Good day, and thank you for standing by. Welcome to the Option Care Health Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Shapiro. Please go ahead.

Good morning. Please note that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. We encourage you to review the information in today's press release as well as in our Form 10-K filed with the SEC regarding the specific risks and uncertainties. We do not undertake any duty to update any forward-looking statements, except as required by law. During the call, we will use non-GAAP financial measures when talking about the company's performance and financial condition. You can find additional information on these non-GAAP measures in this morning's press release posted on the Investor Relations portion of our website. With that, I'll turn the call over to John Rademacher, our Chief Executive Officer.

Thanks, Mike, and good morning, everyone. Overall, the third quarter was a strong performance, and our team of over 7,500 dedicated members at Option Care Health continue to set the pace in the home and alternate site infusion market. I'm personally quite pleased with our ability to remain focused on our key objectives and expand the census of patients that we serve. Patient care is at the center of everything that we do. Our purpose is to provide extraordinary care that changes lives for the better, and the team continues to fulfill that on a daily basis. Given that there is a loved one on the receiving end of every dose that we dispense and infusion we oversee, I believe our team is relentless in driving for the highest quality and best patient experience. In the third quarter, our patient satisfaction score exceeded 92%, and we achieved a Net Promoter Score of over 75. While we continue to deliver solid results for our shareholders, we also continue to deliver unsurpassed service to our referral partners and care for our patients. In the quarter, our team continued to collaborate with our key stakeholders across the spectrum of bio-pharma, payers, health systems, and physicians to support our patients and to deliver care in their homes or one of our convenient infusion centers. This resulted in balanced performance across the broad portfolio, including acute therapies for patients transitioning from a hospital setting to those receiving care for an ongoing chronic condition. There's a lot that impacts financial performance, but overall, the results were strong and in line with our expectations. We generated approximately $110 million in adjusted EBITDA and revenue of $1,093 million, resulting in another quarter of double-digit adjusted earnings growth and an adjusted EBITDA margin of 10%. The capital structure has never been stronger, and we continue to generate solid cash flows and improve the leverage profile of the enterprise. In my opinion, the focus of our revenue cycle management team has been outstanding, and our ability to drive the velocity of cash collections has never been better. On our second-quarter call, you will recall that we committed to repurchasing $100 million in stock in the near term, roughly equal to the $106 million gross breakup fee before taxes and fees related to the Amedisys transaction. I'm pleased to share that we completed that repurchase effort in the third quarter. Year-to-date, we have repurchased $175 million in stock while continuing to drive our leverage profile well below 2 times. I want to shift gears before handing the call over to Mike to share a few thoughts on our M&A strategy, given some of the developments from earlier this year. As we have consistently articulated, we view this deployment of capital in support of M&A as a cornerstone of our strategy to create value for our shareholders. The base business continues to perform very well and has a strong foundation with a favorable capital structure. Given this, we continue to be well positioned to evaluate opportunities for strategic capital deployment intended to deepen our market presence or increase our capabilities to serve patients in the home or alternate site setting. As mentioned on the second-quarter call, we have thoughtfully considered feedback from our shareholders as we continue to seek to identify value-creating opportunities and focus our M&A efforts. From my vantage point, we see an array of opportunities to strengthen our offering, and given our strong foundation, we will continue to be disciplined and thoughtful in evaluating potential targets. Our primary focus continues to be on executing on our core home infusion business and maximizing the value of our platform as we evaluate capital deployment strategy. While we are not in a position to lay out details or specifics, as I mentioned, we would anticipate near-term M&A efforts to focus on assets closer to our core business and would anticipate deploying capital opportunistically from our cash balances and leverage capacity. As Mike and I have consistently conveyed, we are comfortable operating at a net leverage profile up to the 3 to 4 times range. Having said that, we will be quite disciplined in evaluating both economically and strategically the attractiveness of each opportunity. This is a facet of our strategy that we take very seriously, and I'm confident that, given our market position and capital structure, we are well positioned to continue our M&A efforts to increase value for our shareholders by delivering value to our key stakeholders. And I will finish where I started, which is to reiterate the strong performance of our business and express the confidence I have in our team to continue providing unparalleled patient care in the home and alternate site setting. With that, Mike will provide additional color on the results.

Thanks, John. Overall, the results from the third quarter were quite strong and continue our track record of double-digit adjusted EBITDA growth with solid cash flow generation, and we expect to deliver another strong year for our shareholders. Revenue of $1,093 million was up 7% over the prior year and as John mentioned, was balanced across the portfolio. We've seen growth in our acute therapy portfolio stabilize to lower single digits as we've anniversaried the competitive gains from a year ago, but volumes continue to be solid as we partner with health systems to transition patients from the acute care setting. Chronic revenue continues to be strong across the portfolio, and recall that we exited two chronic therapies earlier this year that collectively represented a headwind of roughly 100 basis points on a consolidated basis in the quarter. Gross margins continue to be strong with Q3 gross margin of 23.3%, as gross profit dollar growth outpaced the top line. Our ability to offset the mix shift towards chronic and expand margins was driven by our relentless focus on operational efficiency as well as some procurement tailwinds. As I mentioned on the second-quarter call, our procurement environment is quite dynamic, and we see puts and takes every year. We believe our procurement team is the best in our industry and is constantly collaborating with bio-pharma, as the majority of our procurement efforts are direct with manufacturers. Earlier this year, we were able to drive favorable margin dynamics for a number of codes that resulted in an approximate $8 million to $10 million benefit to the gross margin line in Q2. In the third quarter, that benefit was approximately $12 million to $14 million, which benefited margins considerably. Again, this is not an exact figure as there are many volume, payer, and therapy dynamics at play. We see a similar benefit in the fourth quarter, and that's incorporated into the revised guidance that we shared this morning. And while we are not in a position to provide any preliminary thoughts on 2024 this morning, we expect with a high degree of conviction that the favorable procurement dynamics that I'm referring to will subside in early 2024. Adjusted EBITDA of $110 million represented 10% of revenue and grew 28% over the prior year. Even excluding the approximate $12 million to $14 million procurement benefit, we still delivered mid-teens adjusted EBITDA growth in the quarter. As John mentioned, we completed the $100 million share repurchase effort in the quarter. You'll recall, we announced our first-ever authorization in the first quarter this year for $250 million and have deployed $175 million to date. We exited the quarter with $386 million of cash on the balance sheet even after the share repurchase efforts and settling all fees and taxes related to the Amedisys transaction. We finished the quarter at a net leverage profile of 1.7 times. So very pleased with the progress and financial profile exiting the third quarter. Finally, as you saw in our press release, we've updated our guidance this morning. And for the full year, we now expect to generate revenue of $4.23 billion to $4.28 billion, adjusted EBITDA of $420 million to $425 million, and cash flow from operations of at least $350 million. So shaping up to be another very productive year for the Option Care Health team. And with that, we're happy to take your questions.

Thank you. Our first question comes from David MacDonald with Truist. Your line is open.

Yes. Good morning, guys. Just a couple of questions on the ambulatory infusion suites. I was wondering if you could give us that number in terms of percentage of nursing visits in the quarter. And secondly, just are you continuing to see meaningfully higher uptake among newer patients relative to kind of the installed base, so we should continue to see that figure drift higher over time?

Good morning, Dave, it's Mike. Yes, good progress in the quarter. In the quarter, we opened an additional five new infusion suites. So right now, we're at about 160 infusion suites across the country, right around 650 chairs. So good progress. The team continues to identify those strategic expansion areas. We're still around that 28%, 29% of total visits, although given the top-line growth, we actually have seen really solid growth in the number of visits in the infusion suite, even though as a percent of our total nursing, it's relatively consistent with the second quarter. One of the leading indicators is how well we are penetrating those new patient on-boards. And I’d say we're highly encouraged by the traction. Again, this is part of the snowball rolling down the hill because part of it is making sure we have those infusion suites strategically located near the patient densities of those chronic cohorts.

And then, Mike, is 25 to 30 kind of the right number to think about on an annual basis? And as that footprint continues to expand, any more meaningful conversations with either payers about more aggressively pushing site of service redirection or even things like hospital JVs where you could drop a few of these around a big hospital system? Just anything to update there?

David, it's John. Yes, I think that the 25 to 30 is probably the right range. We will always continue to push that forward. I don't know that we believe there is a cap at this point. But it takes time. As we've talked about before, the different start-up and then ramp-up that happens with that as we're adding more facilities, it just drags down in the near term, some of those percentages. We are working with payers around site of care initiatives. We certainly continue to have very productive conversations with some of the leading health systems around ways that we can better meet their needs and the needs of their patients, whether it's through utilizing our existing infrastructure or thinking about how we would better partner with them in order to capitalize on that patient flow. So encouraged with those conversations and also encouraged around the thoughtfulness of site of care and providing high-quality care at an appropriate cost in a setting where those patients want to receive it.

Okay. And then just a couple of others, guys. When we think about capital allocation, just given the cash flows of the company and the cash balance, should we also think about buybacks becoming a more consistent part of the capital allocation on a go-forward basis?

Yes, I believe we will maintain a balanced approach. Given our strong balance sheet and cash flow, we have established the right to pursue a diverse capital allocation strategy. As John noted in his earlier comments, we have made significant progress with our authorization, largely due to the breakup fee we received, which we felt was appropriate to redeploy quickly. We will continue to enhance our capital structure because, as John mentioned, we see many attractive opportunities for mergers and acquisitions. While we will keep balancing both strategies, in the short term, the focus will be more on M&A activities.

Okay. And then, just one last question. I know you're not providing guidance for 2024, but I have a couple of questions regarding the transition. First, Mike, when we consider the procurement benefits, it appears to be a bit over $30 million. I would assume the appropriate starting point is in the upper 390s, which you can adjust as you move toward 2024. Additionally, I have a couple of other questions about cash flows and the Amed breakup fee. Regarding the top line, I believe you mentioned that those products are expected to have around a 200 basis point impact for the year. Is that everything to consider for 2023 in relation to 2024?

Yes, I'll begin by stating that we cannot provide guidance for 2024 at this time. However, in relation to your comments, our best estimate suggests that the procurement tailwinds were between $20 million and $24 million in the second and third quarters. For the fourth quarter, we anticipate figures in the range of $10 million to $12 million. Overall, you can consider approximately $30 million in procurement, which we have been clear is mainly transitional. Regarding cash flow, our guidance exceeding $350 million does include the $106 million break fee. Nonetheless, we are dedicated to cash flow generation, and when normalizing for the Amedisys receipt, we expect to maintain high cash flow efficiency. The two exited therapies, Makena and Radicava, contributed to over 100 basis points of headwinds, which impacted us in the first quarter and early second quarter. We will address this in more detail in February, but the headwind will be less pronounced as we move into next year, particularly in the first part of the year.

Okay. Thanks very much, guys.

One moment for our next question. Our next question comes from Matt Larew with William Blair. Your line is open.

Hi. This is actually Madeline on for Matt. Thinking about the M&A sort of post Amedisys deal, I know you've talked about listening to shareholder feedback. Are there any specific criteria or specific things that you look at when you're evaluating deals that have changed in the last couple of quarters compared to how you were thinking about M&A maybe before the Amedisys deal?

Hey Madeline, it's John. As I said in my prepared comments, and I think we mentioned in the second-quarter earnings call, our focus, based on some of the feedback from shareholders during the Amedisys process, will be closer to the core home infusion, alternate site, and infusion business. I don't want to box us in too much, but we're always going to look for opportunities to expand our capability set to ensure that we remain and increase our relevance with our partners in the marketplace across the key stakeholders of biopharma, payers, and prescribers. All those components fit in there. We talk a lot about it needing to be both economic and strategic, so if there are opportunities for us to increase our market presence, if there are opportunities for us to increase our capability set to provide a better clinical outcome for the patients we serve, if there are opportunities for us to expand our capabilities to be more convenient for patients to receive care from Option Care Health, all of those kind of fit into that criteria. We're always looking at it on a cash-on-cash basis. We are focused on creating value for our shareholders through the process. As Mike said in the last response, we believe that deployment of capital in a multifaceted way, but more importantly, through deployment on M&A to expand our capability set is a really good use of capital and create that value for our shareholders over the mid and long term.

Great. Thank you. And then one more on the infusion suites. I think you've talked about you're seeing like a 10% nursing productivity uplift in the suites, but the suite so far has not been fully ramped. Can you talk about how you're thinking about that productivity uplift going forward as you add more suites and as they ramp up to full capacity?

Yes, Madeline, it's great to hear from you this morning. Our AIS expansion strategy is about two years old, and we initiated this in late 2021. We have a disciplined model predicting that by the first anniversary, around month 15, these will break even, meaning the nurse productivity will cover utilities, rent, insurance, and facility infrastructure costs. By the second anniversary of opening, we're observing about a 10% productivity boost from the earlier sites, which is advantageous for both cost of service and margin expansion. This increase also facilitates growth by allowing us to add additional nursing hours, which is a limited resource. We have not yet explored the maximum potential of this productivity uplift. It’s reasonable to expect that with our operations teams in the field, ultimate productivity will significantly exceed 10% since none of our centers are operating at full capacity, nor do they need to be for us to realize growth and margin-enhancing investments.

Great. Thank you so much.

Our next question comes from the line of Lisa Gill with JPMorgan. Your line is open.

Good morning, John, Mike. Just want to follow up on one thing to start, and that is, Mike, on the implied fourth quarter revenue. Historically, if I look back at the last few years, you don't see a deceleration between the third and fourth quarter. Is there anything that's shifting this year versus what we've seen historically?

No, I think if you consider our updated guidance, it aligns with what we discussed in the second quarter. We anticipate that various factors will result in a relatively flat performance compared to the third quarter. Regarding the acute business, we've noticed a decline back to the low single-digit range. Last year, when several competitors exited the market, we experienced a significant influx of patient transfers, which is still impacting us year-over-year. There's also some pricing dynamics at play. However, overall, we expect to see solid volumes as we move into the fourth quarter.

Okay. Great. And then my second question is around managed care contracting. So if I think about this time of year, can you just remind us like how should we think about managed care contracting? And kind of going back to one of your earlier comments, talking about working with managed care, getting more people into your infusion suites. Is this something that happened on an annual basis? Is this a three-year type of relationship? And as you have those contracts come up renewal, is there anything that you would call out that you would say is different on a go-forward basis with the relationships you have across managed care?

Yes, Lisa, it's John. Most of our contracts are evergreen. So they'll have an automatic renewal within them. Some of our larger national programs, there'll be a three-year on that. We don't really come up to the edge every year waiting for the drum roll to see if we renew or not on that. They pretty much continue to flow through that process. We have been working across the spectrum with the largest to the smallest health plans, looking for ways for us to help them bend the cost trends. Some of the conversations that we're having are certainly focusing around site of care initiatives that they have, looking at different cohorts of patients that they're focusing on are things that happen on a regular basis. These discussions don't necessarily only happen once a year; they happen through our quarterly business reviews and other aspects that we are undertaking as a partner, not only to demonstrate the value that we're bringing them, the satisfaction of their members, those types of things. We’re doing that on a pretty consistent basis with our team of dedicated professionals in the market access area. I'd say some of the conversations have been focusing really on that site of care initiative around looking at specific areas of focus, depending on the payer. We certainly have been talking to them about some of the cost of nursing and trying to ensure we're getting rate increases where we can, where contracts will allow us with cost of living adjustments and/or with some renegotiation in that process. I think that folks understand some of the pressures on health care providers in recruiting and retaining clinical talent in today's environment. No one's coming to us saying that they want to pay us more, but when you can put a strong base behind it and demonstrate the high-quality care that we're providing, the ability to have those conversations and see some rate increases is something that we are focusing on.

John, could you provide some insights regarding staffing? You mentioned retaining nursing staff and the challenges we've faced in recent years. Do you think the situation has improved now that we seem to have reached an equilibrium? I recognize there are still wage pressures, but is there anything else you'd like to highlight as we assess costs from that perspective?

Yes. I would say it has stabilized. It's not easy by any stretch of the imagination, and I'd remind our team that we've got to recruit our team every single day. We're looking for ways to put programs in place to provide appropriate incentives and other aspects to ensure that we are an employer of choice and have a high value proposition for the team. The ability that we have with Naven, and Naven continues to expand its length of nurses that it has in its roster as part of its network. The ability for us to tap into that has allowed us to continue to grow as well as the recruiting that we're doing at Option Care Health for full-time nurses within our environment. It's not easy, Lisa, but I'd say it's not as crazy as it was 18 months ago at the peak of some of the challenges that everyone is feeling in health care.

That’s very helpful. Thank you so much.

Our next question comes from Joanna Gajuk with Bank of America. Your line is open.

Good morning. Thank you for taking the questions. So a couple of follow-ups. I guess on the very last point on Naven. Can you give us an update on integration there? I guess there was a new system you were introducing and you added a third smaller asset recently to the platform. So can you give us a flavor where we stand and especially on this new system, are you also getting traction with biopharma when it comes to the staffing of their clinical labs?

Thanks, Joanna, it's Mike. Naven has been an outstanding success. John and I are very pleased with the progress we've achieved. The platforms are fully integrated, operating on a single technology stack, and we now have the Naven Jersey. The team is gaining momentum in recruiting due to our national presence on one platform. We're experiencing strong interest from other Naven clients in the industry, including biopharma, as they explore options like manufacturer programs and clinical trials. We made a small acquisition in the third quarter, a nursing staffing agency that has already been integrated into the Naven platform. Although it was a minor addition, it complements our efforts well. Looking ahead, the potential to scale this platform is quite appealing.

Regarding the addition of assets, you mentioned previously that in the near term, spending will concentrate on core or nearly core home infusion assets; however, we haven't observed much activity this quarter. Is there a specific timeline for things? Should we anticipate an increase in activity later this year or next year? Also, could you provide any insights into the pace of the deals and their closings?

Yes, Joanna, it's John. We continue to take a look and understand what's available in the marketplace as assets come available or we engage in different conversations. We don't really put a time box around when that is; it's about making certain that we're disciplined in our approach and focused on where we can add value. We don't feel like we have to do anything. The core business is operating extremely well, as you saw by the results in the quarter, and we have confidence that we can continue to do that. We understand that with the capital structure that we enjoy today and the ability to generate cash, we will find opportunities to increase value for our shareholders, and the deployment of that capital multifaceted way is part of that strategy. I wouldn't time box it; I don't feel as if there's a shot clock. We're looking for great assets that complement what we do and increase relevance with the payers, prescribers, and patients. If we find the right assets that are economically and strategically aligned, then we will look to deploy capital for those types of opportunities.

The only thing I'd add, Joanna, is look, for every opportunity that makes it to a headline, there are likely dozens that die on the edit room floor. As John reiterated, we’ve driven a discipline that there are many strategically attractive assets out there, but it has to generate very attractive cash-on-cash returns and represent economic opportunities as well.

No, I appreciate that. That makes sense. If I may ask a follow-up regarding your commentary on 2024. I understand you're not providing guidance. I value your mention of the procurement benefits this year creating challenges next year and the therapy exits as hurdles this year, making it easier to complement for the next year. Are there any other significant tailwinds and headwinds we should consider? Perhaps subcutaneous formulations could be introduced for some key drugs in the coming years? Also, could you provide some insight on the rollout of Alzheimer's drugs? Are you noticing more MA plans covering them? Are there any additional factors we should think about as we approach next year?

Sure, Joanna. I'll reiterate my legal disclaimer, which is to say we're not in a position to provide granularity. The reality is we're still in the process of working on our 2024 budget and expectations, which we will be eager to share in February of '24. I think I would underscore a couple of things. Number one, John and I have reiterated that we maintain our conviction in the growth profile of our platform. This is a very dynamic environment, and we don't operate in a static environment. There are constantly puts and takes, both from a therapy portfolio, disruptive technology, procurement dynamics, and payer dynamics. As we formulate and finalize our thoughts, we'll definitely circle back. But rest assured, there will always be, as there have been over the last four years since we consummated the merger, a tremendous number of variables that are moving.

The only other thing I would add to the specific question around Alzheimer's is that again, it's been slow in uptake. We're still working to understand the medical policies for payers as we move forward. We believe our platform and clinical capabilities are well positioned to support these patients, but there's still much development needed for us. We're working with biopharma and listening to the feedback from payers and doing everything we can to be a partner where appropriate and look to participate where we can add value.

Thanks for taking the questions.

Our next question comes from Brian Tanquilut with Jefferies. Your line is open.

Good morning, guys. John, maybe as I think about the pending legislation around hospital site neutrality for drug administration. How are you thinking about the potential downstream impact of that if implemented, for infusion providers such as you guys?

Yes. I'll start with a general overview. We continue to engage with lawmakers in Washington to promote expanded coverage and access for Medicare beneficiaries, enabling them to fully benefit from home and alternate site infusion services. Currently, their access is quite limited, and this is well-known. We are also assessing other legislative areas that may present opportunities. Our operational model is efficient, which supports effective home and alternate site infusion delivery. The effectiveness of our nursing teams, infusion suites, and pharmacies significantly boosts our capabilities. If additional opportunities arise or if the economic landscape shifts to better align with cost-effective providers, we believe there may be a chance for us to get involved. However, we will require legislative changes or other measures to facilitate our services for Medicare beneficiaries in their homes or in our infusion suites.

Got it. That makes sense. And then, Mike, as I think about maybe the puts and takes on some of the moving parts with the drivers of revenue, exiting some therapies here and there. How are you thinking about the pipeline of drugs as it drives to offset some of the therapy exits that you're contemplating?

Yes. I think that's a key variable that we're constantly watching. We have a business development team, and our procurement team is dialed in on that and has an ear to the rail with all the manufacturers. We have visibility into the pipeline from preclinical through filing the BLAs. These variables are very important to us. We're looking to leverage our clinical and pharmacy assets across the country. Some things might migrate from intravenous to self-administered or subcutaneous administration. It’s vital to look at the labels because a lot of things that are going subcutaneous might still require health care professional oversight or injectables that require HCP oversight. There are a couple of things on the horizon with certain infliximab that are going subcutaneous. STELARA, for example, is something Janssen has been open that they expect biosimilar participation before the end of 2024. These are all variables we're keeping an eye on. In terms of the pipeline of new-to-world therapies, we've shown our ability to excel in this area. We talked earlier this year about collaborating with Crystal to commercialize VYJUVEK, a topical gene therapy. It requires pharmacy infrastructure and health care professional administration, and it's complementary and efficient for us to launch given the technology and clinical infrastructure we’ve established. We continue to look at orphan therapies where we can collaborate and be a trusted partner as well as structure therapy dynamics that are evolving.

That makes sense. Maybe if I can squeeze one more in. So you guys touched on some of the market share gains that you've had from the exits of some of your competitors from the acute business. How are you thinking about remaining market share up for grabs? Or are there more of these situations that are likely coming up where competitors are exiting certain therapy buckets?

Yes, Brian. From our perspective, I think everyone will continue to evaluate their position. We've talked about the choreograph that has to happen in some of these therapies, and the work that has to happen at the local level. I can't hazard a guess about whether others will make different strategic decisions. We have built a dynamic and resilient network that allows us to take on additional patient volume if that were to come our way. We're out every day hustling trying to capture market demand as it exists, regardless of the actions of other competitors. That's how we've always approached it, and we're well positioned, given our resilience and the capacity we have within our existing network.

Awesome. Thank you, guys.

Our next question comes from Jamie Perse with Goldman Sachs. Your line is open.

Good morning, guys. I wanted to start with a clarification on the 2023 EBITDA base. I know you guys gave the 100 basis points of ASP pressure and 200 basis points from Makena and Radicava. I think you said that's been actually a 100 basis point headwind so far this year, Makena and Radicava specifically. So I just wanted to confirm that, and that's sort of what we should be expecting to be a headwind next year? And then a similar question on the ASP, just whether that has played out as you expected this year?

Yes. So the 100 basis points I referred to, Jamie, was in the quarter. In Q3, we started to see last year some of the Radicava taper down. Again, we're not in a position to discuss '24 really, but I don't think we're going to be talking about Makena and Radicava early 2024. Yes, there was some early revenue in '23. It's not going to be a headline on a year-over-year basis. We have seen some further ASP erosion consistent with how we thought coming into the year, specifically on some antibiotics and on some of the infliximab for chronic inflammatory. So that has played out relatively consistently with how we projected it going into the year. We exited a respiratory therapy business in late Q4 of last year, which I think represented about 30 to 40 basis points of headwind for this year. That topic goes away going into '24 as well.

Okay. And then secondly, just on the third quarter. Were the procurement benefits in line with your expectations? It was a little higher than I expected in the quarter. So just want to get a read on that. And then relatedly, if the underlying business performance was in line with your expectations?

Yes. Overall, the quarter developed consistent with how we were expecting going into the third quarter. On the procurement benefits, they were a nudge better than we expected. This isn't an exact science; it's more of a hand grenade range. That's part of the reason we raised the bottom end of our range to $4.20 to $4.25; if some of those procurement benefits manifested at a slightly higher level, which they did. That's incorporated into our Q4 implied guidance. We're shaping up to call it $30 million to $35 million of '23 procurement benefits, which are real, and hats off to our procurement team. They have muscled their way to realize this. But we want to highlight this to folks which won't continue into next year.

Okay. Perfect. And then, John, two for you. First, sometimes you talk us through the key drivers of growth, specific therapy classes. Can you spend a minute just giving us a flavor for what's driving growth at this point and where those therapy categories are in their lifecycle?

Yes. We continue to work closely with our team to make certain that we are well positioned to capture demand coming out of the acute setting. Antibiotics and nutrition support products are in the later stages of their life cycles, and we continue to see that. However, that's a lower growth profile in the low single digits on the acute. On the chronic side, we continue to see strength in immunotherapy and chronic inflammatory therapies. We focus on ensuring that the neurologists and gastroenterologists are aware of our full spectrum of capabilities within that. Our team does a really good job refining the targeting and focus around the prescribers, and we're always looking to expand the capability set that we have in the surveillance we can provide or the feedback we can give prescribers regarding how patients are responding to therapy. We feel good about our position. Again, we fully expect that the chronic will grow at a faster pace than the acute, given some innovative new products entering the market, and we’re looking at new areas of development, including Alzheimer's and certain oncology space products in the pipeline for approval, which will require infusion.

Okay, great. And then one last one. Admittedly, this is the impossible-to-answer question. But John, if you have any insight into GLP-1, are there categories within your business that you think have exposure to obese populations and potential for reduction in obesity across the U.S.? Any early perspective would be helpful.

Yes, Jamie. At this point in time, we don't see a lot of impact on the products we dispense or the demand we’re experiencing within the marketplace. Over the longer term, that remains to be determined, but at least in the near or mid-term, we don't see a significant impact on the products or services we offer.

Okay, great. Thank you.

Our next question comes from Pito Chickering with Deutsche Bank. Your line is open.

Hey, good morning guys. Thanks for tuning me in here. A question is actually on Jamie's question just there. So looking at the implied fourth quarter revenue guidance, I think you're saying that you're facing about 100 basis points impact from ASP pressure. Was it 150 or 200 from therapies and 30 to 40 in divestitures? Does that sort of like the takeaway about 300 basis points of revenue pressure in the fourth quarter that doesn't continue into next year?

Yes, I think that's about right. I think you're thinking about that correctly.

Perfect. Awesome. And then on the procurement benefit, if you pull out sort of the $9 million for 2Q, $30 million 3Q, and $11 million in the fourth quarter, that gets to the back half of your EBITDA guidance, excluding procurement of about 9% margins. Is that just the right launch pad to think about for 2024?

Yes, I think as much as we're celebrating and commending our procurement team for achieving two quarters of 10% EBITDA margins, unfortunately, that will not continue. Please adjust the EBITDA margins from a jump-off point perspective, Pito.

Our next question comes from Michael Petusky with Barrington Research. Your line is open.

Good morning. My GLP question was asked and answered, but let me switch over to M&A. I guess I'm just wondering, obviously, the Amedisys deal didn't go through to completion. Your current thoughts on home health assets and how that potentially could still be a place that makes sense going forward for you guys?

Yes. Michael, it's John. We believe Amedisys was unique in its capability set, with its reach in the star ratings as well as capabilities with Contessa. Not all home health assets are equal. We still believe there's an opportunity for us to play a meaningful role in the home with our nursing resources. As we look forward, we will focus M&A activity closer to the core rather than broadly expanding into home health. There’s an opportunity for us to innovate and work closely throughout that process. We’ll continue to evaluate available opportunities and foster relationships where appropriate. We will look at things economically and strategically and ensure that we are ahead of trends happening in the marketplace as the healthcare ecosystem evolves.

Alright. Very good, thank you so much.

And this concludes today's question-and-answer session. I would like to turn the call back to management for closing.

Thank you again for joining us this morning and for participating on the call. As we outlined, it was another strong quarter for Option Care Health and our team of passionate care providers. We look forward to continuing to make progress against our key initiatives and providing you updates on our next call. Take care, and have a great day. Thank you, everyone.

This concludes today's conference call. Thank you for participating. You may now disconnect.