Good morning. My name is Heidi, and I will be your conference operator today. At this time, I would like to welcome everyone to the BioScrip's Third Quarter Earnings Results Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Kathryn Stalmack, you may begin your conference.

Good morning, and thank you for joining us today. My name is Kathryn Stalmack, Senior Vice President & General Counsel at BioScrip. By now, you should have received a copy of our press release issued yesterday. If you've not received it, you may access it through the Investor Relations section of our website. Dan Greenleaf, President and Chief Executive Officer; and Jeff Kreger, Senior Vice President, Chief Financial Officer and Treasurer, will host this morning's call. The call may be accessed through our website at bioscrip.com. A replay will be available shortly after the call and will remain available for a period of two weeks. Interested parties can access the replay by dialing 855-859-2056 in the US, and entering access code 1061955. An audio webcast will also be available for 60 days following the call in the Investor Relations section of the BioScrip website at www.bioscrip.com. Before we get started here today, I'd like to remind everyone that many of 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 could be no assurance that these 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 on information available to BioScrip today, and the company assumes no obligation to update the statements as circumstances change. During this presentation, we will refer to adjusted EBITDA and non-GAAP financial measure, a reconciliation to the most comparable GAAP financial measure is contained in our press release issued yesterday afternoon, which can be obtained from the Investor Relations section of our website at www.bioscrip.com. And now, I'm happy to turn the call over to Dan Greenleaf. Dan?

Yeah. Good morning, everyone and thank you for joining us on the call today. I just want to get a couple of things out of the way before we get started today and one of those items is clearly the organization took its eye of the ball in the third quarter and those that are involved are no longer part of the – are part of the organization in any shape or form. I also want to remind people, and I'll remind people later on throughout my presentation, that you know I've inherited challenging business situations before and this is not the first time. I've faced down situations like we're currently experience at places like Coram, Apria and Home Solutions where we had organizations that had very good bones and we're in a very good space and we're just in a place that they needed to be left. And so I just want to point that out, because if we think about any of those organizations they've all come out the other side I think in a very healthy and in a very fruitful position. And the last thing I also want to point out to those of you who are part of this call today. I have a personal – a significant personal stake in this organization and for those of you who are investors on the call, our interests are aligned and the success of the stock and the success of the company and my success are intertwined. And again, as I stated, the organization did take its eye off the ball and the folks that did this are no longer part of the organization and I'm very confident about the future of this organization and frankly I have a history of taking difficult situations and turning them…

Thank you, Dan and good morning, everyone. For the third quarter, revenue from continuing operations was $224.5 million representing a decrease of $22.7 million or 9.2% from the year ago same quarter. As we mentioned last quarter, we expected a decline in revenue due to our planned shift in revenue mix to a greater percentage of core revenue business and less low margin chronic business. This revenue mix shift is a key component in our overall strategic plan. Our revenue mix is currently 65% core, 35% other chronic, representing a 500 basis point improvement on a year-over-year and sequential quarter basis. For the quarter, we reported a net loss from continuing operations of $11.1 million or a $0.12 loss per diluted share, as compared to a net loss of $24.5 million or $0.39 loss per diluted share in the year-ago third quarter 2015. Gross profit for the quarter was $62.6 million or 27.9% of revenues, representing a 150 basis point improvement over the year ago 2015 quarter due to the planned shift in our revenue mix to a higher proportion of core business. Total consolidated adjusted EBITDA from continuing operations for the third quarter of 2016 was – while disappointing $3.5 million, representing a year-over-year decrease in adjusted EBITDA of $2.5 million. This year-over-year decrease in adjusted EBITDA was the result – resulted from lower than expected core revenue, combined with the higher than expected year-over-year operating expenses, principally in the area of labor. Interest expense for the third quarter of 2016 was $9.3 million, down $175,000 from the $9.5 million than the year ago third quarter due to smaller average interim borrowings outstanding on the line of credit, the revolver, during the quarter on a comparative year-over-year basis. Our line of credit as of September 30, 2016 has an…

Certainly. Your first question comes from the line of Bill Bonello from Craig-Hallum. Please go ahead. Your line is open.

Hey. Good morning, guys. Just a handful of questions here. First, just to get a bit more comfortable on the liquidity, Jeff, I just want to make sure, I understand your commentary on the revolver, are you saying that the liquidity has fallen since the end of the quarter and now it would stand at about $29 million? Is that how I should interpret that comment?

Bill, that is exactly correct. We have normal working capital swings as our payroll cycles in, as AP (19:45) is paid and there was a $5 million swing over the last 40 days between year end and today's call.

Okay. And of the $8.3 million, just trying to see what the quarter sort of looked like on an adjusted basis, of the $8.3 million of cash that was used for acquisition and restructuring, how much of that was actually in Q3 versus previous quarters?

A little less than half of that was actually cash expense during the third quarter.

Okay. And what's your thought in terms of cash burn for Q4 and the first half of next year?

Yeah. So Q4 will be finishing off several of the severances, which are obviously cash exposure for the company, but will significantly help our 2017 results both P&L and cash flow wise. I'd tell you as we look out for 2017, cash from operations will – cash flow from operations, we projected breakeven Q1 and then positive Q2 through Q4 for a full year 2017, cash flow from operations are positive. We then project free cash flow after CapEx which typically with the Home Solutions acquisition would be $10 million maybe $11 million, so free cash flow after CapEx would likely be negative single digits, but negative in Q1 and then positive in Q2 through Q4 resulting in some positivity, single digit of free cash flow positivity at the end of the year.

Okay. And is that before or after additional – do you have additional principal payments you have to make over the course of the year?

So when I say free cash flow, I'm intending that before debt service, our debt service is 3.13% per quarter, which means it's 12.5% in the year, and so that is before debt service. With debt service, we should be right above breakeven for the full year 2017.

Okay.

Bottom line cash flow.

Okay. Okay. That's very helpful. And I'm sorry, can you just repeat? What did you say for Q4, I didn't quite get what you said that you thought the cash burn would be in Q4?

Yeah. So, Q4 cash burn, we will definitely be negative, again, burdened with the – you asked me on the $8.3 million of integration and transaction-related cash flow, how much of that was in Q3, well, on our P&L, well, there's more and so that's going to come through in cash in Q4. Therefore, Q4 cash flow from operations will be negative and will turn to positive second quarter of 2017.

Okay. So, you don't anticipate that you're going to have to raise equity, but I mean, you have a – are you saying, you have enough liquidity with the current line of credit to get you through to that sort of the second quarter when you start to get to breakeven or is there – is there something you're going to have to do to shore things up?

Yeah. So, Bill, liquidity is very tight and we're taking it very seriously. We manage our cash daily. However, we do believe we have the capacity on our current revolver to allow the company to operate on its operational and its strategies into the future. A large portion of that is going to be the head count reductions, many of which we've already enacted that we talked about, Dan touched on, and we'll spend more time on during the Q&A sessions, as well as other operating strategies that we're employing right now, we've already put in-place. So, that cost savings is a large piece of ensuring that we have adequate liquidity.

Sure. Thanks. And if I can, if you'll indulge me, I can ask. One additional big picture question for Dan and I'll hop back in the queue. But one of the questions that we're getting over and over is, help us to get comfortable that the issues here truly are operational and not structural that this isn't just a bad business, and I don't mean the infusion business, but this particular set of assets. Can you sort of speak to that, Dan, the commonality between this set of assets, and what you had at Home Solutions, and what you had at Coram, and what it is you see that makes you believe you can achieve similar levels of margin, and why it's not a structural problem?

Yeah. I don't think it's a structural problem, Bill, because the organization is underachieved and underperformed. And, it's hard for me to say, the organization has structural issues, when it never ever had its drive (24:47). And I frankly, Bill, this looks a lot like Coram. If you were to look at Coram, when I originally joined, it was doing about $500 million in revenue, and about $5 million of EBITDA. And I think many people after Apria bought that business thought it was a – if you read the stock analysts' report, they thought it was a bad idea. And so, and I look at that, and I look at this, and I look at the bones of both of these companies, I look at an organization that hasn't had I think the level of focus on core revenue that I believe it needs to and we all know that profitable growth leads to higher gross product margins and again we got some regions Bill, like the central region, that has 44% – does about 85% core, has 44% gross product margins and it has a contribution margin of 16%. And when I look at that Bill, it says to me there isn't something wrong with this business. What it says to me is there is a lot of opportunity in this business. And we've identified substantive additional costs savings already that consist of things like labor and nursing and over time and supply chain and delivery costs and mileage costs and asset management. And those are all things that we're getting after right now that invariably is going to – it's going to help with our cost structure. And then secondly on the sales side, this organization has underachieved sales wise and I look at the percent of…

Excellent. Hey, thank you so much.

Thank you, Bill.

Your next question comes from the line of Brian Tanquilut from Jefferies. Please go ahead.

Hey, good morning. Thanks for all that color, Dan. I just wanted to ask sort of to follow-up on Bill's question, based on what we're hearing from investors. How would you answer the question would investors asked you, how do we feel comfortable or how do we get confident that you have – this is not the BioScrip of old that we knew and that there will be more consistency and predictability and visibility into the numbers and your ability to hit the numbers that you've set out. And also, if you don't mind just giving us details into exactly what the extra cost cuts are that you're putting out there and what specific initiatives you're putting out to drive organic growth that specifically in core?

Yeah. So, do you want to – Brian, you want to kind of just ask that, you asked like three different questions.

Yeah, yeah, I'm sorry.

Yeah, yeah.

Yeah. No, still – what makes it different this time from the old BioScrip? Let's start there.

Well, again, I – look at the changes in the organization already. Just start there and look at the changes that have been made across the board with the operations and with sales and with the top executive, and that in and of itself, I think should speak volumes to you about what's been done. Also the other thing is the quality of people we're adding to this executive team. And one of the – I think the best opportunities here between these organizations, is that we'll be able to blend the best talent from both organizations and we're doing that and those – some of those people have worked with me as you know, for example, Alex Schott, who has worked for me at Coram and he worked – he was the Chief Financial Officer at Home Solutions and is now responsible for strategic initiatives. And so, I would share that with you. I will also share with you that, I was talking to Kathryn Stalmack on the way home last night and we were chatting about what was different from her perspective and her perspective was just that, it was like, you came in first week, and there was no question about the – how you're going to hold people accountable, and it's not just – and we have similar conversations with our area Vice Presidents of Operations, with our Regional Sales Directors. We're producing daily metrics now. This is something that the organization hadn't historically done. We're producing metrics on insurance verification, authorization, which the organization hasn't historically done, we're being much more transparent with our employees about what the expectations are and how they are doing and that's just going to carry not only, Brian, is that going to carry into our organization and its behavior…

Yeah, I appreciate all that color, Dan. So a follow-up for me. As you think about growth, I mean, you've talked about core growth, and all the initiatives you're putting out, I mean do you face the risk of putting in too much in the form of cost cuts that you start eating into the bone, and impacting the ability to grow core?

I think, we have to conscientious about that, Brian, there is no question about that. I think we – on the other hand, we built staffing models. And we've got a pretty good idea about what the productivity should be at different locations. And things like – even things like if you think about this, Brian, so – part of this is unlocking the value of the organization and if you think about like asset management for example. And that – and we worked at a company called MSD. And what asset management, as I think it's a really telling example, it allows one to do, it allows one to pool pumps, okay. So no longer do we have branch managers going out saying, I looked at my shelf, and I have no more pumps, and I have no awareness around what the overall organization has in terms of its availability. So number one, we're going to – that's one example of where we're getting efficiencies, but then you go to the warehouse level. And no longer do we have drivers picking up pumps, no longer do we have people in the warehouse cleaning pumps. And frankly what that does is it allows our people in those branches to do other things and to do more things. And that's just one example, FedEx is another example. When you're planning ahead, which is what FedEx and UPS, and lead time allows you to do, it frees up the capacity in the branch to do more acute business. And so, again these are the things we're talking about are also ways that we unlock productivity in the branches, Brian. And I just want to point that out, we're not just saying, okay, we're going to go out and make these labor changes without providing the branch tools to be more productive. And, I think you've got to do both.

Last question from me. Do you mind just giving us some color into how Home Solutions on a standalone basis performed during the quarter? Just kind of like a validation to all the things that you...

(37:42) ...again was, you know, we were – again, you can't get all the information because the fact that we started blending the businesses on September 9. But suffice to say from a core growth standpoint, I mean in June, we were above 18% in core growth, year-over-year same store. And, throughout the third quarter up to the time, we were running in the mid-teens. You know, the last number I remember was 14.5% core growth. So, those trends continue. And, again, I think that also provides a foundation for our growth expectations here – core growth expectations here at BioScrip.

I appreciated that. Thanks Dan.

Sure.

Your next question comes from the line of Mike Petusky from Barrington Research. Please go ahead.

Yeah. Good morning. So, Dan, I guess, you guys have hit on a lot in terms of cost reductions, but this issue of core and chronic mix has been a longtime issue for BioScrip, how specifically – because this 35%, 36%, 37% core piece has kind of been there for, seems like a really long time. How do you specifically move that needle? Is it – does it come from corporate or is it out on the field, is it in the contracting upfront? How does that happen?

Yeah. I think there is really five things you have to do. Number one, you have to have the right incentives for the sales organization, and the moment we kind of put new incentives in place at Home Solutions in July of 2014, we saw double digit growth in core, almost immediately. So, you also have to have the right incentives at the branch level. That's another one, that they have to understand that they play a role in that as well. So aligned incentives between the branch and the sales organization is particularly important. You also have to make sure you do training. Training is also a very, very important part of this and we have to train our people to have those conversations with our referral partners, explain to them, yes, we want to be a good partner but the partnership has to work for both of us. And I'll take a cap care and I'll take a hydration, but I'm going to need a couple of TPMs too. And so that – how that – you train your team and train your team around products too, but also train your team on how do you – on how to communicate that and then metrics. I mean we have the published metrics and we have to hold people accountable to those metrics. And so, Mike, so that's also another very important piece of this, is that – and then thirdly is that we have to communicate on these things. Communicate, communicate, communicate. And again, I know it doesn't – that doesn't sound like a silver bullet but it's not. It's blocking and tackling, it's aligning incentives, it's providing the right training, it's making sure we have the right metrics in place and that we're holding people accountable to these things. And in some instances, we may have to have a conversation with the referral partners saying, listen, we can't take this business anymore, we can't be a dumping ground, and if we can't find a relationship that works here then we are going to go a different direction. And we've had those conversations at Home Solutions as well. And so that's got to be also part of it too, is that at some point in time, if we can't find something that works for both the referral partner or Home Solutions for the payer, then we have to really think about what we are doing.

You guys have been offloading some lower margin or even the unprofitable business for the past few quarters, is it fair to say in your early weeks that maybe there's some more of that business out there that just needs to go? I mean, is it possible that you growth – you go smaller but much more profitable if we are looking at this 12 months, 18 months, 24 months down the road?

Yes. So if you look at Home Solutions, we are growing top-line at 18% to 20%, but actually we have fewer patients. So we dropped our patient load by 15%, because we ended up having patients that better suited our skill set, that we were able to service more effectively, and also made sense for the organization, so that's very possible.

Okay. And so, in terms of – you used this term holding people accountable. If investors kind of want to hold you guys accountable, I mean what would success be in terms of the core chronic mix, let's say, let's give you the full length of the 24-month turnaround, what would success be? Would that be 50-50 or what would that mix look like in 24 months?

Let's say, so we're – let's say we're -- I like to think once we enacted this, it takes – it's about a percent a month at best. I mean this is again, that's what I am saying, this is an 18 month to 24 month turnaround. These things just don't happen overnight, because as you put on more profitable patients, you also are exiting less profitable patients, but you just can't – you've got to keep those patients on service in some shape or form. So it's a percent a month and if I think about that, do I think we could be in the 80s in 24 months, absolutely.

Yeah. And Mike, just to clarify, our core mix right now, 65% core, 35% other chronic.

Right. Okay. So you can – I'm sorry, yeah sorry about that, I had that backwards. So you can move that needle another 15% possibly over 24 months?

Yeah, I think that would be over couple of years, I think that would be and maybe faster, but I think it probably is really looking at it in terms of just getting the right momentum in the organization. And once you've turned the corner, it can churn pretty quickly, but it's a process and I don't want to – just like it's a process to get additional earnings, it's just not like you flip on a switch. I think about back in when I was at Coram and as we started to improve our earnings, I reminded people at the board that we set a target of 8% or 9% earnings in 2009, 10% earnings in 2010, 11% earnings in 2011, so there was a process there and then I had a board member say to me, well 2016 means you're going to be at 16%. So, I don't think we'll get to that point, but I also want to point out that this drive toward improved earnings is a process as well, and I also want to point out too that it's not just limited to core growth. I think there is significant opportunities in revenue cycle as well. I think there is, if you look at our bad debt at 3.3% and 3.5%, Coram was at 1.8% to 1.5%. If we get down to Coram rates, we're – that could be an additional $20 million. I look at – I look at things like our patient pay yield, which runs at about 60% and if we were to get the kind of what I would say, best-in-class standards at 85 (45:52), that's another $4 million. So I just want you also to point out that there is also, as I see it, opportunities on revenue cycle management and I also don't want to underestimate too the importance of initial authorization and insurance verification and the timeliness, we get back to our referral partners. And that's something the company has never measured up till when we arrived. And the good news is that BioScrip is where Home Solutions was when I joined, roughly in the 50-minute to 60-minute range and we got that to under 25 minutes and there is no reason to think that we can't have that kind of success at BioScrip as well. So I just want to point out some other things too that I think could be very promising and could accelerate things in 2017 and beyond too.

Okay. Great. Just a last quick one for Jeff. The cost savings I think you pointed out, $8 million to $10 million, how – in terms of the activities that will lead to that, how much of that will be done by year end?

Well, so most of it will not be done by year end. However, 25% of it's already been done. We've already cut 52 heads from our labor, we've got plan to do another 40 heads before the end of the year, that's roughly 4.5% of our labor force, our workforce. And then the other initiatives whether it's the nursing cost or the overtime changes, the delivery costs, those are the process that we're going through now. We – those will be changed as we're exiting the fourth quarter into the early part of the year and the pull through will come behind that.

Okay. All right. Thanks guys. I appreciate it.

You're welcome, Mike.

Your next question comes from the line of David MacDonald from SunTrust. Please go ahead.

Hey guys. Just a couple left. Jeff, I just wanted to touch on that last point you were talking about, so the head count that's in the cost savings bucket as opposed to some of that was assumed – that wasn't (48:04) synergies tied to putting the two companies together?

No, no. We have a separate 50 heads on synergies, entirely separate from those numbers I gave you. We are on track to overachieve versus that $14 million to $17 million, hence the additional cost savings. But the 50 heads in synergies completely separate from this.

Okay.

And those will get 100% zero miss on those heads.

And then just so I am clear, you said at year-end 2016 roughly 25% of that 8 to 10 will be kind of done and accounted for and then can you just talk about the remaining piece, I mean renegotiating contracts, increased efficiencies, how we should think about the pacing of that as we move throughout the year?

Well the pacing – the pacing has been extremely urgent, Dave. We've already had nearly all of our large supply chain partners in here. We've been negotiating with them, they've been very open, they like Dan, they know his prior – they've had prior relationships with Dan, with Alex Schott, whom Dan brought up earlier, who is now a member of our management team, these guys have prior relationships and they've been very accommodating thus far, several of those agreements are not yet finalized, but we're getting better pricing, we're getting different rebate structures, so all that stuffs going to begin to come through. Some of them may even come through in the fourth quarter, but to be frank, I don't have that in my fourth quarter numbers yet on purpose, have it in the next year numbers. Nursing costs, overtime – we've looked at all this stuff. We had our area wise (49:43) vice presidents of operations in here about four weeks ago, I think it was Dan's second week on the job and we looked everyone, eyeball-to-eyeball, went through the numbers, showed them the performance that was expected, began to develop tools at that point to measure, the scorecard, the initiatives, have rolled those out now, they are beginning to manage their staff and their operating processes in that manner. But we know that's not going to happen overnight. We know that's going to be taking part of 2017, before the real savings in terms of more efficient processes, lower cost, again, in terms of process, in terms of switching to FedEx utilization as opposed to carriers, as Dan pointed out. All those things, they're going to take some time, so we've got them in our 2017 numbers.

Okay. Just two other quick questions.

I just want note (50:27) too, Dave. We had within five days of me being here, and once I got a sense of some level of how the organization is performing, my sense is some folks have taken eye off the ball. We had this, the AVPs (50:43) in and we spelled this out within five days. And so – and again that's – these were things that were not identified prior to my being here, and we've already executed on a significant portion of them and we'll continue to do that throughout the year and again these are all things that I've done in other places with team members that are here with me and there's no reason to think that we won't be able to do so similar types of – we wouldn't – we'll not be able to see similar types of achievements.

Second question. Jeff, you mentioned being breakeven post debt service, but it was unclear to me if that included CapEx or didn't, so do you expect cash flow to be roughly – cash flow from operations to be roughly even with debt service or free cash flow?

So, Dave, the way our projections model out, cash flow from operations will be positive second quarter, third quarter and fourth quarter of next year.

Yep.

That's obviously before CapEx and before debt service. After including both CapEx and debt service, which as a reminder all on a full-year basis, CapEx is probably $10 million to $11 million annually, our debt service as required is $12.5 million. After incorporating both of those, so I wouldn't call that free cash flow, but a broken free cash flow middle there. But bottom-line cash flows will also be positive, but lower single digits quarters two, three and four next year, Q1 will be negative and Q4 will be negative.

So you expect it to be.

That is what I...

You expect to be...

That's right.

You expect to generate cash flow after CapEx and debt service in quarters two through four?

Yes, that's correct.

Okay. And then guys just one final question. Dan, can you just provide a little more color on the metric scorecard, when was this implemented? Is this a real time scorecard where if I'm, for example a sales person, I go home at the end of the day, I can look and see how I stack up against other folks in sales, just a little bit more detail on that?

Yeah. So, what it does and what it does, it basically gives us a sense of exactly where we are as a company, relative to what we have projected within 9 hours or 10 hours of the close of the day. And so we get information on therapies, we get information on admits, we get information on census, we get information on conversion rates, we get information on cash. So all those things are factored into this one page scorecard that we're going to be pushing out to our senior leadership in the organization. We've already done it for the last several days of September and come November 10, we'll be pushing that out every day. You have to get a certain amount of days in there, so you can – so it's – you've got a large enough cohorts, so you can – the predictability is such, but that's something that we're doing. And then the other thing I want to point out, on the sales people, we're ranking them and they are – we are stack ranking sales people, so they will know exactly where they stand relative to their peers and relative to their expectations. And again, I think that's something that historically hasn't been done. We're also going to be stack ranking AVPs (54:41) in terms of their performance metrics and what we expect them to achieve on an earnings basis and what we expect them to achieve in terms of nursing cost over time, supply chain, delivery cost, mileage cost. So it's not just the sale stack ranking, the stack ranking is also going to include operations too.

And then...

And I also want to point out – I also want to point out that we are also – we're – again I can't say this enough, the measurement of insurance authorization and verification. I mean that is a huge component of what is going to help drive our success going forward as well.

And then when I look at 2017, so, say, I'm in sales, I assume a portion of my comp will be tied to growth, how much of that growth is core if I am in revenue cycle management, what cash flows look like? Can you give me a sense of how much this metric scorecard will tie into variable compensation across the organization?

It's going to tie completely into it. I mean I don't – you can't separate the two.

Okay.

I mean, I don't – there is – yeah, we're – we – I'll also let you know that my Chief Operating Officer, Dave Evans has created the first ever balance scorecard with the help of Brian Howard (56:01) for operations and that's rolled out last week. And again that's going to look – they're going to get – and it's one page and the operations team is going to know exactly how they're performing in a variety of different categories and it's going to be green, yellow, red and by and large, a disproportionate amount of their variable comp percentage is going to be tied to that.

Guys, just last question. Jeff, just a quick question on working capital management. I know you talked about revenue cycle a little bit, but can you talk a little bit about are there any other areas other than maybe a little better collections in bad debt, anything you guys can do, for example, payables, et cetera? Just anything that we should be thinking about in terms of working capital management?

Well, Dave, certainly. I mean again as I mentioned in my opening remarks, we're taking our liquidity very seriously. So inventories already been managed down quite a bit. If you look at our balance sheet, I know you all have, we feel we've managed that to a fairly low kind of almost as needed on-hand inventory. If we can manage that lower, we certainly will, and we're looking at ideas to do that. In addition, our AP vendors, we are at terms and in fact we are enjoying some discounts currently for comp pay on a number of our larger vendors who provide us substantial discounts for 15-day, 20-day payment terms. If we need to change that, we will. At this point, I have not yet pulled that lever. We don't feel like we're in that danger zone. But if we need to pull back to just normal terms and not early pay terms, we will certainly do that.

Okay. Thanks very much, guys.

Also, I'll let you also know, Dave, one other thing. We implemented a professional inventory system at Home Solutions, and it includes like an event that looks at workflow in the warehouses and those types of things. And we did, that had a substantive amount of savings, I mean, we estimate that we're able to reduce our inventory anywhere from 15% to 20% and our inventory churns moved from 17% to 24%, that's a big project, I just want to point out, and but that's something we're going on take on this year and in 2017 at some point in time. We have to get some of this kind of lower hanging fruit, if you will, out of the way, and then we're going to attack that too.

Okay. Thanks very much, guys.

Your next question comes from the line of David Brecht from Pioneer Investments. Please go ahead.

Yeah. Hi, guys. Just a question on just the full year EBITDA revised guidance. It looks like – it sounds like it's more like a not a gross margin issue, it's more like an operating expense issue, is that correct? I mean, it seems like you're kind of – you've divested, I know a lot of the lower margin non-core business. So, is that correct where we are right now then?

Yeah. David, that's exactly right. In the intermediate terms, well let's say the next three months to six months, it's absolutely a cost structure issue. You can see it in our other operating costs that's predominantly the branch labor that's within that particular line in our P&L, typically we're on 16.5% to 17% or we're up to 19% of cost. So, as we exit the other chronic business, our labor costs did not come down. Our Chief Operating Officer (59:30) longer, that's a big reason why. So, we will be – we have addressed a lot of that already. We will be addressing the last bit of it, before this quarter ends. And once we've stabilized and have that single repeatable model, we will then move towards that sales growth which, as Dan mentioned, it's going to take several months to get the sales force up and moving, but when they do that will really be beneficial to our bottom line.

Okay. Now that's helpful Jeff, actually. So, do you guys still assume – I mean there was a time when you guys thought the gross margins would settle out in the low 30% area, does that kind of – 30%, 31% something like that, does that sound achievable at this point?

Yes, it does. That's exactly what we're aiming towards.

Okay. And then also just as far as working capital goes, obviously there is noise with Home Solutions closing kind of late in the quarter. Is there any kind of source of cash that occurs kind of a freeing up of working capital, given the close kind of late in the quarter or is that kind of – was that already reflected by the end of the quarter?

For the most part it's reflected. We've got a little bit of accounts receivable that we acquired that is still being collected as of this call. So, there will be a few million dollars that come in for that. But it's predominantly already watch (60:38) through, their APs already been paid off that we acquired, we're now on just normal cycle of AP. We did acquire AR with the transaction because of that, the base transaction. The lion's share of that's already been collected, so what we remain is slightly positive, but not significant.

Okay, great. Thanks, Jeff. Thanks, guys.

Your next question comes from the line of Bill Bonello with Craig-Hallum. Please go ahead.

Thanks for taking a follow-up question. Just a couple of quick things. One, just again a clarification on the liquidity situation, Jeff, sorry to parse your words, but I think when you were talking about the – making us all comfortable that you weren't planning on any kind of additional raise, you specifically said through common share issuance. Can we expand that? Is there no intention to do any kind of equity raise at all, or were you meaning to specify common shares?

No. That's fair of you to ask, Bill. But let me be crystal clear on this. And we spoke – I spoke to a few of the board members about this again this morning to triple confirm, Dan and I understood this. There was no intention by this board, by our board, by this company to raise equity capital of any type, preferred, common or otherwise, none. That is not a current topic of discussion.

Perfect. Okay. That's helpful. And then just for either of you on the revenue side, are there – are you seeing any shifts in business again back to sort of this just being execution? Are you seeing any sorts of concerted efforts by any of the payers to sort of proactively shift patients to other providers for any reason? In particular, I think, we would think of United Healthcare because of the Optum, XL care (62:45) situation , but is anything like that going on?

Not, not – we haven't seen anything like that, yet. Nor – we haven't seen anything like that, yet. I'll leave it at that.

Okay. That's all. Thanks for taking those questions.

Your next question comes from the line of Jeff Ratner (63:14) from UBS. Please go ahead.

Thank you for taking my question, gentlemen. I guess overall big picture question regarding the EBITDA for 2017, the guidance. Obviously, everybody on the call would like the company to succeed and do well. And there is certainly a lot of concern raised about whatever comparisons might be between the old BioScrip and the new BioScrip and certainly confidence comes into play. How confident are you, gentlemen, both you, Jeff, and Dan, regarding the $50 million to $60 million EBITDA for next year?

Jeff (63:51) , this is Jeff Kreger. I'll answer first. I'm very confident. We have these plans in place, all of them are being executed upon to some degree, several of them are behind us, as I already mentioned in terms of some of the labor, which was the first step. The most difficult piece of that equation, frankly, and I listed in order what the pieces are to walk you the bridge, the most difficult piece will the sales, that's why we backend loaded it, and so we're running very hard towards it.

Okay. Dan, any further comment or?

I don't have any comments, I mean, again, I just have a history of delivering. So I don't really follow the same types of rules that most people do in these situations.

I guess the concern I have is that obviously in the past BioScrip, we've been given guidances as to EBITDA and other numerics, and unfortunately, when there were changes made, they usually made to the lower side as opposed to the upper side. So, I'm just hoping that the $50 million to $60 million obviously it's only guidance and Dan you've been there for a number of weeks, but I'm kind of hoping, I think everybody else is, that this is a pretty realistic figure going forward.

Yeah. I mean we're on record saying it is and we're going to do everything in our power. And I understand, Jeff (65:15) ,your concerns of based on, again, I believe you can't talk yourself out of what you based stuff (65:26) into, Jeff, and you won't – we're not interested in talking ourselves out of things. We're interested in behaving ourselves into performance.

Thank you very much. Thank you for taking my question.

Yeah, thank you, Jeff (65:42).

Your next question comes from the line of Doug Peter from Ares Management (65:46). Please go ahead.

Thanks for taking my questions. I just first wanted – I need help on the bridge in terms of the guidance you gave because looking at the last few quarters, you were kind of on a run rate to do almost $40 million of EBITDA pre to (66:03) Home Solutions and then Home Solutions came with $6 million of EBITDA, plus the $14 million to $17 million of synergies and that gets me to north of $60 million. So I'm just trying to understand, what happened between the second quarter and the third quarter that caused that math to change?

Sure, Doug. Well, so two main things, I'll bullet down to that. Substantial erosion of our core revenue in terms of BioScrip legacy business and the second is our labor cost. So our labor cost did not leave this company, as they were correlated with two items. The first is the planned exit of other chronic business, labor cost had to come down for that, we knew it, it didn't occur. The second is that the core dip that we did not expect that was a bit surprising as the quarter played out. Labor costs also didn't translate down for that. So, again, the variable nature of, whether we're talking about farm techs at the branches, pharmacists, nurses, in-take personnel, revenue cycle to some degrees, their billing – less billing volume, those labor costs did not go out, that's included in that operating cost line of our P&L. And you'll see it rose 200 basis points to 250 basis points over what we've been trending over the last couple of quarters, that's due entirely to...

(67:32).

Go head.

And, Doug, I think it's very simple, I think the company took its eye off the ball. I mean I think it's that simple. I mean I know there is some details behind it, but I just think the company for whatever reason lost focus and as a result didn't deliver on its commitments.

And I'm – but I'm just trying to understand how that feeds through to one quarter of dropping the ball to a year lost of future performance. I'm just trying to – did you lose a contract,/ did you lose market share...

There was no contract. But – no, no contracts, I mean, if you even think about it, and again, if you just look at its sales, for example, and you look at how that process works, and you really – it starts with a phone call to the branch and then it goes from – and then it foes to some level of conversion, and then it goes to admits and census. And if you're – if you are losing out on admits, Doug, you are not rebuilding your census, and then you almost have a kind of a leaky bucket, if you will, that you are not filling up fast enough. And that's what's happen, it just – the admits did not keep at the right level of performance to ensure that the census continued to carry forward from one quarter to the next.

Okay. And then in terms of the timeline to getting to 10% EBITDA margin, it looks your only at the 5.7%, the midpoint for 2017 guidance.

Yeah.

So, can you kind of bridge us to that 10% number in...

I don't – I just think we got – we'll reevaluate the – I can't – I am not prepared to bridge that right now. I can just share with you that this was – it was a 20 mile march, we did it at Coram and it's – we're going to reevaluate at the end of every year in terms of what we need to do to get closer to that mark.

And then on the credit amendment issue, at least I guess you alluded to that, you are providing very strong confidence, there is no need to provide additional equity. Has there already been some sort of deal reached or a proposal already made on this amendment?

No, there is not. We've had active discussions, but there is no drafted document that I've been shown.

And have you specifically highlighted what metric you're not going to meet in first quarter?

Yes I have, and I've shared that with the bankers and they are very aware.

Okay. And then, just in terms of the OpEx issue, as David broadcast and you discussed, can you just gives us a perspective of – and maybe I missed the materiality of that, over the next 12 months, how much of the OpEx improvement can you achieve in that timeframe?

Well, I'm not sure. Are you talking about the additional cost savings, are you talking about...

Cost savings. Yeah, cost savings.

Yeah. So, again...

(70:41) I'll just give you some examples of what we've been able to do over time. Again, at Coram, we reduced our cost of service as a percent of net revenue 10 percentage points over – great than 10 percentage points over the five years I was there. At Home Solutions, we reduced over the two and half years I was there, we reduced greater than 5 percentage points of our cost of service over those two and half years, three years. So, I just want to be careful, it's a process and it's something that takes place over time. That being said, there's some things that we believe we saw when I immediately came on board and we've already acted on those.

Great. My last question, just the stocks obviously down almost 50% today, so shareholders are basically saying they don't have the patience to wait. How does the board and management think about timing to do something from a strategic perspective to create more value for the shareholders?

Well, Doug, frankly our value creation plan is around achievement of our operational initiatives. That's what we're focused on as a management team, that's what the board is focused on and strategic items that you're referring to are not something that over the next 12 months we believe are anything that were currently entertaining.

Okay. Thank you.

Okay.

Your next question comes from the line of Mike Collins from UBS. Please go ahead.

Thanks for taking the call -question, guys. My question has been answered. Thanks.

Okay. Thanks, Mike.

And there are no further questions in the queue.

Okay. I'll just – so anyway, I just want to thank everybody for joining the call today. I appreciate the engagement. I'm excited about the future of the organization and many a things we've undertaken. I also fully appreciate the fact that the organization took its eye off the ball in the third quarter, and you got a commitment from me and Jeff and Kathryn, and others part of the senior management team that that won't happen again. And I'm not saying we are going to be perfect, and there aren't going to be things that – but we are – it's not going to be a function of the senior management team taking their eye off the ball. And we look forward to updating you on our continued progress.

This concludes today's conference call. You may now disconnect.