Option Care Health, Inc. (OPCH) Q4 2016 Earnings Report, Transcript and Summary

Good day, my name is Jack and I will be your conference operator today. At this time I would like to welcome everyone to the BioScrip Fourth Quarter Earnings Results Call. [Operator Instructions]. Thank you. Kathryn Stalmack, SVP and General Counsel for BioScrip, you may begin your conference.

Good morning and thank you for joining us today. By now you should have received a copy of our press release issued this morning. If you have not received it you may access it through our 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 U.S. and entering access code 5266355. 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 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 can be no assurance that the results contemplated in these statements will be realized. Please refer to our press release and our files 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 to the most comparable GAAP financial measure is contained in our press release issued this morning which can be obtained from our Investor Relations section of our website at bioscrip.com. And now I would 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 be providing an update on our fourth quarter performance as well as the progress we're making on the Company's turnaround plan. Jeff will then provide additional financial details and discuss our 2017 guidance. During the fourth quarter the BioScrip team made significant progress executing our turnaround plan. In the month since I began as BioScrip's President and CEO the team has been laser focused on positioning the Company for profitable growth, improving operational processes and driving cost synergies throughout the organization. These initial efforts are beginning to bear fruit with both fourth quarter revenue and adjusted EBITDA results topping our prior guidance. We're in the early stages of our 18- to 24-month turnaround plan, but I'm very pleased with the initiative, discipline and dedication of our team in this ongoing process and anticipate continued progress toward our goals going forward. During the fourth quarter the BioScrip team launched the core initiative to create a greater focus around the key priorities we have previously shared for improving the overall health of our organization. CORE is an acronym which represents our focus on identifying and executing strategies to accelerate BioScrip's core revenue growth, mix, drive operational efficiencies, improve revenue collections and increase employee effectiveness throughout the organization. I am confident that continued focus on the CORE initiative positions BioScrip for meaningful improvement in our financial performance while creating additional value for our shareholders, partners and patients. The first component of CORE, the C, stands for accelerating the growth rate of the most profitable segment of our portfolio, our core business. During the fourth quarter revenues associated with our core business accounted for 70% of our revenue mix, up from 65% in the third quarter of 2016 and increasing from 60% in the fourth quarter of 2015. Our ultimate goal remains increasing our core business to 85% of our overall revenue mix. We have identified multiple catalysts to accelerate the growth of our core business, including clinical liaison deployment, aligning incentives, training, rigorous measurement and transparent reporting to drive accountability. We remain confident by refocusing on the aspects of our business that deliver the greatest value to our patients, referral partners organization and shareholders will ultimately translate into above market or revenue growth. Additionally, we're actively evaluating potential strategic partnerships across the continuum of care to further augment the growth of our higher-margin core business and I will provide updates on these initiatives as they unfold. The second cornerstone of our CORE initiative, the O, is driving operational efficiencies throughout the organization. During the quarter we made significant progress implementing our single repeatable model, such as identifying and implementing operating cost reductions, executing upon synergies, effectuating supply chain rationalization, increasing nursing productivity, enhancing shipping utilization and improving patient on-boarding times. This model generates durable, scalable, competitive, healthy and sustainable improvements to BioScrip's cost structure. We now anticipate to realize an incremental $23 million to $25 million in cost structure improvements during the year, above and beyond the previous disclosed $17 million of cumulative Home Solutions cost synergies. We're excited about the significant progress throughout the organization and we will continue to look for additional operational improvements going forward. The third component of CORE, R, is improving the quality, rate, velocity of our revenue collections and enhancing our referral partner's experience. Ongoing initiatives to improve the effectiveness of our revenue collection efforts include increasing upfront collections and streamlining documentation processes, as well as driving our patient on-boarding times to under 30 minutes. We will leverage our revenue collection team to aggressively pursue accounts receivable with the goal of enhancing our free cash flow, lowering our bad debt expense and improving our operating results. Our net DSO ended the year at an industry leading 43 days. And through our revenue collections or initiatives we're targeting improvement in this metric going forward. Finally, our CORE focuses on, E, improving employee effectiveness and empowerment throughout the organization. To achieve this goal we significantly upgraded our leadership team and revamped our compensation structure to align with key sales of operational mixes. Our most important asset is our workforce of our 2,443 team mates. A component of our vision has become the destination of choice for patients, referral and vendor partners, manufacturers, payers and importantly our teammates. To that end we're committed to making sure we have the right people in the right seats regardless of their role in the organization. We're intent on institutionalizing training and ensuring our incentive plans are tied to keep performance metrics and empowering the team with the tools and resources necessary for success. We want our teammates to take ownership in our ongoing transformation and share in the rewards of building something extraordinary. As a key component of ensuring the right people are in the right seats, our leadership team completed a thorough evaluation of our workforce with the goal of streamlining job functions and identifying areas to rationalize and harmonize our workforce. Workforce reductions are never easy, but these difficult decisions were made to create a leaner, more effective and agile organization, positioning BioScrip to better execute on the opportunities that lie ahead. This effort led to a rationalization of 11% of our workforce since September of 2016. We'll continue to implement initiatives to drive productivity and effectiveness throughout our organization. Next I would like to discuss the Cures Act, the effect of this legislation and the next steps we've taken to mitigate the associate impact on the business. As most of you know, the Cures Act legislation went into effect on January 1, 2017. This legislation resulted in significant and immediate reduction in Medicare reimbursement rates on certain drugs while not providing any reimbursement for the administration of these drugs until 2021, leaving a four-year gap without reimbursement for such services. We estimate the impact of the Cures legislation to be $24 million to our 2017 EBITDA. We have and will continue to take several steps internally/externally to mitigate the unfavorable impact of this legislation on our business. With initiatives currently in place to offset $50 million of the estimated unfavorable EBITDA impact for the year, translating into a net unfavorable EBITDA impact of approximately $9 million in 2017. We're actively working with the National Home Infusion industry or NHIA, to propose an amendment to the Cures Act legislation to account for the infusion benefit and increase awareness of the negative implications this legislation has on patients relying on these life-saving therapies. Additionally, we're an active member of Keep My Infusion Care at Home, a newly established coalition of patients, caregivers, healthcare providers and related industry organizations. These lobbying and coalition efforts are increasing awareness with Congress and CMS on the unintended consequences of its Cures Act legislation on the home infusion industry and the critically ill patients relying on these home infusion treatments. This increased awareness is creating momentum behind our efforts, we're optimistic that these initiatives will lead to improved reimbursement for the clinical services component of our home infusions services ahead of the 2021 plan timeline. I will now provide an update on Home Solutions acquisition integration. As a reminder, we acquired the Home Solutions business in the third quarter of 2016, bolstering BioScrip's core infusion services business with the addition of this large home infusion provider. During the fourth quarter we successfully completed the integration of Home Solutions and, encouragingly, the Home Solutions cost synergies which we have identified are at the upper end of our initial expectations. We anticipate at least $17 million in cumulative cost synergies by the end of 2017. We continue to uncover opportunities to drive transformational change and unlock the value of BioScrip. The road will continue to be bumpy at times with the Cures example as an example of that. But we will continue to deliver on the things that are in our control. I am confident the earlier mission and goals we have set forth, namely our CORE initiative, put BioScrip on the path to optimize and accelerate growth, transform and architect the experience in the home, realize the untapped potential of the business and create significant value for our shareholders. The team will continue pushing forward with our turnaround plan and I look forward to updating you on our progress. I would like to now turn the call over to Jeff who will provide a more detailed review of financial results for the quarter as well as an update on our full-year 2017 financial guidance.

Thank you, Dan and good morning, everyone. Revenue from continuing operations for the fourth quarter of 2016 was $240.1 million compared to $243.7 million in the year ago fourth quarter of 2015, a decrease of $3.6 million or 1.5%. This revenue decrease resulted from the Company's previously announced shift in its revenue mix to a greater percentage of CORE revenue and less lower margin noncore revenue. Our revenue mix, as Dan stated previously, is currently 70% core and 30% noncore, much improved from the 60% core mix of one year ago. The total consolidated adjusted EBITDA from continuing operations for the fourth quarter of 2016 was $9.5 million, representing an increase of 5.5% or roughly $0.5 million versus the same period prior year consolidated adjusted EBITDA of $9 million. The increase in consolidated adjusted EBITDA was the result of improved operating results in the fourth quarter of 2015. As reflected in our press release of this morning, the Company is providing guidance for the full year 2017. This full year 2017 guidance fully incorporates the estimated net negative impact of the Cures Act legislation on the Company. The full-year 2017 guidance is revenues in the range of $920 million to $950 million and adjusted EBITDA in the range of $45 million to $55 million. As we announced back on January 6, 2017, we entered into an agreement to amend our existing credit agreement. This amendment provided the Company with $19 million in new incremental liquidity and also revised our bank financial covenant to levels with which we're able to comply. We used a portion of the new incremental liquidity to fund our bond interest payment of $8.875 million which we paid last month on February 15. As we have stated previously, our low spot for liquidity is expected to be during the first quarter of 2017. As of the close of business yesterday on March 2, 2017, the Company had $21.8 million of liquidity in the form of cash in bank. Under the terms of the now amended credit agreement, the Company no longer has the availability to draw any balances on its revolving credit facility. During 2016 the Company paid $12.6 million in principal payments on its bank term debt. During 2017 the Company is projecting to pay over $21 million in deleveraging principal payments on its bank term debt and revolver debt. That concludes our prepared remarks. Operator, we will now open up the call for questions.

[Operator Instructions]. Your first question comes from the line of Brian Tanquilut with Jefferies. Your line is open.

Hey, guys, this is Jason Plagman on for Brian. Just one quick clarification first. So you said -- am I right and I heard -- the gross impact of the 21st Century Cures is $24 million, but the net will be $9 million in 2017? Is that correct? And I thought you said --.

That is correct.

Okay and then I think you mentioned a $50 million number as well. Is that the four-year cumulative?

Yes. No, no, we meant to say $15 million, I think it was just the way it came through the telephone. So it's $24 million --.

So $24 million gross, $15 million offset and $9 million net, got it.

Exactly. Yes.

Okay. And then my second question is -- good progress on the core therapy mix. How should we think about the timing and glide path to get to your 85% goal over the next few years?

Well, Jason, so our plan there is -- it's difficult to grow core mix and we have got a great sales team in place and some terrific initiatives that we have kicked off. I think what we would like to do once this sales team is matured in its approach is we would like to do 0.5% to 1% a month. So we're targeting 7%, 8%, 9% core growth this year. It is going to be an 18- to 24-month turnaround just Dan indicated in his remarks. And sales will be affected the same way. But we will get this Company to 85% core portfolio mix.

Yes and Jason, just from a history standpoint, again, our compound annual growth rate at Coram was 12.5% for those five years. And in the first 2015 or 2016 at Home Solutions our core growth was 15%. So, Jason, it is a process, but I am confident that -- I feel very confident that we will see substantive core growth. And again, it is a process but, again, I think we're on the right track.

Your next question comes from the line of Brooks O'Neil with Lake Street Capital. Your line is open.

Thank you for the overview, I thought it was excellent. So I have a couple of questions. I guess first, just doing the math, I think you had previously said Medicare was 3% to 4% of revenue. So if I take 4% on $935 million I come up with a number of around $37 million of revenue in Medicare and, based on what you said this morning, $24 million of adjusted EBITDA on that revenue. So that was apparently substantial [Technical Difficulty] operable business for you. Can you just talk a little bit about how that worked and what you see as the outlook for Medicare going forward for you?

Yes, sure. So how that worked is in essence -- so the pricing for, for example, the inotropes, Brooks, was based on an AWP rate back in 2003. And it was adjusted to an ASP rate in 2017 which meant about a 95% reduction on the reimbursement for the drug. The bigger issue here is that Medicare does not reimburse for per diems and does not reimburse for nursing. And until those issues are addressed the impact for this is going to be -- it is what it is I guess I should say. I wish I could articulate that better. That all being said, I feel very optimistic about what is happening with our legislative efforts with the National Home Infusion Agency, with our coalition partners, with our lobbying efforts. And I am optimistic about where that is that four-year gap, that that gap I believe will be reduced. And the timing of that will be reduced. In the meantime, as we have stated, we have done a lot of rationalization, Brooks. And that $50 million is an example of that. And again, as I look at growing our core business which obviously will drive gross product margins -- I don't think there is a week goes by, Brooks, that we don't find another opportunity in supply chain. We also think there is opportunities on the payer side and the integrated delivery network side. So we're very I guess optimistic about our way to operate around some of these changes. And we're also very optimistic about the efforts that our association and our teammates are making in terms of the ultimate impact on Cures.

That is great. Can you give us any feel for how business has been in January and February so far this year?

Well, it has met our expectations thus far, it has been solid continued from Q4. I will say keep in mind there is always seasonality in this business, right. Our patients change plans, deductible and coinsurance -- deductibles reset. So there is always a little bit of seasonality impact as we go from Q4 into Q1, we saw it last year. Recall we were at 9-0 and I think we drop to kind of the low 7s. We're probably going to see something like that again, but then strengthening, especially as we laid out, as our sales team continues to gain momentum under Kelly Aldridge and Dan and the new sales approaches and plans and we have seen some great early signs of that. So I am really anticipating an extra strong second half of the year.

Yes, also something else, Brooks, I think is important to note. And Jason, this will also -- I think is relevant to some of your questions. We in the last couple months just moved our clinic liaison team back under sales, they had been under operations. And not that that wasn't an appropriate place to house them, but my experience has been that their impact will be greater in the sales organization. And that is 150 people so of a team of roughly 300. And so, those efforts and those initiatives frankly are just starting to take hold. So again, I think we feel very optimistic about how things are going in the organization and pretty optimistic about what the future looks like, short- and long term.

Sure, all of that is fantastic and I appreciate it. So I am just thinking about my model; most likely the greatest impact of the Cures likely in Q1 combined with some seasonality and then strengthening based on the initiatives you have described as we move through the year.

Okay, thank you Brooks.

Can I ask one or two more quick ones?

Sure, fire away.

I appreciate it. You commented, Dan, about potential strategic partnerships. And I'm having a little trouble thinking about what that might be like. Can you give us any color on kind of what you are thinking about?

Yes, I sure can. I mean I think it is payer relationships, Brooks. I mean I think there are some interesting things happening in that marketplace right now. And I think the dynamics there are favorable for us. I look at the hospital systems, we have done a lot of really fantastic work in that area and we're seeing -- we saw the fruit to those efforts -- that continues to be ongoing and I feel very good about that. And then also ACOs and shared risk arrangements. I think home infusion industry and home infusion is by far the least expensive side of care. And what is clear to me is that people want quality, they want choice. And again, these partnerships are all in that vein saying, listen, we need to be putting these patients in the lowest cost setting. What is also interesting, Brooks, there has been some work done like for example in primary immune deficiency, I just saw an article this week. And what it showed is that there was statistically significant improvement in the safety of the patient, particularly in the areas of bronchitis and pneumonia, when you cared for those patients in the home as opposed to an institutional environment. So my feeling on that is these payers recognize this, the hospital systems recognize this, the accountable care organizations recognize this. And unequivocally in our mind the general ward is going to be home and these partnerships from our vantage point are only going to accelerate that transition. And again, it makes sense for the patient, it makes sense for the payer, it makes sense for hospital systems. And so, we -- again, we feel like these relationships that we have established are only accelerating a lot of the things we believe are in the best interest of the patient.

That is great, that is very helpful. Last question for me. I would be remiss in not just asking you for a little color on that financing you announced last night. So the background--

Yes, no, absolutely. Look, Venor has been buying in shares of our Company here just through open market transactions for quite some time. As they began to acquire a larger position in the Company, we wanted to make sure we protected our NOL tax asset, the 382. You will recall that from last year. They approached our Board asking, Venor did, to buy more of these shares. They negotiated with the Board. The Board said, look, as long as you want to buy an additional stake in the Company you might as well by directly from our, quote/unquote, treasury shares, it you will, generating some additional working capital flexibility for the Company. Didn't have to have it, but as long as they were interested in making that investment we thought like that is probably the best way to possibly provide the Company a little additional working capital flexibility. So that transaction occurred yesterday, they wanted to close it this week and that is it. It is really no more complex than that.

That is very helpful.

Yes. And just on a side note. Venor is a -- I know Venor from before. They are a good partner. And that was also something that was important. And they have been impactful on our efforts on the Cures legislation already. And so that is part of this too, Brooks, is this is a group we know, we know they are a good partner. They have already been helpful to us and that was also obviously a component of our thinking too.

Your next question comes from the line of Bill Bonello with Craig-Hallum. Your line is open.

Just a series of questions, so I am trying to understand the cash flow since the debt offering. It looks like your availability has come down about $3 million. You had an $8.9 million interest payment. So it seemed like just in January and February, not for all of Q1, but in January and February you maybe generated some positive cash flow. Am I thinking about that right?

Yes, I think we're probably around breakeven through the two months thus far of the first quarter. And I likely expect the first quarter to be a small use of cash by the time we report when the quarter ends, Bill. However, on a much better note, I think quarters two, three and four will be positive cash flow from operations including paying our interest cost. So we see --we're very optimistic about where we're headed there.

And just on that -- couple of clarifications on that too. So positive cash flow including paying interest, what about the principal payments?

Well, no, so I mean I am talking about operating cash flow. I mean, our financing and investing activities, in this case the financing activities you are referring to, would end up reducing that cash flow from operations. Our net cash flow for the year, we're expecting it to probably be net cash flow including CapEx and principal, principal being $21 million plus, CapEx being in the neighborhood of $8 million. We're expecting total 2017 net cash flow all in to be in the neighborhood of say $25 million maybe $30 million.

Okay, cash burn you are saying in the $25 million to--?

No. No, generation. Remember keep in -- no, no, generation. I mean keep in mind our other financing activities that have occurred, the $17.7 million net of financing costs on the new leverage in the first quarter, so that is in there, the $5 million we just raised, if you will, through the private placement. So -- and then operating cash flow that we'll produce during the last nine months of the year, again, first quarter probably being a little bit of a burn and the last three quarters being more positive.

Maybe I can ask it a different way. Do you think at the end of the year your liquidity, ex any kind of additional capital raise, will be greater than where it stood today?

Nominally greater but not dramatically. Again, if we're at let's say $30 million cash and bank, we started the year at $20 million, so that is an improvement of $20 million or so. Well, we have already raised $20 million just here in the first quarter. So it will be nominally up but not dramatically in terms of operating contributions.

Yes -- no, I'm literally just trying to get at are you going to need to raise more capital? You are at about $22 million of cash on the books today. I am trying to understand if without more debt or equity you will be okay?

It's not our expectation -- we have no plans of raising additional capital. We have plans of operating our business and cash will be generated from those operations.

Okay. Well, you had no plans of raising additional capital before this little piece too. So I just -- okay, I think I understand it. I am not totally sure. The $15 million of Cures mitigation, is that different from the incremental cost savings that you identified? Or is that part of the incremental cost savings?

Well, so our incremental cost savings over and above synergies we have said is between $23 million and $25 million. That is comprised of two items, $15 million that we have specifically targeted for Cures and another $8 million to $10 million of incremental operating savings and we talked about that actually last quarter. So the combination of those two, $15 million plus $8 million to $10 million is the $23 million to $25 million which is coming through right now.

Okay. So that makes sense. And then just in terms of that $15 million of the mitigation. Can you give us some sense of your confidence around that? I mean are these mitigation activities that are essentially fully within your control or are they things like counting on some kind of participation from hospital partners or cost reductions from vendors or that sort of thing?

Let me just -- and I will let Jeff -- these are in our control. I mean I just want to make that 100% clear. And they are all laid out. I don't know, Jeff, if you want to -- Jeff has them all here in front of us.

Sure. Yes, absolutely. So, Bill, look, keep in mind the team has eliminated over 300 positions in the last 120 days, a large portion of those were affectively related to Cures, some of them were related to transforming the business and just rightsizing, if you will, our operating approach. We have also looked at several markets where we're providing -- doing branch consolidations. For example -- well, I won't get into the markets on this call. We can talk about that privately later on. But there have been branch consolidations that we're contemplating. We have made tremendous progress in our supply-chain area around price negotiations and preferred arrangements with certain newer vendors. All these items are within our control and together, again, $15 million plus for Cures mitigation combined with the $8 million to $10 million we announced last quarter gets us to that $23 million to $25 million that we will experience and enjoy in 2017.

Yes, so, Bill, I mean these things are branch consolidation, nursing productivity, overtime, supply-chain, delivery costs, mileage costs and asset management. And all these numbers are things that are in our control. There is no payer negotiations, there is no hospital relationships that are being formed, these are all things that we feel are baked, if you will.

Yes.

Great, that is awesome. And then just as I think about sort of the timing of the incremental cost savings, how should we think about or how do you think about EBITDA -- sort of the EBITDA run rate as we exit the year?

So as I mentioned earlier on the comments from Brooks and Jason I believe, seasonality does affect this business. It has four years. You can go back and look at our 2016 and 2015 core numbers and you will see that seasonality. So we're going to step down in Q1 and then it is going to build from there. And in fact each quarter it is going to strengthen is the way we've got that modeled out. Now we haven't provided quarterly guidance and we won't. But our annual guidance we feel very confident in, the $45 million to $55 million of adjusted EBITDA. And again, the back half of the year is going to be extra strong because by then a lot of our sales initiatives are running on full strength, the cost initiatives have already been fully employed by that point and we're enjoying that. So that is the way I would sort of model it out in your financials.

Yes. And I was thinking less about getting the right model but just helping people understand what the earnings power for the Company might be as we start to think out a year. I mean this is a tricky year because you are in transition and you had the impact of Cures and it takes time to mitigate some of those things. And so, I am just -- if we're $45 million to $55 million this year, trying to get people a sense of as we exit the year is it more like a $60 million, $70 million, $80 million sort of business. That is what I am trying to get a sense of.

So rather than putting a number on -- and look, I would love to and I know you would love me to do that. We're not prepared to do that yet. 18 months to 24 months, just like Dan talked about. Let's think about our core growth. I mean look at my numbers there already and you can kind of see it drop through the gross margin line. For every 1% growth in core sales that typically drops through $1 million, maybe a little bit north of $1 million in terms of profitability in the organization. I said earlier in my remarks that we think we can do 7%, 8%, 9% core improvement during 2017 and do more than going into 2018 and beyond. So you can kind of run that math and sort of see the outcome. But clearly $45 million to $50 million this year we think is definitely within our capacity to produce.

Yes, I just also want to say something else to everybody just so we get clarity on just the level of performance improvement we're putting in place. If you adjust for reserves, we're literally doubling our EBITDA this year, doubling. In the face of a pretty significant headwind from Cures. I just want to -- and again, I know that wasn't necessarily the question, Bill, but I could tell you we're I mean just in that light we're making enormous progress as an organization. And again, I don't know how many organizations out there are going to say they are going to see 100% growth in their EBITDA in 2017.

Not a lot that we cover. Just one last question and thank you for bearing with me. I guess the only -- as a follow-up to Brooks' question on the financing. The only thing that is curious to me at all, everything you say makes perfect sense. With the exception of you knew you were going to be putting out really good Q4 results that and the guidance was going to be something that people were really comfortable with, you were going to have positive commentary. Why be willing -- even though it is a small amount, why be willing to issue even $3 million of shares at $1.53 when you probably would have anticipated a pretty nice bump in the share price today?

Yes. So, look, I mean it is as simple as this, bird in hand, right. It creates additional working capital flexibility for the Company of a small amount. And maybe more importantly Venor is a strategically supportive shareholder. I mean they have already provided a very valuable series of relationships for us in DC. We see that relationship continuing to grow as they help us and several other shareholders are helping us as well to navigate through improved legislation they will benefit this Company earlier than 2021. So I mean those are the reasons. There is nothing else other than that.

Your next question comes from the line of Mike Petusky with Barrington Research. Your line is open.

So you guys have sort of alluded to this, but I wanted to just throw something out I guess and ask a question around it. Another executive in the home infusion area last week said, hey, the industry is working really hard towards getting some relief. Certainly would love to see it in 2018. And then said something to the effect of but feel really good about seeing something potentially by 2019. Obviously no guarantee, but that was essentially the gist of the commentary. And I guess I was just curious, Dan, if you would concur with that general view or not?

I would.

Okay, all right. And then, Jeff, I guess on obviously you guys moving the needle on the core mix. Any willingness to kind of give some sense of what that could translate into in terms of gross margin improvement in 2017?

Well, I was really pleased with our gross margin for the quarter. I mean we were 31.1% I think percent --.

410 bps, right?

410 basis points year over year and even strengthened sequentially from Q3. So, Mike and all of that is related -- well I shouldn't say all, a large portion is related to the strengthening of our core portfolio which in turn obviously drives lower cost on our acquired goods and it's been a lot of work on the supply-chain team too. So I thank them for that. As we're looking forward I think our gross margins are going to be in the lower 30s into 2017. Probably, again, more strengthen in the last six months than in the first. But I think first quarter is going to be around 30-ish which this Company has traditionally run 26%-27% gross margins, we're much higher as Dan just pointed out. So I think that is -- and as I mentioned, each 1% improvement in core revenue typically drops $1 million through. That is through the product costs for the most part. Our sales -- excuse me our operating staff is relatively fixed in nature if you well. I mean I am sure after a certain amount of volume you have to add another pharm tech or something, but it pretty much drops through from the gross margin line.

All right. And I guess last question. Dan, the last time you guys had kind of an official conference call you were really new in the seat, but you essentially said, hey, look, I don't see anything on the surface here that is not fixable. I don't feel like there is anything that is structurally wrong where BioScrip just can't be run as a business. I don't see anything just crazy different than what I saw at Home Solutions or [quorum. And I guess now with the benefit of another 4 or 4.5 months, whatever it has been, can you just comment on your view today versus maybe but it was in November of 2016?

Yes, that is a -- thank you. I am more excited, to be honest with you. I have -- I was just thinking this is probably my fourth turnaround and there is a couple of things that I think are unique about this one. One is that the management team that we put together and the ones also that came over from the previous organization -- everybody has got there oar in the water and are pulling. And that -- my own experience is that takes time. It generally doesn't become this cohesive this quickly. You don't see necessarily the alignment this quickly. And so -- and the buy in this quickly. Because you are an outsider coming in and you are bringing some of your own team members in. And I am -- I think starting out -- we just got an incredibly aligned, dynamic, forward-looking senior leadership team that I would put on par with the team I had at Coram two or three years in. And that was a team that clearly was firing on all cylinders. The second thing and this is from our national meeting. I have done three of these now or this is my fourth one where I have come in and you can get a good sense of the receptivity of your messaging, of your team, of what you are trying to accomplish at those national meetings and we had about 400 people there for -- it was mostly around training but also to provide direction. And I juxtapose that with the other national meetings we have done, one at Coram, one at Apria, one at Home Solutions. And the receptivity from the team was at a different level than I have experienced at the initial meeting. And again, I think that speaks -- I think it speaks volumes to the field leadership. I think it speaks volumes to the messaging that we have in place because it has been -- candidly it has been pretty disruptive. We haven't been sitting around since I have been here. And you could have -- I guess we could've stepped into that meeting and expected a very cautious group of people. And I was overwhelmed by the embrace. And the embrace wasn't a fearful embrace, if you know what I mean. So I think from a cultural standpoint, from an energy standpoint, from an engagement standpoint, we're ahead of plan. And I am really pleasantly surprised about that.

Your next question comes from the line of David MacDonald with SunTrust. Your line is open.

Hey, guys, just one question left. Want to spend it a minute on the Cures Act. Look, I mean you have talked about some optimism about shortening the timeline. And I don't know if you can answer this at this point, but if the timeline were shortened would you guys also be optimistic about whatever they come back with in terms of per diem or payment or whatever offsets the bulk or all of the decrease in the reimbursement on the drugs? I mean, basically what I am trying to size is how big a potential call option are we talking about here if we woke up tomorrow and they said, hey, look, we're going to shorten the timeline. If you guys had to potentially hire some folks back, whatever, how much of that $24 million do you think comes back to you in the event that something does happen?

I can't speak to that right now, I think that is unclear. But I think one of the things that I am very clear about is that this opens up an avenue to a group of patients that we have not as an industry had a benefit for. And 10,000 people per day are turning 65 and older and over 80 I think is the fastest growing population in the U.S. And so, when I look at the broader opportunity here it is -- I think it is extraordinary. I can't give you the -- kind of the short term story, but having now access to a benefit associated with Medicare would be I think extraordinary for the industry.

And, guys, just to follow up on that. In the near term do you expect to see competitors walking away from these patients so you potentially soak up more of them. So if they came back with some type of -- something that brought the margins back to a reasonable level on these patients where you potentially get an incremental pop by the time that would actually happen?

Yes, I think everybody is struggling with the sustainability of caring for these patients. And I think the longer this drags out I think the harder it is going to be for companies to continue to care for these patients. So I think in many instances I think we're all in the same boat here regarding what to do with these. And these are -- the sad part of all of this is a disproportionate amount of these are congestive heart failure patients. These are end-of-life, at risk, fragile patients and it is heartbreaking to see what potentially could happen to these patients given what CMS has done or what -- I should say CMS has done -- what the government has done with this Cures legislation. So, yes, I think that really doesn't necessarily answer your question. I just think we're all in the same boat trying to figure this thing out. I don't know if we exit where we're trying to -- I think we're all just trying to figure this out right now. And if the timeline gets accelerated I think it is going to affect what ultimately we do with these patients.

Your next question comes from the line of [indiscernible] Private Investor. Your line is open.

Congratulations on your quarter, it was great. And people don't realize something -- I think President Trump is going to change everything around for the best for America where you all is going to help you all as well as the patients that you all tend to, like you say, it is heartbreaking. I had a mother, I had other family members, uncles, that you all came in and cared for many years ago, didn't even know you all trade on the exchange. And I bought a lot of shares yesterday and before yesterday when everyone else was dumping your shares. And I wouldn't consider selling your shares for less than $2.00. And I know insiders has been buying as high as $2.50 and as low as $1.32. And of course I think five or six funds bought before the other fund bought yesterday or announced the news. And I believe in you all. And you made me one happy person because my research didn't disappoint me. And hopefully you all will get things -- I see you turn things around now. And --.

Yes, thank you, Michael.

I just think you are doing a great job out there.

Well, that is very kind of you --.

That is all I wanted to say to you.

And I think the better job we do, Michael, the better it is for our patients, for our referral partners, for our payers, for your family members. And so, we feel like all these things we're doing ultimately benefit the -- ultimately benefits our patients, our teammates and our referral partners. So we believe in what we're doing. We believe in this industry. We believe that the future of care is the home and nobody is in a better position to advantage themselves to that than us.

And I can tell you one more thing, nursing home, the people work in nursing home, they don't care about your loved ones like you do. Like me, my mother was always -- I was always my mama's baby boy. At the end she was my baby. And I don't understand why anybody wants to put somebody in a nursing home to get treated like some of those people mistreat those people and actually starve them to death and give them other drugs to knock them out all the time. I'm telling you facts about my mother.

Well, I hear you.

And I think that is why -- that is why --.

My mother was in -- my mother passed away in our home. So we were fortunate to have hospice and -- but, yes, I have heard those horror stories myself.

Your next question comes from the line of Mike Holland with UBS. Your line is open.

I am just not sure I missed this commentary early in the call or if it was made explicit. But you showed that cash stood at $21.8 million yesterday. Is that inclusive or exclusive of the Venor investment?

That includes the Venor cash.

[Operator Instructions]. Your next question comes from the line of Jeff Rudner with UBS. Your line is open.

I have two questions, but first again congratulations on an excellent fourth quarter and an obviously very strong outlook for the coming year. I know a number of the earlier questioners had questions about possibly the current quarter or the current year. I would like to expand that out a little bit if I may in that in the earnings release you indicate we're in the early stages of our 18- to 24-month turnaround initiative. Where would you think the Company might be 24 months out -- or 18 to 24 months out looking into 2018 now?

Well, Jeff, thank you for the question. Certainly from a numbers standpoint we haven't released figures on that. We think it is 18 to 24 months; we think we're going to be between $45 million and $55 million profitable EBITDA by the end of 2017 and we look forward announcing that to you. And we think then there is growth potential beyond that. As we talked about, our core mix will be in the $70 million's this year, higher than the $70 million exactly we have right now, it will be higher than that. But it won't be to our desired state of $85 million. That is going to be further out and later in that 24-month timeframe. So that is probably the most information we can provide at this stage.

Okay, thank you. And then just one other question which I find a little bit surprising and I am not sure you can really address it. We have a little bit less than 100 million shares outstanding at this point in time. So with the stock selling somewhat under $2.00 a share, the market capitalization is under $200 million on a company doing over $900 million in sales. So obviously that is a very low price to sales ratio. Do you have any comment on that?

Well, I think that is our capital structure. And so, that is part of our initiative as well. I mean the first step is turning around the business over the next 18 to 24 months and showing profitable results from the Company. And as we begin to show those after several quarters we feel very optimistic about the ability to restructure the Company's capital structure, if you will.

There are no further questions at this time. I would now like to turn the call back over to the presenters.

Okay. Well, thank you all, for joining us today and obviously we're very, very pleased with the solid momentum in the execution of our plans. And we look forward to updating you on our continued progress. And again, thank you for all the questions and hope you guys have a wonderful weekend.

This concludes today's conference call. All participants may now disconnect.