Edward Pesicka: Maybe I can start with some qualitative and then how it can bring a little more quantitative. And so the anticipation is that we continue to look to drive margin expansion throughout the year. Obviously, the sourcing and some of the other things are already embedded in the business. And some of those were embedded in the business at the end of last year. So think sourcing, for example. By the time we got to Q4 of last year, some of that source was already in there and helped drive the back half margin expansion within there. So again, we’re starting getting ready to start to overlap that. But the other projects like the order-to-cash process is another example of where we’re going to be able to drive and we should anticipate some margin expansion within the business for that.
Continuing to get that overlap effect on sourcing is another example where we can drive margin expansion. But in the same sense, that’s the other — I don’t want to call it a headwind, but the other side of the equation also is within products is a good example. We’re continuing to see prices come back down closer to where we were pre-pandemic, but as we’re driving the cost out, we’re able to neutralize that and mitigate that. We continue to work with our customers to help provide savings to them as many of our customers are continuing to look for that. So you think about — as we think about it, we had a 79 basis point year-over-year improvement in this quarter, we would anticipate that we would continue to drive some level of improvement in the back half or the back three quarters of the year.
So maybe you can add a little more comments?
Alexander Bruni: Yes. Thanks, Ed. Yes. So on gross margin, as Ed mentioned, we do expect that to continue to improve throughout the year. There are the three key drivers here on Products & Healthcare Services side. The main driver is the sourcing savings that’s driving improvement within our cost of goods sold. And then on Patient Direct, there’s the two drivers. One, just margin expansion driven by the improvement in collections that we’ve talked about in our investments in revenue cycle in general. And then we’ve got favorable mix essentially between patient direct and products and health care services. So in so far as Patient Direct is growing faster, the Products & Healthcare Services that will drive gross margin expansion overall for the company.
And so if you look at just the normal seasonality of the business in both segments as we get into the back half of the year, with top line growth and operating leverage, that will also aid with margin expansion as we get towards the end of the year.
Allen Lutz: Great. And then just a quick model question. I see a $50 million gain on a sale. Can you just provide some commentary on what that was?
Edward Pesicka: Yes, but it was a total of $50 million but biggest one was the go ahead home office sale..
Alexander Bruni: Yes. We did have a gain of $7.4 million on the sale of our home office here in Mechanicsville, Virginia. And that hit E&R.
Operator: [Operator Instructions] Our next question comes from Michael Cherny from Leerink Partners.
Michael Cherny: I wasn’t even muted, which I usually do is a mistake. Is there any way you can give us some directional color given you don’t formally guide on cash flow? And the reason I ask is you mentioned the dynamic of net debt staying steady over the course of the year. I know the CapEx investments are spelled out. I just would have thought would be a little bit more of a cash build given the reiterated EBITDA. So just curious if there’s any moving pieces in the middle of that conversion, you can give us some color on?
Edward Pesicka: I think I’ll start just on a directional. I think at a high level, one is we’re making some investments in inventory to bring on new customers continue to drive service. I want to make sure it’s clear that there’s opportunity there as the year progresses. When you bring on a big new customer, you have a tendency to add a significant amount of additional inventory because you want service from day one to be impactable. And as we learn them and they learn us better, there is an opportunity to tweak that down a little bit. I think also from a receivable standpoint, as we continue to work on our order to cash there’s opportunities, there may be some opportunities there. But I think we wanted to be disciplined in our assessment that what we have today, the timing on how we can tweak those may take maybe sooner rather than later.
And then on CapEx, I think the expectation is, as we continue to see growth in areas like sleep, we’re going to need CapEx. And as we continue to put some automation and other technology to drive efficiency. There’s going to be some capital deployment as the year progresses. So that’s more qualitative of how we’re thinking about it. as well as where there is potential levers and/or opportunities as the year progresses.
Michael Cherny: Okay. So I assume free cash flow will be positive for the year though? Is there any framework we can use relative to history, even if it’s less based on the inventory build?
Alexander Bruni: Yes. Thanks, Mike. So I’ll just add a little bit more color here. So we expect fairly minimal free cash flows for the remainder of the year. We expect net debt to remain pretty much where it is. And this obviously reflects our investments that we’re making from an OpEx standpoint as well as CapEx as well as some of our transformation efforts that are hitting exit and realignment. So our expectation is that where our net debt is right now is roughly where we would exit the year and then obviously, leverage is a function of our adjusted EBITDA guidance at the end of the year.
Operator: As of right now, we don’t have any questions. I’d now like to hand back over to Ed Pesicka for final remarks.
Edward Pesicka: Thank you, and thank you, everyone, for joining on the call. Before I make some closing business comments, I’ll make a personal comment, I want to shout out Sentara Health. Think about our purpose, life takes care. Less than two days ago, our daughter and son-in-law delivered their first daughter and brought her into the world and our first grandchild. So Sentara Health and Sentara, everybody there. The experience was exceptional, so to the clinicians and all the support staff, thank you. With that, as you heard — as you did hear today on the call, the team and I, we are extremely excited about 2024, a year where we’re going to continue to make investments to drive long-term growth. I also want to thank our teammates across the globe.
I want to thank our customers, our partners and, of course, our shareholders. We are going to, as a leadership and an organization to continue to execute on our strategy. I really look forward to sharing the progress with you over this — during the summer in our next earnings call. So thank you, everyone.
Operator: Thank you for attending today’s conference call. We hope you have a wonderful day. You may now all disconnect to the call.
