Option Care Health - Q4 2022
February 23, 2023
Transcript
Operator (participant)
Hello, thank you for standing by. Welcome to Option Care Health fourth quarter 2022 earnings conference call. At this time, all participants are on a listen only mode. After the speaker's presentation, there will be a question-and-answer session. To ask the question during the session, you will need to press star 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. I would now like to hand the conference over to your speaker for today, Mike Shapiro. Sir, you may begin.
Mike Shapiro (CFO)
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 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 Rademacher, Chief Executive Officer.
John Rademacher (CEO)
Thanks, Mike, and good morning, everyone. As we reported in this morning's press release, the Option Care Health team delivered another very solid quarter of results in the fourth quarter. Despite ongoing challenges on many fronts that we'll discuss on this morning's call, the team was relentlessly focused on delivering extraordinary care to the thousands of patients who rely on us every single day. Reflecting on 2022 as a whole, I am humbled by the dedication of the team and honored by the progress we've made over the last year to advance in our mission to help transform health care by providing unsurpassed care and superior clinical outcomes in the home or ambulatory setting.
During 2022, we continued to expand our relationships with payers, providers, and biopharma to offer the highest quality care at the most appropriate cost. Over this time period, we provided care to over 265,000 unique patients and their families. As always, Mike will provide a more granular overview of the results. In Q4, we generated revenue growth of over 10%, with balanced growth coming from both our acute therapies that grew in the mid-single digits and double-digit chronic therapy growth. At the same time, we generated adjusted EBITDA growth of 8.7% and importantly, delivered an adjusted EBITDA margin of 9.2%, up sequentially 80 basis points from the third quarter, despite continued inflationary pressures.
Not to steal Mike's thunder, but our balance sheet has never been stronger as we finished the year with $294 million in cash, and our net leverage ended the year at 2.3 times. Entering 2022, I don't believe that anyone anticipated the inflationary pressures that the broader economy would endure, or as we have communicated previously, the significant impact we felt across many of our inputs. Throughout the year, we faced emerging cost pressures head on. We conservatively digested more than $40 million in year-over-year cost pressures in labor, medical supplies, oil-derived products, and operating inputs. We focused on offsetting those pressures to the best extent possible through technology enhancements and driving operating efficiencies as we also collaborated with our payer partners to seek reasonable rate increases where appropriate.
Our pursuit of operating efficiencies never ends, and the team drove considerable leverage in what we believe is the new cost basis going forward. We also continue to manage through a very difficult labor market. With the acquisition of Specialty Pharmacy Nursing Network last April, combined with our Infinity Infusion Nursing Network platform, we have established what we believe is the largest clinical infusion nursing network in the country. While recruiting key clinical disciplines remains challenging, we are confident we are weathering the storm better than many, and we continue to maintain our reputation as an employer of choice and a dependable partner to our referral sources as we can provide them with adequate clinical staffing capacity, allowing us to serve their patients.
During the year, we also opened 22 new ambulatory infusion centers, increasing our total count to nearly 150 sites and added 63 infusion chairs, which increases our total to over 575. With the expanded footprint and capitalizing on patient preference, we continue to see greater percentage of our nursing visits in our infusion suites, now approaching 25%. We will continue our expansion in 2023, with plans to open over 20 additional sites in key markets. This will allow for greater operating efficiencies and continued high patient satisfaction scores.
In summary, 2022 was a very productive year as we delivered $342.9 million in adjusted EBITDA for the full year, exceeding our original guidance of delivering $310 million-$330 million in adjusted EBITDA. As we look ahead to 2023, I remain confident in our ability to deliver mid to high single digit top line, leveraged bottom line growth and strong cash flow from operations through strong execution and deepening partnerships. We will continue to focus on providing meaningful solutions to our key stakeholders as the marketplace evolves and new models emerge. We will continue to work closely with the payers to offer consistent, high quality care at an appropriate cost and explore value-based arrangements for their members requiring infusion services across the country.
We will partner with discharge planners and prescribers to provide seamless transition of their patients onto service with us and collaborate broadly as members of their extended care team. We will deepen our relationships with our patients to provide them unsurpassed support as they recover from an acute event or help them manage their chronic conditions so they can live life to the fullest. We will provide the strongest clinical platform and broadest population access to pharma as they conduct clinical trials in support of novel new therapies or strengthen the data capture and analytics that we will provide for patients that are receiving their medicine. We will continue to invest in our people as we provide training, development and opportunities for advancement to remain an employer of choice and the destination for passionate healthcare professionals.
Also in this morning's release, we announced that we have received authorization from our board of directors to repurchase $250 million in shares as part of a multifaceted capital allocation strategy. Mike will provide more color on this program. However, I wanted to highlight this as proof positive of how far we have come since the merger in August of 2019 and acknowledge the discipline we have applied to unlock free cash flow, strengthen our balance sheet and vastly improve our leverage profile. With that, I'll turn the call over to Mike to review the results further. Mike?
Mike Shapiro (CFO)
Thanks, John. I'd like to start by providing some commentary on the fourth quarter results and close out with some additional thoughts on our initial 2023 financial guidance as articulated in this morning's press release. Revenue, as John mentioned, was quite strong in the fourth quarter, with balanced growth across our acute and chronic therapy portfolios. Note that as previewed on our Q3 call, in late December we divested certain respiratory therapy assets that were acquired through the BioScrip merger in 2019. The fourth quarter included respiratory therapy revenue for effectively the entire quarter. Gross margin of 22.5% reflects our mix of chronic and acute revenue as chronic therapies comprise a bit over 70% of fourth quarter revenue, as well as the impact of inflationary cost pressures in our direct categories.
Spending grew 8.5% but dropped as a percent of revenue to 14.4% as we continue to drive spending leverage to offset inflationary cost pressures. Adjusted EBITDA of $94.3 million represented 9.2% of revenue and while 20 basis points below prior year, as we've discussed, we've absorbed roughly $12 million-$15 million in quarterly cost pressure on a year-over-year basis. Additionally, we're encouraged by the 80 basis point sequential improvement in adjusted EBITDA margin over the third quarter. I want to take a minute to provide a bit more color on the respiratory therapy asset sale that we completed in late December.
Other income on our reported income statement includes a pre-tax gain on the net asset sale of $10.3 million, which we have also backed out of our adjusted EBITDA reconciliation included in the press release. The gain which we reported in other income did not benefit our adjusted EBITDA calculation and was excluded from operating results altogether. As John mentioned, we finished the year with $294 million of cash on the balance sheet, and our net debt of approximately $800 million represented a multiple of 2.3 times. Our capital structure has never been in better shape and positions us well to continue investing for the future and deploying capital for our shareholders.
To that end, we also announced this morning that our board of directors has authorized the repurchase of up to $250 million of common stock. Given our cash flow generation and capital structure, we continue to believe that deploying capital through our M&A strategy will create value for our shareholders going forward. However, as we evolve and continue to generate strong cash flow, we believe that share repurchases can provide additional optionality to complement our disciplined M&A strategy as we deploy capital for our shareholders. We are not in a position at this time to provide a specific time horizon or repurchase guidance and would anticipate modest repurchases at first. Again, we expect M&A to continue to be the primary area of focus for capital deployment.
Shifting to 2023 preliminary expectations, we expect to generate revenue for the full year of $4.15 billion-$4.375 billion. Our revenue composition is quite dynamic and this year will be no different. Our revenue guidance suggests top line growth of approximately 5%-11%. That includes approximately two points of year-over-year headwind due to two specific therapies for ALS and high risk pregnancy in which we anticipate rapid decline, along with the revenue loss from the respiratory therapy asset sale.
Despite those headwinds, our top line expectations affirm the strength of our diversified revenue base and our national platform. Adjusted EBITDA guidance of $370 million-$390 million implies growth of approximately 8%-14% and includes an estimated $15 million-$20 million of year-over-year inflationary pressure, as we'll annualize the cost pressures that emerged in 2022 and that we do not anticipate subsiding anytime soon. Our cash flow from operations guidance of at least $240 million reflects our expectation of being a federal income taxpayer for all of 2023, and our cash flow guidance reflects the year-over-year increase in federal income tax payments, which we estimated approximately $30 million. Despite the change in taxpayer status, we still anticipate strong cash flow generation for the year.
Overall, we're quite encouraged by the momentum from the fourth quarter and expect 2023 to be another productive year for the Option Care Health team. With that, we're happy to take your questions. Operator?
Operator (participant)
Thank you. As a reminder, ladies and gentlemen, that's star one, star one one on your telephone to ask the question, then wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of David MacDonald with Truist. Your line is open.
David MacDonald (Managing Director and Senior Equity Research Analyst)
Hey, guys. Just a couple of quick questions. Mike, I apologize my line cut out there for a minute, but just, on the inflationary pressures, can you repeat what you guys are assuming for 2023? You know, once we get past 1Q and have kinda annualized some of that $10 million-$12 million, can you give us a sense of, you know, on a percentage basis, how we should think about, you know, what you guys are seeing on labor and just kinda overall cost trend?
Mike Shapiro (CFO)
You bet, Dave. Good morning. What we laid out is, you know, as we've mentioned, the inflationary pressures really started to emerge in Q2. Our guidance assumes that there's a buy-up of, you know, around $12 million of year-over-year inflationary, mostly in the first half of the year, affecting, you know, Q1, since those inflationary pressures really didn't emerge until going into Q2. We fully expect that, you know, that's called the 15 buy-up on inflationary pressures, primarily in the earlier part of the year. From an inflationary pressure look, I mean, I think our presumption is that, you know, clinical labor, as we've been very clear, is gonna continue to be to be tight.
I think John, in his prepared remarks, was spot on and that we believe we're performing better than most. Our guidance also reflects that we're gonna continue to be competitive for clinical labor, throughout 2023 and beyond.
David MacDonald (Managing Director and Senior Equity Research Analyst)
I guess, a couple of other quick questions. In terms of the year-over-year cash flow, did you say the impact of moving, in terms of the taxes is about $30 million? Is there anything else from just a working capital standpoint that we should be thinking about in terms of 2023 relative to 2022?
Mike Shapiro (CFO)
Not really related to working capital. Again, you know, we did lay out in our press release, we do expect interest expense. We do have $300 million of floating exposure. Our guidance assumes probably in the neighborhood of $10 million of higher cash interest as well. Between cash interest and the federal tax payments, that we estimate to be a total impact of around $40 million year over year.
David MacDonald (Managing Director and Senior Equity Research Analyst)
And then guys, just, you know, you talked about on the cost side, clearly being positioned better than most, that would suggest that, you know, with regards to potential M&A pipeline, is it fair to think about, you know, you guys probably have more incomings? Secondly, you know, just any generic comments in terms of, you know, adjacencies and, you know, anything that you guys are seeing that would complement the business that looks interesting?
John Rademacher (CEO)
Yeah, Dave, it's John. Good morning.
David MacDonald (Managing Director and Senior Equity Research Analyst)
Morning.
John Rademacher (CEO)
Look, I think as we're looking forward, again, we feel really well positioned to your comment. Yes, you know, the pipeline of M&A activity continues to fill through that process. You know, we've always talked about the disciplined approach that we'll take to M&A, looking for those types of opportunities where we believe it's gonna bring some competitive advantage and/or augment our existing infrastructure. We'll continue down that path and, you know, deals like Rochester Home Infusion and others we'll continue to pursue.
You know, as we talked about before, just broadly, I mean, we really are excited about the work that's being done in our nursing network and the integration that's happening as we've moved, you know, the Specialty Pharmacy Nursing Network and Infinity Infusion together, you know, moving them onto the same platform. Really, you know, appreciate the great work that the team's doing there and moving that ahead. We think that gives us, you know, an incredible platform as we're thinking about clinical resources, moving forward, certainly in the nursing area, but also as we're looking to expand beyond that. We're continuing down that path.
We are continuing the look to find adjacencies as we're thinking more broadly about the post-acute space. Certainly you saw or heard in the commentary of the overview, you know, the ambulatory infusion suites are incredibly beneficial to not only our operating efficiencies, but also our patient satisfaction scores. We're gonna continue down that path. We love the strength of the balance sheet as we kinda outlined. We think that we have, you know, a lot of flexibility to, you know, continue down the path of looking at M&A as being a way to drive value to shareholders. We're gonna continue that path moving forward.
David MacDonald (Managing Director and Senior Equity Research Analyst)
Hey, guys, just last question, on the ambulatory infusion suites. If you just kinda do the math around the higher assumed percentage on chronic that's growing more quickly, any reason to not think that that percentage should continue to grind, you know, 100 basis points or so higher per year? Then secondly, just any thoughts around suites that potentially have a few more chairs. Can you talk about the potential leverage ability of that or not?
Mike Shapiro (CFO)
Yeah. as you can pick up, Dave, we're quite bullish on the infusion suite strategy. you know, we're in investment mode. The team has really refined our thinking around how we geomap these to get maximum coverage and convenience. What we found is, you know, typically these are three to four chairs. We do design them that if we had to expand and toss a few more chairs in, we have that flexibility. Really, look, when we really started this as a strategy, we were in the high teens, and we're, as John mentioned, approaching a quarter of all of our nursing events in these suites over a couple of years.
Again, given that these are generally more tuned towards our chronic patient cohorts and given the growth profile of those therapies, we would absolutely expect that our penetration of our nursing events will continue to accrete higher, which again, as John mentioned, helps us from patient access and satisfaction as well as helps us offset some of the inflationary headwinds.
David MacDonald (Managing Director and Senior Equity Research Analyst)
Okay. Thanks very much, guys.
Mike Shapiro (CFO)
Thanks, Dave.
John Rademacher (CEO)
Thanks, Dave.
Operator (participant)
Thank you. Please stand by for our next question. Our next question comes from the line of Matt Larew with William Blair. Your line is open.
Matt Larew (Equity Research Analyst)
Hey, good morning. wanted to follow up on the contract from last quarter related to some specific geographic market dynamics. Just how did that trend through the fourth quarter during the year contract labor utilization? How do you expect that to trend here in 2023? As you think about growing the clinician base in 2023, how do you expect that to balance between full-time and those on sort of the SPNN and Infinity platforms?
Mike Shapiro (CFO)
Hey, Matt, it's Mike. Look, you know, in general, you know, look, as we've outlined before, part of our labor strategy is to utilize contract labor. I would say relative to others in healthcare services, our reliance on contract labor is not as concentrated. There are certain pockets and geographies where candidly, you know, it's more efficient for us to lean on contract relationships. I think over time, our strategy has been to really build out our national platform. You know, we track our nurse census within our platform on a weekly basis. Our nursing roles have increased throughout 2022. And again, the per diem nature of the majority of that labor actually provides us with flexibility, and it's one of our key recruiting attributes.
In short, we feel good about, you know, using our employed nurses, and we think that that will accrete to a higher penetration over time. The team is energized now that we've brought the SPNN and Infinity Infusion Nursing organizations together to create that truly unified national platform. We would expect as we continue to add to our nursing roles, that would predominantly be more of a per diem nature. Also one of the things that the team's doing a spectacular job is, you know, providing incentives and motivations for those per diems to provide us with more of their hour capacity, so that not only are we increasing the number of per diem nurses, but we're also over time increasing the number of hours that we're getting out of those resources.
John Rademacher (CEO)
Yeah. The only thing I'd add to that, Matt, is, look, I mean, when we run our staffing models and take a look at it, where we have density of patient population, we will be recruiting full-time nurses. I mean, where we can leverage that effectively, we will. You know, that is a big part of our strategy from that. Now having the ability to augment that with the per diems, with the nursing network, moving forward and, you know, continuing to serve others in the marketplace, you know, other market participants with that, it just gives us a significant amount of flexibility to utilize our own full-time nurses to the fullest.
When we need additional capacity, our first default is to utilize that nursing network and the network of per diem resources that are available through that.
Matt Larew (Equity Research Analyst)
Okay. you know, you referenced that the cost base is sort of the new normal, and that 12-15 incremental will be weighed at Q1. As you think about then this, your new normal cost base, where are the areas where maybe there are pockets of persistent problems in terms of year-over-year inflation? Where are areas there might be some improvements? What are focus areas for you to start to work on gaining leverage on this new cost base?
Mike Shapiro (CFO)
Yeah, I think, you know, the reality, the way we're thinking about it, Matt, is, you know, we don't see clinical labor costs going down. We don't see medical supplies and transportation costs and mileage reimbursement rates, going down, miraculously as some of those oil derivative supplies go up in price with oil. Miraculously, the prices don't drop, you know, as oil recedes. Look, our procurement team is the best in the industry, and they're laser focused on squeezing basis points. I think our expectation is that, you know, this is the new world order, and we don't expect those key inputs to go down.
As always, one of the things that I think is a benchmark of this team is how hard we fight to maintain quality, but also focus on efficiencies of running our pharmacies and infusion center networks. A lot of that comes through the technology that we deploy to make sure that we're as efficient as possible in the clean rooms, we're interacting with our patients as efficiently as possible and utilizing those finite clinical resources and minimizing waste. I think it's a little bit of D, all of the above. It really comes from, you know, the patient referral to administration of the therapy. We're constantly looking at every facet of our cost structure to figure out how we maintain superior quality in a more efficient manner.
John Rademacher (CEO)
Yeah. With that, Matt, the only other thing I would add is, look, we deploy, you know, enhancements to the technology on a regular basis as we do new releases of the different aspects of our platform. Our team has done tremendous amount of work to look for opportunities to take repetitive process automation into our infrastructure to take a look and say, how do we streamline those processes? Where can we have our team members working at the highest level of their aptitude or the highest level of their licensure? Wherever we can to take waste and cost out of the process through technology deployment and automation with repetitive tasks that are kind of lower in that process.
Certainly in the areas of revenue cycle management and some of the patient administration, there are areas in which we continue to push on there. As Mike said, the technology that we've deployed within the four walls of the pharmacy allows us to become more efficient in the way that we're looking to compound, dispense, and distribute the products to the patient. All in all, look, we're gonna push on every single lever. I think, as we've talked about before, I mean, we fight for every basis point of cost improvement wherever we can, and we believe that there's still opportunity for us to innovate around our policies, procedures, and the technology to make certain that we are utilizing our team members as efficient and effective as possible.
Matt Larew (Equity Research Analyst)
Okay. Thank you.
John Rademacher (CEO)
Thanks, Matt.
Mike Shapiro (CFO)
Thanks, Matt.
Operator (participant)
Thank you. Please stand by for our next question. Our next question comes from the line of Lisa Gill with JPMorgan. Your line is open.
Lisa Gill (Managing Director)
Thanks very much. Good morning. I just wanted to go back to your comments around revenue for 2023. Mike, I appreciated the 2% headwind that you talked about. If we were to look at it on a same-store basis, it's 7%-13% growth. I understand that chronic is growing faster, but are there any new drugs or new therapies that you're looking to when we think about that revenue driver for 2023? Secondly, as we think about acute versus chronic, are you giving similar guidance to what we've seen historically, which is kind of single digit growth for acute and double digit growth for chronic? Is there any changes around that trajectory as we think about 23?
Mike Shapiro (CFO)
Yeah. Lisa, good morning. I'll start and maybe let John provide some color commentary. The other thing in our revenue base, you know, we're actually looking at about a point of ASP headwinds. We've seen some price compression in some of the antibiotics as well as the chronic inflammatories and infliximab categories, where again, you know, I think it underscores the fact that our revenue base is quite dynamic, you know, with dozens of therapy categories, thousands of ASPs and other dynamics. We don't break it out, you know, in too granular of a manner. We did wanna highlight that, look, you know, there's a couple therapies that are, you know, being disrupted through other therapies.
You know, I didn't include it in my prepared remarks, you know, overall, we're probably gonna see about a full point of ASP headwind. As we talked about the longer term trajectory of a high single digit enterprise, we've never really banked on any, you know, ASP tailwinds or headwinds because again, there's always a lot of moves, we always try to anchor that just around high single digit volume growth. Maybe I'll let John talk about some of the emerging therapies.
John Rademacher (CEO)
Yeah. Yeah. Look, Lisa, we continue to work upstream with biopharma and have a pretty robust pipeline of new products that are moving through the clinical trial phase and moving that forward. Things in short bowel syndrome, things in continued areas of neurological disorders, et cetera. Look, we've got, you know, strong relationships with some of the launches of products like VYVGART and others as those moved into the marketplace. You know, our goal is we always look to have one to three new launches on a yearly basis, and the team is working efficiently and effectively in order to do that.
You know, we feel as if we've always got to be focused around that regeneration of the product portfolio as new products emerge, as others hit the end of their life cycle through the process. I think, you know, the team feels really good about the relationships that we've built about the access to some of those products, whether it will be limited distribution, you know, products or others. I think you'll see, you know, a continued, as we have historically, a launch of anywhere between, you know, one in three new products as we go through 2023.
Lisa Gill (Managing Director)
John, just secondly, you know, when we first started talking a couple of years ago about the competitive landscape, it was, we think the hospitals are going to try to regain some of this market share. You know, COVID pushed people to places like Option Care, and then we hear about some of your other competitors having issues around staffing, et cetera, and you being in a much better position. Can you maybe just help us square away how to think about the current competitive marketplace and, you know, how you're thinking about that for 2023 and beyond? You know, you made in your comments that you were able to have reasonable rate increases with managed care. We talk to managed care, they're really happy with the services from Option Care and keeping people out of the higher cost setting.
Any comments that you can give around how to think about the competitive landscape going forward would be really helpful.
John Rademacher (CEO)
Yeah, look, I mean, Mike and I get paid to be paranoid, and quite frankly, it is extremely competitive, you know, from that. We know that we've got to win every single patient in that process. However, you know, when you look at the platform that we've created, when you think of the consistency of the quality of care that we're able to deliver, and our access to the clinical resources that are necessary to make that transition of care and then be able to serve those patients, we feel like we're in a really strong position to continue to deepen those partnerships with our referral sources and be a partner of choice as they're helping to decide how to transition patients onto care.
Look, we're always gonna have that tension with the hospital outpatient departments, as they're trying to, you know, add value into their infrastructure, and they're looking at ways to maintain the relationships where they can. Our ability to have that flexibility and that ease of doing business with the clinical resources is a big part of where we win. The depth of the relationships and the investments that we make in embedding, you know, nurses into hospitals to help with that transition of care and do the training and education of the patients as they're getting ready to be discharged, again, helps support the overall desire of everyone on the care team to deliver the highest quality care at the most appropriate cost. We feel like we're well positioned.
Again, we have talked before about our commercial team and their focus around reach and frequency of making certain that we have a clear understanding of segmentation in the marketplace, that we're calling on the right call points, that we're investing in developing those relationships. Look, you know, I feel as good as you can feel with the position that we have. Again, we win patient by patient. We win market by market. We win hospital by hospital or prescriber by prescriber. We don't take anything for granted on that, and we're gonna continue to pursue what we think is of above market growth given the opportunities that we have and given the focus of our team in developing the relationships and providing real solutions to our key stakeholders.
Lisa Gill (Managing Director)
Great. Thank you so much.
John Rademacher (CEO)
Yeah. Thanks, Lisa.
Mike Shapiro (CFO)
Thanks, Lisa.
Operator (participant)
Thank you. Please stand by for our next question. Our next question comes from the line of Pito Chickering with Deutsche Bank. Your line is open.
Pito Chickering (Analyst)
Hey, good morning, guys, and thanks for taking my questions. Back to Lisa's sort of revenue growth questions again. If you exclude respiratory therapy, what would revenues have been growing for 2023?
Mike Shapiro (CFO)
We haven't broken it out in great detail. It's in the neighborhood of $20 million-$25 million of top line for that therapy line. It's relatively limited.
Pito Chickering (Analyst)
Okay. Fair enough. Then, maybe I missed it, but to the question about what do you guys assume for chronic growth for 2023 and acute growth for 2023 net of the ASP pressures, you know, did you put actual numbers on that embedded within guidance?
Mike Shapiro (CFO)
Yeah, no. We don't break out specific guidance for the categories. The way we have broadly characterized this, Pito, is that obviously the acute portfolio is a slower growing, more mature portfolio of therapies, and the chronic is typically in that low double digit category. There's a couple of disruptions from some therapies that are being, you know, disrupted with other therapies. I would say those general growth descriptors remain intact for 23.
Pito Chickering (Analyst)
Okay. Perfect. For the ASP pressure of, you know, like 100 basis points, what's the EBITDA impact of that? You know, does that flow straight through or is a lot of that variable? What percent of your portfolio are those antibiotics? Is that the bulk of your acute portfolio?
Mike Shapiro (CFO)
No. Look, intravenous antibiotics is a key therapy for us. It's one of our larger therapy categories, but it's not the majority of our acute revenue. You know, a lot of our revenue is comprised of billing for the therapeutic, which is an ASP or an AWP reference. That also has a correlation to our procurement. As ASPs increase or decrease, there is a general correlation to our procurement costs. I wouldn't necessarily assume that that point of revenue drops dollar for dollar. Obviously, we make a margin on a drug revenue. X% of a smaller number is a smaller number, but there is some muting of the revenue impact through our procurement strategies.
Pito Chickering (Analyst)
Okay, great. Last question. You know, I think you targeted sort of one of, you know, one of three new limited drug distributions. These are also the ones that age out. Is there any change in the ability to get, sort of to land those deals? Is it becoming more competitive or is this just more of a timing issue?
Mike Shapiro (CFO)
No, I mean, I think, look, as John mentioned in his prepared remarks, one of the things that we really pride ourselves on is, look, we have direct procurement relationships with biopharm. We have very intricate and developed relationships where we're supporting them both pre-approval as well as post. That's one of the reasons why we've been successful in building a portfolio of well over 50 limited distribution therapies. I would characterize our discussions with biopharm as robust, and we continue to speak with them on a number of not only new novel therapies, but also maybe some therapies where they're looking for additional indications or a broader use.
Again, some of the categories where we've seen some traction over the last couple of years are, you know, in myasthenia gravis, multiple sclerosis, some of the, you know, emerging chronic therapies for drug-resistant HIV, et cetera. We've consistently launched one to three of these a year. Again, Pito, as you know, as we like to characterize right out of the gate, these aren't home runs. They're typically singles and doubles, but over time, you know, you can work with them post-launch to continue to support commercialization efforts. I think that, you know, again, we don't commercialize everything that's infused. It has to make sense for us strategically and clinically and economically as well. We continue to expect to, you know, commercialize, you know, one to three of these a year.
Pito Chickering (Analyst)
Great. Thanks so much, guys.
Mike Shapiro (CFO)
Thanks, Peter.
John Rademacher (CEO)
Thanks, Peter.
Operator (participant)
Thank you. Please stand by for our next question. Our next question comes from the line of Jamie Perse with Goldman Sachs. Your line is open.
Jamie Perse (Equity Research Analyst)
Hey, good morning, guys. Sorry to go back to the inflationary question. I wanna make sure I understand the message there. I get that you've got another quarter or so where it's not in the base, and so you've got to absorb the inflationary pressures that have, you know, started last 2Q. From there is the message that you expect the rate of growth of some of these cost inputs, labor, medical supplies, et cetera, to go back to normal or are you expecting, you know, continued elevated inflation in some of those line items?
Mike Shapiro (CFO)
Yeah, Jamie, good morning. It's Mike. Look, we don't expect the cost to subside. We don't see some of these categories getting considerably worse. You know, I think a lot of the areas of our cost structure have plateaued. Having said that, you know, we continue to expect that there's gonna be some inflation going forward across a broad array of categories, including labor, building and facilities, you know, some of our medical supplies, et cetera. I don't think we're expecting it to be high single digits as it was in middle of 2022. You know, our presumption going into it is there's going to still be, you know, as you mentioned, Jamie, going back to normal rates.
I think our normal rates are there's gonna be some modest inflation that we're gonna have to continue to offset and tackle, which is how we've formulated our guidance. We're not expecting, you know, 7%, 8%, 9% continued inflation in these categories. Even at plateauing or staying relatively stable, as you mentioned, and as we tried to articulate, there's still a buyup for the annualization of what we think is the new cost environment.
Jamie Perse (Equity Research Analyst)
Okay. That's helpful. Just on rate increases.
Mike Shapiro (CFO)
Right.
Jamie Perse (Equity Research Analyst)
Reimbursement increases, it seems like your tone has changed a little bit there. You're now trying to get, reasonable rate increases where appropriate, were your words. Can you give us a sense of what you think reasonable means and how broadly it is appropriate?
John Rademacher (CEO)
Yeah. I guess let me start by saying, look, we've always looked to get rate increase in appropriate. I think the message that we're trying to deliver there is, you know, the ability for us to actually have the conversations that yield outcomes is increasing on the percentage of success, right? You don't have to go far in picking up a newspaper to understand that everyone's dealing with pretty high inflationary pressures, especially on clinical labor.
The ability that we have to bring data and insights to the payer community around some of those pressures and how we need to get offset for those pressures, especially around the nursing costs and the clinical per diems, is being received with a different ear than it had been historically when we were in low inflation period. You know, I can't say that we're batting 1,000 by any stretch of the imagination. Our team in market access is focused around making certain that we are having those conversations, that we're looking to.
To take rate into the marketplace. You know, as we've talked about on previous calls, you know, we are always looking at the balance. As Mike's previous comments, there is a three legs to our stool between the reimbursement that we receive for the drug and the drug spread, what we get for a clinical per diem and what we get for a nursing rate. Each of our contracts is a little bit different in the way in which those the value that we extract out of those three legs. So we're really thoughtful about the way that we approach it.
We're very formulaic in the way that we're trying to drive that appropriateness, but it's not a consistent across the board, given that you've got these different dynamics on a contract by contract or payer by payer level. The team is, you know, working to underwrite it in the appropriate way and looking to be able to again be able to get rate increases that we feel are appropriate and are in alignment with the additional costs that we're bearing, as well as the value that we deliver to their members and our patients through the programs that we administer.
Jamie Perse (Equity Research Analyst)
Okay, thanks. Last quick one for me, just on SG&A. It was a little bit higher than I think Street modeled for this quarter. Is there any seasonality in that? Is that sort of the right base to model for the next few quarters or just, you know, any help on if there's one-time items or any considerations on SG&A? Thank you.
John Rademacher (CEO)
Yeah, nothing really of substance. Again, I think it did, you know, reflect some of the inflationary pressures that flow through the indirect. You know, there's, you know, there's some kind of year-end true ups and things like health benefits, et cetera, where we typically see some adjustments at year-end, but nothing really to see there. Again, I think more importantly, Jamie, we continue to see solid, you know, solid leverage in that line as a percent of revenue, which we would absolutely expect going into this year.
Jamie Perse (Equity Research Analyst)
Okay, thank you.
John Rademacher (CEO)
Thanks, Jamie.
Operator (participant)
Thank you. Please stand by for our next question. Our next question comes from the line of Joanna Gajuk with Bank of America. Your line is open.
Joanna Gajuk (Equity Research Analyst)
Good morning. Thanks for taking the questions. A couple of follow-ups. I guess on the last topic around payer contracting, your commentary around, you know, you pushing for better rates. Can you kind of step back and talk about your large payers in terms of the contract renewals? Are there any coming up for renewals? When were these contracts last renewed? Any kind of changes in any kind of overall contracting with the commercial payers?
John Rademacher (CEO)
Hey, Joanna, it's John. Yeah, I think as we've outlined before, look, all of our contracts are in really good state. Most of our contracts are evergreen annual renewals through that process. You know, we don't feel that there's any, you know, significant risk of any of those. Most of the major payer contracts that we have are in the middle of multiyear agreements that we have there. We believe we're in a stable environment in 2023.
However, you know, as my previous comments, I mean, we are continuing to have active dialogue across all of the payer community around some of the increase in the input costs of, you know, our labor and med supplies and other things to try to find ways to get some rate increase even in the interim periods of those agreements.
Joanna Gajuk (Equity Research Analyst)
Okay. Thank you. I guess, on your other smaller payers in terms of Medicare, you know, where we stand with this legislative fix there, and would you expect to get a more traction when maybe some of these new drugs are getting approved, like the drugs for Alzheimer's? Like, would you expect this to be an impetus for something like that on the Medicare side to, you know, improve that, the coverage for infusion therapies at home?
John Rademacher (CEO)
Yeah. Look, as we've said previously, we continue to be active in Washington, D.C., both as part of the National Home Infusion Association as well as things that we do independently to try to move this forward. There is, you know, continued, you know, push and pressure from our standpoint. Again, we have bipartisan support, you know, to move things forward. It's a matter of getting it prioritized. You know, as we roll through January, certainly with some of the changes in Congress and the Republican control, you know, there's a reset of committee leads and other things that goes through that process.
Look, we're always going to put this and try to put this front and center as part of the government relations, you know, efforts that we have underway to try to move it ahead. It's hard to hazard a guess. There's a lot of moving pieces in Washington, D.C., as you know, with various, you know, agendas as well as things like the debt ceiling and other things that they're working through. We're gonna be continue to be active. I'm always cautiously optimistic because I know that offering high quality care at an appropriate cost in a setting in which
Seniors deserve to be served, resonates. It's a matter of finding how do they pay for it within the process. To the broader question around, you know, are there catalysts out there potentially with the new Alzheimer's indications and those? Yeah. I mean, we're gonna look for every one of those to be an opportunity to continue to articulate the value of delivering care to beneficiaries in the home. We're gonna continue to use those as being leverage points to change the dialogue and to get more receptivity of making that transition. We'll try to utilize that for the opportunities that it will present, as things move forward. Too early to tell.
We're still, as everyone, waiting to see, you know, what CMS does with some of those novel new agents as they've received FDA approval or there's others that are in the pipeline. We think we have a viable solution, especially with the infrastructure that we have, both within our infusion suite as well as in the home, to serve those patients that would require an infusion. You know, we'll continue to have dialogue both with biopharma and the innovators, as well as in Washington and with CMS, around the value and virtues of home infusion as being part of that service model.
Joanna Gajuk (Equity Research Analyst)
Great. Thank you. That makes sense. One more follow-up on the discussion around cost efficiencies and how you know, continue to push forward to do more. I guess the question, you know, are there still more things I guess you're trying to accomplish to try to take the costs out? In that context, is there any update or is there gonna be meaningful this expanded WellSky partnership that I guess you announced in December? Any color on that? Thank you.
Mike Shapiro (CFO)
Yeah. Joanna, look, our pursuit of efficiencies and cost outs never ends, whether there's inflation or not, and that's something that's just part of the culture and part of our focus. Again, there, you know, the compass heading is always towards unsurpassed quality and the best clinical care in the industry, but doing it in a more efficient manner. the team knows this is part of the routine and it's something that never ends. John's a little closer to the WellSky partnership. I'll let him add any color.
John Rademacher (CEO)
Yeah. You know, really excited about the partnership that we announced. Again, given the platform that they have and, you know, our ability to work with them around driving operating efficiencies internally is something that we're really excited about to continue to push that forward. The other thing that, you know, the WellSky team has focused a lot of energy, and we were early adopters into it, is around interoperability, and using their platform to make certain that we're leveraging health information exchanges and leveraging the information to drive operating efficiencies for all of those transitions of care, and giving deeper insights into the whole patient or the whole person through that process.
You know, our team has been working in close partnership with the team at WellSky around continuing to push that forward. I'd highlight, you know, the work that we're doing with AlayaCare as well, as just being ways that we are working to take industry leaders from a technology platform and helping them understand the needs of our business, and then utilizing their platforms to drive that operating effectiveness and operating efficiencies that we know are gonna be required for us to continue to look for ways to offset inflationary pressures and continue to be offering the highest quality of care in the settings that we deliver our care in.
Joanna Gajuk (Equity Research Analyst)
Thank you. The very last one, a follow-up, when it comes to interest expense rate, increasing, and obviously your leverage ratio came down very nicely but still, you know, any plans to pay down any or maybe some of this floating rate debt or at this point, the 2.3 is kind of good enough, or, you know, comfortable, you feel comfortable with that rate and you don't feel the need to further lower the debt load?
Mike Shapiro (CFO)
Yeah. Joanna, look, we feel great about the capital structure and being at 2.3 times, considering a few years ago at the merger we started this journey at 6.2 times. Feeling great about it. Of the $1.1 billion of gross debt, $800 million of it is fixed or we've fixed it through hedges. We do have $300 million of float. You know, three-month LIBOR last year was at 50 basis points. This year it's at 450 basis points. You know, 400 basis points of increase on $300 million of floating rate debt. You know, it's about $1 million a month. Look, we're obviously managing the capital structure closely. It provides us with considerable flexibility.
Frankly, I think as we look forward from a value creation perspective, I don't know that I don't know that paying off gross debt is a top priority. Again, as we said in our prepared remarks, clearly M&A continues to be what we believe is the top priority. I think not a testament to less confidence in our M&A opportunities. It really speaks to the testament of the strength of the balance sheet. We've just announced that we're adding a facet where we have optionality around share repurchase as well, which candidly, I think is probably more attractive deployment than paying down gross debt.
Joanna Gajuk (Equity Research Analyst)
I appreciate this. Thank you.
Mike Shapiro (CFO)
Thanks, Joanna.
Operator (participant)
Thank you. I'm showing no further questions in the queue. I would now like to turn the call back to management for closing remarks.
John Rademacher (CEO)
Yes. Thank you very much for joining our call this morning, and we look forward to providing updates throughout the year as we continue to make progress against our goals. Thanks, everyone, and have a great day.
Operator (participant)
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.