沃博聯公司 (WBA) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your quarter one 2006 Option Care earnings conference call.

My name is Jean;

I will be your conference coordinator today.

At this time all lines are in a listen-only mode, and towards the end of the conference call we will be taking questions. (OPERATOR INSTRUCTIONS) At this time, I will turn the call over to your host, Mr. Raj Rai, Chief Executive Officer.

Sir, please proceed.

Thank you.

Good morning and thank you for joining our first-quarter 2006 earnings conference call.

Also participating on the call with me are Rick Smith, our President and Chief Operating Officer, and Paul Mastrapa, our Chief Financial Officer.

By now you should have a copy of the press release issued by the Company this morning.

If you have not received it, please call [Latikay Carillo] at 847-229-7731 and it will be faxed to you promptly.

Please be advised, in keeping with the SEC Reg FD guidelines, this call maybe accessed by webcast through Option Care's website at www.optioncare.com.

Any remarks that Option Care may make about future expectations, plans, and prospects for Option Care constitute forward-looking statements for the purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements.

Such forward-looking statements involve important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly such results may differ from those expressed in any forward-looking statement made by us on our behalf.

These risks and uncertainties and other important factors are discussed in Option Care's annual report on Form 10-K for the year ended December 31, 2005, which is on file with the SEC.

Option Care anticipates that subsequent events and developments may cause its estimates to change, or it may elect to update these forward-looking statements at some point in the future.

Option Care specifically disclaims any obligations to do so.

I will now give the highlights for the quarter.

Rick and Paul will give updates on operations and key financial highlights later in the call.

As announced in the press release issued this morning, we reported $155 million in revenue for the first quarter or 29% growth from the same quarter in 2005.

Consistent with our fourth-quarter performance of last year, we saw strong growth across our various therapy lines.

Synagis sales in particular grew over 70% in the first quarter.

We're very excited about our growth prospects as we position our Company to become one of the leading healthcare providers in the country.

We achieved record revenues for the first quarter, yet we did not realize the full potential of growth opportunities specifically for home infusion pharmacy services.

We have identified two major factors that caused our sales to fall below our expectations.

First, the distraction caused by the implementation of Part D; and second, some of our major hospital (indiscernible) sources experienced slower hospital admissions.

We had addressed the Part D issues pertaining to our business in our last conference call.

However, on a positive note, we did see these issues resolve towards the end of the quarter and remain optimistic on the future growth prospects, as we continue to outpace the industry growth rates.

A big part of the growth has been because of an outcome of our growth strategy.

We have been extremely busy since the beginning of 2005.

Since that time we have acquired 10 businesses, completed two hospital joint ventures, and launched four startups.

We're proud of our accomplishments.

We remain excited with the acquisition pipeline and are evaluating additional prospects.

I'm also excited to report that we're seeing an increased interest by both managed care organizations and biotech manufacturers to embrace a pure-play specialty infusion model that is a combination of our [centralized] high-volume specialty pharmacy distribution capabilities, coupled with the local footprint and the patient reach.

Last year there were a lot of concerns with the increased competition in specialty pharmacy space, with consolidations and entrance of bigger players like the PBMs with scale and size.

On the contrary, we feel this has given us an edge, as we are now being seen as a viable option with independence and a unique distribution platform.

For the remainder of this year, our focus will be to gain new managed care contracts for specialty pharmacy services; grow our startups and get to profitability sometime in the second half of this year; look for strategic partnerships with new hospital systems; and finally, continue to make accretive acquisitions.

In addition to growth initiatives, we plan to look for cost savings and efficiencies.

Before I turn the call to Rick, I would like to reaffirm our previously issued earnings guidance of $0.65 to $0.71 a share with the impact of stock options.

Additionally, I'm also pleased to announce our Board of Directors has approved a $0.02 a share cash dividend for the second quarter of this year.

I will now turn the call over to Rick for his comments.

Rick?

Thanks, Raj.

Good morning.

This quarter continued to produce the revenue growth we have targeted.

As Raj mentioned, the Part D disruption and lighter hospital admissions had more impact on the normal infusion seasonality softness we see during the first two months of each new year.

Our local specialty business, however, continued to show growth levels higher than we initially projected.

We expect that the infusion revenue will continue to grow throughout the year given our extensive market and contract relationships.

This has been the result of our efforts during 2005, as we put a significant amount of work into deepening existing relationships and contracting new ones.

We expanded our national agreements with both United and Aetna, and just recently moved our Humana infusion relationship from one of multiple local contracts into one with more national scope.

We're seeing payers moving to try to reduce the panel of alternate site providers in their networks.

Giving our national network of locations, we have been told that we should see more opportunity for more referrals as the payers accomplish the steps to their plan.

These current and future opportunities are the direct result of the strategic initiatives of our acquisitions, startups, and hospital joint ventures, coupled with our clinical programs and clinical resources.

This combination has been the key to our success in new and existing markets.

We have also accomplished a significant amount of work on targeting new specialty pharmacy contracts.

We have been successful creating opportunities with our full-service continuum.

We have garnered a significant amount of attention with our strategic service capabilities model that includes high-volume, central specialty pharmacy with care management programs, and home infusion and high-tech nursing resources in now 56 company-owned locations, including over 43 ambulatory treatment centers that offer alternate sites of access and administration.

In addition, as a result of the changes occurring in the marketplace, we have been invited into a number of contracting opportunities with managed care plans, where we believe we will see additional sources of specialty pharmacy growth.

Our pure-play model plus our independence has opened up previously closed doors to us.

We persevered through the first quarter of the rollout of Medicare Part D. We did a lot of work to get ahead of this issue in 2005.

We had anticipated disruption and sought to control the impact by internal steps we had put in place.

We completed an education and communication program in December with dual-eligible patients that were on service with us.

We educated our offices on all aspects of the Plan including the PDP and MAPD relationships that had been established for the Company.

We installed a central authorization process to ensure that any referral would receive effective authorization to ensure we would be able to get paid for all of our services.

We witnessed a significant amount of on-hold time with the PDPs as they tried to manage the process from their end.

We saw a lot of conclusion in the marketplace as to Part [B] versus Part D coverage, hospital versus doctors office, and on formulary or not on formulary.

Due to the confusion and incomplete formularies for infusion drugs, a number of referrals were sent to the hospital or long-term care facility.

We have seen the marketplace settle down since the first 75 days of the program's launch.

There continue to be adjustments sought by the industry associations to broaden coverage for effective access and expanded reimbursement for services.

We have also seen CMS try to accomplish coverage by allowing state Medicaid programs to bundle the drugs, supplies, and service to provide access for home infusion.

We believe this will continue to be cloudy for the foreseeable future as more education from the industry, the payers, and CMS will be needed.

Long-term we believe the opportunities will be there for us and the industry, and we will continue to work for those opportunities to be successful at this program.

Finally, we have also spent a substantial amount of time and effort with various manufacturers, educating them on using our infusion capabilities and ambulatory treatment centers as strategic assets and for helping to provide access to patients in a more cost-effective setting for both infusible and injectable technologies.

With 40% of the drug development pipeline consisting of infused specialty medications, we believe we have the targeted solutions designed specifically for the manufacturing community.

I will now turn call over to Paul for the financial highlights.

Thanks, Rick, and good morning.

I am pleased with our record revenue for the first quarter of $155 million, a 29% increase from the $121 million reported in the first quarter of 2005.

This growth continues to be driven by our strong organic growth of 15% during the first quarter, as well as the incremental sales resulting from our acquisition activities.

We remain excited with our future organic growth opportunity as well as our acquisition pipeline as we continue to build Option Care into an industry leader.

Net income from continuing operations increased 10% for the first quarter to $5.1 million compared to $4.7 million for the first quarter of 2005.

Diluted earnings per share from continuing operations were $0.15 for the quarter ended March 31, 2006, compared to $0.14 for the comparable period last year.

As previously discussed, the Company is exploring strategic alternatives for its home health agency in Portland, Oregon, including the possible sale of this operation.

Accordingly these assets are classified as held for sale and the operating results for the first quarter are included in the loss on discontinued operations, which totaled $327,000 net of tax or $0.01 per diluted share for the first quarter.

Our intentions are to sell these operations during the remainder of this year.

I would also like to highlight that effective January 1, 2006, the Company adopted FAS 123(R) covering the expensing of stock options.

We've chosen to utilize the modified retrospective method.

Accordingly the results for prior periods have been restated to reflect the impact of 123(R).

Consistent with the Company's dividend policy the Board of Directors declared a dividend of $0.02 per share for the first quarter of 2006.

The dividend is payable on June 5, 2006, to stockholders of record as of May 22, 2006.

Our organic growth of 15% for the first quarter included growth of 18% for specialty pharmacy services and 8% for home infusion.

Our growth continues to be generated from a wide range of therapies in our portfolio, with particularly strong growth for Synagis, which represented 17% of total revenue, or $27 million during Q1.

We also continued to see solid gains in hemophilia, IVIG, rheumatoid arthritis-related therapies, and asthma, to name a few.

Home infusion increased 8% organically from the first quarter last year.

As Rick discussed, the home infusion revenue was negatively impacted by the disruption caused by CMS's implementation problems of the Medicare Part D benefit, as well as we saw overall slower hospital admissions.

Other revenue declined by $900,000.

This decline is primarily related to the settlement gain recorded in the first quarter of 2005 resulting from the acquisition of our St. Cloud, Minnesota, franchise.

Overall, gross profit for the first quarter declined to 26.3% compared to 27.5% for the prior-year quarter.

This decline is primarily due to the reduction in other revenue, due to the franchise settlement gain recorded in last year's quarter, which has no associated cost of goods.

Within our service lines, infusion services gross profit increased to 44.6% for the first quarter compared to 43.9% for the prior year, primarily due to a favorable therapy mix.

Specialty pharmacy services gross profit declined to 13.8% for the first quarter compared to 15.4% for the quarter ended March 31 of '05.

This decline in specialty gross profit is primarily due to the combination of reduced margins for IVIG and a higher mix of Synagis, which has a lower margin than our composite margin.

In the first quarter, IVIG margins were stable from the fourth quarter of 2005, and I expect them to remain at these levels for the balance of 2006.

SG&A expenses declined slightly to 18.4% of revenues compared to 18.6% for the prior-year quarter.

This decline was in spite of the startup costs associated with the launch of four new facilities late last year, which impacted earnings per share by $0.01 for the first quarter.

I expect these locations to breakeven during the second half of this year and be accretive to earnings for 2007.

The SG&A was also negatively impacted by certain expenses related to 2005 activity.

However, these expenses were offset by a reversal of an over-funding of a tax provision identified during our 2005 year-end.

For the remainder of 2006 I expected the tax provision to be approximately 38%.

Our balance sheet remains very strong.

We invested $21 million in acquisitions during the first quarter and ended the quarter with $27 million of cash and short-term investments.

We have also secured a $35 million revolving credit agreement led by LaSalle Bank.

We have the ability to expand this facility to $100 million if required.

I'm comfortable that our cash on hand and additional borrowing capacity will fund our future growth initiatives.

Operating cash flow for the quarter was $2 million, and Days Sales Outstanding remain stable at 59 days from December 31 of '05.

Finally, as we move into the second quarter, we expect earnings to remain consistent with the first quarter, despite the decline in overall revenues as the Synagis season comes to an end.

We also affirm our previously issued guidance of 580 to $610 million in revenues and $0.65 to $0.71 per diluted share for the full year of 2006.

These estimates include the impact of FAS 123(R) regarding share-based compensation expense.

Now I would like to ask the operator to open the call questions.

(OPERATOR INSTRUCTIONS) David McDonald with SunTrust.

Rick, I was wondering if you could expand a little bit.

You talked about independence and expanded relationships with some of the managed care plans.

Is it because these plans have their own PBMs?

Is it -- ?

Kind of walk us through some of that stuff.

Then can you also talk about some of the programs you have on the infusion side and how those are doing?

Also just, Raj, you had touched on that you had seen some of the sluggishness that you saw in the first quarter reverse itself.

I was wondering if you could just give us a little more detail there.

I think on the specialty pharmacy side, yes, a number of plans that have moved to have their own PBMs or are moving toward PBMs without a specialty pharmacy component, we are seeing opportunities to be invited in.

We are also seeing the advantage of our local infusion presence in our ambulatory treatment center capability.

So really all three parts of our strategic model have been received with great acceptance and interest from a number of managed care plans.

I think our approach is such that we do offer a customized solution, making sure that what we propose is something consistent with the strategic goals of the plans itself.

We have also seen as a result of some of the consolidation activity where the consolidated entity used to be two on a panel, now form one, providing opportunities for us to go and essentially take place on a panel.

So a lot of activity that we feel hopeful we can bring to some good revenue growth later in the year.

Rick, is that similar to what you're seeing with the manufacturers?

There are just kind of less bodies left, where they're looking for at least a couple of providers to distribute their product?

In that regard I think from the manufacturer perspective, we will believe our footprint and our inventory treatment capability provides a site of access.

I think we have been in this business for over 30 years taking different technologies home or into an alternate site, quite clinically safe, in a clinically safe manner.

I think the education we have been doing with the manufacturing community for both injectables and infused technologies has made it deeper into the organizations to try to work with us to provide access to their drugs.

And then -- go ahead, Raj.

I'm sorry.

Your question on the softness in the infusion sales.

Typically, we see a little bit of drop-off at the beginning of the year, after a strong surge in the fourth quarter of any given year.

We do see a little bit of dip.

But I think that got further accentuated by the Part D implementation.

But we feel that I think we have recovered from that shock and the sales are -- the (indiscernible) are coming back up again.

Are the April trends kind of consistent with what you saw last year or what you were expecting to see?

Yes.

Then, Raj, tell me if I am thinking about the Part D thing incorrectly.

Is it fair to think that you guys would actually longer-term get a little bit of a benefit out of Medicare Part D because of some of your managed care relationships, where maybe you pick up some Medicare Advantage lives that are under a managed care relationship?

Is that fair way to think about it?

Yes, I would think that from a commercial standpoint I think there is definitely a bigger opportunity.

Okay.

Then just one housekeeping question, Paul.

Could you tell me what the after-tax option expense was in the quarter?

It was $0.01 a share.

Thank you very much.

Ricky Goldwasser, UBS.

A couple of questions.

The first one on IVIG.

Do you expect -- I think in the press release you said that you expect IVIG to be stable for the remainder of the year.

My question here, is this for the existing book of business?

Or also for new business that you could potentially bring in later in the year as you grow your managed care relationships?

So I guess the question here is, can you grow the IVIG business profitably or at the same profitability?

Second question is regarding the acquisitions that you’re evaluating and intend to complete.

Will these acquisitions have any impact on '06 and the second half of '06 numbers?

If so, are they included in your guidance or not?

Thank you.

This is Paul.

Regarding IVIG, as we have talked about, we have secured allocation for what we expect to utilize for 2006 per our initial guidance.

We have seen the spot market tighten over the last few months.

However, due to our contract relationship we feel very comfortable with our (technical difficulty) products at stable pricing.

To the extent that we do grow that volume, our objective was first to get incremental allocation from our existing relationships, of which we have been historically successful getting that additional allocation.

But the way I would view the worst-case is of we increase our needs due to our acquisition activity, number one, we won't take volume that has a negative gross margin.

So if we have to access product on the spot market, the incremental revenue growth may be at a lower gross margin until we can get the incremental allocation.

So I would not necessarily see any downside related to the IVIG.

I think, Ricky, to your question -- is IVIG still a profitable business?

The answer is yes, it is.

As far as the acquisition that you're evaluating?

Are you talking about the ones we have completed or the ones that we are -- continue to evaluate?

The ones that you are continuing to evaluate.

No, there's really no additional acquisitions that are in our guidance.

Consistent with what we have announced in the first quarter, and our guidance is consistent at $0.65 to $0.71.

Okay.

Are the acquisitions that you're -- because I think usually in the past, acquisitions that you have made, it took kind of about a quarter or two for them to contribute to the bottom line.

So are the acquisitions that you're looking at -- are different than that?

Is that again, if you are going announce an acquisition a couple of months from now, will that have more of an impact in 1Q '07?

You know, I think generally, we take about a quarter or more, depending on how we structure the transaction, for them to get accretive.

So.

On the second, as we continue to do acquisitions, those effects will be more muted for the overall year; and obviously it would be more accretive as we have those acquisitions online for the full year of 2007.

Okay, thank you.

Arthur Henderson of Jefferies & Company.

Just following off some of Ricky's questions.

The IVIG, remind me again; how much of your total revenue comes from IVIG?

Sure, IVIG for the first quarter was about 6% of total revenues.

6% of total revenue?

Okay.

Then talking about the spot market as we think on ahead to '07, which I know you haven't given any guidance out for that, but you indicate the spot market has tightened.

Now is that coming from both the managed care side and from the manufacturer side?

I think to clarify, where in 2005 earlier in the year and as we continue to grow, because we really haven't turned down any patients as a result of lack of product, we had access to the spot market.

However since late last year we have essentially entered into longer-term contracts with all the manufacturers, Baxter, Talecris and [ActivPharma] to ensure a level of supply.

So our -- at any point in time we have enough inventory on hand to cover our needs, our patient needs, as well as provide for some growth.

We have also been able to leverage our relationships on the acquisitions that we have made recently, where there had been IVIG patients on service, to where there has not been any disruption in that service as well.

So I think from where we stand, we have been covered with our contracted sources, but I think we did see manufacturers move on the spot market sources to try to tighten those down.

But we actually have existing relationships where our allocation has been consistent each month.

So do you, Rick, do you throughout the year work on the -- renegotiate those contracts and lock in more supplies as you move throughout the year, or is this a onetime event?

No, we do.

We basically have gone from essentially one contract with limited allocation based on our level of activity from over two years ago to where we have grown it consistently and essentially have been working our relationships with the manufacturers to ensure that we have adequate supplies.

So it's essentially a full-time job for our purchasing area to make sure that we are always looking down the road to have available supply and [other] available sources of supply.

So we are -- it is something that has been constant, constant management.

Okay, okay.

Just to echo, Art, something that Rick mentioned, I think some of the tightening of the supplies may be just due to the manufacturers' really doing a better job of controlling the distribution of the product.

That has had a positive effect on us to the extent that we have been able to get increased allocations.

Okay, fair enough.

Now real quick on the margins, obviously saw a nice spike in your home infusion margins this quarter due to the favorable therapy mix.

We have not seen that before.

I assume that is going to come back down to sort of historic levels.

That is my expectation.

Okay, so sort of 43.5%.

Right.

Okay.

On the specialty pharmacy side, what are your expectations for the margin, what the margin is going to look like on a full-year basis for that?

On a full-year basis, it really depends on how Synagis continues to grow for us.

Obviously that's been a big growth driver for us in the first quarter.

That being a low margin product, it ends up pushing down our overall composite margin.

Now we will be anniversarying in of the IVIG issue to a large extent during the second quarter.

We saw the big drop early in the year 2005.

We had a lower level of margin compression in the back half of 2005; but it was fairly stable.

So it is really going to depend on the mix.

From a quarter perspective, we do see, if Synagis falls off, we see the margin spike up in the second quarter, and in the third quarter, and then come back down.

But our mix of more of the local specialty business with our acquisition activity will also continue to push it up at that higher-margin part of our specialty business.

So I can give more clarity on that as we go throughout year.

So is it safe to just go ahead and assume for our models that we are going to kind of be a year-over-year decline slightly?

I think, Raj, you may have mentioned that previously, that we should expect to see this kind of erode a little bit.

To the extent we are in Synagis season, we will see that just because of the higher shift of Synagis in our business.

But outside of the Synagis season I think actually our margin will be pretty strong.

Okay.

Now on the AR, this will be my last question, I saw that obviously spike up.

I assume that is because of Trinity and Chartwell.

The absolute AR balance on the balance sheet jumped up considerably.

Well, the biggest driver there is again the incremental Synagis sales.

Total sales grew by $10 million in the first quarter.

The acquisitions came on late in the quarter.

So there is not a substantial amount of acquisition-related AR that is on our books.

The biggest driver of our -- is our working capital related to Synagis.

Okay, so that ought to be coming back down to sort of normal levels, and the cash flow ought to improve a little bit.

That's correct.

We had $2 million of positive operating cash flow in the quarter, and that is with the large increase in Synagis that we saw.

That volume really trails off now at the end of April.

We see that working capital balance work itself out in the second quarter, and then some in the third quarter.

Then one last one, sorry.

The tax rate that you had for the first quarter was 30 -- did you say 31, 32%?

The tax rate actually ended up being about 33%.

This was -- I'd characterize as sort of there's offsetting year-end adjustments here we had.

We realized through some loss carryforwards that we had overprovided in '05.

On the other hand, there were some SG&A expenses that came through that really offset that benefit.

So there is really a neutral from a bottom-line perspective.

I would expect 38% moving forward.

Now would that -- did you have that original tax rate forecasted in your guidance originally?

Initially we had 37% forecasted in; that is with limited additional acquisition activity.

Our tax rate will tweak up as we do lower our cash balance just due to some tax exemption investments that we utilize.

Okay, thank you.

John Ransom of Raymond James and Associates.

Some of my competitors have hit on some of the good questions.

I wanted to delve a little bit more into the managed care that you talked about.

Recalling your Blue Cross HMO deal, which has been a big success for you, you guys signed a bunch of PPO contracts in '01, '02.

I guess we never really heard a lot about the contribution from those kind of hunting license type contracts.

Is there anything different about this cycle of contracts that makes you feel more positive about your idea to take share?

I think those earlier contracts were programs that some plans tried to hope -- to replicate our program in Florida.

I think the environment is different than that.

We have seen the plans try to move to control all of pharmacy whether it is -- all of specialty pharmacy, oral, injectable, or infusion.

I think that our platform in the programs that we have provided or offered we think can help them do that successfully.

So there is never any guarantees.

We still need to continue to do more work in terms of the opportunities that are before us.

But we believe that this could be a definite positive [system] environment.

So is it the contract that is different or the environment that is different, in your opinion?

I think the environment is different than it was prior.

Okay.

John, the competitive landscape has changed, because of consolidations.

I think people always look for, as Rick had mentioned before, an alternative.

So that is definitely helping us, being that viable option.

I think just we were not getting certain contracts before because of certain lockout situations with the PBMs.

Those things are looking up as well.

Okay.

Then secondly, I guess we were a little surprised at your strong Synagis sales just given some of the manufacturer-announced issues in the quarter with their sales volumes.

So obviously you're taking some share there.

What do you think is going on to explain that?

I think some of the issues in the marketplace were affecting it.

I think that we have always had a strong program at Synagis with the opportunity to do a high-touch model in different markets that have been successful for us, or also do a central distribution model with a little bit lower touch.

So I think the combination of our -- again our platform and our business model enables us to take advantage of local market conditions where we can take share.

We also I think saw some of our competitors stumble and not invest in the program like we have.

So I think those factors contributed to our successful results.

John, the other thing is that we provide Synagis two ways.

One which is sort of the specialty model, the physician, the OV model; and the other one is the homecare model, where either we go to the patient's home or bring the patient to our ambulatory infusion suite to provide those injections.

So I think we have two avenues to grow, and I think they are working pretty well.

Additionally, obviously, what Rick was saying, some of the competitors have stumbled.

The homecare network with Synagis has also consolidated.

So a [lot] of the smaller players have not been providing that drug as they used to in the past, so we are gaining share because of all these factors.

Okay, finally, just talk about your model a little bit.

Ex IVIG and the Synagis mix change, were your specialty margins stable?

Because they were certainly a little bit below what we were looking for.

Can it all be explained just by IVIG and Synagis mix?

John, this is Paul.

The margins ex IVIG and Synagis were stable.

So really it was more of just an overall mix issue (multiple speakers) the Synagis sales.

Then IVIG there was still some residual margin compression that we saw in the year-over-year comparisons.

John, Synagis as a percentage of total sales in the first quarter this year was about 17% of the total revenues, as compared to 2005 it was 13%.

So.

Okay, so 17 versus 13?

Raj, are you seeing any -- I mean are payor contracts still AWP based for the most part?

Yes.

So we're not seeing cost-plus pricing for some of the specialty stuff?

You know, that is something that I think will be evaluated.

But at this point, it is AWP based.

Because I know that was something that you worried about three or four years ago, that that might change.

So it has not come to pass?

No.

Okay, thanks a lot.

[David Jackson] of [TKI Capital].

I was wondering, I have just a few questions about your financial management policies.

Is your revolver secured?

Yes, the revolver is secured by in essence the assets of the Company.

Okay, were there any significant financial covenants?

The covenants I'd characterize as a standard for a facility of this size.

Will they be disclosed then in the next filing, the Q?

They will be.

The entire agreement will be filed as an attachment.

Okay, great.

Do you anticipate using that?

It depends on our growth initiative as I have said.

We have got about $27 million of cash on hand at the end of the quarter.

Depending on the opportunities that we see, outpacing our organic cash flow, and we think it is a good investment for the Company, we may access the facility.

So it is there, depending on what kind of opportunities present themselves.

So would there be a targeted sort of time maybe?

Do you see using it before the end of the year, or by the end of the year?

Or could you provide some color on that?

Not at this time.

Okay.

Also, is your dividend policy on your sort of management's radar screen as far as can you see continuing that, while you may have to borrow and grow?

Right now, we are not looking to borrow money, so that way we are pretty consistent with our dividend policy.

We feel, the Board feels, the management feels that obviously we have a great opportunity to grow and reward our shareholders with the dividend.

So.

The dividend is fairly small, a few cents a share.

I see it is small.

But what about if you end up using the revolver?

I know you said something about it is expandable to $100 million.

Would that be -- at that point in time do you see still continuing the dividend?

I think it is premature to really go to that.

But a Board level decision as we look at the investment opportunities and the organic cash flow.

There's positives of having a dividend; it does open up the Company to additional shareholders who only look for dividend-paying stocks.

So due to the existing level of the dividend, I would not see it as at all a significant issue for the Company to address, even if we do get into a borrowing position.

Okay.

Does the revolver have any restrictions on dividends?

No.

Okay, thanks.

Gregg Haddad of First Analysis.

Given the more rapid growth rate that you saw in the specialty segment, do you see any change in your same store growth rates there versus your prior expectations?

I think it came in stronger, which is good, than we anticipated.

But I think it is also the result of the managed care contracting work that we have done and the clinical programs in those areas that we have been selling as well.

Hemophilia was strong for us and will continue to be so.

The IVIG sales again were strong.

We are also seeing the RA infusion increase as well.

So I think that again, our sites of access and our model is providing some good opportunities on the specialty side.

So would you look for an organic growth rate going back up maybe into the midteens on a sustained basis?

Again in the first quarter, the large growth rate was attributable to Synagis to a large extent due to the strong growth of that product.

So with that product coming off in Q2 and Q3, I would expect our overall growth rate, organic growth rate for the quarter to decline and then potentially increase as we get to the fourth quarter, as the Synagis season kicks in.

So I think for the year we will be higher-than-expected; but I think you will see it move around on a quarter-to-quarter basis.

Okay, thanks.

Can you provide any perspective on what gets you from the lower end to the upper end of your guidance range?

I think from the lower end to the upper end would be faster impact of acquisitions that we have completed or that we do bring on from this day forward.

Better-than-expected organic growth rates; and towards the end of the year stronger -- continued very strong growth in Synagis, which we have our expectations dialed down in the fourth quarter.

So if that growth continues to be very strong, that can continue to push us up towards the higher end of that range.

Okay, great.

Then shifting gears a little bit with respect to the Accounts Receivable, on your quarter-end reserve balance, I know at the end of December you were at about $6 million.

Was that also the level at the end of the March quarter, or did it rise from that number?

No.

We were at $7.4 million (multiple speakers) and that's again due to how we provision with a large increase of revenues.

We had a lower quarter in terms of charge-offs, so provision moved up.

Right, good.

Final question, on the FAS 123 expense, on your restatement.

It looks like your expense was about $950,000, which is substantially higher than what was disclosed in your footnotes from a year ago.

Can you provide any perspective on that?

Sure, we have -- as 123(R) has been bantered around over the last few years I think we have been -- and I think consistent with many other companies that have been ratcheting back the level of options that the company has granted.

So as you look back over the last few years you will see the overall expense rate of options decline from, again, just due to historical grant levels versus more recent grant levels and as those options begin to trail off.

So in the first quarter last year, we were still seeing some of those options from the previous periods that were still impacting earnings in those quarters.

So I expect the number to be about $0.06, I believe, for 2005 as we get through the year on a year-over-year comparison.

We will probably be about a penny better at least is my current projection in '06.

Okay, thanks a lot.

Jeff Allen of Silvercrest Asset Management.

Quick clarification question on your comment about the confusion around Medicare Part D impacting home infusion volumes.

I had thought that infusion was not covered by Medicare Part D. So am I incorrect about that?

Could you just help me sort that out?

There are infusion drugs as part of the formulary.

It is a limited formulary, and a lot of the work and effort and confusion actually resulted in trying to get coverage or getting exceptions to the formulary to get certain infusion drugs on and covered.

So while it is a prescription benefit with home infusion and all of its services required for effective administration of the service, the patient is not necessarily covered.

Not covered at all, actually.

The drugs still are covered, but the formula that was provided was not as expansive as the industry formulary that exists today.

So the services are not covered, some of the drugs are covered; so just sort of a piecemeal reimbursement?

You know, Jeff, Medicare Part B has always had some coverage for infusion drugs that had sort of a stricter requirement in terms of how it is infused, using a device.

With the new Medicare Part D, the issue was also that there were dual eligibles that were Medicaid Medicare patients.

They were now being converted straight to Part D, and that is where we saw a lot of disruptions, because the patient X was on a drug, and that drug, as Rick was mentioning, was not on the formulary.

So it took a while to get that drug covered.

So we started saw the disruption there.

The other issue was around eligibility.

So those dual Medicaid Medicare patients, we could not or the PDPs could not see them as being eligible for those services.

So that is where I think the big disruption came in early on.

Okay, thank you.

We have no questions at this time.

I will turn the call back over to the presenters for closing remarks.

I would like to again thank everybody for joining our call, and we look forward to our next conference call.

Thank you again.

Ladies and gentlemen, thank you for joining us on the call.

You may now disconnect your phone lines at this time.