Q3 2022 Quipt Home Medical Corp Earnings Call
[music].
Thank you for standing by this is the conference operator, welcome to the fiscal third quarter results conference call for quipped home Medical Corp.
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Were you remind you that remarks today will include forward looking statements 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 Companys results news release as well as M. DNA, which you can find on SEDAR and Edgar.
The company's actual performance could differ materially from these statements.
At this point 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.
<unk> told them medical joining me today is Arctic Nader, our Chief Financial Officer, and Thomas Murray, Our executive Vice President of Finance.
On the heels of another record quarter, showcasing continued operational excellence, which produced 2% sequential organic growth and strong margins.
I would like to begin today's call by extending my gratitude over 800 dedicated team members across 19 states serving over 200000 active patients.
It is their tireless efforts every day that are making us a burgoyne leader in clinical respiratory care across the country. It is extremely clear to us that offering a full suite of end to end respiratory products and not be in single threaded into a particular category has been a key reason for our continued success.
And as a leading factor for our strong growth in our key markets are.
Our team has been focused on executing our strategic vision of expanding into a national provider of at home respiratory services. As we have progressed through 2022, we have continued to see significant progress made we have expanded our organizational capabilities continuing to grow our employee base.
Additional talented new team members at each facet of the company, including many vital corporate functions.
Additionally, as disclosed last quarter, we have accelerated the hiring of additional sales professionals, which we anticipate will be a key driver of future organic growth. The model. We have built has a consistent and robust track record for driving growth and we are very enthused by the continued operating results.
The key differentiator for equipped in the marketplace. It's the high touch service model, we utilized catered to improving the quality of life for all of our patients. Our model is focused on constitution education device compliance sort of remote patient monitoring and the use of our health care platform to drive early.
<unk> and reducing hospitalization.
The 18th stress on the traditional health care system. This clear service driven model is helping us to grow our market share organically as health care providers, such as hospitals physicians long term care facilities look for partners that can offer a range of products and services that improve outcomes reduce hospital admissions.
Help control cost quick titles this need by delivering a one stop solution for our sales touch points offering a full suite of products and services to achieve these goals.
Continued focus on economically scaling the business organically and Inorganically with a focus on clinical excellence is having a very positive impact on our operating and financial results. The scale, we are achieving coupled with strong secular wins, such as a growing trend of Americans with multiple chronic conditions.
She's an aging U S population and need for health care to be delivered and monitor in the home has fostered continued robust growth, which we are extremely proud of.
On this call today I will provide a summary of our significant growth activities year to date and update on the continued bullish regulatory landscape. The current supply chain environment, which has been improving and update our core business.
With a focus on our record breaking third quarter fiscal 2022 results.
We have seen accelerating momentum year to date executing on the key pillars of our growth strategy, including making attractive acquisitions to advance our scale investing in future organic growth and further building out our health care network throughout the country.
To this end we were awarded a national contract with Unitedhealthcare, the largest health care insurance provider in the United States.
This unitedhealth contract significantly expanded patient accessibility and continues our aggressive growth path. Moreover, as we make acquisitions, we can leverage this national contract, where our political to expand patient access is another synergy for us our growth initiatives focused on.
Expanding our continuum of care continued with our recently announced supply contract with Cardinal health.
This contract is extremely meaningful equip as it provides us the ability to produce meaningful cross selling opportunities.
<unk> additional product line to go after in the future. Additionally, any new acquisition will benefit from being able to immediately leverage the contracts at new locations across the country, providing further synergies with the expectation this contract will give us stronger buying power for disposable medical supplies.
Turning to the current supply chain dynamics, we have continued to see signs of steady improvement with timely allocation of CPAP devices through fiscal Q3, and real time and to fiscal Q4 for those not aware in June of 'twenty, One Philips Respironics announced the battle.
Terry recall of certain respiratory devices related polyurethane foam used in those devices.
The inventory trend has remained positive in real time, and we continue driving patient setups to eat the backlog as we move through fiscal Q4. The backlog now stands at approximately 6000 down from a peak of over 8000 in fiscal Q1. It is important to note our patient joins the resupply Kroger.
Graham three months after being set up on a device, which creates a lag in revenue even as we continue to make headway on the basketball.
Over the coming quarters as the backlog continues to ease that represents a nice tailwind for US. We believe there is a reason to be optimistic about the supply chain pressure continuing to alleviate as we continue through the calendar year and Moreover, we have not factored in any supply from Philips at this time and are.
Forecasting.
On the regulatory front, we continue to operate in the best environment in well over a decade. The capitalization of the 2021 competitive bid program has provided us a clear margin outlook across our product mix and ensured our patients' stability for the foreseeable future. Furthermore.
CMS announced a 5% CPI adjustments for DMD in 2022, typically the consumer price index increases for Dnb had been between 1% to 3% last year. The inflation adjustment was less than 1%. We are also anticipating a significant increase in the seat.
The adjustment for 2023, which would have a favorable impact on our margin profile. The importance of the home medical equipment industry has never been more prevalent and we are pleased to see continued positive regulatory developments.
Turning to the underlying business are strong team led by operators continue to navigate this inflationary environment extremely well and we have seen positive momentum in our hiring initiatives as we have progressed through the year in particular on the clinical services side.
We have also seen continued margin strength and believe we have turned the corner on the worst of the supply chain impact. These positive trends and continued operating Brazilians led to another record financial performance and our fiscal Q3, which saw revenue $36 7 million 2%.
Sequential organic growth from fiscal Q2.
Strong operating cash flow and our adjusted EBITDA margin solid at 21% I am proud of the continued robust margin profile. Our team of operators have maintained a high inflation environment. Our overall performance as a result of the robust demand for our full suite.
<unk> of respiratory products highlighted by ventilation therapy and oxygen therapy. We are also seeing very strong demand for sleep therapy, which we anticipate will be a nice tailwind as the supply chain environment continues to improve allowing to place more devices. Moreover, as we have moved out of the pandemic environment.
We have seen more unrestricted access to referral sources, which will also assist in our organic growth initiatives.
We continued to leverage our capabilities to move us up the chain of value based care and our results reflect this this continued focus on superior patient outcomes and satisfaction was also a major factor in receiving the national insurance contract recently announced Lucky.
Looking at our current acquisition pipeline it remains very deep with targets that meet our stringent criteria and we expect to remain very active over the remainder of the year.
With that commentary I'd like to hand, the call over to Hardy to discuss our third quarter fiscal year results.
Thanks, Greg last evening, we announced our Facebook tough quarter, but when you when you do financial results, representing a three months and nine months ended June 32022.
In reviewing the fiscal third quarter 'twenty to 'twenty two 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 $36 7 million in the third quarter, Facebook plenty plenty, though up 40% from the third quarter of fiscal 2020, one our sequential quarter over quarter growth of 2%.
As of June 30th 2022 the company's backlog was approximately 6000 patients in the queue to be set up well sleep devices compared to a more typical 1000 patients historically.
As Chris mentioned, we have seen time reallocations of CPAP devices progressing in fiscal Q4 and are cautiously optimistic that new device allegations and continue to increase through the remainder of the year, which means we need the backlog generating a lift in revenue from this segment of the business.
Adjusted EBITDA for the third quarter of fiscal 2022 was $7 7 million compared to $5 2 million for the third quarter of fiscal 2020 one.
Adding a 44% increase year over year.
Adjusted EBITDA margin for the third quarter of fiscal 2022 was very strong at 21% for the quarter.
Revenue for the nine months ended June 30th.
And we used the $99 8 million.
A significant event.
How do you think by 2% compared to the nine months ended June 30th 2021.
Adjusted EBITDA for the nine months ended June 30th plenty plenty to reach the 28 million or 44% increase compared to the nine months ended June 30th 2021 and represented 28% of revenue.
In the fiscal third quarter, we need to wait for somebody to 133700 enforce all deliveries compared to 95192.
Just wondering if you had last year, an increase of 40%.
In the fiscal third quarter 2022 we have completed 63815 respiratory resupply setups.
This compares with 40500 and a D and the corresponding period last year, an increase of 55%.
Recurring revenue continues to grow and it is about 77%.
For the nine months ending July 22, the operating expense was 46, 7% of revenue compared to 43% or the same period in fiscal 2020. One the increase was due to higher wages fuel costs as well as some one time and non recurring corporate expenses, including expenses.
Related to acquisitions.
Cash flow from operations for the nine months ending June when he 22 was $19 4 million compared to $11 2 million in the corresponding period ending June 2021.
Current assets totaled more than $47 3 million compared to 46 5 million and the net liabilities.
Demonstrating continuing strength and our liquidity.
At the end of third quarter fiscal 2022 cash balance was $18 5 million.
We are continuing to build momentum across the organization led by the significant expansion of our infrastructure and favorable geography those areas throughout the country driven by our acquisition and organic growth strategy.
I'm very pleased to see revenue, reaching $36 7 million or a fiscal third quarter and a strong adjusted EBITDA margin at 21% as we continue through the integration process of our recent acquisitions and anticipate this margins remaining stable.
Our operating model continues to shine or the Queen its strengths during this challenging period of high inflation.
Our margins have continued to remain rock solid.
The strong performance was driven by elevated demand for oxygen ventilation therapy.
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In our automated resupply program.
We also continue to see solid cash collections with a third quarter, resulting from our continuous effort to better our revenue cycle management processes.
The ecosystem, we have in place today allows us to position ourselves as a market leader in home respiratory care like quip, formerly within the top 10 providers by size independently.
Going forward, we will continue to find ways to grow our patient base and penetrate attractive markets continuing to streamline our operational platform.
Our revenue base during fiscal Q3, 2022 remained strong with recurring revenue representing approximately 77% of our overall revenue.
This recurring revenue base provides us further stability.
Systems as we look at all.
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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 closing strategic acquisitions, and we haven't been in coolers and the integration efforts to date.
Since April 19th when your 'twenty two we have closed four acquisitions, adding locations across nine U S States, including Arkansas, Georgia, Massachusetts, Mississippi, North Carolina, Ohio, Texas, California, and Louisiana.
Louisiana represented the 19th stayed up service for US and then those geography, both areas. He presented at over $5 5 million COPD patients.
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The four acquisitions added over 30000 active patients equates to over 25 million in revenue and over $4 5 million of adjusted EBITDA Post integration.
We are extremely focused on the successful integration of our recent acquisitions, which are all on schedule.
It is our proven integration process, which has been the driver of our consistent financial and operating performance discipline on an annual basis.
As it relates to our current pipeline and future growth. We currently do have a significant pipeline of acquisition candidates across all three tiers of our strategy, which will help continue to drive our opportunity to penetrate existing and new states.
Moreover, we are looking at potential expansionary proportionate is interesting there just take what he calls a service that's going to enhance our end to end product and service offering.
We anticipate the recently disclosed Cardinal health supply contract will have a significant role in any potential new product offering.
On the heels of strong performance, we were able to successfully convert the debentures notice all of which has been provided.
We believe this to be a very favorable you in strengthening our balance sheet and positioning us for future growth.
On August 12, C. I think committed to provide 100% of the senior secured credit facilities and the aggregate amount of up to.
The $18 million.
Which when prices are.
Loan facility, a $5 million a delayed draw term facility of $55 million and a revolving credit facility of 20 million.
We expect to close this facility in next 30 days.
It is important to note that this credit facility will expand with additional growth as long as we are within dominions, meaning.
Meaning while the current commitment is 80 million as we continue to grow the credit, especially they will increase beyond 80 million.
What is the robust balance sheet, we have and the fresh capital commitment from that market. We will continue this fall it shouldn't be any operators with a strong value proposition that we have towards potential sellers in the marketplace.
We are very enthused about our future prospects as we continue increasing our scale across the United States. Thank you and with that update I will turn the call back to Greg.
Thanks Kartik. During this continued period of substantial expansion quick has now grown its operating footprint to more than 90 locations in 19 states across the United States completing hundreds of thousands of deliveries to more than 200000 active patients.
With over 21500, referring physicians as Harley mentioned since April we have closed four attractive acquisitions, adding over 30000 active patients equating to over $25 million in revenue and over $4 $5 million of adjusted EBITDA post integration.
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Moreover, we have now reached a run rate revenue of approximately $160 million on the heels of the hometown acquisition announced in July putting us well on our way to meet our financial outlook year to date, we have added important insurance contracts added significant infrastructure and personnel.
All of which has enhanced our national coverage fear over an area that includes over 5 million C. O P D suffers.
We have built a scalable health care platform that allows for aggressive expansion organically and inorganically driven by the patient centric ecosystem. We have created and this strategy is allowing us to grow market share in new and existing markets.
Moreover, we are able to leverage the national Unitedhealth contract when we acquire a provider to capture more eligible patients accelerating expansion efforts, notably we are working on securing 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 with.
With our valuable commercial insurance contracts strong, referring physician network and significant patient base, we have accumulated in the state give us the opportunity to take our land and expand approach towards future growth as.
As we look at the current landscape there is a significant push 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.
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 clips boots on the ground, reaching key touch points, such as hospital systems physician.
<unk> 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 signing additional national health care insurance contracts with major commercial payers and <unk>.
The United States further expanding our patient accessibility looking at opening de novo locations to complement existing infrastructure across our markets. Secondly, we continued to lead the industry and technology deployment, driven by a robust respiratory resupply platform, which provides meaningful revenue synergies for us on the <unk>.
Acquisition front, we expect our resupply program to be a driver of continued growth for us.
The third component of our strategy is acquisition, 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 factors to our acquisition approach the first being a focus on scale and hence targeting the revenue range of $5 million to $20 million.
Just an annual EBITDA margins between 10% to 20% plus and large distribution volume, which can be leveraged by our platform. The second fastest being focused on our ambition of becoming a national provoke. This segment focuses 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 facet 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 2022 has continued to be a very exciting time for the company as we have returned to in person Roadshows investor and industry conferences. This has represented the first opportunity in the United States to meet with investors in person on the heels of our NASDAQ listing in May.
2021.
Our ongoing success led to quit being included on the Russell Microcap index at the conclusion of the 2022 Russell indexes annual reconstitution on June 27, 2022, Russell indexes are widely used by investment managers and institutional investors for index funds.
And as benchmark for active investment strategies.
<unk> 12 trillion in assets are benchmarked against the Russell U S indexes.
Through the remainder of the year, we will continue to attend leading small cap conferences participating in non deal Roadshows and worked with our covering analysts to get with name in front of as many eyeballs as we can.
We feel we are very early in getting our exciting story out there, which provides us plenty of opportunity to grow the quality and geographic diversity of our shareholder base.
As we move through the balance of the year here, our top priorities remain investing in technology driven platform in order to improve our operating efficiencies were through the ongoing use of our automated ordering platform revenue cycle management and through our automated subscription based resupply program. These actions will continue to drive.
Sustained value and allows us 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 improves outcomes and drive engagement with patients. Moreover, we can.
Drive early interventions reduce hospitalizations and monitor treatment plan effectiveness, which all serves as a benefit to the payers.
Once again I would like to take a moment to thank the entire quit team for its tireless efforts and its stakeholders for all of their continued support.
Thank you we will now begin the question and answer session to join the question queue. You May press Star and one on your telephone keypad.
Your atone acknowledging your request.
Youre using a speakerphone please pick up your handset before pressing any keys to withdraw your question. Please press Star then two we will pause for a moment as callers join the queue.
Okay.
The first question is from Doug Cooper with Beacon Securities. Please go ahead.
Hi, good morning, everybody congratulations on a nice quarter.
First of all regular harder good can you talk about the cardinal relationship and when that might start to generate sales.
Hi, Doug Thanks, Thanks for joining us today, yeah. So we're pretty excited about the cardinal contract and that we just got that implemented in that and that throughout the organization and that over the past month or so.
So we're really looking forward in that for a locations and they have to be able to start providing certain disposable products and things that business that we're typically in that passing on so.
So we would expect as we go into 'twenty, three and that that could help in that with some organic revenue growth.
Especially on the back side of.
Providing these products for our national insurance contract with United Health Care. That's we're starting to see a lot of inbound calls for those types of supplies and Cardinals, great distribution arm for us.
And do you think those will be available through all of it 90 locations.
Yes, that's that's our intent.
Okay.
This quarter, obviously didnt include a full quarter contribution.
From access respiratory and none from the hometown medical.
Can you talk a little bit about the operating leverage.
So those two would add and going forward.
And what do you think EBITA margin, that's definitely ticked up over the past few quarters. How hard do you think you can get that over the next two quarters or few quarters.
John This is Tom Thanks for the question.
I guess for the short run out something we've always mentioned is when we when you make an acquisition in the short run.
If anything that could be a slight depression in the margins just wondering where there are problems.
Revenue, but overall for the longer run.
Keeping in mind, the inflationary pressures and uncertainty in the market. We would we would encourage everyone to just believe that'd be would it be into 2021 and a half.
EBITDA market range for the quarter for the next you know.
A few quarters.
Okay and my last one question just on your resupply business resumes on their conference call was talking about there.
They're a resupply I guess masks and houses and so for a mass in particular I guess it was a 13% growth market.
I assume that's sort of almost double the general market.
Hum.
How quickly and when you make an acquisition can you get guys are set up on the resupply program.
And is the resupply program growing for you guys are growing at a greater clip than your.
Your general business.
The question.
Yeah. Good question in that as far as an acquisition to get that target and that are fully integrated and that onto our platform and that is typically for the resupply is in the three to six month time frame.
It just depends on a lot of different factors and that of what type of system and that that targets on a we are seeing our resupply grow from our current base and that the piece that we're really missing in that is really that lagging resupply for that backlog.
Of setups that we have and then also in that kind of some of the missed opportunities in that on the set up and I think as we get out into 'twenty three and.
And kind of look at the macro level environment and that of device setups in that that's underserved right now and that we would really expect a boost in that going into 'twenty, three and that in our re supply.
Okay, great. Thanks very much.
The next question is from separate Minoshe <unk> with eight capital. Please go ahead.
Good morning, and congrats on the continued growth.
My questions on your comments on de Novo locations, when we think about.
Organic growth opportunities and your ability to leverage your national payer contracts.
Basically established new locations should we think about these locations being in states, where you currently operate.
Or would these be in new states.
Yeah. They would this is Greg they would primarily be enough states that we currently operate in where we're able to kind of expand our geographical footprint and that so we can get the best operating leverage.
Understood. Okay. So basically you're just giving you more putting any more adjacent to your end markets essentially in that sense, yeah, yeah, absolutely and keep in mind in that I mean, we we've been targeting states that have a high acuity C O P D Ah patients and that so.
Most of the new states that we've entered and that really kind of fallen the top 15 of having the highest prevalence and that of C. O. P. D. I'm just over 5 million people. So we that's our target market. So we've been very selective on that front.
Understood and you touched on some of the recent our experienced sales personnel that you've been adding or the sales personnel similar characteristics and qualifications to those you've had historically or are you, adding personnel with additional areas of focus are they focusing on.
New.
Customer target segments can you kind of give us color on that.
Yeah, Yeah, they've got similar backgrounds and that we do hire a lot of clinicians that's really our target, but we do also higher experience.
Sales representatives in that that have experienced somewhere in the health care field, whether it be home health or inside.
The H M Mi industry.
Understood. Okay, and then just one last one on the national payer contracts I understand some national players do have certain regions of focus.
So do you think about a potential next waves of expansion for your business being linked to additional national payer contracts or does that not necessarily go hand in hand.
We definitely think it goes hand in hand, with these national insurance contracts.
We do feel that there's additional contracts in that that could be coming over the near to medium term and that it's hard to put the timing on it. There's also a lot of other regional type contracts and that that we signed in that for example in that we had a smaller contract that we added for some additional hospice patients in the state and that that.
We think bodes very well for us.
Continued added additional patients in adjacent states those things and that we really don't announce but that's part of what's driving our organic growth, but we still have a lot of runway with some of these other national payers.
Interesting well, thanks for the insight and congrats on the continued growth.
Yeah. Thank you.
The next question is from Rahul started Yasser with Raymond James. Please go ahead.
Good morning, Greg.
Thanks, so much for taking the questions and congrats on congrats on a really prolific quarter. So Greg I believe you were talking a little bit about sort of the CMS with inflation adjustments are being significantly higher than a year prior at around 5%.
Could you please give us a little bit more color in terms of how you think that will flow into your margins, which you know have been sort of increasing sort of improving over time.
And then combine that with you know how you know margins would likely be also positively impacted by Cardinal and and your other insurance contracts. So how should we be thinking about.
Gross margin profile going forward.
Hey, Robert This is Jorge would you repeat the first part of your question, where you mentioned some numbers because we couldn't get it.
Sure.
Forgive me if I got it wrong, because I believe that I wrote down that CMS inflation adjustments at around 5% is what our what you said, Greg. So if you could please maybe flowed that through including.
The benefit Youll see from Cardinal as well as from the insurance contracts to the directionality of your gross margins going forward.
Understood understood. Thanks for clarifying.
I think.
We believe that the margins that youre seeing for the year to date number for.
For 2023.
You bet it.
It would be in that range, plus or minus a point or so.
That does.
That does factor in.
The CPA in Korea. For example, this year, we already had the CPI increase but along with that's your pancreas. There were some some increases in the cost of goods to our vendors you know too.
From an inflation perspective, so I think what you are seeing are in the year to date number is a as a mature baked in number of course.
The disclaimer you had would be we are we are forecasting that the.
The market will continue to.
<unk> be where it is right now in terms of inflation is the window English is that price is substantially over and above the CPI index than that it could be a potential increase in divorce margin, but at this point, we would just say if somebody is where you were say look at our year to date number and then hopefully we stay in that range plus or minus half a point to a point.
Got it that's that's very helpful. Thanks, Kartik, so effectively it's a wash.
And then just a quick follow on question from that then is given your disclosed organic growth rate of 2% again using these factors and all of the activity that you know that.
He'd been undertaken a lot couple of quarters do you foresee that organic growth rates are changing potentially upward over the next few quarters.
So I think the biggest driver of the organic growth rate would be how quickly we are able to recover on the.
And we establish on the on the sleep side, you know that that is really one thing that is holding us up.
A little bit backward right now so if to the extent, we are able to get a good reallocation wood allocation on the Pep devices and the overall Pep you I was just going to finish the flow through we would definitely be able to meet that 2% that we had been in.
Being able to do for quite a while now Oh.
Obviously, the coffee note held and other other our providers our insurance provider contracts that we've talked about earlier would help our organic growth, but that would be kind of slow and steady.
And you would see that but it would be incrementally that's been out there.
A lot of percentage points. So I think the key would be on the same site.
Great. That's that's also helpful. And then one last question for me on the inorganic growth. So I'm doing my math correctly based on the last acquisition of hometown medical that Guy that gets you that gets you to the bottom end of your guidance of 102 hundred 80 million annualized through the end of the year end of the calendar year.
Now should we be thinking about you know you guys, saying you know hitting the bottom end or given the pipeline you referred to you. Greg you know that you might actually kind of hit the top end of that potentially at the top of that guidance.
Yeah sure.
With the recent acquisition in that where we're sitting at about 155, $1 60 run rate revenue. So we still.
We have about four and a half months or so here, we've got a high confidence level in that around our ability and that to be on that run rate revenue.
By the close of our Q1 'twenty three.
You know recently and that we just yesterday in that we announced the our credit facility and that so we think that'll help accelerate.
So we are.
Just kind of as mentioned, we've got a very high confidence level around reaching that goal towards the end of the year to be on a run rate revenue of 180 to 190.
Right.
I apologize if I had the wrong numbers, but yes. It makes sense you're right around 160 right now okay. That's all I needed. Thanks.
Again really.
Helpful. Yeah. Thank you everyone.
The next question is from Paul Stuart's been with RBC capital markets. Please go ahead.
Good morning, I'm, calling in for Chelsea you congratulations on the quarter.
Can you touch on the interest rate for the new credit facilities. I know you mentioned there was a low cost of capital, but it is it similar to the old credit facility is that kind of a reasonable way or is there a bit of margin given the increased size.
Yeah sure we would start the only I'm going to ask people to kind of wait we would definitely be making a formal announcement once we close on the on the on the credit facility, but it would be safe to say that the margin would be similar to what we had in the past except for as you all probably know the market.
Moving to our so far versus the prime rate or stuff like that so that would be some changes.
Get it to that but as far as margins close date, it should be within similar.
And what the previous languish.
Okay, great and.
Just in terms of the 10% or so of your revenue that comes from private pay out of pocket patients.
Do you see them can you talk a little bit about them kind of the economic sensitivity of that population. If we do end up into sort of recessionary environment. It do you see that you know 10% of the business contract in a little bit or is that something where.
These these patients are not very oh economically sensitive.
Yeah, Yeah, I mean traditionally in that when you kind of look back at some of the other recessions I've been in the industry over 30 years, we havent seen anything kind of material and that kind of move in the financials of those co pays I mean, we're kind of in the business of providing these respiratory and medical.
Supplies and and these patients kind of needed. So it kind of goes right to the top of their budget. There. We do see occasionally in that we've seen shifts in insurance and that maybe if they're unemployed or something they could move over.
To a state Medicaid program, where they don't have a co pay or you know potentially they pick up a Medicaid as a co pay in that so we do see a shift in the payer there slightly but nothing material that we have any concerns around.
Okay. Good to know and I guess, just one more from me in terms of the you know positive trend of the regulatory environment.
No mostly it was it was pharmaceuticals, and so forth I got the headlines for the inflation reduction act, but but did that legislation have any impact on your business.
Yeah, I mean now that we're out of this competitive bid environment and that we would be subject to additional CPI increases next year.
So we believe it's going to at least match and that what it was.
Last year with that 5% and that's T. V. Then been involved in some meetings and that word could actually match up high single digits in that and could match what the inflation run rate is right now so that still remains to be determined we got a few months before we probably find out but we think its very favorable for us.
Okay. Thanks for taking my question.
Yes.
Thank you.
The next question comes from Justin <unk> with Stifel. Please go ahead.
Hi, Thanks for taking my call in the opening remarks, there was mention of possibly expanding into additional service verticals. If I heard that correctly are able just to provide some color around what that could be.
<unk>.
Yeah sure you know potentially in that into the supply business that we've kind of talked about whether it be urological supplies, ostomy and continence and things that we can directly sell into the current patient database.
There. There's also always the potential in that for some type of technology, whether it be some remote monitoring type features or something that would be billable or a partnership and that potentially with someone.
Very interesting and then as far as the pipeline I also thought I heard.
A preference for acquisitions that are sub $5 million in revenue would that characterize most of the mix in the near term pipeline or are there still some medium or larger opportunities.
Yeah, Yeah, I mean, we're focused on all three phases of our acquisition pipeline I mean to date and that we've closed.
Most deals had been 15 or million or under and revenue are we haven't kind of touch that third phase yet.
But we do believe in that that we're in a position now with our balance sheet with a forced conversion of that debt coming off.
The new debt facility, that's put into place here now and that it really puts us into a position in that to look at all phases of our acquisition strategy.
And are you starting to wrote up perhaps against some larger peers are competing for the the larger assets are in that are the <unk>.
Acquisitions to date have been pretty favorable as far as a multiple point are you willing to maybe bid a little higher for some of the larger strategic assets.
Yeah, Yeah, I mean, there's there's always competition in that I mean, right now I'll say on the space that we've been playing in and in this 15 million or under and that you're.
You're right, we've had very favorable terms and that for us in that but frankly, that's kind of where the market is.
And it we haven't seen it move too much on that front, what we have seen is on the larger deals we've.
We've seen some of those that were on the market and that a year ago, they're still on the market.
And you know we've gotten the chance to take a second look and Oh, you know potentially those multiples and that have a potentially started to match here in that with where the public markets and that kind of came due for companies in our peer group.
Makes sense. Thank you.
We still continue to remain very very disciplined on that front to ensure that.
We're adding companies it'll be very accretive and that to our shareholders.
Thank you for taking my questions.
Yeah.
Once again, if you have a question. Please press Star then one the next question comes from Stefan <unk> with Echelon capital markets. Please go ahead.
Oh, hi, guys and congrats on the quarter I just wanted to circle back on the Cardinal deal I think it's and at what point do you have for you guys and I just want to make sure I understand the sort of longer term impact, but we're so once this is up and running and sort of scaled up.
Are you guys.
How much of the organic growth tailwind is this going to be sort of in the one to 200 basis point type of thing.
Or more or less mm mm per year and then.
Just on the margin profile of those products I assume since they're doing that.
The supplying in shipping maybe these are slightly lower margin for you, but maybe just help me understand that more and more detail.
Sure. Thanks for the question.
We are not yet ready to provide any kind of guidance when it comes to what kind of contribution that would have to our organic growth.
Yeah, we are stable you know.
Again as Greg mentioned earlier, we are still in the phase of implementing and training our staff across our 90 locations. So I think this would be something we wouldn't be able to get.
<unk> got a handle on over the next couple of quarters.
As I previously mentioned, but one of the questions from the analysts are we don't see any really well.
And so we don't give me would like to say that this would not impact materially on our organic growth in the short run.
The sleep devices I'll, probably the ones that most of our growth rate substantially if you're.
We are able to get more devices, it's one of the year.
As far as though as far as your second question, which was on the margin you're right.
Things tend to be.
Slightly lower on the margin.
But again given that are initially expecting lower volumes here in this next quarter or two.
We don't really as a see a any any material impact to our cost of goods held gross margin you are getting in the next couple of quarters.
Okay, great. Thanks.
This concludes the question and answer session I will now hand, the call back to Greg Crawford for closing remarks.
Thank you operator, and thank you all for your participation today as always you can find it on the web at Www quipped home medical Dot Com, where we will be posting a 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.
Carl Thank you and have a great day.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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