Option Care Health, Inc. (OPCH) Q4 2017 Earnings Report, Transcript and Summary

Greetings and welcome to the BioScrip’s Fourth Quarter and Full Year 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host today, Kathryn Stalmack, Senior Vice President and General Counsel. Thank you, you may begin.

Thank you. Good morning everyone and thank you for joining us today. Bio Scrip’s fourth-quarter and full-year 2017 financial results were released earlier this morning. A copy of the earnings release can be found in the investor relations section of our website at www.bioscrip.com. Within two hours of this call completion, an audio replay will also be available in the investor relations section of BioScrips website. Dan Greenleaf, President and Chief Executive Officer, and Steve Deitsch, Senior Vice President, Chief Financial Officer and Treasurer, will host this morning's call. Before we get started, I would 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 on current expectations, and there can be no assurance that the results contemplated in these statements will be realized. Please refer to our press release and our reports filed with the SEC, where you will find factors that could cause actual results to differ materially from these forward-looking statements. These forward-looking statements are based upon information available to BioScrip today, and the company assumes no obligation to update statements as circumstances change. During this presentation, we 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. 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 discuss our fourth quarter performance highlights in the context of our turnaround plan, recap the favorable dynamics of the home infusion industry, summarize the main pillars of our strategy to deliver organic top line growth and touch on the direction I see your business heading through 2019. I’ll then hand it over to Steve Deitsch, Chief Financial Officer for more detailed discussion of our financial results and guidance for 2018. 18 months ago, when BioScrip was acquired by when BioScrip acquired Home Solutions, I assumed the leadership role of the combined organization and put into action a strategic turnaround plan to remedy what I considered to be an underachieving home infusion business with significant potential. At the time I shared an ambitious vision for BioScrip based on five key priorities, number one, driving profitable growth, two, optimizing operations, three, enhancing the customer experience four, strengthening employee effectiveness and empowerment and five, exceeding cash collection targets. So what does our scorecard look like thus far? First, in the category of profitable growth, our core revenue mix has expanded significantly from 66% in the third quarter of 2016 when Home Solutions was acquired to 76% in the fourth quarter of 2017. We all -- we are well on our way to a longer-term objective of 85% quarter non-core. The favorable trend in core mix combined with supply chain improvements in turn benefited our gross profit margins, which increased by more than 1000 basis points from 27.9% in the third quarter 2016 to 38.5% this quarter, a record level for BioScrip. As core mix continues to grow and we achieve additional procurement savings, and benefit from the cures fix, we believe our longer-term gross profit margins can exceed 40%. Second, in the area optimizing operations and driving our single repeatable model, our fourth quarter operating expenses decreased by 18% year-over-year, primarily due to an optimized workforce and lower bad debt expense. As we continue to implement a single repeatable model across our business, reduce variation and implement best practices, we expect to see further operational improvement. Third, enhancing the customer’s experience underpins everything we do at BioScrip. For example, our net promoter score ratings are now at 82% which favorably compares the highly regarded companies like USAA, Costco and Nordstrom, reflecting both the speed and quality of our team’s ability to onboard patients. Now I’d like to share a patient experience from February of this year. Rebecca Ann Lynn [ph] from Tampa in Coral Springs intake facilities, made me feel not only welcome but a friendly priority. I had an issue with poor service at my last service provider and wanted a new one to work with. I was referred to BioScrip and I am thrilled so far to be here. My infusions are chronic and burdensome part of my life, so to be involved with people that make the process as smooth as possible is important to me. The added benefit to hear quick response of positive attitudes is amazing, also the gal who set up my second delivery, I forgot her name maybe Lisette [ph] but I’m not sure, was super pleasant and I look forward to working with her, Melbourne branch commercial patient. Fourth, we have made considerable strides strengthening employee effectiveness and empowerment. From top to bottom of our organization, I’m fortunate to have the best talent in the industry by my side, since the Home Solutions acquisition we have top graded nearly the entire executive leadership team and in the fourth quarter, appointed Harriet Booker as our new Chief Operating Officer. Harriet, a proven industry veteran has worked in executive leadership roles for Option Care, Coram/CVS Specialty Infusion Services, and Apria Healthcare among others. In the fourth quarter, we also appointed Danny Claycomb as our Senior Vice-President of revenue cycle management. Danny has decades of highly relevant experience including heading up revenue cycle management at Coram/CVS Specialty Infusion Services from 2005 to 2015. While we have slimmed down the organization, we have worked hard to put the right people in the right seats, drive accountability and reward performance. As a result, we are accomplishing more with our optimized infrastructure and a high performing culture is emerging at BioScrip. Finally, we remain diligent in our cash collection efforts, which have helped contribute to a $15 million improvement in operational cash flow over the prior year quarter, enhancing the overall health of BioScrip. BioScrip’s fourth quarter 2017 financial results demonstrate our turnaround plan is working. Our adjusted EBITDA increased 77% year-over-year to $16.8 million, an all time quarterly record for the company. For the full year, adjusted EBTIDA increased 45% to $45 million within our original guidance range in a company first related to guidance. And our operational cash flow before interest expense improved by $52 million compared to the prior year. Our adjusted EBTIDA growth continues to convert to cash. It is important to remember that our achievements in the fourth quarter and for the full year of 2017 came in the face of external challenges, such as a 21st century Cures Act reimbursement cuts in the first quarter and throughout the year and the disruption from hurricanes Irma and Harvey in the third quarter. Moreover to put BioScrip on the right path, we dedicated significant amount of time and effort in 2017 to integrate the Home Solutions acquisition, refinance our credit facility and exit unprofitable United healthcare product lines. Because of our actions today, BioScrip is a fundamentally stronger business and I look forward to moving from the turnaround phase to new chapter of profitable organic revenue growth. The home infusion industry is growing 5% to 7% per year, driven by accelerating shift in healthcare away from higher cost, institutional settings such as hospitals to the lower-cost home setting which is preferred by patients and delivers effective outcomes combined with lower risk of infection. Payers increasingly are driving volume to cost effective settings that demonstrate attractive outcomes and many are actively focused on side of service redirection to the home. The home is becoming the disruptive service channel in the infusion market. We believe, we are beginning of a tremendous longer-term shift in healthcare, especially when you consider the home infusion today represents 15% of the roughly $100 billion total U.S. infusion market, which includes dramatically more expensive sites of care. As an industry, we have a huge opportunity and at BioScrip home infusion is all we do. We are uniquely focused compared to other players, a part of a large organization. Routinely these days I read about the rapidly changing healthcare landscape and the efforts by industry participants to get closer to the patient. We are already there, as the only independent national pure play provider of home infusion services BioScrip is in the right place at the right time with the right team. In February of 2018, we were thrilled to receive positive industry news with the Cures Fix, which is a real win for patients, the health care system and BioScrip. The Medicare Home Infusion Therapy Act six Act of 2017 was enacted in the law on February 9 as part of the continuing resolution. The law provides for transitional benefit payment beginning January 1, 2019 for Medicare Part D home infusion services, which will continue until the commencement of a permanent payment structure under the 21st century Cures Act currently expected to take effect in 2021. We believe the Cures Fix will add a minimum of $9 million to our EBITDA starting in 2019. I’d like to express my sincere gratitude to everyone who made this critical piece of bipartisan legislation reality, including the nation’s lawmakers as well as a lobbyist and HIA teammates and board members who champion the cause of chronically ill patients in need of care. The Cures Fix today represents a positive catalyst for BioScrip. I’d like to point out that BioScrip stands out from other home health peers that have significantly heavier exposure to CMS reimbursement. As a result, we have relatively low exposure to the pen [ph] stroke risk. We have a diversified commercial and government airbase with more than 1000 relationships and no single-payer including Medicare accounts for greater than 10% of our revenue. Against this favorable industry backdrop, I’d like to summarize the main pillars of organic top line growth strategy as we proceed through 2018 and beyond. Our primary sales initiatives include one, continuing to expand core sales growth within 85% core mixed target, two, improving sales force effectiveness through our new CRM tool, daily sales dashboards, character optimization, incentive plans and enhanced training, three, expanding and strengthening hospital and payer relationships including growing strategic preferred provider agreements, four, improving customer service to referral sources in patients such as through leveraging our voice to the customer initiative which we launched in December of 2017 to track our progress and understand our customer satisfaction levels in hyper priority needs, and establishing a central verification as the authorization model, a single repeatable model across our network that delivers speed and consistency to our customers and five, promulgating clinically validated data and studies demonstrating the efficacy and cost efficiency of home infusion to drive side of care redirection. In summary, we concluded 2017 with record fourth quarter financial results, delivering significant year-over-year increases in core revenue mix, gross margin, adjusted EBITDA and cash provided by operating activities. We have overcome several external and business challenges in 2017 and I believe we entered 2018 in one of the strongest positions of the company’s history. We expect to make good progress growing our core business and expanding our profitability. We’re making critical investments in people, technology and infrastructure setting up BioScrip to have a breakout year in 2019. Our expectation for 2019 is deliver a minimum of $75 million of adjusted EBITDA resulting from core revenue growth at or above market rates, continued gross margin expansion and operating expense leverage coupled with the benefit of the Cures Fix. With this type of performance, we would position the company for meaningful free cash flow generation to allow for debt repayment and the potential refinancing of our debt and lower interest rates. We still have more wood to chop, yet I am very optimistic about BioScrips future and our ability to deliver long-term sustainable growth and value creation for our stakeholders. I’d like to turn the call over to Steve Deitsch. Steve?

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

Thank you. At this time, we’ll be conducting a question and answer session. [Operator Instructions].Our first question comes from Dan [ph] McDonald with SunTrust Robinson Humphrey. Please proceed with your question.

Good morning guys.

Hey, Dan, how are you doing?

I am good. How are you guys doing?

Doing well.

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

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

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

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

And then just interest expense, I assume that’s going to bump up just a little bit, given you know the…

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

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

Yes, that’s three questions. Let me – the first one was just remind me the first one Dave. I’m always right up

Just around the net promoter scores.

Oh, yes, no this is something that’s never been measured here before Dave. And you know we think it’s as you know it’s a very valuable tool. I said 82%, I mean just for the group. I mean USA is actually at 80, Nordstrom is around 76%, you’ve got -- Costco is probably in the mid-70s and you know even people you think about Apple, the Apple laptop group is in the low-70s. So it’s a pretty significant score and again, I think it underscores the value proposition that clearly BioScrip has as well as the infusion industry. In terms of payers, there isn’t one that were, that we’re talking to, that isn’t talking about redirection programs. Dave, I mean it is they see the value, they also, it’s not just you know I think there’s a value in terms of what is cost the cost the system is clearly one of those value drivers, but also what is the cost to patients. I mean I think that’s something that you know were 20% of 16,000 is a lot more than 20% of 2600. I know, we’ve talked about that before, but that’s the difference for example in cellulitis. And then, and then the satisfaction scores are or always higher in the home on an aggregate basis. And then lastly, we all know it’s safer. I mean there’s no question about the safety, so you I -- we just feel the momentum is just building and building. I think on the hospital side, I think they are looking for partners, Dave. They are looking for somebody who can say, hey listen, how do you help me with total cost of care? How do you help me with patient transition? And again those – that’s evolving and I think we have a lot of opportunity to increase our value proposition with the integrated delivery networks and as a result, the number of agreements we have grows every quarter. I’m not going to offer specifics on that Dave, but that’s clearly something that, that we are seeing, and then what was the third question, Mr. [Indiscernible] I missed that one.

I just have one final question, and I realize this is still kind of ongoing, so I don’t know how much detail you guys can get. But you talked about not expecting the accounting review to have a material impact on 2017, can you give us any sense of whether you expected to have an impact on 2018 and going forward in terms of either additional spending you have to do, or whatever to make sure that the systems and the accounting is you know kind of where you needed to be?

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

Okay, thanks very much.

Thanks, Dave.

Our next question comes from Brian Tanquilut with Jefferies. Please proceed with your question.

Congrats on the progress in 2017. Now just to follow up on a few questions, as we think about 2018, and revenue guidance that you guys gave. How should I be thinking about the moving parts on organic growth and United impact, and how does that also kind of build into the 2018 revenue guidance that you provided?

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

That does. Yes, okay, so it’s the United business that you’re factoring in. Now, kind of follow up to that Dan, as I think about you all the initiatives that you’ve put in place. I mean overtime shouldn’t BioScrip grow faster than the industry?

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

Okay, no that’s very helpful. And then Steve, as I think about tax rate or cash taxes with a new tax bill now legislated, how should we be thinking about the impact in your deductibility of interest.

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

And then last question from me Dan. As I think about – about this before, but now that the CVS/Aetna deal has been announced and it’s pending, how should we be thinking about how you are strategizing around that considering that, obviously, CVS owns Coram?

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

All right. Got it, thanks Dan and thanks Steve.

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

Yes, good morning guys. Congratulations…

Hey Brooks how are you?

I’m fine. Tremendous progress and of course like everyone I’m looking forward to that quarter where we don’t have one of these gadgets, so I’m sure that’s coming down the road.

My area, you know Brooks it’s like you know I’ll say that, you don’t clean up 10 years of a mess in a year. I mean, I just – it’s just is a fact. And I think like there is things that surprises from time to time but in general when I look at EBITDA grows 77% year-over-year. If I look at the first time in the company’s history that it met it’s original guidance targets. If I look at the operating cash flow of improvements of $51 million, it’s like you know it’s hard for me to kind of like not take a step back and say, wow.

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

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

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

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

Absolutely. Again I'm looking forward in the future. Congratulations on all you have accomplished so far.

Thanks, Brooks. Appreciate all your support too.

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

Good morning. Nice quarter, guys. Just had a couple…

Thanks Kevin.

You bet, Dan. So, just one for Steve quickly on the internal accounting review; what are the dates? I mean, I know in the material weakness that you called out, it won't effect 2017, but on the internal control deficiencies do we have a timeframe that that's looking at?

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

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

Yes. That’s a good question Kevin. I think what we’re trying to do is make sure that we’re positioning for the future. And we’re making investments in personnel. We’re increasing our sales force size. We’re making investments in technology. We’re making investments in infrastructure. And really – we think we can have a terrific year in 2018, but we think we’re in a very unique position going forward. And at some point in time we just said, we got to make these investments. And we’re doing it, and we right-size the organization. I thing we’ve optimize the structure in many respects, but it's important that we position as company so that we can capture the full value of the company in the future 2019 and beyond.

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

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

That’s helpful. Thanks guys.

Thank you, Kevin.

Our next question is from Dana Hambly with Stephens. Please proceed with your question.

Hey, thanks good morning. Just a follow-up on Kevin’s last question, Steve; the maintenance CapEx you would expect kind of at similar levels to CapEx in 2017?

Correct. That’s right.

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

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

Okay. Okay, thanks for the detail. And then, last one from me. Stephen on the G&A cost for the quarter is probably higher than or certainly higher than what we were looking for. I think you mentioned there were some bonuses in there. Is that the only at a difference?

Yes. That’s right.

Okay.

Given the great quarter that we saw, we were able to award and accrued performance bonuses for a good number of our employees that really delivered this year.

And Dana, just as you know, this is part of the cultural change. This company have not paid bonus since 2009. And one of the things we’re trying to drive is, if you do well we want to pay you well. And when you see a company that’s improved it operating cash flow by $50 million, it’s EBITDA by 45% year-over-year. You think the total that the things from integration, the hurricanes to some of the cost cutting we had to do, it’s important that we acknowledge the amazing work that the BioScrip team did and it’s important that we continue not only to invest in infrastructure and IT, but we invest in the people that have really made a massive difference in this company.

Okay. All right. So assuming many great quarters to come this should be a seasonal item we should consider?

Correct. That’s correct.

Okay. Thanks very much.

Our next question is from Mike Petusky with Barrington Research. Please proceed with your question.

Hey, good morning, guys. Just few questions. So I just wanted to on the United, I think you guys has said last quarter that there was about 40 million to 45 million of the United business left. Is that about right?

That’s right, Mike

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

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

And then, Dan, I guess on the payer mix goals, I think at one point you said, hey there's a chance we could end 2018 pushing on that 85%. I mean, is that still realistic or might it take another two, four, six quarters to sort of get there.

Yes, that’s a good question. It’s – I won’t say at the end of 2018 we are going to be there. I will say that I will say we’ll see continuously improvement in this area and that’s kind of where we are Mike. I mean again this is generally something that’s gradual, generally you know we still have patients that were exiting as well or not taking or whatever you want to call it or. So I just think it’s probably going to be more gradual than that is what I would guide to.

All right, okay great. And just one more on the third quarter call you guys gave a little bit of a window into what you had seen through October in the fourth quarter in terms of census and payer mix, you essentially said payer mix pretty good, census a little bit down. I mean, now we are about three quarters of the way through Q1. I mean do you have any general commentary around what you are seeing so far in Q1?

We are not at liberty to talk about that Mike at this point.

All right. Well, very good. Congrats on the progress for the last six quarters or so. Great job. Thanks.

Okay, thank you Mike. Appreciate all your support.

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

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

This concludes today’s conference. You may disconnect your lines at this time. And we thank you for your participation.