Brian Tanquilut

Brian Tanquilut from Jefferies & Company Inc. inquired about quantifying the revenue and margin impact of technology like C-Mode, given the existing demand backlog, and asked for an update on the capital deployment strategy for M&A and de novo center growth.

Answer

Howard Berger, Chairman, President & CEO, explained that C-Mode could reduce radiologist interpretation time by up to 50% and technologist scan time by 30%, creating significant capacity. Mark Stolper, EVP & CFO, added that the margin flow-through on this incremental volume would be substantial. Stolper also noted a growing M&A pipeline, primarily for imaging centers, alongside plans for nine de novo openings in 2025 and eleven in 2026.

Brian Tanquilut from Jefferies & Company Inc followed up on quantifying the impact of acquisitions like C-Mode on capacity and revenue, asking if demand is sufficient to fill new capacity. He also asked about M&A capital deployment strategy and the outlook for de novo center growth.

Answer

Howard Berger, Chairman, President & CEO, explained C-Mode's benefits: reducing radiologist interpretation time by up to 50% and technologist scan time by 30%, potentially adding 1-2 more slots per hour per system in busy centers. Mark Stolper, EVP & CFO, added that the margin flow-through from this incremental capacity is substantial. He also stated the M&A pipeline is strong, focused on imaging centers, and that RadNet is targeting 9 de novo openings by year-end and 11 more in 2026.

Brian Tanquilut of Jefferies inquired about the long-term growth sustainability for advanced imaging and the key drivers, as well as the current M&A and health system joint venture (JV) pipeline for the next 12-18 months.

Answer

CEO Howard Berger responded, stating he expects advanced imaging growth trends to continue, driven by AI tools like TechLive, new equipment efficiencies, and growing demand in PET/CT and cardiac imaging. On M&A, Dr. Berger noted a 'very robust' pipeline, emphasizing that hospitals are increasingly seeking RadNet's solutions to address their own operational and staffing challenges in radiology.

Brian Tanquilut from Jefferies asked for clarification on the underlying volume growth rates assumed in the 2025 guidance, the rationale and future run-rate for the $20 million investment in Digital Health infrastructure, and the specific clinical AI revenue for Q4 2024.

Answer

Mark Stolper (Executive) clarified that after adjusting for the weather and wildfire impacts, the guidance implies approximately 7% revenue growth, which includes a conservative 3% same-center procedure volume growth assumption. Dr. Howard Berger (Executive) explained the $20 million Digital Health investment is largely a one-time cost in 2025 to build out sales, marketing, and implementation teams to support significant external growth, driven by market demand from labor shortages. He stressed that the 2025 guidance includes no assumed benefits from the internal deployment of the DeepHealth OS. Mark Stolper later confirmed Q4 clinical AI revenue was $6.7 million.

Brian Tanquilut inquired about the operational details of the new GE HealthCare collaboration, specifically how the SmartMammo solution works and how it differs from the existing EBCD offering. He also asked about the key drivers for future margin improvement.

Answer

CEO Dr. Howard Berger explained that the GE deal embeds the DeepHealth OS onto GE's mammography systems, creating a turnkey solution for both conventional and alternative sites like Walmart. He clarified this includes the EBCD program and will be distributed by GE's sales force. Dr. Berger also stated that future margin expansion will be driven by the DeepHealth OS streamlining manual processes like scheduling, reporting, and revenue cycle management, thus improving operational efficiency.

Brian Tanquilut asked about the remaining monetization runway for Doximity's current suite of physician tools, questioning if the focus is still on winning new contracts or filling pharma ad space, and the current stage of market penetration.

Answer

Jeff Tangney, Co-founder and CEO, stated Doximity is pacing ahead of last year in new contract activity, emphasizing client ROI. He highlighted the 118% net revenue retention rate and 18% 'same store sales' growth, indicating early innings for continued growth.

Brian Tanquilut asked about the remaining runway for monetizing physician attention with Doximity's current suite of tools, and whether the focus is still on winning new contracts or filling pharma ad space, asking what "inning" Doximity is in.

Answer

CEO Jeff Tangney stated Doximity is pacing ahead of last year in new contract activity for October and continues to see good business growth, driven by strong return on investment for clients. He highlighted the 118% net revenue retention rate and 18% year-on-year "same store sales" growth, indicating clients are spending more. He believes Doximity is still in the "early innings" given the ROIs shown to clients.

Brian Tanquilut from Jefferies & Company Inc. inquired about the current performance and trends within Doximity's Curative physician staffing segment.

Answer

CFO Anna Bryson reported that Curative, which constitutes the bulk of the 'other revenue' line, grew approximately 20% year-over-year in Q1. She expressed excitement about using AI to enhance recruiting and reiterated that the multi-billion dollar locum tenens industry represents a strong long-term growth opportunity for Doximity.

Brian Tanquilut asked about the strong results in the Oncology and Multispecialty segment and whether the quarter's performance beat was already factored into the guidance provided at the recent Investor Day.

Answer

Britt Vitalone, Chief Financial Officer, clarified that the majority of the non-recurring gains contributing to the strong performance were known and included in the Investor Day guidance, with one item's cadence being more back-half weighted. He highlighted that about half of the growth was driven by the acquisitions of PRISM and Core Ventures, which are performing well, and the organic business grew 13% year-over-year, aligning with long-term guidance.

Brian Tanquilut inquired about the strong performance in the Oncology and Multi-Specialty segment and whether the quarter's beat was already factored into the guidance provided at Investor Day, given that the guidance was maintained.

Answer

Britt Vitalone, CFO, clarified that the majority of the non-recurring gains in the quarter were known and included in the Investor Day guidance, with one item's cadence shifting. He noted that about half of the strong growth was driven by the performance of the Prism Vision Group and Core Ventures acquisitions, while the organic business grew at 13% year-over-year, aligning with long-term guidance.

Brian Tanquilut from Jefferies & Company Inc. asked about the year-over-year decrease in operating expenses, seeking to understand the trajectory and quantify the future impact of technology and automation initiatives.

Answer

EVP & CFO Britt Vitalone described the OpEx improvement as part of a long-term strategy focused on cost discipline and efficiency. He highlighted that ongoing investments in automation within distribution centers and other process improvements are driving better cost leverage organically across the company, leading to a sustained improvement in the operating expense to gross profit ratio over time.

Brian Tanquilut of Jefferies asked a two-part question regarding market share in the Medical-Surgical business and whether the distribution business for the newly acquired PRISM Vision would be incremental to McKesson.

Answer

CEO Brian Tyler addressed the Medical-Surgical question, stating the focus is on alternate-site locations and growing share of wallet rather than traditional market share. CFO Britt Vitalone confirmed that McKesson is not the current distributor for PRISM, and this business will be incremental, with its value factored into the provided accretion estimates.

Brian Tanquilut inquired about the salaries line as a percentage of revenue, Encompass Health's labor trends, and the expected optimization of EPOB (employees per occupied bed) as capacity ramps up. He also asked for an update on the Oracle Fusion ERP rollout, initial observations, and the timeline for achieving efficiency gains on the P&L.

Answer

EVP and COO Pat Tuer explained that Q3 EPOB was influenced by de novo timing and robust hiring, including 162 net RNs, which will normalize as new hires complete orientation. President and CEO Mark Tarr reiterated that 3.4 EPOB is the target for efficiency and staff retention. CFO Doug Coltharp noted significant progress in reducing premium labor spend in 2025, anticipating core SWB per FTE inflation around 3% to 3.25% and high single-digit benefits inflation for 2026. Regarding the ERP, Doug Coltharp stated the October 3rd conversion was smooth across most modules, with ongoing bug fixes. He clarified that while enhanced workflow efficiencies are expected, the conversion was not driven by a specific ROI, so a quantified P&L impact is not being sought.

Brian Tanquilut inquired about the salaries line as a percentage of revenue, labor trends, and the optimal EPOB (employees per occupied bed) once capacity ramping is complete. He also asked for an update on the Oracle Fusion ERP rollout, initial observations, and expected P&L efficiency gains and timeline.

Answer

EVP and COO Pat Tuer explained that Q3 EPOB was influenced by de novo activity and robust hiring, including 162 net RNs, which will normalize. President and CEO Mark Tarr reiterated that 3.4 EPOB is the target for efficiency and staff retention. CFO Doug Coltharp noted significant progress in reducing premium labor spend in 2025, aiming to hold it steady in 2026. He projected core SWB per FTE inflation to stabilize around 3%-3.25% and benefits expense inflation in the high single digits for 2026. Doug Coltharp confirmed the ERP conversion on October 3rd was smooth, with ongoing bug fixes and refinements, but no specific ROI or P&L impact is being quantified as it wasn't driven by legacy system inefficiencies. Mark Tarr praised the teams for the near-flawless execution.

Brian Tanquilut from Jefferies asked about the potential impact of tariffs on construction costs and the feedback from referral partners following a recent news article.

Answer

EVP & CFO Doug Coltharp stated they have not yet seen a pronounced impact from tariffs on construction costs due to their sourcing strategies. CEO Mark Tarr confirmed they proactively communicated with partners about the article, emphasizing that partners recognize the company's high-quality outcomes, which they feel the article mischaracterized.

Brian Tanquilut of Jefferies asked if acute care hospital pressures are increasing interest in joint ventures, about the durability of demand in an economic slowdown, and the company's exposure to health insurance exchanges.

Answer

CFO Douglas Coltharp confirmed seeing increased interest from acute care systems in partnerships, with CEO Mark Tarr adding that existing partners are also expanding. Regarding the economy, Mark Tarr asserted that demand for their services is non-discretionary and not tied to economic cycles. CFO Douglas Coltharp stated the company has 'de minimis exposure to the exchanges.'

Brian Tanquilut asked how Encompass Health is thinking about the benefits from the recent 'vital caring' court ruling and how that might be recognized financially.

Answer

CFO Douglas Coltharp acknowledged the ruling as a 'great outcome' for the company. However, he stated that because it is part of ongoing litigation, he could not comment further on the specifics or the potential financial impact at this time, but promised to provide timely updates as the matter proceeds.

Brian Tanquilut from Jefferies asked about the growth algorithm for VITAS in 2026, specifically regarding Medicare rates, anticipated margins, and growth rates. He also inquired about competitive dynamics in Roto-Rooter and opportunities for improvement in the G&A line for both segments.

Answer

CFO Mike Witzeman stated that 2026 budgeting is early, but Q4 Florida Medicare cap liability will inform strategy. He speculated 2026 VITAS revenue in the 8% range and margins at 17.5%-18%, contingent on responsibly increasing long-stay patients. President and CEO of VITAS Healthcare Joel Wherley emphasized Q4 as a key indicator for agile census growth in Florida. For Roto-Rooter, Mike Witzeman noted increased paid search leads and reduced competitive pressure, while CEO Kevin McNamara highlighted that more leads improve pricing discipline and margins. Mike Witzeman added that tighter controls on technician discounting are a multi-quarter fix, and increased marketing spend is a strategic investment for top-line growth.

Brian Tanquillet from Jefferies asked for insights into VITAS Healthcare's 2026 growth algorithm, specifically regarding Medicare rates, anticipated margins, and overall growth rates, acknowledging the early stage of the budgeting process. He also questioned Kevin McNamara about competitive dynamics in Roto-Rooter and opportunities for SG&A line improvement in both Roto-Rooter and VITAS.

Answer

CFO Mike Witzeman speculated on 2026 VITAS revenue in the 8% range and EBITDA margins of 17.5% to 18%, contingent on Q4 performance and responsible growth in long-stay patients. Joel Wherley, President and CEO of VITAS Healthcare, emphasized Q4's role in determining the speed of returning to active census growth in Florida. President and CEO Kevin McNamara and CFO Mike Witzeman discussed Roto-Rooter's competitive dynamics, noting that increased spending on paid leads was yielding more leads, indicating moderating competition. They highlighted that while marketing costs increased SG&A, operational metrics remained strong, and improved lead volume could enhance pricing discipline and margins. Mike Witzeman added that VITAS's SG&A was down year-over-year in Q3 due to efficiencies and targeted cost-cutting.

Brian Tanquilut inquired about the specific strategies Chemed is using to mitigate the VITAS Medicare cap issue beyond Q3 and the expected impact on 2026 margins and revenue. He also asked for clarification on the drivers behind the recent admission trends.

Answer

EVP & CFO Michael Witzeman outlined the primary levers as focusing on short-stay hospital admissions and the natural attrition of a 'bubble' of long-stay patients. He projected potential 2026 EBITDA margins of 17.5% to 18.5%. CEO Kevin McNamara added that the 2025 cap issue was exacerbated by a large rate differential in Florida and a post-COVID patient population with longer stays, both of which are abating. Regarding admissions, management explained that the focus on higher hospital admissions (up 9%) intentionally suppressed admissions from long-stay sources to manage the patient mix for cap purposes.

Brian Tanquilot asked about the cadence of upcoming patent expirations in BrightSpring's portfolio and the margin ramp dynamics for new generic launches. He also inquired about the cause of the delay in the community living divestiture and what to look for regarding its closure.

Answer

CEO Jon Rousseau stated that the publicly available information on numerous brand-to-generic conversions over the next couple of years, including a significant one at the end of Q1 next year, remains consistent. He expects similar overall dynamics in these conversions as experienced historically. Regarding the community living divestiture, Mr. Rousseau explained that the delay is due to the time these processes can take, exacerbated by the recent government shutdown. He remains optimistic for a Q1 close, noting that the buyer is working through a handful of markets with the FTC, which is ongoing and straightforward.

Brian Tanquilut asked about the cadence of upcoming patent expirations in BrightSpring's portfolio and the dynamics of margin ramp for new generic launches. He also inquired about the reasons for the delay in the community living divestiture and any factors to monitor for its closure.

Answer

CEO Jon Rousseau stated that public information on numerous brand-to-generic conversions over the next couple of years, including a significant one at the end of Q1 next year, remains consistent, with similar dynamics expected as in the past decade. Regarding the community living divestiture, he noted nothing unusual, attributing the delay to the time processes can take, including the recent government shutdown and the buyer working through a handful of markets with the FTC, with optimism for a Q1 closure.

Brian Tanquilut of Jefferies & Company Inc. asked for more details on the Limited Distribution Drug (LDD) pipeline and runway for new introductions. He also inquired about the size and strategic focus on the gene and rare disease segment within the specialty pharmacy business.

Answer

CEO Jon Rousseau reiterated the company's expectation to launch 16 to 18 new LDDs over the next 12 to 18 months, citing a deep innovation pipeline from biotech partners. He noted that gene and rare disease is a growing focus, with 30-40% of recent LDD wins falling in this category, and that the company's oncology capabilities are directly transferable to this adjacent market.

Brian Tanquilut inquired about the strategic implications of the potential Amedisys asset acquisition, asking if it signals more M&A activity in the provider space and how it would affect the company's leverage targets.

Answer

CEO Jon Rousseau described the potential deal as being very in-line with their acquisition philosophy, similar to the unique Haven acquisition. He emphasized that the company focuses on highly accretive tuck-ins but will consider unique opportunities. He stated that this specific transaction is not expected to impact the company's leverage goals for this year or the long term, projecting close to no impact on leverage next year.

Brian Tanquilut asked about the sustainability of BrightSpring's strong growth rates following the divestiture of the Community Living business and the company's outlook on blended growth. He also sought more detail on the Infusion business, particularly the mix between acute and chronic care.

Answer

Executive Jon Rousseau affirmed the company's track record of double-digit growth and stated the Community Living divestiture would enhance the adjusted EBITDA growth rate by 5-6% going forward. He expressed confidence in maintaining a similar growth trajectory next year, pending external factors like the IRA. Regarding Infusion, Rousseau acknowledged the business is currently more tilted toward acute care but sees this as a significant opportunity to grow the chronic and specialty side, where he would be 'very disappointed' if growth isn't well into the 20% range.

Brian Tanquilut from Jefferies asked about the specific drivers for the expected Q4 margin expansion and inquired about BrightSpring's exposure to biosimilar pricing dynamics, particularly concerning STELARA.

Answer

CEO Jon Rousseau explained that Q4 margin improvement is seasonally typical and will be further driven by the SPRYCEL generic launch, new hospice rates, and reduced customer onboarding costs. Regarding biosimilars, he stated they are not relevant to the specialty oncology business. For the infusion business, he noted STELARA's impact is immaterial (less than 0.2% of company revenue), and the company's focus on operational initiatives is expected to drive future margin upside regardless.

Brian Tanquilut asked about Tenet's capital allocation strategy, specifically how the company views share buybacks given that USPI's acquisition spend has already exceeded initial targets.

Answer

Chairman and CEO Saum Sutaria explained that M&A targets are initial guidance, and Tenet is responsive to market opportunities, having found more acquisition and de novo opportunities this year, which USPI's cash flow can fund. Regarding buybacks, he reiterated that Tenet is a long-term active repurchaser of shares, especially at current trading multiples, and remains active despite market uncertainties.

Brian Tanquilut asked about Tenet Healthcare's capital allocation strategy, specifically how the company views buybacks given that USPI's M&A spend has already exceeded its initial targets.

Answer

CEO Saum Sutaria explained that M&A targets are initial guidance, and the company is responsive to market opportunities, maintaining a high bar for acquisitions. Increased spend reflects more opportunities, a broader pipeline, and momentum in de novo strategies, which are positive for the organization. He reiterated that Tenet remains an active repurchaser of shares at current trading multiples, acknowledging that Q3 buybacks were lower than Q2 due to market uncertainty.

Brian Tanquilut questioned how Tenet is thinking about the overall risk from political headlines and potential healthcare policy changes, particularly for Medicaid and health insurance exchanges.

Answer

Dr. Saum Sutaria, Chairman and CEO, explained that Tenet's strategy relies on operating discipline and a deep understanding of its business economics. He noted USPI's resilience due to its freestanding ASC rates and minimal Medicaid exposure. For the hospital segment, the focus is on efficiency and educating regulators on the critical role of supplemental programs for patient access.

Brian Tanquilut asked about the remaining runway for margin expansion in the hospital segment, given the recent divestitures and efficiency efforts, and whether a 15% segment EBITDA margin is a reasonable target.

Answer

Chairman and CEO Dr. Saum Sutaria declined to provide a specific margin target but emphasized that the company is not satisfied with current levels. He highlighted ongoing efficiency opportunities, particularly improving capacity utilization of high-value real estate within hospitals, as a key area of focus for continued optimization and margin improvement.

Brian Tanquilut asked about Community Health Systems' volume performance, specifically the divergence between positive inpatient trends and continued weakness in outpatient surgeries, seeking insights into recovery trajectory and the components of outpatient volumes. He also inquired about the company's divestiture plans and outlook for 2026.

Answer

Kevin Hammons, President and Interim CEO, attributed outpatient softness primarily to macroeconomic headwinds and consumer confidence, noting some recovery and improved payer mix. He also mentioned the impact of the immigration climate in certain markets. Regarding divestitures, Mr. Hammons stated that CHS is pursuing additional divestitures, with some advanced discussions potentially leading to announcements later in the year.

Brian Tanquilut asked about Community Health Systems' volume performance, specifically the positive inpatient trend versus outpatient surgery weakness, inquiring about recovery trajectory and outpatient components. He also followed up on the company's divestiture plans for 2026.

Answer

Kevin Hammons, President and Interim CEO, attributed outpatient softness to macroeconomic headwinds, consumer confidence, and the immigration climate in certain markets. He noted improving payer mix and sequential outpatient surgery trends, indicating some recovery. Regarding divestitures, Mr. Hammons mentioned ongoing early conversations and advanced discussions for a couple of deals potentially announced later in 2025, though no agreements have been signed yet.

Brian Tanquilut from Jefferies & Company, Inc. asked for clarification on the sustainable EBITDA run-rate after accounting for prior-period DPP revenue and requested details on the assumptions behind the estimated financial impact from the 'One Big Beautiful Bill Act' (OBBVA).

Answer

President & CFO Kevin Hammons advised against simply subtracting the full DPP amount from quarterly EBITDA. He suggested a baseline run-rate of $360M to $375M, noting Q2 volumes were unusually depressed. Regarding the OBBVA, Hammons explained the impact was calculated via a state-by-state analysis, modeling the phased-in reduction of provider tax thresholds and the lowering of Medicaid rates toward Medicare levels.

Brian Tanquilut asked about the balance between strong volume performance and lower revenue per adjusted admission, the company's ability to manage its cost structure, and the potential impact of tariffs on supply costs. He also followed up on the balance sheet, recent refinancing, free cash flow guidance, and the timing of divestiture proceeds.

Answer

CEO Tim Hingtgen acknowledged an outsized flu impact but highlighted strong underlying performance in EMS, trauma, physician practice visits, and cardiac services, expressing confidence in the durability of the business. CFO Kevin Hammons addressed tariffs, noting that over 70% of supplies are purchased through a GPO with fixed pricing and less than 5% of purchases are from China. Hammons also explained that divestiture proceeds were used for a tender offer and that the company remains on track with its cash flow guidance, with the refinancing expected to have a slight benefit to interest expense.

Brian Tanquilut asked for a detailed bridge for the 2025 EBITDA guidance, including any one-time items, and inquired about Community Health Systems' ongoing strategic moves, such as the balance between divestitures and acquisitions, and the path to achieving its mid-teens EBITDA margin target.

Answer

Kevin Hammons, President and CFO, provided a high-level EBITDA bridge from 2024 to 2025, accounting for divestitures and organic growth, while noting the exclusion of potential DPP funds. Tim Hingtgen, CEO, elaborated on strategy, highlighting investments in the core portfolio, access point expansion (ASCs, freestanding EDs), and leveraging the transfer center for growth. Both executives addressed the margin target, citing future benefits from ERP implementation, leverage on capital projects, and stabilization of medical specialist fees as key drivers.

Brian Tanquilut of Jefferies inquired about the specifics of the new $100M-$120M state-directed payment program benefit, the drivers behind the free cash flow guidance reduction, the outlook for revenue per adjusted admission, and the progress on the company's divestiture plan, including valuation multiples.

Answer

President and CFO Kevin Hammons confirmed the DPP benefit is the net annual EBITDA impact from Tennessee and New Mexico. He attributed the free cash flow guidance change to lower EBITDA, slower collections from claim denials, and divestiture-related working capital. Hammons also detailed the factors influencing revenue per admission, expressing optimism for future growth, and stated that the ongoing divestitures are targeting an average 10x multiple.

Brian Tanquilut asked about supply costs, including contract reset cycles, and the timing of resiliency program efforts to mitigate Medicaid cuts from 2028 forward.

Answer

CFO Mike Marks explained HCA's robust supply management efforts, including two-to-three-year contract cycles, technology mix management, and utilization control. CEO Sam Hazen added that resiliency is a holistic, embedded culture, not event-driven, encompassing organizational and network aspects, with ongoing enhancements through technology and shared services.

Brian Tanquilut with Jefferies inquired about supply cost management, contract reset cycles, and the timeline for the resiliency program's efforts to mitigate Medicaid cuts from 2028 to impact the P&L.

Answer

CFO Mike Marks detailed ongoing supply management efforts, including two-to-three-year contract cycles, technology mix management, and utilization control. CEO Sam Hazen added that the resiliency agenda is broad, encompassing organizational and network resiliency, with financial improvements already reflected in core operating margins.

Brian Tanquilut from Jefferies & Company Inc. asked for an update on HCA's market share trends in local markets, particularly in the context of high utilization rates being reported by payers.

Answer

CEO Sam Hazen confirmed that HCA has achieved sustained market share gains, with its share now exceeding 28% excluding behavioral health. He attributed this success to ongoing investments in their healthcare networks, including a $5.5 billion capital pipeline for new outpatient facilities and inpatient capacity, which positions HCA to meet demand and continue growing its share.

Brian Tanquilut noted that Q1 CapEx was lower than the typical run-rate and asked for an update on the broader capital allocation plan, including the expected pace of share repurchases for the year.

Answer

CFO Mike Marks confirmed that HCA repurchased $2.5 billion of shares in Q1 and anticipates completing a significant portion of its $10 billion authorization in 2025, subject to market conditions. Regarding CapEx, he acknowledged the $991 million spend was 'a little light' but stated the company remains on track to reach its full-year target of $5.0 billion to $5.2 billion, expecting an acceleration in spending through the rest of the year.

Brian Tanquilut of Jefferies inquired about the company's expectations for insurance reimbursements related to the recent hurricanes and asked for the reason behind the downward revision to the 2024 CapEx guidance.

Answer

CFO Mike Marks stated that while they anticipate insured losses and will file claims, it is too early to provide an estimate on the timing or amount of any potential insurance recoveries. He explained that the reduction in the 2024 capital expenditure forecast to approximately $5 billion is due to the timing of projects, not a reduction in investment opportunities.

Brian Tanquilut asked about the runway for further reductions in sales and marketing expenses, both in dollar terms and as a percentage of revenue.

Answer

CFO Balaji Gandhi highlighted the good productivity from sales and marketing investments, noting that while the dollar amount remains significant, the company is achieving good results. He suggested expecting sales and marketing to remain at current levels.

Brian Tanquilut inquired about HealthEquity's progress in reducing HSA fraud, asking for any specific milestones or sticking points for the coming quarters, and later clarified a question about future legislative opportunities for HSA access, specifically regarding Medicare.

Answer

Scott Cutler, President and CEO, detailed the strategy of a member-first secure mobile experience, including passkey authentication, and noted sequential declines in fraud. Steve Neeleman, Founder and VC, addressed legislative efforts, confirming Medicare was not included in the recent bill but highlighting the significant expansion for DPC, telehealth, and bronze plans, which is the largest HSA expansion in 20 years.

Brian Tanquilut of Jefferies & Company, Inc. asked about the specific services, such as prior authorization, that are driving the strong growth in the Synexis patient access business.

Answer

CEO Jason Hollar attributed the growth to the breadth of new biopharma products being supported rather than one specific service. He reiterated that the broader biopharma solutions business is expected to grow at a 20% CAGR and that Synexis is currently growing faster than that rate.

Brian Tanquilut asked if potential pharmaceutical tariffs could be inflationary and therefore beneficial to distributors, drawing a parallel to historical periods of generic drug inflation.

Answer

CEO Jason Hollar pushed back on this idea, emphasizing that Cardinal Health operates on a spread basis, considering both buy and sell-side economics. He noted that while there are historical instances of a net benefit, there are also many where costs and prices move in tandem. The company's forward-looking assumption is for 'consistent market dynamics' rather than a net benefit from tariff-driven inflation.

Speaking on behalf of Brian Tanquilut, Jack Levin from Jefferies asked for clarification on the company's cash flow and capital allocation plans, specifically how it will manage debt repayment over the next six quarters to return to its target leverage ratio.

Answer

CFO Aaron Alt reaffirmed the company's disciplined capital allocation strategy: investing in the business, protecting its investment-grade rating, and returning capital to shareholders. He noted that rating agencies have actually increased the company's target leverage range to 2.75x-3.25x. While the company will not reach this target in fiscal 2025, it will prioritize paying down debt over time while still completing its committed $750 million share repurchase for the year. More long-term details will be provided at the June 12 Investor Day.

Brian Tanquilut from Jefferies & Company Inc. asked about the competitive landscape, particularly the opportunity to gain share from financially pressured private competitors. He also sought more detail on the growth trajectory for the international nurse staffing business.

Answer

President & CEO Cary Grace stated that AMN aims to gain share through new client wins, expanding services, and improving fill rates, leveraging differentiators like their strike support and Passport app. On international staffing, she expects a return to modest growth in Q4 2025 and double-digit growth in 2026, even with conservative assumptions about visa retrogression. CFO & COO Brian Scott added that the demand and pipeline remain strong despite unpredictable visa timing.

Brian Tanquilut asked for expectations on seasonal placements from Q4 to Q1 and for clarification on the key drivers for significant growth in 2025 from the Q4 run rate.

Answer

President and CEO Cary Grace explained that some winter order start dates extend into Q1, which should be helpful, with the typical seasonal drop-off occurring more in Q2. To bridge from the normalized Q4 run rate to 2025 growth, she highlighted that the provided run rate conservatively excludes unpredictable labor disruption revenue and that she expects sequential growth from Q4 seasonal lows in the PLS and Language Services businesses.

Brian Tanquilut from Jefferies & Company Inc. asked about the nature of client upsell conversations and whether it was difficult to convince clients to expand benefits. He also requested a breakout of metrics excluding the large former client.

Answer

President Michael Sturmer explained that upsell conversations are a natural part of a multi-year benefits strategy for large clients, who remain focused on women's health. CFO Mark Livingston declined to provide the specific metric breakout but directed analysts to the Q3 guidance for modeling purposes.

Brian Tanquilut from Jefferies & Company Inc. inquired about the drivers of same-store volume, balancing demand with cost management, the outlook for de novo growth versus capacity constraints, the rationale for the new share buyback program, the use of AI for clinical efficiency, and the dynamics of the newly reported home PT business.

Answer

CEO Christopher Reading explained that demand is solid but is balanced with cost control efforts, which doesn't impede a strong de novo pipeline, particularly "AquaNovos" in high-rate markets like New York. He clarified the buyback offers flexibility but M&A, especially in injury prevention, remains the top capital priority. Reading also detailed the rollout of AI-backed documentation tools and a semi-virtualized front desk to improve efficiency and clinician satisfaction.

Brian Tanquilut questioned whether the recent improvement in the business is attributable to durable demand, increased clinician productivity, and stabilized recruiting and retention. He also asked for an update on the company's lobbying efforts and potential positive developments regarding Medicare physician payment rates.

Answer

CEO Christopher Reading confirmed that strong demand and successful investments in recruiting, school partnerships, and student programs are key drivers of the positive momentum. On the lobbying front, he detailed extensive efforts with industry groups like APTQI, noting a consensus among lawmakers that the recent Medicare cuts were a mistake. He highlighted promising initiatives like the SAFE Act and the Maryland-based EQIP program, which demonstrates significant cost savings when physical therapists manage musculoskeletal cases, as potential levers for future rate relief.

Brian Tanquilut inquired about the key growth assumptions embedded in the 2025 guidance, specifically focusing on volume growth, the net rate trajectory considering the Medicare cut, and the financial impact of recent clinic closures. He also asked for an update on the dynamics of therapist recruiting, retention, and wage inflation.

Answer

CFO Carey Hendrickson explained that the 32 clinic closures will have a positive $1.5 million impact in 2025. She projected continued rate growth from non-Medicare payers and mature clinic volume growth of 2-3%. CEO Christopher Reading added that while the labor market remains competitive, recent investments in recruiting systems are yielding significant improvements in applicant flow.

Brian Tanquilut inquired about the financial impact of recent market exits and labor initiatives over the next 6-12 months, and whether further portfolio optimization is planned. He also asked about the consolidation of the Metro acquisition and the company's capacity for future large-scale deals.

Answer

Executive Christopher Reading stated that the primary benefits from closing underperforming facilities, including freed-up management time, will materialize next year. He confirmed that portfolio pruning is an ongoing, disciplined process. CFO Carey Hendrickson affirmed that the Metro acquisition will be consolidated into the company's financial statements. Reading added that while no large deals are imminent, USPH has the appetite and resources to pursue another significant acquisition if a great strategic fit arises.

Brian Tanquilut asked about the specific operational initiatives driving recent occupancy success and the company's philosophy on balancing rate versus occupancy, particularly concerning the different occupancy bands.

Answer

Interim CEO & Chairman Denise Warren attributed the success to an intensified focus on SWAT teams for underperforming assets and properties collateralizing future debt. She highlighted increased accountability through daily meetings and empowering field-level decision-making. Warren and EVP & CFO Dawn Kussow explained a bifurcated strategy: driving occupancy in communities below 80% to cover fixed costs, while focusing on rate growth in communities above 95% to maximize profitability.

Brian Tanquilut of Jefferies inquired about the seasonal progression of expenses and margins throughout the year and asked whether the strong RevPOR performance was a sign of increasing pricing power or reduced market discounting.

Answer

EVP & CFO Dawn Kussow confirmed that Q1 is typically the highest margin quarter due to having the fewest days. She quantified an expected ~$10 million adjusted EBITDA headwind for Q2, resulting from more days and the full impact of annual merit increases. Regarding RevPOR, she stated the company is focused on ensuring rate increases exceed expense growth to drive margin expansion and is leaning into its pricing power in targeted markets.

Brian Tanquilut inquired about Brookdale's forward-looking strategic focus now that it has addressed major lease issues and is approaching positive free cash flow. He also asked for an explanation for why Brookdale's occupancy performance has trailed NIC data and the potential impact of the political landscape on the business.

Answer

President & CEO Lucinda Baier stated that the primary focus remains on profitable growth, noting that profitability per unit has already surpassed pre-pandemic levels. She explained the occupancy variance with NIC data is due to structural factors, including Brookdale's low Medicaid mix (under 4%) and its conservative method of counting shared units. Regarding the political landscape, she expressed confidence in the company's ability to work with any administration and noted an expectation for less federal regulatory activity.

Brian Tanquilut of Jefferies questioned the long-term strategy regarding third-party referral sources and the increased internal marketing spend. He also inquired about the competitive pricing environment and the outlook for 2025 resident rate increases.

Answer

Lucinda "Cindy" Baier, President & CEO, clarified that the shift in marketing spend is a response to lower referral volume and is cash-neutral, representing only an accounting timing difference. She stated the strategy is to secure residents from all available channels. Dawn Kussow, EVP & CFO, addressed the Q4 RevPAR guidance, noting a typical sequential RevPOR decline due to resident acuity mix but reiterated the expectation for strong year-over-year RevPOR growth, consistent with the year-to-date trend. Specific 2025 rate guidance was deferred to the next call.

Brian Tanquilut of Jefferies & Company Inc. asked if wage increases are successfully boosting caregiver capacity and about the current state of the labor market. He also inquired about interactions with Medicaid MCOs amid their reported financial struggles.

Answer

CEO Jeff Shaner confirmed that higher wages from rate wins have directly translated to increased caregiver hiring and capacity, with PDS hours reaching a record 11 million in Q2. He emphasized that preferred payers continue to demand more coverage. Regarding MCOs, Shaner stated that despite their challenges, they continue to lean on Aviana as a cost-saving partner, as evidenced by the recent payout of 2024 value-based bonuses.

Brian Tanquilut questioned the sustainability of the strong Q3 free cash flow generation and asked if the Q3 Private Duty Services (PDS) gross margin of 26.8% is an appropriate baseline for modeling 2025.

Answer

CFO Matt Buckhalter stated that while Q3 is a seasonally strong period for cash flow, the team also over-performed on collections. He confirmed the company expects to be positive free cash flow for the full year. Regarding PDS margins, CEO Jeff Shaner and CFO Matt Buckhalter clarified that the primary focus is maintaining a spread per hour of $10.00 to $10.50 by passing rate increases through to caregivers, which is the key metric rather than a specific gross margin percentage.

Brian Tanquilut of Jefferies & Company Inc. asked about any new or changing dynamics in clinician recruitment and sought guidance on modeling free cash flow for the second half of the year.

Answer

CEO David Bourdon stated that while the clinician recruitment market remains competitive, Lifestance's value proposition continues to drive net adds, with no significant new market shifts to report. CFO Ryan McGroarty reiterated that while H1 cash flow was very strong, Q3 will see a seasonal dip due to specific outflows like the 401k match and higher CapEx, but the full-year outlook remains positive.

Brian Tanquilut asked about the impact of shifting from stock-based to cash-based clinician incentives on retention and recruitment, and also questioned the company's exposure to health insurance exchange plans.

Answer

CEO Dave Bourdon explained the change was driven by clinician feedback favoring an annual cash bonus tied to quality and access. He also stated that while LifeStance has broad payer contracts including exchange plans, its current revenue exposure to exchange and managed Medicaid is limited to approximately 5% to 10% of the total.

Brian Tanquilut inquired if the employed clinician model is gaining traction over the independent contractor model and asked if the plan for 25-30 de novo clinics signals a new, accelerated trend.

Answer

Outgoing CEO Ken Burdick stated that while there hasn't been a 'massive shift' industry-wide, LifeStance remains committed to its preferred W-2 employed model. Incoming CEO Dave Bourdon clarified that the 2025 de novo count is slightly elevated due to a rollover from 2024. He said openings are driven by market-specific demand and lease replacements, not a broader return-to-office trend, and that the company still has significant excess capacity in existing centers.

Brian Tanquilut inquired about labor cost trends given the wage spend growth and asked for details on the $54 million spent on government investigations during the quarter, specifically if it included settlement costs.

Answer

CFO Heather Dixon noted favorable labor trends, with premium costs declining and wage inflation stabilizing around 3.5%. Both Dixon and CEO Christopher Hunter clarified that the $54 million in investigation costs were for legal fees related to the internal review and cooperation with the DOJ/SEC, and did not include any settlement amounts.

Brian Tanquilut of Jefferies asked for an assessment of the broader demand environment for behavioral health and questioned if the company's view on the 5-year ramp-up period to maturity for new bed additions has changed.

Answer

Executive Christopher Hunter stated that demand remains consistent, particularly for high-acuity patients, driven by the company's focus on quality and quantifiable outcomes. Executive Heather Dixon confirmed their view on the ramp-up period has not changed but includes conservatism. She explained that a higher mix of new facilities pushes the ramp time toward the higher end of the 3-to-5-year historical average, implying significant EBITDA growth potential beyond 2028.

Brian Tanquilut questioned the 8-10% long-term EBITDA growth outlook, suggesting it might be conservative given recent bed additions and a soft 2025 comp. He also asked about post-2025 margin and pricing assumptions, and the potential impact of weather on Q1 performance.

Answer

CFO Heather Dixon affirmed the long-term growth targets of 7-9% for revenue and 8-10% for EBITDA, noting the implied margin expansion. She stated that 2026 is expected to be at the high end of this range. The outlook assumes a conservative, normalized rate growth in the low-to-mid-single digits, reflecting a balanced approach to growth and free cash flow. Regarding Q1, she clarified that guidance reflects headwinds from start-up costs, supplemental payment timing, and underperforming facilities, rather than any specific weather events beyond normal seasonality.

Brian Tanquilut asked for more detail on conversations with referral sources and JV partners, including their feedback. He also requested a bridge for the Q4 EBITDA guidance reduction and asked what levers could be pulled if volume weakness persists.

Answer

CEO Christopher Hunter detailed a five-point communication strategy used with stakeholders to reinforce care quality and compliance. CFO Heather Dixon attributed the $10M-$15M EBITDA guidance impact primarily to lower volumes, noting that if weakness persists, the main lever would be reducing facility-level costs, a step not yet taken due to the belief the headwind is temporary.

Brian Tanquilut from Jefferies & Company Inc. asked for an updated outlook on the full-year 2025 EBITDA margin, considering the recent acquisition and the upcoming Texas rate increase.

Answer

EVP & CFO Brian Poff reaffirmed the company's expectation for the full-year 2025 adjusted EBITDA margin to be 'squarely between 12-13%.' He explained that while the Texas rate increase and the Helping Hands acquisition are positive, they are not large enough to materially alter the full-year margin profile. He expects margins to remain relatively static in Q3 before seeing typical seasonal expansion in Q4.

An associate on behalf of Brian Tanquilut from Jefferies asked for an explanation for the strong year-over-year increase in hospice revenue per day, which outpaced the standard Medicare rate update.

Answer

CFO Brian Poff explained that the increase was driven by two main factors: the annual Medicare rate increase and a favorable year-over-year comparison regarding implicit price concessions. He noted that Q1 of the prior year faced headwinds from these concessions, which were not present in the current quarter, thus amplifying the growth.

Brian Tanquilut of Jefferies inquired about the potential impact of federal FMAP changes on the business and sought confirmation that a persistent supply/demand imbalance for caregivers supports future volume growth.

Answer

CEO R. Allison asserted that Addus is well-positioned to handle any FMAP changes or block grants due to its status as a low-cost provider that demonstrates value and cost savings to states. President and COO W. Bickham confirmed the supply/demand imbalance exists and stated that the company's focus on better leveraging its existing workforce to fulfill more authorized hours is a key strategy to drive volume growth toward its 2-2.5% target.

Brian Tanquilut of Jefferies inquired about the sequential margin trajectory for Q4, seeking clarification on the impacts from the New York divestiture and hospice rate updates. He also asked about the growth and margin potential of the pending Gentiva acquisition and Addus's appetite for further M&A.

Answer

Chief Financial Officer Brian Poff confirmed a sequential gross margin expansion of approximately 190 basis points in Q4, driven by the New York divestiture (150 bps) and the hospice update (40 bps). CEO R. Allison stated that Addus is excited about driving growth in the Gentiva assets to its target of 3-5% same-store growth and that the company's M&A appetite remains strong, supported by over $200 million in cash and a new $650 million credit facility.

Brian Tanquilut of Jefferies & Company Inc. asked about the expected pace of M&A for the rest of 2025 and whether the capital deployment target might carry over into the next year. He also inquired about the economic ramp-up and margin impact of the company's increased focus on de novo facility development.

Answer

CEO Eric Evans acknowledged a slower M&A pace in the first half but affirmed the pipeline remains strong and the $200 million annual target is still achievable, though timing can be variable. Regarding de novos, Evans highlighted their focus on higher-acuity specialties. CFO Dave Doherty added that de novos typically take 12-18 months post-opening to reach run-rate earnings and are often structured as unconsolidated minority-owned positions initially.

Brian Tanquilut of Jefferies inquired about the sustainability of strong volume trends and the reasons for softer same-store revenue per procedure, as well as the expected seasonality of free cash flow generation for the year.

Answer

CEO J. Evans attributed the soft revenue per procedure to a mix shift from robust growth in lower-acuity GI cases and new de novo facilities, noting it was expected and that full-year growth would be more balanced. CFO David Doherty explained that Q1 cash flow is seasonally weak and was further impacted by a timing-related 'double up' of partner distributions. He also noted a future headwind from higher interest costs but affirmed overall cash flow strength, which CEO Evans reiterated was sufficient to fund growth without accessing capital markets.

Brian Tanquilut asked for more detail on the calculation of the potential 1% revenue impact from site neutrality legislation and inquired about any expected Q1 impacts from weather or flu season.

Answer

CEO J. Evans and CFO David Doherty explained that the 1% revenue risk from site neutrality is a worst-case scenario, with the company likely being a net beneficiary as procedures shift from higher-cost settings. Doherty detailed that the calculation is based on specific procedures in proposed legislation, with about two-thirds of the exposure in larger surgical facilities and one-third in ASCs. Regarding Q1, Doherty stated that while there were some weather disruptions in January, cases are typically rescheduled, and any minor cost burden has been factored into the full-year guidance, which assumes a normal quarterly cadence.

Brian Tanquilut of Jefferies & Company Inc inquired about AdaptHealth's strategy for the proposed CMS competitive bidding changes, particularly for diabetes products, and whether pricing pressure could be passed to suppliers. He also asked for an update on previously mentioned market share challenges in the sleep business at local levels.

Answer

CEO Suzanne Foster stated that AdaptHealth's scale and cost-efficiency initiatives position it well to handle potential rate pressure from competitive bidding, and noted they are partnering with manufacturers to ensure the CGM channel remains profitable. CFO Jason Clemens confirmed they are "absolutely seeing improvement" in the sleep business, driven by reducing patient setup times, and characterized the weakness in Q1 as a "one-off."

Brian Tanquilut from Jefferies Financial Group Inc. questioned the long-term strategic value of owning the Diabetes business and asked for the drivers behind the 2025 free cash flow and margin guidance.

Answer

CEO Suzanne Foster affirmed the strategic value of the Diabetes segment, citing its importance in offering a "one-stop shop" portfolio to hospital systems and its attractiveness for future broad-based capitated arrangements. CFO Jason Clemens explained that 2025 free cash flow guidance is lower than 2024's actuals primarily because large, non-recurring payment term extensions from 2024 will not be repeated.

Brian Tanquilut of Jefferies questioned the potential cost savings from new technologies like the myAPP, specifically in reducing call center operations, and asked about the company's visibility into Medicare rate adjustments for 2025.

Answer

CFO Jason Clemens responded that the primary goal of the new technology is to improve the patient experience and drive top-line growth by freeing up resources, rather than immediate cost savings. CEO Suzanne Foster added that the company's strong existing tech infrastructure allows for rapid deployment of AI and automation. Regarding 2025 Medicare rates, Clemens stated there is no formal visibility yet but explained the calculation is based on a CPIU measure of about 3%, which is historically offset by a productivity factor, suggesting a net positive adjustment is likely.

Brian Tanquilut of Jefferies & Company Inc. inquired about the expected client acquisition cost for the planned marketing spend in the second half of the year. He also asked for the reasons behind the significant quarter-over-quarter increase in inventory.

Answer

CFO Yemi Okupe explained that while marketing investment will be robust for new launches and geographies, the company will adhere to its capital allocation framework of a payback period under one year. He attributed the inventory increase to preparing for new specialty launches and leveraging the balance sheet to ensure a durable supply chain amidst global tariff uncertainty, noting it was likely an anomalous quarterly step-up.

Brian Tanquilut followed up on the regulatory discussion, asking for an analysis of the potential impact from the expiration of health insurance exchange subsidies (EAPTCs).

Answer

CEO Matt Hawkins stated that the company has analyzed this potential event and feels similarly well-insulated due to the diversity of its client and patient populations. He emphasized that such market shifts reinforce the value of Waystar's platform in helping providers navigate complex financial environments.

Brian Tanquilut asked about the company's exposure to potential Most Favored Nation (MFN) pricing policies and the ramp-up of Stelara biosimilars.

Answer

CFO Mike Shapiro stated it's too early to determine the impact of MFN pricing as the logistics are unclear, but no material impact is expected in 2025. CEO John Rademacher noted that the Stelara biosimilar ramp-up was initially slow but is now accelerating as PBMs make it a priority, aligning with the company's expectations.

Brian Tanquilut from Jefferies asked for insights into typical Q1 seasonality given the current business dynamics. He also questioned how the company is adjusting its SG&A and clinical support for STELARA patients in light of the reduced economics for the drug.

Answer

CFO Michael Shapiro acknowledged that Q1 typically sees a modest step-down as patient benefits and deductibles reset, but noted this is tempered by the company's growing base of stable chronic revenue, which was 75% of the total in the quarter. Regarding STELARA, Shapiro stated that the company remains committed to providing the necessary clinical support for these complex patients, emphasizing that reallocating resources to support growth initiatives is a core competency of the management team.

Brian Tanquilut asked how PBMs launching their own biosimilar versions of STELARA might impact market dynamics in 2025. He also questioned how the company plans to approach M&A and capital deployment given its low leverage and strong cash flow.

Answer

CEO John Rademacher explained that their STELARA patients are a complex cohort requiring professional oversight, and the conversion rate to biosimilars is a key variable they are modeling. CFO Michael Shapiro stated that capital deployment is a priority, with flexibility for both share repurchases and disciplined, strategic M&A. He emphasized they have 'considerable dry powder' on the balance sheet.

Brian Tanquilut of Jefferies inquired about the expected ramp-up in non-Medicare volume, particularly from the new UnitedHealth Group contract, and the outlook for labor cost inflation.

Answer

CEO Barbara Jacobsmeyer explained that the focus is on balancing the payer mix, with payer innovation contracts driving 82% of non-Medicare growth, and noted the need for continued hiring to support this expansion. CFO Ryan Solomon added that RN capacity grew 4% from December to March, indicating a normalizing labor market. Jacobsmeyer also projected a return to a standard 2-3% annual salary and merit increase environment.

Brian Tanquilut inquired about Enhabit's ability to carry its Q4 momentum into 2025, particularly in the hospice segment with its expanded business development team. He also asked about the potential to gain market share in fee-for-service home health and the company's leverage in converting more contracts to its payor innovation model.

Answer

President and CEO Barbara Jacobsmeyer expressed confidence in continued hospice growth, citing the fully implemented case management model, resolved capacity constraints, and established emissions departments. For home health, she noted that being a full-service provider is already driving census growth with a balanced payor mix. Jacobsmeyer also confirmed ongoing discussions with regional plans to move them to episodic contracts, driven by the value proposition of provider-managed care and quality.

Brian Tanquilut inquired about the status of negotiations with UnitedHealthcare, the strategy for replacing that volume, and the outlook for 2025 EBITDA growth given various tailwinds.

Answer

CEO Barbara Jacobsmeyer confirmed that while no agreement with UnitedHealthcare is signed, they are very close to acceptable terms. She highlighted that the company has successfully grown its total home health census since August, offsetting the decline in United patients. For 2025, she expressed confidence in growing EBITDA, citing positive pricing trends in both hospice and home health, G&A savings, and volume growth, which are expected to offset wage inflation.

Represented by Meghan Holtz, Brian Tanquilut's questions covered the Toku BioAge product's reimbursement model and how the company is proactively driving managed care penetration toward its 50% target.

Answer

CEO L. Fahs explained that Toku BioAge is a cash-pay consumer wellness product, not currently reimbursable, and serves to build operational readiness for future FDA-approved AI diagnostics. President Alex Wilkes detailed the managed care strategy, which involves personalized marketing to members and evolving product assortments to be more attractive to insured customers.

Brian Tanquilut asked about the go-forward strategy following the store rationalization, specifically if the company is considering raising its profitability thresholds for stores or using metrics like return on invested capital (ROIC) more rigorously.

Answer

CFO Melissa Rasmussen responded that while the goal is to maximize profit margins, various factors are considered for each store, including brand, doctor model, and the number of lanes, which affect the 4-wall economics. She emphasized that the focus is on making the right operational changes for each individual store to ensure they remain healthy and profitable.

Brian Tanquilut asked for details on the merchandising strategy aimed at mitigating pressures in the retail front-end business and what key milestones would indicate success.

Answer

CEO Tim Wentworth outlined a multi-faceted strategy for the front-of-store. Key initiatives include revamping the merchandising and analytics teams, enhancing the customer loyalty program, and launching new health-focused categories like superfoods, sports nutrition, and women's wellness. He also highlighted a 75 basis point increase in own-brand penetration, with 60 new products launched in Q1, such as diapers. Success is being measured by performance in retained stores, which are already outperforming those slated for closure, and by improving the customer experience through digital tools like virtual pharmacy check-ins.

Brian Tanquilut inquired about ModivCare's strategic shift to fee-for-service (FFS) contracts in its NEMT segment, questioning the rationale, margin implications, and applicability to state plans. He also asked about the timeline for working capital normalization and the expected net accounts receivable versus payable position by mid-2025.

Answer

CEO L. Sampson clarified that the FFS shift is for managed Medicaid shared-risk contracts and that the improved cash flow outweighs any price compression, which will be managed through efficiencies. He confirmed state contracts will likely remain full-risk. Sampson stated that working capital and cash flow will normalize by mid-2025 as 2024 contracts roll off, providing clear visibility into collections and settlements.

Brian Tanquilut of Jefferies inquired about ModivCare's overall strategic path forward, focusing on the performance of the Personal Care (PCS) segment, cash flow dynamics, and the company's approach to deleveraging.

Answer

President and CEO Heath Sampson stated that while the company has made significant progress, particularly in its NEMT segment, the 3x leverage target remains a priority. He explained that "everything's on the table" to enhance shareholder value, including evaluating the performance and potential of each business segment. The focus is on strong operational execution to generate cash flow, but other strategic options are being considered to accelerate deleveraging.

Brian Tanquilut requested an update on the CVS CostVantage program, asking about the nature of client discussions and the contract structures for the portion of the book already signed.

Answer

Group President Prem Shah reported 'really good progress,' with over 50% of commercial clients signed onto the program and an expectation to reach 100% by year-end. He positioned it as a key solution to industry reimbursement pressure. CEO J. Joyner added that CostVantage, along with the PBM's TrueCost model, represents a concerted effort to address pricing complexity and eliminate cross-subsidization in the pharmaceutical industry.

Brian Tanquilut asked about the outlook for the Nurse and Allied segment's operating margin into Q3 and Q4, and how management thinks about the long-term premium for temporary versus permanent placements.

Answer

CFO William Burns stated that while bill-pay spreads are improving, margin gains are muted by high lodging and benefit costs. He said future margin improvement will come from a mix shift to higher-margin businesses like Homecare and Education, and efficiencies from Intellify. CEO John Martins added that the industry is now an 'SG&A game,' with long-term EBITDA margin expansion dependent on cost reductions through technology and offshoring.

Brian Tanquilut from Jefferies questioned the outlook for the Nurse and Allied segment's operating margin and the potential cadence for improvement into Q4. He also asked about the temp-to-perm bill rate premium and whether the current, narrower spread is the new normal.

Answer

CFO William Burns responded that significant gross margin improvement from bill-pay spreads is unlikely due to high lodging costs, but will instead be driven by a mix shift to higher-margin businesses like Homecare and Education, and efficiencies from Intellify. CEO John Martins added that the industry is in a challenging margin environment and that future EBITDA margin expansion will primarily be an 'SG&A game,' driven by operational efficiencies from technology and offshoring rather than gross margin gains.

Inquired about the outlook for nurse and allied segment operating margins and the future of the premium for temporary staff versus permanent placements.

Answer

Executives indicated that gross margin improvement will be driven by business mix (Intellify, Homecare, Education) rather than bill-pay spreads, which are constrained. They emphasized that significant EBITDA margin expansion will come from SG&A efficiencies through technology and offshoring, as this is the "new model" for the industry.

Brian Tanquilut of Jefferies asked for insights into the optimistic outlook for the second half of the year, questioning what hospital CEOs are saying about future labor needs. He also inquired about the sustainability of the strong growth in the locums business and the strategy to maintain it.

Answer

CEO John Martins based his optimism on a combination of factors: stabilizing demand, the ramp-up of new program wins, underlying structural nurse shortages highlighted in a new company survey, and the market traction of the Intellify platform. For the locums business, he anticipates a more sustainable growth rate, closer to the industry forecast of 12% YoY, driven by matching quality physicians with quality job opportunities.

Asked about the company's strategy for balancing market share and margins, the long-term margin outlook in a normalized environment, and the growth strategy for the locums business.

Answer

The company is balancing being competitive with maintaining profitability, noting recent wins have good margins despite industry-wide pressure. Long-term margins are expected to benefit from growth in higher-margin businesses (home care, education) and technology efficiencies like Intellify. The locums business has capacity for organic growth, but becoming a significantly larger player (e.g., $0.5 billion) would likely require acquisitions.

Brian Tanquilut of Jefferies questioned the confidence in the 2023 guidance, given the previous year's performance, and asked about the key execution points for achieving the new targets.

Answer

Chairman and CEO Paul Kusserow stated the guidance is conservative but requires hitting specific marks, particularly in reducing turnover. He expressed optimism about renegotiating payer contracts and reducing losses at Contessa. EVP, CFO & Acting COO Scott Ginn added that the guidance approach is more thoughtful this year, with more predictability in outcomes and a focus on managing capacity and costs, noting a good start to the year.

Brian Tanquilut asked for details on the growth potential from new Medicare Advantage (MA) contracts, specifically with CVS/Aetna, and requested a financial bridge for 2023 quantifying the impacts of Contessa, G&A cuts, and new MA agreements.

Answer

President and CEO Chris Gerard highlighted that the CVS/Aetna deal opens up 15 new states and has already tripled admissions in its first month, representing a significant growth lever. Executive VP and CFO Scott Ginn provided a preliminary 2023 EBITDA bridge, starting with a Q4 run-rate of approximately $62 million and adding about $40 million from cost-saving initiatives and new contract models, suggesting a baseline around $288-$290 million before rate changes.

Brian Tanquilut from Jefferies asked for an update on Amedisys's strategy for Medicare Advantage, particularly regarding the progress on shifting contracts to a case rate reimbursement basis.

Answer

President and CEO Chris Gerard affirmed that leaning into Medicare Advantage is a key strategy, given its accelerating penetration. He detailed the plan to pivot from per-visit to case rate models, which would create a partnership dynamic with payers, allow Amedisys to use its PDGM optimization tools to manage care, unlock clinical capacity, and improve margins.

Brian Tanquilut from Jefferies inquired about the competitive landscape in light of a major peer's acquisition and the potential impact of Medicare Advantage on the home health sector. He also asked for an update on staffing metrics, including turnover and the strategic value of the Connect RN investment.

Answer

CEO Chris Gerard stated that the peer acquisition was not a surprise and underscored the need for new, value-based relationships with Medicare Advantage plans, noting a new model is close to being announced. He explained that reducing dependency on costly contract labor is key to managing staffing costs, with retention improving and the Connect RN investment providing on-demand capacity. CFO Scott Ginn added that lower visits per episode (VPE) are effectively offsetting inflationary wage pressures on a per-episode basis.