For our next presentation, and thank you, Nicole, for coming and joining this conference. Next presentation, we have the team from Option Care Health. Nicole Maggio, Senior Vice President and Corporate Controller, will be joining. I figured, Nicole, though we just start out with, on a, you know, coming out of 2024, there's a tremendous amount of disruption and into the business of the hurricanes and so forth, and create some conflict, certainly, in the Southeast and so forth. Maybe we start there, and you've carried it forward into what, you know, very strong numbers recently. Maybe you could walk us through kind of your thinking, and if you want to just do that as kind of part of your slide presentation, it'd be great.
Sure. You know, and obviously, 2024 did have quite a bit of disruption between Change Health and the supply chain shortages, but, you know, have made some really good progress this year and really excited about where the team landed. You know, I know given this is a leveraged finance concert and a generalist conference, I will go back a little bit more just to give a very high-level overview of Option Care Health, starting with our disclaimer. Everybody can read that. You know, Option Care Health is the leading home and alternate site infusion provider in the United States. We operate in over 90 full-service pharmacies and have coverage across 96% of the population. You know, our mission is to serve healthcare, and we infuse patients both in the home and one of our over 700 alternate site, alternate site suites.
We've got a full network of therapies across acute and chronic, and what we do from an infusion perspective is we compound the drug, deliver that drug to the patient either in their home or one of their alternate site, one of our alternate site suites, and marry it up with the nurse, provide that patient their life-saving therapy. We've got a very strong portfolio, very strong financial track record as well as cash flow generation profile, strong cash flow and a very attractive capital structure. That, as we alluded to, Q3 was a great quarter with 12% top-line growth and an adjusted EBITDA growth of 3.4%, as well as adjusted diluted EPS growth of 9.8%. Also raised our guidance. You know, one thing that I'll highlight is that the team has performed extremely well this year.
From the beginning of the year, we've raised our adjusted EBITDA guidance $15 million, as well as increased our adjusted EPS projection to be an additional $0.06. Very good progress and even better than we expected at the beginning of the year. Additionally, we still expect to generate over $320 million of cash flow from operations and have a very strong record of producing cash flow and being able to actually collect on the revenue that we generate. One other item I'll highlight is also in the third quarter, we did refinance our first lien debt. We decreased our interest spread and extended the principal out to 2032, as well as added about $50 million to our capital profile. Still at 1.9x levered, very impressed with where we've come from. Just a little bit of additional history.
We became public back in 2019 through a reverse merger with BioScrip. At that time, we were 6.2x levered on an extremely pro forma adjusted basis. The progress that we've made in this area is nothing that we take lightly. Just a little bit more on the overall home infusion landscape. You know, we do operate in a very fragmented market. We believe we represent about 25%-30% of the market in the home infusion space, which is part of the broader infusion space, which we believe is about $100 billion. Again, that number is a little bit gray, because it's not exact data that you can pull out of anywhere because it does involve, you know, HOPDs in hospital infusions as well as other alternative provider sites.
Again, represents a very attractive opportunity and still significant opportunities for growth. Additionally, our portfolio, just a little bit of additional color. We do operate in both the acute and chronic therapy portfolios, and have low direct government exposure, about 12%, which is comprised of direct fee-for-service Medicaid or fee-for-service Medicare, Medicaid, and some VA programs. Diving a little bit better more into the acute chronic therapy mix, our acute therapies are really about 25% of our portfolio, and these represent a really a hustle part of the business. Think of this as your patients coming out of the hospital after acute event, IV antibiotics, parenteral nutrition, more mature therapies, lower and mostly generic, lower growth just given their maturity and low single digits, although we've typically performed slightly above that.
Our chronic therapies represent about 75% of our portfolio, and that's the faster growing piece of the organization with, you know, new-to-market drugs as well as a number of, other biosimilars, which, you know, are still in that more chronic therapy. Think of these as referrals coming out of physicians' offices, you know, with chronic patients that are going to be diagnosed and need infusions for a number of years, if not for the rest of their lives. Again, much faster growing category, higher dollars on the revenue line, but again, still a very attractive part of our portfolio. Just another, you know, quick, highlight on how that translates into gross profit. Again, higher dollar chronic drugs are, you know, 50% of our portfolio, but if you take a look at where it drops through the gross profit, it's only about 25% of the gross profit margin.
A lot of the questions we get are on the, you know, patent cliffs. Drugs moving to biosimilar. Again, the risk profile of our business and where that profit is coming from is much more skewed towards generic and biosimilar already.
Again, just highlighting the financial track record. The one I wanted to point out out of here is that cash flow from operations with the 26% CAGR. As I had just mentioned, our ability to generate cash to continue to collect on the revenue that we generate is one of the hallmarks of our team. Quick bullet on capital deployment, $1.2 billion deployed since 2021. Again, with a nice balance between strategic tuck and M&A, internal investment, as well as share repurchase. We have the priorities listed down there at the bottom in a slightly different order than they appear on the chart over there. Honestly, that's really just given some of the M&A marketplace and some of the multiples that are out there.
We're very thoughtful about the dollars that we deploy. You know, it's our investors' money, not ours. You know, want to be thoughtful in the way that we, you know, deploy it. To the extent there isn't strategic M&A out there, we have the other option to return through capital deployment. Just wanted to give that brief update, and we can dive back in now to your, your Q4 question.
You know, obviously, we did have a unique opportunity that began in Q4 of last year with Coram exiting the acute space, really across the country. We were able to execute on that. I do want to highlight we were not the only competitor in any market, so it truly is a testament to the team on being able to capture that, capture that share. We will start to lap it in Q4 of this year. We were facing at the end of last year the North Cove bag shortage.
A number of different things, but, you know, did see a little bit of a pop in acute there. We'll fully lap it in, in Q1 of this year. Baxter did a great job of getting back online and getting the supply back out there. You know, expect to fully lap that. Given the relationships that we've built, we do expect to continue to grow at a slightly above market rate. Call it mid-single digits, but mid-teens are not the new expectation for acute.
It's not. Okay. You're seeing that that's kind of a near-term bump, if you will, on the acute side. The therapy side. Yeah.
Yeah. A near-term bump on the acute, but we've been through this in the past. Mid-2022, a number of our other competitors exited. We did see it return to a more normalized growth rate, but all at a higher altitude. We are able to keep that share and grow off the new base.
Yeah. Okay. How do you see, like, from a competitive landscape perspective? I mean, how, what, what is that? Maybe just ask, what is truly your competitive landscape? I mean, is it other large consolidators, or is it more, other, other providers in the space?
You know, it does vary market by market, but we have a variety of competitors in the space, both in acute and in chronic. You know, we believe we're about 25%-30% of the market and again, possibly a little bit higher in acute, and it varies market by market. We continue to see that evolve as competitors exit the acute space, and, you know, they're still in the chronic space. In many instances, we compete with captive assets. We compete with, you know, private equity-owned infusion. We compete with hospital-owned infusion, and we compete with the alternative clinic model, which is.
Run by advanced practitioners. A variety of competition in there, but we feel like we're very well positioned in all of the markets to be able to continue to take share as well as to make sure.
Does the scale factor into that? Does enabling in given markets, does your scale, does it, can you leverage that scale?
It certainly does. I would say really the fact that we're in network with all top 10 payers.
Yeah.
Really gives us that, the confidence in the discharge planners or in the physicians to know that, yes, Option Care is likely going to be in network. They're going to be able to serve that patient, and it gives us access to all of those patients. From a payer perspective, it does provide that advantage. You know, as they're looking to give choice to their members and they have a provider that has the breadth of services across both acute.
Chronic, as well as our limited distribution drugs, and that ability to reach all of their members does provide us with an advantage there. Again, not everybody's in the acute space.
Yeah.
If we're in network for acute, we're in network for the whole portfolio of therapies. Only thing I'd add to that is from a manufacturer perspective. As they're looking to commercialize drugs and looking for partners for their limited distribution network, knowing that we have a national reach able to reach over 96% of the population and to be able to reach all of the patients in need of their therapies does provide us with another advantage. We've got over 50 limited distribution drugs in our portfolio today.
Yeah. Are you out of network any of the major payers?
There are certain carve-outs of individual.
Oh, that's fine.
Therapies, but we are in network with all of them and in network with just about all of the therapies [audio disortion].
Okay. Can you speak to your payer relationships? Just broadly.
Our payer relationships remain extremely strong, and honestly, some of the noise in the acute space. Have provided us with an additional benefit to be able to offer them. If you think about where the cost of the MLRs are being driven up, a hospital bed day is extremely expensive, and moving to a home and/or alternate site can provide, you know, up to 50% depending on the therapy savings for them. They do recognize that we are, you know, part of the solution to reducing the total cost of care.
Yeah. Right. They're looking to you to help them manage their kind of discharge process in some way.
We are, and we've been working very closely and have seen an uptick in some of these site of care initiatives. You know, if you recall, you know, back pre-COVID, there was a big focus on that and kind of dissipated when MLRs went down. Have seen a renewed interest in that, you know, as they are looking to manage their costs. We are, we are a great partner for that, both on the acute and the chronic therapy. Again, they do, some of them do have captive resources, so obviously United has Optum, and, you know, they are our largest payer. They've been 14%-15% of our revenue, since I've started here almost 10 years ago.
Yeah.
We've been growing in double digits. They continue to grow with us, and we continue to have a really great relationship with the health plan side of the house.
They do. Okay. Even though, okay, they may have their captives. The, and it's, like you were saying before, it's been I guess five or six years since BioScrip and it came together and so forth. Your leverage profile obviously is materially different inside two dimes. A re there opportunities, core, I guess, maybe I'm asking core competency and kind of non-core competency for, you know, I know it's, it's been a transaction in the past that you referenced, but, I mean, what is the thinking around, what is your thinking around that metric today in terms of M&A? Given your leverage profile, significant cash generation, I mean, what is your thought around the environment where opportunities could arise?
Sure. We continue to see a very active M&A market. A lot comes across our desk, but as I mentioned, we're extremely disciplined in our capital deployment strategy. Not everything makes it past the, you know, first desk onto the rest of the company, but continue to see some very attractive assets out there. Primarily, we're looking at tuck-ins and adjacencies. You know, whether it be a home infusion provider in a space where, you know, we're in the market, but we could use a deeper presence.
Whether they have a strategic relationship, new clinical competencies, or ancillary services. Again, our nursing network that we've built out in Naven has provided a significant ability to allow us to grow, by being able to accept patients and not say no due to lack of nursing. We are really still looking at areas like that and very close adjacencies, not looking for transformative deals at this point.
Got it. Since you make a [audio distortion], you know, an acquisition, a tuck-in acquisition in a given market, is it, how does that fit? Does that, you have, presume you have the payer relationships in that market. Is you're just basically acquiring the patient base. How does the formula work with the tuck-in?
You know, it depends on the tuck-in. At times, if there's a carve-out, we can acquire a patient base. There are certain relationships. I'll point to our acquisition of Rochester a number of years ago where that particular company has a strategic relationship. In that instance, they had a pharmacy right on the Mayo campus.
As you can imagine, most patients that go to Mayo aren't necessarily from Rochester, Minnesota t o provide that additional catchment area to be able to take patients out of the hospital and to bring them back to wherever their home might be really provided a strategic view for us. It depends on the market, but while we are the largest player, we are not the largest provider in every single market.
Right. It gives you option to gain share in a given market in a tuck-in. Does, but you're saying outside of, you, you're no way, I shouldn't say no way, but right now you don't see yourself potentially pursuing anything outside of your core competency.
Core competencies and adjacencies.
Yeah. Adjacencies.
Again, the InterMed and Plus Infusion from earlier. This was a good example of that. While they were a home infusion provider, they also had a very unique hybrid model that also involved alternative infusion clinics and that advanced practitioner model. We've made a, you know, made some really good progress with them and have had some great learnings. I mean, continue to advance our own organic growth of our infusion clinic portfolio. Up to 24 sites by the end of Q3.
Up to 24. Okay. I know it's, we, you've probably been talking about the nausea, but on Stelara.
Oh, nobody's asked anything.
Exactly. Would you mind just kind of rolling out, you know, what you've seen through 2025 relative to expectations and kind of your, your thinking if you, I guess, can't get into 2026 guidance, but certainly your kind of puts and takes around your experience year to date and the relative to expectations, what you may see going forward.
Sure. At the beginning of 2025, when we gave our guidance, you know, we outlined a $60 million-$70 million headwind. At that time, we only knew our Stelara patient base, and we knew the change to the discount that we'd be receiving from Janssen. You know, as the year has progressed, we knew that biosimilars would be coming out, but we didn't know how quickly they would come out or what their pricing strategy would be. As we ended Q3, you know, we do believe we are still in that $60 million-$70 million range, albeit at the higher end. The breakout of that is both now comprised of the patients which are still on Stelara, which are being impacted by that discount, as well as patients which have moved to biosimilars. We called out a 380 basis point. Headwind to the chronic revenue.
Yeah.
In Q3, the gross profit dollars are still within that range. The reason being is with the unique dynamics of Stelara and knowing where the pricing will be come 1/1/2026. Most of the biosimilar entrants have come in lower to the 2026 price to try to gain market share and to be competitive. I n the current environment, whereas in other biosimilar events, they would typically come in much higher to that branded price. It created a revenue headwind, but from a overall gross profit impact, we do believe it's still within that range, albeit towards the higher end.
Right. Okay. But the higher end, that you said the higher end of the 60.
Of the 60-70.
Yeah.
But not.
Is there incremental impact in 2026?
Again, not ready to talk about 2026. What that will depend on are a number of things. We do expect a revenue headwind for patients that are still on Stelara. Just given the IRA impact and the way that will flow through the financials. For patients that are already on the biosimilar at this point, and remain on the biosimilar. You won't see that step change in the revenue.
Again, for a gross profit impact, right now we're still in negotiations with Janssen for both Tremfya and f or Stelara, in negotiations with AbbVie on SKYRIZI, in negotiations with the biosimilar manufacturers. A lot of those factors do play into our calculus for 2026 and again, where those patients end up and if they're still on Stelara is one of the pieces that impact the negotiation with Janssen. If you can imagine if we've got, and these are fake numbers. If we've got 10,000 patients on Stelara versus 10, it does make a difference in how much that negotiation, negotiation impacts both of us.
Right. Those, the other products that you referenced, you said you've not given any type of indication of potential impact.
No, we have not. Again, we do have relationships in our negotiations as well as in our budgeting process right now. Looking where, you know, as we look every year, where to allocate resources to.
Right. Was there anything unique to the Stelara's model and the Stelara's profitability that translated into a greater impact with that particular product or, you know, I guess the massive, anything unique to that.
Yes.
To that product?
Yeah. Just to kind of re-level set on Stelara. When Stelara moved on to the SAD list, the self-administered drug list back in 2021, 2022, most of those patient volumes went to a self-administered drug, administering for themself at home. Janssen had identified a small group of patients which could not self-inject, whether it be due to, you know, dexterity compromised, immunity compromised, or other issues that they were not able to self-inject. They needed a partner to be able to continue to service these patients. And these patients all have a letter of medical necessity. In return for that program that we developed with them, knowing that, you know, we would get kind of self-injected, self-administered reimbursement, they did reward us with a larger discount. At the time, we had a very small patient population on Stelara.
Truly the level that we were able to grow it to was based on our team's ability to execute on this opportunity and to identify those patients. Again, for when you're looking at the kind of Stelara volumes, most of that truly is self-administered. We found a way to continue to participate to keep these patients on Stelara. We did enjoy a much healthier discount than we typically would on a branded drug, which again, when a branded drug comes out and there's no competition. There isn't necessarily that need to negotiate or provide an additional incentive because they are the only player out there.
Right. Okay. And, longer term, maybe I'm asking your business model, but I know I referenced this question. W hat's your vision towards really, kind of your mix of home infusion versus infusion suites? Like, where do you kind of see that longer term?
You know, we do not necessarily have a target for infusion suites. You know, I will say there will always be a need for patients to be serviced in the home. That is at the heart of what we do, patients that are coming out of the hospital, patients that have other, you know, issues where they, you know, should not be leaving the home. That will always be a core part of our business. We have seen great progress in the infusion suite utilization. Again, back in 2021, we really started taking a look at where our suites were and started moving them from where was convenient to us, meaning in our pharmacy's industrial part. To where was convenient to the patient in more, in more, you know, metropolitan areas or where patients were doing their activities of everyday living. We've seen that move up from about 16% in 2021 to 34% in 2024. Again.
That 34% being.
34% of our nursing visits occurred in one of, one of our suites or clinics. And, you know, expect to continue to see that, that ratchet up. Again, we do often see chronic patients, who prefer being in one of our suites. They're out anyway doing their days of their daily living. You know, they just have to go once a month for a four-hour infusion. And to put that square convenience to them allows them to schedule it, what when works for them, not have to wait at home for the nurse. It also leaves their disease state out of the home.
Again, we expect continued progress, but we don't have a target for X percentage.
Yeah. Okay. There's, there's no specific target. Okay. Tobby o dd questions in the audience? No? All right. I wanna get back to just this, the whole, the whole, leverage message. I look at the model and I'm kind of, like, see 1, 1.9x leverage. You see, you know, you said your reference point about, it's really tuck-in acquisition, sometimes core competency. How do you, is there, are there other capital deployment? I mean, you generate a wealth of cash. Your leverage profile is obviously very, very well disciplined. What do you think about longer term in terms of where, you know, driving value off of that leverage metric? You know, t hat's not an easy question. There's a lot of moving parts there, but I'm just kind of curious how you think about driving value off that leverage metric.
Sure. You know, we continue to be a capital-light organization. We've put a lot of investment into our pharmacy footprint and into our infrastructure, but continue to look for opportunities to do that, either to advance our clinical capabilities, continue to look to build out our a dvanced practitioner model, or to look for ways to just generate, you know, organic growth within the business. We always will look for those internal opportunities. Beyond that, again, M&A, it's a little bit choppy. With the number of assets that are out there that still are very attractive and, you know, fit well within our portfolio of capabilities, continued will look for those. At the absence of that, you know, we do have our share repurchase authorization. We'll continue to look for ways to bring, deploy capital shareholders. Again, we don't see a need to go much lower than 1.9x .
Yeah. Yeah. You've kind of.
For the right acquisition, we'd be willing to go up to three and three times levered. Again, doing so, we'd wanna make sure that we had a plan to strategically de-lever.
Lever. Yeah.
Relatively quickly. Again, from where we came from, we don't take for granted the capital structure that we have today and we'll continue to try to maintain that, and our cash flow generation speaks for itself.
What is, what is the capital, the advanced practitioner model? What is the capital deployment that's necessary for that model? Is it material?
What is great about the advanced practitioner model is that we're able to use the infusion suite. Model that we've already built out. We have over 700 chairs. In order to convert one of those to an advanced practitioner or to a clinic, there's a couple light capital improvements needed. You need a locked door to keep the drugs in. You need to find the advanced practitioner, go through the credentialing and the licensing. We really are able to leverage that model, the footprint that we already have. None of these suites are at capacity yet. We believe that we can leverage them to be able to do both, to execute both an infusion suite and an advanced practitioner model within the same suite.
Plenty of opportunity to leverage what we've already put in place and think it's a really nice complement to the services that we already offer. I guess just a little bit more on the difference between the two. For the traditional infusion suite model, we get paid under the home infusion benefit, which means that we are paid for a spread on the drug, the time a nurse is with the patient, as well as a clinical per diem, which is covering our pharmacy infrastructure, delivery costs, pump costs, and all of the other things that go into the clinical monitoring of the patient.
Yeah.
Under the advanced practitioner model, we actually bill off of the physician's fee schedule, albeit at a discount to the physician's fee schedule. Still a lower-cost site of care, as well as with a spread to the drug. What that does for us is it allows us to open ourselves up to more acute therapies because we have that more advanced, that advanced practitioner who can treat. Think neurology, think oncology, think p atients with higher, higher needs, as well as it does open up Medicare fee-for-service for patients that can be seen in that space because it's, you know, with only 12% government exposure. You know, Medicare is only a slice of that. It does provide additional access to those patients as well.
What's most challenging? What is it sourcing the advanced practitioner and the licensing? Is it in terms of building out that model in the suite?
You know, we're very thoughtful about where we're building out that model, making sure that we understand state-level corporate practice of medicine to be able to execute them properly. Yes, you do need to find the advanced practitioner and do the credentialing, but we are being very thoughtful about where we put them. We have, you know, typically we will add a number in the same area rather than trying to have one in each of the 50 states, just to be able to build out that presence in those specific markets.
Okay. Great. Thank you. Thank you, Nicole.
Thank you.
And unless there's any other questions in the audience, we'll go ahead and wrap up. Thank you, everyone. Thank you, Nicole.
All right.