we have some new emerging therapies that we're still ramping up, given the fact that on the acute side, the duration of our therapy is from two to six weeks. You know, we haven't met the majority of the acute patients that we'll have the privilege of treating this year. And so, and behind the scenes, there's always a million moving dynamics that we're trying to manage on the procurement and payer and local competitive front. So just, I wouldn't attribute it anything more than just the typical volatility of the markets that we're operating in.
And then just last quarter, you talked about, again, strong cash flow, and you've obviously just guided to strong cash flow of $300 million for 2024. You know, John, when we think about the strategy around acquisitions, I know the last quarter you talked about, look, there's kind of a sweet spot for us, tuck in and some other things. But maybe can you just update us on how you're thinking about capital allocation and how you're thinking about any kind of potential strategy around acquisitions in 2024?
Yeah, Lisa, good morning. We continue to do a lot of work to understand those market dynamics and what's what's in the pipeline for consideration as we move forward. I think one of the biggest things Mike and I have talked about, we talked about it on the last quarter call as well, is being very disciplined in the approach that we take. We are looking at things both strategically and economically. It must meet those hurdles on both ends as we're looking at that. And we're going to kiss a lot of frogs before we find a prince in that process. And We really pride ourselves in the discipline that we adhere to as we're looking at that. There aren't many books that are out there that we don't get a look at. We have been very active in our corporate development process and the ability to take a look at opportunities. But we apply that discipline, and we're going to continue to do that. As we've talked about before and as we outlined in the third quarter and the press release coming in the fourth quarter, we exhausted the $250 million of the original authorization. We have an additional authorization of $250 million per share repurchase. We will continue to balance that priority of making certain that we're doing everything we can to maximize the value to our shareholders and whether that's through deployment for M&A or whether it's through continued share repurchase, as well as from our investments into our businesses, part of our normal flow of CapEx, we will continue to balance across those dimensions and maximize the value for our shareholders.
Great. I appreciate the comments.
Thanks, Lisa. Thank you. One moment for our next question. Our next question comes from Peter Chickering with Deutsche Bank. Your line's now open.
Hey, good morning, guys. Thanks for taking my questions. Looking at the midpoint of 2024 guidance, if we exclude the, say, $34 million procurement benefit, EBITDA guidance is about 11.8% growth. Are there any one-timers in next year that we should be thinking about as we think about 2025? Does the procurement benefit just really stop on January 1st? And on the chronic side, what are the new therapies you just referenced, and are there any therapies that we should be aware of on the negative side? And on the chronic side, we saw pretty strong inpatient, you know, the in 2023, to use them that continues into 2024.
Thanks, Pito. Wow, one question in 15 parts. Appreciate it. Hey, listen, look, at the midpoint, the good thing, and I think you've heard this in some of our public comments, a good thing going into 2024, we don't have, you know, the prior year comp challenges, the exited respiratory therapy assets, the exited therapies. So I think the growth algorithm and the story is a lot cleaner and a lot more digestible for all of you to to get your hands on. Naturally, the one thing I would say is, look, growth is going to be a little more muted in the first half. Um, just given the fact that we did have some of those, you know, Makina and Rodacaba revenue in the first half of the year. So, um, but, but overall, um, I think it's just a much, it's a much cleaner story, um, you know, going forward. So the short answer is, you know, no, uh, no big boxcars on the track that you guys have to try to model with and without.
Yeah, and, you know, on the chronic side and some of the therapies that we outlined, you know, we continue to see, you know, a strong progress from our commercial team. You know, our focus around reach and frequency and making certain that we are developing those relationships and deepening them with our referral sources, you know, continues to be a high priority and an execution path for the team. You know, we continue to see a focus by the payers around thinking about site of care and making certain that they're maximizing wherever they can achieve high quality care at an appropriate cost in a setting in which patients want to receive it. So, you know, we think that the market dynamics will remain, you know, strong for us on that, and we're going to continue our execution path of being that partner of choice and being able to onboard those patients and continue to provide them care.
And, Peter, the only thing I'd add is, look, specific on your question around any positives, negatives, look, there's always going to be some incremental therapies that we're looking at. I wouldn't say there's anything in the hopper that I would say is a is a major needle mover in the first year. And on the negative side, look, and we've had this conversation with folks repeatedly, there's, there, this is a dynamic marketplace and there's always therapies that will be, you know, going subcutaneous that'll have different delivery methodologies. And that's all something that, you know, we're, we're never surprised by that. And that's fully accommodated in our guidance range.
Okay, great. And then sort of, you, John, you know, a follow up to the, the, the peer commentary, um, Are you seeing any different behavior from the payers that own infusion companies? So CVS, Satin, now are obviously United, and now Elevance with their infusion. Have you seen any changes of how those referrals are changing now that they maybe have their own options as well? Thanks so much.
Yeah. You know, we always, you know, they're vigorous competitors. And so we take all of that, you know, into, you know, full view as we're approaching the marketplace. And, You know, one of the things that we bring to all of the payer community is that consistency of care. We've talked before about our ability on a national basis to leverage our platform to provide that high consistency and high quality care, whether you're a patient in Portland, Oregon or Portland, Maine. And so that ability that we have to provide consistent high quality care across the country is is something that they seek. Our ability to be in network with those payers is something that we work very hard to make certain that we achieve, that we're focusing around key areas of delivering high quality care, providing access to their members, of driving high member satisfaction or patient satisfaction when we have the opportunity to serve their members. And so we will never discount the competitive dynamics that we operate within. But on the other side of that, we provide a very valuable service, especially when you look at the breadth of the product that we can provide on both the acute and the chronic portfolio, and we will continue to, you know, foster those relationships and be a partner of choice for the plans as they're trying to find place for their members to receive high-quality care.
Great. Thanks so much. Thanks, Beto. Thanks, Beto.
Thank you. One moment for our next question. Our next question comes from Brian Tankill with Jefferies. Your line's now open.
Hey, good morning, guys. I guess my first question, maybe sort of a follow-up to Peter's question. As we think about, Mike, kind of like the normalized growth rate going forward, obviously there are a few moving parts for 2024. How are you thinking about how investors should be modeling or thinking about your growth going forward and what those drivers should be?
Yeah, Brian, thanks for the question. Look, the way we've consistently articulated what we view as a reasonable way to think about the growth horsepower of this platform is, you know, we see this as a high single-digit top-line enterprise. That's on a broader market growth, and I know you ask 15 people what they think the infusion market's growing, you'll get 20 answers, but as we look at the therapies in the areas of of focus, we see this industry growing in the mid-single digits, call it the 5% to 7%. We think with our unique platform and competitive strengths, we think folks should expect us to consistently deliver in the high single digits on the top line. Given the scalability of the platform and the investments we've made, we think we can consistently deliver leveraged growth and on an organic basis that should manifest in low double-digit earnings growth as kind of a a medium-term growth outlook.
Got it. And then, you know, during the quarter, it's clear that, you know, the G&A line was very well managed. So as we think about that, right, I think some of that is probably the benefits from your infusion suite strategy. So how should we be thinking about the remaining opportunity to open infusion suites and to offset expected gross margin compression from, you know, just the growth in chronic
Yeah, look, I'll start and let John jump in. Look, we fight for every dollar, and we always have and we always will. With the spending actually coming down versus the prior year, admittedly, we did move some of the investments, some of the more discretionary investments, new programs earlier in the year as we knew that we had some margin favorability. Of note, in the fourth quarter, that does have some year-over-year burden from the 20 or so infusion suites that we open during the year. And again, from a P&L geography, the cost of those facilities resides in SG&A, the rent utilities, insurance, et cetera. The benefit through the nursing leverage actually is in the gross margin line. With the SG&A, as we reported, it has the gross increase from the infusion suite investment, but the benefit is actually north up in the gross profit line. So look, we're going to continue to drive leverage growth at the SG&A line, and a lot of the results in the fourth quarter beyond some of the entry year timing are the efficiencies, and as John mentioned, the investments in you know, in technology and automation, which has manifested in much more efficient spending.
Yeah, and the only other thing I did, Brian, is on the InfusionSuite side, you know, continued really great progress by the team of, you know, opening the new facilities. As we talked before, we do a thorough analysis when we're looking at the market. We look at density maps of patient populations, and we're really selective in the way that we're looking at where we place them and how to utilize them. In the quarter, about 30% of our nursing interventions were done in one of our infusion suites with that growing population of chronic patients, as well as our ability to serve some of the acute patients that may need a dressing change or a lab draw or those types of things. We're going to continue to maximize that as we move forward. As we built out the network, we're getting closer and closer to having the fulsomeness that we want there. We'll continue to make investments on that, but I would set the stage that that may start to slow as we're then utilizing and optimizing the infrastructure that we have. We added over almost 100 chairs there. you know, over the year. And so, you know, now the trick for the team is really to focus around the execution of utilizing capacity that we have there as we continue to build out probably at a bit slower pace than what you've seen over, you know, 22 and 23. Awesome.
Thank you.
Thanks, Brian. Thank you. One moment for our next question. Our next question comes from Matt LaRue, who is William Blair. Your line's now open.
Good morning. I wanted to ask about kind of the other piece of the gross profit line beyond procurement, which would be labor costs and maybe a sense for what your expectations are in 2024. And sort of within that question, maybe an update on how Navin Health is helping you better manage your labor needs.
Hey, good morning, Matt. Look, we've tried to be as transparent as possible. And again, this isn't binary. In the fourth quarter, as expected, we saw that transitory situation that we tried to be as open as we could from a competitive perspective. It pretty much dissipated down to nothing by the end of the fourth quarter. And so, look, it was real. It was a great milestone for our procurement team, who we think are the best in the business. And Look, part of it is our direct relationship with manufacturers and BioPharm that John talked about in the prepared remarks. Going forward, we're always looking for coins in the sofa cushions, and the procurement team is constantly looking. And as we've said, there's always procurement puts and takes. It typically nets in a typical year to a modest tailwind, well below the numbers we talked about in 2023. And I think that's kind of how we're expecting you know, 2024 to shape up. So, I mean, it was great while it lasted. It manifested in real earnings and cash in the bank. And, you know, the team gets off, dusts off and looks for those next opportunities.
Yeah, Matt, it's John. On the Navin standpoint, again, continued really great progress from that platform standpoint. We've made investments into the technology that continues into 2024. We're really excited about some of the efficiencies and effectiveness that that can help to, you know, maximize the capacity and the utilization of that workforce to support not only option care health, but other market participants from that platform. That has been part of our overall growth story is the ability to have access to highly qualified nurses, to be able to oversee the infusions and oversee the care for our patients is something that you know, enables us to continue to grow. So a lot of, you know, focus not only internally on option care health around recruiting our team members every day of recruiting and creating a great place to work, but then also the investments that we're making in Navin will allow us to have that additional capacity and that additional, you know, growth driver for us as we move ahead. You know, a question that has been asked before is, You know, from a turnover and from that standpoint, just across the board, we have seen, you know, a significant improvement really from 22 as we exited 23 around, you know, our retention rates and reducing of overall turnover. We do a lot of work to focus around the employee value proposition. And, you know, we have a really great dedicated team of HR professionals that are thinking about what are the total rewards and what are the type of programs to not only invest in our people to help them develop and grow in their roles and responsibilities, but also the culture and those aspects that make it a great place to work. So, As I announced in my prepared remark, really excited about some of the designations that we were awarded in 2023. And we know that as much as we invest into our technology, we are a people business. We need highly skilled clinicians and we need highly skilled professionals across our organization. And that will continue to be a top priority for me and the leadership team to make certain we're doing everything we can to be an employer of choice.
Okay, thank you. And then the follow-up is on GSA. Obviously down nearly 10 million sequentially in the fourth quarter and down year over year. I just want to make sure we have the right sort of jumping off point if there were any one-time benefits in that quarter, if there's anything from the fourth quarter to the first quarter with respect to, you know, incentive comp reset or other dynamics. you know, we've kind of given us the procurement piece on the gross margin line, but, but anything to think about as we model out GNA for the year?
Yeah, not, not so much, Matt. It's a good question. You know, some of it has to do more with the fourth quarter of 22. Remember we had a respiratory therapy business that did have some SGNA burden, um, you know, that obviously went away as we right-sized from that. We scaled a little bit and shifted some dollars after we exited a couple of therapies. But for the most part, I think it's a pretty clean jump off.
Okay. Thank you. Thanks, Matt.
Thank you.
One moment for our next question. Our next question comes from David McDonald with Truist. Your line is now open.
Hey, guys. Good morning. I apologize if one of these was asked, but I apologize for a minute. But just a couple of quick questions. One is to ask about just the durability of profitability improvement given, you know, kind of the ongoing growth in chronic relative to acute. It sounds like You guys aren't expecting anything meaningful in terms of percentage growth between acute and chronic in 2024. I was wondering if you can talk about the ambulatory infusion suite footprint. And as that matures, is your labor productivity further improving from either increased utilization of existing footprints to maturation locations? I know you guys have kind of talked about a roughly 10% lift historically be a little bit better than that. I'm just wondering if you could comment on that.
Yeah, Dave, good morning. Listen, you know, as we've talked about, and we always get challenged a little bit around, hey, 10% labor productivity for these investments seems, you know, seems a little conservative. Just a quick reminder, you know, we've really only started our our infusion suite aggressive expansion strategy. We've been at it for just a hair over two years. And so, you know, we're seeing in some of those more mature centers, clinical labor productivity of 20% or more. Again, we're not paying for windshield time. With many therapies, we can, you know, infuse concurrently. And so, you know, those later tranches or the earlier tranches, which are really only around two years old, you know, we're still ascending to cruising altitude and we still have capacity in those centers remarkably. And so, you know, the ultimate target for how we think about those from unlocking labor productivity, which not only helps our margins, it also obviously, you know, it's like creating 10 to 20% more nursing labor units. That's why you hear us talking so much about about the strategy and I would just finish. Look, not only does it help us from an economies of scale, but it helps us from an economies of scope because as we think about other therapies like infusibles that require healthcare professional oversight, utilizing those as a strategic platform to think about therapies that frankly you wouldn't send a nurse four hours in the car to administer, all of a sudden clinically and economically are viable in the suites, and that's something that's helped us from a portfolio management perspective.
Yeah, the only other thing I'd add to that, Dave, is certainly along the questions that you asked for the infusion suite and utilization and helping to drive that, We also focus a lot around just the productivity of our entire labor force, right? So we're always working through and looking for ability to drive that productivity and efficiency across the platform. And we talked before about some of the deployment of the technology, both in the prepared remarks, but in previous conversations. comments around repetitive process automation and efficiencies to really help our teams take some of the more routine and rote aspects out and drive higher productivity and efficiency across the platform. And we'll continue to focus on that in 24. We believe there's still opportunities for us to drive those operating efficiencies, and with every deployment of technology or the releases that our technology team is putting into the environment, we're looking for ways to maximize the licensure of our workforce, of the capabilities and capacity of the workforce, and we'll continue to do that unrelenting because we know there's opportunities to take cost and waste out of the process.
And, guys, I guess just kind of to follow up on the ambulatory infusion space, is there a specific timing point, you know, let's say 12 months, 18 months, where you start to see that 10% lift, start to drift higher towards the 20, and, you know, then it sounds like they've obviously meaningfully expanded the footprint over the last couple of years, as it sounds like that slows the touch. Do you guys digest more of these? Is there any reason to think? that the overall book, just because you'll have fewer, you know, new starts, so to speak, shouldn't continue to lift higher in terms of nursing productivity.
Yeah, I mean, look, we have a very disciplined model with expectations on, you know, utilization and adoption. That's one of the reasons why, you know, we don't just go out and open 600 of these overnight because, you know, we're being rather surgical and methodical and local ops and commercial leadership are held accountable to fill the centers. And so, You know, what we've said is, you know, typically by the first anniversary, on average, these are breaking even. So the nurse productivity covers the cost of rent insurance utilities and just operating costs. And typically, you know, by that 18 to 24 months, they're generating a net 10% profit. We've had some that have moved faster, but, you know, we... we make sure they're following the expected trajectory. And so I'd say conservatively, you know, somewhere after the second anniversary, and again, it's not an exact science, you know, those are going to, you know, be close to that 20% productivity uplift. The great thing is, you know, as John highlighted, you know, we opened, you know, 20 new centers in 2023. We still have a you know, roughly 170 centers we have across the country. And so, you know, it's not as our ability to drive leverage and value from these isn't necessarily corresponding to how many are we opening every single quarter to now that we have a truly national network of 170 centers across the country, how do we also continue to drive utilization within the existing footprint? And so I think that, you know, at some point we'll hit a point where we feel good, but We're not capital constrained, and if we see an opportunity in the local market, we'll be very quick to open an additional center.
Guys, just last question. You mentioned earlier this kind of conversations with payers. I'm curious in those conversations, are you seeing a willingness by the payers to put a little bit more teeth around site of service, redirection, whether that's plan design or whatever? And then with regards to the ambulatory infusion suites, Is there an opportunity? I mean, you talked about some other services outside of infusion, but, you know, is there an opportunity and an appetite for potential non-infused drugs, maybe some injectables where there's a nursing component, you know, just anything that would be helpful?
Yeah, Dave. So, you know, the conversations that we've had and continue to have with the payer community around site of carry, you know, I would say there's a broad range of those conversations. We are seeing certain circumstances where some of the payers are directing with a little bit more heavy hand the utilization of these lower sites or lower costs of sites of care and putting that into the way that they're managing their membership. I wouldn't say that's widespread across the entire industry, but we are starting to see that uptake in local pockets or some of the more regional players on that. So we're trying to stay ahead of that. We are in active conversations. And we believe that, you know, with some of the focus around medical loss ratios, especially in some of the calculated programs that, you know, the payers are dealing with, you know, we offer a really valuable solution to them of offering that high-quality care program. at a more appropriate cost than some of the other settings in which the patients could receive it. So we expect that that will be an impetus for us to have those conversations, and we're going to continue to talk about the values and the virtues that we can bring to them through that process. The second part of your question, you know, we are doing that today, Dave, where, again, we take a look at the portfolio within the infusion suite itself, where there are either, you know, products that may not be infused, but they may be injectables that require a healthcare professional oversight. We are doing those in the infusion suite. One of the products that I called out, the Cabinuva, is a product that really fits within that category that requires that HCP to provide that oversight. And we'll continue to look for those opportunities and continue to partner upstream with Biopharma as being a channel partner for those type of products, as well as continue to discuss the cost value of being able to provide care to their members, to the payers, and why they should help to choose that as a site of care as they're moving forward.
I guess, John, the better way to ask that would have been just, you know, in terms of the growth around that, you know, kind of the non-infused products. Are you seeing any kind of meaningful acceleration, increased acknowledgement of the services that you guys provide, increased appetite from manufacturers, et cetera?
You know, it's incorporated in the guidance that we provided. I mean, there's some positive aspects of that, but nothing that I'd say is a major needle mover on that or disproportionate. But we're going to continue to look for every opportunity we can to, as Mike said, fill the chairs and utilize the capacity that we have in an efficient and effective way. Okay.
Thanks very much.
Thanks, David. Thank you. One moment for our next question. Our next question comes from Joanna Kashuk with Bank of America. Your line is now open.
Hey, good morning. Thanks so much for taking the question. So I guess first, um, in the follow up, just to clarify, uh, so you said the procurement benefit was, um, 8 million. So that sounds like maybe a little bit less than what you were expecting. So I guess, uh, Is that right? And then, you know, why is that? And also, can you remind us what was it for the full year? And also with that, you know, do you still assume like zero, you know, benefit in January or in Q1?
Good morning, Joanna. Yeah, it's Mike. Yeah, so in my prepared remarks, I mentioned that we estimate, and again, this isn't exact science because, you know, you have moving patient census. It's multiple codes across a number of different payers. some that are ASP, some that are AWP. But to the best of our estimation, we estimate that we had approximately $8 million of benefit in the quarter. And so our best estimate is when you look in the 425 that we reported, there's roughly 33 to 35 million of total benefit. Again, it doesn't show up the first day of a quarter. It doesn't go away the last day of the quarter. And so it really dissipated throughout Q4 as, as we had expected. And so, again, I think as we talked about on our third quarter call, I think our, our commentary that, you know, using roughly a three 90 jump off point, normalizing for those transitionary benefits is, is a logical baseline. There, there are no benefits going into a specific to this situation. There, there is, there are no benefits going into 2024. So it's a, it'll be a clean break.
Great, thank you for that. And I guess it's somewhat related, because you mentioned by the 24th more of a normalized year, you don't have like any major headwinds or tailwinds like you had in 23. Because on one hand, you you exited business, then there were some therapies going away, but then you had this benefit from procurement, but 24 maybe not. But I guess the, you know, But a couple of things that is going going around in the market. So like there's a biosimilar I guess for one of the infusion drug to sadly coming to the market. So I guess how meaningful this could be or maybe that's just a wash because maybe there's new therapies coming in. And I guess and TV or previous right there's those those the makers of those drugs also work in some continuous formulations. Maybe those are not coming. 24 maybe later, but I guess as it relates to subcutaneous, kind of what do you expect the launches to actually happen and how would this impact your business? And to the point of last point you were making around a suite and using those for injectables, you know, is this something that you would, you know, have the anterior and crevice, for example, subcutaneous formulations being utilized in those locations? Thank you.
Yeah, Joanna, look, the one thing that we try to underscore as we engage with investors is this is a very dynamic marketplace. It is not a static portfolio of therapies. And if you look at what we will infuse and inject into our patients in 2024, it's markedly different than it was five years ago, and it's probably markedly different than what it will be five years from now. Our business development team, again, we have very direct lines into manufacturers. Nothing comes to market No new administration method, no filing is hitting that is of a major surprise to us. And so as we look, whether it's two months or 20 months out, we're constantly trying to anticipate the dynamics in the marketplace. And so a lot of the manufacturers whose products you quoted, we have regular dialogues with them. And we fully anticipate and have incorporated into our guidance therapies that will go subcutaneous or that will eventually have biosimilar entrance. And so that's something that we stay well ahead of. And again, just to remind, when something goes subcutaneous, to John's point, you need to read the labels because sometimes something goes subcutaneous, it still requires healthcare professional oversight. And even if it doesn't require an HCP, oversight, you know, that still remains within our clinical model, admittedly, maybe with some different economics. And so, all of those are developments that we're constantly anticipating and incorporating into our commercial and operational strategies.
Thank you. And if I may, last follow-up, I guess, on the commentary around you know, very strong cash flow, you still expect for 24, right? Obviously, there's a year over year headwind of the of the termination fee that you got in 23. That's not going to repeat. But when it comes to acquisitions, kind of any latest updates in terms of things that will be of interest? You know, how far away are you willing to veer off of the core home infusion business? You know, any considerations for for you know, maybe expanding the drugs that you deliver, say, I mean, we talk about the injectables, but, you know, maybe more of the oncology drugs. So any color of things kind of, you know, you're looking at would be good to hear. Thank you.
Yeah, Joanna, look, I mean, we're constantly focused on how do we grow. And we think that, you know, driving, you know, top line and bottom line growth is is a surefire way to create value for our shareholders, whether it's organic and utilizing our suites and infrastructure to add therapies to the bag, so to speak, or deploying capital through an M&A strategy. I think we've tried to alleviate concerns and reinforce our strategy on the corporate development front, which is to say, look, simply by generating more cash that doesn't lower the bar. And John has preached that things have to be both of strategic and economic value that we can articulate to our shareholders. We're very active on that front. We're going to be very, very disciplined. There's a lot that we could do that's strategic that doesn't represent an economic proposition and vice versa. And so We see a number of opportunities. I think, frankly, without laying out our playbook, we're going to be disciplined and patient. The great thing is the base business we expect, based on our guidance, to perform very well this year. And so there isn't the anxiety or pressure to do a deal just for the sake of doing a deal. And given our capital structure, I think we're in a very advantageous position. And as John also highlighted, we also have the pressure valve of a share repurchase authorization. That's another channel through which we can deploy capital for our shareholders.
Thank you. Thanks for the question.
Thank you, Joanna. Thank you, Joanna. Thank you. One moment for our next question. Our next question comes from Jamie Percy with Goldman Sachs. Your line's now open.
Hey, thanks. Good morning. John, you rattled off a number of therapies that are driving chronic growth at the moment. Can you spend a little more time on a few of those, you know, the faster growing or larger categories and where you think they are in their own life cycle, what visibility that gives you for chronic growth over the next, you know, couple years, and just your sense of innovation upstream with biopharma for infusible drugs?
Yeah, so, you know, in prepared remarks, I called out, you know, some of the products, you know, that we had launched. We had talked about BiJuvik in previous earnings calls, you know, BiEfti, VivGuard, as well as Cabinuba. I wouldn't say these are outsized growth proportion on it. We feel, you know, privileged to have the partnerships that we do with an organization like Crystal and helping to, you know, be a channel partner to serve, you know, their patients, you or patients that require their gene therapy. You know, across the entire fleet on the chronic side, again, we continue to have a very diverse and a broad portfolio of products there. And, you know, as Mike just called out, they don't move in tandem. You know, we have things that are moving up. We have things that are moving down. It's a dynamic environment there. What we really appreciate and what we continue to hear and work with the biopharma partners is around the platform that we're able to provide, that high-quality clinical knowledge and know-how, the logistics and the national platform in which we can serve patients, and that ability now to have an expanded capability set to not only serve patients in the home but in one of the infusion suites. all puts us in a really, you know, strong position to continue to work with biopharma to be a channel partner and to be able to continue to expand our list of limited distribution drugs or expand the list of products that we have within our portfolio. So, you know, the focus of our business development team is around those relationships of continue to focus around biopharma you know, maximizing the value of our platform, and, you know, we'll continue to look for those opportunities with new and emerging products. As you, you know, the second part of your question, we're actively managing and monitoring what is that pipeline of new products, what of those products have the characteristics that fit well within our platform, and are active in conversations with those biopharma partners around the role that we can play in helping to support the launch of those products, the support of existing products, and the ability to serve the patients in one of the settings that our clinical team is well-equipped to serve.
Okay, great. And then, Mike, I have one follow-up on the procurement benefits. I know you guys were hesitant to talk about this too much while you were in the midst of getting those benefits. But at this point, are you able to say if the benefits came from a branded drug or biosimilar? And on a question I know you guys have been asked many times over the years, just the impact on gross margin from biosimilar or generic events, does this experience of the last six months, you know, give us a signal on how those events might impact your profitability?
Yeah, Jamie, look, I mean, obviously, for competitive purposes, we're going to be reluctant. All I'll say is, you know, it wasn't one drug. It wasn't one code. You know, it was a little bit of a confluence of a limited number of therapies that have, you know, gone away. And again, I always say, you know, we always have some puts and takes. There's also some areas last year where we had some procurement headwinds on some of the nutritional therapies that we support. you know, and the team tries to do their best to mitigate. Look, and on the biosimilar front, again, no two biosimilar events are exactly the same. It typically isn't a bad development from our perspective. You know, we provide therapy and we bill payers based on an ASP, AWP, or WAC spread. So as as a category becomes more competitive. Typically, there's ASP and AWP pressure over time. It's not overnight, which typically has headwind on our revenue. However, when you have multiple manufacturers and providers, that typically tips the scale from a procurement leverage, and we can typically drive a gross margin rate expansion. How that manifests in dollars All I'll say is, you know, look, it's very much more of a revenue event for us than it is a gross profit dollar event. And from a supply chain risk management, it typically de-risks our supply chain. And given our direct relationships with virtually all of the manufacturers, we can be very responsive as payers want to actively manage formularies and can pretty much turn on a dime.
Okay, great. I'll leave it there. Thank you.
Thanks, Jamie.
Thanks, Jamie.
Thank you. One moment for our next question. Our next question comes from Michael Petusky with Barrington Research. Your line's now open.
Good morning. Hey, I was worried that you were maybe not tired of answering procurement questions. Let me ask one more real quick. The, you know, the 33 to 35, obviously, you guys have been talking about this issue throughout, it feels like, most of 23. But you did say, I think, Mike, that typically you do get sort of in a more normalized year some bit of tailwind because of your scale and, you know, contracts and all the rest of it. Can you just talk about what historically, I mean, that number has been in terms of tail, I mean, like $5 million, $10 million? What's a typical procurement tailwind for you guys in a more normalized year?
I mean, it's probably in the zip code, Mike. I mean, again, there's puts and takes every year. You know, on the scale that we have, it's somewhere in the zip code of what you articulated.
Okay, great. And then just one more quick one. Just in terms of, you know, you sort of gave the history since 2019, you know, and obviously a great history of high levels of execution. Has anything in terms of 24 guidance your methodology for providing it, I mean, gotten more, more aggressive or, or essentially the methodology that you've historically used to get to your, you know, initial guidance for a given year. Has that remained the same?
Okay. Thanks, Mike. Look, I think it's not lost on us that, you know, we built a reputation of laying out expectations that we have a high degree of confidence going into the year that, that we can deliver. And, um, You know, our track record is one that we're proud of. You know, we have a very robust process looking at a number of dynamics that, you know, as we get bigger, you know, there's a little bit of a bigger range from a plus-minus perspective. But the fundamental approach of how we approach communicating expectations for the year has not changed. Excellent.
Thanks, guys. Congrats on a great year. Thanks.
Thanks, Mike. Thanks, Mike. Thank you. I'm showing no further questions at this time. I would now like to turn it back to management for closing remarks.
Thank you all for joining us this morning and participating on our call. As we outlined, 2023 was a very productive year, and our team continued to execute at a very high level. We understand the important role that we play in delivering care to our patients and their families, and we look forward to serving even more patients in 2024. Take care and have a great day. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.