Option Care Health Inc (OPCH) 2009 Q1 法說會逐字稿

Good morning. My name is Andrea. Ladies and gentlemen, thank you for standing by. And welcome to the BioScrip First Quarter 2009 Earnings Call. During the presentation, all participants will be in listen-only mode. Afterwards, we will conduct a question and answer session.

(Operator Instructions)

As a reminder, this conference is being recorded Thursday, April 30. I would now like to turn the call over to Mr. Bill Bunting, Managing Director of In-Site. Please go ahead, sir.

Good morning. And thank you for joining us today. By now you should have received a copy of our earnings press release issued this morning. If you have not, you should access it through the Investor Relations section at our website. Richard Friedman, Chairman and Chief Executive Officer, Stanley Rosenbaum, Executive Vice President and Chief Financial Officer, and Rick Smith, President and Chief Operating Officer will host this morning's call. This call is expected to last about 45 minutes and may be accessed through our website at bioscrip.com.

Before we get started, I'd like to remind everyone that any statements made on the conference call today or in our press release that express a belief, expectation, or intent, as well as those that are historical facts are considered forward-looking statements, and are protected under the Safe Harbor of the Private Securities Litigation and Reform Act.

These forward-looking statements are based on information available to BioScrip today. And the Company assumes no obligation to update these statements as circumstances change. These forward-looking statements may involve a number of risks and uncertainties which may cause the Company's results to differ materially from such statements. These risks and uncertainties include facts or details in our SEC filing including our form 10-K and 10-Q.

Also, the Company urges caution in considering any certain trends or guidance that may be discussed on this conference call. The pharmacy services industry is highly competitive, and trends and guidance are subject to numerous factors, risks, and influence, which are described in the Company's reports and registration statements filed with the SEC. In addition, the impact of current national and global economic conditions on our business may be difficult to predict.

The Company disclaims any obligation to update information on trends and targets other than in its periodic filings with the SEC. In addition, as required by the SEC Regulation G, the reconciliation of any non-GAAP measures mentioned during our call today to the most comparable GAAP measures can be found in Schedule 3 of today's press release and is available on our website on the Investor Relations page under the link to press releases. Thank you, and I would now like to turn the call over to Rich Friedman. Rich?

Thank you, Bill. Good morning, and thank you for joining us today. We are pleased with our operating performance and financial results. Comparable revenues increased 6.3%. Gross margins reached 11%, the upper range of our forecast. Operating expenses declined. Earnings per share was $0.08. And liquidity continues to improve.

During the quarter, we added greater depth to our management team, starting with Rick Smith, our President and Chief Operating Officer, who you will hear from in a few minutes. Rick has extensive experience in this specialty sector, and has and will continue to be instrumental in implementing our expansion plans. Over the years, BioScrip has built a foundation of assets that uniquely address and meet many of the healthcare-related challenges that this nation faces. More specifically, these include BioScrip Care's Clinical and Outcomes Management programs, associated with the chronically ill and other complex conditions. At BioScrip, we believe that management of the chronically ill consisting of access, adherence, compliance, and retention are the key factors that influence quality and cost control, and is the most effective way to improve quality of life.

This strategy also provides a cost-effective management solution for payers and physicians while providing critical medical data for manufacturers. BioScrip's Care Management Programs, coupled with our distribution platform including infusion pharmacies and other alternative sites of care, community pharmacies, and mail service benefit all healthcare stakeholders. Stan will now review the first quarter financials. And then Rick will review our first quarter operating performance, along with our goals and objectives for the balance of 2009. Stan?

Thank you, Rich. Today we announced first quarter net income of $3.2 million or $0.08 per share. Our revenues are $325.7 million. These results compare to a net loss of $500,000 or $0.01 per share on revenue of $327.5 million for the first quarter of 2008. EBITDAO was $6.2 million for the first quarter of 2009, compared to $2.7 million for the same period a year ago. Let me share with you some of the highlights of the first quarter.

As previously reported, we expected a revenue decline as a result of our decision to exit the CAP program at year end 2008 and the wind-down of our HIV and transplant programs with United Healthcare. Excluding the effect of CAP and United, revenues increased 6.3% over the first quarter of 2008. We are pleased to report our gross margin increased to 11%, the upper range of our guidance. Operating expenses as a percent of sales was 9.7% in the first quarter of 2009, compared to 9.8% in the first quarter of 2008.

The decline is a result of our program to reduce overall operating expenses. Compared to fourth quarter 2008, total operating expenses, net of severance cost, was reduced from $33.3 million to $30.7 million. On an annualized basis, this equates to an improvement of over $10 million. Further, we have identified additional cost savings that will benefit future quarters. In a minute, Rick will update you on some of these initiatives.

Operating profit was $4.3 million, compared to $185,000 last year. EBITDAO increased $3.5 million to $6.2 million for the first quarter of 2009. In determining our full year tax rate, we anticipate a 5% income tax provision, state income tax provision, in addition to an $800,000 bank of credit. This yielded an effective tax rate of 11% in the current quarter.

Let's turn now to liquidity and capital resources. At March 31, our borrowings under our credit facility were $36.1 million. The decrease of borrowings of approximately $14.3 million from December 21, 2008 is due to a positive cash flow coupled with a reduction in accounts receivable and inventory. We continue to remain focused on improving our liquidity.

In the first quarter, our average borrowings under our credit facility was $33 million, an improvement of $8 million from the fourth quarter of 2008. Since the third quarter of 2008, our average borrowings have decreased $15 million in align with our previously stated goals. Our average borrowings in April are approximately $28 million.

Our new Enterprise system is scheduled for full implementation by the end of the third quarter. The system supports the strategic direction of our Company, while improving day-to-day management controls and liquidity. As to guidance, we believe that the first quarter earnings and EBITDAO represent a good baseline to forecast the balance of 2009. Our quality of earnings is improving, and we will continue to replace lower-margin business. I will now turn the call over to Rick, who will expand on our plans for the future.

Thanks, Stan. As reported on our February call, 2009 is focused on generating a higher quality of revenue for our business. We believe this will lead to the generation of higher gross margin level, and consequently higher levels of operating income and cash flow.

During the first and second quarter, we believe will have transitioned away from business that we've previously we were exiting. We are investing in new and expanded programs that are expected to lead to new business opportunities and increased revenue generation. Our focus on delivering the full continuum of the care model to clinical management of infusion, injectable, and oral technology provides us with a competitive edge in the marketplace. We have seen the value of our high-touch clinical model consistently validated in the disease states where we have focused our resources.

For example, we have experienced excellent growth in key programs on a year-over-year basis. Our oncology, immunology, and multiple sclerosis revenue grew double digits year-over-year, with our oncology category recording a 41% revenue growth. We look to continue to build on the Q1 success of our targeted programs in Q2 and the rest of the year.

While we are having good success with our targeted programs, we have seen revenue and retention levels slightly impacted by the current economic climates. We have all seen plants report a drop in enrolled lives due to layoffs, and have experienced the Q1 effect of lower Medicare Part D enrollment. We have also witnessed a slight delay in refill frequency by some of our chronic patients. This has also impacted the related maintenance medications we fill. Our staff is working very hard to continue to provide the necessary education and support to ensure timely compliance and adherence to care plan.

We believe overall that the positive results of new business, offset by the effects of the economy, will yield the results to the level Stan just talked about. We have taken out the cost infrastructure related to both the CAP Program and United Healthcare HIV and transplant business. During the first quarter, we also reduced staff in selected corporate and operating areas, changed commission programs that should lead to more productive results, and began several initiatives targeting increased operating efficiencies. We believe we will continue to find opportunities to reduce operating costs as we refine our staffing models and operating processes as the year progresses.

During the first quarter, we added some critical members to our leadership team to assure our success in delivering on our expectations. These new BioScrip team members all have significant levels of experience and success in their careers. Our first addition was Joe Smith as our new EVP of Infusion. Joe has over 25 years of insulated care sales and operations experience. Adding Joe to the organization provides the critical experience in the broader areas of both chronic and acute infusion therapies to successfully lead our national expansion.

Supporting Joe in his role is Dave Evans, who joined us as SVP of Strategic Operations. Dave has over 18 years of experience in infusion, specialty, and ambulatory infusion suite operation. We also strengthened our managed care, marketing, and product development leadership with the addition of Steven Cichy as our new EVP over those areas. Steven joined us from Walgreens, and has a great reputation and track history of success in critical areas that we need to strengthen within our Company.

We believe these new additions complement our existing high-caliber management team and provide us with the expertise to execute on our strategic plan. We will continue to strengthen our current programs, as well as create new programs that will demonstrate our clinical leadership to the marketplace.

We have begun the outline of our Clinical Centers of Excellence models. We're analyzing all of our relationships in order to identify opportunity to expand our revenue and clinical programs. And we are working on our expansion plan and location strategy for both our community store footprint and our infusion pharmacies and alternative site of care locations.

On our last call, we stated that we would expand the number of areas that we service in our infusion division to nine locations. We achieved our goal as of this month. Over the coming quarters, we will continue to expand and refine the details around the level of patient census and disease states we will service. We are increasing our managed care contracting focus through both pre-existing and new relationships, where we believe we can get access to lives and markets to support our expansion plan. Our physician sales team continues to drive business through our focused therapy approach, as is the case with oncology.

In addition, we will continue to strengthen our HIV franchise and support new initiatives in that disease state. Our pharma relations remain strong. And we are excited about the prospects of potentially seeing biotech products hit the market this year. We look forward to the coming quarters, as we have many exciting initiatives in process that we believe will continue to lead to revenue growth, increased levels of operating income, and higher levels of operating cash flow. I will now turn the call back over to Rich.

Thank you, Rick. As you can see, we are successfully executing on our strategy. Despite the economic climate, we believe we now have the team in place to provide all the healthcare stakeholders programs that through the management of the chronically ill will improve the quality of care and ultimately help to control costs. We will now open up the lines for questions. Operator?

Thank you. (Operator instructions) Your first question comes from the line of Brooks O'Neil with Dougherty & Company.

Congratulations on a solid start to the year. I have a couple of questions. I guess I might as well start with one of the hotter topics. I guess we're all aware that the Board received a letter from Clay Dunnagan earlier this week. And I'm just curious if you could comment on the Board's consideration of that letter?

Thanks, Brooks. It's Rich. We received a letter, as everyone is aware. BioScrip and the Board are committed to enhancing and maximizing shareholder value. All responsible letters we receive, whether it's to the Board or management from significant shareholders that contain recommendations about the Company's strategy or operations are, in fact, referred to the Board or the appropriate committees of the Board and are being considered. And when indicated, we will take action and a response. In fact, Anchor's request letter was forwarded to the Company's Corporate Strategy Committee.

And later today, the Company intends to respond to Anchor. And after due consideration, the committee has determined that it is in the Company's and stockholders' best interest to continue to pursue our growth strategy, as well as its efforts to further reduce costs and build on our recent improvements in operating efficiency. We have put a team in place. We have taken out significant costs. And we believe it's the best strategy to follow this road.

Okay. That's, I guess, helpful. I'm curious. One of the things that the letter highlighted, and one of the things we've talked about over a period of time, is the need to balance the opportunities for growth with a very clear need to enhance your profit margins. I am pleased to see the beginning of some improvement in the gross margin this quarter and continued tight expense control. I'm just curious. As you think about the improving cash flow dynamics of the business, how do you think about using that cash flow in terms of growth or deleveraging or whatever?

Well, first of all, and we'll let Rick pick this up in a second, our expansion plans are clearly aimed towards the infusion business, the infusion therapies, as well as the expansion of the community stores. We really believe that the assets that we have put in place meet exactly what is happening in this country today, which is the access to quality and the cost controls. And we need to expand our clinical programs.

We're putting in a state-of-the-art Enterprise system. We have brought in the people that have the experience to execute on this strategy. The expansion plans that we have, which are footprint expansion, require some capital. It doesn't require heavy capital. But we are a generator of cash. Bank debt continues to go down. And we will continue to generate that cash and reduce our bank debt down to very low, and hopefully levels where we will have positive cash, hopefully in the near term.

Saying that, we will look at opportunities, as well. If we see assets that make sense to us, we will go ahead and take a hard look at those. But this Company is dedicated to putting together the programs that are required within the healthcare sector today to manage the chronically ill, whether it is injectables, orals, or infused. We have the platform in place, and the platform will be expanded. Rick, do you want to add to that?

Yes. Brooks, in terms of the expansion plans and looking at opportunities, our priority first is to make sure going into new markets for infusion that we have managed care contracts and access to lives first. And secondly, we're looking at building off of our existing physical footprint in the cities that we have locations. And that's primarily going to be through a redesign of that footprint to make sure that we could essentially put a infusion, pharmacy, and ambulatory treatment center, as well as our store location, in the appropriate way in the appropriate market for access to those markets on a cost-effective basis.

So our primary focus is to make sure that anything we do in terms of investment is not a drag on earnings, is not a drag on cash flow, but it something that is a fast payback in terms of any investments we make in any particular area.

I think that would be great. I just have a couple of little detailed questions. Hopefully they could be short. One, was there any revenue related to United in the first quarter, Stan?

Yes, about $17 million.

So that will likely go away in the second quarter, or do you expect some continuation of revenue from that relationship?

We expect a very small piece of that to be retained in the second quarter.

Okay. That's helpful. Secondly, I was just curious what you guys meant when you said your -- I think you said in the press release something related to your annual goals for cost savings had been achieved in the first quarter. I'm just trying to be sure I got that right and I understand what you're saying.

We said that we would reduce our operating expenses by between $4 million and $6 million on a call a couple of calls ago.

Yes.

The example that I gave indicated that we've taken $10 million of cost out annualized in the first quarter. Even adjusting for the amortization issue, we believe that we have now taken out in excess of that $4 million to $6 million.

That's great. Is there any more you see coming out as the year unfolds?

We -- as I mentioned, we've taken out some additional positions in the first quarter, which was representative of some severance charge that we took. And we should see those savings come the rest of this year. We also have identified and put back some staffing efficiencies, nursing productivity in the infusion division, as well as our commission programs. So we would expect that we'll see -- we could see as much as $2 million to $4 million additional at this moment in time based on how we -- given our expectations of the actions we took in Q1.

Brooks, also, as you know, the Enterprise system, as Stan pointed out, will be in at the end of the third quarter.

Right.

Once that is fully implemented down the road and after we do the conversion, we expect greater efficiencies, and therefore could generate additional cost reductions through that.

Okay. That's good. And then Stan, I hate to be dense. I know I've been following your Company for a long time. But this tax thing continues to confuse me a little bit. Obviously, the tax expense this quarter was a little bit lower, and I'm trying to understand. I think the tax expense was around $400,000 this quarter. And I thought you said the naked credit was $800,000 plus 5% state tax. So I'm just trying to balance that.

Brooks, let me try it again. And I know it's a difficult thing. It's difficult for us, as well. But the $800,000 naked credit was the annual number. And as you know, we are required under GAAP to determine an annualized effective tax rate based on our projections for the year. So what we do when we do the tax entry is we take the $800,000 naked credit for the year plus 5% in state taxes, figure out what that percentage is for annual, and apply that evenly by quarter. So that's how we got to the 11%. Another way of looking at it is $200,000 per quarter for the naked credit plus 5%.

Okay. Okay. I understand. Thank you very much.

(Operator Instructions) Your next question comes from the line of Mike Petusky with Noble Research.

Good morning, fellows, and nice quarter.

Thank you. By the way, Mike, just so you know, we do know how to pronounce your name correctly.

Okay. Excellent. Excellent. I just want to follow up on a couple of points that Brooks was asking about. You said $17 million was the UNH contribution in Q1. Was that right? Did I hear that right?

Yes, you did.

Okay. So essentially then, the likelihood is sequentially Q2 probably is going to be down somewhat. Is that a fair way to think about the revenue in Q2 versus Q1?

Yes. It is. And so we are -- it will be offset by other gains. But we're going to essentially look to the second quarter to be that rebuilding quarter for the rest of the year, replacing the United revenue.

Okay. Okay.

Well, Mike, with saying that -- again, Stan said that use the Q1 as a baseline.

Right.

From an earnings standpoint.

Correct.

So what's being lost is being replaced with higher-margin, better profit --.

Right. Right. Yes. I absolutely follow that. I didn't see this in the release, and I actually didn't hear it. And forgive me if I'm missing this. But did you guys break out the specialty revenue versus the PBM revenue?

We will in the Q.

Okay. Okay. You can't give that now for whatever reason?

Sure. PBM services was $51.4 million.

I think even I can do the math from there. Thank you.

And I have five CPAs here, and they can't give you the right number.

Okay. And a couple more. A quick one for, I guess, Rick. You mentioned that oncology was up 41%. And then I think you mentioned MS, and I think you mentioned one other disease state. Do you have actually year-over-year breakout for MS and the other disease state which I didn't catch?

Yes. The MS was up about 15%. And immunology was up about 12%, as well.

Right. Excellent. And do you have any more detail -- I heard Rich say that you guys are still on track for the Enterprise system conversion to be implemented by the end of Q3. Do you have any detail in terms of how many -- I know you were running 12, 15 systems at one point. Do you have any detail as to how many systems you're currently running? I know you're trying to get down to a couple. But do you have any detail beyond just that it's still on track for end of Q3?

We have three dispersement systems. We have four receivable systems, and three inventory systems. When we are done, we will have one dispensing system that will also include AR and inventory. And our infusion business runs on a separate module. So we'll be down to two Enterprise systems at that time.

Okay. Well, very good. Good quarter. Thank you.

Thanks, Mike.

Your next question comes from the line of Mark Arnold with Piper Jaffray.

Good morning. I apologize if I'm asking something that's already been asked, but I jumped on a little late here. But Rick, could you just maybe update us? I think on the last call you talked a lot about the expansion of infusion therapies. And I'm just wondering where you are at with that. How quickly can you do that? And just some timing, both where you're at today and how long that will take throughout the year to expand those therapies in the pharmacies that are already providing infusion services.

Right. I think we did achieve the nine -- essentially expand the nine sites we had mentioned on the February call. The new team has been on board for about 60 days, and they did a deep dive into the division. We've attacked very hard our [pair] contracts, both existing and new relationships. We've looked at the nursing coverage in all the markets that we have access to lives to ensure that we can go to market with that level of clinical coverage.

And then we also have done additional work in terms of training the field sales force in terms of getting the pull-through strategies at the local level on those contracts. And so I think a lot of the work has been done over the last 60 days. We'll do some more heavy lifting in terms of April and May. And then I think by the end of Q2 in the month of June and into the third quarter, I think you'll start to see some additional growth from the work that has been done so far and into the next couple of months.

Is there a lot of contracting that has to be done at those pharmacies that are already providing IVIG and some other services on the individual therapy level? Or if you've got a contract in place, is it pretty easy to expand therapies?

Yes. It's very easy to expand the therapies because we do have full infusion contracts where we currently have sites. We hired a new Vice President of Sales in Infusion and Specialty in the west coast to help broaden our access to ITA lives and other managed care lives that we don't currently have out there. And he's hit the ground running. He also joined us in the month of March. And then we are essentially just training our sales force in making a different call than they have historically, and also looking to cross-sell all of our therapies. And so it's really been putting the foundation in place for us to get out there and spread the word and the message in terms of our opportunities and ability to focus in and service this type of business.

Okay. And then I'm not trying to dismiss some of the other programs, BioScrip Care and some of the other clinical programs you guys are doing, but is it fair to say given your hiring Rick and the hiring of the other members of the management team that were announced in the prepared remarks, that infusion really is the key driver of growth here going forward?

I think, Mark, that what we're trying to do is look at the business, look at what is required in healthcare, and whether it -- clearly the infusion therapies have yielded higher-margin business. And part of our strategy clearly is to go after higher-margin therapies. And we are doing that. We also believe that disease states like HIV/AIDS requires a significant amount of attention in this country, whether it's through Washington, federal, and local levels. So we're bringing in people that have expertise in all areas. Rick's expertise was not just in infusion, even though he spent a number of years doing that. So clearly we're looking for higher-margin therapies.

But we are looking to be the Company with the state-of-the-art Centers of Excellence, that we could be a Company that looks at managing the patients, whether it be for the managed care organizations, physicians. Because even if you look at the report that came out of the Finance Committee the other day, and clearly that's what the discussion's going to be about, they're looking to pay for performance, whether a patient is discharged from a hospital and the hospital's grade of fees, paying the physicians a grade of fee, of doing a better job of taking care of the patient.

And clearly, BioScrip fits into what is happening right now. So we've developed the assets in order to accomplish that. But we are taking full advantage of the pipeline of products. Clearly 60% of the pipeline is going to be infused. But we are not giving up, clearly, on anything related to injectables or orals. We will be there to help manage those chronically ill patients in order to serve our clients in the best way we can.

Okay. And then just one last question just on those new therapies that you're talking about adding. You mentioned, Rich, that you're going after higher-margin business. Those therapies tend to be a little bit higher-margin than where you guys are at a corporate level. So I'm not trying to pinpoint you guys to numbers or anything. But it's fair to say that as you start to grow that business here in maybe the second half of this year that we should see continued gross margin improvement. Is that correct?

Yes. What we're doing, Mark, is -- what Stan talked about was giving everyone a base for this year with the margin. Clearly the infusion therapies have higher margins. You are absolutely right. There is going to be some additional business coming in in the mail side and other sides that are obviously lower. So all we're trying to do is give a base right now that we believe is a conservative number. And as we continue to add revenues at the higher margins, we will keep people informed as that happens.

I have one last question, and then I'll jump off. But one of your competitors on the HIV/AIDS side has done -- has announced a number of partnerships with AIDS advocacy groups over the last year. And I guess I'm curious to what extent are you guys working with some of the larger AIDS advocacy groups? And is there the potential for some larger partnership or announcement from BioScrip at some point over the next year, as well?

Well, if you look at HIV in this country today, especially in the multi-cultural communities, it is an area that without a doubt needs a lot of attention. The administration has added an HIV Czar. We are taking the appropriate action, dealing at both the federal and local level, to make sure that BioScrip is included in what happens going forward around HIV. We have locations in every major city to serve the local communities. We will take advantage of that. And we are constantly looking at this disease state, where it makes sense for BioScrip to be strategically. And as we believe we have an announcement, we will absolutely let you know.

Great. Nice quarter, guys.

Thank you.

Your next question comes from the line of Bill Nasgovitz with Heartland Funds.

Close enough. Nasgovitz.

Rich Friedman. Hi Bill. We know.

Well, good morning to all of you. See, I was going to ask about infusion, too. But I'll just change to -- Rick, you're the new guy on the block. Can you be candid with shareholders here and just tell us what surprised you at BioScrip, pro and con, and what you think BioScrip needs that you had perhaps at Option Care?

Well, I think 60 more infusion sites. But I think -- but we're working on that. But I think that the thing that I found, and I mentioned it at the last call, that the expertise of this organization in terms of handling and clinically managing the oral technology is a significant positive attribute of this organization. I think that as we broaden our experience and capabilities in the infusion -- so our goal of handling infusion, injectable, and oral technologies in a good clinical management program is our opportunity to really lead the marketplace in terms of that need-it clinical leadership that Rich has talked about, as well. And so I think that the assets that the Company has here are great assets. And I think if we can -- and we're working on pulling them all together so that we are cross-selling.

We're taking advantage of our opportunities. And we're getting out to tell our story in terms of the great clinical management programs we have. And then the passion of our employee base is one of expectations that I thought would be here. But the level of commitment that the employee base has to the success of this Company is very high and very significant, and I don't think has been truly appreciated by the investor community because we have a significant dedicated long-term employee base that is here to serve patients and continue to create value for the shareholders. So those are critical attributes that we have.

The other thing that has been a positive surprise coming in has really been the strength of the cash flow and the reimbursement focus that Stan's organization has provided in terms of continuing to look to improve and reduce our DSO. So there's some good opportunities to continue to do that. And so I think there's not been a lot of what I didn't expect. I spent a lot of time with Rich before I came in. And so we knew that we needed to attack the cost structure aggressively and get it down to the efficiency needed to drive more operating cash flow to the bottom line.

The system installation is going to be one once we get it in. And we've got an accelerated urgency to do that. That will be the market leading clinical management program in the industry, we believe. And so really some good exciting opportunities to take this Company to the next level for the rest of this year.

Okay. Well, good luck. Thank you.

Thank you.

You have a follow-up question from the line of Brooks O'Neil.

So just coming back to the tax rate one more time, Stan. I'm just curious what amount of the naked credit or the NOL have you used up at this point? Or said differently, I guess, how much have you got left?

About $40 million of the NOL is still out there.

That's a big number. So extrapolating from the comments you've made about the tax rate, one could assume that you're going to pay relatively low taxes for quite some time in the future?

Certainly through the balance of this year.

I hope you use it up all this year.

So do we.

Secondly, I'm curious. Could you just comment on the bad debt expense? You've mentioned that you've returned to historical levels. I think your level was around 0.04% of revenue this quarter. Is that a level you feel comfortable going forward?

Well, I've said for the last three or four calls that I believe that our bad debt expense normalizes at between 0.05% and 0.06%.

Okay. That's what we have on our model. So I just wanted to make sure we didn't need to change it. I think there was either a comment in the press release or in your prepared remarks that you're seeing some slower payments from state Medicaid agencies. I'm just curious if you could amplify on that and maybe give us a feel for those states where you have a relatively large concentration of business what you're seeing in the Medicaid area?

Well, clearly two states stand out. One is California. One is Illinois. And California in the first quarter, as you know, had all sorts of budgetary problems. And it was basically posted on their website, "We're just not paying you."

Right.

Now that their new budget has been in place that started on April 1, we are seeing money coming in from the state of California. So we're feeling better about that. Same is true in Illinois and several other states. As you know, part of the stimulus package includes about $120 billion of aid to state Medicaid programs. And we expect that, once it starts to flow, to ameliorate a lot of the issues that's related to slow payments with Medicaid.

So at this point, you do not anticipate new problems related to state Medicaid reimbursement. Is that a fair way to characterize it?

That's correct.

Okay. That's very good. And then I guess the last question, and we started with the letter from the activist, I'm just curious if you guys have plans to get out and talk with investors? I think it's clear from where the stock price has been in the recent past that there is relatively significant apathy or concern on the part of investors, potential investors, about the commitment to shareholder value creation here. And clearly you're moving in the right direction. I applaud that wholeheartedly. But I think there's a real need for you guys to get out and talk with investors and absolutely rebuild the credibility you have on Wall Street.

We agree. A few weeks ago we went out and spent a day in New York City. Then we were down in Delaware and Baltimore. Next week we have some plans to be up in Boston. And we will continue to do that. We wanted to make sure that before we went out we had the assets in place, that we were moving forward, we were generating the profitability that we expected, and have the clinical programs that we wanted. And as that is all moving forward to our satisfaction, we will be spending more time out there.

I think that's great, Rich. Thanks a lot.

You have a follow-up from the line of Mark Arnold with Piper Jaffray.

Just one quick question, and this is for Rick, as well. Rick, have you had a chance to get out and see many of the Company's pharmacies yet? And again, the question there is the footprint of these pharmacies conducive to adding all the services you'd like to add?

I've not gotten to all of them. I've gotten -- I've been to about 10 of our locations, both infusion as well as our community stores. Our footprints are varied depending on the location and the state. I think that what we are working on is really a new design to hold the structure that we anticipate will be successful for us as we go to market. So some of them have existing capacity. And those that we have are the ones that we've expanded to so far, and the others may need some additional reconfiguration as we continue to develop our strategy by market.

Great. Maybe Bill can give you a tour of the Milwaukee one since it's right around the corner from his office. So --.

I'm looking to get there.

Great. Thank you guys.

Thank you.

Thank you. Your next follow-up question comes from the line of Mike Petusky with Noble Research.

Yes. Just a quick follow-up. My reading of the California situation in terms of the Medicaid program is based on the recent ruling out of California is I think you guys are clear, and other pharmacies are clear, for the rest of '09 because it looks like the state of California has to essentially make its appeal to the US Supreme Court. And it's highly unlikely that that gets heard in 2009. I guess I was just wondering is that your take, as well? Or am I maybe being a little too optimistic on that?

We agree with you, Mike.

All right. Fair enough. Thanks.

There are no more questions at this time. Mr. Bunting, do you have any closing remarks?

Thank you very much, everyone. And management, any comments from you?

No. Thank you for joining us. And as we move forward, we will make ourselves available. Thank you again.

Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.