Q3 2021 Apria Inc Earnings Call
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Good afternoon, and welcome to the Apria third quarter 2021 earnings conference call and webcast all participants will be in a listen only mode.
So today's presentation there'll be an opportunity to ask questions.
To ask a question you would need a press star then one on your telephone. Please note. This event is being recorded.
Today's call, our dance Stark, Chief Executive Officer, and Debbie Morris Chief Financial Officer.
Before we begin we would like to remind you that certain statements made during this call will be forward looking statements as defined by the private Securities Litigation Reform Act.
These for like a stay on the subject to various risks and uncertainties and reflect our current expectations based on our beliefs assumptions and information currently available to us.
Although we believe these expectations are reasonable we undertake no obligation to revise any statement that reflect changes that occur after this call.
Descriptions of some of the factors that could cause the actual results to differ materially from these forward looking statements can be found in the risk factors section of the company's annual report on Form 10-K for the year ended December 31st 2020, as supplemented by Apprehends quarterly reports on Form 10-Q for the period ended June 30th 2021 and.
September 30th 2021, the latter of which expect it to be felt later today.
In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important and about evaluating performances.
Details on the relationship between these non-GAAP measures to the most comparable get measures and reconciliation of historical not get financial measures can be found in the press release that is posted on the investors section of the company's website at www that Apria Dot com.
With that I'd like to turn the call over to you. After you C O dance Dark. Please go ahead.
Thank you operator.
Welcome and thank you all for joining US this afternoon discussed or a third quarter 2021 earnings results.
I'm joined today by that'd be more so our chief financial Officer.
I'll begin my remarks, with some high level comments on our results from the quarter discuss some underlying trends in other activities in our business as well as provide some thoughts on an industry wide initiative that could have a meaningful impact our business and the D. M V industry over the long term.
And then Debbie will provide a more detailed review of the financials and our guidance later on the call.
Three calls and other supply chain issues impacting our results.
As a reminder, in June Phillips announced the voluntary recall for continuous and non continuous ventilators certain bipap CPAP bye level of positive airway pressure and ventilator devices.
All related to the polyurethane foam used in those devices.
The recall notice instructed CPAP and bypass patients to discontinue use of their device and consult with their physician to determine the benefits of continuing therapy and potential risks.
Ventilation patients were instructed to continue using their device and to consult with their physician to determine the appropriate next steps.
To date, we have not experienced a significant number of patients stopping their therapy.
In early September Phillips began the remediation process for CPAP bipap units in the process of repairing and replacing those units is now underway.
However, as of today, there has not been an approved remediation process for ventilators.
We expect to see pepper mediation to continue into 2022.
And we're hopeful that the ventilation remediation process will begin sometime this quarter.
The supply chain disruption is also impacted our primary source of sleep equipment consistent with the rest of the industry in the third quarter. We were on an allocation process based on historic purchases.
Our allocation increase throughout Q3, but was below historic levels, thus impacting equipment availability for new patient starts at.
At the end of the quarter, we did identify another source for sleep equipment, and we started receiving units admit October.
During the third quarter, we experienced a surge in incoming new patient volumes, which we believe goes well for us as we increase our product inventory.
Moving onto our operational performance our team continues to execute at a high level and as patient volumes and revenue have grow nicely throughout the year, we have been able to drive operating efficiencies.
We have a very different situation in Q3 of 2021 than we had in Q3 of 2020.
In Q3, 2020 or incoming volumes were largely down other than oxygen, which allowed us to flex down or variable costs in.
And two 320 21.
Before I turn the call over to Debbie I'd like to provide a quick update or a reminder, regarding the current regulatory environment.
First the public health emergency has been extended for another 90 days until mid January.
As discussed before the Phe provides an interim price increase for Medicare patients in the non bid non rural areas of the country and keeps intact. The 50 50 blended rate in the rural areas of the country.
While the Phe extension was largely expected the extension still needs to go through the mandatory process and this is done in 90 day increments.
In September Medicare finalized national coverage determination for oxygen that will expand home oxygen coverage and potentially reduce some of the administrative burden.
Overall, the NCD is a positive for Medicare beneficiaries and the <unk> industry.
And as a reminder, the suspension of sequestration was extended through year end and CMS permanently removed the budget neutrality rate adjustment for oxygen equipment that has resulted in reimbursement rate increase for some oxygen systems.
Both of these factors are a tailwind for <unk> and we had already factored them into our guidance.
To sum things up we reported another solid quarter and we're confident we'll be able to finish the year on a high note.
If our guidance range.
Adjusted EBITDA of 61 million was at the high end of our guidance range and adjusted EBITDA less patient equipment Capex of 38.9 million was modestly ahead of our guidance range for the third quarter.
We experienced strong oxygen volume due to the Delta variant and closed the a b C acquisition during the quarter, both of which contributed to exceeding the midpoint of our revenue guidance.
In addition, our teams at a nice job of managing through the Phillips recall and supply chain shortages and despite wage and cost pressures adjusted EBITDA as a percent of net revenue was slightly higher than projected.
Reviewing our third quarter results on a year over year basis net revenue of 287.2 million increased 3.8% over 232020.
Excluding the airway breathing company acquisition, which closed in September that revenue increased 3.5% year over year.
The increase in net revenue is driven by growth in home respiratory therapy and OSA treatment.
Home respiratory therapy was up 4.2% over prior year due to increased volume of patients requiring home oxygen therapy due to the delta variants and higher reimbursement levels I'll set partially by lower ventilation therapy revenues due to Covid and Phillips recall.
OSA treatment was up 5.6% due to the increased volume of patients over prior year and increases in sleep supply despite.
Despite the production in new patients in the corner as a result of the equipment shortages stemming from the recall and other supply chain challenges.
Overall net revenue growth was in line with our expectations provide last quarter.
But lower on a sequential basis, largely due to the Phillips recall and so pine tree challenges, which impact is sleep and noninvasive ventilation grows in Q3 of this year.
Adjusted EBITDA in the quarter of 61 million was down 6.2% from $65 million in the third quarter of last year.
As Dan mentioned, we had a very different situation than two three of 2021 than we had in Q3 2020.
It is through these headwinds the last several months and we secured additional equipment in Q4 from another manufacturer. So we expect to see an increase in volume of sleep patients starting therapy.
Looking ahead to the fourth quarter and full year 'twenty. One we've taken all these factors I just mentioned into consideration.
For the fourth quarter of 2021, we expect net revenues of 282 million to $298 million.
Adjusted EBITDA of $54 million to $60 million.
And adjusted EBITDA, less patient equipment, capex of $27 million to $2 $31 million.
So the full year 2021 we are increasing revenue and adjusted EBITDA guidance, while narrowing the adjusted EBITDA less patient equipment Capex guidance range. It went out projecting the following financial results that.
Net revenue of 1.13 to 1.15 billion up from $1, one two to 1.15 billion.
<unk> EBITDA of $228 million to $234 million up from $221 million to $231 million.
Adjusted EBITDA less patient equipment Capex of 135 to 139 million from $132 million to $142 million.
To sum things up I'm pleased with our performance again, this quarter and year to date.
The team has and continues to perform well in the face of challenges I too want to thank our entire team for their commitment to the operator and to our patients and for delivering on our mission of improving the quality of life for our patients at home.
Operator, we'll now open it up for questions.
Thank you.
To ask a question you will need to press Star then one on your telephone to withdraw your question. Please press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Jamie Paris with Goldman Sachs. Your line is now open.
Hey, Thank you.
Maybe just to start with the the respiratory business. It sounds like that was benefited by it just the demand related to the Delta variant can you size that for us a little bit better what percent of your respiratory census is related to COVID-19 at this point and just how to think about the unwind of that and rebuild of more traditional.
Respiratory patients with it.
The next few months and quarters.
Yeah, Jamie let me, let me take a shot at answering.
Answering to the question. So if we look at really on a year over year basis for the quarter.
A few factors as I attempted to summarize one being the oxygen favorability.
Our year over year basis, because I'm, sorry, I shouldn't say COVID-19, including oxygen and sleeping niv at a year over year basis.
I say, we're up about $4 million due to COVID-19.
Because of the.
Obviously, the census build along with the increase in patients throughout the quarter. So that's kind of on a year over year basis. If you look on a just in Florida. So stand alone of Q3, the volume we have O two favorability from oxygen, but it's offset by niv, its really offset by all.
The other products Niv sleep negative pressure and other equipment. So in the quarter net volume from Covid is about a $1 million. So.
Net revenue basis.
Okay.
And then just on the sleep.
The business I wanted to get a little bit more color on two components here just first the new patient requests it sounds like youre getting a lot of request.
Can you just describe that a little bit more detail when that started is it because you guys have access to supply because of your relationship with resumes.
It's probably one of the Wildcards as we think about the end of the year.
Okay, Great and last one for me just last quarter, you talked about a $30 million potential impact in guidance related to the Philips recall.
Just wondering how you're thinking about that number now that's been somewhat de risked just given we're three months later you've got another manufacturer that you can source from just any any updated thoughts on that $30 million number. Thank you.
Yes, Jamie I would say for Q3, it was pretty close to what we had anticipated between sleep and noninvasive ventilation.
Our Q4, we think is somewhat derisked. So that number for Q4 is a I'd say $10 million to $15 million range is largely dependent on when the equipment arrived so we have a scheduled.
Our schedules.
It's coming in and obviously gearing up capacity we have.
Our team does an amazing job.
Getting out units as you couldn't equipment comes in so it's largely dependent on it coming in early.
The difference in the impact for the year and for ventilation as I think Dan hit on in his opening remarks.
We're hoping that there's some FDA approval and remediation starting in Q4 or decided in Q4, but we're not anticipating it starting until.
And how available the products are.
Okay. That's helpful could you maybe talk a little bit about the D. M. A P O S. Besides.
Which businesses were impacted in 2021, and what could happen for 2022.
How should we think about the potential impact one way or the other.
With those rates.
I'm just trying to side, we're just trying to size it and understand sort of what it could mean.
You have any of them are you know that you said.
Go ahead go ahead.
I was just trying to Kevin I'm, just trying to clarify you mean the rate the CMS potential rate increase.
Yeah exactly.
Yea.
So there is actually a composite to as you know so sequestration, which is currently.
Schedule too.
Go back into effect on one one and asked roughly $1 million and a quarter million million dollars a quarter a quarter, so $5 million a year.
That's one thing that there's lots of discussion on currently so that may or may not happen, we're assuming it will at this point.
Second is the phe ending as we mentioned it extended now through January It goes in 90 day increments. So to the extent that stops it's a 2 million dollar impact a quarter.
So we have headwind depending on what happens and timing those are things we thought it would happen. This year. They were delayed into next year. So it depends on what may happen next year.
And then of course, we have budget neutrality, which is positive right that it rate increase in that's roughly a million dollars a quarter and that has nothing to do that's here to stay.
And lastly from a pure government perspective.
The CMS.
Right. It just meant.
The rate was published as of June 30 that was five 4% effective one 122, it's subject to an adjustment of productivity faster. So we don't know firmly what that is but that would offset some of that downsized. So the few puts intake.
In her prepared comments was just the team has done a phenomenal job of managing through this thus far.
And.
Whether it's.
Making it up through productivity.
And increases there.
That's largely the way it's happened so far so it's Ben.
It hasn't.
Significantly impacted this yet and we're doing everything we can obviously to make sure that we're.
Implementing technology, driving efficiencies and driving improved productivity to make sure that we can cut overcome some of the inflation issues that are facing us.
Okay. It makes sense and then I wanted to go to your commentary on prescribing and even in the release you talked about sort of game changer type comments there.
Is there any way to frame or help us to quantify or timeframe.
Just any quantification around what that could mean, because it sounds like it's obviously important but.
I guess, it's hard for me to frame or thinking about numbers around what that could mean.
For efficiency.
Well I'll, let Debbie take a little bit from the maybe I don't know if we can even quantify it at this point, but I think there's I think the best analogy or.
<unk> is the sheer scripts move and the pharmacy business and Thats basically the playbook, we're trying to replicate within our industry.
And we're not from an industry perspective, we want a prescribed to be successful and to be widely adopted not just the <unk> scripts.
Platform the whole benefit in the whole industry benefits from.
Less administrative burden.
And so we expect <unk> scripts to be.
Slow out of the gate and grow over time.
I think so.
And we are engaged deeply but we do continue to be selective and obviously, we don't share details of what we do and they want to but we are looking at buying business.
Solid and accretive and that integrate well into our culture San mentioned, so not not all of them meet that criteria. When we get under the covers so we definitely there is activity and sometimes I wish we could put that in front of everybody, but we cant but there is.
<unk> continues to be diligently looking at it and believe that there is opportunity there that we're going to continue to pursue.
Alright fair enough. Thank you.
Thank you.
As a reminder to ask a question you will need to press Star then one on your telephone.
Our next question comes from the line of Kevin Fischbeck with Bank of America. Your line is now open.
Thank you this is actually Joanna <unk> filling in for Kevin. So thanks for taking the questions first I guess a clarification on the Q4 guidance when we compared to the prior guidance implied by Q3 guidance.
Revenue for higher and is it largely because of the acquisition that you completed.
Your line is the <unk>.
The size of our annualized with a need for that deal.
Yeah, John it's Rob.
Roughly $20 million a year.
So yes, you're right. So we've increased for a B C and then the acquisition as well.
We've made some adjustments to the Philips assumptions in there and that's why you see the bottom end of that range that was applied before.
A little higher than the top to get a little lower so it's a little tighter on the adjusted EBITDA you see the range go up and that's primarily because of the operating efficiencies and how we've been able to continue to run the business.
On the adjusted EBITDA less Capex you see we are.
It took that down slightly mainly because of the opportunity to buy equipment. So we could have chosen not to buy equipment, but we really think have the opportunity to buy the equipment and process. The volume of sleep that we have is a prudent thing to do but that's really what drove that EBITDA less capex number coming down a bit.
Okay, because actually that was my second.
A clarification so on that higher capex, because it's I guess, it's similar in terms of that.
When I compare to Q4 guidance.
Right. So now.
The guidance.
Okay.
Decline in the census, that's occurred because of the the recall.
Early to give.
I think generally speaking being in that 8% to 9%, which there'll be a reasonable assumption going forward.
Okay. That's that's helpful and I guess on the vehicle. So I appreciate the comment you imply that uhm I.
Guess I'll queue for maybe trucking battery doesn't the headwind and so how do you think about the next year headwind from from that how much a spillover of you expect first half of next year.
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