Option Care Health - Earnings Call - Q3 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by and welcome to the Option Care Health Third Quarter twenty twenty Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference to your speaker today, Mike Shapiro, Chief Financial Officer.

Please go ahead, sir.

Speaker 1

Thank you, and good morning, and thanks for joining us for the Option Care Health third quarter earnings call. I'm joined this morning by John Rademacher, Chief Executive Officer. Before we begin, please note that during the call, we will make certain forward looking statements that reflect our current views related to our future financial performance, future events 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 comments. We encourage you to review the information in the reports we file with the SEC regarding the specific risks and uncertainties.

You should also review the section entitled Forward Looking Statements in this morning's press release. During the call, we will use non GAAP financial measures when talking about the company's performance and financial condition. You can find additional information on these non GAAP measures in this morning's press release posted on the Investor Relations portion of our website. With that, I'll turn the call over to John.

Speaker 2

Thanks, Mike, and good morning, everyone. We are very pleased with our progress in the third quarter, both in terms of our financial results as well as our efforts to lay the foundation for sustained growth. Mike will review the results in more detail, but I'm very proud of the team's execution in the quarter in which we delivered double digit revenue growth, our highest EBITDA margin on record and expanded our cash on the balance sheet by over $20,000,000 A year ago, on our third quarter earnings call, which was our first call at Option Care Health, we outlined a strategy to drive sustained profitable growth by integrating two industry leaders and establishing a truly unique platform to deliver infusion therapy in the alternate setting. At that time, we established four key objectives for the business realize over $60,000,000 in net cost synergies deliver organic revenue growth in the mid to high single digits deliver EBITDA growth of two to three times revenue growth through operating leverage and improve the claim to cash conversion to drive over $50,000,000 in operating cash flow. As we sit here today, we have clearly executed on that strategy and I am extremely proud of how the Option Care Health team has performed in an extremely challenging environment.

One of our first priorities as a new enterprise was to reengineer our commercial organization and deploy resources for maximum effectiveness. While it was admittedly disruptive at first, it is clear that our sales team of more than five fifty is operating much more effectively in identifying and capturing new patient referrals. In the third quarter, new patient referrals increased to pre COVID levels for both acute and chronic therapy portfolio. And in fact, for many therapies, we are generating solid revenue growth over the prior year. As the marketplace continues to react to the COVID-nineteen crisis and the home and alternate sites outside of the hospitals are becoming the site of choice, we saw very strong results in our chronic therapy lines that focused on specialty drugs.

In the third quarter, we saw broad improvements in most markets with scheduled procedures and physician visits beginning to accelerate off the second quarter low watermarks. And given our integrated technology between our commercial and operational teams, our success rates in terms of efficiently converting new patient referrals to revenue has continued to improve. While overall we have seen encouraging referral trends, recoveries vary by market and the overall trend we saw in the third quarter is far from universal. We are also closely monitoring the recent spikes in COVID-nineteen cases and hospitalizations that have resurged in many cities and states. The team continues to shine through adversity, and the dedication of the over 5,000 team members at Option Care Health continue to focus on the patients and family members on the receiving end of every dose.

Our resilient, interconnected, and technology enabled network of care management centers has provided a strong backbone that has allowed us to adapt to the dynamic environment that we are operating in and maintain the dependable consistency our referral sources are counting on. We continue to make progress on integration efforts. And while some technology harmonization efforts will continue into the 2021, we will effectively be complete on integrating the two organizations by the end of this year. And the more efficient platform we have created is beginning to unlock operational leverage. Our EBITDA margin has expanded 200 basis points from the third quarter of the prior year through our spending and operational discipline.

The scalability of our network is the key tenet of our growth strategy going forward, and the third quarter underscores our ability to leverage the network efficiently. Shifting to the pandemic situation, by no means are we out of the woods despite our improving top line results. Like all health care enterprises, we continue to focus on the safety and well-being of our team members and the patients that we serve. We continue to aggressively manage our supply chain for critical personal protection equipment, vital drugs and medical supplies. Our technology backbone has enabled us to operate and manage our workforce and inventory effectively across our network, and we continue to enhance our technology ecosystem through new software releases and further deployments to enhance our telehealth, e visit, and virtual capabilities.

And with these tools, we continue to collaborate with health systems and physicians to identify patients who could benefit from receiving their infusion services safely and effectively in their home or one of our dedicated infusion suites. We know that patients who have underlying health conditions and or are immunocompromised have the highest risk of severe impacts from the coronavirus. So our ability partner closely and demonstrate our ability to safely serve these patients has only strengthened our position. I am confident we have solidified many referral source relationships over the past several months as a reliable and trusted service provider. Going into the fourth quarter, we would anticipate continued momentum in our sales effectiveness.

Although we have seen some markets retract and hospital and physician practices begin to postpone procedures given the recent flare ups. Also, we continue to actively monitor supply chain dynamics as product and supply disruptions continue to emerge in certain therapy classes and medical supplies. Finally, as I've shared in the past, care and pharma manufacturing collaborations are critical component of our growth strategy, and we are uniquely positioned as the only national independent provider with a technology enabled clinical advantage. We've announced a number of new payer collaborations this year and we continue to make tremendous progress. Today, I'm very pleased to announce that we have recently entered into new multiyear relationships with both Centene and Cigna.

We are excited as both of these agreements allow for deeper collaboration with these health plans to actively manage their members who require high quality infusion services at an appropriate cost. We pride ourselves on our ability to collaborate with both local and national health plans to deliver real value to them and their population. And while our efforts on payer front continue, I'm extremely proud of the team and the progress that we've made in 2020. We remain the only provider that is in network with all major health plans, and that is a key competitive strength for us We have also highlighted the strength of our platform to provide manufacturers with clinical support and channel access for new product introductions.

In the third quarter, we also announced collaboration with NS Pharma to help commercialize their recently approved therapy for the treatment of muscular dystrophy. Neuromuscular therapies is an area of clinical focus for us, and we are thrilled to be selected as a key partner in their limited distribution network based on our clinical expertise. Our business development team continues to actively collaborate with biopharma manufacturers to identify opportunities to utilize our clinical expertise and care management platform in support of the commercialization goals. As we sit here today in the front half of the fourth quarter, I'm very encouraged and proud of the Option Care Health team, both for their resilience and persistence in relentlessly pursuing our shared mission, but also for the tremendous progress we've made in our first full year as a new enterprise. We will have completed our merger related integration activities, established or deepened our new payer collaborations, launched multiple new therapies, and dramatically improved the financial profile of the company.

With the strength of our execution and continued progress against our goals, we announced this morning that we are raising our twenty twenty full year EBITDA guidance. And given the positive momentum, I've never been more confident in the Option Care Health team or our potential going forward. In short, the team has executed the strategy we outlined a year ago exceptionally well, adapted and responded to a very dynamic and challenging environment, and never lost focus on the most important thing we do, provide extraordinary care that changes lives. With that, I will turn the call over to Mike to review the financial results in a bit more detail. Mike?

Speaker 1

Thanks, John. Clearly, we continue to generate strong financial results and establish a solid foundation for the future. The third quarter is also the last quarter in which I must remind all of you that the reported growth reflects legacy Option Care results up through the merger date, 08/06/2019, and the combined results for the merged enterprise thereafter. Going forward, our growth profile will be much more transparent. I'll try to provide comparable growth where possible based on our estimated combined prior year results and the impact of harmonized accounting policies.

Revenue in the quarter of over $781,000,000 represents comparable infusion revenue growth of approximately 13%, driven by mid teens chronic therapy growth, which offset relatively flat acute revenue. Reported revenue growth also benefited from a meaningful improvement in revenue deductions for bad debt, which declined more than a full percentage point year over year to the mid-2s. Our chronic portfolio continues to benefit from the transfer of patients from hospitals, HOPD and other sites of care to the home or one of our infusion suites. Acute referrals and revenue did improve modestly over the second quarter in most markets as acute activity in hospitals did sequentially improve. Clearly, we're pleased with the overall revenue results for the quarter.

Gross profit of $174,000,000 represented 22.3 percent of net revenue in the quarter. Despite considerably faster growth in our chronic portfolio, which represented a little over two thirds of our revenue in Q3, our gross margin is holding tight as our operations team continues to drive efficiencies to mitigate the mix impact. And spending of 123,000,000 is down slightly from Q2 spending levels and represented 15.7% of revenue. And note that it includes approximately $4,500,000 of integration related expenses, which is detailed in the reconciliation of adjusted EBITDA in this morning's press release. We expect sustained spending leverage to continue as integration related expenses decline and we leverage the established infrastructure.

Adjusted EBITDA of $59,200,000 represented 7.6% of net revenue and it reaffirms our conviction in the ability to expand profit margins over time. Despite our chronic portfolio growing at a faster pace as expected, we continue to demonstrate our ability to expand EBITDA margins and we would expect that trend to continue. Our mantra regarding earnings has always been that it only counts if it shows up in the bank accounts. Regarding cash flow results, we continue to drive meaningful cash from operations and further enhance our capital structure. Free cash flow, which we define as net change in cash balances, was $22,000,000 despite the return of $11,700,000 in the quarter to HHS related to the CARES Act grants.

Year to date, we have generated over $70,000,000 in free cash flow and ended Q3 with $140,000,000 in cash balances. Additionally, as we've disclosed, we increased our revolver capacity in the quarter to $175,000,000 with $165,000,000 available after letters of credit. So we exited Q3 with over $300,000,000 in total available liquidity. Regarding our leverage profile, we committed a year ago to a consistent deleveraging trend through both earnings growth and cash flow generation. We emerged at the time of the merger with a net debt to EBITDA ratio of 6.2 times and we exited Q3 at five point zero times.

Based on the guidance I'll review in a minute, we expect to be below five times at the end of the year. And while we're not in a position to provide 2021 guidance at this time, we would expect to improve our leverage profile considerably next year and ultimately expect to be below four times in short order. Finally, given the strength of our results and momentum, we are increasing our outlook for the year and expect to generate between 62,000,000 and $66,000,000 in EBITDA in the fourth quarter or between $216,000,000 and $220,000,000 for the full year. We also expect to continue generating strong cash and expect to finish the year with more than $150,000,000 in cash balances or at least an additional $10,000,000 in free cash flow in Q4. With that, we will open up the call for Q and A.

Operator?

Speaker 3

And our first question coming from the line of Brooks O'Neil from Electric Capital. Your line is now open.

Speaker 4

Good morning, John and Mike. Congratulations on a terrific first full year as Option Care Health.

Speaker 5

Thanks, Brooks.

Speaker 4

I have a couple of questions. While I know investors and I are curious about your outlook for 2021, maybe we should start with the outlook for Q4. I know Mike commented a little bit about it, but could you comment in particular on whether you think you could continue organic revenue growth in the double digit range? And it looked like gross margin was essentially flat here in 3Q, and I'm curious what your outlook for gross margin in Q4 might be as well.

Speaker 6

Brooks, this is

Speaker 2

John. For the call. I'll start out, and then I'm sure Mike will want to add some color as well. I think we're really excited about the progress that we made in Q3. Just to remind you, though, last year was an interesting comparable.

We were going through a significant amount of change with the reset of our commercial team in q three last year, if you remember. And that was a big part of our integration effort. We wanted to get that behind us as quickly as possible and reset the team so that we had better reach and frequency in the marketplace. So, you know, we looked at Q3 as being a, you know, a softer comparable than most other quarters because of that disruption. That being said, look, we're monitoring closely the situation as we continue to see flare ups across the country with COVID-nineteen and spikes in local communities.

We do believe that the health care system is much better equipped today to handle both COVID and non COVID related care much better than we were in March when this all unfolded. And so we're cautiously optimistic that we're going to continue to drive our team to be in a position to capture the referrals that are available, to work closely with the providers, to identify patients that can come on to service with us, and to continue to focus around both the acute and chronic, you know, patients that can come on service. And I think we'll see that momentum continue. But I do want to say that there is a little bit of caution in both of our voices just with the uncertainty of the recent flare ups and the increase in hospitalizations that we're seeing. Mike?

Speaker 4

Okay. That makes sense.

Speaker 1

Yes. Brooks, the only thing I'd add is, look, clearly with the guidance we're providing for Q4, we're signaling and expecting that we'll see a constructive Q4 compared to the momentum exiting the third quarter. And again, as it relates to gross margin, we've been very open that given the two verticals that we operate in with our acute and chronic therapies, With chronic, which we expect to consistently grow at a faster pace, that will have some downward margin rate pressure. But again, hats off to the operations team who's driving cost efficiencies. And the other thing I mentioned in my prepared remarks that helps our gross margin is we've seen over a full point of reduction in our bad debt reductions from gross revenue.

And that's really a result of our patient registration and our revenue cycle teams really driving superior collection performance. So that's helped us up to this point. We're not in a position obviously to provide specific gross margin guidance. But rest assured, we're fighting for every basis point.

Speaker 4

Great. And then I'll just ask one more. Obviously, you guys are doing a terrific job with deleveraging and strengthening the balance sheet. I think I recall the hedge on the second lien notes comes off during November. Can you just give us any feel for what you're thinking about in terms of interest expense maybe for Q4 or thinking out into 2021?

Speaker 1

Yes. Brook, the swap, as we disclosed in our filings, we had two swaps on the first lien and the second lien. The second lien swap does expire actually later this week. Our initial guidance for the year was we would be at around 105,000,000 to $110,000,000 of run rate interest expense. When you look at the meaningful paydown in the second lien in early August as well as the expiration of that swap, we will exit this year with a cash interest rate of around 90,000,000 So we've taken 15,000,000 to $20,000,000 of cash interest out through those two actions.

And we'll obviously provide more granular thoughts on our next call regarding 2021.

Speaker 4

Great. Thank you very much. And again, congratulations.

Speaker 1

Take care, Brooks.

Speaker 3

Our next question comes from the line of Matt Lau with William Blair. Obviously,

Speaker 7

a strong quarter, guys. Congrats. You referenced kind of the category perhaps taking share in the home in terms of patients shifting out of the hospital and and then maybe the HOPD. But also sounds like Option Care itself is gaining share. So could you maybe help us understand, you know, sort of from your angle, why are you gaining share in particular right now?

Is it you Johnny referenced the Salesforce kinda hitting on all cylinders. You referenced the the tech platform being integrated. You've obviously referenced some new payer contracts. Obviously, the scale is an advantage. So maybe just help us parse out what is the broader home infusion category getting shared versus Option Care itself.

Speaker 2

Yeah, Matt. Good morning. Thanks for the question. Look, I think what you just mentioned are the keys. First and foremost, we knew it was going to take it was going to be disruptive and take a bit of time to get the sales force realigned and pushing in the right places.

And, you know, hats off to the team. We've done a lot of training. We've refocused the call points. We've done a lot around the reach and frequency to make certain that we are in the right places, working with the right providers in order to capture that share. And so a lot of it has to do with the execution of that team.

The second thing we mentioned and I mentioned in my comments is, look, the technology platform really allows our selling resources and our operations team, especially those in patient registration, to work much better together. We have continued to see improvements in the amount of conversions of referrals to starts. Right? A referral is important, but it doesn't really generate revenue until we create a start out of it. And so the teams have continued to focus on that.

We continue to refine and upgrade the technology with new releases, and we continue to get better with that. And that also is something that we feel really good about. The last thing that you mentioned is we continue to cultivate and develop deep relationships with the payer communities. And we believe that those collaborations are important to serve their members and to make certain that we are well positioned to be a national provider that can cover 96% of The U. S.

Population and have access to the most plans from a health plan standpoint. And so across all of those dimensions, we continue to execute our strategy, and we believe that continues to put us in a really strong position in order to capture that. One last thing I'll mention is, you know, we have invested a lot in the technology platform to allow us to do things in a virtual environment. We are trying to be, you know, touchless wherever we can using digital documentation and other tools that we have at our disposal to be able to help to capture those patients that are transitioning out of the hospital without necessarily having to show up at the hospital. And so, you know, the work of the team and the use of that platform to do virtual teaches, virtual visits, e discharges, all of that is paying, you know, benefits to us as an organization.

Speaker 7

Okay. Fair enough. And then, you know, I think the kind of longer term growth algorithm you talked about was growing at least in line with market growth of 5% to seven percent and two to 3x, in terms of earnings growth. I appreciate that the comp in the third quarter was easier. But obviously, the chronic portfolio now, I think that's twothree of the book versus 60% before.

Is there a reason to think that kind of that long term growth algorithm you had outlined perhaps actually could be more attractive in a post COVID world?

Speaker 1

Yeah, Matt, it's Mike. So obviously, as we emerged, tried to lay out what we thought were very realistic growth profiles. And again, you know, as we generally characterize this industry, which is really a portfolio of virtually dozens of different infused therapies. You know, one of the benefits of our model is the balance. We have an extremely balanced revenue base across a variety of therapies.

Some which in our acute portfolio are admittedly growing in the low single digits, balanced with a rapidly growing portfolio of chronic therapies. And the way we've generally characterized the revenue potential I think remains intact. We've characterized that broad portfolio as a 5% to 7% baseline proposition. And as John alluded, I think our confidence here, sitting a year later with a very well performing and cohesive commercial go to market strategy, I think, is giving us more confidence that we'll be growing at a faster pace. And again, it's not just the existing chronic therapies.

But as John also mentioned, we're introducing a couple of new therapies a year. And so that gives us confidence, especially with that chronic portfolio. So short winded answer to your question is yes, I think that growth profile remains intact with probably a little more confidence.

Speaker 2

Okay. Thank you.

Speaker 4

Thanks, Matt.

Speaker 3

Our next question coming from the line of David McDonough with Chase Securities. Your line is open.

Speaker 6

Hey, good morning, guys. Couple of quick questions. First, Mike, can you talk a little bit about working capital? I mean, you look at the cash flows, they've obviously been very strong. What in terms of working capital has maybe gone a little bit better?

Where are there continued opportunities? And then if we look at the growth of the chronic business relative to acute, just looking at the bad debt characteristics of that product portfolio, is there an opportunity to kind of further drive that bad debt number down?

Speaker 1

Yes. We've been very active in managing our working capital. Obviously, looking at what we refer to as our cash gap, our days of inventory and our DSO offset by our days payable. Overall, we feel we're in a very strong position. It really starts with the collectability, which, as I mentioned, has driven down our provision for bad debt.

We've improved the not only the balance of AR, if you look at our disclosures, we've taken tens of millions of dollars out of our AR balances over a horizon where the top line has grown meaningfully. And that's really a testament to our patient registration and our billing teams who are converting that revenue to cash significantly faster. That has afforded us to manage and reduce our overall working capital balance. As you'll also see with inventory that also affords us the ability to make some strategic investments in PPE and med supplies in what we think could be some challenged supply markets going forward. And so we've been making some strategic elections on our working capital and investments where we think it's prudent.

So overall, I think working capital, you ask the teams out in the field, they're just getting started and they think there's continued efficiency and we would agree with that. So overall, I think working capital will be relatively neutral and probably grow modestly as a fraction of revenues going forward. With a bad debt, you're absolutely right. As we think about the different therapies, one of the benefits on the chronic therapies is these are a higher cost regimen. Virtually all of our chronic starts are prior authorized by the payers.

So we typically see a lower bad debt profile for our chronic therapies, Simply because our patient registration teams are so diligent around following up with payers, who obviously want to have some involvement in the treatment regimens for those therapies. So overall, with the mix moving forward, we would think that there is still some room to improve on our bad debt provisions as well.

Speaker 6

And then just a quick question on payers and payer contracting. John, you mentioned in the prepared remarks deeper collaboration with payers. And I'm sure you don't want to get specifically into kind of Centene or Cigna. But broadly, when we think about these conversations, we're hearing every payer talking more and more about value based care. Is there when you think about contracting, is there an opportunity over time to move towards more of a construct where as you guys are able to drive better outcomes, there's an opportunity to potentially participate?

Or are you seeing payers increasingly narrow networks? Just any broad commentary in terms of the payer conversations that you're having.

Speaker 2

Yeah, Dave. Look, the conversations that we've been having with payers continues to evolve and to change. I will tell you that they are much more productive and in alignment with what you're hearing And that is, you know, a significant amount of interest in understanding some of the construct of what a value based care reimbursement model could look like, opportunities for us to work closely with them around managing cohorts of their members that, you know, require the therapy set. And, you know, I think as we've disclosed before, I mean, you know, most of those start out in the area of performance guarantee and putting at risk dollars both forward as well as punitive on that.

And we think that's going to continue to evolve. We're really excited about the relationship that we announced with Cigna and Centene. We think that they're solid foundations for us to then build on. And I think that this is going to continue to evolve moving forward. And I wouldn't be surprised that the evolution would move down the path of some risk share for performance and for making certain that we're managing effectively the outcomes for the patients that we are privileged to serve.

Speaker 6

Okay. And then it sounds like in the chronic therapies, you guys called out the ongoing migration to home and alternative site. And just given some of reticence we think we're going to see in terms of kind of ongoing COVID flares and reengaging with institutional settings, how do you guys think about your Ambulatory Infusion Suite footprint? There some areas where you may put some additional dots on the map? You know, just how you think about that, you know, in terms of further complementing the portfolio?

Speaker 2

Yes, Dave. As we've discussed, you know, and I think disclosed before, we today operate over 130 infusion centers, you know, across the country on that. We believe that this will be a big part of, you know, the growth strategy as we move forward. We continue to focus around utilization of the existing infrastructure, and we're identifying opportunities to make some smart investments where local markets need it, demand it, and we have the patient volume to justify it. So think you'll continue to see us move in that direction.

We're thoughtful about it, as you would expect, in looking at how we want to deploy the capital. But, you know, we're pleased with the progress that we're making. Believe there's still opportunity for further utilization of the existing infrastructure, and we're going to continue down that path to make certain that we have the right facilities in the right place to capture that demand in the marketplace.

Speaker 6

Okay. And then just last question for me, guys. When the pandemic started, you mentioned a pretty meaningful uptick in terms of new referral sources. When we look at the growth this morning, can you give us a little bit of perspective in terms of are you continuing to see outsized new referral growth? Or is the vast majority of this being driven by just kind of increased depth within your existing referral base?

Speaker 1

Yes. I think it's quite balanced, Dave. And again, as John mentioned, look, we're thrilled with the revenue performance and the fact that on a comparable basis we're in the double digits, again admittedly with an easier comp. We did see a sequential improvement in both the acute and chronic therapies relative to the second quarter. And I think on the chronic side, it's really balanced.

There's still a number of referral sources that are looking to shift the modality of care. But it's also there's just some pent up demand with people going to the specialist for those chronic conditions. And so we're seeing it's not that the third quarter is still the swell of side of care shifts. It's really balanced. We're admittedly still seeing some of those migrations, but we're seeing uptick in some of our newer therapies for myasthenia gravis and MS, as well as some of the chronic inflammatory.

So, really good balance in where those starts are coming from.

Speaker 2

Okay. Thanks very much, guys.

Speaker 1

Thanks, Dave.

Speaker 2

Thanks, Dave.

Speaker 3

Our next question coming from the line of Kevin Fischbeck from Bank of America. This

Speaker 5

is Adam Ronn on for Kevin. Just a couple of quick questions. So your deleveraging comments imply that you're going to grow next year. But as you think about 2021, should we think about the growth off the base of the new 2020 guidance that you just gave? Or are there any onetime adjustments that you would adjust that as you think is the jumping off point for 2020?

Speaker 1

Hey, Adam, it's Mike. I think the jump off point for the guidance that we provided is a solid baseline. Again, our adjusted EBITDA normalizes for some of the integration costs as detailed in the reconciliation. So I think while we're not in a position to provide, I think the reported adjusted EBITDA for this year is a solid base.

Speaker 5

Okay. Thanks. And then going back to kind of the contracts with Centene and Cigna, is there anything additive from these new contracts, kind of like new geographies, new services covered? Or are these kind of more just renewals?

Speaker 2

Yes. So it's John. You know, I would say that it's a renewal for Centene. It continues to, you know, be a strong partnership that we have there. The Cigna is a little bit new in the sense of it is a direct contract with Cigna.

Historically, they utilize CareCentric as being their intermediary. And so, you know, we're early stages of, you know, the relationship directly with Cigna. And, you know, our hope is that it will continue to develop and deepen as we start to work closely together in a direct basis.

Speaker 5

Okay. That's helpful. Thanks. And then maybe one more. I'm just kind of curious.

Have you administered Remdesivir in any COVID patients so far? And I've seen some reports like Lilly and other manufacturers are working on kind of COVID infusion treatments. And I'm wondering if that was the route that, you know, we ultimately head down. Is that an opportunity that you would be focused on? Or you

Speaker 2

more focused on kind of core bottlings? Yeah, so at this point in time the emergency use for that product is in hospital only. And so there is no application or ability for it to be done in the home or outside of the hospital. So first and foremost, it'll be, you know, done within the four walls of the hospital in an inpatient setting. You know, I think as we're looking forward, look, we as an organization continue to work closely with pharma manufacturers wherever we can.

If we can help provide solutions into the healthcare system, we by all means will look for those opportunities. But at this point in time, there really is no drug or an infusion therapy that can be done safely and effectively in the home or in one of the ATSs that would have any benefit for coronavirus victims. So our focus is around the core of what we do. Our focus is around making certain that we're working closely with those hospitals to help with the patient discharge to free up the bed, to make certain that they're well equipped to handle any surges for COVID patients, and to be working with the physician practices to really identify those patients that require chronic therapy and move them onto service safely and effectively in the home or one of our infusion suites.

Speaker 5

Thanks. Appreciate it.

Speaker 2

Thanks, Adam.

Speaker 3

And our next question coming from the line of Richard Close with Canaccord Genuity. Your line is open.

Speaker 8

Great, thanks. Congratulations on a first year. Just maybe a follow-up to Dave's question. Just on the strong 13% growth there and strong referrals, any thoughts in terms of a gut feeling and whether this is like the pent up demand from the last couple of quarters with COVID versus the reengineering of the sales force? Obviously, the comp was easier because you just started that last year.

But any thoughts in and around that would be helpful.

Speaker 1

Sure, Richard.

Speaker 5

Look, I

Speaker 1

mean, to state the obvious, it's been an extraordinary period. And when you're looking at all of the variables, that occurred in the third quarter as well as the baseline, look, there's no science to this if you ask me. I'd probably say that our true comparable normalizing for some of the flood it's probably in the high single digits if you normalize for the comp and some of the transition benefits that we've seen.

Speaker 8

Okay. That's helpful. And then thinking about your comments, you said the results were varied market by market. Can you provide any more details there? Like you know, maybe, you know, not specific markets, but are any markets down, any markets outperforming, you know, maybe the range that you're thinking about there or seeing?

Speaker 2

Yes, it's John. I'll start and then Mike certainly can add color. Look, I think you can follow the trends that you're seeing in where you're seeing the resurgence of coronavirus in those local markets. So certainly, you know, we saw in the third quarter and especially towards the back half, you know, continued pressures in the Midwest and some of the Southern states in which we started to see some retraction of hospitals, you know, delaying some procedures as well as, you know, patients not going to their physician office visits. And so, you know, that's where we're you know, the strength of our national network is, you know, we have that diverse portfolio, and we're seeing kind of different impacts market by market on that.

But we do follow closely what's happening within the markets. And there is probably a very strong correlation between where you're seeing spikes in coronavirus cases and positive and hospitalizations and some of the drag that puts on the referral patterns that we see, especially from the acute care settings.

Speaker 1

The only thing I'd add, Richard, it's Mike. And we alluded to this on the second quarter call as well. Look, out of this episode, I think one of the silver linings from our perspective is that on the heels of our technology we've reached and cast into a lot of newer markets and cast a broader shadow into some of the regional areas that we have not had boots on the street historically. And so the Peoria, Illinois, the La Crosse, Wisconsin's where, you know, through our technology, we can help to seamlessly transition patients. And we've fortified new referral relationships, even though we might not have commercial resources in that zip code.

And so on the heels of that, while there's a variety of experiences we've seen across different geographies and metropolitan areas, I think we are encouraged that our referral base has meaningfully expanded during this period. We'd hope to sustain that.

Speaker 8

Okay, that's very helpful. And then obviously I spend a lot of time on the virtual tech side of things. And I was just wondering if you can dive deeper into the technology you're utilizing, whether it's on the e visits and training and just thoughts in terms of how much legs this has going forward in terms of maybe improving revenue revenue growth or margin improvement for you guys going forward?

Speaker 2

Yeah, Richard. Look, the platform itself is a tool that we have been working to design. You know, the interesting aspect that I think we've disclosed before is, you know, a lot of the building blocks that we put, we utilize are best in class solutions. So, you know, the platform itself allows our nurses to do virtual visits to use things like video conferencing as well as support tools in order to really enhance that patient experience and support through the process. It also allows for digital documentation to quickly and effectively capture the information that's required and then seamlessly provide that throughout the organization.

So we can track a patient from the moment that we've received the referral all the way through ultimate discharge, and have visibility across that entire chain. So we do believe this is going to continue to be an opportunity for us to drive efficiency as an organization. We believe it's an opportunity for us to have a ability, as Mike just said, to reach into areas that might be a little bit more remote and utilize the technology in support of those patients in those rural markets. And we believe that it's an opportunity for us to continue to look and enhance that overall wrapper that we put around the patient to provide them with comprehensive care. So we're excited about the platform.

We're excited about the potential that it has. We're just really scratching the surface at this point in time. And expectations are that we'll continue to capitalize on it as we move forward.

Speaker 8

Excellent. Congratulations again.

Speaker 1

Thanks. Thanks Richard.

Speaker 3

And our next question coming from the line of Mike Matuski with Barrington Research. Your line is now open.

Speaker 9

Hey, good morning, guys. Just a few questions. I guess I appreciate the detail on the slight change in the Cigna relationship. John, can you just speak to I mean, that a relationship in which you guys feel like you were underpenetrated relative to your market share in general?

Speaker 2

You know, I don't know that I would describe it that way. Look, we work closely with CareCentric, but again, didn't have that direct relationship with Cigna. So our expectations are that, you know, we we fought vigorously for every one of the Cigna members. We took them on to service even though it was being managed through that third party. You know, we're we're encouraged about what the future can hold in a direct relationship and potentially looking to expand from that.

But I I wouldn't I wouldn't wanna represent that that, you know, we were under indexed on that on a historical basis.

Speaker 1

Okay. And Mike, the only thing I'd add is I think, look, as you look at a number of the investments they've made and a lot of the comments that Cigna specifically has made around their focus on post acute, It's quite an innovative team. And I think they're looking for collaborative partners in the post acute space. And I think that's what gets us excited from a relationship development perspective.

Speaker 9

Okay, great. I guess, you know, on some other conference calls, health care service executives have sort of, you know, some have said, Hey, you know, we've had a chance during COVID to look at our business in some ways that we probably never would have in the past. Is there any, you know, one or two sort of learnings that have have come directly as a result of sort of the the backdrop of of COVID and sort of the challenges you faced and and just looking at the business maybe in a different way?

Speaker 2

Yeah. Look. I I think that if you if you go back and you said, you know, at least for your office based workforce, that you'd be working remote and be able to continue to operate at the level we have and execute at the level that we did, I don't think that that was on anyone's drawing board. And so, you know, I think there are things that we're going to continue to take a look at around the use of remote work. Where appropriate.

We're going to continue to take a look at, you know, the need to travel and whether that is we need to do it at the extent that we do. We have invested in making certain that we can train and onboard people in a virtual environment, and I think that's gonna prove to be beneficial as we continue to move forward. So, you know, I I think the fundamentals of the business itself, look. We we need pharmacists and pharmacy techs and our warehouse teams to show up into our care management centers. We need nurses to be able to knock on the doors and go into the homes to do home infusion.

So, you know, a lot of the core of what we do, remains. But on the edges and on all of the support things that wrap around it, we continue to challenge ourselves to think differently and to capitalize on the technology stack that we invested in to make certain that we're as efficient and as effective as possible.

Speaker 9

Okay, great. And just last one, in terms of I've heard there's an election today. And just in terms of that issue, are there any politicians that have been champions for the home infusion industry or parties that are more generally sympathetic and, you know, I guess, understanding of the value you guys provide? Any just any thoughts around, the the election and and, you know, what that can mean for home infusion? Thanks.

Speaker 2

Yeah. Look, I I think that, we're we're pretty neutral. Regardless of the outcome of the election today, we do believe that, a couple of things just are, self evident. Number one is we're on the right side of the costquality equation. We're providing a service in a site in which most patients want to receive the care.

And we can do it in a very efficient, safe, and cost effective manner. And so, you know, I think that all bodes well. I would tell you that we've had, you know, bipartisan support when we tried to move this forward. We believe that we've had the legislative intent to expand, you know, the offering of home infusion, you know, broadly on that. And CMS is the one that at this point in time continues to interpret in a different way.

And we're cautiously optimistic that, look, we're on the right side of this argument. We know that seniors are the most vulnerable to the severe impacts of coronavirus, and we believe that we have a real solution that's available to CMS and to really all of the government programs. And we're going to continue to beat that drum and shout that message from the mountaintop.

Speaker 9

Great. And hey, congratulations on this first year post bioscript. Great job. Thanks.

Speaker 7

Great.

Speaker 9

Thank Thank

Speaker 3

And I'm showing no further questions at this time.

Speaker 2

Great. Well, thank you. As I hope you hear from our updates and remarks, we are very pleased with the progress we have made in the third quarter and as our first year as Option Care Health. The team has delivered on the commitments that we made, and we're just getting started. We know that we are on the right side of the transformation happening in health care.

And with our more than 5,000 Option Care team members focused on providing extraordinary care that changes lives, we expect to see continued momentum in the fourth quarter. Please take care and stay safe. Thank you for attending our call.

Speaker 3

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may all disconnect.