Option Care Health Inc (OPCH) 2017 Q4 法說會逐字稿

Greetings, and welcome to BioScrip's Fourth Quarter and Full Year 2017 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host today, Kathryn Stalmack, Senior Vice President, General Counsel. Thank you. You may begin.

Thank you. Good morning, everyone, and thank you for joining us today. BioScrip's Fourth Quarter and Full Year 2017 Financial Results were released earlier this morning. A copy of the earnings release can be found in the Investor Relations section of our website at www.bioscrip.com. Within 2 hours of this call's completion, an audio replay will also be available in the Investor Relations section of BioScrip's website. Dan Greenleaf, President and Chief Executive Officer; and Steve Deitsch, Senior Vice President, Chief Financial Officer and Treasurer, will host this morning's call. Before we get started, I'd like to remind everyone that our comments may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such forward-looking statements are based on current expectations, and there can be no assurance that the results contemplated in these statements will be realized. Please refer to our press release and our reports filed with the SEC, where you will find factors that could cause actual results to differ materially from these forward-looking statements. These forward-looking statements are based upon information available to BioScrip today and the company assumes no obligation to update statements as circumstances change. During this presentation, we'll refer to adjusted EBITDA, a non-GAAP financial measure. A reconciliation to the most comparable GAAP financial measure is contained in our press release issued this morning. And now, I'd like to turn the call over to Dan Greenleaf. Dan?

Thanks, Kathryn. Good morning, everyone, and thank you for joining us. This morning, I will discuss our fourth quarter performance highlights in the context of our turnaround plan, recap the favorable dynamics of the home infusion industry, summarize the main pillars of our strategy to deliver organic top line growth and touch on the direction I see our business heading through 2019. I'll then hand it over to Steve Deitsch, our Chief Financial Officer, for a more detailed discussion of our financial results and guidance for 2018. 18 months ago, when BioScrip was acquired by -- when BioScrip acquired Home Solutions, I assumed a leadership role of the combined organization and put into action a strategic turnaround plan to remedy what I considered to be an underachieving home infusion business, with significant potential. At the time, I shared an ambitious vision for BioScrip based on 5 key priorities: Number one, driving profitable growth; two, optimizing operations; three, enhancing the customer experience; four, strengthening employee effectiveness and empowerment; and five, exceeding cash collection targets. So what does our scorecard look like thus far? First, in the category of profitable growth, our core revenue mix has expanded significantly from 66% in the third quarter of 2016 when Home Solutions was acquired to 76% in the fourth quarter of 2017. We are all -- we are well on our way to our longer-term objective of 85% core to noncore. The favorable trend in core mix, combined with supply-chain improvements, in turn benefited our gross profit margins, which increased by more than 1,000 basis points from 27.9% in the third quarter of 2016 to 38.5% this quarter, a record level for BioScrip. As core mix continues to grow, and we achieve additional procurement savings and benefit from the Cure Fix, we believe our longer-term gross profit margins can exceed 40%. Second, in the area of optimizing operations and driving our single repeatable model, our fourth quarter operating expenses decreased by 18% year-over-year, primarily due to an optimized workforce and lower bad debt expense. As we continue to implement a single repeatable model across our business, reduce variation and implement best practices, we expect to see further operational improvement. Third, enhancing the customer's experience underpins everything we do at BioScrip. For example, our net promoter score ratings are now at 82%, which favorably compares to highly regarded companies like USAA, Costco and Nordstrom, reflecting both the speed and quality of our team's ability to onboard patients. Now, I'd like to share a patient experience from February of this year: [Rebecca Ann Lynn] from Tampa in Coral Springs intake facilities, made me feel not only welcome but a friendly priority. I had an issue with poor service at my last service provider and wanted a new one to work with. I was referred to BioScrip, and I am thrilled so far to be here. My infusions are chronic and a burdensome part of my life so to be involved with people that make the process as smooth as possible is important to me. The added benefit to hear quick response of positive attitudes is amazing. Also the girl who set up my second delivery, I forgot her name, maybe Lisette, but I'm not sure, was super pleasant, and I look forward to working with her. Melbourne branch commercial patient. Fourth, we have made considerable strides strengthening employee effectiveness and empowerment. From top to bottom of our organization, I'm fortunate to have the best talent in the industry by my side. Since the Home Solutions acquisition, we have top graded nearly the entire executive leadership team, and in the fourth quarter, appointed Harriet Booker as our new Chief Operating Officer. Harriet, a proven industry veteran, has worked in executive leadership roles for Option Care, Coram CVS Specialty Infusion Services and Apria Healthcare, among others. In the fourth quarter, we also appointed Danny Claycomb as our Senior Vice President of Revenue Cycle Management. Danny has decades of highly relevant experience, including heading up Revenue Cycle Management at Coram CVS Specialty Infusion Services from 2005 to 2015. While we have slimmed down the organization, we have worked hard to put the right people in the right seats, drive accountability and reward performance. As a result, we are accomplishing more with our optimized infrastructure and a high-performing culture is emerging at BioScrip. Finally, we remain diligent in our cash-collection efforts, which have helped contribute to a $15 million improvement in operational cash flow over the prior year quarter, enhancing the overall health of BioScrip. BioScrip's fourth quarter 2017 financial results demonstrate our turnaround plan is working. Our adjusted EBITDA increased 77% year-over-year to $16.8 million, an all-time quarterly record for the company. For the full year, adjusted EBITDA increased 45% to $45 million within our original guidance range and a company-first related to guidance. And our operational cash flow before interest expense improved by $52 million compared to the prior year. Our adjusted EBITDA growth continues to convert to cash. It is important to remember that our achievements in the fourth quarter and for the full year of 2017 came in the face of external challenges, such as the 21st Century Cures Act reimbursement cuts in the first quarter and throughout the year, and the disruption from hurricanes Irma and Harvey in the third quarter. Moreover, to put BioScrip on the right path, we dedicated significant amount of time and effort in 2017 to integrate the Home Solutions acquisition, refinance our credit facility and exit unprofitable United Healthcare product lines. Because of our actions today, BioScrip is a fundamentally stronger business, and I look forward to moving from the turnaround phase to a new chapter of profitable, organic revenue growth. The home infusion industry is growing 5% to 7% per year, driven by an accelerating shift in health care away from higher cost institutional settings, such as hospitals, to the lower-cost home setting, which is preferred by patients and delivers respective outcomes combined with lower risk of infections. Payers increasingly are driving volume to cost-effective settings that demonstrate attractive outcomes and many are actively focused on site of service redirection to the home. The home is becoming the disruptive service channel in the infusion market. We believe we are at the beginning of a tremendous longer-term shift in healthcare, especially, when you consider the home infusion today represents 15% of the roughly $100 billion total U.S. infusion market, which includes dramatically more expensive sites of care. As an industry, we have a huge opportunity and at BioScrip, home infusion is all we do. We are uniquely focused compared to other players that are part of larger organization. Routinely these days, I read about the rapidly changing healthcare landscape and the efforts by industry participants to get closer to the patient. We are already there. As the only independent national pure-play provider of home infusion services, BioScrip is in the right place at the right time, with the right team. In February of 2018, we were thrilled to receive positive industry news with the Cures Fix, which is a real win for our patients, the health-care system and BioScrip. The Medicare Home Infusion Therapy Access Act of 2017 was enacted into law on February 9 as part of the continuing resolution. The law provides for transitional benefit payment, beginning January 1, 2019, for Medicare Part D Home Infusion services, which will continue until the commencement of a permanent payment structure under the 21st Century Cures Act, currently expected to take effect in 2021. We believe the Cures Fix will add a minimum of $9 million to our EBITDA, starting in 2019. I'd like to express my sincere gratitude to everyone who made this critical piece of bipartisan legislation a reality, including the nation's lawmakers as well as our lobbyists, NHIA, teammates and board members, who championed the cause of chronically ill patients in need of care. The Cures Fix today represents a positive catalyst for BioScrip. I'd like to point out that BioScrip stands out from other home health peers that have significantly heavier exposure to CMS reimbursement. As a result, we have relatively low exposure to [pen] stroke risk. We have a diversified commercial and government payer base, with more than 1,000 relationships. And no single payer, including Medicare, accounts for greater than 10% of our revenue. Against this favorable industry backdrop, I'd like to summarize the main pillars of our organic topline growth strategy, as we proceed through 2018 and beyond. Our primary sales initiatives include: One, continuing to expand core sales growth, with an 85% core mix target; two, improving sales force effectiveness through our new CRM tool, daily sales dashboards, character optimization, incentive plans and enhanced training; three, expanding and strengthening hospital and payer relationships, including growing strategic preferred provider agreements; four, improving customer service to referral sources and patients, such as through leveraging our voice-of-the-customer initiative, which we launched in December of 2017 to track our progress and understand our customer satisfaction levels in high-priority needs and establishing a central verification authorization model, a single repeatable model across our network that delivers speed and consistency to our customers; and five, promulgating clinically validated data in studies, demonstrating the efficacy and cost efficiency of home infusion to drive site of care redirection. In summary, we concluded 2017 with record fourth quarter financial results, delivering significant year-over-year increases in core revenue mix, gross margin, adjusted EBITDA and cash provided by operating activities. We have overcome several external and business challenges in 2017, and I believe we entered 2018 in one of the strongest positions of the company's history. We expect to make good progress growing our core business and expanding our profitability, while making critical investments in people, technology and infrastructure, setting up BioScrip to have a breakout year in 2019. Our expectation for 2019 is to deliver a minimum of $75 million of adjusted EBITDA, resulting from core revenue growth at or above market rates, continued gross margin expansion and operating expense leverage, coupled with the benefit of the Cures Fix. With this type of performance, we would position the company for meaningful free cash flow generation to allow for debt repayment and potential refinancing of our debt at lower interest rates. We still have more wood to chop, yet I am very optimistic about BioScrip's future and our ability to deliver long-term sustainable growth and value creation for our stakeholders. I'd like to turn the call over to Steve Deitsch. Steve?

Thank you, Dan, and good morning, everyone. My prepared remarks will include additional information on the company's fourth quarter performance and 2018 guidance. Net revenue for the fourth quarter of 2017 was $182.6 million compared to $240.1 million in the fourth quarter of 2016, a decrease of $57.5 million or 23.9%. This revenue decrease resulted from our shift in strategy to focus on growing BioScrip's core revenue mix, including contract changes with United Healthcare, which were completed as of September 30, 2017, and from a negative impact of the Cures Act. Our revenue mix in the fourth quarter was 75.7% core and 24.3% noncore, with core mix increasing 610 basis points above our 69.6% core revenue mix in the prior year quarter. Core product mix also increased 70 basis points sequentially from the third quarter of 2017. Gross profit for the fourth quarter of 2017 decreased $4.3 million or 5.8% compared to the prior-year period due to a $57.5 million lower revenue base, substantially offset by the impact of higher core product mix due to our core strategy, including the United Healthcare contract transition and supply-chain improvements. Gross profit margin for the fourth quarter of 2017 was 38.5%, 740 basis point and 470 basis point improvements compared to the fourth quarter '16 and the third quarter of 2017, respectively. Gross profit margin typically peaks in the fourth quarter of each year due to seasonal revenue strength, leveraging our infrastructure and a overall lower product cost. Operating expenses were $53.5 million for the fourth quarter of 2017, a $11.6 million or 18% reduction compared to the fourth quarter of 2016. Our 20% more efficient BioScrip workforce, along with a reduction in bad debt expense, were the primary drivers of this improvement. Also, during the fourth quarter, G&A expenses included performance bonuses earned based upon 2017 results, which also drove the sequential increase in G&A expenses as compared to the third quarter of 2017. Adjusted EBITDA for the fourth quarter of 2017 was $16.8 million compared to $9.5 million in the fourth quarter of 2016, a 77% improvement. The increase was driven by the improvement in operating expenses, which was offset partially by a lower gross profit as a result of the lower revenue base. Restructuring, acquisition, integration and other expenses net totaled $1.2 million for the fourth quarter. These costs primarily reflected restructuring and rationalization efforts, which have led to the 20% leaner BioScrip workforce. Net income from continuing operations net of income tax was approximately $1.2 million for the fourth quarter of 2017, compared to a net loss from continuing operations net of income tax of $5.2 million in the fourth quarter of 2016, reflecting a $11.6 million net increase in noncash expenses, including gain on dispositions, depreciation and amortization, change in fair value of equity-linked liabilities, change in fair value of contingent consideration, stock-based compensation and a $3.7 million increase in interest expense, offset partially by a $7.3 million increase in adjusted EBITDA, a $5.3 million decrease in restructuring, acquisition, integration and other expenses net, and a $6.7 million decrease in income tax expense. Cash provided by operations for the fourth quarter of 2017 was $10.1 million, including $17 million of operational cash flow, offset by $6.9 million of interest payments. The $17 million of operational cash flow compared to $1.8 million in the prior year quarter, representing a $15.2 million improvement. Cash provided by operations for 2017 was $5.8 million, including $51.1 million of operational cash flow, offset by $45.3 million of interest payments. The $51.1 million of operational cash flow compared to a $0.5 million use in 2016, representing a $51.6 million improvement. Total liquidity at December 31, 2017, was $49.5 million, including $39.5 million of cash and $10 million of additional borrowing capacity under our senior credit facility compared to a $9.6 million of total liquidity at December 31, 2016. Turning now to our internal accounting review and the upcoming filing of our Form 10-K. As you know, we recently appointed Alex Schott as our interim CAO, while our current CAO is on a leave of absence. Following Alex's appointment and consistent with good practice, we initiated a detailed review of the accounting books and records in order to get up to speed prior to signing off on the company's Principal Accounting Officer on Form 10-K. In the course of that review, we have been unable to reconcile certain asset and liability accounts and have found what appears to be unreconciled differences, resulting from past sloppy accounting and human error. As a result of these findings, we determined that additional review and analysis was necessary. We are working with our auditors to review and analyze the accounts in an effort to either reconcile them or correct them as needed. We are not currently in a position to quantify the amount of any impact on our fiscal year '17 financial statements as the review is ongoing. However, at this point, we do not believe that the outcome of our review will have a material impact on our 2017 results. Regarding our outlook for 2018, we are establishing a revenue guidance between $710 million and $720 million. We also are establishing adjusted EBITDA guidance for 2018 between $54 million and $58 million, the midpoint of which corresponds to a 24% increase compared to 2017. We expect to incur restructuring expenses between $5 million and $6 million in 2018, primarily reflecting costs related to redesigning and optimating our revenue cycle process. Finally, we expect capital expenditures in 2018 to be between $12 million and $14 million, reflecting continued maintenance expense capital expenditures as well as anticipated investments in select branches to support growth. While we are not providing quarterly guidance for 2018, we remind investors that the first quarter of each year is seasonally the weakest period from a revenue, earnings and cash flow perspective. In 2018, we expect that the quarterly sequential adjusted EBITDA trend will be similar to what we experienced in 2017. This will be a good starting point for thinking about the quarterly operating progression in 2018. Our 2018 guidance does not reflect the adoption of ASC-606, a new revenue accounting standard to be adopted in the first quarter of 2018 that requires certain bad debt expenses to be reclassified as a deduction to revenue. The adoption of ASC-606 is not expected to impact our reported operating income or adjusted EBITDA. We expect that, as a result of adopting ASC-606, that of a majority of our bad debt expense will be reclassified as a deduction to revenue. We will provide updated revenue guidance to reflect the adoption of ASC-606 when we release our first quarter 2018 financial results. That concludes our prepared remarks. Operator, we will now open up the call for questions.

(Operator Instructions) Our first question comes from Dan (sic) [Dave] MacDonald from SunTrust Robinson Humphrey.

First is a question around the redesigning and optimizing of the revenue cycle management process. I guess, a two-part question: One, what is that going to kind of focus on because I know you have taken some steps in that area already, and two, was this partially driven by some of the additional resources that you acquired in terms of the management team?

Yes. So, thank you, Dave. So we -- I hired or we hired Danny Claycomb, who was the Senior Vice President at Coram for Revenue Cycle Management. He was also envisioned between that time as well. And Danny is, frankly, the best in this business and Danny has improved wherever he's gone. Bad debt expense, I think, there is a significant opportunity there, Dave. But along those lines, is that there are things we could be doing better on the front end, and as a result of some of those things, we think there can be significant improvement to our overall cash flow. And we also believe that, like anything else, as you improve things in the front, there is efficiency to be had in other places. And so, that's kind of where we are. We are very, very optimistic about what's happening in our Revenue Cycle Management program, whether it be what we're doing with the voice of the customer, what we are doing in the areas of denials, what we're doing in the area of collections. And then, ultimately, Dave, we think we are going to have a substantive impact on bad debt as well.

Steve, can you just spend a quick minute on '18? Can you give us a sense of either ranges or what your expectations are in terms of 2018 cash flow from operations, and also, what you expect in terms of interest expense?

Yes. Thanks, Dave. We expect our operating cash flow before interest to generally track in line with our EBITDA. And we would -- and so, therefore, we expect to see some improvements from our revenue cycle leadership operate -- offsetting any increase in working capital due to the growth that we anticipate during the year on the top line.

And then, just interest expense, I assume that's going to bump up just a little bit given the...

Yes, yes it will. So we have two components of interest expense. We've got the cash on our first and second liens, cash interest, and that is variable. And so that will bump up a little bit as the rates continue up. We expect about $46 million of total cash interest in 2018 and then, we also have the amortization of deferred financing. So we provided in the table the reconciliation of our EBITDA to loss from continuing operations a line-item guidance for interest expense as well as other reconciliations to non-GAAP EBITDA.

Okay. A couple of other quick questions. Dan, you talked about your net promoter scores. Was this even something that was measured historically before you got there? And if so, where were those ratings historically? And then, with regards to payers and hospitals, can you talk a little bit about their level of engagement in terms of moving folks from institutional to the home, I assume that's accelerating. And any details around some of these exclusive hospital relationships. Just an update there.

Yes, that's 3 questions. Let me -- I mean, the first one was -- just remind me the first one, Dave, I wasn't writing them down...

First one was just around the net promoter scores.

Oh, yes, this is something that has never been measured here before, Dave, and we think it's -- as you know, it's a very valuable tool. Us at 82%, I mean, just for the group. I mean, USAA is actually at 80%, Nordstrom's around 76%, you've got -- Costco's probably in the mid-70%s, and even people, you think about Apple, the Apple laptop group is in the low 70%s. So it's a pretty significant score. And again, I think it underscores the value proposition that clearly BioScrip has as well as the infusion industry. In terms of payers, there isn't one that we're talking to that isn't talking about redirection programs, Dave. I mean, it is -- they see the value. They also -- it's not just -- I think, there's a value in terms of what does it cost the system is clearly one of those value drivers. But also, what does it cost the patient? I mean, I think that's something that we're -- 20% of 16,000 is a lot more than 20% of 2,600. I know we've talked about that before but that is the difference, for example, in cellulitis alone. And then, the satisfaction scores are always higher in the home on an aggregate basis. And then lastly, we all know it's safer. I mean there's no question about the safety. So we just feel the momentum, it's just building and building. I think on the hospital side, I think they're looking for partners, Dave. They're looking for somebody who can say, hey, listen, how do I -- how do you help me with total cost of care. How do you help me with patient transition? And again, that's evolving. And I think we have a lot of opportunity to increase our value proposition with the integrated delivery networks. And as a result, the number of agreements we have grows every quarter. I'm not going to offer specifics on that, Dave, but that's clearly something that we're seeing. And then, you had a -- what was the third question? Mr slow guy missed that one.

I think you hit all of them Dan. I just have one final question. And I realize this is still kind of ongoing, so I don't know how much detail you guys can get. But you talked about not expecting the accounting review to have a material impact on '17. Can you give us any sense of whether you expect it to have an impact on '18 and going forward in terms of either additional spending you'd have to do or -- whatever, to make sure that the systems and the accounting is kind of where you need it to be?

Dave, this is Steve. No impact at all going forward. This is related to account reconciliations for certain asset and liability accounts. We don't see any material issues in any of the reconciliations that weren't completed as fulsome as we would like. And it certainly will have no impact or require additional cost or any impact on our operating results going forward. This is just a process of improving our internal controls and proactively managing and improving our accounting practices. So this has no impact going forward, and we don't expect any material impact as a result of the completion of this review.

Our next question comes from Brian Tanquilut with Jefferies.

Now, just to follow up on a few questions. As we think about 2018 and the revenue guidance that you guys gave, how should I be thinking about the moving parts on organic growth and United impact and how does that all, kind of, build into the 2018 revenue guidance that you've provided?

So, for example, in the case of -- we expect our revenue to be in line with where the industry -- some of the things we described in the industry. So, we say, 5% to 7%, our view is that we think that our revenue should be in that -- our revenue growth should be in that range. Now that all being said, we walked away from $178 million of United business. And so, there is clearly -- we had to reset the bar on that, Brian. And so, we did keep a pretty significant portion of the United business but clearly, we've had to adjust our revenue models as a result of that. I don't -- does that answer your question, Brian?

Yes, it does. Okay, so it's the United business that you are factoring in. Now kind of follow-up to that, Dan. As I think about all that initiatives that you've put in place, over time, shouldn't BioScrip grow faster than the industry?

Again, I have not been a part of an organization that has not done that. And, again, I've got, Harriet in the room here with me, who was our Chief Commercial Officer at Coram. And during those 5 years we were together, the company's compound annual growth rate was 12.5%. And then, as you know, at Home Solutions, we had -- when we were exiting, we had a growth rate between 15% and 20%. And again, that's my experience. I think you know here, we've had a pretty monumental hill to climb, and as a result, it impacted sales. But my view on this, Brian, is that, I haven't been part of an organization that hasn't grown in double digits and that is my expectation. And we're growing into that, I will say that. That isn't something you just -- we turn the switch. I mean, I think if we had a more sound foundation at BioScrip when I showed up, that would be possible. But, frankly, given the condition of the company, I'm not surprised that the growth rates are more gradual and -- but I fully expect at some point in time, Brian, I just, again, I can't get my head around not growing at 10% at some point in time.

Okay, that's very helpful. And then, Steve, as I think about tax rate or cash taxes with the new tax bill now legislated, how should we be thinking about the impact on your deductibility of interest?

So I would first start with that our existing NOLs are not impacted by the tax reform other than the rate change from 35% to 21%, so all of those NOLs are still valid. Although, we do have a full valuation allowance set up for those in our financial statements. But we expect to be able to utilize those in the future at some point. Going forward, there is restrictions on ability to reduce -- or excuse me, to deduct interest expense at certain thresholds. But you can also carry forward interest expense as you move forward for potential future deductibilities, similar to the way you carry NOLs forward, you just track them separately. So in the near term, in the next 3 to 4 to 5 years, I don't see any impact on our cash flow related to this change. And as Dan mentioned in his prepared remarks, we expect to be able to at some point in the future, refinance and to get a lower interest rate as well as our operating earnings will increase, which will allow us to have more deductibility capability as we move forward.

Got it. And then last question from me, Dan, as I think about, and I know I've asked this before, but now the CVS/Aetna deal has been announced and it's pending, how should we be thinking about how you're strategizing around that considering that, obviously, CVS owns Coram?

Yes, again, Brian, I think on that one we are not in a position really. I think it's too early to tell. I mean, the -- if you want to use an analog, I mean when United owns Briova and they still have us in network, they still have Option Care in network. And I don't -- again, ultimately, what CVS does with this is to be seen, but I think it's -- and I think for these companies that own their own infusion companies, I think it's a very, very slippery slope if they start taking companies out of network because there's going to be Blue Crosses or Blue Shields of the world who are going to say, I don't want to send my referrals to competitors. And we are certainly hearing a lot of that. And so, I think that, while -- I think there is -- if somebody takes that strong a position, for example, what I think there'll be a significant backlash from other payers. And we are certainly hearing a lot of that in the marketplace. So I think it's a slippery slope, and I think the other thing that's also important to take into account here, Brian, is that patients want choice. Patients want choice, and I think that BioScrip is a superior service provider and if I have a family member, I'd certainly want them to be on BioScrip services.

Our next question is from Brooks O'Neil with Lake Street Capital Markets.

I'm looking forward to that quarter where we don't have one of these got-yas so I'm sure that's coming down the road.

Brooks, it's like -- ill say that -- you don't clean up 10 years of a mess in a year. I mean, I just -- it just is a fact. And I think like -- there's things that surprise us from time to time, but in general, when I look at EBITDA growth 77% year-over-year. If I look at the first time in the company's history that it met its original guidance target, if I look at the operating cash flow of improvements of $51 million, it's like -- it's hard for me to kind of like not take a step back and say wow.

I agree with that 1000% and I'm really excited about what you've done and where we're going. So let's just talk briefly. Obviously, 24% of the revenue is what you described as noncore. Could you just talk a little bit about what that is and what you see as the outlook for that piece of the business? Is there ways you could fix it or is that more likely to go away as we move forward?

I think, it's interesting, Brooks, because we've seen gross profit margin improvements in those -- in that -- in those therapies as well. So I just -- it's not as though we aren't seeing uplift in gross profit margin therapies across the board, because we are. But there are things we can do. So, Brooks, those are things like [calf] care, those are things like hydration, those are things like chemotherapy, where they've gone out and priced chemotherapy. The challenge of chemotherapy if I use this as an example is you get paid $400 a month. And from a gross product standpoint, that product is in the 70% range. But from a contribution margin standpoint, it's negative 45%. So once you apply resources to caring for those patients, it just completely flips. And so there are things we can do, Brooks. I think one of the things we can do is we've got over 50 ambulatory infusion suites. And when there are options for the patient, one of the options for us would be to say, hey, listen, we would like to see you get this care in our home infusion suites. And again, we have these in almost all of our markets at this point in time, they're generally in our branches, Brooks. But that's something that we've done very successfully at other places, and we're, frankly, we've had a pretty significant increase in utilization of our ambulatory infusion suites since we've gotten here. And so, that's something that we can do. But again, I think, we have to continue to be disciplined around this, Brooks, and here's what I know based on empirical validation and why we picked 85%. And the reason we picked 85% is once you drop below 85%, you are -- the company is not as profitable as it could be. And the reason we picked 15% is because we still have to be a good steward. We just can't be -- we can't be binary in these decisions, and we know our referral partners are in tough situations sometimes, where they have a less-than-ideal patient and part of our stewardship, part of our service is to make sure that we are servicing our customers as best as we can. But we also have to make sure we're doing it in a way that works for both parties. And so that's really where we are, Brooks. I'll say this too, we've increased this pretty significantly but it's still -- I'll say it's still -- we are still tweaking it. And So I think, that's probably as good an answer as I can give at this point.

Okay, perfect. Let me just ask you one other question. Obviously, we have the Cures Fix coming in 2019, we have additional benefit and improvement in 2021. But could you just talk a little bit about what you see as the long-term opportunity with Medicare and whether you think that could become a significant contributor to growth and profitability of BioScrip?

Oh, gosh, Brooks, it's a great question. I think one of the most exciting things about the Cures Fix is -- and again, just so everybody understands, it's only for 30 drugs. So -- but for these 30 drugs, and for the first time in history, we -- there is a infusion benefit. And so, Brooks, the way we get paid, we get paid for drugs, we get paid for like an [AWP] or an ASP, we get paid for nursing, and then we get paid for our per diem. And in the past, for Medicare, we -- the company has not been paid for nursing -- neither for nursing nor per diems. And so, when we look at this, we feel like we've established a beachhead, and we have established a [beachhead where we are in a I think in a very, very interesting position to ultimately get a Medicare Part D infusion benefit. And this was a major, major first step. And, Brooks, I mean, you look at the demographics, this could be a pretty, pretty significant thing for us going forward.

Our next question is from Kevin Ellich with Craig-Hallum.

Just had a couple -- you bet, Dan. Just one for Steve quickly on the internal accounting review. What are the dates? I mean, I know in the material weakness that you called out it won't affect 2017 but on the internal control deficiencies, do we have a timeframe that that's looking at?

Yes, and maybe it would be helpful to kind of state the process we have to go through at the end of the year. We have to go through a process of evaluating our internal controls in addition to signing off on the financial statements, we have to make an assessment on the internal control structure. And as part of that review, bringing Alex Schott in about a 1.5 weeks ago, one of the first things he did as part of that was doing evaluation of our internal controls around account reconciliation and other controls as well. As part of that, we noticed that certain account reconciliations weren't done as well as we would like. They were -- I would call them sloppy, and they just need to be improved and corrected and -- as we move forward, as we mentioned in the release in the prepared remarks, the -- we don't expect the impact of this review to have a material impact. But it is a requirement that we note it, and we disclose it, and that's what we've done. And the other thing that I would mention is there is -- these account reconciliations, as Dan mentioned I think or alluded to earlier, they've been sloppy for a period of time, this isn't a new development. And so it looks like, you look past several periods, there are account reconciliations that need to be improved, and we will do that and get that taken care of right away.

Okay, that's helpful, Steve, and we can follow up a little bit more later. As for the guidance, kind of, I know Brian asked about the revenue, but looking at the EBITDA guidance, the margin, and you guys clearly have some investments in improving revenue cycle process but margin came in at like 7.6% to 8.1%, clearly, Q4 is your strong quarter. You talked about gross margin being seasonally strong this year. But you guys did 9.2% this quarter. So just wondering, how much conservatism you think you've baked in here?

Yes, I think, that's a good question, Kevin, I think what we're trying to do is make sure that we're positioning for the future. And we're making investments in personnel, we're increasing our sales force size; we're making investments in technology, we're making investments in infrastructure. And really, the -- we think we can have a terrific year in '18, but we think we are in a very unique position going forward. And at some point in time, we just said, we've got to make these investments. And we are doing it. And we right sized the organization. I think we've optimized the structure in many respects. But it's important that we position this company so that we can capture the full value of the company in the future, 2019 and beyond.

That's helpful, Dan. And then, just on the CapEx guidance, it looks like $12 million to $14 million is a step up from the $8 million you had in 2017. Steve, can you give us any details to what led to that increase?

Yes, I would tell you, Kevin, that as part of Harriet coming in and doing her review of the operations, we had some areas and some branches that we need -- that are critical to our growth going forward and that we need to make some additional investments in so that they can scale and grow with the expected organic revenue that we are seeing. And so, we've got a handful of branches that are important to us that are going to be getting into some upgrades and facilities, potentially some clean room upgrades as well in certain locations. And so, we didn't have much of that in 2017 or even in the prior year. And so, this year reflects some investments in our facilities so that we can scale and capture the organic growth opportunities that is out in front of us.

Our next question is from Dana Hambly with Stephens.

Just a follow-up on the -- Kevin's last question, Steve. Is the maintenance CapEx, you would expect kind of at similar levels to CapEx in 2017?

Correct, correct. So you know in our CapEx -- that's right.

Okay. And then, Dan, on the gross margin, obviously, the core mix is a big one, but you've talked about some other things in the past. I was just wondering if you could update us on some other items, how you're progressing on like nursing costs and delivery costs?

Yes, so I'll say this. I mean, there's really 5 things as we've talked about, Dana, that go into gross product margin. One is the [85%, 15%] which is invariably the -- we -- you can do whatever you want, but if you don't get -- if you're not moving to 85%, 15% it's very difficult to grow your gross profit margin. The second one is supply chain. And again, as we've talked about, when they put these 2 companies together, Dana, they estimated that the supply-chain savings will be in the neighborhood of $3 million. We're approaching $30 million since the acquisition of Home Solutions. And, frankly, we expect that to continue. I mean, we are doing I think a bang up job with formulary [in fact] in the case of enteral, we've got the Abott product above 70% market share, which is, from what we've been told from Abbot, we're the first company to ever achieved that. And again, as we continue to become a better partner to the folks who really want to partner with us, we think there's even more value, for example, to unlock in the area of supply-chain. The other opportunities are managed care pricing. That's something we're very focused on. And I think that, I will say this, I think in some instances, the payers have awakened to our value proposition. And we think that we're critical to drive savings to their customers and also to improve their own profitability and so that's an area that we're very focused on. And again, we are -- I think we've seen a fair amount of success in that front. And as much as anything on that front, we're just trying to right size. I mean, there's -- as you can imagine, there's been a fair amount of variation over the years, and if we have a payer that's unprofitable, we're going to go back to them and ask them and ask, hey, listen, here's our national averages, and we want to be there. And again, what we're seeing given what they want to do in redirection and other things like that, I won't say they're running to us with price increases but I think they're open-minded to it. The other two areas that we are still developing, I will say this, is the area -- because those are 3 areas in gross profit margin and then the other two, Dana, are in supply chain -- excuse me, in delivery and nursing and those are 2 areas that we still have work to do. I mean, those are areas that we've got Harriet here, and I am absolutely confident that we're going to continue to see improvements in those areas. But we're not as far along in those areas as we are in the other 3. But what we -- we expect to see improvements in both of those areas this year.

Okay, okay. Thanks for the details. Last one for me. Steve, on the G&A cost for the quarter, probably higher than -- certainly higher than what we were looking for. I think you mentioned there were some bonuses in there, is that the only kind of difference?

Yes, yes, that's right. We've -- given the great quarter that we saw, we were able to award an accrued performance bonuses for a good number of our employees that really delivered this year.

Yes, and, Dana, just so you know, this is part of the cultural change. I mean, this company has not paid bonuses since '09 and one of the things we're trying to drive is -- if you do well, we want to pay you well. And when you see a company that's improved it's operating cash flow by $50 million, it's EBITDA by 45% year-over-year, and you think the total that the things from integration, the hurricanes to some of the cost cutting we had to do, it's important that we acknowledge the amazing work that the BioScrip team did and it's important we continue to not only to invest in infrastructure and IT but we invest in the people that have really made a massive difference in this company.

Okay, all right. So assuming many great quarters to come, this should be a seasonal item we should consider in our model?

Correct, that's correct.

Our next question is from Mike Petusky with Barrington Research.

A few questions. I just wanted to -- on the United, I think you guys had said last quarter that there was about $40 million to $45 million of the United business left. Is that about right?

That's right, Mike.

Okay, all right. And then, Steve, could you just remind me what the NOLs are, federal and state at this point. What they are?

So the tax impacted NOL is approximately $95 million, $98 million, $90 million to $100 million, I don't have the exact number in front of me, Mike, but it will be disclosed in our 10-K when we get it filed. But the gross number's in excess of $400 million. So it's -- the net operating losses from the past will provide a nice future benefit as we turn to an operating profit generator.

And then, Dan, I guess on the payer mix goals. I think, at one point you said, hey, there's a chance we could end '18 pushing on that 85%, I mean, is that still realistic or might it take another 2, 4, 6 quarters to sort of get there?

Yes. That's a good question. It's -- I won't say at the end of '18 we're going to be there. I will say that I will say we will continue to see improvement in this area. And that's kind of where we are, Mike. I mean, again, this is generally something that's gradual. Generally, we still have patients that were exiting as well or are not taking or whatever we want to call it. So I think it's just probably going to be more gradual than that is what I would guide to.

Alright. Okay, great. And just one more on the third quarter call, you guys gave a little bit of a window into what you had seen through October in the fourth quarter in terms of census and payer mix. You essentially said, hey, payer mix pretty good, census a little bit down. Now we're about 3 quarters of the way through Q1, do you have any general commentary around what you're seeing so far in Q1?

Yes, we are not at liberty to talk about that, Mike, at this point.

Ladies and gentlemen, we have reached the end of the question-and-answer session. At this time, I'd like to turn the call back to Dan Greenleaf for closing comments.

Well, thank you all for joining the call today. We are pleased with the solid momentum in the execution of our plans. We look forward to updating you again on our continued progress in May when we announce our first quarter 2018 financial results.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.