Thanks so much for joining the Bank of America healthcare conference. My name is Joanna Gajuk. I cover healthcare providers here at Bank of America. It's my pleasure now to host this session with Option Care, who's the largest home infusion provider in the U.S. Today with us we have John Rademacher, the CEO, Meenal, the CFO. Yes, Nicole in the audience right there. John has some, you know, very little of the slide presentation, he's gonna walk through, and then we'll go right into Q&A.
Great. Thanks, Joanna. Thank you everyone for joining. We thought it was important, given so many people are interested in the story, to kind of set the stage around who Option Care Health is. Certainly for those of you that have been following the organization for a while, a little bit repetitive, but it was important. Certain disclaimers, housekeeping, as you would expect. We may make some forward-looking statements. Again, please review any of the information on our on our website, our investor relations website or the 10-K around some of the risk factors associated with that. As Joanna said, Option Care Health is the nation's largest provider of home and alternate site infusion therapy.
Our strategy is built on this national scale, but local responsiveness that is really important in healthcare and important for us to put the patient at the center of what we do, but be part of the communities that we serve. Our network of pharmacies include those local pharmacies as well as specialty centers of excellence, as well as a broad aspect that really supports specialty and chronic patients, as well as those being discharged from the hospital on acute therapies. We have a comprehensive network of nurses across the country that really are focused around providing that extraordinary care in the home in one of our infusion suites or in one of our clinics.
When you think about the high quality care that we can provide at an appropriate cost in a setting which patients wanna receive it, we add an incredible amount of value to the healthcare ecosystem and especially as part of the post-acute space. Our coverage map is broad. We cover about 96% of the U.S. population, given the reach that we have. Our nursing environment allows us to really reach into those homes or into the infusion suites. We have over 750 chairs and over 190 facilities to be local where it's important and really drive the business performance from that standpoint. We have a broad portfolio of products. We have over 600 therapies that are part of the portfolio of products that we provide broadly across that spectrum.
Our strong cash flow and cash generation of the organization really allows us to build on that strength and continue to invest in the business and invest in the capabilities that are required to continue to innovate and drive the process forward. When you think about the industry itself and some of the secular trends that are really driving that, you know, we're well-positioned given the footprint that we have and given the relationships that we have broadly across the healthcare ecosystem and the payer community to really drive value, knowing that we've got shifting demographics and aging population and prevalence of disease that really continues to have high value around some of the products and services that we offer.
We know that patients want to age in place as that continues to move forward, and we can help enable that as an enterprise in what we do in the support that we wrap around the patient, not only the compounding, dispensing, distributing of the product, but the care plans and the care coordination that we're able to execute too. There certainly is a preference around site of care, looking at the total cost of care, both at the patient level as well as at the payer level, to make certain that you're getting the most efficient and high quality outcome. Significant amount of pharma innovation that continues to bring innovative new therapies into the marketplace that require healthcare professional oversight, whether it's an IV administration, an injectable administration, or a subcutaneous administration.
A lot of new launches certainly in those products in our position with the platform that we have positioned us well to be a partner of choice. We continue to invest in technology. We know that a greater use of data and analytics is going to be important to drive waste and cost out of the process, as well as to help to automate and improve the overall supply chain and the supply aspect of the products moving forward. The policy reimbursement landscape again, is an important aspect and ongoing. We are a part of the solution as we're having conversations with payers around how to look at the total cost of care and how to bend that overall cost trend.
We had called out today, as we're sitting here, we have 26 priorities that really are aligned with some of the mixed performance that we had in the first quarter, knowing that we need to respond and re-accelerate the business. That focus is really around taking some decisive actions to really drive growth and get us back on that growth trajectory, really focusing around three key areas. One is around just coverage and making certain that we have the right team in the right place to build the relationships and capture the market demand. The second is really around conversion, taking those referrals and converting them to starts in a very efficient and effective manner. The third I'd say is convenience, is the ease of doing business with Option Care and, more importantly, the operational excellence that we can provide.
We had called out earlier today, as part of this is, on a near-term basis, we are refocusing some of our capital allocation priorities to investing in the business and making certain that we're continuing to invest in growth, but also to take a look at the opportunities for share repurchase given the dislocation of the stock price and where we think there is value that can be created. Our focus is around really rebuilding the momentum of the enterprise as we're looking sequentially quarter-over-quarter and rebuilding from this point forward. We believe the foundation of the business is strong.
We believe the value that we provide to the key stakeholders is extremely valuable. We think we are well-positioned to continue to build on the trends of moving more care to the home, moving to a better cost effectiveness equation, and to utilize our clinical resources to the fullest.
Right. Let's dive in. Maybe, I appreciate the last slide. I wanna touch base on a couple of these things, but maybe before we do that, to your point about the, you know, the stock, you know, being dislocated, maybe just, you know, let's flash back Q1, very disruptive, a lot of things kind of not really going the way you originally anticipated. And I know you adjusted the guidance to reflect this, right? Now, you know, the revenue came down, but your EBITDA guidance was unchanged. Kinda walk us through what gives you confidence, right, that you can ramp the EBITDA to get to your, you know, so your target for the year.
Sure. Why don't I go ahead and get started? Good morning, everyone. I'm Meenal Sethna. I'm the Chief Financial Officer. Thanks for having us today, Joanna. Let me just touch a little bit on Q1. As John mentioned, you know, we, and Joanna also mentioned, you know, we had some challenges in the first quarter. As we are working through those and have been working through those, 1 of the things that we took a look at was what our challenges in the first quarter meant as we looked ahead to the full year. Given some of the revenue impacts that we had in the full year, which really were related to a decrease in our patient census on particular set of therapies, what we looked at was rebuilding that revenue.
Rebuilding that census, we expected, is gonna take a little longer than we were gonna be able to accomplish in a year. That was really what drove our revenue guidance to come down $175 million at the midpoint. We don't take that lightly, especially, you know, as we're sitting here in the Q1 and doing that, but we felt that right now, given the circumstances, that reflected where we were, the business. Having said that, when we took a look at EBITDA, we felt that there were things we could do that could have an impact during the, you know, upcoming quarters during the year. We left our EBITDA range as it is.
It's a pretty broad range, but there's work that we definitely are focused on driving reduced cost, driving some opportunities around procurement savings, taking a look at the clinical value that we're driving and working with our partners on making sure that we're recognized for that financially as well. Also just, you know, cost savings that we also need to take a look at. When you have a revenue reduction of that amount, we wanna make sure that our cost structure is aligned with that. That also in part is related to the management incentive, the variable management incentive compensation as well. That's what gives us confidence as we look at 2026 to be able to drive some of those plans that we have.
Would you be able to quantify some of these buckets? Cause I guess your STELARA CID headwind went up, call it $20 million versus your original guidance, right, the headwind. Is it fair to say, you know, of that $20 million, like, the cost saving is the most, or is there something you're doing, you know, in terms of changing the cost structure in that portfolio because the revenue kinda came down? Kinda help us understand, like, where is it coming from?
Sure. What we articulated is, as part of the first quarter, we expected an additional $25 million of headwind, of gross profit headwind, which generally aligns to EBITDA. That's really what we're looking to offset. I would say, you know, really the cost structure and just the other initiatives I mentioned are not specific to that portfolio. We refer to that as our chronic inflammatory portfolio with a lot of autoimmune diseases. That's a piece of the business. When we take a step back, a lot of our business goes to supporting patients across multiple therapies. Whether, you know, whether we can drive additional revenue in other parts of the portfolio where, you know, within the first quarter, our acute side of our business has been doing really well.
Our IG and our neuro side of the business, also very solid results for the quarter. Are there opportunities where we can drive revenue? Are there some cost opportunities across the portfolio, not specific to our CID, chronic inflammatory portfolio? That's the same with procurement, that's the same with clinical value realization. It's not specific to any one area, but we're looking across the company.
You know, these fit together, but I don't wanna walk past the fact that we continue to invest in the business. We think there's opportunities to enhance our go-to-market strategy associated with that, and we think that also helps to drive that growth and get back on that re-acceleration path.
Yeah. That's a good point, John. The other thing I would add to that is, you know, We've gotten some questions. We are continuing to invest in our commercial resources. That's really what's driving the strength of our growth across some of the areas of our portfolio. That's not something that we're going to let's put off the gas on that. We really started that at the back part of 2025 going into 2026, and that's a key part as we think, you know, looking ahead and we think about our growth trajectory and the opportunities as we take a look at the market. That's definitely a focus for us.
When it comes to that specific headwind you outlined, the $55 million, you know, STELARA CID headwinds there, you know, what gives you confidence that you have a handle on things, right? Clearly that Q1 experience, you know, deteriorated dramatically, right? Initially, you know, I think you gave this guidance late January maybe or early February, right? Let's still call it, like, two months later, right, things changed dramatically. You know, where you sit right now, like, is there still some variability in the outcome for the year when it comes to the $55 million, or kind of you kind of set on that number?
I'll start, and then certainly Meenal can add around the way that we've looked at it. As you would expect with this patient population, really in the first quarter, we get a view around their coming on service or staying on service with us through that process. Most of these therapies are every four, eight, 12-week type of regimen. A lot of patients try to schedule in December so that they can kinda get through the January timeframe without having to get an infusion through that process. As we exited the first quarter, the, you know, I'd say the vast majority of our census has gone through the process of benefit verification and revalidation through that process.
We feel confident around the exit as we exited the third quarter. It was a little bit elongated given the quantity of patients that had changes this year around with either they switched payers in some of the re-enrollments that you saw in Medicare and other aspects, as well as they had benefit design and/or formulary change within that process. We feel as if we had gotten through, and that is when we had the clarity around how we saw the census patterning out through that process, Joanna. Again, we reverify before every dispense. As you would expect, patients switch employers, patients switch health plans.
We always go through that process, but we have gone through, and the vast majority of the patients that are on census were all done through that first quarter that gave us confidence around where we were going to end and then what the carry forward was as we looked at it from that perspective.
Yeah. I'll add a couple of other comments to what John mentioned. You know, when we talk about this particular census of patients, we were tracking a census as of January 1st. When we refer to a drop in the patient census, it's that particular group of patients that we've been serving. On any given day, we continue to add patients to our census, right? It's not as if, okay, well, if that census, you know, dropped off in the first quarter, nothing else is going. That's not the case at all. Even with the therapies where we had some shifts going on any given day, any given week, we have new patients that are coming under our service that we're continuing to support, et cetera.
You know, as I talk about whether that's growth or whether that's just the ongoing focus of the business, that's, you know, that's part of what we expected to continue to drive going forward for the year. Really just articulating, you know, your question about, we talked about a $55 million headwind for the full year from a gross profit perspective relating to this transition of this patient cohort group on STELARA moving to other therapies. We had originally estimated that headwind impact was going to be around $30 million. We had talked about a $25 million-$35 million range, which was largely due to the shift in because of the IRA implications that came through the shift in economics, you know, net of patients moving into other therapies under our census.
When we fast-forwarded to our April earnings call, our first quarter earnings call, what we noted was the fact that, you know, there were more patients that left our census than we had estimated as part of that process, even though we had put together a number of different assumptions of patients, which therapies, what was going to happen. The census drop was higher than that and a little bit of a mix issue as well, and that's what really drove the incremental $20 million to make that headwind now $55 million for the year.
Just to clarify, your guidance does assume there's a little bit of a growth in that census for the CID population. Where is it coming from?
Yeah. Again, with the investments that we've made into the commercial team, and even through the first quarter of the year, we've continued to go and to work with the prescribing physicians in the practices to identify patients that could benefit to come on to service with Option Care Health. That continues, and we believe that there still is opportunities to capture those referrals, to convert those to starts within the portfolio as we move it ahead. We also, again, have a broad portfolio of products. As our team is out selling not only inflammatory disease therapies, they're selling the other therapies along that. We wanna be a full service provider to the practices.
If they have a patient that requires infused or injectable products that require a healthcare professional or can use our specialty pharmacy infrastructure, we're trying to capture all of that as we move forward. Our expectations are we're gonna continue to see that growth. It's just the reset that we had in the first quarter of that loss of census, take some of the recurring revenue aspect of a chronic patient out of the base, and then we build forward from there.
Another development, I guess, since you gave this update was that CVS removed STELARA from the formulary, and also I guess there were a couple of other branded therapies. Any impact to your, you know, views of things, based on that or on that announcement?
Yeah. Again, we saw the announcement as you called out. It really is focused around their commercial population in which we do not have a big exposure to that. I will say that the products that they also called out on TYSABRI, as well as SOLIRIS, those are products, the alternative products we have on our portfolio. We have the ability to offer those as part of our full spectrum of therapies that we offer into any of our referral sources and any of the payers. You know, we feel we're well-positioned given the breadth of the portfolio, but we don't see a significant impact from that announcement.
I guess, stepping back, it sounds like, you know, that experience in Q1 was very disruptive, and you kind of said, you know, foundation is still strong in your prepared remarks. You know, should I read this as in, you know, your long-term growth algo is still intact in terms of can you still grow, you know, high single digits, top line, and EBITDA high single digits or maybe, you know, low double digits over time?
I guess what I would say is the foundation of the business remains strong. We executed extremely well on the vast number of therapies and the clinical competencies that we have as an enterprise, and that has not changed. We believe in the value that that creates across the entire ecosystem. We understand the reset that happened, are working aggressively to try to re-accelerate the business through that process. The other thing is we believe there is a significant amount of new products that are in the pipeline that we're in active conversations today with pharma to be part of their go-to-market and launch strategy as they're bringing those forward. I don't think anything has changed within the fundamentals of the business.
This certainly was a setback on the expectations that we had and how we thought this was going to pattern out. We had worked very closely with the branded manufacturers around how they thought some of the transitions was going to happen. We looked at this across multiple dimensions of how this was going to play out, and it just didn't pattern the way that we had expected. At the core of this business, at the core of the clinical competencies, at the core of the capability set and the breadth of the portfolio that we have now that no product is more than 4% of our gross profit across the entire portfolio, we believe we are in a position of strength to begin to grow forward from here.
We talk a lot about CID and STELARA, but there are a couple of other products that are, you know, of interest. ENTYVIO or OCREVUS, right? They have subcutaneous formulations now or maybe coming. Kind of walk us through the thought process around that switch in some of these categories where you have the subcutaneous formulation as an option too for that product. Kind of what's your what Option Care can do when that is still happening?
Yeah, you know, as an enterprise, we offer full spectrum as a pharmacy. We do both the home infusion, compounded dispense, distributed products where we're actually compounding in a clean room. We have the healthcare professionally overseen infusions and injectables . We also have a specialty pharmacy capability that allows us to continue to support those patients as they move to subcutaneous, whether it requires a healthcare professional or it doesn't through that process. Again, we see the opportunities that exist there as we move forward. We don't think that subcutaneous changes the overall view and the way that we look at the strength of the business. The vast majority of the patients we have on service today require a healthcare professional to oversee.
It's an infused, an injectable, or a healthcare professionally overseen drug within that process. We're well-positioned to continue to deliver value as things transition. We don't see overnight a transition from an IV administration to a subcutaneous administration. You know, we've called out before and people have asked questions around things like IG, which has had a subcutaneous indication for years. It has a valuable place within the marketplace, but it is not something that it has changed over the entire IG infrastructure from that. We'll work closely with the prescribers. We'll be part of the solution set. We have specialty pharmacy capabilities. We'll continue to try to follow patients on a longitudinal basis where value is created from that.
We don't see that as being something that changes the foundation of what we offer or the value that we can bring into the marketplace.
To clarify, your point is that with subcutaneous formulations, as long as there's a healthcare professional requirement, you still participate. Should we say that this is sort of comparable revenue and margin versus, say, you know, an IV where things kind of change when there's another, I guess, option that's available there?
I would say we can also support, and we do support just subcutaneous that doesn't have a healthcare professional on that. As you would expect, we've explained this, there are various forms of the way that we get reimbursed. There's really three legs of our reimbursement stool. One is a spread on the drug that we receive. The second is on a clinical per diem, in which we get to really cover the dispense and all of those aspects. The third is a nursing, where we're overseeing the nursing event. If it is a self-administered drug, we're not getting the nursing, as you would expect. There's no nursing that is involved in that.
Depending on the way that it's structured, either we're getting the spread on the drug and/or the per diem as being part of the way that dispense happens, depending on where that moves. The economics do look different on those different forms, but the cost structure also looks different on those as well if we're not having to deploy a nurse as being part of that solution.
I guess it's somewhat related to this, but you also mentioned when it comes to STELARA and CID and how the, you know, the PBM-owned pharmacies and how, you know, those formulary is changing and kind of these guys, so to speak, took over some of that product. Is there a risk there could be something similar, say, for these other product categories where you would say that, you know, we would expect a white label type, you know, competition to come in and kind of creating the same pressure you're seeing in STELARA? In the future .
Yeah. I mean, it's hard to deal in hypotheticals. Part of the interesting thing, first and foremost, STELARA was unique. It just had different characteristics than other products that we've had in our portfolio or have in our portfolio today. The second thing is you had two things kind of working at the same time, an IRA, you know, force that was driving down the price of the drug, as well as an introduction of a significant number of biosimilars all at the same time. As we look forward at the portfolio that we have today, there certainly are some products that enter into the IRA conversation moving forward, but they don't have biosimilars, and they're under patent protection, at least until that expiry happens.
When you look at where biosimilars are being introduced, the starting point from the profit pool that we have, given that they're branded pharmaceuticals that don't have the same dynamics as STELARA, it just doesn't possess the same aspect. In a normal form, when a biosimilar enters into the marketplace and there's one, two, three biosimilars that are entering in as that moves forward, that normally sets up as being a positive for us in the sense of it allows us to negotiate with the innovator that has the branded pharmaceutical as they're trying to maintain their market presence. It allows us to negotiate with the biosimilar manufacturer because they're looking for an entry point, and we have a census of patients that they wanna have access to.
It allows us to probably do that a little bit differently than what set up as part of the uniqueness of the STELARA situation. Again, just looking forward, at least over the midterm horizon, we don't see any setup that is the same as what we saw with STELARA.
I wanna go back to your slide 'cause it was also one of the things I wanna ask you, and you put it out there in terms of just maybe changing your capital deployment priorities a little bit this year. Also, as I think about, you know, you raise your revolver capacity, and now you're talking about maybe pivoting more into share repurchase type, you know, capital deployment versus maybe acquisitions. Kinda how do you balance those two? Should we expect, you know, you guys being very aggressive on that front and kinda your leverage up going up from the current levels?
Sure. Let me answer it in two parts, one talking about capital allocation and then with the revolver, it's really more around capital structure. From a capital allocation perspective, we've been talking about the past several quarters, regarding the prioritization being investing in the business, just like you heard John talk about the fact that we're investing, whether it's on commercial resources, investing in technology to make the business more efficient. The second had been around M&A, much more around tuck-in and adjacencies, that we felt were accretive and would add to our existing portfolio, and the third really being around periodic share buyback.
What we've always said about share buyback was, you know, at times when we felt that our acquisition funnel was a little lighter, you know, we continued to generate strong cash or where we see our share price being a bit more dislocated. Those are times when you would typically see us in the market. Given, you know, given what we're seeing right now, with the, with the market, with our share price in the market, and frankly, you know, also, really trying to respond to shareholders when we talk about return on capital to shareholders. We don't have a dividend program, really the share buyback program is one of the ways that we can return capital to shareholders. We've said in the near term, we're prioritizing that. We're prioritizing internal investments and periodic share buyback.
As it relates to the revolver, we doubled the size of the revolver in late March from $400 million- $850 million. The basis of that started with capital structure. For a company of our size, we've grown pretty rapidly over the past several years, double-digit growth every single year. A revolver really is for a couple functions. One is it's a safety net. I mean, for those who lived through COVID, you know, that was a time that comes back to me of, you know, when you wanna make sure you have a revolver just in case.
Secondly, you know, when you wanna be able to access capital quickly for whether that's internal investments and/or working capital, it might be for a tuck-in M&A, and it may also be for the share buyback that we've talked about. Having the revolver size aligned with the size of the company made sense, and that was really the impetus of moving forward with that.
Can you remind us how much you have on share re-authorization?
It is $675 million right now as of the end of the first quarter.
Okay. I guess last question. As a company, you guys did highlight some of the investments around AI, kind of, you know, very quickly, high level where you are on this investment and also on the deployment. Is there more kind of room to utilize this technology?
I'll take it and try to be quick. Yes, we continue to invest in it. I mean, we think there is opportunities to continue to innovate around the back office, a lot of that being around the efficiency from a patient registration through revenue cycle management. Team is working aggressively on that to look for ways to take waste and cost out of the process, look for repetitive process automation and using analytics and advanced intelligence to really drive that forward. We're not in the point where we're putting it in the pathway of clinicians. We think that it has to mature a little bit longer before we do that, but we think there is significant opportunities to take cost and waste out of the process.
The last thing I'll say, and I know we're out of time, is look, we've demonstrated we're an execution-driven organization, and we understand and the focus right now is on re-accelerating the business, and really gaining momentum from this reset. That's gonna happen through coverage. It's gonna happen through conversion. It's gonna happen through convenience in the way that we drive that forward. We believe that translates into sustainable growth and long-term value creation for our shareholders. Our focus is there, our commitment is there, and we're driving the business to make certain that we get back that momentum, and we really build on the strength of this enterprise.
Great. Thank you so much.
Yeah.
Thanks so much, John and you.
Thank you, everyone.