Option Care Health - Earnings Call - Q2 2025

Executive Summary

• Revenue grew 15.4% year over year to $1.416B, while adjusted EBITDA rose 5.2% to $114.0M; adjusted EPS increased 10.8% to $0.41, reflecting strong acute and chronic therapy growth and disciplined spending.
• Gross margin compressed to 19.0% (from 20.3% a year ago) due to mix shift toward lower-margin limited distribution and rare/orphan therapies and the Stelara headwind (~$20M in Q2), partially offset by acute strength and operating leverage.
• Guidance raised across revenue ($5.50–$5.65B), adjusted EBITDA ($465–$475M), and adjusted EPS ($1.65–$1.72), with tariffs/MFN impacts modeled as not material for 2025; cash from operations guidance maintained at ≥$320M.
• Execution catalysts include expanding infusion-suite utilization (35% of nursing visits; >20% nursing productivity uplift), payer site-of-care initiatives, and biosimilar adoption ramp into H2; share repurchases ($50M) supported EPS momentum.

What Went Well and What Went Wrong

What Went Well

• Balanced growth: Acute and chronic therapies both grew mid-teens, with acute growth above market rates, driving top-line strength and gross profit dollar growth.
• Operating leverage and efficiency: Infusion suite utilization reached ~35% of nursing visits, enabling >20% nursing productivity uplift and capacity expansion; Naven Health conducted almost 54,000 visits, supporting growth.
• Raised guidance: Management increased 2025 revenue, adjusted EBITDA, and adjusted EPS ranges; reiterated tariffs/MFN expected to be immaterial in 2025, underpinning confidence.

Management quotes:

• “We delivered revenue growth of 15%... Acute therapy growth was in the mid-teens... chronic therapies also performed well...”.
• “Investments... in artificial intelligence... and our partnership with Palantir... have been critical to our leverage growth”.
• “For the full year 2025, we now expect... revenue of $5.5–$5.65B... adjusted EBITDA of $465–$475M... adjusted EPS of $1.65 to $1.72”.

What Went Wrong

• Margin pressure: Gross margin rate declined to 19.0% vs. 20.3% prior year, driven by mix shift toward lower margin limited distribution and rare/orphan therapies and the Stelara reset.
• Stelara headwind: Q2 negative impact ~$20M, now tracking toward high end of the $60–$70M full-year range (mitigated in guidance but still a drag on margin rate).
• Cash generation variance: Q2 CFO was $90.3M, down versus $195.7M in Q2 2024; inventories increased ~$35M sequentially to support new therapies and growth, contributing to working capital drag.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Option Care Health Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one-one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one-one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nicole Maggio, Senior Vice President of Finance. Please go ahead.

Nicole Maggio (SVP Finance)

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 the 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 our website.

With that, I will turn the call over to John Rademacher, President and Chief Executive Officer.

John Rademacher (President and CEO)

Thanks, Nicole, and good morning, everyone. As you will see in our second quarter results, the Option Care Health team delivered another strong quarter with balanced growth across the portfolio. As a result, we are increasing our guidance range for the year across revenue, adjusted EBITDA, and adjusted EPS. Option Care Health operates in an industry with growing demand, and we believe we are well-positioned as a leading independent provider of home and alternate site infusion services with significant scale, a diverse portfolio, and a resilient operating model. During the quarter, our team continued to capitalize on shifting competitive dynamics and deepening partnerships with payers and pharma manufacturers. We also capitalized on our national scale with local responsiveness, which we believe remains a differentiator.

We continue to see positive impacts on the resilient and nimble operating model we have created, which enables us to deliver consistent results in any operating environment. Indeed, over my nearly 10 years leading this organization, Option Care Health has thrived through regulatory change, biosimilar events, changing competitive dynamics, therapy administration shifts, and labor and supply shortages. This quarter was no different, and I believe we are well-positioned for success going forward. Mike will go deeper into the financials in a few minutes, but to highlight some key takeaways, revenue momentum continued in the second quarter with balanced performance across the portfolio. Building on first quarter results, we delivered revenue growth of 15% over the second quarter of last year.

Acute therapy growth was in the mid-teens, and the team executed well to capitalize on shifting industry dynamics and to leverage our continued investments in capabilities to be locally responsive to serve the specific needs of patients on these therapies. Our chronic therapies also performed well with growth in the mid-teens. We continue to see solid performance in our rare and orphan and limited distribution therapies, a testament to our national scale and ability to reach smaller cohorts of patients as we continue to partner with pharma to develop and deliver innovative programs customized to their therapies. The strength of the top-line performance across the broad set of therapies, along with disciplined spending, drove 5% adjusted EBITDA growth on a year-over-year basis, despite the previously articulated headwinds that we faced.

During the quarter, we continue to focus on our relationships with health plans, as we believe our value proposition provides a meaningful opportunity to reduce the total cost of care for their members and help them better manage their medical loss ratios. Providing high-quality care at an appropriate cost in a setting in which their members want to receive it makes us an important part of the solution to the pressures they are facing of an aging population and increased disease prevalence in utilization of healthcare services. Our market access team continued to work closely with national payers and health plans across the country to develop meaningful programs to broaden access and provide better, more cost-effective care for their members.

We also continue to deepen our relationships with our pharma partners by leveraging our clinical capabilities, pharmacy infrastructure, and broad geographic coverage to help enable tailored programs and services to patient populations with complex needs. Our network of nearly 90 pharmacies, coupled with our clinical centers of excellence and extensive nursing network of over 3,000 nurses, including Naven Health, provides a strong platform and unparalleled capabilities. We continue to expand our portfolio of therapies, including YEZTUGO and Stelara, as well as a number of other limited distribution and rare and orphan drugs, demonstrating our capabilities to serve the needs of patients with these complex situations. Shifting gears, one of the hallmarks of our business has been our focus on operating effectiveness and cash generation. As a result, we have a strong balance sheet and flexibility to deploy capital to increase value to our shareholders.

In the second quarter, we generated over $90 million in cash flow from operations, and we are well on our way to delivering more than $320 million of cash flow from operations in the full year. Our multifaceted approach to capital deployment allows us to thoughtfully assess opportunities to utilize our cash through M&A, internal investments, or share repurchases. We remain active in assessing both M&A and internal investment opportunities as we look to strengthen our platform and add to our solution set and clinical capabilities. Share repurchase continues to be an attractive way to create value for our shareholders, as evidenced in our adjusted EPS performance, and underscores the confidence we have in the business and its long-term potential. To that end, we executed on $50 million of share repurchases during the quarter. We also continue to invest in our people, process, technology, and facilities.

For example, the investments we made in artificial intelligence, advanced analytics, and our partnership with Palantir support our commitment to improving operating efficiency and have been critical to our leverage growth. On the clinical resource efficiency front, approximately 35% of our nursing visits occurred in one of our suites this quarter, and Naven Health conducted almost 54,000 nursing visits in the quarter. Both of these remain key enablers of our ability to effectively take on new patients. Further, on the advanced practitioner model, we continue to believe this represents an attractive complement to our current home infusion services and an opportunity to drive growth, both through expanding our competencies as well as providing access to new patient cohorts.

This clinical model provides a platform to serve higher acuity patients under the care of a nurse practitioner, as well as to leverage therapies already in our portfolio to support patients who otherwise may not have been able to be served profitably. Our investments in Intramed Plus and elsewhere across the country have provided valuable insights into our successful execution of this model, which we believe are critical to expanding across our national network. Given the strength of the first half of this year, we have increased our full-year revenue, adjusted EBITDA, and adjusted EPS guidance range, which reflects our confidence in the momentum underway and the continued resilience of our platform and execution of our team. With that, I'll hand the call over to Mike to provide additional details.

Mike Shapiro (Executive VP and CFO)

Thanks, John, and good morning, everyone. As John mentioned, the second quarter was quite strong as we built up a solid momentum from the first quarter. Revenue growth of 15.4% was balanced with mid-teens growth within both our acute and chronic portfolios of therapies. The acute therapy growth we delivered in the quarter was notably higher than we believed the overall market to be growing, and as John conveyed, the team executed well across the country. Gross profit of $269 million grew almost 8% versus the second quarter last year. This reflects the benefit from therapy mix with outsized acute growth, as well as the performance of the chronic therapies. Gross margin rate was negatively impacted by some of the lower margin limited distribution and rare and orphan therapies, but we continue to be encouraged by their gross profit dollar contribution.

SG&A was in line with our expectations, and we expect continued strong spending leverage for the year as we see the benefits from the investments we have made in our infrastructure. Adjusted EBITDA of $114 million grew 5.2% over the prior year and represented 8.1% in net revenue. Adjusted earnings per share of $0.41 grew 10.8% over the prior year. As John mentioned, we were active in deploying capital in the second quarter, repurchasing $50 million in stock. We will continue to thoughtfully consider the balance across M&A, internal investments, and share repurchase. We maintain a strong balance sheet and capital structure with the capacity to continue executing our multifaceted strategy. Finally, I want to provide a quick update on our expectations for the full year.

Given the strong momentum in the first half, for the full year 2025, we now expect to generate revenue of $5.5 billion-$5.65 billion and adjusted EBITDA of $465 million-$475 million, which we believe will translate into adjusted earnings per share of $1.65 to $1.72. Additionally, we continue to expect to generate more than $320 million in cash flow from operations. Consistent with our previous comments, our guidance considers our current expectations on the impact of potential tariffs, MFN pricing, and similar policy changes, which we believe will not have a material financial impact in 2025. Overall, we are excited about the strong first half of 2025, and we expect it will be another year of growth for Option Care Health. With that, we will open the call for questions. Operator?

Operator (participant)

Thank you. As a reminder, to ask a question, please press star one-one on your telephone and wait for your name to be announced. To withdraw your question, please press star one-one again. Our first question comes from the line of David McDonald with Truist. Your line is now open.

David MacDonald (Analyst)

Yeah, good morning, guys. A couple of questions here. First of all, can you guys just talk a little bit about just conversations with payers? I mean, it's obviously been a bit of a challenging environment at the payer level, and just, you know, anything incremental or accelerating in terms of just conversations around site of service redirection, around, you know, candidly them looking more aggressively at things to help offset some of the cost pressures that they're seeing?

John Rademacher (President and CEO)

Good morning, David. John.

David MacDonald (Analyst)

Hey, John.

John Rademacher (President and CEO)

Very, very productive conversations. Our market access team is in constant contact. I would say there is a heightened level of interest in not only utilizing our services. As we call out, we offer high-quality care at an appropriate cost in a setting in which the patients want to receive it. That continues to move forward. Interest in site of care initiatives continues to increase, and we're seeing volumes starting to tick up in those areas where some of the payers are taking a more aggressive approach to help provide their members with alternatives to some of the higher cost settings.

David MacDonald (Analyst)

A couple of others, just first on the annual term infusion suites. Are you continuing to see chronic run pretty meaningfully ahead of acute? This year with some of the business that you've picked up, maybe that shift gets muted a little bit, but is there any reason we shouldn't expect that number to continue to drift higher just as in a "normalized" year, your chronic business is growing more quickly than the acute business?

Mike Shapiro (Executive VP and CFO)

Yeah, I think that's fair. As we mentioned, we're up to 35%. We basically doubled the penetration since we initiated our center strategy a couple of years ago. The majority of the utilization of the infusion suites are those chronic patients with recurring scheduled interactions with us. The fact that we were able to increase the penetration in a quarter where we still delivered mid-teens growth in the acute just speaks to your point, which is the penetration on the chronic side continues to be very, very encouraging.

David MacDonald (Analyst)

Okay. Last two, guys. John, during your prepared remarks, you talked about the advanced practitioner model and, you know, some patients in your portfolio that, you know, maybe you're able to service now. I would assume that, you know, that's something reimbursement-related, maybe Medicare or whatever, but I was wondering if you could just drill down on that, and then I just had one quick follow-up.

John Rademacher (President and CEO)

As you know, we don't have broad access for Medicare fee-for-service beneficiaries. This allows us to expand the portfolio of patients that we can serve utilizing that advanced practitioner model. Also, in my prepared remarks, we're utilizing it for more complex patients that may have some additional needs that a nurse practitioner can provide, better oversight or deeper oversight, as well as help manage that care plan. We're encouraged by the progress that we're making on this, and we think that it will continue to be a vector of growth for us as we're moving ahead.

David MacDonald (Analyst)

Just last question, a recent proposed rule seemed to acknowledge the cost differential in terms of different sites of care around infusion. I'm just curious, any high-level thoughts or any updates in terms of the hill and conversations down there and the acknowledgment of what you guys do and how much money you save?

John Rademacher (President and CEO)

Yeah, there's been a couple positive moves on that. Certainly, there's recognition of the reduced cost of utilizing services in home and alternate sites. There are continued efforts, both as an industry as well as us individually, to continue to advance that wherever we can. If site neutrality or other things continue to pick up momentum as ways that they're going to mitigate some of the cost trends over time, we feel like we're really well positioned given the cost structure that we operate with, as well as the reimbursement comparables to some of the other sites that are chosen. We're going to continue to have the conversations on the hill and with key legislators to try to advance on behalf of the industry, but feel as if we're on the right side of most of those conversations where cost and quality are being measured.

David MacDonald (Analyst)

Okay, thanks, guys. Appreciate it.

John Rademacher (President and CEO)

Thanks, Dave.

Operator (participant)

Our next question comes from the line of Maya MacPherson with William Blair. Your line is now open. Maya, your line is open. Please check your mute button. Our next question comes from the line of Constantine Davides with Citizens. Your line is now open.

Constantine Davides (Equity Research, Healthcare Services)

Thanks. A couple of quick financial questions. Just, Mike, wondering if you can update us on the Stelara expectations for the year. I know it was around $5 million in the first quarter. Just wondering how you're thinking about the impact across the balance of, excuse me, 2025. Thanks.

Mike Shapiro (Executive VP and CFO)

Yeah, Constantine, in the quarter, as we mentioned on our first quarter call, the negative impact for the second quarter was right around $20 million. It was actually probably a nudge above, but for the full year, and I think that's a decent proxy for the subsequent two quarters. I think we're probably thinking for the year, our initial impact range was $60 million-$70 million. I think we're probably in the higher end of that range. That's been fully contemplated in the guidance, which, again, as John mentioned, given the strength of the business, we've been able to more than mitigate.

Constantine Davides (Equity Research, Healthcare Services)

Just a follow-up on the therapeutic mix. Is it right to think that, I mean, you've had so much acute momentum in recent quarters, are the operating margins on the chronic and the acute portfolio, are they still pretty comparable at this point?

Mike Shapiro (Executive VP and CFO)

In terms of what we previously said, yeah, you know, very consistent. What we've said, Constantine, is that, you know, the acute portfolio, you know, the product margins are north of 50%. You know, the chronic portfolio presents, you know, anywhere from 5%-30% margin profiles. Again, a couple of moving dynamics, especially when you look at the margin rate year-over-year. Obviously, the Stelara headline had a pretty, pretty meaningful impact on that. Obviously, we love the trajectory of the acute portfolio as well. You know, with the rare and orphan momentum we've seen, those therapies tend to be in the lower end of that 5%-30% range. A lot of moving pieces. Again, the way, as you know, we're really looking at the product or the gross profit dollars, which we're thrilled with the performance in the quarter.

Constantine Davides (Equity Research, Healthcare Services)

Great. Just last, John, I think you alluded to sort of M&A opportunities, and it still seems like there's a decent amount of infusion activity occurring in the market. Is it still right to sort of classify your interests as focused on the core, or are you seeing opportunities in some adjacent areas that you'd love to explore?

John Rademacher (President and CEO)

We continue to be very focused around looking for opportunities on the core and looking to expand capability set. I think, as we've said, we've also continued to think about areas that are enablement, whether it's in nursing and other capability sets that help us continue to advance, to grow, and increase some of the clinical capabilities. It's a pretty active market. Our commitment to shareholders has always been that it'll be both strategic and economic when we're evaluating where we deploy your capital in those types of activities. Therefore, I think you'll see us in a very disciplined way continue to look for opportunities to utilize the strength of the balance sheet in ways that will enhance value for our shareholders.

Operator (participant)

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

Pito Chickering (Senior Sell Side Analyst)

Hey, good morning, guys. Thanks for taking my question. I guess looking at sort of the second quarter gross profit dollars, you know, if I adjust the first quarter with a $5 million headwind from Stelara and the second quarter with a $20 million headwind from Stelara, the gross profit dollar growth accelerated pretty nice year-over-year from Q1 to Q2. With the acute growth being similar, I think you said mid-teens in Q1, mid-teens in Q2. Can you sort of brief us where the gross profit growth dollars are coming from if we exclude the Stelara impact? Thank you.

Mike Shapiro (Executive VP and CFO)

Yeah, I mean, that's a lot of moving pieces, Pito. At the end of the day, you stole our thunder. The way we manage this business is we look to maximize the gross profit dollar growth. When you normalize for the impact year-over-year, and again, we don't spend a lot of time looking at the world with and without, but our gross margins actually were consistent and expanded year-over-year. Despite the fact that within our chronic portfolio, as we mentioned in our prepared remarks, there is some downward pressure because of the mix towards those faster growing rare and orphan and limited distribution drugs.

The 8% reported gross profit dollar growth is really an amalgamation of great execution on the acute side of the house, which has been very productive for us thus far this year, as well as just solid execution both within those lower gross margin rate LDDs and rare and orphan therapies, but also in what I'll call the more established chronic therapies for the infliximabs and immune globulins and MS therapies, et cetera.

Pito Chickering (Senior Sell Side Analyst)

Okay. The follow-up here is, you know, as you've taken acute market share from the exits of Corwin and Optum on the acute side, have you seen any market share growth on the chronic side? The second question there is, as you renegotiate with payers on both the acute and chronic with the market exits, does this give you guys more leverage to get better negotiating rates on the chronic side and the acute side in 2026? Thanks.

Mike Shapiro (Executive VP and CFO)

From a market, I'll start and I'll pass to John to answer the second part of your question. Pito, as we've talked broadly, and again, these are estimates, the acute therapy portfolio, those are very mature therapies that we administer. We estimate that those market dynamics suggest a low single-digit market growth. I'll let you project market share, but we're very encouraged delivering mid-teens growth in what we think is a very mature therapeutic category. The chronic side is a very broad portfolio of therapies. We've estimated that collectively, those chronic therapies are growing in the low double digits given all the dynamics with new therapy introductions and things going sub-Q or oral, etc. In a quarter where we're delivering mid-teens growth across both of those portfolios, we're feeling very good about the execution of the team across the board.

John Rademacher (President and CEO)

On the payer side, continued strong progress in deepening our relationships there. As you point out, the strength of our portfolio and the balance that we have across both the acute and chronic therapeutic categories is one that we use to reinforce the value that we bring. As you would expect at this point in time, given some of the medical loss ratio challenges, things like bed day management and the total cost of care are front in mind. That ability for us to be a meaningful partner in network to provide products across the portfolio that we have is something that we reinforce as we are articulating to them the value of our partnership. We are always going to make certain that we are being paid fairly for the value that we deliver. That is part of the conversation.

The national scale that we have, the local responsiveness, and then the breadth of the portfolio, we think is a differentiator and something that we are going to continue to invest in and continue to capitalize on in this marketplace today and into the future.

Pito Chickering (Senior Sell Side Analyst)

Great. Thanks so much. Nice job, guys.

John Rademacher (President and CEO)

Thank you.

Operator (participant)

Our next question comes from the line of Joanna Gajuk with Bank of America. Your line is now open.

Joanna Gajuk (Equity Research Analyst)

Hey, good morning. Thanks so much for taking that question. A couple follow-ups to other comments that were made on the advanced practitioner model. That's very interesting, you know, what you're doing there. Can you tell us a little bit more in terms of the progress there using this model? How many chairs are in this model? Also, are you starting to take more oncology patients or Alzheimer patients? Any additional query you might have on that?

John Rademacher (President and CEO)

Yeah, Joanna. We have, as we've called out before, we operate 170 facilities across the U.S., and we have over 750 chairs that we operate. We are in the process of looking at how do we utilize them for both an alternate site to the home, as well as this advanced practitioner model, and continue to evolve our model through that process. We really like that progress. As you would expect, given corporate practice of medicine and other aspects, it really is at a state-by-state level in which we're looking to roll that out. The progress continues to advance in alignment with our expectations there. To the second part of your question, we have seen expanded portfolio and use of the advanced practitioner model to be able to serve oncology patients as well as patients that have neurological disorders like Alzheimer's.

That is a part of that care model and things that we can look at as we're looking to expand there. There are other products that are in our portfolio that don't make as much sense to be able to do in the home just because of the utilization of a nursing resource and drive time and things of that nature. To be able to have an alternative to the home with the center-based capabilities, we think just enhances our capabilities and broadens the population of patients in which we can serve. We are going to continue to move that forward. Again, encouraging signs for those vectors of growth in Alzheimer's and in oncology. At this point in time, it's ticking up. It's not a meaningful part of the overall portfolio, but we think it just positions us well as we're thinking about where growth will come into the future.

Joanna Gajuk (Equity Research Analyst)

I guess the broader suite portfolio, right? I understand 750 chairs you have there. Can you talk about the utilization of those? You did say 35% of the nursing visits you deliver were in those settings, but the reverse question is how much more you can do without the need to grow. To that end, since you mentioned how you can leverage better the nurse and reduce the drive time and such, can you help us understand the margin contribution when you have these settings being utilized more and more?

Mike Shapiro (Executive VP and CFO)

Yeah, Joanna, look, I mean, the way we think about these centers and as you've been following us since 2021 when we really started our strategy of aggressive suite expansion, we've been very thoughtful and methodical to make sure that as we opened these, the utilization was following. We're very encouraged. We've gone from around 17% of our nurse visits occurring in one of our chairs to 35% plus. First and foremost, I think as you've heard us say in the past, utilization or capacity isn't something we necessarily worry about. Most of our centers aren't operating seven days a week or eight hours a day. As we think about the theoretical capacity, we have plenty and will continue to add brick and mortar as the local market dynamics dictate. The great thing is they don't have to be running at capacity to create tremendous value for us.

We haven't said what the dollar figure is in terms of the drop. There are really two key benefits. First and foremost, for those mature centers, we're seeing more than 20% nurse productivity uplift. Said another way, that nursing labor component for a typical infusion is 20% more efficient because we're not paying for windshield time. They can oversee multiple patients at the same time. It's just a more efficient scheduling. We're also creating 20% more nursing capacity, which is a finite clinical resource for us, which gives us the confidence to continue to aggressively expand our therapeutic portfolio. This is a key enabler, as John said, to our growth. It drops value to the bottom line, but it continues to fuel our confidence around clinical labor capability.

Joanna Gajuk (Equity Research Analyst)

Thank you. If I may, a different follow-up, in your prepared remarks at the end, you said that you don't expect the Tyrosin to be any material in this year. I guess now we're hearing right about Tyrosin products from Europe, and I guess that includes drugs in there too. There's a debate about the 15% or 11%. Can you talk about, you know, are you doing anything in preparation for that? Do you need to build like an inventory because maybe you know things are happening? I guess how to think about the specific exposure to Europe? Thank you.

Mike Shapiro (Executive VP and CFO)

Yeah, look, as we've said previously, we spent a lot of time on our first quarter call and thereafter addressing some of the concerns. As we've said, part of our economics are we're maintaining a spread on the cost of the therapies. Drug prices increase and decrease on a regular basis. Our procurement and market asset teams are managing those procurement strategies constantly. We don't just sit back and wait. We have very proactive relationships with pharma, with distributors, with our suppliers. We haven't been shy, as you've seen in the past, around using our balance sheet where necessary. There are a lot of strategies that we can deploy behind the scenes to proactively address what we anticipate are changes in the drug costs.

As we've modeled countless scenarios, we don't see a scenario this year, and our guidance ranges incorporate what we think would be the impact, which, again, as we collectively assess, is just not material.

Joanna Gajuk (Equity Research Analyst)

Great. Thank you so much.

John Rademacher (President and CEO)

Thanks, Joanna.

Operator (participant)

Our next question comes from the line of AJ Rice with UBS. Your line is now open.

A.J. Rice (Managing Director, Equity Research)

Hi, everybody. Maybe just to follow up on that last train of thought first. I think your inventories are up about $35 million sequentially. Obviously, there is some ongoing chatter about the tariffs, the MFN, etc. Are you doing anything now, or is that a tool in the toolbox that you have? It wouldn't seem like a $35 million sequential quarterly step-up was that much in inventories in anticipation of tariffs or anything like that. Just trying to think about how quick you can move to take advantage of that and offset any impact from tariffs.

Mike Shapiro (Executive VP and CFO)

Yeah, A.J., I mean, look, we're constantly managing. That's less than two days' impact. We typically operate with about a month of inventory across the board. We're constantly looking at it. As John mentioned, there's some new therapies that are launching. Obviously, with mid-teens growth, we want to make sure, given what has been robust growth thus far this year, that we have adequate supplies and inventory in the local markets to be responsive. I would say that the inventory increase has been deliberate and methodical, but something that we're very comfortable with, again, given the strength of the balance sheet and capital structure.

A.J. Rice (Managing Director, Equity Research)

Okay. I know there's no other drug in your portfolio that's anywhere close to Stelara. I was wondering, as you have your discussions with manufacturers, and obviously, they're going through a tremendous change as well now, even though it wouldn't be necessarily that meaningful to you, are you seeing any movement on their part to try to change the way they contract with you in light of what happened with Stelara or just because of the pressures they're feeling themselves? Is there anything happening on that end of it that's worth calling out?

John Rademacher (President and CEO)

It's gone. The conversations that we've had have been probably more aligned towards the clinical capabilities and the ability that we have to help ensure adherence of their products. As you called out, our relationship with Janssen and specifically on that product was unique. Across the board, the rest of the manufacturers that we have relationships with, I think they're all trying to understand what the future will hold with some of the actions being announced around pricing, etc. We have not yet seen that be a material aspect of the way that they're contracting with us.

A.J. Rice (Managing Director, Equity Research)

Okay. Just the last question on OpEx growth embedded in your second-half guidance. I know generally your annual increases, I think, on that area are in the 3%-5% range. Is there anything unusual about what you're seeing in the back half that would either step that up or make that rate of increase somewhat more modest?

Mike Shapiro (Executive VP and CFO)

Yeah. Look, I mean, the great news is with the leverageability of our infrastructure, you know, we drove 50 bps. You know, OpEx was up, I think, high single digits or in the 10% range in the quarter. We still drove 50 basis points of leverage as a percent of revenue. A couple of things that are at play there. First and foremost, you know, we closed on the Intramed acquisition, which, you know, we absorbed their burn. On a "year-over-year" basis, we have the indirect spend of the Intramed enterprise that's now being reported. Frankly, as John mentioned, you know, we're investing in a number of areas, whether it's our advanced practitioner model supporting some of the new therapies that we're ramping up for launch. We have the agility to pull forward some of those investments.

Frankly, given the strength of the quarter, you know, we're managing, you know, for the near term and the longer term, and we're making some investments for future growth initiatives. I think it'll be a little bit above that in the back half relative to our historical range. There's nothing fundamental or structural. It's just the opportunistic ability for us to invest for future growth in a period where we're seeing really, really encouraging top line.

A.J. Rice (Managing Director, Equity Research)

Okay. Great, thanks so much.

Mike Shapiro (Executive VP and CFO)

Thanks, A.J.

John Rademacher (President and CEO)

Thanks, A.J.

Operator (participant)

Our next question comes from the line of Brian Tanquilut with Jefferies. Your line is now open.

Brian Tanquilut (Senior Equity Research Analyst)

Hey, good morning. Mike, maybe just as I think about kind of like A.J.'s question, how should I be thinking about your MFN exposure? I mean, just the mechanics around how that would flow through to you guys?

Mike Shapiro (Executive VP and CFO)

Brian, again, based on what we've seen, and there hasn't been a lot of updates since the original executive order, there's some conceptual things in there around MFN that, frankly, it's hard to understand exactly how that's going to play out. Determining what the reference prices are and what things would ultimately impact us, it's just way too early to tell. We haven't seen anything, at least for the balance of 2025, where that's going to impact us. We'll continue to keep an eye on it. Structurally, how there's going to be these international reference prices, how things would be adjusted, how the government may step in to start administering and operating pharmacies. As we've read the executive order, it's hard for us really to put our hands around.

I don't know that there's going to be anything implemented to impact 2025, but how it would logistically be executed in even the near term.

Brian Tanquilut (Senior Equity Research Analyst)

Got it. Okay. I totally understand. Maybe shifting to Stelara biosimilars, are you seeing any ramp there with new patients going that direction for Stelara or for those patients that would have been on Stelara? I'm just curious what you're seeing in terms of the ramp on biosimilars.

John Rademacher (President and CEO)

Yeah, Brian, it's John. I'd say it was a slow start, but we're starting to see that ramp up as we exited the quarter. Some of the PBMs are starting to make that a little bit more of an initiative for them as they move that ahead. Again, our focus has been around making certain that we have access to the products and expanding them into our portfolio as we move forward. There certainly are other opportunities where there's transition of some of those patients onto, let's call it the next generation chronic inflammatory disease products that are part of our portfolio as well. I think the patient census is trending in alignment with our expectations and kind of how we had thought things were going to move. Nothing out of our expectation range.

As we exit the second quarter and go into the back half of the year, our expectations are that we'll continue to see increased utilization of the biosimilars that at this point in time are being deemed to be interchangeable. Therefore, the utilization we think will start to ramp up.

David MacDonald (Analyst)

Got it. Thank you.

John Rademacher (President and CEO)

Thanks, Brian.

Operator (participant)

Our next question comes from the line of Jamie Pearce with Goldman Sachs. Your line is now open.

Sarah Conrad (Global Investment Research Associate)

Hi, good morning. This is Sarah Conrad on for Jamie. You've continued to see strong mid-teens acute growth following the competitor exits, but can you help us understand how we should think about acute growth progression for the balance of the year and into 2026 as you analyze these competitive exits?

Mike Shapiro (Executive VP and CFO)

Hey, Sarah. It's Mike. A couple of things. One, I wouldn't characterize the mid-teens growth just the result of the competitive dynamics in certain markets. We're seeing very solid execution even in markets where the competitive dynamics remain consistent with how they've been. I think that also is attributed to some of John's comments around the fact that, as we engage with scaled health plans and payers, they see the utility and value of a consistent, dependable national clinical model, which I think has served as some wind in our sails across the country. As it relates to this year, as you'll recall, in certain markets, there were some competitive changes late Q3, early Q4. The prior year comps, and we saw this in mid 2022 as well, the year-over-year comp is going to be tougher in the fourth quarter.

On a reported basis, while we're confident we'll maintain the revenue base, the reported growth we would expect to decrease a little bit in the fourth quarter. As it relates to 2026, unfortunately, at this point, we're just not in a position to provide forward guidance beyond the guidance for 2025.

Sarah Conrad (Global Investment Research Associate)

That's super helpful. I just want to follow up on A.J.'s OpEx growth question. Can you help us understand what's fueling that 10% SG&A growth that we saw in the first half, and where are you prioritizing investments going forward?

Mike Shapiro (Executive VP and CFO)

Yeah, I think to break it down high level, there's two to three points of, you know, SG&A impact from the acquisition. Deal expenses, as well as the fact that we're, you know, now reporting the Intramed burn. There's a couple of points of growth of what I will call acceleration of growth initiatives. Just to overly simplify, you know, the same store sales spending is still growing in that mid-single digits. As we always have, we've been able to, you know, accelerate some of the initiatives. Again, back to my earlier comment, this is around, you know, expanding some of our clinical capabilities in the suite, you know, investing in new therapy launches, etc. Sarah, the high level I break it down is, you know, OpEx, which again decreases a percent of revenue by 50 bps year-over-year.

That's despite, to your point, you know, 10% growth, half of which is really the impact of acquisitions and opportunistic growth initiatives.

Sarah Conrad (Global Investment Research Associate)

Thank you.

Operator (participant)

This concludes the question and answer session. I would now like to turn the call back over to John Rademacher for closing remarks.

John Rademacher (President and CEO)

Thank you all for joining us this morning and participating on our call. Our team continued to execute on all levels, and we're excited to continue to expand patient access and provide extraordinary care to more patients and their families, which is delivering value for our shareholders. Thank you, everyone, for joining us, and have a great day.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now disconnect.