BioScrip's (BIOS) CEO Richard Smith on Q2 2014 Results - Earnings Call Transcript

Aug. 7.14 | About: BioScrip, Inc. (BIOS)

BioScrip (NASDAQ:BIOS)

Q2 2014 Earnings Call

August 07, 2014 8:30 am ET

Executives

Lisa Wilson -

Richard M. Smith - Chief Executive Officer, President and Director

Hai V. Tran - Chief Financial Officer, Senior Vice President and Treasurer

Analysts

Brian Tanquilut - Jefferies LLC, Research Division

Brooks G. O'Neil - Dougherty & Company LLC, Research Division

Dana Hambly - Stephens Inc., Research Division

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

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the BioScrip Second Quarter 2014 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, August 7, 2014. I would now like to turn the conference over to Lisa Wilson, Investor Relations at BioScrip. Please go ahead, ma'am.

Lisa Wilson

Good morning, and thank you for joining us today. By now, you should have received a copy of our press release issued yesterday after the close of market. If you've not received it, you may access it through the Investor Relations website -- section at our website www.bioscrip.com, excuse me.

Rick Smith, President and Chief Executive Officer; and Hai Tran, Chief Financial Officer, will host this morning's call. The call may be accessed through our website at bioscrip.com. A replay will be available shortly after the call and remain available for a period of 2 weeks. Interested parties can access the replay by dialing (800) 633-8284 in the U.S and (402) 977-9140 internationally, and entering access code 21728610. An audio webcast will also be available for 30 days following the call under the Investor Relations section of the BioScrip website at bioscrip.com.

Before we get started, I would like to remind everyone that any forward-looking statements made during the call are protected under the Safe Harbor of the Private Securities Litigation and Reform Act. Such forward-looking statements are based upon current expectations, and there can be no assurance that the results contemplated in these statements will be realized. Actual results may differ materially from such statements due to a number of factors and risks, some of which are identified in our press release and our annual and quarterly reports filed with the SEC. These forward-looking statements are based on information available to BioScrip today, and the company assumes no obligation to update statements, as circumstances change.

During this presentation, we will refer to non-GAAP financial measures such as EBITDA, adjusted EBITDA and adjusted earnings per diluted share. A reconciliation of such measures to the most comparable GAAP financial measure is contained in our press release issued yesterday after the close of market, which can be obtained through our website at bioscrip.com. And now, I'd like to turn the call over to Rick Smith. Rick?

Richard M. Smith

Thank you, Lisa. Good morning, everyone, and thank you for joining us to discuss our results for the second quarter. This is a quarter of significant progress in executing our strategic priorities. We delivered strong organic growth, improved our cash flows, strengthened our balance sheet and solidified our business fundamentals.

I'm very pleased to report another quarter of double-digit revenue growth. Consolidated revenues increased to $247.1 million, up $74.8 million and 43% year-over-year. Sequentially, our operating cash flow from continued operations in the second quarter improved by $22 million. Adjusted EBITDA rose to $11 million or 22% increase from the first quarter of this year.

We made significant progress to strengthen our business and believe we will see continued revenue growth and operating income improvement as our strategic priorities are fully realized.

Our Infusion platform delivered another consecutive quarter of growth with revenue improving to $230.5 million, an increase of 47.8%, compared to Q2 2013. Organic infusion revenue growth, again, increased double digits year-over-year. Our growth in the core therapies continues to be strong year-over-year and on a sequential basis. We've seen these trends continue in July with strong increases in new starts, total patient service and core revenue growth, as we begin the second half of the year. Our consistent revenue growth and positive patient census trends are being driven primarily by our strong relationships across the country with payors and referral sources that rely on our clinical expertise to reduce patient health care costs while improving outcomes.

The strength of our clinical programs continues to demonstrate the value of our services, as we continue to see growth from all of our national relationships. We've also strengthened our position in many hospital systems across the country. To provide just one example of how we are delivering value and cost savings to our customers, we recently completed a 6-month pilot program under which we successfully reduced unscheduled readmissions of complex patients by 80% versus the national averages. Combining clinical capability with patient-focused technology has enabled us to report better outcomes for our patients and provide more value to our customers.

On the integration of the CarePoint acquisition, we are making good progress toward our long-term financial targets and anticipate finalizing the integration in the second half of this year consistent with our original plans.

Our field management has already made great strides in integrating the CarePoint acquisition and have introduced process standardization programs to improve operations. With all of our locations on the same enterprise system platform, we are continuing the implementation of our process improvement and standardization of all branch activities. We continue to identify and execute on opportunities that will allow us to drive margin growth and improved operating results. Our team, in coordination with the consultants we engaged in late 2013, has initiated the additional cost reduction plans and facilitated the synergy initiatives related to the CarePoint acquisition. As discussed in our last earnings call, these activities, along with seasonality and continued robust organic growth, are forecasted to drive sequential margin expansion this year.

Additionally, we continue to work aggressively to build a solid cash foundation to self-fund our operations and deliver a positive cash flow from continuing operations. We are pleased with the success of our reimbursement and cash collection efforts during the quarter.

Cash collections in the second quarter were $35 million higher than in the first quarter. Our third quarter is off to a strong start. July Infusion-related cash collections were $7 million higher than our Q2 monthly average. While we still have more work to do here, we expect to continue to make positive progress in accelerating collections of newly billed revenue and collecting our older accounts. Our process improvement and training efforts on the front end have enabled us to collect our newer bills at a faster rate than in the first quarter. Our focused efforts on the older accounts are also generating positive results, but at a slower pace as older accounts generally take additional time to collect.

Before I wrap up my comments, I'll briefly address our PBM Services business. In the second quarter of 2014, PBM Services contributed $16.5 million in revenue and $1.8 million in adjusted EBITDA. We continue to monitor our PBM business to determine its place in the long-term growth plans of BioScrip. Our primary focus remains on our core Infusion segment. Our efforts to-date have laid the groundwork for BioScrip to be the leading national home infusion service provider. We are well on our way to completing a successful 2014. The strategic initiatives we began last year are producing results in the form of a more focused, effective and leaner organization. We've improved our financial flexibility and positioned our team for greater organic growth. We believe continued successful execution of our strategic priorities will lay a solid foundation upon which to deliver high-quality clinical care to patients, strengthen relationships with physicians, hospital systems and managed care companies and deliver increased shareholder value. With that, I'll now turn the call over to Hai to discuss our financial results.

Hai V. Tran

Thank you, Rick, and good morning. As a reminder, before we review our second quarter financial performance, we have changed the operating reportable segments of the company to Infusion Services and PBM services. As a result of the sale of the company's Home Health business on March 31, 2014, the company's financial statements concerning Home Health are presented as discontinued operations on the consolidated statements of income for the 3 months ended June 30, 2013, and 2014 and are excluded from the results from continuing operations of the business.

In addition to new segment reporting, the financial statements reflect continuing versus discontinued operations classification for all periods presented. In reviewing our financial performance, we will focus primarily on the continuing operations. We also report adjusted earnings per diluted share, which excludes the same elements in calculating adjusted EBITDA and also takes into account the impact of acquisition-related intangible amortization, as noted in our press release.

With that, for the second quarter of 2014, we reported revenue from continuing operations of $247.1 million, compared to $172.3 million in the prior year period, an increase of $74.8 million or 43.4%.

The Infusion Services segment revenue increased 47.8% year-over-year, primarily driven by the addition of CarePoint partners, as well as double-digit organic growth. Revenue in the PBM Services segment was slightly up at $16.6 million versus $16.3 million in the prior year period. Gross profit for continuing operations was $65.4 million compared to $57.8 million for the same period in 2013, an increase of $7.6 million or 13.1%.

Gross profit as percentage of revenue decreased to 26.4% from 33.5% in the second quarter of 2013. The increase in gross profit dollars was due to growth in revenue in the Infusion business, offset by decrease in gross profit in the PBM Services segment. The decrease in consolidated gross profit margin percentage was driven primarily by the decline in the higher margin PBM Services segment.

SG&A for the second quarter was $57.2 million, a $6.9 million increase over the prior year. SG&A for the second quarter as percentage of total revenue was 23.2%, compared to 29.2% in the prior year period. The increase in SG&A expenses were primarily due to the inclusion of CarePoint Partners and certain costs associated with supporting the growth in volume from our businesses, such as additional investment in our reimbursement resources to improve cash collection.

Interest expense for the second quarter of 2014 increased to $9.1 million, compared to $6.5 million in the prior year period. The company reported a loss from continuing operations net of income taxes of $18.6 million for the quarter, compared to a net loss of $9.2 million in the prior year. Net loss from discontinued operations, net of income taxes, was $1.2 million in the second quarter of 2014, compared to income of $400,000 in the second quarter of 2013.

Consolidated net loss for the quarter was $19.8 million or $0.29 per diluted -- per basic and diluted share, compared to consolidated net loss of $8.9 million or $0.14 per basic and diluted share for the same period in 2013.

Bioscrip reported adjusted EBITDA from continuing operations of $11 million, compared to $10.8 million in the prior year period. Adjusted EBITDA from the Infusion Services segment increased by $2.2 million or 15.7%, as compared to the prior year, offset by continued weakness in the noncore PBM Services segment, which delivered $3.1 million less in adjusted EBITDA than the prior year period.

Adjusted EBITDA also included a $4.6 million favorable adjustment to the valuation of contingent considerations, offset by a $5.5 million increase in bad debt and contractual reserve provision. Adjusted EBITDA was further impacted by $500,000 of increased investment in reimbursement resources in the form of overtime temporary labor and third party professional fees.

Turning to cash flows for the 3 months ended June 30, 2014, the company used $2.4 million in net cash from continuing operating activity, compared to $8.7 million of net cash used from operating -- continuing operating activities during the 3 months ended June 30, 2013, a $6.3 million improvement year-over-year.

Sequentially, net cash from continuing operating activities improved by $22 million from the first quarter of 2014. The improved sequential performance reflects the focus and efforts on improved intake processes, more rapid documentation of billing and increased resources on collection.

While Infusion revenue increased 4% sequentially from Q1 to Q2 2014, cash collected for the Infusion Services segment has increased by 14% during the same period. Additionally, DSOs improved by approximately 4 days. Although we continue to make progress on cash collections, much of the initial improvements are reflected in the collection of our younger receivables, indicating an improvement in our front-end processes. Efforts remain ongoing for collecting our older receivables and we continue to invest in resources to maintain and improve the momentum of those initiatives in the second half of the year.

As of June 30, 2014, the company's cash balance was $1.5 million and the $75 million revolving credit facility remains undrawn.

Turning to the outlook, as indicated in our release, we believe our 2014 revenue is trending towards the high end of our range of $940 million to $980 million. And 2014 adjusted EBITDA remains in the range of $55 million to $60 million. This outlook assumes continued stability in our PBM Services segment from an adjusted EBITDA perspective, consistent with the performance in the first half of the year, robust Infusion revenue growth driven by the full-year impact of the acquisition and continued double-digit organic revenue growth.

Infusion Services segment adjusted EBITDA margin percentage improved throughout the year, but this may be impacted by mix. Seasonality in the Infusion Services segment, whereby the fourth quarter typically generates the highest adjusted EBITDA of the year and the first quarter typically generates the lowest adjusted EBITDA of the year. Momentum to collect order receivables impacted by the integration of the acquisition continues in the second half of the year. Although these efforts are ongoing, timing may be uncertain.

And lastly, corporate overhead is projected to continue to be less than $8 million per quarter. With that, I'll turn the call back over to Rick.

Richard M. Smith

Thank you. Operator, you're going to open up the line for questions, please.

Question-and-Answer Session

Operator

[Operator Instructions] The first question coming from the line of Brian Tanquilut with Jefferies.

Brian Tanquilut - Jefferies LLC, Research Division

Rick, just wanted to hear your thoughts on -- the organic growth, obviously, came in very strong and as you look to the back half of the year now, you're guiding to the high end of the guidance range in revenues. If you don't mind just sharing with us where your confidence comes from and your ability to sustain that really healthy organic growth rate?

Richard M. Smith

Yes, I think as we've stated that we've seen very strong patient census growth and our focus is on new starts per day in total patient service improving, and so we have a great degree of confidence that our clinical programs are very strong, our service levels are very strong, and we are seeing some good growth in all of our markets relative to our core therapies, as well as are seeing the chronic therapies coming in faster than we anticipated. But our focus is primarily on the core therapies growth, which are the more complex patients that complement the ability to support those patients with our clinical programs.

Brian Tanquilut - Jefferies LLC, Research Division

And then a follow-up to that, as we look at the national panels, we've seen PharMerica get into this phase through some small acquisitions. Is that something that we should look out for that they would -- they eventually get into the national panels?

Richard M. Smith

Well, I think there's I guess, opportunities depending on different plans and relationships. But I think with our footprint that we've built and the national panel presence that we have, our opportunities are -- we're essentially already established as a national footprint with the national payors. And as I said in my prepared remarks, we actually have seen growth come from all national payors increase over a year-over-year basis. And so we believe that if we can continue to drive some good solutions for our customers in real time, I think we're in a good position to continue to have a national panel presence.

Brian Tanquilut - Jefferies LLC, Research Division

Okay. And then Hai, I know you talked about margins -- margin expectations for the back half of the year, how they should improve. How do you feel about your kind of guiding or expectations to for where margins could go as we get to Q4, or as we exit Q4?

Hai V. Tran

Yes, I mean, I think that margins -- EBITDA margins will continue to sequentially improve. I think as Rick alluded to, one of the things that does impact margins is the mix of business. And one of the things that we are seeing is that although our core therapies are growing double digits organically, our chronic therapies, our noncore therapies are growing at an even faster pace, right, which does deliver and helps support even stronger organic revenue growth, but does put pressure on our margins. So I think at the end of the day, what we're focused on is delivering the EBITDA dollars for our guidance range here, for our outlook. But the margins are a little more uncertain, although we do expect sequential improvement in those margins. But they will be somewhat impacted by the mix.

Brian Tanquilut - Jefferies LLC, Research Division

Okay. And then last question from me. Rick, you alluded to the 6-month pilot success that you guys had. If you don't mind just sharing a little more detail on that and the economics that you get from such a service offering?

Richard M. Smith

Well, I mean, it's really a -- well, these are complex patients with -- and these are in their core therapies, and so the ability to present programs that add value enable us to offer our organization opportunity to get a higher percentage of patients out of our referral sources of these hospital systems, which drives that patient census growth that we successfully have enjoyed and have earned in all of our marketplaces. So we believe that if we can continue to replicate our post-acute programs, the transitional care programs that we've talked about before, I think that we can accelerate a number of higher level of patient discharges coming on service with us that will continue to drive our double-digit organic growth.

Operator

Our next question coming from the line of Brooks O'Neil with Dougherty & Company.

Brooks G. O'Neil - Dougherty & Company LLC, Research Division

I have a few questions. First, I think there's probably some confusion about the adjusted EBITDA number given the nonrecurring items you highlighted, Hai. So isn't it realistic to call a pro forma-adjusted EBITDA number more like $12.4 million, if you add back the adjustment in the contingent consideration and adjust for the incremental bad debt and the incremental labor expense?

Hai V. Tran

Yes, I mean, I think one way -- that's one way of looking at it, Brooks. I think at the end of the day, if you're -- I think if investors try and look at the kind of underlying run rate of the business, right? And we've talked about our challenges around the AR to kind of the activities on the integration of our acquisitions and we view that as effectively -- the term I'd like to use is the pig through the python effect, right, where you get a bolus of aged AR that's working through. But if you look at it on a clean basis that -- and you assume that along with the contingent consideration that -- as that kind of works its way through the system, then you can add back kind of a net between the 2, those 2 reported EBITDAs. And then similarly, once we work through this kind of curative challenges on the aged AR, those resources that we called out won't be necessary, right? Because we'll have cleaner documentation in the front end and therefore, those resources go away as well.

Brooks G. O'Neil - Dougherty & Company LLC, Research Division

Yes, all of that makes sense to me. So I just wanted to confirm to be sure that the $5.5 million bad debt expense wasn't a period expense. It's some cumulative adjustment to your bad debt reserve.

Hai V. Tran

That's correct. It's basically the aging of our AR and we're making adjustments for the aging of the AR.

Brooks G. O'Neil - Dougherty & Company LLC, Research Division

Yes, that's what I thought. I'm guessing, but I'd like you to talk a little bit that margins in the core therapy business are not deteriorating. What you called out as the mix effect is fairly stable margins in the various therapy categories. But like you said, the mix is changing. Is that a fair way to look at things today?

Hai V. Tran

It's not a pricing issue if that's the question, right?

Brooks G. O'Neil - Dougherty & Company LLC, Research Division

Yes.

Hai V. Tran

It's not a pricing issues. It's a mix issue, right? And one of the things that I'd like to say is that chronic therapies aren't bad therapies. They're just a lower margin therapies, right? And certainly, as we're looking to manage the relationships of our referral sources, we're not going to turn away those chronic referrals, right? So we're -- because our positioning is that we will -- we can be a one-stop shop for many of these referral sources.

Brooks G. O'Neil - Dougherty & Company LLC, Research Division

Yes, all of that is good. I think people would like to know, obviously, Rick talked a little bit about the starts and the continued progress in growing that acute business, but you expect to continue to drive growth in that acute business over the next few quarters, don't you?

Richard M. Smith

Yes, we do. Brooks, this is Rick. I think, as we stated, there's nothing has changed. I think that what -- our original -- when we stated -- started the year, we targeted our core therapies as a percentage, moving the core therapies to about 40% of total revenue. Our objective, and we believe that the path that we're on will enable us to essentially run towards it, is that revenue target that-- we've made up that original 40% target of core mix versus total revenue. What we're seeing this year is that our revenue on the core therapies continues to be strong. The pricing continues to be stable, so there's -- as Hai mentioned, there's been no change in that, it's very consistent. The change has occurred in really the chronic that's come through. A piece of that is chronic infusion, as well as the hep C drug that's on the marketplace. So I think that the dollars are on the revenue side for core we're essentially marching to. It's really that percentage mix that drops through, given the chronic piece of the total revenue pie.

Brooks G. O'Neil - Dougherty & Company LLC, Research Division

Yes, so If you were to look at Sovaldi, just as an example $84,000, probably the percent margin there is pretty small, but on $84,000 per patient, you could make some decent money on it.

Richard M. Smith

Yes, there -- yes, I mean, and that's essentially, yes. And so we're -- I think that takes a lot of core uninfected patients to equal one of those. So we're -- so that's just the balance of how the numbers work.

Brooks G. O'Neil - Dougherty & Company LLC, Research Division

Sure. I understand all that. Just last question, can you talk about progress getting to cash flow breakeven? Should we expect that third quarter? Should we expect it sometime beyond that? What are you thinking now?

Hai V. Tran

Yes, so, I mean, I think if you go back to kind of our original target, we said that we -- our target is try to get cash flow -- operating cash flow from continuing ops to break even in the second quarter. We didn't quite make it, right? But we got close to making significant progress. And part of that -- part of the challenge was the rapid revenue growth, which did put a little bit of a drag on working capital. But even in the face of those headwinds, I think we're able to deliver some very strong progress on our -- on the collections front, our cash generation front. And our target still is to get to free cash flow breakeven in the third quarter, which is what we're focused on right now. And obviously, free cash flow positive in the fourth quarter.

Operator

Our next question coming from the line of Dana Hambly with Stephens.

Dana Hambly - Stephens Inc., Research Division

Hai, just on -- continuing on the free cash flow, can you -- assuming you're using this all for delevering, could you just give us an idea of maybe the dollar amount? Or kind of what percentage of EBITDA free cash flow should be?

Hai V. Tran

Yes, I mean, I think that -- I'd rather defer on that to when we talk about 2015, right? Because this year is still like a year where we're ramping to that. So our -- if you think about this way, Dana, right? Our CapEx, right? Because free cash flow starts with just cash flow from ops, less CapEx. So it's the way I define it at least. When you look at our CapEx, right? We are on track to kind of be in the $14-ish million of CapEx for the year, right? Our CapEx on a year-to-date basis is about $6.9 million, so if you assume that if we continue that trend, we'll be right at kind of where we indicated during our outlook, right, which is around $14 million. And so if we spend anywhere from $3 million to $4 million in the fourth quarter and we're expected to be free cash flow positive, there's some seasonality in the fourth quarter that's going to help us there. But I think that if we get at the aged AR and the momentum around the collection and the aged AR that we're seeing, it could be a nice significant number. Another way of taking a look at that is what we said was a 10-day reduction in our DSOs would equate to north of $20 million in cash generation, and we've already made some nice progress there in 1 quarter.

Dana Hambly - Stephens Inc., Research Division

Okay, that's helpful. And then just on the guidance for the year on the revenue and the EBITDA. First of all, revenue if I just annualize the first half of the year, you'd be above the high end of your guidance for the year. Can you just -- and I know fourth quarter is seasonally the strongest. Is there anything we should be thinking about in the third quarter that would be down significantly or?

Hai V. Tran

No, I mean, I think that we're -- maybe we're being a little conservative because some of the chronic therapy kind of came in strong and surprised us a little bit, right? And so since we said that they flattened out. We wanted to be a little conservative. Is there a scenario whereby we might come back and raise our revenue guidance yet again? Yes, there is. But at the end of the day, the mix is going to drive the EBITDA, and that's what we're focused on right now, is getting to the EBITDA generation and a clean run rate in the fourth quarter.

Dana Hambly - Stephens Inc., Research Division

Okay. And then just -- I think you went through it last quarter, but you know we've had several questions on the EBITDA guidance and kind of a build into the second half of the year, kind of -- can you go through kind of what gets you to even the low-end of EBITDA for the year?

Hai V. Tran

Yes, I mean, that's the way -- there's 2 ways to think about it. I mean, Rick mentioned it in his prepared comments, which was we're working and the same things still apply, right? We're clearly -- we delivered on strong organic growth, that's one thing we called out last time. And so -- and we expect that to continue. We've talked about seasonality that is to me, something that it's going to come because that's just part of the industry, right? And then 2, what'll call cost reduction buckets: one, is around very specific initiatives which we've engaged and worked with our consultants to drive some very specific cost reduction initiatives. And the second synergy is on CarePoint, which they are also helping us to facilitate and as we wrap up the integration in the back half of this year that we expect those synergies to fall through the EBITDA as well. So the game plan is still there. Another way to take a look at the numbers, however, is the following, right, which is, if all we did was take a look at our current trends in the first half of the year around new starts per day and assume that continues in the second half of the year, take our current trends on -- around patient retentions, take our current trends on expenses and then later on, seasonality because once again, we believe that's just part of the industry. What we're seeing is if we just take that conservative view, right, of the existing trends and no acceleration in the back half of the year, you're already in kind of the low 50s. And then it's the cost reduction and it's the synergies that's going to get you into the range.

Dana Hambly - Stephens Inc., Research Division

Okay. That makes sense. And, Rick, I think you said right at the beginning the new starts in July are trending up?

Richard M. Smith

Yes, our July start of the third quarter is, especially in the core therapies was very strong sequentially. And it's -- a lot of what we've talked about, our focus has been on working with relationships that aggregate lives and can allow us -- can move large numbers of patient census our way. Our teams are working very hard in the marketplace to continue to deliver our growth and leading with our clinical programs and our good service levels. So we're seeing some very positive trends from all of what we've put together, coming together to build some momentum.

Operator

[Operator Instructions] Our next question coming from the line of Mike Petusky with Noble Financial.

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

On the Infusion growth for the quarter, I mean, I'm assuming most of this is just increased penetration with existing customers, but could you just talk -- I mean, have you been winning new contracts? Can you just talk about where that's coming from?

Richard M. Smith

It's -- as I stated, we're -- just as it relates to our national relationships, we've -- on a year-over-year basis, we've seen growth in all those relationships, and so it's really our focus on with the relationships to improve and increase our market share. We have had some good successes in hospital systems where we've actually have been improving and increasing our discharge level and patient census new starts. So we are seeing it spread around through different relationships through our various programs in terms of where we're seeing the patient census come from.

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

Okay, So -- but really, just increased penetration with existing accounts is what's really driving it?

Richard M. Smith

Well, yes. With new contracting agency as a result of new payors starting up, we actually have had some new customers, but those relationships are early as well.

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

Okay. Can you give the mix for the quarter between the core and the chronic, the actual percentage of mix?

Hai V. Tran

Yes, we got about -- I think last quarter, we reported the mix at about 35% core. And I think this quarter, we dropped by about a percentage point, we're down to about 34%.

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

And then in July, is the core growth outpacing the chronic growth? Or is chronic still outpacing?

Richard M. Smith

The core is outpacing the chronic. So -- and the core sequentially continues to grow strong Q1 to Q2. It's just that as we stated before, it's -- and positively contributing to the organization. It's just that the chronic has grown faster.

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

Yes, okay. All right, and then on the -- just switching real quick to the PBM. I know that revenue is likely to trend down in the second half. I guess what's your confidence in the margins holding together in PBM in the second half?

Richard M. Smith

Well, the PBM, we've seen the last 3 quarters have been stable. So based on what we're seeing, we -- it appears that it's still stable. We're not investing dollars there. The revenue in the first half of the year was from a traditional customer that, as we stated before, I think will wind down. So it's really the stability in that segment that we've seen in the last 3 quarters that we believe will continue.

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

Okay. And then just a real quick question on the cost reduction. I know maybe early in the year or right at the end of last year, you guys kind of set out a goal of, I think, taking out $10 million in reduction, some of that synergies from CarePoint. Have you found additional avenues to take out cost? It almost sounds like maybe there are some ongoing things not necessarily related to CarePoint that you may have found. And could you just talk about that?

Richard M. Smith

Yes, as I mentioned, we brought in the consulting firm and they brought in a number of different resources, looked at -- with different parts of our organizations, supply chain, clinical, other areas, as well as looking at facilities, just helping to renegotiate our different sourcing contracts, as well as other levels of indirect spend that are in the SG&A line. So we've identified those. They've been implemented, and we expect them to contribute to EBITDA performance, the second half of the year.

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

Right. Well, is that beyond the original $10 million or is that the $10 million...

Richard M. Smith

No, it's beyond the original $10 million.

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

Do you have any quantification of what you think you've identified as potential pickup?

Hai V. Tran

I think it's baked into the guidance.

Richard M. Smith

Right.

Hai V. Tran

That's the way to think about it.

Operator

Mr. Smith, I will now turn the call back to you for closing remarks.

Richard M. Smith

Well, great. Well, thank you, everyone, for joining us today, and thank you to our BioScrip team for your great hard work and high levels of customer service to all of our patients. Thank you, everyone. Bye-bye.

Operator

Ladies and gentlemen, that does conclude the conference for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day.

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