Earnings Call Transcript - OPCH Q2 2022

Operator, Operator

Good day, and thank you for standing by. Welcome to the Option Care Health 2022 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the call over to our speaker today, Mr. Mike Shapiro. Go ahead.

Michael Shapiro, President

Good morning. Before we begin, 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, Chief Executive Officer.

John Rademacher, Chief Executive Officer

Thanks, Mike, and good morning, everyone. Overall, we are very pleased with the progress we have made in the second quarter and the financial results we delivered as reported this morning. Despite operating in a very dynamic environment, our team continues to execute our plans to realize our purpose of providing extraordinary care that changes lives. In the quarter, we increased the number of patients we serve and who entrust us with their care at home or at one of our alternate infusion sites. Throughout the second quarter, we also made strong progress on several fronts of our focused strategy. As Mike will outline in a few minutes, we delivered low teens revenue growth and mid-teens EBITDA growth, and translated that into strong cash flow. We continue to navigate a very difficult labor market and inflationary dynamics which present challenges on a daily basis, yet we were able to leverage our strong infrastructure and continue our track record of delivering strong EBITDA growth and expanding EBITDA margins. At the same time, we invested for future growth, having closed on our acquisition of Specialty Pharmacy Nursing Network or SPIN early in the second quarter and opened six new infusion centers in key markets across the country. With respect to our results in the second quarter, we saw balanced growth across our portfolio of therapy, including low single-digit growth in our Acute portfolio and mid-teens growth in our Chronic portfolio. Despite modest hospital discharge volume growth at acute care facilities across the country and continued supply shortages in vital nutrition support products, we observed solid referral trends throughout the quarter. Given recent repositioning by some other market participants, we are confident that we are executing well relative to the broader market, and we remain well positioned to support market demand for the portfolio of acute therapies. I've spoken before about our commercial focus to ensure we have the appropriate market coverage through reach and frequency, and we are seeing the value of this disciplined approach. The investments we have made and continue to make into our care management center infrastructure to help ensure we are responsive to our acute care channel partners and referral sources have resulted in a more reliable and timely collaboration across our national network of 97 highly-connected and efficient pharmacies. We have created an increasingly effective, digitally-enabled platform for complex pharmacy administration and point-of-care services across the country. Our Chronic portfolio continues to grow in the mid-teens, and the results are quite balanced across established chronic therapies as well as newer products that have rounded out our portfolio. With our comprehensive nursing network, we are well positioned to help payers meet the immediate needs of their members and move beyond the infusion event to help better support the whole patient and reduce the total cost of care. As we have discussed previously, we continue to operate in a challenging market backdrop with continued labor and cost pressures. Our focus on recruiting our existing team members every single day and recruiting new members to the team helps ensure that we have the capacity and vital skills necessary to provide advanced care to our patients. The teams in the field are executing well to help ensure we have the right staff and the right therapies to provide extraordinary care. The inflationary cost pressures continue to present challenges, but we remain very focused on offsetting those sectors where possible, primarily through leveraging our technology to drive productivity and operating efficiencies. We continue to see widespread cost pressures across a broad array of inputs, including fuel and transportation, packaging and medical supplies, and a variety of other categories, and we do not expect those pressures to subside anytime soon. As I mentioned earlier, we are thrilled to welcome the SPIN team to the broader Option Care Health Enterprise. And with the acquisition, we continue to make progress on creating a unique, skilled infusion nursing platform. Combined with our internal nursing organization as well as our acquisition of Infinity Infusion Nursing last fall, we have now established a leading clinical organization of more than 3,000 qualified infusion nurses to provide exceptional infusion services at the point of care to patients across the country. While we are in the early innings of integrating those organizations, we are more confident than ever that the SPIN and Infinity teams will be instrumental in our growth strategy going forward. Finally, we are investing for future growth through our expansion of infusion centers nationwide. In the second quarter, we opened six new infusion centers and now expect to open more than 25 in 2022. As a reminder, center expansion is a vital growth strategy as it enables us to provide more choice for our patients, drive clinical labor efficiency, while also expanding our ability to collaborate with referral sources to increase our patient expenses. Through our consistent investment in site capacity, we now have more than 140 infusion centers across the country, and I expect this to be an area of continued investment beyond the current year. Our disciplined investment strategy focuses on improving access to care across geographies and therapies and improving the patient experience. Given our investment in infusion centers and technology over the past several years, we continue to cast a wider shadow into new therapies, more rural geographies, and a broader base of referral sources. It's about providing consistent, high-quality care, whether you're in New York City, Kansas City, or Carson City. So overall, the second quarter was very productive, and we continue to make solid progress on executing our growth strategy focused on providing extraordinary patient care in the post-acute setting. We delivered strong revenue and EBITDA growth in the quarter, and we increased our cash balances while making significant investments into our future, allowing us to tighten and raise our full-year guidance. Before I hand it over to Mike to go into the results in more detail, I must recognize and highlight the incredible collaboration and focus of our teams across the country as they rise to meet every challenge and maintain our focus of placing the patient and their families at the center of everything that we do. And with that, I'll turn the call over to Mike to review the results in a bit more detail. Mike?

Michael Shapiro, President

Thanks, John. Overall, Q2 was a very solid quarter, with double-digit revenue growth that translated into leveraged growth at the bottom line and modestly better EBITDA margins despite the cost headwinds that John articulated. Additionally, our balance sheet has never been stronger, and with our relentless focus on translating revenue into cash flow, we are reporting record levels of cash and new lows in terms of our leverage profile, which are critical as we navigate the challenge. Revenue grew 14% and was consistent with our expectations. As expected, growth was a bit more tempered relative to the first quarter due to higher prior year comps. Nonetheless, our Chronic portfolio continues to perform quite well and represented most of our revenue growth. Acute revenue was up in the low single digits despite mixed acute volumes reported by our health system partners, and we attribute our relative performance in our Acute portfolio to the investments John alluded to and our strategic focus on this portfolio of therapies. Gross margin of 22.1% declined versus the prior year as expected due to the mix shift towards chronic therapies and higher costs to deliver care. Despite the gross margin decline, we drove 9% growth in gross margin dollars based on the higher volumes. SG&A grew considerably slower than gross margin as we fought to offset inflationary pressures, which allowed us to expand EBITDA margin despite the mix headwind. While we continue to focus on efficiency and cost savings to mitigate inflationary cost pressures which, as John mentioned, we do not expect to subside anytime soon. Adjusted EBITDA of $85.2 million grew 17% over the prior year and represented 8.7% of revenue. So despite the mix shift towards Chronic and unprecedented cost pressures, we continue to expand profit margins and demonstrate the scalability of the platform. Additionally, as we discussed earlier in the year, we have reversed our valuation reserves on our tax net operating losses, and as expected, our effective tax rate has migrated upward to 28.8% in the quarter as we now anticipate fully utilizing all NOLs. We generated over $104 million in cash flow from operations in Q2, and we increased cash balances by $58 million in the quarter despite paying approximately $60 million in the quarter to acquire SPIN. At the end of Q2, our net leverage ratio has declined to 2.7x, which is extraordinary given where we started this journey three years ago. As I mentioned earlier, our capital structure is quite strong. And with no maturities until 2028 and modest interest rate exposure, we believe we are in a strong position going forward. And based on the momentum exiting the second quarter, we are increasing our outlook for the full year accordingly. We now expect to generate revenue of $3.85 billion to $3.95 billion and adjusted EBITDA of $330 million to $342 million. Based on our higher earnings, we now expect to generate cash flow from operations of at least $250 million. So overall, we're quite pleased with the momentum halfway through the year and continue to anticipate a productive full year. And with that, we will open the call for Q&A.

Operator, Operator

Our first question comes from Lisa Gill of JPMorgan.

Lisa Gill, Analyst

Congratulations on a great quarter. I want to discuss referral patterns. You mentioned Acute versus Chronic, and I'm curious about two areas. First, with COVID continuing to ebb and flow, has that affected referral patterns? Second, John, considering the importance of managing care at the site of care, like Option Care, could you share what you’re observing in the current environment? Are payers showing interest in shifting towards narrow networks based on the benefits seen from changes in the site of care?

John Rademacher, Chief Executive Officer

Yes, thank you for the question, Lisa. Regarding referral patterns, as you mentioned, they remain very localized due to communities managing the BA-5 strain, which is causing some disruptions in patient visits to doctors, elective surgeries, and other services. We're not observing any national trends. Although hospital admissions and discharges are improving, the growth is modest. Our focus is on ensuring we are well-prepared as an organization and a preferred partner for our referral sources, emphasizing the reach and frequency of our teams, having the right therapies available, and appropriate staffing models. We anticipate that the market will remain somewhat variable from one area to another as we continue to address different COVID variants, but we believe we are well-positioned as a preferred partner. Our investments in core infrastructure and our 97 efficiently operating pharmacies put us in a strong position on that front. In response to your second question about the site of care, we are having productive discussions with the payer community about site of care initiatives, ensuring a balance between cost, quality, and member choice. We are actively supporting these efforts. Our investments in both the nursing community and infusion centers across the country align well with the overall strategy of bringing care closer to home or into dedicated sites that meet payer initiatives. The progress we've made this year, including over 25 new openings and six in the quarter, positions us as a preferred partner for network design as payers consider their in-network options. We are also observing interest in narrower networks and the qualifications payers are seeking. Our strategic initiatives ensure we align favorably with these trends, given our ability to consistently deliver high-quality care. As I mentioned earlier, whether in New York City, Kansas City, or Carson City, our national network drives consistent high-quality care in settings that patients prefer.

Operator, Operator

And our next question will come from David MacDonald of Truist. And David, your line is open.

David MacDonald, Analyst

So just a couple of quick questions. I'm curious, just conversations with your payers in terms of as contracts start to roll forward in renewals, just conversations around potential escalators, just acknowledgment out of the payer community when you talk to them about the inflationary environment? And then Mike, is the $10 million to $12 million per quarter, is that kind of still the right number? Any acceleration or deceleration in that is my first question.

John Rademacher, Chief Executive Officer

Dave, it's John. I'll start on just the conversations with the payer community. Yes. I mean, look, there is recognition of some of the pressures that are out there. I think as we've explained before, we really have three legs of our reimbursement stool. Certainly, the cost of the drug are clinical per diems and then the nursing. And we look at it across all of those dimensions as we're moving and negotiating our reimbursement rates with the payer community, so we're always looking for the appropriate balance across those three dimensions. I think it's been well publicized. People know clearly that there are pressures from an inflationary and labor perspective, especially in the areas of nursing and some of the inputs that I highlighted on that. So we're very balanced in the way that we look at it, knowing that we've got to make certain that as an organization, we're working across all three of those dimensions. And no one's knocking on our door telling us that they want to give us more money, as you fully understand, but I think there's good recognition of some of the inflationary pressures. And we're going to continue to be focused on that as an organization as we're looking at renewal cycles and the way that we're contracting as we move ahead.

Michael Shapiro, President

Dave, regarding inflationary pressures, we estimated that it could be around $40 million to $50 million annually, which translates to approximately $10 million to $12 million each quarter. This is a rough estimate. When we consider these inflationary challenges, there hasn't been a significant change in our outlook on cost pressures since our call 90 days ago. We take pride in our ability to maintain leverage in our profit and loss statement, evidenced by a 9% growth in gross margin dollars while SG&A expenses are increasing at a slower rate. This is largely due to our unwavering commitment to improving efficiencies and finding savings wherever possible. So far, we have achieved modest EBITDA margin expansion despite these unprecedented inflationary challenges, which is motivating for the team. However, it’s important to acknowledge that we are still facing difficulties in several cost areas, as John pointed out.

David MacDonald, Analyst

Okay. Just wanted to dig into labor a little bit further. Given the strength of the top line, I assume the answer to this is yes. But were you guys able to staff all the demand that you saw in the quarter? And then secondly, can you just talk about the leverage from continuing to put up these ambulatory infusion suites? And also, is there an opportunity to maybe replace or alleviate some labor pressure through further automating some jobs that maybe some people are actually doing right now?

John Rademacher, Chief Executive Officer

Yes, so I'll start on just the capacity models and the way that we operate from that perspective. As you said, Dave, we certainly were really strong in the quarter of being able to staff appropriately on that. Look, on a market-by-market level, there may be some challenges on a day-to-day basis on that. But for the most part, the team has worked extremely well and collaboratively in order to do that. Part of the investments into the nursing community with Infinity and SPIN as well as what we've done with the infusion centers is to help to expand and make certain that we've got that capacity, especially in the nursing area, in order to move that ahead. So we feel really good about the position we are. And I called out, look, we spend a lot of time on making certain that we are recruiting our team members every single day. We have been adding staff in markets in which we have the opportunity to continue to expand and grow, and we'll work aggressively to make certain that we have that capacity both in staffing as well as all of the products that are necessary for us to be able to move that ahead. So all in all, feel good about that.

Michael Shapiro, President

Sorry, go ahead.

David MacDonald, Analyst

No, go ahead, Mike.

Michael Shapiro, President

No. John made the point. Go ahead, John.

David MacDonald, Analyst

Okay. Just last question, guys. And John, I think you touched on this a touch in your prepared comments, but our checks suggest there are some competitor pharmacy closures. Does this create an opportunity in Acute? And then is there the potential for that to become somewhat non-trivial over time?

John Rademacher, Chief Executive Officer

The market is dynamic and continues to evolve. As organizations reassess their positions, we feel confident about the investments we've made in our pharmacy infrastructure and our capacity to support acute therapies. It's too early to determine the long-term implications. The environment is competitive, with many rivals in most markets as we move forward. However, the platform we've established, along with our commitment to consistency and quality, enables us to leverage our scalability effectively. We believe we are well-prepared to be a partner of choice for referral sources and to capture our fair share, or even more, of the demand due to the reach, frequency, and expertise of our commercial and clinical teams.

Operator, Operator

And our next question will come from Matt Larew of JPMorgan.

Matthew Larew, Analyst

Okay. I switched firms, not bad. I'm curious, Mike, if you could break out the growth for us between M&A, Infinity, new centers, and organic. I think there's a lot going on here, more so than in previous quarters, so that could be helpful.

Michael Shapiro, President

Absolutely, Matt. In the quarter, last year in the first quarter, we had the BioCure result, one of the smaller acquisitions we made. In the second quarter, we had the full results of Infinity and Wasatch, contributing a little over two points of growth, about 25% of our reported growth. From a new center perspective, we don't really focus on that since we regard it as a point of care. The gains in our center penetration were modestly up this quarter, which is just part of our overall organic growth strategy. You've heard us mention that around 20% of our nursing events were happening in one of our centers; that number was a couple of points higher in the quarter, probably around 21% to 22%.

Matthew Larew, Analyst

Okay. And then just on gross margins, obviously, the last couple of years as this shift towards chronic has been occurring, the crossbars still have been kind of modestly expanding. Just curious, this year on a year-over-year basis, could you maybe break out for us some of the more inflationary pressures? You referenced gas and travel, I think packing relative to sort of that portfolio shift, just so we could maybe better model future periods?

Michael Shapiro, President

Yes. So look, as I mentioned in the prepared remarks, and again, we've been talking about this consistently, with that chronic acceleration relative to Acute, it is inevitable that we will be facing mix pressure at the gross margin rate line. Not to sound defeatist because, as you know, we fight for every basis point in our gross margin. There are what we refer to as the direct cost of administering care. So the compounding pharmacy technician, the oversight of the clinical pharmacists at our pharmacies, all of the medical supplies, the direct nursing labor for administration of the therapy as well as the transportation and distribution. Again, all of the therapies that leave our pharmacies are delivered directly to the patient's homes through UPS, FedEx or a courier. And so some of the categories, no surprise, that have been hit harder from an inflationary perspective. Obviously, clinical labor we continue to, as John has mentioned, keep our ears to the rails at the local level to make sure we're competitive. So the clinical labor has seen some inflationary pressure. Upward transportation, packaging materials, medical supplies which are petroleum-based plastics, those that we have seen considerable inflationary pressure, especially around a lot of the transportation and medical costs.

Matthew Larew, Analyst

Okay. And then the last one. You referenced mixed volumes from health system parts, and I guess just curious maybe how much of that relates to some of the COVID dynamics around referral patterns that Lisa alluded to versus health systems coming back, and maybe reengaging more with their own internal offerings?

John Rademacher, Chief Executive Officer

Yes, Matt, it's John. We continue to monitor the referral patterns and have not observed significant changes in how hospital systems are managing referrals through hospital outpatient departments or other venues. Competition remains strong in these areas. Our team is working diligently to ensure we are the preferred partner, focusing on making the patient registration and administration processes smooth and efficient for transitioning care from inpatient settings or for chronic patients. While we haven't seen major developments, the competition remains tough as it always has been, whether from direct competitors or hospital-owned entities. The competitive environment remains as intense as ever.

Operator, Operator

One moment. And our next question comes from Joanna Gajuk of Bank of America.

Joanna Gajuk, Analyst

I guess, first, actually a follow-up on something you mentioned in your prepared remarks, you mentioned a repositioning of other players. So can you tell us what you're actually referring to? And are you talking about your competitors? I guess, going down the footprint, we saw some of the changes at the site of care from employees being let go in some of these locations. Are you referring to this? Or there something else you're talking about when you refer to repositioning your other players?

John Rademacher, Chief Executive Officer

Yes, Joanna, it's John. The market is dynamic, as I've mentioned previously. There are certain areas where some of our competitors are withdrawing from specific therapies, particularly in the Acute sector, as they reconsider their long-term objectives. We observe this shift on a market-by-market basis, with interesting dynamics as competition varies. Our organization has invested in a national network of interconnected and efficient pharmacies to ensure that we are the preferred partner across all therapy areas we provide services for, whether involving patients leaving acute facilities or those with chronic conditions. Our commitment to the investments we're making, the partnerships we're nurturing, and our ability to work closely with hospitalists, discharge planners, and case managers for safe transitions of patients is unwavering. We believe we are well positioned in this regard. Our focus and discipline in our investment strategy remain robust, and we expect to be the preferred partner as demand in the marketplace increases and decisions are made regarding patient care and participation.

Joanna Gajuk, Analyst

Okay. I have a follow-up question, Mike. I've been considering other players in the market, including your comments about hospital systems and HOPDs. I've also heard that hospitals are interested in developing their own home infusion services. Specifically, AmerisourceBergen mentioned a program to assist hospitals, possibly involving third parties. Are you noticing hospitals reaching out to you for a closer partnership or structure that could increase volume? Can you elaborate on those strengths?

John Rademacher, Chief Executive Officer

Yes, Joanna. Look, we have always pharmacies as part of the competitive dynamics of the marketplace. And again, we have partnerships with some hospital systems in which we work very closely on that, and we continue to look at that as just the competitive dynamics in the marketplace. Yes, there are different organizations that align around supporting hospitals in that process and helping support their needs as they're looking at where they want to deploy their capital and how they're looking at their overall health care ecosystem. As an organization, look, we take all competitive threats seriously, and we really work hard to make certain that we are well positioned on that. I can say that in certain circumstances where hospitals do have their own hospital-owned infusion pharmacies, we still have strong partnerships. When you think about the ability that they have and the catchment area that they can provide for their patients in today's health care system where there is a lot of travel associated with going to centers of excellence and other aspects, given the national network we have, given the ability that we have to take a patient that may receive service in City A but they live in a rural setting a state or two states over, we can still be their partner of choice and help with that transition given that they don't have the catchment area to be able to provide that consistent high-quality service outside of their local geographies. So we're always getting the competitive dynamics. We're always keeping our ear to the rail. We believe that the investments that we made into our national network, we think that the outcomes that we drive from a clinical standpoint, and we think that the partnerships that we've developed with our commercial team just position us to be a partner of choice as they're making those decisions and looking for ways to support their patients in the local community and outside of that.

Michael Shapiro, President

Yes, Joanna. So from a cash perspective, what we said is we don't expect to be a material cash taxpayer this year. We'll obviously update our thoughts around 2023, but the overwhelming majority of the NOLs will be used this year. And so there could be a very modest cash tax position in Q4, but nothing of note. Look, we're thrilled. And as you know, our mantra around here is the EBITDA only counts if it converts to cash in the bank. And given the dynamic market we're in, carrying a little bit higher cash balances, we think, is a prudent strategy. However, our thinking around deploying that capital, it's not our cash; it's the shareholders' cash. And we think the best way to create value for the shareholders is through deploying that in an M&A strategy. So simply because we're generating more cash doesn't lower the bar on our expectations around the strategic and economic merits of any opportunities. And to the extent that we think that there is excessive cash, we'll obviously look at alternative avenues through which we can return to the shareholders. However, at this point, our conviction remains that M&A is the primary strategy for us to optimize value.

Operator, Operator

And our next question comes from Brooks O'Neil of Lake Street Capital Markets.

Unidentified Analyst, Analyst

This is Charlie Manting on for Brooks O'Neil. Just one quick question for me. Could you please talk about how the shift to value-based care might impact Option Care, and where might you see advantages in the new paradigm?

John Rademacher, Chief Executive Officer

Charlie, it's John. Look, we continue to have very constructive conversations with the payer community as things continue to evolve down that path. Those very constructive discussions, our focus has always been around creating favorable clinical outcomes. And we believe that the ability for us to continue to be well positioned to provide high-quality care at an appropriate cost in a setting in which patients want to receive that care makes us part of that longer-term solution that is being looked for. The platform that we've created and the ability for us to really be focused around that patient experience, member experience, and that high-quality care, we think is something that allows us to continue to be in those robust conversations and part of the sales cycle. I think as we're looking at value-based, it's hard to define at this point. Each organization is looking at it a little bit differently on that, but total cost of care is something that they're beginning to really focus on, looking at the overall outcomes associated with therapy sets and care delivery. And we're doing a lot within our organization to make certain that we're well prepared not only to clearly articulate the outcomes that we can deliver, but more importantly, the experience from a patient standpoint and the quality of the care that they're receiving.

Operator, Operator

And our next question will come from Pito Chickering of Deutsche Bank.

Philip Chickering, Analyst

A follow-up four-part question about why some of your competitors are actually in the markets. I guess, number one, why do you think they exited? Is it because they didn't have enough scale? Number two, does this give you more leverage with the payers who are less for buyers, but still want to have home infusion savings? Number three, can you quantify how much of the market share you've captured at this point? And number four, does this bring down multiples for tuck-in deals going forward?

Michael Shapiro, President

Only 4 parts, Pito. That's good.

John Rademacher, Chief Executive Officer

Yes, let me begin. We cannot speculate on the reasons behind people's actions. Our focus remains on our strategy and its implementation. What I can share is that we have consistently recognized the strength of the platform we’ve built and our capacity to be a preferred partner at the local level. Healthcare is inherently local. Despite our efforts to leverage our scale and technology to establish a reliable and interconnected network, the local aspect remains crucial. The investments we’ve made in our care management centers, our team, and the quality of our services effectively address marketplace needs and the requirements of our referral sources. Therefore, we will remain committed to our strategy and execution. We appreciate the balance within our portfolio across Acute and Chronic areas, enabling us to leverage growth and gain scale as a competitive edge. We have invested significantly in our commercial resources to enhance our reach and frequency, ensuring we are well-positioned in the relationships we are cultivating within those local markets, and identifying opportunities for deeper partnerships. We will continue to pursue opportunities to strengthen these relationships and find ways to serve more patients. We firmly believe that a patient receiving service from Option Care Health has access to the best care available, whether at home or in one of our infusion suites.

Michael Shapiro, President

Pito, it's Mike. The only thing I would add is that, as you know, when we discuss market participants and their relative shares, these are all estimates. We don't have real-time market share metrics from IMS. As John mentioned, we are focused on being responsive to our referral partners in certain markets. It's early days, but it's important to be dependable and reliable. When the call comes in at 4 p.m. on a Friday afternoon, we want to be responsive, and that's something we take pride in. If we continue this way, we are optimistic about the momentum on the Acute side. From an M&A perspective, we are not seeing significant changes in multiples and valuations yet. We will be very thoughtful in evaluating strategic opportunities and will maintain discipline in our valuation approach. However, we are not observing any major shifts in valuation expectations.

Philip Chickering, Analyst

Okay. Fair enough. And then on the supply chain, in the script, you talked about shortages in Nutrition. I guess, you're looking at your broad portfolio, are there any other areas that you're seeing or worried about seeing shortages in? And on shortages, are these more revenue impacts or gross margin impacts or no impact at all? I'm just wondering?

John Rademacher, Chief Executive Officer

Yes. Regarding nutrition support, there have indeed been challenges in the marketplace due to plant closures and other issues. Our team has done an excellent job navigating these difficulties to ensure we can support both our current patients and take on new ones while aligning with formularies. We have a dedicated team of expert dietitians who work hard to ensure all our patients receive the necessary nutrition support as they follow their therapy plans. While there will always be some sporadic shortages, we are facing constraints with certain electrolytes and trace elements for our main nutritional products. Additionally, there are some minor constraints on other products as we deal with supply chain fluctuations, plant closures, or repairs. Our trade relations and strategic sourcing teams are working diligently to ensure our field teams have access to the products needed to meet market demand. We put a lot of effort into minimizing, mitigating, or adjusting to these challenges. Mike, would you like to address the impact on revenue or margins?

Michael Shapiro, President

Yes. Look, I mean, obviously, a lot of our therapies are orchestrating and compounding complex therapies for a patient-specific prescription. And so as we think about like parenteral or NRL Nutrition, if you don't have that one trace element, that one electrolyte that's critical, it's a real clear orchestration not only of the therapy input, Pito, but it's also making sure we have the right infusion pump, the right infusion set that, again, is a PVC derivative. All orchestrated. And so I would say, from your perspective, whether it's certain medical plastics, certain infusion pumps with conductors and chips, whether it's nutritional compounds that our pharmacy techs compound under a hood, it does have an impact on the top line and margin. But again, thus far, knock on wood, our procurement team manages this 24/7, and we've fared relatively well.

Operator, Operator

And I'm showing no further questions at this time. I would now like to turn the call back to John Rademacher for closing remarks.

John Rademacher, Chief Executive Officer

Yes. Thank you for joining us this morning and participating in our second quarter earnings call. To sum it up, we are very pleased with the performance of our team, the progress we are making against our strategic initiatives, and the continued strengthening of our balance sheet. We expect that there will continue to be challenges and know we have work ahead of us to achieve our goals. However, we are focused on execution, and we look forward to making continuous progress. Take care and be well.

Operator, Operator

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