Option Care Health Inc (OPCH) 2018 Q1 法說會逐字稿

Greetings, and welcome to the BioScrip First Quarter Fiscal 2018 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Kathryn Stalmack. Please go ahead.

Thank you. Good morning, and thank you for joining us today. BioScrip's first quarter 2018 financial results were released earlier this morning. A copy of the release can be found in the Investor Relations section of our website at www.bioscrip.com. Within 2 hours of the 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; and 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 upon current expectations and there can be no assurance that results contemplating 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 on information available to BioScrip today and the company assumes no obligation to update statements as circumstances change.

During the presentation, we will refer to adjusted EBITDA, a non-GAAP financial measure. A reconciliation of 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 first quarter 2018 performance and review some of the actions we're taking to drive continued improvement at BioScrip through the remainder of this year and into 2019. I'll then hand it over to Steve Deitsch, our Chief Financial Officer, for a more detailed discussion of our financial results and an update on our guidance for 2018.

In the first quarter, we continued to execute successfully on our turnaround strategy, delivering 16% year-over-year growth in adjusted EBITDA. Higher core revenue mix, increased gross profit margins and lower operating expenses drove our year-over-year improvement in adjusted EBITDA. Core revenue mix expanded 350 basis points to 75.4% this quarter, up from 71.9% in the first quarter of 2017. In turn, our gross profit margin increased 32.7%, a 530 basis point improvement over the prior year on an apples-to-apples basis, adjusting for ASC 606, a new accounting standard that Steve will address a bit later in the call.

Similarly, operating expenses declined by $3.6 million compared to the prior year quarter. We achieved this performance despite facing higher-than-normal inclement weather in the northeast that caused a significant number of temporary branch closures, 26 occasions where a branch was closed for a full day and 49 occasions where a branch was closed for a partial day, which negatively impacted our first quarter 2018 adjusted EBITDA by an estimated $1.3 million, due to lost sales of approximately $2.5 million, primarily for higher-margin antibiotics therapies. In effect, we lost 1 billing day during the quarter due to inclement weather.

Additionally, we incurred higher-than-average product acquisition and delivery expenses to serve our patients in the face of temporary, industry-wide product shortages, including immunoglobulins, antibiotics, IV solutions and supplies, which further reduced this quarter's adjusted EBITDA by an estimated $1 million. While product shortages can routinely occur, we believe the extraordinary nature of the recent shortages are now abating, reducing our need to purchase higher-cost alternatives.

Outside of these external headwinds, our investments in our field force this quarter increased by approximately $1.5 million, compared to the first quarter of 2017. We believe that disciplined investments in our future are critical to enable us to drive industry-leading revenue growth and accelerate earnings expansion.

Among our incremental investments, we held a national meeting in January. We expanded our field force, we implemented sales and operation training programs, we launched a sales force effectiveness tool and we expanded our managed care team. Adding it all up, we estimate that our first quarter 2018 adjusted EBITDA of $5.6 million would've been approximately $2.3 million higher, absent the negative impact of external headwinds.

In essence, we had a solid all-in underlying performance, including $10.7 million of operational cash flow, a 6x improvement over the previous year, in what is always a seasonally weak quarter. Looking ahead, we remain firmly on track to achieve our 2018 adjusted EBITDA guidance, which we are reaffirming this morning.

I've already discussed some of the field force effective initiatives we implemented that are designed to increase volumes, improve core mix and raise gross profit margins, we're also making important strategic progress in other areas. For example, we are expanding and strengthening our hospital and payer relationships, including growing strategic preferred-provider agreements. 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.

With respect to revenue cycle management, we are laser focused on improving efficiency and quality in all processes. As a result, we anticipate significant ongoing improvements in cash flow by creating a more efficient model. We are already seeing the benefits of these focused efforts. Some examples include reduced denied claim queues from over 20 million to under 3 million. This has been an ongoing problem at this organization for years and it's finally been addressed. Improved PBM unbilled claims from 4 days to 2 days and lowered unbilled claims pending authorizations by over 80%. And accelerated and improved the accuracy of our initial claim submission.

Moreover, our revenue cycle management team, together with our field force team, is more focused than ever on enhancing the patient's experience. For example, patient overall satisfaction ratings for nursing exceeded 85% top box score. And our overall net promoter score is greater than 70%, which favorably compares the highly regarded companies such as USAA, Costco, Nordstrom, reflecting the speed and the quality of our team's ability to on-board patients as well as continued to provide them excellent service.

We continue to execute upon meaningful supply chain savings opportunities, including favorable contracting for drugs, supplies and indirect spend and formulary management enhancements, all of which continue to accelerate as the year progresses. In terms of operating expenses, we expect ongoing improvements through labor management, technology investments, staffing productivity and our continued execution of our single repeatable model, all of which benefit BioScrip employee engagement and enhance the customer experience.

Continued successful execution of our strategic plan over the long term is positioning BioScrip to expand our core sales growth to our target of 85%, achieve gross profit and EBITDA margins approaching 40% and 10%, respectively, and therefore, have the potential to begin the pay down debt and delever the balance sheet. Our optimism is supported by favorable industry dynamics in the home infusion in space. As I've noted in the past, the home infusion industry is growing at 5% to 7% per year, driven by an accelerating shift in health care away from higher-cost institutional settings, such as hospitals, to lower-cost home settings, which is preferred by the patient and delivers effective outcomes combined with lower risk of infection. The trend is undeniable. In addition, we look forward to the favorable Cures Fix catalyst, which will add a minimum of $9 million to our EBITDA, starting in 2019. While Cures has turned into a positive for us, I'd like to point out that BioScrip stands out from other home health peers that have significantly heavier exposure to CMS reimbursement. And as a result, we have relatively low 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. We have officially expanded our core initiative in what we are calling Vision 2020, which will transform BioScrip into the industry leader and drive significant earnings growth for years to come. In addition to what I have previously shared with you regarding our core initiatives, the 4 pillars of Vision 2020 include: a leading sales growth driven by field force effectiveness, the continued unlocking of supply chain opportunities, enhanced revenue cycle management and strengthened relationship with our payers.

Along with Vision 2020, I also want to underscore the significant enhancements to our management team since I arrived at BioScrip. I believe we have a team today that is better positioned than any other home care company to capitalize upon the compelling macroeconomic changes that are occurring in our healthcare system today. And our team is the single most important advantage we have as an organization.

We expect to make good progress this year growing our core business and expanding our profitability, while making continued strategic growth investments. Looking ahead to 2019, we stand by our expectation for a minimum of $75 million of adjusted EBITDA. In conclusion, we still have more work to do, but we remain as enthusiastic as ever about BioScrip's unique position as the only independent national home infusion pure play, and our ability to deliver long-term sustainable growth and value creation to our stakeholders. I'd like to now 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 first quarter performance and 2018 guidance. Net revenue for the first quarter of 2018 was $168.6 million compared to $217.8 million in the first quarter of 2017, a decrease of $49.2 million or 22.6%. This revenue decrease resulted primarily from our shift in strategy to focus on growing BioScrip's core revenue mix, including contract changes with United Healthcare, effective September 30, 2017; the impact of -- the implementation of ASC 606, which during the first quarter of 2018, resulted in the recognition of amounts previously recorded in bad debt expense being reported as a reduction of revenue, and lower patient volumes in certain product lines, including the impact of inclement winter weather.

Our revenue mix in the first quarter was 75.4% core and 24.6% noncore, with core mix increasing 350 basis points above our 71.9% core revenue mix in the prior year quarter. Gross profit for the first quarter of 2018 decreased $9.8 million or 15.1% compared to the prior year period, due to a lower first quarter 2018 revenue base, including lower sales of antibiotic therapies that carry higher-than-average gross profit margins, the implementation of ASC 606 in the first quarter of 2018 and higher product acquisition and delivery cost related to temporary product shortages, offset partially by the impact of higher core product mix due to our core strategy, including the United Healthcare contract transitions and supply chain improvements.

Gross profit margin for the first quarter of 2018 was 32.7%, a 530 basis point improvement compared to the prior year quarter, stated on an apples-to-apples basis, adjusted for the impact of ASC 606 adoption. Operating expenses were $49.4 million for the first quarter of 2018, a $10.6 million or 17.6% reduction compared to the first quarter of 2017. Our more efficient BioScrip workforce, along with the reduction in bad debt expense due to the implementation of ASC 606, were the primary drivers of this improvement.

First quarter 2018 operating expenses declined $3.6 million compared to the prior year quarter, on an apples-to-apples basis, adjusted for the impact of ASC 606. G&A expenses during the first quarter of 2018 increased primarily due to the investments in our field force that Dan spoke about earlier and additional legal and accounting fees during the quarter. Adjusted EBITDA for the first quarter of 2018 was $5.6 million, compared to $4.8 million in the first quarter of 2017, a 16% improvement. The increase was driven by the improvement in operating expenses, which was offset partially by lower gross profit, which was primarily the result of the lower revenue base. As a reminder, the first quarter of each year typically represents the least profitable quarter of our year, primarily due to the seasonality of our revenue and labor costs.

Restructuring, acquisition, integration and other expenses net totaled $1.9 million for the first quarter of 2018, a $1.3 million or 42% reduction, driven by decreased acquisition and integration activity during the quarter. Costs in the current quarter were primarily composed of employee-related costs, including severance as well as redundant site closure expenses. Net loss from continuing operations net of income taxes was $13 million for the first quarter of 2018, compared to a net loss from continuing operations net of income taxes of $19.4 million in the first quarter of 2017, reflecting a $4.4 million decrease in noncash expenses, including gain on dispositions, depreciation and amortization, change in fair value of equity linked liabilities, stock-based compensation and a $0.8 million increase in adjusted EBITDA, a $1.3 million decrease in restructuring, acquisition, integration and other expense and a $0.6 million decrease in net income tax, offset partially by a $700,000 increase in interest expense.

Cash used in operating activities for the first quarter of 2018 was $5.2 million, including $10.7 million of operational cash flow and $15.9 million of interest payments, which included bi-annual bond interest paid of $8.8 million. The $10.7 million of operational cash flow compared to $1.8 million in the prior year, a 6x or $8.9 million improvement. Total liquidity at March 31, 2018, was $40.4 million, including $30.4 million of cash and $10 million of additional borrowing capacity under our senior credit facility, compared to $16 million of total liquidity at March 31, 2017. Regarding our outlook for 2018, we are reaffirming our previous adjusted EBITDA guidance for 2018 between $54 million and $58 million, and updating our 2018 revenue guidance to between $688 million and $698 million, which only reflects an adjustment for the implementation of ASC 606. ASC 606 became effective January 1, 2018, and amounts which would have been previously reported as bad debt expense are now reflected as reductions to revenue. The implementation of ASC 606 does not impact operating income or adjusted EBITDA. That concludes our prepared remarks. Operator, we will now open up the call for questions.

(Operator Instructions) Our first question comes from David MacDonald of SunTrust Robinson Humphrey.

A couple of questions. Dan, can you just talk a little bit about the product shortages. Did you see that linger -- are we back at normalized levels or is there still a little bit of a drag? And if -- and just give us some sense of the timing of that. I would assume that there is a little bit of leakage in terms of impact into the second quarter. But just wanted to get some clarity on that just so we have a better sense of the pacing of the quarters.

Yes. So just for everybody's -- for the purposes of the broader group here, this was initiated or began with the hurricanes that went through Puerto Rico, predominantly. And most of our manufacturers have facilities in Puerto Rico. And as the Puerto Rico facilities come back online and begin to produce product again, as we see they have, we expect this to go down. We also had kind of an anomaly too, Dave, with one of our immunoglobulin products that by way of a -- this really was a paperwork mistake by the company that resulted in that product being unavailable to us for about 3 or 4 months. And you've seen this movie. I mean, we switch all the patients over to one product and then we have to switch them back, and we had already switched the patients over to another product. And on the Puerto Rico's, if you will, supply issues, I mean, what it caused us to do was, we spent a lot of money in delivery this quarter because we were moving stuff around branches. We also did, as you could imagine too, Dave, we did some buy-ups just to make sure that we had enough inventory. But I see it largely behind us in terms of order of magnitude, Dave. I still think there'll be some one-offs going forward. But I think by and large, I think it's mostly behind us.

Okay. And so just on the IVIG -- on the immunoglobulin patients, those are kind of settled in, you've got them back on whatever therapy is most appropriate. And then in terms of the forward buys, you kind of have all the product you need and you're back to kind of normalized levels there?

Yes. I would say yes to both of those, Dave.

Okay. Okay. Secondly, Dan, can you talk a little bit about, look, everyone on earth is talking about value-based care, and you guys mentioned it a little bit in your prepared comments. But are you actually seeing contracts or talking about contracts, where there's an opportunity to participate, depending on a set of outcomes and value-based metrics, where if you guys perform, there's a potential opportunity to care in some of the savings?

Yes. We are. And we're doing that at the payer level, we're doing that at the integrated delivery network level. We also see significant opportunities to potentially do it with physician groups. So yes, and again, I think by virtue of what we do, Dave, and I know you can appreciate this, we are value-based care. And our business by -- in its essence is value-based care, because it's more -- it's as effective, it's safer, it costs a hell of a lot less for the patients and the health care system and the patients' provider. There's not a metric that I can think of that we don't win on. And again, if you look at any of the metrics that we measure, we think we are value-based care already. We also believe we're already the transformative company in this industry, Dave. I think there's a whole bunch more that's going to come out of this company and this team here in the midterm. And I prefer to talk to some of this stuff not in the broader group because it has strategic implications.

Okay. Steve, just a couple of questions. I assume, just given that the EBITDA guidance hasn't changed, the expectations around cash flow and free cash flow are unchanged. Is that accurate?

Yes. That's correct, Dave. We -- as Dan mentioned, did do some inventory buy ups, and you can see that on our balance sheet. So we are carrying a higher level of inventory today than we typically would. And so we will likely have some additional inventory payments in the second quarter, higher than maybe a typical quarter. But that will even out as we go through the balance of the year.

And is it fair to say, Steve, some of the progress you've made on revenue cycle management should wash some of that out as we think about it on an annual basis?

That's correct. We're making a lot of progress there as Dan outlined. Our new team and our existing teammates that have been working hard for several quarters and making a lot of progress. I mean they denied claims reduction...

Dave, it's just remarkable because we've been -- I mean, this company's been pounding on that for 6, 7 years. We pounded on it here the day we got here. And it's -- when you've got -- you end up with the right people in the right seats like Danny and his team and Harriet and her team, things happen quickly. And I even look at, like what's happened on held revenue. I mean, we -- the held revenue at our central verification location has gone from -- this is -- these aren't big numbers, but they've gone from somewhere in the $3 million range to $300,000. But all these things just add up in terms of, as you could imagine, in terms of cash flow, in terms of working capital. We've also done some things, Dave, in terms of just orientation. And we had a -- we were unbalanced related to our collectors versus our billers. We had more -- we were overweighted in collectors. And so one of the things we've done is we've shifted the orientation of the organization more to billers. And that -- it makes obvious sense why you do that because you bill to get paid. But again, in some instances, it just wasn't intuitive here. And so I really -- I've got to tell you, and as we -- as if -- as our revenue cycle management team continues to make this progress, I've shared 3 or 4 things. We've got 10 other things that, again, for somewhat for strategic purposes, I don't want to share. But suffice to say, this has gone -- what I see is this has gone from a very much a weakness, prior to kind of this team coming on board, to what I would describe is really one of the strengths of the organization. And it's only going to get stronger going forward.

Okay. Guys, last question. Just with regards to the patients that were impacted by the Cures Act, I know various different competitors did different things in terms of potentially moving away from those patients or not. I know you guys stuck by them. Is there a chance that you are seeing disproportionate growth amongst some of those folks? And that, that $9 million potentially has an upward bias by the time some of the payment rules change?

Yes. I -- Dave, what I would share with you is that our census hasn't dropped.

Our next question comes from Brooks O'Neil of Lake Street Capital Markets.

So I was just hoping to follow-up a little bit on some of the things David was asking about. Specifically, I know you're not providing quarterly guidance, but can you give us sort of an impression of what you expect the sort of quarterly progression to be? Are we looking at a hockey stick type earnings year, where the bulk of the $54 million to $58 million is in Q4? Or are we looking at more of a steady sort of linear progression from here to whatever number makes sense for Q4?

So, Brooks, the only thing I can share with you, look at last year. Look, last year is an excellent analogue for how this business ebbs and flows.

Perfect. Secondly, obviously, there's a lot of pending consolidations in the industry. Do you see or have you seen anything that's likely to impact BioScrip and BioScrip's opportunities in the marketplace?

Not at this time, Brooks. I mean, what -- so those consolidations are occurring. But frankly, what I'm more excited about, Brooks, is I'm excited about where the trends are going in health care. I'm excited about the conversations that we're having with payers about redirection programs and the materialness of those conversations, which are so far advanced from, at any point in time that I've been part of this industry. I'm excited about the trends that are undeniable about patients moving to the home and that care is being redirected to the home. And that outside of the operating room, outside of the ER room and outside of the ICU, the home will be the general ward. And so as much as there are external factors that are occurring, Brooks, in the marketplace, I think -- I don't think, I fundamentally believe that we have much more ability to impact the outcome of this company, much more than any external factors that are occurring. And we've got -- we just have a ton of wind at our back. And it's -- my mind is, are we prepared to take our future. And I feel like -- I talked about Vision 2020, I feel like we're better prepared than ever. And when I look at the broader organization, and I look at every -- if we look at last quarter -- first quarter of 2017, you compare it to first quarter of 2018, I don't care what you look at, we're better off. We're better off margins, we're better off core, we're better off liquidity-wise, we're better off in terms of operational cash flow. We're way, way, way better off in terms of the management team. And moreover, I'm not facing Cures, I'm not facing a refinancing, I'm not incurring the challenges of exiting a United Healthcare contract, I'm not undergoing significant management changes and I'm not integrating the company. So when I look out, Brooks and I look out to the future, and you -- this is really a future looking question you're asking me, I don't think we've ever been in a better position as a company in the 10 years or 12 years or whatever period of time this thing's been public.

Our next question comes from Kevin Ellich of Craig-Hallum.

So we saw some nice improvement on the core revenue mix, Dan. Just wondering your thoughts in terms of still on track to get to that 85% mix? Have you -- can you remind us, how long do you think that will take? Are we going to see it in the next 4 to 6 quarters?

I think how I'd look at it is, if we're really humming along here, I think you could look at a percent -- somewhere 1% percent every couple months I think would be accurate. I think that in some instances, for example, in other places I've worked, we've seen 1% every month. But just for the purposes of gauging the speed at which this has happens, I would say probably 1% every couple of months in terms of trends.

Okay. That's helpful. And then clearly, you've made some nice investments in the management team and the sales force, et cetera. Could you provide some color in terms of, I guess, key takeaways and how are you measuring -- I mean, you've clearly shown up in the results, but just a little bit more color on other than investments that you might need to make or are we kind of at that point where you've done enough?

No. I think, again, if I look at my Vision 2020 or our Vision 2020, I think about the 4 pillars. One is field force effectiveness, another one is revenue cycle and bad debt, another one is procurement, another one is strengthening the relationships with the payers. We're going to continue to make investments in those areas that we believe will get us to that above $75 million in 2019, Kevin. So -- and that includes things like IT. Technology is very important. I think part of it also is, as we reframe this business is what types of people do we invest in. That's really important. And again, as we look to continue to transform this industry and transform this company, we're going to continue to make strategic investments in certain people. And again, I hope you understand, I've got competitors sitting on the phone, and I don't really want to tip my hand to them. And -- but suffice to say that we'll continue to make those. I don't think -- if you're looking at it from a CapEx standpoint or an OpEx standpoint, I don't think it's anything extraordinary, Kevin. So I don't think there's anything that really is going to be a got you or jump out at you. We've made a lot of investments since we've been here and disciplined investments, I would say and strategic investments. And I think you'll continue to see that practice.

Understood. That's helpful. And then Steve, you talked a little bit about pacing through the year and whatnot. But are there any other costs that we should be thinking about as we update our models over the next few quarters? And then on top of that, could you tell us what the adjusted DSO was and maybe I missed that in your prepared remarks, for the impact from the weather and whatnot?

Yes. So Kevin, thanks for your question. And I would tell you that there's really nothing incremental or out of the ordinary coming with respect to our operating expenses as we move into the second half of the year. I think Dan did a nice job of rearticulating what we've said on last quarter's call that we expect our EBITDA to progress this year in the same manner that it did in 2017. And if you look at the way last year progressed, we're sort of right on track with where we expect it to be and with getting to the $54 million to $58 million and...

With the exception, obviously, of the shortages and the northeasters.

Yes. So we're comfortable and we've got -- Dan articulated, again, a number of drivers that will continue to enhance our profitability, revenue cycle being a significant component of that from a cost perspective as well as a DSO perspective. And then also supply chain. Supply chain's going to continue to drive our gross profit margin and so will our core product mix. So those are going to be big drivers as we move into the second part of the year.

I think the other thing, Kevin, I'd say about this is that one of the reasons why I like how well positioned we are is because we get the advantages of scale. So in other words, we get the advantages that a United Healthcare or Walgreens or CVS has in terms of purchasing power. And as well as I think strength of our ability to hire -- the absolute best talent, which we've done as a company. And we also are not disadvantaged by being too small. And then we're -- you just -- you're not going to have the sophistication on the payer side, you're not going to have the sophistication on the revenue cycle management side. You're not going to have the sophistication at different levels within our organization, and which really puts us in a really unique position where it doesn't take 17 signatures to get a roll of toilet paper. And on the other hand, it doesn't -- we don't have all of the -- and I worked at Schering-Plough for a decade, so I know what that was like. And then on the other hand, we're not so fragile that we can't make -- or less attractive that we can't make the right investments that we know that are needed to scale this industry and to scale this company.

Kevin, just to answer your second question on DSO, we are at 45.8 days at the end of the first quarter, compared to 44.2 last year. And that's really an intentional. We're really focused on collecting old receivables instead of writing them off. I think previous -- some previous practices were to focus more on a DSO level, and our teams are more focused on not necessarily writing off old receivables, we're really focused on collecting them. And one of the things that we didn't mention earlier is, we see -- we expect that we've got $5 million of targeted DSOs that are over 360 days old that we're still -- we expect to collect and the team is making a lot of progress on and so...

That's another really amazing thing, Kevin, because in the past this company would've written all that off. And we were just looking most recently at like $5 million that historically would've been written off, and we've already collected $2 million of it. This is just one example of where things are just way better here in terms of -- and again, as we've talk about the strength of our business is our revenue cycle management team.

That is impressive. Most -- I think most companies would write-off receivables over 30 and 60 days old. So that's really impressive. And last -- Dan again, it's great that you guys don't have to worry about getting 60 signatures to get toilet paper.

Our next question comes from Brian Tanquilut of Jefferies.

It's Jason Plagman on for Brian. So just wanted to dive a little deeper on a couple of topics that you mentioned as part of Vision 2020. So your -- first one on the supply chain saving. What level of savings do you think that initiatives could drive over the next couple of years, separate from the improvement in the core mix, but just pure, better purchasing savings?

I think 8 figures would be a reasonable target.

And as far as -- is that spread over a few years or how quickly can you achieve that number?

I think we're well on our way.

Okay. Fair enough. And then on the -- expanding your relationships with the payers, any additional color you can provide on progress on that front? And when -- should we expect to see any benefit from that in the second half of this year, is that more of a 2019 lift?

No. I think that we have one incidence where we have one payer that 1/3 of our revenue now comes from redirection. So we're seeing it already. And I just think there is -- and I -- as we've staffed up our managed care team, there isn't -- I don't think there is a payer we're talking to, Jason, that isn't saying what we're doing is not a really, really good idea. And so I don't think these things are -- obviously, most of these are big companies that don't move really fast. But there is -- I think there's clear energy behind this. And we've already demonstrated pretty substantive results that are really helping us in these discussions.

And Jason, this is Steve, I would like to add to that, that Dan outlined that as one of our investment areas, and we've really built out a what we think is an industry-leading payer relations team. And that team is in the field every day meeting with payers. During the first quarter, they had 47 visits with payers that what we have not met within the past. And so those people are getting out and building these relationships and talking about the benefits of BioScrip and redirection and it's making a difference.

And just, Jason. When I joined, there was not a payer team here. I mean, there was a couple of people that did this, but there was not, what I would describe as a payer team that's really ready to help with the transformation. And I think we're extremely well positioned to do that now.

Great. That's helpful. And then last one from me. Any concern about -- or impact that you're seeing from the tight clinician labor market and nurse wage inflation or wage inflation in general?

It's so interesting. That's a great question, Jason, and I fully understand it. Because we're seeing the tight labor market across the board. I mean, we're here in Denver and unemployment is, I think, below 2% now. So it's real. And I don't know if you've seen any Wall Street Journal articles talking about companies going into the teenager ranks now, I mean, GE is even doing this. So we understand that's a macro issue. The interesting thing is about our nursing population, is that 70%, 80% of them have what's called a certificate that gives them a special qualification to serve patients, I guess, the best way to describe it, to kind of to serve patients at home. They don't have to have this. But 70% to 80% elect to have this. So this is a really kind of unique subset of nurses that love to deliver care in the home, that love kind of the autonomy, that comes with that, they love the flexibility that comes with that. And we're starting to do some really cool stuff with them too that I think they really feel like they can be an active participant in this transformation. So it's -- yes, we'll have -- there will be some markets that we're challenged in. But again, I think we've got -- my view of it is, first of all, we have an amazing nursing team. And again, you look at this top box score of over 85%, which is just unbelievable. And secondly, we've got a nursing team that really loves this industry, loves what they get to do. And this is a very unique role in the overall nursing community. And when you find the right person here, and again, if you just look at they elected to get the certificate, there's a tremendous loyalty to the patients and there's a tremendous loyalty to this industry.

That's helpful. And so it sounds like it's not of concern that your operating expense could be pushed up by inflation in the near term?

I don't really see it. One of the neat things we've been able to do this year, Jason, is for the first time since 2009, we paid bonuses to the organization. And we also were able to distribute equity amongst a number of our team members that, historically, had not gotten that before. So there's other things we're doing that I would share with you that BioScrip historically hasn't done that have been very, very meaningful also to team members here. And I think we've got a -- as a result of what we went through last year in terms of turning this company around, I think we've got a level of engagement amongst our team that, I think, just continues to grow and improve.

Our next question comes from Mike Petusky of Barrington Research.

Steve, I may have missed this earlier. I've been under the impression that some level of bad debt expense would stay post 606. Is that not right? Or can you help a little bit as far as how to model that going forward?

Sure. So we completed our analysis in the first quarter. And based upon the ASC 606 standard, effectively all of our bad debt expense, with the exception of where you have payers that default from a credit perspective, which is de minimis and frankly, totally immaterial, all of it is reflected as a -- what's called a implicit price concession, per the accounting standard. And all of that gets reflected as a reduction to revenue. If we were to have a significant payer that would default due to financial purposes, that would be a bad debt expense. But most of our bad debt expense originates because of what is considered implicit price concessions due to authorizations or verification issues that we're working to lower, as Dan has talked about. And also on the patient side, since we don't -- maybe this will get a little too technical, Mike, but since we don't do credit checks on patients, the accounting standard requires that, that is also considered an implicit price concession, despite the fact that most patients, when they don't pay, they don't pay because they don't have the financial wherewithal. So it results in -- effectively all of the amounts that were previously reported as bad debt expense, getting reflected as a contra revenue account.

Okay. So it sounds like if you're modeling this, you're modeling that at 0 going forward, right? General?

That's correct.

Okay. All right. And then you compared kind of the cadence of how this year is likely to unfold to last year. And I guess I want to slightly press you guys on that. Last year's second quarter, you virtually doubled EBITDA from the first quarter last year. And obviously, you guys called out that some of this product shortage issue is still kind of hanging over a bit at least. I guess my question is, would you expect this year's second quarter to be north of the $10 million you guys reported a year ago, second quarter?

Mike, you're a sneaky guy right there.

I'm not one to be sneaky. Go ahead.

Here's what I would tell you, we're not going to give specific quarter-to-quarter guidance. But I would tell you is if you think about our first quarter and some of the things we outlined, several of those things we don't expect to repeat as we go into the second quarter. We're not having another national meeting. Although, as impressive and as exciting as that was for everybody, we're not going to do that every quarter. So that's going to drive OpEx savings compared to the first quarter. We're not going to -- knock on wood, we're not going to continue to see any of these product shortages that drive higher acquisition costs and higher delivery costs. So that's going to be a catalyst for us. And we expect revenue to be higher as we move forward, because our seasonally weak first quarter, weather was worse than expected as we talked about, far worse. And with our concentration in the Northeast.

We're percentage wise...

Disproportionately.

Disproportionately, thank you Dan. Disproportionately affected probably than many other companies. So we believe that, while we won't say the second quarter's going to be X, we believe the second quarter will continue to go upward as will the third quarter as will the fourth quarter.

Okay. So last -- I guess, last question different subject. Dan, you've called out a bunch of different things that you guys are excited about, investing in the sales team, revenue cycle management, preferred provider relationships, strengthening the relationship with payers, et cetera. I guess, what are the 2 or 3 things that you feel like, as you look out over the next couple 2, 3 years, hey, if we really execute on, in this area and this area and this area, this thing can really go. I mean, what are the 2 or 3 areas that?

No. It is 4. And they're almost all equivalent in terms of their value creation. It's sales force effectiveness; it's revenue cycle and bad debt, because we see opportunities to -- as we move stuff to the front; we're going to drive efficiencies there. We see opportunities to certainly drop our bad debt; payer relationships is a big one and it's a very important one, as you -- and as we've talked about, we've made a very concerted, discipline and strategic effort to make sure we're well positioned on that front. And then the fourth is procurement. And we're -- I just can't -- at some point, Mike, I can probably share with you some shape or form around our Vision 2020. I think it'll be important for investors to really understand just how granular this is, how specific this is, how much time we spent with the help of Ares working on this, that we feel like we know what the hell we're doing. And then moreover, there's another 12 or so initiatives that are not priority initiatives, but we think could be incrementally valuable as well. And but those are the big 4 and those are the 4 we're going to be talking about internally, externally. And at some point, Mike, we can probably roll out like just how specific this really is.

Our next question comes from Dana Hambly of Stephens.

This is Jacob Johnson on for Dana. Dan, just one big picture question. You've had some surprises since you joined BioScrip. Are you still, today, encountering things that need to be fixed? Or do you think you're just now at the point of enhancing the platform that you have built?

Yes. I think we're -- what I see is, we're really at a point where we're enhancing the platform. One of the terms -- I think I took it out, or I may have. But we're -- I think we're kind of at a -- I don't like using blocking and tackling stage because I think that seems really rudimentary. But I think there's a really component of that, that we just need to go out now and execute. Like we talked about, I'm not dealing with the Cures legislation this year, I'm not dealing with the refinancing this year, I'm not dealing with the exit of -- partial exit of United Healthcare contract. I'm not dealing with significant management changes and I'm not dealing with an integration. So Jake, when I look out, I mean, I really feel like at this stage, it's about execution around the things that are going to drive the greatest value for stakeholders. And I don't see anything getting in the way. I mean admittedly, there are things that occur in the marketplace like product shortages, but those are temporal in nature and I don't think they're going to last. But Jacob, I think we're at a point, and again, I look around the table here in this room and I just looked around our top 50 people. We had a leadership team meeting in -- here with General Sattler about leadership development and leadership. And we've really got this just rock solid, airtight leadership team now that is everybody's oars in the water. They've been equitized, they've been bonused, and we -- and again if I look at Harriet and Danny, who are our 2 most recent upgrades, they're absolutely best in class. And there are the kind of people, like you've already seen with Danny and some of the revenue cycle management that are going to accelerate things. The question is -- for me is like how do we continue to accelerate things across the board here and move things forward. And that's my -- because I feel like we talked about a period of unequal time because of the changes that are occurring. And we think we have such an amazing and unique opportunity here and how do we grasp that and drive that. And so I think our -- even I would share with you that some of our thinking has changed. We're like -- we were in a place where we had to survive. I consider last year was kind of as -- again, as I lay out all the things we had to do, I think any one of those could have been a death sentence for the previous management team. I'll just be very candid with you. And now we've kind of moved through those things and we're really forward-looking right now. And we've got -- with the talent that's on this leadership team now, we have a lot of firepower to throw down now on what we're trying to do.

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to Mr. Dan Greenleaf for closing remarks.

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

This concludes today's conference. You disconnect your lines at this time. Thank you for your participation.