Good day, ladies and gentlemen, and welcome to Option Care Health First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host for today, Mike Shapiro, Chief Financial Officer. You may begin, sir..

Thank you. Good morning, and thank you for joining us for the Option Care Health First Quarter Earnings Call. I'm joined this morning by John Rademacher, Chief Executive Officer.

Before we begin, please note that during this call, we will make certain forward-looking statements that reflect our current views related to our future financial performance, future events 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 comments. We encourage you to review the information in the reports we file with the Securities and Exchange Commission regarding the specific risks and uncertainties.

You should also review the section entitled Forward-Looking Statements in this morning's press release. 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. In addition, you will also find a few supplemental slides on our Investor Relations website that we have prepared to complement our remarks this morning.

And with that, I'll turn the call over to John..

first, protect our employees and ensure their safety; second, maintain the continuity of care for our patients who are looking to Option Care Health in this challenging time; third, actively collaborate with payers and health systems to seamlessly transition patients from acute care settings and other brick-and-mortar facilities to alleviate the pressure on the healthcare system; and finally, maintain financial stability and liquidity for the organization.

Although there have been significant challenges and uncharted waters for us to navigate, I am quite pleased on the progress we've made overall the last several weeks, and I'm so proud of the execution by the Option Care Health team.

Very early, as the crisis was unfolding, we established an executive command center, along with first light and end of day briefings that fostered agility as we responded to the changing environment.

With our national reach, we felt the impact immediately starting in the Pacific Northwest and used these learnings to inform our approach and prepare our teams across the country.

We were very quick out of the gate in aggressively preparing personal protection equipment and critical drugs to ensure continuity of care and the well-being of our clinical team on the front line. As we have stressed on previous calls, we have invested considerable effort in improving our vendor relationships and getting current with them.

And those efforts enabled us to weather the procurement storm better than most. Our procurement team has worked around the clock and across the globe to ensure our clinicians are safe and prepared. Beyond our clinical teams, we have effectively migrated to a virtual enterprise across all functions and geographies.

Over the past 5 years, we have invested more than $100 million in technology and infrastructure, and that foundation enabled us to quickly migrate our support and administrative functions to a virtual environment. While not without a few bumps, we have been very successful in maintaining a business-as-usual environment.

With our national network of compounding pharmacies and flexible model, we've been able to respond quickly to geographies more impacted or active in the fight.

With redundant capabilities and consistent clinical protocols, our rapid response model has ensured that patients quarantined in their home are receiving consistent and reliable therapy from the Option Care Health team. Our collaborations with health systems and payers have only strengthened as they see us now more than ever as a reliable partner.

Our entire model is centered on the belief that infusion therapy and advanced care is more suitable and often performed more safely in the home or alternate site and our expertise in this area is proving more relevant now more than ever.

Since the merger last August, we've made tremendous progress on cleaning up the capital structure and streamlining our working capital.

We entered the year with solid liquidity, and in the first quarter, we continued the momentum, adding to our cash balances and generating solid cash flow in what is historically the most challenging quarter from a cash flow perspective.

Ensuring adequate liquidity and cash availability has been and will continue to be a critical priority and as we sit here today, we are in a solid position, as Mike will articulate in a bit. The pandemic has had, and we expect will continue to have a meaningful impact on our referral trends.

As we've shared in the past, we have 2 fundamental therapy verticals, acute and chronic. Acute referrals that are primarily generated from hospital discharges represents approximately 40% of our revenue base on an annual basis, and we've seen quite a bit of disruption from the pandemic.

After an initial push by our hospital customers in March to empty the beds in preparation for COVID-19 patients, we've seen acute referrals decline as hospitalizations have obviously been quite limited. Acute trends have been far from consistent across the country and even within metropolitan areas.

To provide additional context, we estimate that a very small percentage of our acute referrals are from elective surgeries. Nonetheless, as patients have stopped going to the hospital to receive even general medical procedures, acute referrals have trended down from Q1 levels after the initial surge.

Our commercial team remains in constant contact with our health system partners to ensure we are prepared to respond when hospital admissions rebound. Our chronic referrals are faring better. As we continue to see consistent volumes for patients with chronic conditions.

Also, as chronic patients tend to be on service for significantly longer periods, the revenue base is more stable as the majority of our revenue is comprised of reoccurring patient treatments.

Looking forward, we expect chronic referrals to begin to soften as physician office visits have been constrained due to shelter in place guidance, which in turn affect new patient diagnosis. Similar to most enterprises, Option Care Health has also experienced disruption on our labor model throughout our network.

Our team of more than 5000 professionals, including approximately 2900 clinicians are, in many cases, working remotely with children at home, potentially sick members of their family and daily challenges known to all. To this point, the team has excelled and risen to the challenge.

We have aggressively moved to enable remote capabilities where possible and encourage team members to work from home.

However, this is not possible in many instances, including our care transition specialists within our pharmacy operations, warehousing and logistics and nursing and respiratory therapists who are providing care in a patient's home or one of our over 125 alternate treatment sites.

Given our consistent clinical protocols, we have been able to shift resources where necessary to ensure seamless continuity of care in as efficient a manner as possible. But there has clearly been an impact on our cost to serve our patients given the circumstances. As the old saying goes, necessity is the mother of invention.

Like many other organizations, we have quickly modified our operating model and accelerated deployment of new technology and tools. One silver lining out of the current situation relates to the further enhancements to our industry-leading technology suite.

We have quickly developed and deployed new virtual patient engagement tools that enable our clinical teams to perform virtual discharges and port our patients remotely in a compliant manner. This has been well received by our patients and customers who are managing their sites with restricted access to non-hospital personnel.

In the New York metropolitan area, for example, we estimate that approximately 50% of our patient onboarding experiences from hospitals have been conducted virtually. And this is a capability we will continue to leverage well after the pandemic. One final area I want to touch on is the integration efforts.

As discussed on the call in March, we made considerable progress in late 2019 on integrating the two organizations. Given the situation, we continue to focus on key areas of the integration and to continue the target being 90% or more complete by the end of the year.

Undoubtedly, we expect minor disruption due to travel restrictions and social distancing standards. However, we remain very confident in the ability to deliver at least $60 million in net synergy savings. I continue to be very encouraged by the cultural integration.

The recent events have truly galvanized the entire organization around our purpose and has united us as one team with one goal. As you can appreciate, the current pandemic situation is quite dynamic, and we continue to monitor and manage our operations on a daily basis. To borrow a sports analogy, as an organization, we are not playing defense.

We remain on offense as we continue to believe that we are part of the solution to this pandemic and are playing a vital role in ensuring patients continue to receive clinical infusion therapy in a safe setting.

We have consistently advocated for care in the home or alternate site, and the current situation has clearly reaffirmed the merits of patient care in alternate static. Having said that, at this point, we are not in a position to completely discuss or articulate the impact of the pandemic on our operations and financial results.

As I said at the onset, we are very encouraged by the first quarter results and believe that underscores the value creation potential of the enterprise. With that, I will turn the call over to Mike to review the financial results in a bit more detail.

Mike?.

Thanks, John. I'd like to circle back and spend a few minutes on the first quarter financial results and pivot into current efforts here in the second quarter in response to the pandemic situation.

As John mentioned previously, we're quite pleased with the financial results in the first quarter and are encouraged by the earnings leverage we're beginning to unlock. Just a reminder that the reported growth in this morning's 8-K is as reported, and prior periods are comprised of only legacy Option Care financial results.

I'll try to provide comparable growth where possible based on our estimated combined prior year results. In the quarter, we generated $705 million in net revenue based on comparable infusion revenue growth of approximately 6.5%.

While not in a position to provide granular therapy level results, our acute therapies were relatively flat in the first quarter, and the revenue growth was driven by continued momentum in our chronic portfolio. Gross profit of $158 million represented 22.4% of net revenue.

And while comparisons to prior year are challenging, given geography differences in the P&L of the legacy organizations, we still expanded gross margin by 180 basis points over reported legacy Option Care results despite higher growth in lower-margin and chronic therapies.

Cost of service leverage is improving as we integrate the organizations, and we are encouraged by the expansion in gross profit. Spending represented 18.3% of revenue and will continue to be a key area of focus as we continue to integrate the two organizations.

And adjusted EBITDA of $40.2 million represented 5.7% of net revenue and approximately 51% growth over the combined results of both organizations in the first quarter of 2019. Again, very pleased with the leverage released and encouraged by the top line performance in the quarter. Shifting to cash flow.

We generated $18 million in the quarter in cash flow from operations, even as we ramped up our response to the COVID-19 situation. After $5 million in capital investments and required first lien amortization payments, free cash flow in the quarter was $10 million, increasing our cash balances to more than $77 million at March 31st.

Our collection productivity continues to improve and as we harmonize our technology and processes, we expect to see additional productivity around collections. At the end of the quarter, we had $140 million available on our revolver after adjusting for approximately $10 million in issued letters of credit on the $150 million ABL facility.

To date, we have not drawn anything on the facility despite our full ability to do so. The assets underlying the revolver remained quite healthy and far exceed the $150 million notional facility amount. So from a total liquidity perspective, we ended the first quarter at approximately $217 million in total available liquidity.

I'd like to make a few additional comments on the impact of the pandemic and specifically around our 4 key priorities that John outlined upfront with respect to ensuring financial stability and adequate liquidity. Ensuring consistent cash flow is our lifeblood, and we are diligently managing and monitoring daily liquidity.

As we have articulated previously, more than 80% of our revenue is generated from commercial payers, and we have seen very little disruption in our collection activity.

And at the same time, we have tightened our belt like every other organization and have accelerated certain spending reductions to maximize our flexibility and ability to devote more resources to our supply chain and PPE procurement efforts.

Given the unprecedented circumstances and to break from our normal practice, I do want to share a bit of additional insight around our current liquidity situation. As we sit here today, I can share that our cash generation has continued to be strong, and our cash balances at the end of April exceeded $90 million, and the revolver remains untapped.

So our liquidity position continues to improve and rest assured, we take nothing for granted. As it relates to our capital structure, recall that we completely reset the leverage profile last August in conjunction with the merger. All legacy instruments were retired, and we implemented a very simple and patient capital structure.

A first lien term loan due 2026 and a smaller balance of second lien notes due 2027, both of which are Cov-lite and include no triggering covenants. Our ABL revolver doesn't mature for 4 more years and has 1 fixed charge coverage requirement for which we are very much in compliance.

So overall, we believe the capital structure is quite supportive to our current efforts to weather the pandemic, and our liquidity position remains strong and intact.

Separate from my comments regarding current cash balances, we did disclose in this morning's press release that in April, we received as part of the coronavirus Aid Relief and Economic Security Act, approximately $11.7 million in provider grants intended to offset negative impacts from the pandemic.

Similar to other organizations that received such grants, we continue to investigate, and at this point, are not in a position to assert what amount we will ultimately retain. We will keep all of you apprised of our progress on assessing the program and commend the Health and Human Services Administration for a rapid and impactful response.

Finally, as John mentioned, given the uncertainty around the duration and impact of the pandemic, we are revoking our previously communicated full-year 2020 guidance at this time. With that, we'll open up the call for Q&A.

Operator?.

[Operator Instructions] And our first question comes from Matt Larew from William Blair. Your line is open..

Hi, good morning. Thanks for taking questions. First, I just wanted to ask if maybe you could help us out with some of the volume pacing here, both on the acute and chronic side.

You obviously gave us the quarterly numbers, but just curious kind of what you saw throughout margin, what you've seen in April? If you have perhaps seen a trough from a sort of patient census standpoint? And so just kind of an update there, a little more kind of weekly?.

Matt, it's John Rademacher. So as you would expect, and I think as you've seen in other reports of the hospital results, we started to see the decline in the acute area, really starting in the second half of March as patients no longer were going to receive care in that setting.

Certainly, we look at the difference between elective surgeries and scheduled surgeries as kind of two different things and scheduled service surgeries were prevented at that time as they were in lockdown. So we started to see that trend really start to fall off for acute in the back half of March, and that continued into April.

So we're trying to assess where the bottom of the trough will be on that. From the chronic side, we actually continue to see strength in the chronic results through March and may have tempered a little bit, but not to the same extent as the chronic.

So on some of the therapies, to put it in perspective, we're seeing anywhere between 15% and 20% reduction in the referral base off of that peak that we saw. So I think that's probably about the best estimate that we have at this point in time..

Matt, it's Mike. The only thing I would add is, again, as you know, when you look at the duration of treatment for our two verticals, they're very different. The correlation between real-time referrals and the impact on revenue is much more impactful and immediate on the acute side.

Again, given the duration of treatment on the chronic, you don't see as quick as and impactful of a hit on revenue, again, because of the duration of therapy and the majority of our revenue on the chronic side are recurring treatments for our established longer-term chronic patient base..

Yes. Understood. And then you had a press release out in April on sort of your work with leading health systems. John, you obviously alluded to in your comments, your -- the company's efforts to help hospitals' care capacity.

Just trying to get a sense for if you're seeing -- I think this might be a sort of flag in the ground moment for sort of this underlying shift from hospitals or hospital-based outpatient centers into the home and if you're seeing patient preference shift as well, whether it's immune-compromised patients or patients who might have chronic therapies that have been on it for a long time, if you've noticed sort of those preference changes, both for referrals and for patients themselves?.

Yes, a great point, Matt. Yes, I mean, we are seeing that. And I think that is part of the reason why we're seeing the strength maintained in the chronic area for many of those procedures. Certainly, the immunocompromised patients want to be served in the home, and we are well prepared in order to do that.

We expect also through some of the conversations and partnerships that as hospitals begin to open back up and scheduled surgeries begin to take place, that we will see a similar amount of rebound at the appropriate time as in the acute space as they'll want to transition patients safely and effectively, but out of the four walls of the hospital and into the home as quickly and safely as possible..

Okay. And then maybe quick as a final one. You mentioned virtual onboarding.

I imagine maybe that's something that has increased cost in the near-term as you fleshed out the tool, but is that something that could say long term? It might be a cost saver or efficiency improver, how proprietary is that? And then sticking with sort of the virtual theme, obviously, a number of physician office visits offices are closed, but they've been replaced with telehealth visits? And just curious what -- obviously, there's been a slower referral channel, but have you had referrals from telehealth visits? And is there perhaps increased power of the national brand and footprint in more of sort of a telehealth setting? And that would be all for me..

Yes, Matt. So a couple of things. One is, first, with the changes really articulated and put in place by CMS in embracing telehealth we think is a positive movement in general. And so we are riding that wave associated with it.

And we believe that the virtual discharge and our ability to leverage and utilize that technology will be something that will carry beyond the pandemic and something that will be part of our normal course of business as we move ahead and if it drives efficiency and effective use of our professionals and our skilled resources.

And it also provides strong support for the patients in a very compliant way. So we're encouraged by that, and we expect that, that will continue to move forward. The broader question around telehealth and the transition to that, again, we expect that to continue to move forward.

Our belief is, again, we're working with payers to make certain that there is fair reimbursement for those visits and those consults as we're looking that ahead. And again, we're early encouraged on it that it can help shift our model as we're thinking about the business ahead.

Mike?.

The only thing I'd add, Matt, is, as we've mentioned, in the $100 million-plus that we've invested over the last five years, our north star has always been to establish a best-in-class technology suite that streamlines the experience from the patient, all the way through to patient registration, billing and collection.

And so hats off to our technology team. They're the best in the business. And those investments that we've made over the last 5 years, really, enabled us to very swiftly and effectively roll out this tool. So it was really just a branch of the bigger tree that we've been cultivating over the last five years..

Our next question comes from David MacDonald from SunTrust..

Just a couple of questions. I hope you're staying safe. Just a couple of quick questions.

One, can you talk about the opportunity around expanding referral sources coming out of this? I mean, look, at some point, we get past this and on the front end, I've got to imagine that there were a lot of vendors who weren't able to say we've got the proper amount of PP&E. We're willing to take COVID patients, et cetera.

So can you talk about what you're seeing in terms of additional referral sources who came to you when this first started and then what that opportunity looks like once we get to the backside of the outbreak?.

Yes. David, yes, I guess to answer the question, that has been a significant effort by our commercial team to make certain that they were well positioned to look for those opportunities to bring patients on service that potentially weren't going into the hospital.

So with emergency department diversions programs or direct admits from infectious disease physicians, we've been actively managing that and moving that forward.

We've been tracking or trying to track the generation of referrals from new sources, looking at that as to those types of providers who we have not received any scripts from over the last 6 to 9 months.

And we are pleased to say that we're north of 25% of the referral generation for some of the therapies are coming from new sources on that standpoint. And our goal over the long run is to maintain those. We've talked a lot about reach and frequency as part of our strategy for our commercial team as we went through the integration and reset.

And we're pretty encouraged by our ability to expand that reach through this and we're expecting to hold those gains that we've made in building new relationships and really fostering a different approach to take those patients as direct admits on to service with us..

And then, John, can you talk a little bit about the sales resources? And I know that there was some overlap as you brought the companies together and the additional flexibility you have there? Does that provide additional leverage in terms of capitalizing on what sounds like a pretty meaningful amount of new referrals?.

Yes. So we talked about the fact that we reset in October. We wanted to move with speed in getting the team into the right position. And then start to build that moving forward. And we wanted to eliminate any uncertainty, which normally exists in a merger of organizations that had the overlap that we did.

So we moved with speed from that perspective and put those pieces in place.

We expected it was going to take a little more time for the acute area to gel, given the fact that those are broader relationships that have to be built, and there was more disruption of our team in that area that there were in our chronic sellers that continue to manage their portfolio. We think that gives us some great flexibility to your point.

Between our care transition specialists that are really aligned to hospitals and health systems as well as the acute account executives, we believe we have expanded reach in order to provide broader coverage. And we're also leveraging tools in our sales force automation. We use a tool that we call Selling Point.

This builds off of salesforce.com, and it allows us to identify and target referral sources based on historical prescription data and other things that we get from third parties that kind of build into that ability to allow us to be much more effective and efficient in targeting and then follow-through from our selling resources..

Yes, Dave, it's Mike. The only thing I would add is on the chronic side, I think we've really made a lot of progress on refining the commercial go-to-market strategy, especially in a detailed manner with our market access teams.

As we've talked in the last 90 days, we've implemented pretty innovative relationships as preferred providers with both United and Aetna as well as the hemophilia relationship with Highmark. As you know, payers are much more active on the chronic side, directing and influencing the post-acute solutions.

So really exciting to see that starting to manifest as it obviously has in our first quarter revenue results..

Guys, a couple of more quick questions.

One, if you look at the most vulnerable patient population here and some of the concerns around big institutional settings, do you think that this is the potential event that starts an adult conversation around a more full-blown Medicare benefit, just given some of the challenges we've seen with the outbreak and the importance of being able to provide decentralized care?.

Dave, I think, look, we have been strong advocates for that. We have been pushing that conversation both independently and with the National Home Infusion Association. On that, we are looking forward to adult conversations in Washington.

And we do believe, right, there at least is showing promise with areas like telemedicine and the isolation that's needed for these immunocompromised patients. We believe that there is an opportunity to continue that dialogue, to improve that dialogue and potentially for us to get a more fulsome and appropriate benefit in order to move that ahead.

So look, we've been trying to do two things with that. Number one is everything that our focus has been around is pandemic support. And we wanted to make certain that we were well positioned to support our customers, both at the hospital as well as the physician practice as they move through that.

We have tried to help brave this issue on the Hill, where there was a packages being moved forward with in both the initial Cares Act as well as then the supplementals through there. And we're still having dialogue, and we have some broad support within Congress in order to help move this along. But we've been down this path before.

I don't want to get too far ahead of us, but we believe we have proven to be reliable as well as we have proven to be a safe and effective means for treating these patients in the home setting..

Okay. And then just last question for me.

Can you guys talk about the benefit, candidly, of just the national footprint in terms of, a, seeing this early when it was starting to break out in early March? And then secondly, maybe a little bit early, but I'm curious if you guys are seeing, if there is anything to kind of call out in terms of some of the states that have started to reopen.

And if you're starting to see a little bit of a bump as states start to come back online?.

number one, is our ability to work closely with our vendor partners and to be ahead of the big crush around the personal protection equipment, I think, proved very valuable to us. We've talked about the relationship build or vendor relations as well as the work that has been done by our procurement team.

But I would tell you, we were quick on that, and we're able to get adequate supplies. Not that we didn't have to conserve and we didn't certainly hoard at all on that, but we were ahead of that. And I think that's proven to be a benefit. We saw the wave start in the Pacific Northwest and the trends associated with that.

First and foremost, in just making certain that we had clinical protocols in place to ensure the safety of our employees, to make certain that we could continue to provide that continuity of care to our patients. And so we took those learnings quickly and aggressively across the country.

And I think we're able to respond, the team had just done a tremendous job of interpreting a lot of information and distilling it down to the critical few things that our teams needed to execute. From that, look, it's early in opening and reopening through the process. I would tell you, we're starting to see some green shoots in some of those markets.

And it's, as I said, it's a little too early to tell because they've just opened up.

So our expectations are that we'll be able to take those learnings and then transition those to make certain that our teams are well positioned to capture any rebound volume that comes from pent-up demand from patients not being able to go to the hospital or receive scheduled procedures..

And Dave, the only thing I'd add is as John mentioned early on, we picked up buckets and ran towards the flames pretty quickly. And I think with our payer and health system partners, I think we've earned the badge of being a reliable, trusted partner in their time of challenging needs.

And so back to your first question, I think this has also opened some new doors for us going forward with some of the smaller health systems in more remote locations, which, again, is a testament to the national coverage as we've penetrated some new referral sources and maybe some smaller metropolitan areas..

Our next question comes from Brooks O'Neil from Lake Street Capital..

And Mike, I think David, threw you the softball questions and I guess it's going to be my job to start the adult conversation on your acute business. So I'm hoping, I know you talked about it. I know you said it was flat in Q1.

And many of the firms have been able to give us a little more direct color about the percent decline during the month of April, maybe a little bit of color about sort of how it trended through the month.

And when perhaps you think you might see a trough in that side of the business?.

Yes, Brooks, I think as we provided in the prepared remarks, look, overall, we're quite pleased having delivered approximately 6.5% infusion growth. As we have characterized the portfolio of therapies, we've always talked about the acute therapies being lower than that.

Those are low to mid-single-digit growth therapies with the chronic portfolio, obviously above that mid-single-digit average. And as John mentioned, I think as it relates to the first quarter, we started to see some impact with health system reactions in March, which wasn't helpful on the acute side.

But admittedly, we're still building those relationships with the redeployment of the commercial resources. Again, that's a much more intensive touch sensitive go-to-market strategy. And so again, we had a meaningful disruption in the second half of '19 as we redeployed those resources.

Again, as we sit here today in April, as John mentioned, in a number of our therapies, more on the acute than on the chronic, we've seen 15% to 20% declines in referrals. Referrals is how we think about a leading indicator on the revenue side. And again, it varies by area, by health system and by payer and even by therapy.

So again, I just don't think we're at a position right now where we can call a trough or a floor, but we are clearly in certain markets and in certain circumstances, starting to see green shoots appear..

Great. That's very helpful, Mike. I really appreciate it. So I was just curious, you mentioned the $90 million in cash, I think, right now.

Does that include the $11.7 million you got from the federal government?.

That does not. That's just simply our operating balance. We have kept the HHS grants separate bifurcated until at such time we can fully explore and investigate the program. So the $90 million is where we finished April. So again, continued solid production and good cash generation..

Fantastic. That's great. Interest expense was a little higher in the first quarter than I was kind of modeling.

Do you have any comments on that? Or do you just think I'm a bad modeler?.

Well, I'm not going to this second. I'll let Frank describe you in that manner. No. I think, look, the, given the fact, as we've outlined in our Ks and Qs, we have put rate locks on for both the first and second lien. So relatively consistent and predictable cash. So I think the first, the first quarter cash interest unraveled exactly as we expected.

That's a nice way of saying you're a bad modeler..

Right. I get it. Frank knows that to be true, for sure. Last question. Obviously, the stay-at-home orders, I'm guessing probably impacted any use of the alternate sites in your facilities.

But can you just give us a sense for anything you're seeing on that side as well? And I thought the first quarter was terrific, and I hope you guys keep up all the good work..

Thanks, Brooks. It's, John. We did not see disruption in utilization of our alternate treatment sites. Again, given, even though there were some stay-at-home orders, and certainly with immunocompromised patients, we would prefer and we would service them in the home.

We still continue our march forward in higher utilization within our ATS infrastructure. It was a great alternate site as you would think it's sole purpose is for administering infusion therapy. So you're not standing in line with people who are going in for a COVID test and going through the lobby of HOPD where you may have some of that.

So we continue to be focused on that. We think that is a good venue, safe and effective for our, a significant portion of our patient population, and we'll continue to focus on that as we move ahead..

Thanks a lot. .

Thanks Brook.

Thank you. Our next question comes from Mike Petusky from Barrington Research. Your line is open..

Good morning, guys.

I may have missed this if you provided it, but did you guys give or could you give roughly the percentage of revenue associated with acute therapies in Q1?.

Yes. It's roughly 40% of our revenue base. It's relatively consistent with what we talked about with the 60/40 split chronic/acute..

All right. Very good.

And then just in terms of COVID-19 impact, was there any impact on sort of activities related to integration? I mean, was there anything you guys sort of had push out because you just couldn't do the meetings or you couldn't do whatever to sort of get -- continue the momentum there?.

So as we had mentioned in the March call, we had taken a fire break in the first part of the year. Just given the amount of activities we have with authorization, reauthorization, benefit verification through the process. So we really were planning to start to ramp up in Q2 through that process.

I have to give a shout out to our integration team who have really been flexible in thinking through alternative ways for us to do it in a virtual environment. So to that, we've been planful about it. There may be a couple of weeks' slip in a couple of those things, but we are still on target to deliver more than $60 million.

And as I said in my prepared comments, our expectation is that we'll be north of 90% of the way there by the end of the year. So we're not seeing any delays due to the travel restrictions or the fact that we've had to move virtual..

Okay. And then, obviously, I heard your comments on the referral-based trends in -- for acute therapies.

Have you guys said anything about the sort of trends in April, early May in terms of chronic? Or any commentary there?.

Mike, I think we're the -- on the chronic side, it has not been as pronounced. We have seen with some of the therapies, most of our chronic referrals are coming from specialists, neurologists, immunologists, neuromuscular experts.

So again, because so much of our revenue base is for the recurring side, we really haven't seen as meaningful of an impact on the revenue base. But from a referral perspective, we are starting to see some softness, but it hasn't been as pronounced as the acute side.

And admittedly, we would expect it most likely to be a little bit longer in duration, maybe not as deep of a trough, but potentially a longer trough as folks maybe are more reluctant to go back for those chronic conditions to see their specialists as opposed to folks that maybe are more anxious to get back into the acute setting for a previously scheduled procedure..

Great. And again, forgive if I missed this, I was sort of bouncing between 2 calls. Capital preservation efforts outside of just sort of, obviously, later in the year, you're going to be trying to capture some efficiencies from the integration.

But have you guys talked about what steps you're taking, if any, to sort of preserve capital at this point? Thanks. .

Yes, Mike, absolutely. I mean we're managing daily liquidity and watching cash almost on an hourly basis. As we've mentioned, not only are we trying to move as swiftly as possible with the integration efforts, which unlock both EBITDA but also cash. We're obviously rethinking any investments.

We have a very disciplined process for allocating capital expenditures and the like, but very encouraged by the cash and liquidity position at the end of the first quarter that continued into April. And we think as we continue to tighten the belt, we're confident that our liquidity position is only going to improve..

Our next question comes from Richard Close from Canaccord Genuity..

Great. Thanks for the questions. Congratulations on how you guys prepared for this. Just a follow-up maybe on the referral trends on the chronic side. Just to be clear, I think the 15% to 20% referral impact you were referring to was on the acute side, and you're saying chronic is not going to be as pronounced.

Is, should we think of something like in the 5% to 10% impact area? Is that a good starting point maybe?.

Yes, Richard, I think that's a reasonable expectation on the chronic portfolio..

And then a follow-up on the PP&E and maybe drug supply status. It sounds like you guys were very proactive there.

But as we think about maybe as the year progresses, is there anything maybe to say with respect to the potential impact on margins related to higher prices or anything along those lines? I know you're not providing guidance for the rest of the year, but anything we should keep in mind there?.

Yes. Look, we continue to be very aggressive. So one of the questions. This is a time where the scale and the national presence absolutely has assisted us with collaborating with our vendors. We've invested a considerable amount of time making sure that we have mutually collaborative relationships with them.

And we're pleased that we've weathered the storm better than most at this point. And so with our national logistics centers, we're able to redeploy short supply PPE and therapies relatively efficiency.

I think you're absolutely right, Richard, as we, as we've seen in the first quarter, continue to see in the second quarter and would expect to see for the balance of this year, the cost to procure certain PPE is going to continue to be a challenge. It will be reflected in higher pressure on our cost of service.

But again, we're also continuing to aggressively drive the integration and synergy realizations. But nonetheless, procuring PPE and necessary supplies will be a headwind for us we would expect for the rest of this year..

Okay. And then maybe are you seeing any opportunities, new opportunities for your services or sites? Maybe from potential patients that had COVID or are recovering? Just not sure there or maybe the use of sites for testing or anything along those lines? Just curious..

Yes. So it's John.

And look, we're working closer than ever with payers as well as health systems around not only what they were doing for preparation, certainly, site of care initiatives to move patients into the alternate setting as well as preparing for rebound that can come in the recovery phase as the hospitals move back online for scheduled procedures.

So we announced earlier in the quarter, a relationship with Regence in the Pacific Northwest.

Certainly, those opportunities, we are continuing to foster and work aggressively to pursue those because we believe that both from a reliable source as well as the safe and effective way that we can manage these patients in 1 of our alternate sites or 1 of, or in the home, we think is very well received at this point in time.

To your question on testing, et cetera, no, we're not pursuing that because as you would expect, we want to keep our facilities to be solely focused around delivering those infusion therapy in a safe and effective setting, and we do not want to have a situation where we would be bringing individuals who potentially have COVID or are being tested for that into one of our facilities.

There are better means for them to receive that type of testing..

And then final question with respect to maybe the reopening. Is there any thoughts or maybe metrics you can provide in terms of maybe the percentage of the sales force that are, at this point, able to get back to the hospital or health system.

I know it's really early, but just curious if there's anything you can point to there from a metric?.

Yes.

So part of the virtual aspect of the business is, look, we're still calling on all of our hospitals, whether it's in person, where they've opened up and allow us to come in or whether it is through the relationships that we've developed, and we're doing it in a virtual environment of either through the telephone or through video conferencing, et cetera.

So we're continuing down that path to push that forward. It's changing honestly on a daily basis around the number of facilities that are either in lockdown or are opening up. So I don't have a statistic that I can give you on that. But I can tell you that our commercial team is still making the rounds, they're still making the calls.

They're still utilizing those either new relationships that we've built or the existing relationships that we had. And we're trying to tap into wherever the demand is in order to bring them on to service in a safe and effective way..

Congratulations on the performance..

Yes. Thank you. Thanks, Richard..

And that does conclude our question-and-answer session for today's conference. I'd now like to turn the conference back over to John Rademacher for any closing remarks..

Great. Thank you. In closing, I must recognize and thank America's healthcare workers and our team members who are on the front lines, courageously battling this disease and providing support to our patients who need our care.

As many of you know, this is National Nurses Week, and I couldn't think of a more appropriate time to show our gratitude to these professionals.

We have seen the best in humanity working side-by-side with our hospital and health care customers as they respond to this challenge, and we provide real solutions to provide service to service patients who need infusion services in a high-quality and safe setting.

Given our progress in Q1, we entered this battle from a position of strength and rest assured knowing we are continuing to work to realize the full value this organization possesses. Thanks for joining us on the call, and we look forward to providing you further updates on our progress. Take care, and please stay safe..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day..