Hello, thank you for standing by. Welcome to today's conference call to discuss the combination of Option Care Health and Amedisys. At this time, all participants have been placed in a listen-only mode. The call will be opened for your questions following the prepared remarks. As a reminder, this conference call is being recorded, and the press release and slide presentation regarding the transaction announcement are available on the investor relations sections of the company's website. The archived replay can be accessed there following the call. If you should need operator assistance, please press star zero. I would now like to hand the conference over to Nick Muscato, Chief Strategy Officer of Amedisys. Sir, you may begin.
Thank you, operator. Welcome everyone to our conference call to discuss the combination of Option Care Health and Amedisys. Before we begin, I want to remind you that in addition to today's transaction announcement, Option Care Health and Amedisys each issued financial results for the first quarter of 2023. Today's call will be focused on the transaction we just announced. However, you can find more detail on each company's quarterly financial results and 2023 outlooks on the respective investor relations website. Both Option Care Health and Amedisys will be available to discuss their results in the normal course. 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, as well as the benefits of the transaction for the combined company.
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 each of our Form 10-Ks 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 company performance and financial conditions. You can find additional information on these non-GAAP measures in this afternoon's press release posted on our investor relations portions of our website. Presenting on today's call is John Rademacher, Option Care Health President and CEO, Mike Shapiro, Option Care Health CFO, and Richard Ashworth, Amedisys President and CEO. They are joined by Scott Ginn, Amedisys Acting COO and CFO.
After the prepared remarks, we'll open it up for Q&A on the transaction. Please limit yourself to one question and one follow-up. With that, I will now turn the call over to John.
Thank you, Nick. Welcome, everyone. Thank you for joining us today. Following the market close, we announced that we have entered into a definitive merger agreement to combine with Amedisys in an all-stock transaction that values Amedisys at approximately $3.6 billion, including the assumption of net debt. I'll start by providing an overview of the combination before turning it over to Richard to share some additional color. I'll discuss the strategic rationale and significant value creation of the combination. Mike will discuss the synergies and financial details, and then we'll open the line for questions. This is an exciting combination and one which positions us to create a leading independent platform for home and alternate site care.
Through this transaction, we are bringing together Amedisys home health, hospice, palliative, and high-acuity care services with the Option Care Health complimentary home and alternate- site infusion services. Together, we will unlock significant benefits for our patients, providers, payers, and care teams. This, in turn, will drive value for stockholders who get to participate in the tremendous upside we see in this transaction. Let me touch on some of the key terms outlined on slide four. Amedisys stockholders will receive 3.0213 shares of Option Care Health common stock for each share of Amedisys common stock they hold at closing. This is the equivalent of $97.38 per Amedisys share based on Option Care Health's closing stock price yesterday, May second, 2023.
Upon closing, which we expect to occur in the second half of 2023, Option Care Health stockholders will own approximately 64.5% of the combined company, and Amedisys stockholders will own approximately 35.5%. As for leadership post-close, I will continue to serve as CEO of the combined company alongside Mike as CFO. Richard will move into a special advisor role in support of the integration, reporting to me. Scott and Nick will remain part of the leadership team moving forward. The broader leadership team will comprise the best talent from both organizations. This will allow us to take advantage of the complementary nature of the two companies and their respective enterprise and strengths. We will also expect to benefit from three Amedisys directors joining our board of directors.
We look forward to drawing on our strong track record of operational integration as we bring Option Care Health and Amedisys together. Importantly, we anticipate enhanced revenue and earnings growth, with significant annual run rate revenue and cost synergies of approximately $75 million by year three following the close of the transaction. We expect the combined company will also benefit from a strong balance sheet and financial profile. With that, let's turn to slide five, outlining how Option Care Health and Amedisys are stronger together. Health has always been guided by our mission to transform healthcare by providing innovative services that improve outcomes, reduces costs, and deliver hope and dignity for patients and their families. We've done this by providing cutting-edge infusion medications, nursing support, and seamless transitional care for patients of all ages in their homes and at conveniently located ambulatory infusion suites across the U.S.
In 2019, when we combined with BioScrip, we became the only independent provider focused on delivering a full spectrum of infusion therapies to patients across the country. Since then, we have served hundreds of thousands of patients and continue to set the standard for patient care. Today, we are the largest independent provider of infusion therapy in the nation. In 2022 alone, our clinical team of more than 4,500 members served more than 265,000 patients and their families. As we've continued to evolve, we consistently sought out opportunities to grow and advance our mission. Joining forces with Amedisys will allow us to do just that. Amedisys and Option Care Health are highly complementary. Together, we will bolster our offerings to meet the increasing demand for personalized care in the home or alternative sites.
We'll move deeper into value-based care while also creating significant long-term value for stockholders. Of course, a transaction of this nature and within the industry in which we operate is people-driven. By joining our teams of passionate and highly skilled professionals, we will be able to better serve patients. Together, we will be able to touch more than 720,000 patients annually, and we'll have 674 community-based centers across the U.S. committed to delivering high-quality care in the home or at an alternate site. To put the scale into perspective, the combination of Option Care Health and Amedisys will result in a national clinical workforce of more than 16,500 professionals. This includes, but is not limited to nursing professionals, pharmacists, pharmacy technicians, dieticians, physical, occupational, and speech therapists, social workers, and aides.
I'll now turn it over to Richard to discuss more about how our two companies fit together. Richard?
Thanks, John. I wanna echo John's sentiment and emphasize our excitement to be joining forces with Option Care Health. Our hospital at home health, hospice, palliative, and high-acuity care services are an excellent strategic fit. This combination is a testament to the incredible work and quality outcomes Amedisys delivers daily for our patients wherever they call home. Indeed, since I joined Amedisys as CEO, two things have been apparent. First, the high quality in-home care we provide to over 455,000 people each year and how Amedisys changes the lives of patients and their families. Second, our diverse team of over 12,000 caregivers across the organization who have an extraordinary commitment to providing incredible care every single day.
As members of the leadership teams have gotten to know each other leading up to today's announcement, we've been thoroughly impressed by the level of excellence applied across their business. It's clear to us that our organizations have highly complementary capabilities and possess impressive cultural overlap on the core values that matter most, providing quality care and taking care of our caregivers. We are confident that combining our expertise with Option Care Health will accelerate our ability to deliver on our mission to provide excellent patient outcomes and our vision to provide more clinical services. This transaction also reflects the strength of our business and the great potential of care delivery in the home.
We believe that will result in significant value for Amedisys stockholders, who will receive a premium of approximately 26% to the share price as of May 2, 2023, for the value of the shares they own and the benefit from the opportunity inherent in a financially stronger company with greater scale that is well-positioned in alternate site care and home. For context, together, we would have generated revenues of approximately $6.2 billion and adjusted EBITDA of approximately $622 million on a combined basis for the full year in 2022. The bottom line is we see tremendous upside from joining with Option Care Health for our patients, their families, providers, payers, care teams, and our stockholders. I'll now turn it back to John to highlight the strategic merits of the transaction and what our combined platform will look like. John?
Thanks, Richard. Turning to slide six, let's jump into why the strategic fit between us, the two platforms is so powerful. First, this is a complementary transaction. It will expand access through the creation of broad capabilities across the care continuum. As Richard mentioned, Amedisys brings strong presence in hospital at home health, hospice, palliative, and high acuity care services. This fits directly with Option Care Health's existing home and alternate- site infusion services, allowing us to bolster our offerings and meet the growing demand for personalized care in the home and alternate sites. Second, the combined businesses will be positioned to deliver significant benefits to patients through better care coordination and a simplified patient journey. Third, I can't emphasize this enough. We will unite two mission-driven clinical teams across a broad range of professional disciplines to deliver scale and provide increased access and care for patients.
Fourth, we will benefit from enhanced data sets that will allow for deeper insights to produce better clinical outcomes and reduce the cost of care for patients and their families. Finally, we will be able to build on our respective track records of quality care and patient satisfaction. Underpinning all of this is our mission to transform healthcare and deliver hope and dignity to patients and their families. I'll now provide more detail on each of these. Turning to slide seven, by uniting Option Care Health and Amedisys, we will be able to provide more comprehensive clinical services across the care continuum, from prevention and maintenance care to acute and post-acute care, all the way through end-of-life care. Together with Amedisys, this represents more than $100 billion in total addressable market.
Today, we are seeing not only aging populations and growing desire for at-home healthcare services, but also increasing therapeutic pathways. Importantly, by expanding beyond our existing services, we'll be able to better meet increasing demand for alternate site care. We believe the combined company's capabilities and scale will position us to capture a significant share of the market. Turning to slide eight, this transaction will enhance our relationships with payers, health systems, and providers, as well as biopharma, which will in turn benefit patients. Both companies have track records of working closely with payers and will expand those relationships across both government and commercial. Notably, the transaction is expected to result in a more diversified revenue base through improving the company's access to private payers and government-managed health plans.
On a combined basis for 2022, 65% of our revenue base was with commercial payers and 35% with government payers. This compares to Option Care Health 12% government payer base on a standalone basis in 2022. Our relationships with providers and health systems are paramount to enabling patient care. Health system referral networks are increasingly looking for single provider partners for home health, infusion, and hospice pathways and transitions. Following the closing of the transaction, the combined company will be well-positioned to serve as that single partner with its offering across the alternate site care spectrum. Our extensive experience with sophisticated biopharmaceutical products and manufacturers contributes to our ability to deliver effective care solutions. Together, Amedisys and Option Care Health will be able to provide a broader care model, deeper clinical insights, and a more robust platform to support decentralized clinical trials through post-launch support.
We're excited about these expanded relationships and what they will directly benefit for patients. Patients will see better outcomes, a more seamless experience with greater care coordination and services, and broader access to high-quality care at a lower cost. Slide nine demonstrates the unparalleled clinical team we will have with Amedisys. Another way we'll serve patients even better. Together, we will have more than 16,500 clinicians across a broad range of specialties. As a combined company, we'll continue to focus on being an employer of choice and invest in training and development for our employees, which helped to make us a 2023 Gallup Exceptional Workplace Award winner. As we've discussed, Option Care Health recently announced the formation of a nationwide home infusion nursing network and clinical platform called Naven Health, which focuses on delivering specialized, truly exceptional care.
With Amedisys, we'll build on our recent investments, including in technology, to unlock productivity, drive efficiency, and better optimize staffing and retention to help meet growing market demand. Slide 10 gives a sense of the broad scale we'll have as a combined company with sites across 46 states. As I've discussed before, we've been working to expand our footprint to allow for greater operating efficiencies and continued high patient satisfaction scores. It's not always easy for patients to get the treatment they need when they need it the most, and we understand the critical importance of our convenient community-based sites in addition to care in the home. Option Care Health currently has 163 sites across the country, and through this transaction, we will have 674 total. With the addition of Amedisys, we are giving patients more options and increasing their access to high-quality care.
We will also be able to leverage Amedisys' Contessa technology platform to coordinate the seamless delivery of care for high acuity patients. Importantly, we'll maintain our local community focus that is the hallmark of both Option Care Health and Amedisys. Turning to slide 11, it is no surprise that having informed, intelligent patient insights can enhance patient outcomes. As a combined company, we will aggregate patient data across a critical population drawing from over 720,000 patient experiences. These insights include clinical trial management capabilities and real-time feedback to coordinate and optimize care, the ability to enable value-based care models and other payer insights, and to utilize data to streamline patient care pathways, as well as drive clinical efficiency with robust analytics. The results will improve the patient experience by lowering the total cost of care and delivering quality outcomes.
Turning to slide 12, both of our companies are known for the quality of our care. Our ability to consistently deliver for patients is what makes our company successful. The broad accreditation and respective patient satisfaction scores of both Option Care Health and Amedisys speaks volumes and are both above industry averages. This is a great foundation for us to build upon and a responsibility which we do not take lightly. Needless to say, there is a lot to be excited about as we look to the future with Amedisys. I'll now turn it over to Mike to talk through the financial merits of the transaction. Mike?
Thanks, John, and let's jump to slide 13. We're always looking for opportunities to enhance Option Care Health's strategic position, increase and improve our capabilities for patients, and create value for our stockholders. As part of our broader capital allocation strategy, and as I've mentioned on previous earnings calls, M&A has been the primary area of focus for capital deployment. We're excited about our combination with Amedisys, which fits squarely into that strategy. Option Care Health has a strong track record of identifying and executing on transactions in a disciplined way, and we're confident that this combination will be no different. Beyond the many strategic benefits just discussed, this is a compelling transaction financially. From a synergy perspective, we expect to generate annual run rate synergies of approximately $75 million by year three following close.
This includes approximately $50 million of cost synergies and approximately $25 million in incremental adjusted EBITDA from revenue synergies. The revenue synergies will be derived from the complementary nature of the businesses and referral growth in a substantially larger market. As we have shared, the combined company will benefit from a more diversified revenue base through improving our collective access to private payers and government-managed health plans. The combined company's financial profile will be stronger overall, with substantial scale and cash flow generation, as well as an enhanced credit profile. Of note, on a combined basis, the company's leverage profile was 2.0 times as of December 31st. With the all-stock structure, stockholders from both companies will have the opportunity to participate in the upside of the combined company.
Option Care Health has a proven track record regarding complex integration efforts and disciplined execution to deliver on the targets we laid out today. Before we open up the call for Q&A, I wanna leave you with three key takeaways from today's announcement. First, this complementary transaction means our combined company will have comprehensive offerings across the alternate site care spectrum, which will drive growth as we meet increasing demand. Second, our larger platform and broader relationships across the healthcare ecosystem will allow us to deliver superior clinical outcomes to patients at a more affordable cost of care. Third, stockholders will benefit from the stronger financial profile of the combined company, which we will leverage to execute on the compelling growth opportunities inherent in bringing Amedisys and Option Care Health together. With that, we're happy to take your questions.
At this time, if you would like to ask a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, please press star two. To get as many questions as time permits, we ask that you please limit yourself to one question and one follow-up. When posing your question, we ask that you pick up your handset to allow for optimal sound quality. Our first question will come from David MacDonald with Truist Securities. Your line is open.
Yeah, good afternoon, guys. I guess just first question, wanted to zoom out a little bit, ask a little bit of a strategic question just, from 35,000 feet, I guess. Kinda why now is this something, you know, payers are increasingly asking for in terms of a, you know, combined offering? Then, you know, just how you think about the positioning around value-based care with regards to, you know, the announced transaction? Then I got a quick follow-up.
Yeah, David, John. Thank you for the question. As we have been looking at our strategic intentions and really understanding the needs of the marketplace, we have evaluated and know that we need to have more scale and play a more important role in the home. As we've talked before about the infusion services, we know that that's a very important part of the post-acute and in-home care model. There are other things that happen within the home that we believe we can have value and we can better coordinate as we move ahead. We think this positions us extremely well in an evolving market in which value-based care begins to take bigger hold on the future, and more importantly, the needs of the payer community.
We really like the ability to extend our reach to build on a capability set that is well developed and has high quality, and be able to capitalize on what we think are the right moves to play a more important role in the home and alternate site care model.
Guys, just a quick follow-up. You talked about, you know, the number of ambulatory infusion suites you have, and then, you know, how many sites you're gonna have, including Amedisys. Is the expectation that both services will be offered out of kind of all of those? Infusion will now be offered out of the Amedisys locations. You know, just was wondering if you could provide a little bit more detail. You mentioned twice just the benefit of the new payer mix. Just if you could provide a little bit more detail in terms of were you referring to you will get better reach with MA, or, you know, what exactly you were kinda referring to there?
Yeah, David. Starting with the footprint, certainly we are gonna take a look to optimize the footprint and make certain that we are able to serve patients where they want to be met. This will allow for an acceleration of that evaluation and taking a look to see where opportunities will exist to expand into those community-based settings. This will give us additional opportunities to evaluate and to understand where we can expand and where we can meet greater patient needs. On the second part of your question, certainly this does allow a differentiation in being able to move into areas like Medicare Advantage and Managed Medicaid and expand the reach from that perspective in a much more quick coordinated way.
We know that there is waste in the system as it exists in its current form, and so the ability for us to have a better coordination of care and make certain that we are delivering superior clinical outcomes through the interventions of both of our clinical resources, we believe will be of high value to payers who are very concerned about the ability to curb costs and to make certain that they're offering high quality at an appropriate cost.
Thank you. Our next question will come from Brian Tanquilut with Jefferies. Your line is open.
Hey, good afternoon. I guess, John or Mike, you know, as I think about back to David's question, right? If I'm thinking about the strategic rationale, on the why or the why now. Maybe if you can walk us through, you know, I think a lot of investors that we've heard from today are asking what the strategic synergies would be, and why do this now ahead of potentially, you know, some changes in Medicare reimbursement coming up and the ongoing shift to Medicare Advantage within the home nursing space. Just curious how you thought about that and how you're thinking that this could all come together for it to all click where it becomes successful?
Hey, Brian, it's Mike. Maybe I'll let John take a quick breath of air, and he can definitely provide some additional color. Look, the reality is we've had a tremendous collaborative relationship with Amedisys dating back to Operation Warp Speed when we were trying to deliver monoclonal antibodies. That evolved, you know, over the last six months. We've deepened our relationship with the Contessa platform to help coordinate care as well. I think, you know, the more time we spent together as we think about, you know, some of the strategic overlaps, a lot of the comments that John made around, you know, a more cohesive and coordinated phase to health systems with more efficiently, you know, onboarding patients. I think it clearly spills over, as John mentioned, into especially like the Medicare Advantage population.
I think there's a lot of things to get excited about around leveraging the complementary assets. I think just based on the relationship we've developed over the last couple of years, we just realized there's more and more areas for collaboration.
Yeah. The only other thing I'd add, Brian, is when we take a look at the clinical resources and the scarcity of value that exists there, our ability to better coordinate the way that we utilize the clinicians in the home and in our infusion suites and expand into additional service lines, given the capability sets that we have, just allows a much more efficient model as we're looking forward. As Mike said, we started with a deepening relationship with hospital at home, and we realized that there's opportunities for us to look more broadly at the better coordination of home health as well as home infusion services for many patients that are suffering with complex needs.
Gotcha. I guess my follow-up, you know, and this is a question that we've gotten on email probably 15 times already this afternoon. I mean, as we look at the aftermarket reaction to the deal, you know, a lot of investors are wondering, you know: How would you convince the market that this is the right strategy and that this is the right capital allocation move today, and the right risk profile given what was an attractive or is an attractive strategic and financial and growth profile for Option Care?
Yeah, Brian. Obviously, look, you know, we're not gonna speculate on some of the initial off market volumes and reaction is whether it's technical, whether it's conviction around the opportunity. I think, you know, as we said in our prepared remarks, the economics for this combination, we believe is quite compelling. This will be accretive the first year out of the gate. We think when you layer on the fact that we still are maintaining that capital structure that we've fought to develop over the last couple of years, along with the synergy harvesting opportunity brought across both commercial traction and cost synergy harvesting, we think the economics are going to be quite compelling when people truly understand the opportunity that lies ahead for us.
Thank you. Our next question will come from Matt Larew with William Blair. Your line is open.
Yeah. Hey, good morning. Maybe just following up on that point. If we think about just how your value has been created and sort of the post-acute landscape, of course, it's been by doing some smaller tuck-ins, but it's been a lot of organic growth. Sort of building value rather than acquiring value. If I think about some of the larger transactions that have been done both, you know, of public companies and by public companies, those have been much more challenging. In terms of the confidence that this combination will be the exception there, not just in terms of delivering financial value, but, I think the quote you gave, Mike or John, was improving the strategic position, delivering value for shareholders.
What really gives you confidence that these two entities are sort of the right two to combine, and can kind of be the exception to that rule?
Matt, from my belief is, as the healthcare system has continued to evolve and as we look at many of the services that are required as care moves into the home and outside of the hospital into the alternate settings, the ability for us to coordinate care more effectively and efficiently is going to be a big part of that equation. This allows a much broader ability for us to execute that strategy, to be able to build on strengths that both organizations have and to come up with new models as we're looking at the opportunities moving forward. We know that both organizations have been focused around the patient and providing superior clinical outcomes and high quality.
With that as the foundation that we're building on and knowing that the model's gonna evolve, we wanna be at the part of the lead of that evolution, knowing that the demand is going to be there, knowing that the desire is going to be there to find more efficient models. With the clinical resources we have, the technology that we've enabled, and with the desire to truly transform healthcare in the home and alternate site, we think we are well-positioned and now even better positioned at the close of the transaction to be able to fulfill the promise of that mission.
To the financial side here, you know, it looks like you categorize expenses a little differently, but it seems like, you know, G&A type cost is over $1 billion between the two companies combined, and I think the target on the cost side is $50 million. You know, could you give us maybe a sense for how you arrived at that number and whether there might be additional opportunities? In terms of the sort of targets you laid out for revenue in the future, what are you assuming for Medicare reimbursement on the home health side within that?
Yeah, Matt, it's Mike. I like how you diplomatically asked the question around our confidence level around the cost synergies. Look, when you look at the combined organization, the SG&A, not the direct spend with the caregivers, but when you look at the infrastructure and the indirect, it's a pool of $1.6 billion. I think both organizations, one of the cultural overlaps is the continuous focus on efficiency, deploying technology to create a more efficient platform. Again, the way we characterize the synergy target is run rate by year three. That's not the end zone, that's not the finish line. That's, you know, to give some perspective on where we would expect to be after year three.
I think you know our approach around, where we fall on the conservatism and aggressive spectrum, and we lay out things that we have a high degree of confidence in. Maybe I'll hand it over to others who have thoughts around the Medicare.
Yeah, no, I mean, I think as we look at it, and we've laid it out as we've gone forward, is around kind of as we view into next year, kind of that negative 0.9% impact to that. We'll continue to work hard. We're working hard in Washington around that to get the best outcome. We're looking at what our market baskets have been. We've got thoughts around that. Feel good about hospice reimbursement right now and where that's led. You know, we've got a decent number proposed for this year. Expect that to move slightly. We feel good about it, but not beyond understanding that there's work to be done.
All right. Thank you. Our next question will come from John Stansel with JP Morgan. Your line is open.
Hi. Thanks for taking the question. I know a lot of ink has been spilled around nursing networks and kind of the labor side here. If could you help us think a little bit about the combined requirements for the NC when you have your combined offerings? Is there any incremental work that needs to be done there, or do you feel like you have kind of like a pretty solid labor base as is? Thanks.
As we have said before, and I think both organizations have talked about, you know, the ability to recruit and retain talent is a top priority for both organizations. We have had a really good track record of making certain that we are on that side of being an employer of choice and that we can provide opportunities for our team members to develop and grow. We think that with the combination here, as well as the investments that we've made in Naven Health, it will provide us with a broader ability to access the nursing community, and we'll continue to invest in all of those areas of the clinical resources that are required to deliver care. This scale will allow us to continue to be a leader in that recruiting and retention.
It will allow us to have clearly defined career roadmaps and the ability to create career positioning for our team members. We think we'll give opportunities for them to have different experiences as they're looking to expand and grow within their role. We're really excited about the potential that this brings, and we think it makes us a destination for many clinicians who are passionate about delivering high-quality care in a setting in which patients wanna receive it.
Okay. Thank you. Our next question will come from A.J. Rice with Credit Suisse. Your line is open.
Hi, everybody. Thanks for the question. First, just a technical deal-related question. Obviously, it's a stock deal. Is there any collars around, the exchange rate depending on how the stocks move? Is there a breakup fee, associated with the deal? I'll ask you a strategic question.
Hey, A.J. It's Mike. No, as we outlined in the press release today, the exchange rate has been fixed, so that that is static. Yes, there'll be more details coming out, but yes, as you would expect as a public deal, there is an embedded break fee.
Okay.