Q2 2022 Quipt Home Medical Corp Earnings Call

[music].

Thank you for standing by this is the conference operator.

Welcome to the fiscal second quarter results conference call for quite home Medical Corp.

As a reminder, all participants are in listen only mode and the conference is being recorded.

After the presentation there'll be an opportunity for analysts to ask questions.

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We remind you that the remarks today will include forward looking statements that are subject to important risks and uncertainties.

For more information on these risks and uncertainties. Please see the reader advisory at the bottom of the company's results news release as well as the company's M. DNA, which you can find on our website SEDAR and as maybe cuda on Edgar.

The company's actual performance could differ materially from these statements.

At this time I'd like to turn the call over to Chairman and Chief Executive Officer, Greg Crawford.

Thank you operator, and thank you all for joining us today on the call. My name is Greg Crawford and I'm, The Chairman and Chief Executive Officer, a quick tour medical joining me today is harder nature, our chief Financial Officer.

I would like to begin today by extending my appreciation to the over 700 dedicated quipped employees across now 18 states for their tireless efforts and helping us significantly advance in our strategic plan of expanding from a regional and national provider of at home respiratory services, Indiana.

I did state.

As we have progressed through cause it's called 2022, we have continued to focus on expanding our organizational capabilities continuing to grow our employee base with additional talented new team members at each facet of the company and have made significant strides on this front importantly, as we have.

Begun to move into the post pandemic environment, we have accelerated the hiring of additional sales professionals, which we anticipate will be a key driver of future organic growth.

It is quick service intensive model centered around improving the quality of life for all of our patients which has driven our consistent growth. Our model is focused on constant patient education device compliance through remote patient monitoring and the use of our interconnected health care platform to drive early interventions.

This clear service driven model is helping us to grow our market share as health care providers, such as hospitals physicians and long term care facilities look for partners that can offer a range of products and services that improve outcomes reduce hospital admissions and.

And help control cost quick.

Quick fill this need by delivering a full suite of products and services to achieve these goals.

The continued focused on compassionate care, coupled with the numerous secular tailwind such as a growing trend of Americans with multiple chronic conditions and aging U S population and the need for health care to be delivered and monitored in the home has fostered continue robust growth.

With our best in class service model in place and all the operational tools needed to position our organization to capitalize on our increased scale is the execution of our robust team that will continue to drive growth forward and allow us to take advantage of the opportunities across our product categories and markets.

Present quip operates out of more than 80 locations in 18 states across the United States completely hundreds of thousands of deliveries each year to more than 180000 active patients with over 19000, referring physician.

We have seen accelerating momentum year to date as we have executed on our core growth strategy, we strengthened our health care network throughout the country, including Arkansas, Georgia, Indiana, Massachusetts, North Carolina, Ohio, Texas, and California, we have added important insurance contracts.

Including a new national contract with a top five insurance payer in the United States added significant infrastructure and personnel all of which has enhanced our national coverage fear over an area that includes over 5 million COPD sufferers in the United States.

Our ongoing focus on technology utilization improved workflow processes to improve our operating efficiencies and the build out of our robust resupply program has contributed to the robust financial performance.

With the financial flexibility, we have the operational resilience and the strongest regulatory environment. We have had in a decade behind us there's plenty of opportunity to expand our geographical footprint into new and existing attractive markets throughout 2022.

Turning to the current supply chain dynamics, we have begun to see early signs of improvement with timely allocation, leading to our highest CPAP inventory level to start fiscal Q3 since the recall began for those not aware in June of 2021, Philips Respironics announced the volte.

Ontario recall of certain respiratory devices related to the polyurethane foam used in those devices.

The inventory trend has remained positive in real time, and we continue driving patient setups to ease the backlog as we move through fiscal Q3. We believe there is reason to be cautiously optimistic about the supply chain pressure continuing to alleviate as we continue through the calendar year.

We are pleased to have strengthened our relationships with our suppliers, which has allowed us to better navigate the supply chain challenges, while also fostering a foundation to support our future expansion plans.

The supply chain normalizes. Moreover, we are constantly striving to drive new setups in other product categories to mitigate the impact of the recall, which you've seen in our record financial results consisting of a return to 2% sequential organic growth quarter over quarter.

On the regulatory front, we continue to operate in an extremely bullish environment. One of the major tailwind is driving the industry comes from the decision made by CMS to cancel the 2021 competitive bidding program for 13 product categories.

Cancellation of this program has provided us a clear margin outlook across our product mix and ensured our patients' stability for the foreseeable future. Moreover, in September Medicare finalized national coverage determination for oxygen that will expand coverage and potentially reduce some of the administrative.

Love.

Turning our attention to recent CMS actions announced a 5% plus CPI adjustment for D&A in 2022, typically the consumer price index increase is for DNA have been 1% to 3% last year, the inflation adjustment was less than 1%. Moreover, led.

Distillation was passed to delay a 2% cut in Medicare payments that was created under sequestration, but has been put on hold over the past two years due to the pandemic.

<unk> has also delayed a 4% cut the Medicare reimbursement triggered by the pay as you go law until 2023, the importance of the home medical equipment industry has never been more prevalent and we are pleased to see these continued positive regulatory developments.

Turning to the underlying business, we are thrilled with our robust financial performance seen in fiscal Q2, which saw revenue up 33 $6 million improving organic growth over fiscal Q1, 2022 strong operating cash flow and adjusted EBITDA margin acceleration to 'twenty one.

1% our team has been laser focused on the efficiency of our operations leveraging our capabilities to move us up the chain of value based care and our results reflect this.

Our continued focus on superior patient outcomes and satisfaction was also a major factor in receiving the national insurance contract recently on that.

There is no doubt we are seeing strong momentum as we move into a post pandemic landscape and have actively resumed our hiring of sales professionals are key to future organic growth generation. Moreover, our performance was driven by our heavily weighted respiratory product mix highlighted by ventilation therapy and.

<unk> strength and our oxygen therapy, we are extremely encouraged about the growth path. We are on carving out a special segment of the homecare industry and we are well positioned to seize the growth opportunity ahead of us.

Looking at our current acquisition pipeline. It remains very exciting with a wide range of targets that meet our stringent criteria and we expect to remain very active over the near term.

With that commentary.

Like to hand, the call over to Hardy to discuss our second quarter financial results.

Thanks, Greg, we just announced our fifth boats.

Second quarter 2022 financial results, representing the three months ended March 31 2022.

In reviewing the fiscal second quarter 2022 numbers. Please note that all financial values are in U S dollars and the full results are available on SEDAR and Edgar.

Here are some key highlights.

The company generated revenue of $33 6 million in second quarter fiscal 2022 up 38, 4% from second quarter fiscal 'twenty or 'twenty one not.

<unk> factoring acquisitions, the organic growth year over year was approximately 8% and sequentially quarter over quarter organic growth was a very strong 2%.

As of March 31, 2022, the company's backlog was approximately in the range of 6000 to 7000 patients in the queue to be set up on sleep devices compared to a more typical housing backlog historically.

As Greg mentioned the company began fiscal Q3, 2022 with the most tap inventory since the week I'll begin and we are cautiously optimistic that slip the right allocations will increase through the second half of 2022.

Will relieve the backlog.

I'm reading a lift in revenue from this in fact their segment of the business.

<unk> segment revenue impact was approximately one $1 5 million in fiscal Q2, 2022.

Adjusted EBITDA for the second quarter of fiscal 2020 two.

$7 million compared with $5 4 million for the second quarter of fiscal 2020, one representing 41% increase year over year.

Adjusted EBITDA margin for the second quarter of fiscal 2022 was very strong at 21% for the quarter.

Revenue for the six months ended March 31, 22 increased to 63 million or <unk> 34 per cent compared to the six months ended March 31 21.

Adjusted EBITDA for the six months ended March 31, 2022 increased to $13 1 million or 23, 5% compared to the six months ended March 31, 2021 and represented 27% of the revenue.

In the fiscal quarter 2022 we've completed 118878 setups all deliveries compared with 83606 in the first one in Korea last year, an increase of 42%.

In the fiscal second quarter 2022, with complete its 50000, and 713 respiratory resupply setups or deliveries compared with 35702 in the corresponding period last year, an increase of 42%.

The company's recurring revenue continues to grow and it is about 77%.

For the six months ending March 2022 bad debt expense was eight 8% compared to nine 1% for the same period in 2021.

This exemplifies our ability to scale and add more revenue through add on acquisitions without compromising our billing capabilities.

For the six months ending March 'twenty, two operating expense, excluding bad debt expense was 47% of revenue compared with 43% by the same period in fiscal 2020 one.

The increase was due to inflation higher fuel costs, and some one time and nonrecurring corporate expenses, including expenses related to acquisitions.

Cash flows from operations for the six months ending March 2022 was $12 2 million compared to $6 6 million and the corresponding figure ending March 2021 an increase of 84%.

But in S. S totaled more than $44 million compared to $28 5 million in net slot them lab that is demonstrating continuing strength in our liquidity.

At the end of second quarter of fiscal 2022 cash balance was $17 4 million.

At the end of second quarter fiscal 'twenty to 'twenty two the company has an undrawn revolving credit facility of 20 million.

In addition to this the company is actively working to significantly increase its credit facility, which will further accelerate our acquisition strategy.

We are seeing positive momentum across the organization and I'm very pleased to see revenue, reaching $43 6 million for our fiscal second quarter with a strong adjusted EBITDA margin at 21% as we continue through the integration process our recent acquisitions.

This strong performance was driven through elevated demand for oxygen ventilation therapy, and our other supplier businesses, leading to larger volumes and continuing to support the business with lower operating costs. The.

The infrastructure, we have in place today allows us to position ourselves as a market leader in at home respiratory care and gives us the flexibility to add locations organically through the platform.

As well as efficiently integrated the acquired assets.

We also continue to seek solid cash collections in the second quarter, resulting from our continuous effort to better our revenue cycle management process going forward, we will continue to find ways to grow our patient base and penetrate attractive markets, while continuing to streamline our operational platform.

Our revenue base during fiscal Q2, 2022 remains strong with recurring revenue representing approximately 77% of our overall revenue. This recurring revenue base provides us further stability and consistency as we look at our outlet business model and financial reporting.

We are also extremely pleased with the ongoing results of our acquisition strategy integration is the key to our ongoing financial and operating success as it allows us to continue the strong pace of further strategic acquisitions, and we have been enthused with the integration efforts to date.

Looking at our two most recent transactions on January four 2022, we announced the acquisition of at home health equipment business with operations in Indiana reporting trailing 12 month annual revenues of approximately 14 million one 6 million in net income and anticipated adjusted EBITDA of two.

9 million reflective of a 22% margin post integration.

The acquisition added 15000, new patients and created <unk> single largest market from a revenue standpoint coding been higher but what is your opinion I believe.

We are nearing full integration of at home.

On April 19, we need 92, we announced the acquisition of Goodnight medical business with operations across seven U S States reporting trailing 12 month annual revenues of approximately $7 million and with anticipated adjusted EBITDA of $1 5 million reflective of a 20% margin.

This integration.

The acquisition added locations across seven U S States, including Arkansas, Georgia, Massachusetts, North Carolina, Ohio.

Texas and California.

Massachusetts, North Carolina, and Texas, our New U S States White cliffs and include important new commercial insurance contracts.

Integration efforts or wouldn't like medical are well underway.

We remain extremely prudent ensuring we follow our stringent acquisition criteria, along our well one.

Integration process, which has been the driver of our consistent revenue growth displayed on an annual basis.

As it relates to our current pipeline. We currently are renewing a wide range of targets in terms of size and scale, which will help continue to drive our opportunity to penetrate existing and new states. We are also looking at potential expansion opportunities into synergistic verticals of surveys that would enhance our.

And in product and service offering.

We are incredibly excited about our value proposition and potential sellers in the marketplace and look forward to having exciting towards their stuff through the funnel the clothing, increasing our scale across the United States.

Thank you and with that update I'll turn the call back to Greg.

Thanks Kartik quipped.

<unk> is in the midst of experiencing significant growth as we continued to successfully navigate our operation through a challenging supply chain environment driving solid operating performance. We are proud to have reached a run rate revenue of $135 million as we continue progressing on our on.

<unk> National expansion effort, we have now grown our coverage spear to 18 states with the goal of continuing to grow that operating footprint into attractive region to serve as a leader in respiratory home care driven by our service intensive model across the United States to date, we have executed on our strategic.

Acquisition strategy, while continuing to invest in ongoing organic growth initiatives, including adding and expanding into synergistic verticals of services and leveraging our significant infrastructure platform.

We are laser focused on efficiently integrating our acquired assets to drive meaningful cost synergies and revenue growth opportunities that drive resilient financial results. We have an unparalleled scalable platform driven by the patient centric ecosystem, we have created and this strategy is allowing us to.

Grow market share in new and existing markets.

We have been very active year to date with a multistate expansion occurring including new states, such as Massachusetts, North Carolina, Texas. Moreover, we have added 25000 active patients and picked up meaningful insurance contracts to this end on April 26, we announced the.

<unk> of a national insurance contract with a top five payer in the United States. This is a significant milestone for quipped as we scale across the country as it gives us the ability to immediately leverage the national contract when we acquire a provider to capture more eligible patients accelerating expansion efforts.

We also feel there is more opportunity for us to secure additional national contracts and we will continue to work with other large commercial payers to help them better understand our strong patient centric model and the benefits to patients and payers alike, whether it be patients referral sources payers our lawmakers.

It is clear the structural shift is well underway to ensure a patient is treated in the home care setting whenever possible. It is important for us to continue finding optimal ways to grow relationships with referral sources and we are seeing the benefits of this across the organization by focusing our efforts here.

Moreover, we continue to invest in technology in order to improve our operating efficiencies whether through the ongoing use of our automated ordering platform revenue cycle management or through our automated subscription base resupply program.

These actions drive sustained value to the company and allow us to continue to increase our productivity. These investments into our scalable connected health care platform drive organic sales generation accretive acquisitions targeted margin expansion and cash generation. This model also encourages compliance.

<unk> improves outcomes and drives engagement with patients. Moreover, we can drive early intervention reduce hospitalization and monitor treatment plant effectiveness, which all serves as a benefit to the payers.

The COVID-19 pandemic has demonstrated that at home medical care with a focus on respiratory patients is a crucial portion of the health care continuum of care.

As we move into a post pandemic environment, we are enthused, our accelerated pace of hiring sales reps, which was put on hold for much of the pandemic will help on the organic growth front in the future.

I would now like to review with you the three components of our core growth strategy.

First we are laser focused on growing market share economically and profitably through our organic growth initiatives. This includes expanding our sales team, which are quips boots on the ground, reaching key touch points, such as hospital systems physicians offices, and rehab centers. Moreover, opening de novo locations where it.

Makes sense leveraging the numerous cross selling opportunities that exist, adding new verticals of service and continuously optimizing our processes.

We continue to lead the industry and technology deployment, driven by a robust respiratory resupply platform, which provides meaningful revenue synergies for us on the acquisition front, we expect our resupply program to be a driver of continued growth for us.

The third component of our growth strategy is acquisitions.

We are looking for turnkey respiratory operations that can be seamlessly integrated into our highly scalable platform as we look at M&A.

We have three facets to our acquisition approach the first being a focus on scale and hence targeting companies and a revenue range of $5 million to $20 million consistent annual EBIT margins between 10% and 20% and large distribution volume, which can be leveraged by our platform the second fastest being focused on.

Our ambition of being a national provider. This segment focused on acquiring sub $5 million revenue target with the strategic goal of expanding our payer mix and expanding our geographical footprint across new states. The third fastest being a focus towards larger opportunities that would be more meaningful from a revenue EBITDA patient base.

And geographical reach standpoint.

On the capital markets front, we have remained extremely active after a historic year for quick completing our most significant milestone to date with the commencement of trading on the NASDAQ in late May of 2021 since that time, we have attended industry, leading small cap conferences non deal roadshows.

And have grown our research coverage space. We feel we are very early and getting our story out there, which provides us plenty of opportunity to grow our shareholder base and are working diligently to ensure our vision and continued strong performance is echoed to the investment community.

At this time I want to reiterate our outlook for calendar in 2022, representing fiscal Q1 2023.

Based on the current operations market trends and completed and perspective acquisitions. We are reiterating our outlook for annual run rate revenue about $180 million to $190 million with $38 million to $43 million and run rate adjusted EBITDA.

Once again.

I would like to take a moment to thank the entire quip team for its tireless efforts and its stakeholders for all of their continued support.

At this time, we will begin the analyst question and answer session.

Keep join the question queue you May Press Star then one on your telephone keypad.

You will hear a tone acknowledging your request.

If you were using a speakerphone please pick up your handset before pressing any keys.

To withdraw your question. Please press Star then two.

The first question comes from Doug Cooper with Beacon Securities.

Please go ahead.

Hi, Good morning, Greg Congratulations on a great quarter.

A couple of things first of all just on the gross margin side. It looks to me like a 78% gross margin think of I'm not mistaken is a record for the company at least going back as far as I can see going back what do you attribute that to is it.

You know the resupply Blackburn kicking in scale, maybe you can just explain.

And not all of them.

Sure. This is hard to Ah Yeah, we had some favorable.

Things that took place in the quarter.

You know resupply are definitely being one.

But I would I would.

Take a moment here to make sure that everybody understands that we are not anticipating those gross margins to continue the way. They are complete we encourage people to look at our.

The last six months in totality.

Or maybe the last nine months.

Average out what the gross market margins were to look forward and we are putting forward. We did have some favorable things.

This quarter Oh, sorry.

Uh huh.

Okay.

Opex side.

Professional fees of 1.34 million versus 600000 in Q1 560000 in Q2 last year.

Is there what would you attribute the bulk and do you anticipate what level of professional fees.

Any other anticipated going forward.

Sure.

Sure Yeah, we had almost about you know if you compare to the previous quarter, we almost had about $700000 in additional professional fees that rent expense in the quarter.

We don't expect those to be.

<unk> suddenly not within a quarter some of them were attributed to.

Wages on audit fees.

Some some legal and other expenses that were related to acquisitions.

And southern capital market activities.

Again in preparation of things that you typically do being public.

We don't expect this kind of expense going forward at this level what.

What we do expect would be a smaller proportion of that to be kind of spread out over the year.

Quarter was definitely an anomaly.

Okay.

On the Opex expenses are payroll.

Was 29, 7% of revenue up 50 basis points from Q1, and maybe up or 100 basis points year over year or have you started hiring those people already there so.

You know that increase in payrolls reflective of.

Growth to come.

Yes, we've already idle.

We started adding additional management and that within our operations and then also on the sales side.

So we kind of expect that.

Number in that to get back more normalized plus we also had acquisitions within that quarter that come with additional payroll and that that wasn't realized fully yet and that once the businesses are integrated.

Okay and my last question then.

Our Opex 1.84 million of all other versus a $1 million last year or is there something.

In that one 8 million that we should be you know sort of.

Our inventory in nature, just to kind of.

We'll do.

Yeah.

Sure.

Can you repeat the question one more time I was a little earlier.

The Opex expense and all other line of $1 8 million versus $1 million last year.

But you've always got some year over year.

Sure, Yes, it's a combination of a few things one of the biggest driver of that was.

DNO insurance, but are you also seeing some inflationary pressure on there in terms of auto fuel.

Stuff like that.

To the.

Literally Matt.

Reconcile between the $1 million million eight is really D&O and some inflationary pressure from ongoing expenses.

Both in terms of fuels and repairs and stuff like that.

Those two were the biggest driver in the audience.

Okay and Greg My final one just on the regulatory environment. One of your I guess in your peer group are indicated on their call maybe a few weeks ago that they're hearing that the next competitive bidding program I guess, which is scheduled for 2024.

Is gonna be canceled as well do you have any insight or thoughts on that.

That's kind of been our thoughts are the entire time is is that the program would end up being cancelled and that permanently.

We have nothing that we can really point to that says that other than.

Just kind of rationally thinking through and where the rates and that came out in that when they were actually published in early 'twenty one in that.

You should have they implemented the program they would have been significantly higher so.

I think that's the best indication to look towards.

Right.

Okay. That's it for me gentlemen, nice quarter.

Thank you.

The next question comes from suffer Monostrophe with eight capital.

Please go ahead.

Good morning, and congrats on the quarter.

First a question for me obviously you guys have compliance is a key for your patient outcomes and I was wondering if there you're seeing any developments in terms of the equipment updates that are enabling you to do more in terms of remote monitoring and also more broadly if you see potential.

For partnerships or maybe acquisitions on the health Tech side, given that health Tech valuations have pulled back.

A picture in your acquisition strategy.

Yeah sure this is Greg.

We're not seeing any new technology in that that we haven't already deployed here over the past say 12 to 18 months or so on the remote monitoring side we.

We do continue to win.

To enhance our program and that as far as how.

How we utilize that data and what we're actually doing with those outcomes.

As far as some acquisition down a vertical like that I mean anything is possible. We've always got our ear to the ground and that kind of listening and none of what can be out there and are looking for different opportunities that can help us improve on that front.

Okay.

Got it and does the new billing codes that came online earlier this year open up any new opportunities for you or do you need staffing changes to implement those are or is that something you enter through acquisition.

That would likely be something that we would enter through acquisition. None of those are currently apply that to the services that we're actually providing to.

So where we can build directly in that without a third party of some sort of position or something go on some of the monitoring involved.

Understood understood and next one from me is on your recent acquisition, but congrats on the growth that that brings for you I noticed a massachusetts as the third most populous she's done a stay on the countries. So.

What's the kind of near term pressures on fuel costs I was wondering if.

You are focusing more on regions, where you do have that population density and also maybe adjacent distribution centers, where it can service.

Through your existing footprint or if youre still looking at.

Entering new states during this near term period.

Yeah. So we're definitely looking to build out our existing locations that we've acquired.

For example, Massachusetts being a continuum area of or all of our current operations in Maine, and New Hampshire.

So we're pretty excited about being able to add that as a continuum area. So we will continue to focus on that with our hiring of additional sales reps and that as we expand into those new areas.

Got it and then just a last one from me.

Are there any sort of service contracts that you could be exposed to on the kind of value based health side. I know you, obviously have kpis around compliance and that leads to better patient outcomes.

Is that a form of new contracts, but you could.

Gain with payers are and how does that work, but that would be something that you would get through some sort of partner in terms of like a Medicare advantage partner for example, or is this something you would be.

Scaling out yourself in securing payer relationships.

Yes.

We're utilizing and that our data and that's what we have from a remote monitoring.

Services in that to work with payers in that to obtain national insurance contracts, which recently we've been successful we do expect some things in the second half of the year that will come out of us.

Kind of displaying and that the different services that we're providing outside of just.

Putting that piece of equipment inside the patient's home.

It's also when that the remote monitoring capabilities and that has allowed us to work towards increasing our length of stay for these different devices and that that are eligible for the remote monitoring.

Yeah, and I recall, you mentioning from like nine months to 12 months is there an update on that safety out of for example for Frank latest.

Nothing nothing to update and that at this point in time.

Okay, well, thanks, so much for taking my questions and congrats on the quarter and the continued growth outlook looks favorable so happy to be involved in the story.

Thank you Sir.

The next question comes from Tanya Armstrong Whitworth with Canaccord Genuity.

Please go ahead.

Good morning, gentlemen, just a couple for me so you you've already talked about.

Or.

Hiring screen printing sales representatives.

Started in fiscal Q2, I'm wondering if you can talk to competitiveness to getting more salespeople on board in terms of their availability.

And how how much like compensation wise based on what we're seeing in the labor market.

Yeah sure. So we've been targeting clinicians and it's actually worked out pretty well for us because we have kind of cut on did a lot of clinicians and that'd be a nurses respiratory therapist. For example isn't that are really looking to get out of the long term health care setting and really into a new career. So those.

Are the types of candidates that we've been onboarding as far as salaries than that absolutely. We have seen our salaries increase in zinc across all spectrums and that of all positions that we have opened.

Yeah.

Alright, thank you.

And then I think you mentioned in your prepared remarks that you could look to M&A to acquire synergistic product and our service vertical can you give us some examples of what I'm, saying I guess key services or products, you're targeting would look like.

Yeah. So I think for example in that we had recently on that in November of 'twenty, One had required the biomed repair service.

So we look at that particular line of business of being a good vertical are also potentially some something on the tech side.

That.

It would have to do with remote patient monitoring.

Or potentially other product lines and that.

Such as a wound care and.

Things along those lines.

That's great color. Thank you.

And then lastly, given the Unitedhealth contract.

And the potential to add additional national pairs.

Are there any states that you had wanted to.

Expand into but perhaps there were no great.

Targets to acquire.

Could you highlight what the states are now that potentially you could look at de Novo expansion.

Yeah.

No state in particular an asset.

We feel that we couldn't enter via acquisition I think it's on the acquisition front. It. It's just a timing of lining up and that the potential target when they're ready to sell.

And when we would be ready to close on it as far as the national insurance contract.

Really what that allows us to do is the ability is as we continue to acquire is that we can immediately and that started accepting that particular payor in that at all of our locations for example.

65% of our sites had already accepted the insurance with the so this opened up the additional 35% of our sites that could immediately and that start taking that insurance and even with the recent acquisition.

That opened up some of their particular locations that we would be able to start accepting that national payers. So.

And then that allows us to build for one.

Particular contract rather than separate regional contracts, which from an administrative standpoint and that is very beneficial for our billing department.

Alright excellent. Thank you so much that's all for me.

Thank you.

The next question comes from Rahul <unk> with Raymond James.

Please go ahead.

Good morning, Greg running heartache. Thank so much taking my questions. Congrats on the quarter. So just following on a little bit on R&D.

The national insurance contract, how does that especially shape.

Your M&A strategy or are you looking at doubling down on the jurisdictions are you really.

Really looking to leverage that into new or newer jurisdictions.

I don't think it's a combination of both when you look at the M&A landscape at that particular company does not except that the payer and that once we close we would immediately be able to add there.

Provider numbers in that to that contract and start accepting the insurance so we'd be able to really kind of leverage the contract that way without really adding any additional infrastructure within that location.

Okay. That's very helpful. And then switching back to the the backlogs that you've experienced so when do you expect to get back to a steady state and do you feel like that you may have less revenue on the table as a result of the backlog.

As far as getting back to a steady state.

We hope that's in the second half of the year, if not going into 'twenty three.

We do.

Continuing that to see our allocations come timely, which I think is very key and that rather than increasing and that at one point and that the manufacturers were behind probably six to eight weeks on shipping the devices that were allocated so we have seen that come back on there are there are also and that's an indication.

And that's some additional devices and that could be coming on the line that we've seen I've gotten some recent news on in that so were highly anticipating an ethic went into the second half of the year that we will see increases in these allocations as a kind of indications have been given by the manufacturers.

But I would sure hate to put a time on when that's exactly going to be say things are going to be back to normal.

Okay.

Okay, Great. That's all from US Thanks, again for taking my questions and congrats again on the quarter.

Thank you.

Yeah.

The next question comes from Paul <unk> with I E capital markets. Please.

Please go ahead.

Good morning, and congratulations on the quarter, just calling in for Chelsea wondering about in terms of the pipeline that you're looking out with all of the you know rates rise need all the weakness in the market. It are you seen any impact either on the level of competition for the target.

You're going after or potentially the multiples.

This is Harley.

No not really.

If anything we are seeing.

Some people taking some some people who are in the acquisitions.

You're probably taking a little bit of a back step.

Your.

We don't really see any material change.

In the landscape.

Oh, there are potentially more companies.

Contemplative sell given the inflationary pressure and.

Sorry.

Pep devices.

But I Wouldnt say there has been a significant shift in the over the last 12 months, one way or another.

Okay and most of our questions were asked but maybe just one more from me in terms of the infer.

Inflationary cost with fuel and labor and.

The accelerating.

Hiring of sales professionals can we think about this as.

Been essentially equivalent from a margin perspective to the inflationary increases in reimbursement rates that we've been seeing as well or is that something that's outpacing the end, it's going to take until kind of next year when when the reimbursement rates get reset again too.

You know inflation I'm sorry for that.

To balance out.

Sure. So you know great points right I mean, certainly something that we also hope that you know when next year when the CPI Index Arena just when it comes in they do factoring.

What's currently going on and we do expect there would be some kind of increase.

As a result of what we're seeing here in the market right. So that's definitely that but always keep in mind right. I mean, what you are seeing on the on the CPI index was only.

At present 80 off of Medicare Medicaid and governmental agencies right. So unless the rest of the payer pool also adjust there.

The reimbursement accordingly.

There will be a transitional year timeframe, where as a company we would have to absorb some of it and be well, we would have to get smarter and better and that's what we are focusing on is how do we change our operational strategies, how do we maximize what we currently do and optimize what we currently do to to Maxim.

These are our gross margins and our operating and minimize our operating costs. Despite the inflationary pressure and tried to bolivar, what we've been delivering for the last few years. So that's obviously a challenge and we take it into spin it off it.

Hello. This is Greg I'll also add in that is that it is important and that for us to continue to build scale in that which is why you've kind of seen that margin, maybe not particularly grow but you have seen us maintain that 20% plus adjusted EBITDA margin, even despite the inflationary.

Larry pressure I think also and that's a point to this quarter and that is that we did regain our organic growth and that for three years in a row. We've been just at just under or right at 10% organic growth and we're kind of back on track for that here and should supply chain continued to at least remain intact with where we are today.

And that we're very optimistic.

Optimistic and that we could still maintain all of those things will help us continue to maintain our margins.

Despite the inflationary pressure.

Yes, yes, I have been great to see okay. Okay. That's all are all for me thanks for taking the earthquake questions.

Thank you.

The next question comes from Justin <unk> with Stifel.

Please go ahead.

Good morning, Thanks for taking my call.

First just a clarification on the run rate I mentioned earlier.

135 does that include a goodnight medical.

No.

Okay, so a little higher than than 135.

But still below the reiterated guidance of 180 to 190 so.

That implies that there's a lot of M&A opportunity in the back half of the year. How confident are you in executing on that M&A.

And what are some of the factors that could defer some of those processes until the next year.

Sure.

What one thing to just make sure I do.

We've got an accurate that the guidance that we have as well.

What what an annualized run rate would look like as we exit 2020, due and enter 2023 right and so.

Yes, youre right between now and the rest of the Euro we do expect M&A and organic growth to get us to the annualized run rate that we have forecasted our given guidance on.

Oh, we feel pretty confident that we would be able to get get into that range.

Our pipeline is pretty solid we continue to enter into <unk> execute on those.

And there are no indications for us to believe that.

That will stall or we wouldn't be able to get to that point as we stand today.

Good to hear I think this is Greg I think it's also worth noting in that historically and that if you go back and look over the last three plus years, we've been very active on the M&A front and the back half of the year.

And expect to even be here in the near term.

Understood well look forward to that and as far as the target multiples I know there was some discussion.

Prior but it seems like these multiples have been pretty reasonable, especially on an EV to EBITDA.

Is that a range that you would see continuing for potential acquisitions in the back half of the year.

Yes, as I previously mentioned, we don't really see a substantial change in the landscape here, we don't see a substantial change.

In the way, we were doing before and the way. We can continue plan to continue to do it through the next 12.

Seven months.

At this point of time, we don't see any material changes to how things were done and we plan to continue doing what we have done.

Good to hear and thank you for taking my questions.

Thank you Justin.

Once again, if you have a question. Please press Star then one.

The next question comes from Stefan Quenneville with echelon capital markets.

Please go ahead.

Hi, guys. Thanks.

Thanks for taking my question and congratulations on the quarter I have a question about the National insurance contract you know, obviously, if your footprint and your your.

Chip is good enough to get a national contract with United Health.

Yeah certainly.

Appropriate for you to probably do something with some of the other the handful of other large national players as well so well has something changed in the dynamic.

In your conversations with those other large players given that you've.

Signed something with with United.

And of course, no pressure here guys, but I assume that a couple of other national contracts are going to be coming in the next.

Coming quarters.

It does come to pass what would that mean for your your longer term growth trajectory and strategic positioning in the marketplace.

Yeah.

Yeah, we do expect in that additional contracts to come sometime in the second half of the year.

Actively in that working through those as far as positioning ourself in that.

We're really positioning ourselves with the clinical respiratory company was improving outcomes not necessarily leveraging with one payer that we have a national contract with one of their competitors or anything in that we.

We're really more just talk about what we can do for their patient census, and things so.

But once again and that the truly the national.

National contracts and that really allow us and that to enter into a continuum areas in that and also on the acquisition front when we acquire a company if they don't already accept that insurance contract that we're immediately able to start accepting the insurance through the infrastructure, which allows us to kind of leverage.

And that those operations and build that scale that we've been talking about.

Great. Thanks.

This concludes the question answer session.

I would like to turn the conference back over to Greg Crawford for any closing remarks.

Thank you operator, and thank you all for your participation today and as always you can find us on the web at Www quit home medical Dot Com, where we will be posting that transcript of this call and also our updated investor deck on the site. You can also view some of the exciting products and developments discussed on this call.

Thank you and everyone have a great day.

This concludes today's conference call.

You may disconnect your lines.

Thank you for participating and have a pleasant day.

Okay.

Yeah.

Okay.

Yeah.