PharMerica Management Discusses Q1 2013 Results - Earnings Call Transcript

May. 2.13 | About: PharMerica Corporation (PMC)

PharMerica (NYSE:PMC)

Q1 2013 Earnings Call

May 02, 2013 10:00 am ET

Executives

Dennis Humble

Gregory S. Weishar - Chief Executive Officer, President and Director

David W. Froesel - Interim Chief Financial Officer

Analysts

Charles Rhyee - Cowen and Company, LLC, Research Division

Brendan Strong - Barclays Capital, Research Division

Steven Valiquette - UBS Investment Bank, Research Division

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Michael John Petusky - Noble Financial Group, Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2013 PharMerica Corporation's Earnings Conference Call. My name is Tahesha, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Dennis Humble, Vice President, Finance. Please proceed.

Dennis Humble

Thank you, Tahesha. Good morning, and thank you for joining us for the first quarter conference call. On the call with me today are Greg Weishar, Chief Executive Officer; David Froesel, interim Chief Financial Officer; and Berard Tomassetti, Senior Vice President and Chief Accounting Officer.

Before beginning our remarks regarding the first quarter results, I would like to make a cautionary statement. During the call today, we will make forward-looking statements about our business prospects and financial expectations. We want to remind you that there are many risks and uncertainties that could cause our actual results to differ materially from our current expectations.

In addition to the risks and uncertainties discussed in yesterday's press release and in the comments made during this conference call, more detailed information about additional risks and uncertainties may be found on our SEC filings, including our annual report on Form 10-K and quarterly report on Form 10-Q. Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our website. PharMerica assumes no obligation to update the matters discussed on this call.

During this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in our press release and in our Form 10-Q. We have made available to you our press release and our 10-Q filed with the SEC. In addition, this webcast will be on our website, along with the transcript from this call.

And now at this time, I'd like to turn the presentation over to Greg.

Gregory S. Weishar

Thanks, Dennis. Thank you, all, for your attendance. We trust there were no big surprises as you reviewed last night's earnings release, and while we have challenges, the company is in better shape today than it's been in many years.

Before I get started, I'd like to introduce Dave Froesel, our Chief Financial Officer, interim Chief Financial Officer. Dave's been with us a couple of weeks now and we clearly are fortunate that he was available to help us through the transition. His industry experience makes him well-suited to step into this role, and Dave will lead the discussion on financial results later.

As you saw on last night's earnings release, we delivered solid results. The company achieved record quarterly pharmacy gross margin and adjusted EBITDA margin with a sequential improvement. This was primarily the result of better purchasing and growth in generics. Overall, EBITDA increased 29%, adjusted diluted earnings per share increased 39% over last year's first quarter. Cash flow during the quarter improved by $28 million versus last year, primarily due to improved earnings and lower working capital investment.

We continue to focus operations on executing core strategic initiatives to drive organic growth and operating margins. We are also pursuing pharmacy acquisitions and long-term care to drive market share. And now, with the acquisition of Amerita, we're looking in the home, specialty home infusion sector as well. From an organic growth perspective, we are seeing improved performance as we restructure the sales and account management group. I'm optimistic that the sales force under Mark Lindemoen's leadership will have the focus and discipline to be successful.

And to support sales and client retention, we continue to invest in new products and services as we differentiate PharMerica's service offerings. We recently introduced our RxSentry. RxSentry features on-site prescription dispensing and competes with automated pharmacy dispensing companies such as Advance Pharmacy Services, Talyst and also the AlixaRx startup by Golden Living.

We currently have several plans amounting to several hundred patients using this new technology. And over the next several months, we will monitor RxSentry's performance and market viability. As most of you know, these technologies have proven difficult to make work, but the need and demand for on-site dispensing is clearly there for our clients who are driving subacute business. Coupled with RxNow, our proprietary, emergency and first dose medication dispensing system, we have the most complete prescription-dispensing product line in the industry. We provide the whole array of remote and on-site pharmacy solutions. And when you combine that with superior client and customer service, we are well-positioned to drive sales and productivity -- sales productivity and client retention.

On that note, we continue to see improvement in core services. Bed losses due to service fell 60% versus Q1 2012 and over 75% as compared to the last quarter 2012. The majority of the losses that we see today are clients moving their business in-house or to an affiliated entity. I'm confident we're doing all we can to drive towards the goal of organic growth.

Now let me discuss scale. As I mentioned earlier, the recently amended Prime Vendor Agreement with AmerisourceBergen and generic dispensing volume drove significant improvement in gross margin and adjusted EBITDA margin. The amended Prime Vendor Agreement allows us to lower the cost of goods sold and the operating flexibility to purchase drugs directly from the manufacturer. While we still have work to do to build out direct purchasing, we are confident we will see benefit in late fourth quarter and throughout the next several years. We are well on our way towards that goal. We have today bids out to over 50 manufacturers, and the buildout of direct purchasing infrastructure poses minimal operating or capital risk.

Let me touch on generics. Generic dispensing now stands at about 83% for skilled nursing facilities and continues to be a key driver of saving our client's money. For example, revenue per script for the first quarter was $45.29 versus $49.47 in the same period last year and clear evidence that clients costs are declining.

You might note this rate eased a bit from prior quarters but this is simply the impact of short cycle dispensing, not a reduction in generic usage. And as you can see from the quarter's results, a high generic rate improves profitability for the company as well. Generics continue to be a win-win for our position.

While branded generic drug count conversions in 2013 will slow as compared to 2012, the trend to higher generic usage will continue. This year, we anticipate the revenue impact of brands moving to generics at less than $25 million. Cymbalta and Lidoderm really represent the only meaningful movers.

Amerita, as you recall, closed in December 2012 and represents an expansion into specialty home infusion. Integration efforts are on track and we expect to realize growth synergies in the fourth quarter. We remain bullish on the infusion industry in general and are confident Amerita will drive both top line and bottom line growth for PharMerica. The plan is to leverage the institutional pharmacy bricks and mortars. And we are currently focused on launching tests in 5 markets. To the extent we are successful here, we will extend the business throughout the United States in 2014.

As I noted in the earnings release, Amerita is accretive. And even without potential market synergies, we anticipate their solid performance to continue. We will pursue acquisitions in the home infusion sector as I mentioned earlier, and we will only seek accretive transactions.

Finally, we continue to look at acquisitions in the long-term care space but remain selective in what we will buy. That said, there are still attractive targets and hopefully we can close one this year. But our guidance does not contemplate this, and we may, in fact, not find an acceptable acquisition this calendar year. From a valuation perspective, we will only consider quality acquisitions that provide synergy and are immediately accretive.

So with that, I'll turn it over to Dave who will walk you through the financials.

David W. Froesel

Thank you, Greg, and I'm looking forward to assisting PharMerica with the transition. And in the short time that I've been at PharMerica, I am very impressed with PharMerica's management team.

Next, I would like to spend the next several minutes discussing our results of operations for the first quarter of 2013. Please note PharMerica's 10-Q contains 2 sections in the MD&A. The first section is based on the first quarter of 2013 compared to the first quarter of 2012. The other section of the MD&A is a comparison of the first quarter of 2013 to the fourth quarter of 2012, a sequential quarter comparison.

In addition, I would like to call your attention to a change we made in the first quarter 2013 10-Q with respect to reporting segments. Historically, PharMerica has reported operating activities associated with 2 segments, Institutional Pharmacy and Hospital. Hospital operations are not material to the company's consolidated results and have been removed.

Furthermore, while Amerita is considered a separate operating segment, we have chosen to incorporate the Amerita operating segment and the company's institutional pharmacy operating segment into one reportable segment in the 10-Q, referred to as pharmacy on a go-forward basis. This was done because of the many similarities between Amerita's Infusion Service business and the infusion service operations in the company's institutional pharmacies.

Next, turning our attention to the results for the first quarter of 2013, revenues were $439.8 million and represents a decrease of $59.1 million from the first quarter of 2012 and an increase of $6.6 million from the sequential fourth quarter of 2012.

Regarding the quarterly year-over-year decline in revenues of $59.1 million, the decrease is attributable to 374,000 fewer prescriptions dispensed in the first quarter of 2013, 1 less work day in the first quarter of 2013, an increase in the generic dispensing rate of 240 basis points to 83.3%, which lowers revenues, and partially offset by revenues from Amerita.

Amerita was acquired on December 13, 2012, and did not have an impact on revenues for the quarter ended March 31, 2012. Translating the decrease of $59.1 million in revenues into a volume and rate variance yields an unfavorable volume variance of $18.5 million and an unfavorable rate variance of $40.6 million.

Revenues increased $6.6 million for the 3 months ended March 31, 2013, compared to the 3 months ended December 31, 2012, due to the acquisition of Amerita in December 2012 and the impact of short cycle dispensing, partially offset by the one additional work day during the 3 months ended December 31, 2012.

As previously mentioned, the Amerita acquisition occurred on December 13, 2012, and therefore did not have a significant impact on revenues for the fourth quarter ended December 31, 2012. The increase of $6.6 million is comprised of a favorable volume variance of $7.5 million and an unfavorable rate variance of $900,000.

Prescriptions dispensed in the first quarter of 2013 were 9,711,000 compared to 10,085,000 prescriptions dispensed in the first quarter of 2012 and 9,546,000 prescriptions dispensed in the fourth quarter of 2012. The increase in prescriptions dispensed on a sequential quarter basis of 165,000 prescriptions is primarily attributable to the impact of short cycle dispensing, which commenced on January 1, 2013, and the full quarter impact of Amerita.

Pharmacy revenues per script were $45.29 in the first quarter of 2013 as compared to $49.47 in the first quarter of 2012 and $45.38 in the fourth quarter of 2012. The decrease in revenue per script of $0.09 from the fourth quarter of 2012 is a result of the increase in the number of prescriptions dispensed as a result of short cycle dispensing, which was partially offset by branded drug price inflation.

The generic dispensing rate for the first quarter of 2013 was 83.3% compared to 80.9% for the first quarter of 2012, and 84.8% for the fourth quarter of 2012. The 150 basis point decline in the generic dispensing rate from the sequential fourth quarter was a result of implementation of short-cycle dispensing on January 1, 2013, which increased the number of brand prescriptions dispensed in the first quarter of 2013.

Pharmacy gross profit was $84.3 million in the first quarter of 2013 or $8.68 per prescription dispensed, compared to $72.6 million or $7.20 per prescription dispensed in the first quarter of 2012. The improvement in gross profit for the first quarter of 2013 versus the first quarter of 2012 was largely attributable to the company's purchasing strategies and the increase in the generic dispensing rate.

Furthermore, the improvement in gross profit dollars from $75.6 million in the fourth quarter of 2012 to $84.3 million in the first quarter of 2013 is primarily associated with the company's purchasing strategies.

SG&A cost in the first quarter of 2013 were $56.7 million compared to $52.4 million in the first quarter of 2012 and $52.9 million for the fourth quarter of 2012. The increase in SG&A was primarily attributable to the acquisition of Amerita in December of 2012.

Provisions for doubtful accounts in the first quarter of 2013 were $5.3 million or 1.2% of revenues, $6.2 million or 1.2% of revenues in the first quarter of 2012, and $5.5 million or 1.3% of revenues in the fourth quarter of 2012. The decline in the provision for doubtful accounts was due to improved collections.

Regarding adjusted EBITDA, in February 2013, with the release of our fourth quarter 2012 earnings announcement, we mentioned beginning with the first quarter of 2013, we will commence adding back stock-based compensation and deferred compensation to our previously reported adjusted EBITDA. We feel it is important to add back these compensation cost because we believe this new definition of adjusted EBITDA reflects a better measurement of overall operational performance.

The company's adjusted EBITDA commencing with the first quarter of 2013 is now defined as EBITDA adjusted for merger, acquisition, integration cost and other charges, Hurricane Sandy disaster cost, stock-based compensation and deferred compensation.

Adjusted EBITDA for the first quarter of 2013 was a record $34.6 million compared to $26.8 million for the first quarter of 2012 and $28.9 million for the fourth quarter of 2012. Adding back stock-based compensation and deferred compensation amounted to $1.8 million in the first quarter of 2012, $1.5 million in the fourth quarter of 2012 and $2.2 million in the first quarter of 2013.

PharMerica's adjusted EBITDA margin for the first quarter of 2013 was a record 7.9% compared to 5.4% and 6.7% in the first quarter of 2012 and the fourth quarter of 2012, respectively.

GAAP diluted earnings per share for the first quarter of 2013 was $0.35. Excluding the merger, acquisition, integration costs and other charges, Hurricane Sandy disaster costs, tax-related matters and stock-based compensation and deferred compensation, the company's adjusted diluted earnings per share for the quarter was a record $0.46 compared to the $0.33 in the first quarter of 2012 and $0.36 in the fourth quarter of 2012.

Turning to the balance sheet and cash flows. The company's DSOs were 41.8 days in the first quarter of 2013 compared to 42.8 days in the first quarter of 2012 and 44.1 days in the fourth quarter of 2012. Cash flows provided by our operations in the first quarter of 2013 were $47.7 million as compared to cash flow from operations for the first quarter of 2012 of $19.9 million. And for the sequential fourth quarter of 2012, we used cash in operating activities of $17.5 million.

The increase in cash provided by operations in the first quarter of 2013 was in large part due to an increase in earnings, planned reduction in inventories associated with the company's purchasing strategies combined with an improvement in account receivable collections.

It is important to note that during the first quarter of 2013, we paid down $40.5 million on the company's revolving credit facility in connection with the purchase of Amerita in December 2012. And in the month of April 2013, we paid off the remaining debt balance outstanding under the revolving credit facility associated with funds borrowed for the acquisition of Amerita.

And last, a few important comments regarding guidance for the full year. Several months ago, the company provided guidance for 2013. And at this point in the year, we remain comfortable with our full year guidance. Our full year guidance is based on a number of assumptions, most notably: The timing associated with the movement of the Golden Living facilities; the transfer of the Kindred homes; organic growth; and timing associated with various strategic purchasing initiatives.

Earnings associated with the first quarter of 2013 are projected to be stronger than the second and third quarters due to the forecasted loss of more beds associated with the Golden Living and Kindred facilities and timing associated with various strategic purchasing initiatives that occurred in the first quarter.

However, as you are aware, the AmerisourceBergen contract was set to expire on September 30, 2013. And while we renewed the contract on January 1, 2013, the full impact of the benefits will not be in effect until the fourth quarter of 2013. We will have better visibility on these issues in midyear, at which time we will update our full year guidance in connection with the release of our second quarter 2013 earnings.

In addition, commencing with the release of our Amerita's second quarter 2013 earnings, we will provide guidance with respect to cash flow from operations and capital expenditures on a routine basis.

Gregory S. Weishar

As you're well aware, the short cycle dispensing mandate went into effect on January 1 of this year. Recall that we're required to dispense prescription quantities for 14 days or less. For certain brand drugs, we're dispensing at 14 days, not less. And this applies to the Medicare Part D business only.

I want to make sure that all of you know the impact of this mandate has been nominal. To be sure, there's a lot of work we have to do to get ready for January 1. Our folks did an outstanding job in managing through the implementation. We are in full compliance and have seen minimal impact on operations. The net financial effect of this mandate overall will be minimal.

As we've discussed, Golden Living has been transitioning their pharmacy business in-house, resulting in bed losses. There's minimal risk in our guidance. I want to emphasize that with respect to Golden's efforts that if we've taken a conservative view of Golden bed loss. We may, in fact, have some good news here. We may see less bed loss than we anticipated in our budget, but it's too early to call. We'll update you next quarter as Dave indicated.

Also recall that in April this year, Kindred announced they will be exiting about 50 facilities, over 5,000 beds that we service, roughly 5,200. Again, we're optimistic we will retain a large portion of this business as it transitions to new operators. It's still too early to estimate the outcome as those transitions are not complete yet. But again, we see little risk to guidance given we took a conservative view of the impact.

Finally, let me touch on A&P. Based on recent postings at the White House OMB, the current thinking is the final A&P rule may come out in August of 2013. I think all of you know this date's been pushed back, but some folks believe that it is going to happen this year. Well, we'll just have to wait and see how this unfolds. We view this event as neutral.

So in summary, we're making progress across multiple fronts, improved bed loss due to service, improved margins and we're optimistic we are making progress on achieving our goal of organic growth. And we anticipate a solid 2013. I'll now turn the call back to Tahesha.

Question-and-Answer Session

Operator

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

Charles Rhyee - Cowen and Company, LLC, Research Division

I just want to talk to you -- obviously, you talked about the service-related bed losses down 60% and obviously making improvements there. It looks like in the Q that you didn't release bed statistics. Can you give us a sense on what actual bed counts were, sort of break down maybe between sort of wins in the quarter and losses? And how we should be -- and what portion maybe was related to Golden Living? And are we still on track for August timeframe when most of that should be out?

Gregory S. Weishar

I think we're trying to get ourselves in a position where we're wanting you all to look at us from a per script basis because we think the per script basis is a much more valid view of our volume and the viability of the business. If you think about beds today, part of the challenge we have, Charles, is not all beds are created equal. Some beds represent $500 a month in revenue and other beds represent $50 a month in revenue. So it's just become -- and as our business has expanded to infusion -- and we're also now having much more exposure to the group home market than we've historically had. Given all these things, we felt that it is a much more reasonable approach to look at prescriptions as opposed to beds, so we're moving away from that number. I can tell you there were no significant gains nor significant losses in the first quarter. As far as the Golden piece goes, we believe that based on our experience to date that they're moving slower than they anticipated that they would move. And that could change next quarter, that could change this quarter. But as we see it right now, we think that again there might be less bed loss exposure there than we originally had planned.

Charles Rhyee - Cowen and Company, LLC, Research Division

Okay. Well then, maybe can we think about Golden? Because you had, in the past, framed Golden in terms of beds. Can you give us a sense maybe in terms of Golden Living in terms of scripts then? Like what percentage of your scripts they represent today?

Gregory S. Weishar

I don't have that number in front of me but we would certainly give you that -- give you a view of that, Charles. We'll follow up with you on that, okay?

Operator

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

Brendan Strong - Barclays Capital, Research Division

Yes. Greg, I'd love that number, too, on the Golden scripts.

Gregory S. Weishar

We will publish it out. How does that sound to all of you?

Brendan Strong - Barclays Capital, Research Division

Perfect. I guess you were really clear on the Kindred lease terminations, which is great. Is there -- there was a second round of those, they're selling some assets to Vibra. I'm just curious if you have a relationship with them today and we can think about that as...

Gregory S. Weishar

With Vibra?

Brendan Strong - Barclays Capital, Research Division

Yes.

Gregory S. Weishar

We do not. We are currently in discussions with them. Typically, they manage their pharmacy in-house. I think there's roughly 7 -- 6 or 7 hospitals that Vibra's taking that we service today and it's too early to call there. But again, it's -- we don't believe that impact's going to be material in any event.

Brendan Strong - Barclays Capital, Research Division

Okay, that's helpful. In terms of short cycle, is it -- is there any way to give us some sense on the scripts? I mean, I'm guessing it's maybe -- just looking at the brand disclosures, I'm guessing it's less than 2% of scripts this quarter. But is that...

Gregory S. Weishar

That's a good estimate overall. It only applies to Part D so it's a small number, a relatively small number. I don't want to give you a wrong number but you're in the ballpark there.

Brendan Strong - Barclays Capital, Research Division

Okay. And you would say that it's, I guess, neutral to the EBITDA line because you're getting compensated for those extra -- you're getting extra dispensing fees there?

Gregory S. Weishar

We think it's neutral, correct. And I think the reality is, is that as we move, we were concerned obviously originally from this legislation because it was going to apply to all drugs, and that could have changed the equation a little bit differently. But where we are now, we're comfortable that it's a nominal effect.

Brendan Strong - Barclays Capital, Research Division

All right. And then maybe just one last question. On the prime vendor agreement, you guys had been talking about $30 million to $40 million in savings. I'm wondering if that's still a good number? I mean, obviously, the results in the quarter were really strong so I don't know how much of that was the Prime Vendor Agreement versus maybe Amerita?

Gregory S. Weishar

We're -- a large portion of that $40 million, as we indicated, I think in the last call is a result of our efforts towards direct purchasing. So as I indicated, we're working hard to get that in place by the fourth quarter. We might beat that date line. We have bids out today. We've procured logistics. So we're making great progress, but in order to achieve that $30 million to $40 million range, we're going to have to put the direct purchasing in, and we still believe that those numbers are achievable.

Operator

[Operator Instructions] Your next question comes from the line of Steven Valiquette from UBS.

Steven Valiquette - UBS Investment Bank, Research Division

Just a few questions here. First, you mentioned the sequential improvement in gross profit is growing from $76 million in the fourth quarter to $84 million this quarter. I forgot the exact phrase you used. You said something about the improved procurement strategies and the initiative. So does that imply now that most of that increase then is due to the ABC revised contract? And also you talked about you're not recognizing the full savings until the fourth quarter. But just trying to get a sense for whether there's still a lot of runway ahead of us on improvement on the profitability tied to that? Or have we recognized most will be able to see a little bit additional in the fourth quarter? Just trying to size that, the improvements at 1/1/13 versus fourth quarter of '13?

Gregory S. Weishar

I think we're going to see material improvements and start seeing showing up in the fourth quarter of next year in 2014 as we kick in our direct purchasing program, Steve. I think you're right, the majority of what we saw to date was purchasing strategies as well as AmerisourceBergen, ABC contract renewal. But it's not just that. It's also our ability to strategically buy and we're getting better at that. So we'll continue to get better at that over time. And then as we get the direct purchasing piece in, which is mainly directed at the generics, we're going to be seeing some improvement there as well. But we would -- I think it would be wise to say or look at this quarter and the next quarter as being one where you're not going to see the large improvements that we've seen here in this -- in the first quarter versus Q4.

Steven Valiquette - UBS Investment Bank, Research Division

Okay. I was just curious if you had any material dialogue with ABC following their Walgreens generic procurement collaboration? I guess I'm just kind of thinking out loud, if they could theoretically offer you better generic savings over time because of that, does that make you rethink at all how much generics you'll try to buy on your own versus still potentially getting some through them? Or are you sort of all systems go with your strategy and that hasn't really changed your thinking? I'm just curious to kind of get your sort of top line thoughts on that.

Gregory S. Weishar

Well, yes. The answer is sure, we've thought about it and we've had discussions with it. And their position is, is that it makes them a stronger player in the generics space and they always felt themselves to be strong but are going to get stronger. But at the same token, we will always, probably by some portion of our generics through ABC, through that contractor or whoever wholesaler we have. And we look forward to seeing how that evolving relationship, if you will, with Walgreens and Boots, and Alliance Boots, helps them on their scale and so forth. So I think we will pursue both paths and buy at the best rate that we can. And to the extent that AmerisourceBergen's efforts prove to be -- give us an opportunity to buy drugs cheaper than we can direct, then we'd buy them from them. And there's no -- this is not a single-track approach that we're using.

Operator

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

Robert M. Willoughby - BofA Merrill Lynch, Research Division

First off, Greg, I didn't think I'd live long enough to see beds removed as an operating metric but I thank you for that. Greg, you sound a bit skeptical, as I think others have been. Hey, maybe something results from an AmerisourceBergen/Walgreens, Alliance Boots conglomeration there. Maybe it doesn't, we'll see. Why isn't this black and white to you? Isn't this kind of 1 plus 1 plus 1 equals a bit more than 3 from a purchasing perspective and opportunity should accrue to them? I mean, where's your skepticism?

Gregory S. Weishar

I don't. Don't take my comments as being skeptical. I think that they will, in fact, be more competitive on the generic side. That said, the question then becomes, will they be able to beat us vis-a-vis a direct purchasing model. And that's what I'm skeptical of, okay? That's what it comes down to. I do believe that overall their product line is going to be more competitive. And I think this was an outstanding transaction, if you put your [indiscernible] hat on. But at the same token, there's advantages of having a direct purchasing program, and part of that advantage is we know what the market is at any point in time, and we know when we buy something from AmerisourceBergen, that we're getting a good deal or we're not getting a good deal. So there's intangible benefits as well as tangible benefits. But I am not skeptical. I believe that this was an excellent transaction that they just recently announced and we'll be more competitive.

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Okay. And just another question. Given the management turnover that you have had, is your ability to kind of identify and close and integrate deals impaired by any means? Or should we expect just kind of a continuing trend?

Gregory S. Weishar

No, I don't think there's any of that at all. We're just -- we're not seeing the deal flow that we had seen in the last couple of years. And part of that, I think, has been a reaction maybe to some of the market, the industry dynamics, where there's not as -- perceived to be multiples are not where they were and other factors, economic factors, the tax, the change in tax law affected -- threw some demand on folks wanting to sell. So we're just -- there's some really viable targets out there but there's a question on whether or not we can pry them loose. That's what's going on.

Operator

Your next question comes from the line of Mike Petusky from Noble Financial.

Michael John Petusky - Noble Financial Group, Inc., Research Division

I was wondering -- I didn't catch it if you did this, but can you quantify the impact on, I guess, the uptick in gross margin and the uptick in SG&A associated with Amerita?

Gregory S. Weishar

No, we're not breaking that out right now, Mike.

Michael John Petusky - Noble Financial Group, Inc., Research Division

I mean, it's fair to say that both of those numbers were positively impacted by Amerita being a part of...

Gregory S. Weishar

That's fair to say and that's clear, yes.

Michael John Petusky - Noble Financial Group, Inc., Research Division

All right. And then so in terms of -- you sound skeptical in terms of your ability to do much in terms of long-term care space. But in terms of the infusion asset pipeline, can you speak about that a little bit?

Gregory S. Weishar

Again, I was -- I'm not skeptical. What I'm saying is, is that I don't want the market to think that there's -- we're overflowing with opportunities out there, right? But I do -- don't want to market to think there's not any opportunities. So we're seeing a slowing of the deal flow. On the infusion piece, again, we're not going to do anything that's not accretive, and what we're seeing there is a bit of a frothy market on the opposite side. And the expectations, the value expectations, we think again, we can close a deal or 2 this year, smaller ones. But some of the things that we're looking that have come out have been not at the multiple that we would feel comfortable at. So in the interim, we continue to look at acquisitions in that space as well, but we're also focused on driving towards our integrated home infusion and institutional long-term care model, getting into the home, getting into the long-term care space in a more fundamental way, and we're really excited about that opportunity.

Michael John Petusky - Noble Financial Group, Inc., Research Division

Okay. I guess a somewhat a related question. As you guys look out, I mean, are there other adjacent areas, whether it's home health or some other area that you guys are seriously at least looking at, at this point, or is institutional pharmacy and infusion enough for now?

Gregory S. Weishar

We're also looking at some institutional -- or excuse me, specialty pharmacy spaces that we believe would be -- the revenues would not be at risk of intermediation by PBMs. So we're looking for niches there where we can find comfortable -- we can get comfortable that we can buy a company and the revenues are solid and we can keep them after the acquisition. So those would be the 3 areas.

Operator

Ladies and gentlemen, we have no more questions in the queue. I would now like to turn this conference back over to Mr. Greg Weishar for any closing remarks.

Gregory S. Weishar

Thank you, all, for your time today, and we'll be hopefully talking to you soon about the second quarter's results and updating guidance at that time. So with that, we will sign off. Thanks again for your attendance.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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