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Omnicare (NYSE:OCR)

Q4 2012 Earnings Call

February 19, 2013 8:00 am ET

Executives

Patrick C. Lee - Vice President of Investor Relations

John L. Workman - Chief Executive Officer and Director

Nitin Sahney - President, Chief Operating Officer and President of Specialty Care Group

Robert O. Kraft - Chief Financial Officer

Analysts

Charles Rhyee - Cowen and Company, LLC, Research Division

Lisa C. Gill - JP Morgan Chase & Co, Research Division

Brendan Strong - Barclays Capital, Research Division

Glen J. Santangelo - Crédit Suisse AG, Research Division

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Steven Valiquette - UBS Investment Bank, Research Division

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Frank G. Morgan - RBC Capital Markets, LLC, Research Division

Operator

Good morning. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to Omnicare's Fourth Quarter and Year-End Earnings Conference Call. [Operator Instructions] I would like to turn the call over to Patrick Lee, Omnicare's Vice President of Investor Relations. Mr. Lee, you may begin your conference.

Patrick C. Lee

Thanks, Brent. Good morning, ladies and gentlemen, and thank you for joining us today. With me on the call are John Workman, Chief Executive Officer; Nitin Sahney, President and Chief Operating Officer; and Rocky Kraft, Chief Financial Officer.

Before we begin, let me remind you that during this call, we will make remarks that constitute forward-looking statements. Actual results may differ as a result of a variety of factors, including those identified in our earnings release and in our various filings with the SEC. You are also cautioned that any forward-looking statements reflect management's current views only and that the company undertakes no obligation to revise or update such statements in the future. For simplicity's sake and to focus on what we believe are the best indicators of our operating performance, we will discuss results from continuing operations, and we'll also exclude special items for all periods in our discussion today.

A reconciliation of this non-GAAP information has been attached to our earnings release and is also available on our website. Also on our website, you'll find fourth quarter supplemental slides, which we will follow during our discussion today. [Operator Instructions]

With that, it is my pleasure to turn the call over to John Workman.

John L. Workman

Thank you, Patrick, and good morning, everyone. We appreciate your being on the call. We had another solid quarter with adjusted cash earnings per diluted share showing double-digit growth. The quarter closed out a very successful 2012 where we saw our adjusted cash-based EPS grow over 14% from 2011.

I'm going to provide an overview of the quarter, Nitin is going to discuss our operations and Rocky will cover our fourth quarter financial results. I will then conclude with comments on our 2013 guidance before we open up the call for questions.

Some highlights around the quarter: our adjusted cash-based earnings per diluted share of $0.86 for the quarter compared to $0.78 a year ago. We now have had 5 quarters in a row in which we have seen year-over-year improvement. Cash flow from operations was $128 million for the quarter, bringing the 2012 total to $544 million. Long-Term Care's adjusted operating income from continuing operations of $155 million was a 6% improvement over the same quarter a year ago. Specialty Care Group's adjusted operating income of $36 million was a 33% improvement over the fourth quarter of 2011, overall, a solid performance in Long-Term Care and another sequential improvement in the Specialty Care Group.

Next, turning to metrics. Our retention rate for 2012 Long-Term Care was 92.2% remaining in the 92% to 94% range that we saw in 2011. Our net organic bed activity for the quarter in Long-Term Care was a loss of 10,000 beds. Though Hurricane Sandy created some operational challenges in the fourth quarter, we did not lose any beds from the hurricane. Our Northeast pharmacies also did an outstanding job in serving our customers during Winter Storm Nemo. The organic loss includes 1,300 beds lost from our Pharmacy Advantage acquisition in 2011, which is generally anticipated. Our total scripts dispensed in the fourth quarter were 30.4 million scripts, up approximately 600,000 scripts from the third quarter of 2012.

Finally, a few additional comments before I turn it over to Nitin for his observations and then to Rocky for a more detailed review of our financial results. We initiated an accelerated share repurchase program in the fourth quarter of $250 million. In total, we spent $278 million in repurchasing shares in the quarter. Coupled with our dividend, we returned 229% of our cash flow from operations to our shareholders for the quarter and approximately 80% for the full year 2012. As we have mentioned previously, efficient capital allocation is 1 of our 3 key priorities at Omnicare.

Nitin Sahney, our President and Chief Operating Officer, will now give you an update on operations, including our other 2 key priorities namely, a, achieving sustainable net organic growth in Long-Term Care and, b, continuing the strong growth being demonstrated in our Specialty Care Group. Nitin?

Nitin Sahney

Thank you, John, and good morning, everyone. As John mentioned, we still have work to do operationally, but we are beginning to see results from a phase plan being implemented within our Long-Term Care Group. In order for you to better appreciate our progress, I would like to provide an update on the operating plan that we believe is foundational to our long-term success.

We exited Phase I in September having made some initial changes to key leadership positions. The objective was to ensure we have the right people in key roles to enhance performance. While we will continuously evaluate and make refinements, if necessary, our current team is fully aligned with our objective of creating a structure for sustainable growth and optimizing efficiencies across our businesses.

As we entered Phase II, our focus was on transforming our team's initial assessments into actionable plans with formed timelines. Two critical areas that deserve immediate attention were sales and retention. From a retention perspective, we had made decent progress during the past couple of years at improving service levels broadly, but the improvement was inconsistent. As an example, nearly 80% of our regional service areas had maintained customer retention rates at or above our corporate average, but the other 20% were well below. We have since developed a plan for these underperformers and are monitoring the progress on a weekly basis. We have also recently reconfigured our retention organization to optimize our account management resources. We believe this structure will improve the customer experience for smaller accounts, which have driven most of our customer attrition historically.

We now have a clear plan to mitigate controllable related losses, as they will always be a portion of customer attrition that is uncontrollable. With respect to sales, we have initiated a sales transformation strategy during Phase II that has started the implementation of upgrading the talent across our sales organization, redeploying our resources to better align with market potential, establishing a new structure to better drive lead generation, optimizing our sales tools and ensuring more consistency with our go-to-market message. While these sales enhancements have only recently been fully implemented, with refinements ongoing, we are encouraged by the early results. We expect our sales performance will gradually ramp up, as we progress for the first half of 2013 before being fully optimized as we enter Phase III in the second half of the year.

The improved results expected from our sales organization is a key reason we continue to believe we will generate net debt growth by end of 2013. We remain encouraged by the developments in our Long-Term Care business and are cautiously optimistic on our outlook, primarily because we are seeing a similar structure generate results within our Specialty Care Group.

During the fourth quarter, SCG operating margins expanded 60 basis points on a 25% top line growth. We have outpaced market growth across this group with our commercialization service businesses continuing to perform well. From an SCG sales perspective, our team had a few nice wins during the fourth quarter in both our fee-for-service and specialty pharmacy businesses. Our sales pipeline remains robust. Our focus is on maintaining a high win rate, which increased from 30% in fourth quarter of 2011 to 50% in the fourth quarter of 2012.

Further, we are in the process of launching a new marketing campaign to increase awareness of SCG and become more targeting -- targeted in our prospecting. Our goal with this approach is to remain on the offense in effort to capitalize on our integrated offering. Like LTC, we will continue to enhance the structure over time, adding high-level talent to further enhance the seasoned team already in place. We believe our level of collaboration has increased within SCG and across both business units, which has enabled us to become more efficient at connecting the various sales and strategic opportunities.

It is evident we are beginning from having both businesses -- we are benefiting from having both units under one management team and are now in a much better position to leverage our collective assets.

And now I'd like to turn it over to Rocky, who will cover our fourth quarter financial results.

Robert O. Kraft

Thanks, Nitin. As Patrick mentioned earlier, we have filed supplemental slides that I will refer to during my remarks.

Let me begin by discussing our operating metrics, which can be found on Slides 5 and 6. Fourth quarter scripts dispensed were 30.4 million, down slightly from the 30.6 million scripts we dispensed in the fourth quarter of 2011. Within our Long-Term Care Group, fourth quarter script volumes were 70 basis points lower on a year-over-year basis to 28.7 million. These lower script volumes were driven primarily by a lower average number of beds served and a slight decline in our average utilization across SNF and outpatients, both of which were partially offset by the impact of this year's earlier and more active flu season.

Next, let me turn to bed serviced. We ended the fourth quarter serving approximately 970,000 beds. We exited 2012 with 40,000 fewer beds than December 31, 2011. As previously disclosed, 15,000 of these losses occurred in the first quarter of 2012 and were attributable to the loss of a large, low-revenue correctional facility and the divestiture of our nuclear pharmacy in the Northeast. The acquisition of Five Star's pharmacy assets added 13,500 beds, partially offsetting these losses.

Before discussing our financial performance, I'd like to briefly cover the fourth quarter special items, which amounted to $19.1 million. This is $19.6 million lower than the same period of 2011. The fourth quarter special items were primarily attributable to: first, settlement and litigation charges of $11.1 million; second, loss on the sale of the company's aircraft of $1.1 million; and finally, acquisition-related costs of $1 million, related to the acquisition of Five Star.

During the third quarter, a new qui tam complaint against the company was unsealed. As we will disclose in our 10-K to be filed later today, the government has decided not to intervene in the case. Additionally, one of the existing qui tam complaints was dismissed subsequent to year end. As we have mentioned before, we expect there will be additional matters to arise against the company in the future, but those of which we are aware are manageable, given the company's financial position.

I'll now cover net sales and adjusted gross profit, both of which can be found on Slide 7. Our net sales were $1.530 billion in the fourth quarter of 2012, reflecting a 1.7% decrease from the $1.557 billion in the comparable prior year period. This change was driven principally by the introduction of low-cost generic drugs and the lower script volumes. Fourth quarter adjusted gross profit increased approximately $17 million to $376.7 million. The impact of low-cost generic drug introductions drove a 150-basis-point year-over-year increase in gross margin to 24.6%.

Next, I'd like to turn to SG&A expenses and our provision for doubtful accounts, both of which can be found on Slide 7. Our fourth quarter SG&A expense was $14.2 million higher in 2012, driven principally by higher employee benefit costs and $2 million in additional expenses related to Five Star's pharmacy operations. Looking forward, we expect SG&A to return to a more normalized level, similar to what we incurred in the first 3 quarters of 2012. Our provision for doubtful accounts was 1.76% of revenue for the fourth quarter of 2012, or relatively even with the comparable prior year period.

Fourth quarter day sales outstanding of 51.5 days was lower by 3.5 days than the fourth quarter of 2011. Adjusted depreciation and amortization expense of $28.4 million for the fourth quarter of 2012 was relatively even with the comparable prior year period. As we have stated previously, 2013 will include a full year's impact from depreciation on the investment made in our Oracle-based ERP system and other additional technology investments made in 2011 and 2012.

I'll now look below the operating income line, detail of which can be found on Slide 8. Interest expense of $23.7 million was $1.9 million lower than the fourth quarter of 2011 as a result of our debt refinancing and reduction initiatives. Excluding the impact of special items, our effective income tax rate was 36.5% in the fourth quarter. Our fourth quarter tax rate was favorably impacted by several non-recurring discrete items leading to a full year tax rate of 38.2%. As a reminder, our cash tax rate is generally much lower, reflecting the goodwill we amortized for tax purposes and the comparable yields we deduct relating to the contingent interest on our outstanding convertible debentures.

Adjusted income from continuing operations for the fourth quarter of 2012 was $71.1 million or 4.6% of net sales. This represents an 8.1% increase from the $65.8 million we reported in the fourth quarter of 2011. For the fourth quarter of 2012, we generated adjusted cash earnings per diluted share of $0.86, a 10.3% increase over the $0.78 we generated in the fourth quarter of 2011.

Cash EPS items for the fourth quarter were $23.6 million or $0.21 per share. In 2013, we expect the aggregate cash EPS adjustments to temporarily decline due to a reduction in tax-deductible goodwill and intangible asset amortization, creating a $4 million after-tax headwind in 2014. We expect these adjustments to recover to previous levels in subsequent years.

Now let me turn to our segment results. These can be found on Slide 9. Our Long-Term Care Group generated a 5.9% fourth quarter adjusted operating profit increase to $155 million on a 7.3% decrease in net sales that was primarily due to the impact of new generic introductions. As a result, we expanded fourth quarter operating margin in this segment by 165 basis points to 13.1%. The improved performance in our Long-Term Care Group was driven principally by the benefits from new generic introductions, which also have a favorable impact on our customers, payers and the broader health care system.

Our Specialty Care Group again had a very strong performance. For the fourth quarter of 2012, our Specialty Care Group generated approximately 25% and 33% increases in net sales and adjusted operating income, respectively, over the comparable prior year period. As we have mentioned previously, we expect double-digit growth in revenue and operating income in the Specialty Care Group over the next couple of years. All specialty operating platforms generated double-digit adjusted operating income increases during the fourth quarter.

Next, let me turn to the balance sheet. We ended 2012 with $455 million of cash on hand, including restricted cash, after funding the accelerated share repurchase. Our accounts receivable were approximately $74 million lower as compared to where we exited 2011. Fourth quarter inventories of $386 million were $34 million lower than where we exited the fourth quarter of 2011, driven largely by an increase in our generic drug mix.

Turning to cash flows, which you can find the detail on Slide 10. Fourth quarter net cash flows from continuing operations were approximately $128 million. This brings our full year 2012 operating cash flow to $544 million. Excluding the settlement payment made to the DEA earlier in the year, our cash flow from operations was $594 million.

For detail regarding deployment of our cash flows, refer to Slide 11. Our fourth quarter capital expenditures of $29 million reflect continued investments in technology initiatives that are expected to improve the efficiency of our operations and to enhance customer service, all while providing an attractive return for shareholders. We now expect our annual maintenance CapEx to normally run approximately $40 million to $50 million per year.

As John mentioned earlier, we continued our disciplined plan of returning cash to shareholders through dividends and share repurchases. During Q4, we paid dividends of $14.4 million, bringing the full year total to $45.2 million, significantly higher than the $17.2 million we paid in 2011. Additionally, we entered into an accelerated share repurchase, which provides for the purchase of $250 million of our common stock over a period that will end in the first half of 2013.

In addition to the shares acquired in the ASR, we purchased approximately 800,000 shares in Q4 for approximately $28 million in the aggregate. For the full year 2012, including the ASR, $389 million went to share repurchases, resulting in a purchase of approximately 10 million shares. After consideration of the ASR, we have approximately $220 million remaining on our authorized share repurchase. As a reminder, we can only purchase shares in the open market during certain window periods, and we will be unable to purchase until the ASR expires. Collectively, 2012 dividends paid and share repurchases represented almost 80% of our operating cash flows, 34% of our operating cash flows if you exclude our ASR.

With that, I'd like to hand the call back over to John.

John L. Workman

Thank you, Rocky. 2012 was a very good year for Omnicare, and the results exceeded our expectations that we set out at the beginning of the year. We are now in 2013, and our focus is on the elements that drive success in 2013 in the future. Our 2000 (sic) [2013] guidance is as follows: on the revenue line, $6.1 billion to $6.2 billion; we see adjusted cash-based EPS per diluted share for 2013 of $3.47 to $3.57 per share; and cash flow from operations at $450 million to $500 million for the year.

The midpoint of our revised EPS guidance is a 5% increase over 2012 adjusted cash-based EPS from continuing operations. As Rocky mentioned, 2013 includes higher depreciation cost in 2012, and our adjustments added back to arrive at cash-based EPS per diluted share are $4 million after tax less in 2013 than they were in 2012. This guidance includes an assumption for federal upper limit pricing that is based on average manufacturer's price. In addition to AMP, we also continue to monitor events out of Washington so that we are prepared to deal with those. One of these is short-cycle dispensing that became effective in January 1, 2013, which, as we have previously disclosed, will impact about 2% of Long-Term Care scripts. As with any major change, there are a few start-up challenges, which we are successfully working through. The work our team did to prepare for the change operationally and with the Part D plans confirm our earlier view that there will only be a slight added cost on this program. While we do not give quarterly guidance, I will remind you there is some seasonality in our business with the second quarter typically being lower.

Before offering comments on our longer-term targets, I want to mention something about our previously expressed targets. At the beginning of 2011, we indicated we expected to grow adjusted EPS over the 3-year period ending in 2013 at double-digit rates. In 2012, we moved to an adjusted cash-based EPS and indicated we would grow adjusted cash-based EPS at a high single-digit rate over the 2 years ending in 2013. In fact, if you look at the midpoint of our 2013 guidance, it is a 10% -- over a 10% 2-year compounded annual growth rate.

Looking beyond 2013, we do expect continued reimbursement pressure from Part D plans and facilities consistent with what we have been experiencing for the last few years, in addition to the impact of AMP. Net organic bed losses will be a drain until we have achieved sustainable net organic growth.

On the plus side, we continue to expect to see continued growth in Specialty Care. We expect benefit from efficiency that is cost savings initiatives, which will provide a positive contribution, and we are in the early stages of this process that we will have some added costs with short-cycle dispensing. Lastly, our use of cash return value to shareholders through share buybacks also creates increased adjusted cash EPS from continuing operations. And lastly, introduction to generic launches will create some fluctuations as we look in future years.

Considering all of these elements, we believe our longer-term growth rate and adjusted cash-based EPS per diluted share will range from 5% to 7% over the next several years. As mentioned earlier, the cash-based adjustments added did not have the same growth characteristics as our business. We also believe our annual cash flow from operations to be $450 million to $500 million per year.

With that, we would now like to open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Charles Rhyee with Cowen and Company.

Charles Rhyee - Cowen and Company, LLC, Research Division

John, just touch on the guidance here for a second and your long-term outlook. Clearly, what is the delta do you think here when you guys talked about that 2-year growth rate being sort of a high single digits and we look at the midpoint here at over 10% now and obviously, be at the high end, a little bit better than that? Can you talk about what's going right for the business to help you feel pretty good about 2013?

John L. Workman

Well, I mean, I think, we've outlined the drivers before, Charles. Clearly, achieving the compound annual growth rate that we've achieved and it -- related to 2012, we had a very strong brand-to-generic year, and I think you're aware of that. As we look at 2013, we see that being more neutral. But as we look forward, we clearly believe specialty will continue to grow. We're making progress, as Nitin commented, in terms of our retention rates and more importantly, on the sales side and lastly, the efficiency elements that really we started a couple of years ago. One of those examples is OCEAN. But we do have opportunities, and I would say we're in the early stages of creating more efficiencies and operating performance metrics that will improve the results going forward, all that with a backdrop that we know we're going to continue to face some reimbursement pressure, but it's nothing that we haven't seen before.

Charles Rhyee - Cowen and Company, LLC, Research Division

Can you talk about sort of what you assume in terms of new sales, sort of a momentum in the Long-Term Care business within the guidance?

Nitin Sahney

Charles, this is Nitin. We have, as we have stated before, we've put together our new sales team and strategy. That's about 30 days old, and we have seen good signs in terms of the run rate that we see from the new sales force. And I can tell you that all the metrics on the sales side are in the right direction.

Charles Rhyee - Cowen and Company, LLC, Research Division

Okay. But I mean is it -- I mean, are you embedding a lot in terms of new sales wins for the guidance? Or is this sort of your good early signs, but the guidance isn't necessarily predicated on really big gains yet?

Nitin Sahney

No, I mean, the guidance is predicated on what we'd expect the increase to be over 2012, Charles.

Operator

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

Lisa C. Gill - JP Morgan Chase & Co, Research Division

Maybe if you could just discuss getting back to net organic bed growth, I think that's one thing that people are really focused on for this year. Nitin, you talked about the plan that was in place. But John, do you think that you'll see any benefit from the short-cycle dispensing? I know you said it's only 2% of scripts, but if you're saying it's a challenge for a big company like yourself, I can't imagine that little companies are not having even more of a challenge in this environment. So can you maybe just talk about the competitive market and what you're seeing there? And then secondly, can you just help us understand the cash flow? I know last year, you also guided to a similar cash flow number and came out at $544 million. Is there something else that's going on above and beyond the depreciation that you talked about in -- for next year?

John L. Workman

Okay. On the first question, Lisa, the short cycle, obviously, we think we've done very well in terms of dealing with the short cycle. It's a new program, and there's a few bumps, but we've navigated through those very successfully. And we were way ahead of the curve, so I do expect that's going to be more of a headwind for our competition, again, slight cost to us but nothing of significance, is the way we'd characterize it for 2013. But I do -- again, since it just started, there are some -- there will be, I think, larger challenges for, especially some of the smaller competitors as they deal with that in 2013. On the second question, in terms of the net organic growth, our view is that we will be there for the full year 2013. We expect momentum to gain as the year progresses. We're more focused on the retention side as Nitin comments to add about focusing on those underperformers, and we feel in pretty decent shape about the sales side.

Robert O. Kraft

And Lisa, it's Rocky. On the cash flow question, in 2012 because of all the brand-to-generic introductions, we had a lot of natural benefit from a working capital perspective that isn't necessarily going to recur in 2013. So we've taken that into account when we thought about our cash flow guidance.

Operator

Your next question comes from the line of Brendan Strong with Barclays.

Brendan Strong - Barclays Capital, Research Division

I guess first off, just on the scripts in the quarter, I mean it was nice to see the scripts up sequentially, especially with the decline in beds, so I was curious if there was anything onetime in nature driving that, including the flu, or if there was -- or if you are starting to see some benefit there from the sales changes.

Robert O. Kraft

Yes, I think -- Brendan, it's Rocky. I mean there are 2 things that are helping driving that. One, we did have the Five Star acquisition late in the third quarter, and so we had a full quarter of scripts from Five Star in the fourth quarter, and then we did earlier a more active flu season. So those are probably the 2 items that directly impacted the scripts that we saw in the fourth quarter.

Brendan Strong - Barclays Capital, Research Division

Okay, great. And then maybe just on guidance. Can you, I guess, just give us a little bit more detail in terms of, I guess, are you thinking you're going to see script growth for the full year, bed growth for the full year? And then, I guess, the last part of that is, you guys tend to be conservative, so I suspect there is some conservatism in that guidance, and maybe you can just remind us as to what you're including that from AMP-based FULs.

John L. Workman

Yes, so the -- to your first question, we do expect to get to our -- to net organic growth in 2013. As we've said, we expect that to be a little bit more stronger weighted in the second half than the first as some programs to take into place. We put out, Brendan, I think what we believe is realistic guidance for 2013, and we've had a consistent pattern of hitting our guidance. So we expect to continue to do that. What was your other question, Brendan? You had another question. I'm sorry, yes.

Brendan Strong - Barclays Capital, Research Division

Yes, AMP, because...

John L. Workman

As I said in my comments, we do have AMP, or FUL under AMP, built into an expectation for our guidance for 2013 as a negative.

Brendan Strong - Barclays Capital, Research Division

Okay. But that -- I mean, I think the expectation is that's not going to impact you until the fourth quarter. So are you including a full year in there or just a fourth quarter impact?

John L. Workman

We have it in there for a portion of the year, Brendan. I will remind you, it's a minor impact though, which only affects 3% to 4% of our scripts because of the progress that we've made in moving contracts, both on the Part D plan and the facilities on the AWP minus program.

Operator

Your next question comes from the line of Glen Santangelo with Crédit Suisse.

Glen J. Santangelo - Crédit Suisse AG, Research Division

Two quick questions, if I could. I just want to make sure I understand a little bit more about your operating assumptions in fiscal '13. I'm not sure -- are you guys -- Rocky, could you just reiterate a little bit what you said on SG&A? Do you expect that trend to sort of moderate as early as the first quarter? And do you have any sort of capital deployment built into that EPS guidance?

Robert O. Kraft

Yes, let me answer -- I'll answer your first question there, Glen. I mean, yes, we believe for the full year that we'll be consistent with what you saw in the first 3 quarters of 2012, as we look at SG&A expense. And then I didn't catch the second question.

Glen J. Santangelo - Crédit Suisse AG, Research Division

Yes, I was talking about your capital deployment assumptions in fiscal '13.

John L. Workman

Again, we -- you can understand the numbers we have. We have the ASR that really runs through the second or the first half of the year, Glen. And then we will be looking for opportunistic purchases in the second half. It's -- you understand what remains in our ability to repurchase shares. We do have some shares that get added as we grant shares to management as part of the bonus programs and we still have some options outstanding that get exercised by prior members of management but have been gone for a few years.

Glen J. Santangelo - Crédit Suisse AG, Research Division

John, maybe if I can just ask you one quick follow-up. You seem to provide some level of guidance on 2014 and beyond, and I think you kind of went through some of those puts and takes suggesting that you feel comfortable with adjusted cash EPS growth of 5% to 7%. But thinking about the levels of cash flow you generate, I mean, even if you only use half that cash flow to buy back stock, you should be able to drive that mid-single-digit growth on share repurchase alone, which kind of implies almost no growth in the base business. And I'm just kind of curious as to your expectations around that. Are you just being conservative because you don't know what's coming on the regulatory side? Or -- any additional thoughts around that would be helpful.

John L. Workman

Yes. I mean, I think that obviously we do expect some growth in the business, Glen, that we haven't factored anything beyond what our amounts that are available for repurchase at this point in time. So it's not necessarily redeploying the levels that you said when we look at the forward-looking guidance. But clearly, we expect to see some performance in the base business, and specialty is continuing to grow. As we've said, we believe that's a double-digit growth, so we do expect growth in both categories.

Operator

Your next question comes from the line of Robert Jones with Goldman Sachs.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Just following up a little bit here on the expectations for '13. I'm just trying to think back to your Investor Day where you highlighted some of the drivers, the year-over-year impact of them. I believe the only one that was called out as a real negative year-over-year impact in '13 was reimbursement. I'm just curious, on this guidance and trying to understand the EPS side of it a little bit more, anything incrementally changed from the Investor Day to today? Are we viewing the reimbursement landscape as a little bit more challenging than we did then? Or is this still kind of business as usual year-over-year? And then outside of reimbursement, are all the other drivers that you called out as either positive or neutral, is that still safe to assume?

John L. Workman

Yes. I think the way that we profiled the drivers in the Investor Day, Bob, are consistent. As you said, reimbursement was negative. The -- we said the net bed situation was kind of a neutral in 2013. We have a lot of positive elements working the other way. The thing I would highlight is I think you heard the comments that with some of the capital investment, D&A is up some in 2013 also, which is depressing that EPS. Because even though we report cash-based EPS, you don't add back depreciation.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Right. Okay. That's true. That's very helpful. And then just asking one over on specialty, it sounds like you guys are still expecting double-digit growth there in revenue and profit. This quarter, I think, was a high watermark for operating margins there at 10.5%. I was just curious if you could, Nitin, maybe comment a little bit on what the drivers there were. I know the top line was strong. Was this just better revenue? Or were there some improving pieces in the underlying businesses that helped drive that operating margin?

Nitin Sahney

Actually, Bob, both. Our revenue line was mainly through our specialty pharmacy business, and our EBITDA growth was, frankly, across all platforms, which were fee for service and specialty pharmacy.

Operator

Your next question comes from the line of Steve Valiquette with UBS.

Steven Valiquette - UBS Investment Bank, Research Division

Just a question. All my questions like on the 2013 guidance have been covered at this point, but just curious on the macro level. With all the reimbursement pressure on, some of the nursing home customers and other factors, do you have any views, just from a macro perspective, whether the number of long-term care beds in the U.S. may start to shrink at a faster pace or stay pretty level? Just any general industry or customer segment comments will be helpful.

John L. Workman

Well, I'll address the first part of the question on the reimbursement side and then let Patrick Lee kind of talk about what on the bed side because Patrick, in addition to being Investor Relations, is also helping us with our assisted living facility strategy. But clearly, in terms of the first point, yes, we see some impact pressure on our nursing home customers. They did get a price increase, as you know, last October 1. They're obviously subject to sequestration and perhaps some reductions. But if we look back well over a year ago when we had a huge decrease, 11%, it gave us an opportunity to talk to our customers about how we could work proactively without just giving up price, because our business is really giving them a price reduction every year for many years in the past. And we want to focus on the value and how we deliver a -- the lowest cost to them overall, and that's been very worthwhile conversations that we've had with them, and allows us to use some things that Omnicare has, like Omniview, that can be helpful with our customers, as well as the formulary. So actually, that turned out last time to be an opportunity for us to talk to some additional customers, and we would hope that the same thing would occur during the pricing pressure. Well, I'll let Patrick talk about the other topic.

Patrick C. Lee

Yes. Steve, when you think about just from a macro perspective, certainly, SNFs are kind of under reimbursement pressure, and that's been going on for years. But when you think about the assisted living and independent living markets, they're much cleaner from a reimbursement perspective. It's all private pay, directly from the residents. In mean, there's a small amount of Medicaid business, but it's kind of in the single digits as it pertains to that market. And that's a market that's growing fairly decently and has been over the last several years. Assisted living has grown about, I'd say, mid-single digits on a per-annum basis, and you're seeing the occupancy and census levels increase. You're not seeing the same level growth within skilled nursing. So we've kind of started to, in addition to focus on becoming a little bit more targeted in the skilled nursing space, also developing our strategy within assisted living. And we are kind of on the verge right now of launching a new pilot, which is a differentiated offering geared toward the assisted-living market that we think will be a scalable approach to serve in this market, and we'll just kind of update everyone as this kind of progresses throughout the year.

Operator

Your next question comes from the line of Robert Willoughby with Bank of America Merrill Lynch.

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Two simple ones, actually. Just looking for an actual -- I don't know if you break this out -- an actual diluted share count that you'd hope to see in 2013 net of the repurchase dynamics and some of the options issuances, as well as -- Rocky, I don't know if you broke out a tax rate assumption for '13 either.

John L. Workman

We won't be breaking out -- again, there's things that happened both on the plus side, clearly, on the share repurchase side for 2013 as to the share count. So we're not going to speculate with that portion. You want to comment on the tax rate?

Robert O. Kraft

I mean, on the tax rate, I think we -- you'll see what our full year tax rate is on a non-GAAP basis, and I think it'll be in the ballpark of that rate, Bob, as we look forward.

John L. Workman

Yes, I think the key thing to remind you is that our cash tax rate is obviously different than the financial reported tax rate, which provides some add-back to the items to get to cash-based EPS. And just to remind everybody that those are fairly flat numbers. I mean, there's a little fluctuation, those add-backs to cash-based EPS, but that doesn't have the same growth characteristics as the underlying business does.

Robert M. Willoughby - BofA Merrill Lynch, Research Division

And is the deal spend number comparable to 2012 a reasonable assumption for '13?

John L. Workman

Well, yes. We've got some minor expectations on acquisitions in 2013. That's part of our numbers and spending some cash on that. But that will remain to be seen based on what the opportunities are, but we always allocate some capital for those, more along the add-on side, Robert, than something that would be major at this point in time.

Operator

Your final question comes from the line of Frank Morgan with RBC Capital Markets.

Frank G. Morgan - RBC Capital Markets, LLC, Research Division

Obviously, you talked about a couple of growth opportunities in assisted living. Is there anything else -- I mean I guess, beyond the growth in your specialty business, when you talk about acquisitions that might occur in the second half of the year, are there any new segments that you're looking at? Or is it pretty much just more of the same?

John L. Workman

No, we're always interested in other opportunities, Frank, and think the -- but we're very disciplined. I mean, we did one acquisition last year. We probably looked at 20, and that's in a combination of both Long-Term Care and Specialty Care. And we'll continue to look for those acquisition opportunities, and so we will continue that. We want anything that we do to be close to our core, and we would expect anything that we would acquire to have some synergy impact. Having said that, you're all probably aware that multiples have kind of run up in recent years, and so we're also cognizant of the price to be paid. So we take a very disciplined approach. We've allocated some capital for potential acquisitions, but we will look at those, and make sure they're going to have the returns that we would expect, number one, and number two, that they bring cash back pretty quickly. So when we look at acquisitions, not only do we expect a pretty high hurdle rate from a return perspective, we also expect to get our cash back in a short number of years.

Frank G. Morgan - RBC Capital Markets, LLC, Research Division

I got you. One final -- I can't help but always ask, any new developments on that first dose dispensing technology you have been piloting out in the -- in some of your -- out in the field?

John L. Workman

Well, the -- that's a great question, Frank. We -- the pilot should end in June. We have expanded the number of piece of equipment that are out there. We are optimistic about it. We've actually strengthened the automation team through some recent hires, and so I think we'll making some more progress. As that unfolds in 2013, our goal is to just to make certain that we have something that is effective, not only cost effective but also efficient, not only for us but for our customers. And so we're continuing to work through that, and optimistic, as the second half unfolds, we'll have more report about it.

Operator

This is all the time we have for questions today. I would like to turn the call back over to our speakers for any closing remarks.

John L. Workman

Well, again, we thank you for your interest in Omnicare. We appreciate your being on the call this morning, and look forward to talking with you in the future.

Operator

Thank you. This concludes today conference call. You may now disconnect.

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