Option Care Health, Inc.

Hello, and welcome to OptumCare Health first quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to turn the conference over to Nicole Maggio. You may begin.

Good morning. Please note that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. We encourage you to review the information in today's press release as well as in our Form 10-K filed with the SEC regarding specific risks and uncertainties. We do not undertake any duty to update any forward-looking statements except as required by law. During this call, we will use non-GAAP financial measures when talking about the company's performance and financial condition. You can find additional information on these non-GAAP measures in this morning's press release posted on the investor relations portion of the website. With that, I will turn the call over to John Rademacher, President and Chief Executive Officer.

Thanks, Nicole, and good morning, everyone. As you can imagine, we are very pleased with the first quarter results and the continued progress we are making in building a unique care model to support the needs of our patients. I want to spend a few minutes highlighting the progress we made in the first quarter and then pivot to share some thoughts on the dynamic market conditions, our relationship with health plans, our investments in the business, and how we think about risk management within option care health. Mike will go deeper into the financials in a few minutes, but revenue momentum continued in the first quarter with balanced performance across the portfolio. Breaking down the revenue growth, which grew 16% over the first quarter of last year, we saw a nice acceleration in acute therapies, which grew in the mid-teens, and our chronic therapies grew in the high-teens. with solid performance in our rare and orphan and limited distribution therapies. As for the acute therapy growth, we believe our team executed well to capitalize on improved IV bag supply, shifting market dynamics, and our continued investments in capabilities to serve the specific needs of patients on these therapies. This is where we believe our national scale and local responsiveness places us in a unique position and our reliability and dependability allow us to partner more effectively with referral sources and payers. From the investments we have made into dedicated care transition specialists, to our technology-enabled and efficient patient admission process, to our comprehensive and interconnected national compounding pharmacy network, we believe we are well-positioned to serve patients with complex needs as they are being discharged from the hospital. The strength of the top line performance across a broad set of therapies, along with disciplined spending, drove 13.7% adjusted EBITDA growth on a year-over-year basis. During the quarter, we continued to deepen our partnership and demonstration of value with health plans. As they are feeling pressures of increased medical loss ratios and higher utilization of care, We believe we provide a valuable solution by providing high-quality care at an appropriate cost in a setting in which their members want to receive it. Whether it is by helping to safely and effectively transition a patient out of an inpatient setting to help better manage the number of bed days, avoiding the need for a patient to have to go to a step-down facility, or effectively managing a patient's complex medical needs to help avoid hospital readmissions or costly complications, we believe our goals are aligned with our payer partners. Today we are working with some of the most innovative health plans to support their site of care initiatives, which we believe positions us to make a meaningful contribution in helping to reduce the total cost of care. We continue to invest vigorously in our people, process, technology, and facilities. Since the beginning of 2025, we opened another state-of-the-art compounding pharmacy in Virginia opened three additional infusion clinics, invested further in advanced technology enablement, and expanded our nursing capabilities. On the advanced technology front, we continue to expand our use of robotic process automation and machine learning to help improve the efficiency and effectiveness of our revenue cycle management process. We have seen consistent improvements in cash collection velocity, resource productivity, and spending leverage. Through our strategic partnership with Palantir, we have launched AI embedded intelligence into our patient registration process, which is specifically designed to improve the speed and accuracy of onboarding new patients and manage the re-verification and reauthorization process for existing patients. We also continue to invest in our internal nursing capabilities and Navin Health, our standalone nursing agency. Navin Health conducted almost 50,000 nursing visits in the quarter, which represents significant growth over the prior year. They remain a key enabler of our ability to effectively take on new patients. As we announced on the fourth quarter earnings call, in late January we closed on our acquisition of IntraMed Plus, a home infusion pharmacy and ambulatory infusion center operator in the southeast. I am pleased to report that our teams are working together seamlessly And we remain on track to achieve the financial and operational performance goals from this acquisition and to leverage some of the best practices from their operations and infusion clinics across our network. Not only did this acquisition help to expand our infusion clinic footprint in a key and growing region, but it also expanded our use of the advanced practitioner model and increased the number of chairs we operate. As a reminder, we operate over 750 infusion chairs across the country, which we believe provides a safe and convenient alternative for patients who are willing and able to receive care outside of their home. We continue to see increased utilization of these facilities in the first quarter and conducted over one-third of our nursing visits in one of our centers. In addition to our deployment of capital towards the InterMed Plus acquisition, We repurchased $100 million of stock during the quarter, capitalizing on the strength of our balance sheet. And finally, I would like to take a few minutes to speak about how we are viewing the macroeconomic backdrop, as well as the potential impact of proposed tariffs. Like all enterprises, we continue to monitor closely developments out of Washington and evaluate internally through our enterprise risk management framework how various scenarios may impact our operations. I do not need to tell you that the tariff situation is complicated and highly uncertain. However, let me tell you what I do know. We do not manufacture or directly import products that may be subject to tariffs. However, we purchase through various distributors or manufacturers medical supplies and pharmaceuticals that are used to administer care to our patients. What is difficult to assess at this point is how tariffs will be applied to those products and when and to what extent any of those costs will be passed on to us in the form of price increases. We currently have a cross-functional team that is working hard to identify the country of origin of key supplies and pharmaceuticals and determine ways to help manage and mitigate the impact of any proposed tariffs. As we sit here today, there remains a high level of uncertainty and therefore it will require close monitoring and an agile approach as we attempt to navigate these impacts. That being said, as you saw this morning, given the strength of the first quarter, we increased the lower end of our full-year adjusted EBITDA guidance range to reflect the first quarter performance, but left the top end unchanged largely due to the uncertainty of the market. In closing, I'm quite pleased with the progress the team has made in the first quarter in driving results as well as continue to build on our strength and invest for future growth. With that, I'll hand the call over to Mike to provide additional details. Mike?

Thanks, John, and good morning, everyone. Overall, as John mentioned, the first quarter was a strong start to the year. Revenue growth of 16% was quite balanced, with mid-teens growth within our acute portfolio therapies and high teens growth across the chronic therapies. The acute therapy growth we delivered in the quarter was notably higher than we have seen historically, And the team executed well in targeted areas. We also saw improved supply chain dynamics for acute therapies, which further contributed to the growth. Within the chronic therapies, we delivered balanced performance across the portfolio with continued strong growth within our limited distribution in rare and orphan therapies. Gross profit of $263 million grew a bit over 10% versus the first quarter last year. And there's a bit to unpack here. Gross profit benefited from the therapy mix as acute therapies helped the dollar grow. As we outlined on our fourth quarter call, we projected a $60 to $70 million gross profit impact from the Stellara economics reset we've previously discussed. We continue to believe that range for the full year is accurate, but there was minimal impact in the first quarter as we exited 2024 with higher Stellara inventories that were exhausted in the first quarter of 2025. We estimate that roughly $5 million of the $60 to $70 million negative Stellara gross profit impact was realized in the first quarter. SG&A was in line with our expectations, and we did augment some of our patient support and field functions in anticipation of the higher acute volumes, and to help ensure a smooth and efficient benefit re-verification and reauthorization process. We continue to expect strong spending leverage for the year, which is a hallmark of our value creation strategy. Adjusted EBITDA of $111.8 million grew 13.7% over the prior year and represented 8.4% in net revenue. And adjusted earnings per share of 40 cents grew 14.3% over the prior year. As John mentioned, we were active in deploying capital in the first quarter. In addition to closing on the $117 million acquisition of Intramed Plus, we also repurchased $100 million of stock in the quarter. Notwithstanding those outflows, we continue to maintain what we believe is a strong balance sheet in capital structure with the capacity to continue pursuing value creation strategies for our shareholders. Finally, I just want to provide a quick update on our expectations for the full year. For full year 2025, we now expect to generate revenue of $5.4 billion to $5.6 billion and adjusted EBITDA of $455 million to $470 million, which we believe will translate into adjusted earnings per share of $1.61 to $1.70. We continue to expect to generate more than $320 million in cash flow from operations. At this point, our guidance does not reflect any extraordinary impact from tariffs or other policy changes from the administration, as we do not believe we are in a position to determine such an impact or accurately quantify at this time. To the extent we determine that such an impact exists and we are in a position to quantify, We intend to incorporate this into our expectations and articulate accordingly. So overall, we're quite pleased with the solid start to 2025, and we expect it will be another year of growth for Option Care Health. And with that, we'll open the call for questions. Operator?

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone, then 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 the line of Lisa Gill with JP Morgan. Your line is open.

Good morning, and thanks for all the detail. Mike, I just want to go back to the guidance update, you know, talking about no impact thus far for tariffs, but you beat by 7 million, raised by 2.5 million. I understood John's comments that there's some level of uncertainty still in the marketplace, but is there anything else that you're concerned about or looking at for the rest of the year from an underlying fundamental perspective, or is this just you being conservative?

Hey, good morning, Lisa. Look, as you know, historically, we enter the year relatively cautiously. I think this year, to John's point, you know, just underscores the need to tread a little carefully. Look, a couple of things. First and foremost, as you know, we don't provide quarterly guidance. So, you know, the first quarter can be a bit wonky at times with, you know, dynamics coming out of the holidays and benefit plans resetting. So I would caution folks to take a beat versus an external collective expectation and try to extrapolate that out throughout the year. As I highlighted, look, a lot of things going on in the first quarter. We saw very robust growth within our acute portfolio. We had a relatively muted impact from the Stellara economic reset because we exited the the year with higher inventory levels than we thought, which, you know, that inventory was at the more favorable procurement levels. And so, look, at the end of the day, you know, we were able to bring up the bottom end of the range. And, you know, at the midpoint, we're still expecting earnings to grow in the high teens. So, you know, I think it just, you know, the first quarter is always a little hard to extrapolate because there's always, you know, some dynamics going on.

No, I appreciate that. And then just secondly, you know, there were a lot of changes with MAPD with the out-of-pocket costs lowered. You know, you talked about acute growth, but I would think that that potentially would impact more of the chronic side of your business. So, just curious if you're seeing an increase in utilization due to some of those changes.

Hey, Lisa, it's John. Thanks for the question. Yeah, as we said, we saw strong growth in both the acute and the chronic. We continue to see that moving forward. We do think that some of the changes that have come forward will benefit us in some of the aspects of The write-offs that we have for some of the patient obligations, as you would expect with a bigger amount of out-of-pocket, it's harder to collect that from some of the patients, given the economic conditions that they have or the socioeconomic strata that they occupy. You know, we don't see a lot of that in the first quarter. Where we will start to see it is in the back half of the year. We, you know, think we're well positioned. We work aggressively with all of our patients to tap into patient's assistance program and other foundation and other aspects to move that along. Hard to determine right now, you know, what the net impact is going to be, but, you know, we work hard within our revenue cycle management team in support of patients and making certain that we collect every dollar that is owed.

Great. Well, thanks for the comments and congrats on the first quarter.

Thanks, Lisa.

Thank you. Please stand by for our next question. Our next question comes from the line of Peto Chickering with Ditcher Bank. Your line is open.

Hey, good morning, guys, and thanks for taking my questions. I understand the complexities around the tariffs, but can you walk us through the mechanics of what happens if pharma increases their prices due to tariffs and how it could flow through your branded and generic business? Any impacts under the different reimbursement mechanisms like AWP and ASP? And then remind us why IVIG probably doesn't have any impact from tariffs.

Thanks, Pito. It's Mike. As always, one question in 15 parts, so appreciate that. Look, as you know, look, a large component of our revenue is reimbursement for the pharmaceutical or the therapy. We have relatively good balance across the reference prices in terms of how we invoice the health plans, a mix of AWP and ASP, and those reference prices generally correlate to the underlying indices that we utilize to procure the drugs. Roughly half of the drugs, the $3.5 to $4 billion of drugs that we procure every year, roughly half is coming directly from manufacturers, half through wholesalers, but ultimately it's at those reference prices. And so, again, I don't want to leave a connotation that it's a perfect hedge, but to the extent that drug prices increase, that would presumably have upward pressure on the reference prices that correlate to how we get reimbursed because we're billing health plans at a reference price plus or minus a spread. And those reference prices also are utilized with our procurement relationships to determine what we're buying. So, again, I wouldn't want to leave the expectation that it's a perfect hedge. But over time, you know, that spread that we make is relatively consistent, whether it's a generic or whether it's a branded drug.

Okay, great. And then for IVIG, I guess, because that's for U.S. domestic, that's for nil-impact there, correct?

Well, I mean, the biggest raw material for IG, whether it's sub-Q or intravenous, is human plasma. And in the U.S., it's required that human plasma be utilized. So, you know, that's the biggest raw component. I don't fully understand, you know, where the fractionators are adding value, whether it's onshore or offshore, but one would presume that, you know, given more domestic content for that therapy, you know, that would leave a connotation that there would be lower tariff impact. But that's a better question probably for the fractionators.

Great. And then for the follow-up, I guess back to Salar, I guess going back to you know, where the guidance was sort of going into the quarter or going into the year or sort of where it is now. I guess the change is on the procurement inventory that you guys had. Can you sort of walk us through how you were thinking about the seasonality for the Solara impact and any impact to the annual guidance and how we should think about that? And then your thoughts around biosimilars and Solara. Thanks.

Yeah, I'll take the first, and then I'll let John jump in on the biosimilars. Look, I mean, as I mentioned in my prepared remarks, the $60 to $70 million, I think, remains intact. Our expectations were that we would exit the year with a reasonable level of scalar inventory at the more favorable procurement levels. You know, it was more timing than anything else. We think that the $60 to $70 million still remains intact. Again, call it five, and again, it's not a perfect science because there's a lot of moving pieces, but roughly five of the 60 to 70 impacted the first quarter. So quick math is you would expect going from Q1 into the subsequent quarters about a $20 million negative impact. Notwithstanding that, we still increased the bottom end of our range because we're seeing a lot of momentum in other areas of the operations.

Yeah, and then, you know, the only other thing I'd add is, you know, we entered the year with a, you know, a goal to continue to support the Stelara patients as we've called out before. Stelara patients are still profitable. They're just less profitable than they were before. Team had done a really, really good job of making certain that we went through that re-verification and reauthorization process. We've maintained a solid portion of that patient census, and that remains intact. And again, I think it just speaks to the clinical programs that we have in place and the support of this unique patient population, which requires a letter of medical necessity and has some complexity in their care plan that our team can provide. As for the overall BioSim environment, Not a lot of change in our existing book. We continue to work closely with all the manufacturers to make certain that we have access to product on the formulary. We expect that as time moves through the year, we'll continue to have... you know, a bigger portion of patients that will start to utilize those products. And so that was factored into the way that we're looking at it. And I'd say it's patterning as we had expected, you know, within a pretty tight range to the overall view we had as we entered the year.

Great. Thanks so much and great quarter. Yeah, thank you.

Thanks, Vito.

Please stand by for our next question. Our next question comes from the line of Constantine Davids. But citizens, your line is open.

Thanks, John. In your prepared remarks, you talked a bit about how you're increasingly demonstrating your value proposition to your payer partners. And can you just talk about how that dialogue has changed over the past year or so and maybe what some of the more progressive payers are doing or thinking with respect to infusion benefits and plan designed around that area? Thanks.

Absolutely. Thanks for the question. You know, with some of the shifting market dynamics, as you would expect, the ability for Option Care Health to be that partner of choice to help transition patients out of the hospital into the home, you know, we played a bigger role. You saw some of the growth in the acute therapies in the quarter as supply has improved on the IV bag and our team, you know, executed well within that process. The value of a bed day is huge. And if you're working to try to manage your medical loss ratio and reduce the total cost of care, we are part of that solution. We offer high-quality care at an appropriate cost in a setting in which patients want to receive it. So the conversations that we've had with the payers, especially with some of the competitive retrenchment, that has happened is one that puts AuctionCare Health as a meaningful part of their network design. We're able to provide that broad spectrum of products, both in the acute and chronic. Our responsiveness at the local level is something that we take pride in. We understand the positive impact we have on the patients that we serve. And we are partnering in deeper ways, given the capacity that we have to take that on. You know, how that kind of fits into that longer second part of your question is there is a lot of focus around the total cost of care. And so some of the innovative partners that we're working with are looking at state of care initiatives in which they're helping to inform their members around selections or choices that they have in where they can receive this care. and are helping to inspire them to choose those lower-cost settings to help them make informed decisions around the treatment plans and how they receive their infusion, whether it's in one of our infusion chairs or in the home. And so we're working with them to help identify those patients, to help to bring those patients onto service with option care help, and help to reduce the total cost of care for the health plan.

Thank you. Please stand by for our next question. Our next question comes from the line of David McDonald with Truist. Your line is open.

Yeah, guys. Good morning. Just a couple of questions. Just want to follow up on Connie's question. Look, I mean, your payers have had to pivot a couple of times in the last two years around acute I'm just curious, you know, conversations around that, you know, any potential halo effect or expected halo effect, even in, you know, chronic in terms of ability to pick up some additional business, just given the support that you guys have provided on the acute side.

Yeah, Dave, again, I don't want to repeat myself, but yes, we feel we're really well positioned in those conversations. We believe, yes, there's probably some goodwill that's created and the ability to help them with a very complicated patient base that are being discharged from the acute settings and be able to take those on. So, you know, our dedicated team in market access is are having those conversations. We continue to articulate the value that we bring, how we can serve their members across the broad spectrum of therapies that we have within our portfolio. And we're going to continue to utilize the strength of the breadth of our portfolio and the responsiveness of our team to win in the marketplace. And we know we have to win each patient We have to win every single day. This is a hustle business and one in which our team is up to that challenge.

And Dave, the only thing I'd add is, to borrow your term of the halo effect, I think as you know, acute referrals, they're not easy. The response time is quite rapid. But for forward-thinking payers, even though the sticker price of the therapy is lower than the chronic's, the value it creates by reducing bed days and helping them with MLRs is dramatic. And so that's where I think we really can articulate the value is getting their patients out of the hospital quicker.

And guys, just, you know, you mentioned best practices at Intramed. Is there kind of one or two areas that you would point to where they're kind of really doing a good job or anything that you would call out in terms of, you know, them doing something a little bit differently?

Yeah, I would call out their execution around their advanced practitioner model is one in which there are plenty of learnings that we can take out of that and apply across our platform as we continue to expand in that. They have worked really hard within their model to provide a broader spectrum of products and really to execute well around that. And so I think we feel really pleased about that. The other thing is they moved ahead on some of the technology implementations of next generation of the core pharmacy system. So it gives us an opportunity to learn fast around that technology, how to integrate that. We're going to be moving in that direction over the long run. And so it gives us really a sandbox to play in, a place to have an innovation center around some of the technologies. We're thinking about that next generation intelligent platform that we're building. And so it gave us a jump pad to really start from. in a really informative and, I think, innovative way.

And then, guys, just two more. You mentioned AI, mostly in the area of revenue cycle management, understanding the dynamics around lack of bad debt and chronic. I'm just kind of curious, when you look at acute, is there an opportunity through some of these initiatives around potential bad debt and acute

Yeah, I mean, look, the team has been relentless, Dave, around not only efficiency of how quickly and comprehensively we can onboard new patients, but utilizing technology to make sure that we're putting a clean claim in front of a payer. Because miraculously, when you put a clean claim in front of a payer on a timely basis, they pay very quickly. And so, again, as John said, that's really where we've been deploying AI and some of the RPA is really around a lot of the back office. Again, a lot of times when our teams are receiving referrals across the country, the expectation is well within an hour, we're getting back to them with a comprehensive answer. And that's where not only is automation helping us on the front end, but it's just creating a more confident rev cycle event on the back end, which is, as you know, all too well results in much lower contractual and bad debt.

And then guys, just last one, Mike, I just want to make sure I'm thinking about this correctly. Obviously heard the comments around Scalera. But is it fair to say that you guys absorbed, it sounded like maybe a little bit of inflated costs as you brought on some of the additional quorum business and, you know, maybe those costs get absorbed a bit better as we move throughout the year also. So a little bit of a push and a pull. Is that fair?

That's very fair.

Okay. Thank you guys. Thanks Dave.

Please stand by for our next question. Our next question comes from the line of Matt LaRue with Wim Blair. Your line is open.

I want to ask on the acute growth in the quarter. If I think back a couple of years ago when there were some other competitive departures, you had about a four-quarter period of higher growth. You know, the magnitude of growth wasn't quite what we saw in the first quarter. So maybe just thinking about this opportunity, I actually think of, I guess, the sustainability of that. So obviously, it's difficult because we're everywhere. but, you know, maybe just as a way to gauge the size of this chair shift opportunity relative to one public reason.

Yeah, Matt, look, we turn the patient population within the acute portfolio every single month. So, you know, the revenue gain from mid-22 when we saw some of the market dynamics shifting, you know, statistically all of those patients are off service. But we've been able to maintain the – you know, the referral sources confidence in our dependable service model across the country at the local level. Look, this time around, I think we had a better playbook. You'll recall in the third quarter of 22, we talked about, you know, trying to respond with labor models. We were very proactive in making sure that we had the clinical resources, we had the rev cycle and the patient registration resources. And my comments, I mentioned we did invest up a little bit in the first quarter. And to Dave's point, we expect that absorption to improve. And look, we're thrilled. We fight for every referral every day. We saw, you know, mid-teens growth in the acute, which, as you know, is very attractive from a margin contribution perspective. We would expect that we'll lap that, you know, going into the fourth quarter to some extent. But, you know, the team never lets up. And You know, our expectation is we're going to continue to fight for those referrals and deepen the relationships at the lower level. And we'll look to build off this revenue base going forward. That's a very important strategic component of our go-to-market strategy.

Okay, thanks. And then just two quick thoughts. One on the reference pricing dynamic. Are all the contract structures similar in terms of how quickly – the pieces of the formula, you know, get updated, whether it's every six months or a year. Obviously, a couple years ago, you had a procurement benefit, so there was some lag there between what you're recognizing, so that may be the first. And then the second will be the reason for self-objection, which is an option for one of the clients that you work with, and you can just do a good kind of reminder to sort of put a breakdown in terms of what's similar versus there are any, you know, larger branded therapies, that you're exposed to, similar to a solar. Thanks.

Yeah, remind me, Matt, real quick. I was scratching out some notes. Your first question?

I just want to understand the sort of the duration, how quickly if you... Yeah, yeah, yeah. Yeah, exactly, yeah.

Yeah, look, structurally, the payer contracts, there's variation, but at its core, it's a reference price, whether it's ASP or AWP, they use reference bureaus to, you know, at the JCODE level to... to reimburse us at ASP or AWP, whatever the spread is. On the procurement side, it's a little different. We do have some prices locked in. It's frankly a little stickier in terms of the ups and downs so that we have more forward visibility. But over the longer term, most of those contracts, the ones that do have some established terms and fixed prices, typically are on an annual basis. So within a year or so, you know, the reference price impact on the procurement and the reimbursement pretty much catches up.

And then on the Stellara and then other biosimilars, you know, as I said earlier, Matt, you know, Stellara is patterning pretty much as we expected in not only in what we've retained, but then, you know, as we look at the biosim uptake and how that's moving forward really early at this stage, as you know. So, we'll see how that kind of moves through the rest of the year, but right now it's kind of within alignment with those expectations. You know, as for other biosims and kind of the way that we've looked at the rest of the portfolio as we've conveyed, you know, in public information that we have provided. Has not been a significant change in the portfolio. We don't feel like there's significant risk. No product is more than 5% of the revenue. You know, there was some noise earlier in the quarter around Hytrulo, which is VivGuard's, ArgentX's product that went subcutaneous. Again, we think that it's an opportunity for us to continue to demonstrate our clinical competencies and capabilities. We have that product as part of our portfolio. We'll continue to support innovators as they're bringing new products into the marketplace. We also think that it kind of creates a broader awareness in the marketplace of some of these products and the opportunity to move that forward. We feel very confident in the portfolio that we have. We don't see that there are significant changes, as we had outlined before. And we like the breadth of the portfolio. And now, especially with getting you know, of even better balance with acute and chronic, we think we'll be well-positioned as we continue to work with innovators to bring new products in the marketplace, to continue to work with products through their maturity lifecycle, and continue to make a difference in the lives of the patients that we serve.

Great. Thank you. Thanks, Matt.

Please stand by for our next question. Our next question comes from the line of Bryant Tanquillit with Jefferies. Your line is open.

Hey, thanks for the question, and congrats on the quarter. It's Jack Slevin on for Bryant. Apologies in advance on this one. I'm going to ask one more on the tariff front just to make sure that we understand the dynamics on reference pricing. Maybe just being a bit more direct, I think the concern out there right now is that there could be a sort of air pocket in time where tariffs swing prices up and reference prices don't move yet and you would sort of have to take it on the chin. I just want to understand, Mike, based on your other comments and acknowledging that there's a lot of unknowns here, but if we think about how long it takes for, for example, ASP to update on a, you know, decently significant lag, is it right to think that on the procurement side you have a little more flexibility to sort of match up to where the reference price is going to be absent a tariff move? Or can you just give a little more color on that front? Great.

Yeah, Jack, I'd caution around taking it on the chin approach. Look, as we mentioned, on the procurement side, our team has very good direct dialogues with manufacturers and wholesalers. A number of our procurement contracts have relatively static prices for you know, an interim period. So, you know, we try to manage that variability and volatility in that spread to the best we can. Again, on the reimbursement side, you know, we're billing and submitting claims on the reported NASPs and AWPs. And so, based on what we know right now, we don't see a likely scenario where there's some kind of severe disruption in terms of the lag around the reimbursement and the procurement. And again, we have a balance sheet that's very robust, similar to what we did at year end. We're willing to use it to soften the impact and lean in where we think there's opportunities for us to minimize that volatility. And look, ultimately, we're managing this for the longer term. We have a great portfolio of therapies, all of which have different procurement and reimbursement dynamics. And that's what we continue to preach, which is the power of the diversified portfolios.

Got it. Super helpful. And then just one quick follow-up. I just want to clarify the comment, John, you made on the expansion of clinics. Should we think about those as the infusion suites that you've built out a pretty large network of? Or is this more on the advanced practitioner slash center side? And should we be thinking about going forward sort of more expansion on that front rather than the suite model? Thanks.

Yeah, Jack, I would think of it as our expansion of chairs and really focus around it from that perspective. These three facilities that were open will be able to take patients on both sides of that equation, whether it's through the practice of pharmacy and an infusion suite, as we called the AIS historically, and a advanced practitioner model where we would have an advanced practitioner that would oversee. So, you know, that ability for us to have more chairs available for patients in the communities that they live and work is part of our overall design. And I wouldn't try to bifurcate between those two as much as expanding our ability to serve patients. you know, where they're willing and able to be served in one of the infusion chairs that we have and provide the appropriate oversight through either an advanced practitioner or registered nurse.

Got it. Super helpful. Thanks again and congrats on a great quarter. Thanks, Jack.

Please stand by for our next question. Our next question comes from the line of Joanna Godgett with Bank of America. Your line is open.

Hey, thank you so much for taking the question. So a couple follow-ups. I guess first on the Stellara headwind, only being $5 million in the quarter, and you'd still expect the same, I guess, for the year. So is the $5 million how you had expected this to play out in the quarter?

Yeah, Joanna, we expected more of a muted impact in the first quarter. Again, we knew we would exit the year with some inventory levels. Generally speaking, it patterned out generally. I mean, put it more or less how we thought. We thought that the first quarter would not be as impactful as subsequent quarter.

Okay. I just want to clarify to make sure there's nothing like if it didn't happen in 25, there's going to be like additional headwinds in 26. But I guess we kind of had expected this. So I guess the fact is that the headwind is going to be higher in the rest of the year. But I guess then it still means, right, there's going to be some incremental howling first quarter of 26 year over year because the first quarter of this year is lower, right? So that's the right way to think about it.

Yeah, I mean, the way we think about it is a $60 to $70 million impact for the year, relatively minimal impact in the first quarter based on the bleed out of older inventory. but yet we brought up the bottom end of the earnings range. And again, back to Lisa's first question, I'd just caution folks around calendarization because how the first quarter patterns out relative to the first year when we don't provide quarterly guidance can be a little wonky. But overall, you know, we're bringing up the guidance range despite the fact that we still expect a $60 to $70 million impact this year.

Great. And another clarification, sorry, on the tariffs, but I guess a different angle. Obviously, the pharmacy cap is much bigger than but obviously there's also, you know, these are the stuff you buy where like equipment and, and whatnot. So maybe talk about those numbers and also if you can size those in terms of say like medical supplies on these other items, you know, a percent of your revenue or cost or however you can frame it. And cause I want to say that, you know, there was a period of time during the pandemic, but where you had flagged, you know, there's some, There were some shortages, obviously, of PPE and things, and there was some pressure on the cost of these, you know, different items and plastics and such. So maybe help us also frame, you know, that number, which I assume is probably very small.

Yeah, I'll take that, Joanna. So, you know, again, as I called out, you know, we've had a team that has been working to do a comprehensive review of all of our You know country of origin for all of our products and trying to anticipate what that looks like just to put it in perspective We spend roughly a hundred million dollars on med supplies across that And when you look at that and you you kind of refine it down to I think right now, you know The the biggest concern would be around China China's less than 10% of that and we have alternative vendors that could mitigate some of that as we would source from different countries of origin through that process. So, you know, is it something we're watching closely? Absolutely. Is it something that our team is working aggressively to make certain we understand and can find ways to manage and mitigate? Absolutely. But we don't think it's, you know, a significant amount at this point in time as we look at the med supplies and how we manage that within the overall portfolio.

Thank you. Any time we have another follow-up, I guess, on your acquisition, right? So you said it's tracking actually, you know, as expected in terms of the integration and such, but just thinking about going forward. So is it still, you know, now a good time to buy or because of this uncertainty around tariffs and economy, whatever it might be, you know, you're kind of on pause because obviously, you know, you did the deal, but you also bought a lot of tokens in Q1. So just kind of walk us through your process in terms of thinking about deploying capital on acquisitions. Thank you.

Yeah. Joanna, look, I mean, we're going to continue, as I mentioned in our prepared remarks, we deployed over $200 million in the first quarter and still exited with a very healthy balance sheet. We're not going to be shy about deploying capital to create value, whether it's through M&A or whether it's through continued share repurchase. We have $400 million of additional authorization. I'd say on the corporate development side, we remain very active. Obviously, given the broader macro environment, we're going to tread carefully, but I think Intramet is a very good example of the type of deals that we're looking at around smaller, more complementary, lower risk. A lot of the properties and assets that we know, we know them well. This isn't that big of a neighborhood, and so we'll be very thoughtful, but I think you know that we're always very judicious and thoughtful in how we deploy capital, and anything that we're going to preserve pursue, we're going to have a very high degree of confidence in the favorable returns.

Great. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of AJ Rice with UBS. Your line is open.

Hi, everybody. Thanks for the question. I think on the acute side, you've, you know, obviously historically that was sort of a low single digits, then you said maybe with some of the exits and competitor exits that you can move that to high single digits. Now, this quarter, you're mid-teens. Is that just more benefit from what's happening in the market restructuring-wise, or is there some other dynamic that's driving that strength and acute from your perspective?

Yeah, AJ, look, I mean, as we think about that portfolio of therapies, I'd say on an overall basis, we see those growing in the low single digits. These are mature therapies like intravenous parenteral nutrition, intravenous antibiotic therapies. These are therapies that have been around for decades, very valuable in helping, as I mentioned earlier, on discharging patients from the hospital. that cohort of therapies on a macro basis is growing in the low single digits. I think to a lot of John's comments around the investments we've made, the infrastructure that we've added with state-of-the-art compounding pharmacies, we've been able to grow faster than what we perceive as the market. In the first quarter, there were some meaningful competitive dynamics in certain markets where we were able to jump in roll up the sleeves and play a bigger role for a lot of leading health systems. I don't want to lead the audience to believe that we see mid-teens as the underlying growth rate for the acute therapies, but similar to mid-22, we were able to jump in and grab higher volumes and grow off of those higher volumes, and I think that's what we would expect. Our guidance would presume that we will continue to see robust acute growth really until around the fourth quarter, not that we're giving back volume, but we're just going to anniversary some of that volume pickup.

Okay. And then I appreciate the comments of your continuing to be focused on acquisitions. I wondered probably two things on the Washington front. Obviously, tariffs is the main place we focus relative to your business, but they're talking about Medicaid cuts. They're talking about potentially some site-neutral stuff related to potentially impacting where drugs are administered. Is there anything in particular that you're focused on there that either could be a challenge or an opportunity? And you said you're still out there looking for acquisitions. Is it impacting in any way this uncertainty, the willingness of sellers? Are you seeing more sellers? Are you seeing less sellers? How is that affecting the dynamics of the market?

Yeah, AJ, it's John. I'll take this one. So, you know, I think the pace of books that we see is patterning about the same as it has. I haven't seen an increase in the number of people that are looking to sell. But, you know, there's a pace that's there. And as Mike said, we will, you know, take a look and see if there's opportunities for us to take on and to do transactions that will create shareholder value. As for Washington, yeah, we're keeping our finger on the pulse. Certainly, site neutrality, pricing, transparency, you know, are front and center. It's too hard at this point in time to hazard a guess as to where that could be, but I will say, again, we offer high-quality care at an appropriate cost in a setting in which patients want to receive it. If the government is looking for lower-cost settings in order to provide care, Our expectations are we can be part of that solution as we move forward. So I think that's the areas that we're focused on. We continue to try to get expansion of home infusion therapy access for Medicare beneficiaries. That's front and center. We believe that the next opportunity is going to be as part of the reconciliation process as budgets need to get moved forward. And again, we're active in Washington to not only have listening posts and understand the what's happening, but more importantly, to make certain that our voice is heard. Okay, thanks a lot. Thank you, AJ.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to John Reitmacher, Chief Executive Officer, for closing remarks.

Yes. Thank you for joining us this morning and participating on our call. As we outlined, the first quarter was very productive, and our team continues 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 and delivering value to our shareholders. Thank you very much, and have a great day.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.