AdaptHealth Corp. Q1 2023 Earnings Call
Please standby your program is about to begin.
Need assistance during your conference today, Please press Star zero.
Good day, everyone and welcome to today's at upheld one Q23 earnings release.
At this time all participants are in a listen only mode.
Later, you will have the opportunity to ask questions. During the question and answer session.
You May register to ask a question at any time by pressing the star one on your Touchtone phone.
You may withdraw yourself from the queue by pressing star and two <unk>.
Note this call may be recorded.
I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Chris Jewish General Counsel.
Yeah.
Thank you operator I'd.
I'd like to welcome everyone to today's adapt Health Corp Conference call for the first quarter ended March 31, 2023, everyone should have received a copy of our earnings release yesterday evening, if not I'd like to highlight that the earnings release as well as a supplemental slide presentation regarding Q1 2023 results is posed.
Is it on the Investor Relations section of our website.
In a moment, we'll have some prepared comments from Richard Barasch Chair of adapt tell Steve Greg's Chief Executive Officer of adapt Hell, Josh Parnis, President of adaptable and Jason Clemens Chief Financial Officer of a desktop we will then open the call for questions.
Before we begin I'd like to remind everyone that statements included in this conference call and in our press release May constitute forward looking statements within the meaning of the private Securities Litigation Reform Act. These statements include but are not limited to comments regarding our financial results for 2023 and beyond actual.
Results could differ materially from those projected in forward looking statements because of a number of risk factors and uncertainties, which are discussed at length in our annual and quarterly SEC filings.
Adapt health Corp shall have no obligation to update the information provided on this call to reflect such subsequent events. Additionally.
Additionally, on this morning's call, we'll reference certain financial measures such as EBITDA, adjusted EBITDA and free cash flow all of which are non-GAAP financial measures. This mornings call is being recorded and a replay of the call will be available later today.
Now pleased to introduce the chair of adapt House Board of Directors Richard Bearish.
Good morning, everyone. Thanks for joining us on our first quarter conference call. As you know this morning, we announced that Steve Greg will step down as CEO of adapt health as of June 32023.
He will be leaving the company in sound financial condition and much improved operational shape.
Further adapt health is blessed with a high quality senior leadership team that will continue to lead the company forward in the areas, we will be discussing today.
On behalf of the board I, Thank Steve for the critical leadership role. He's played it adapt health to help build a market leading provider of sleep diabetes respiratory and other health care solutions.
CEO. He has led the company through the successful integration of adapt health and Aero care overseeing more than two dozen acquisitions and helped us navigate the challenges of COVID-19, and the C. Pap shortage, resulting from the Phillips recall.
The board has got an extensive search process and so far has been quite pleased with the quality of the candidates to become CEO . We are optimistic that we can fill the role over the next several months, but if theres a cat. The board has asked me to step in as interim CEO until the role is officially felt.
I will now turn the call over to Steve.
Good morning, and thank you for joining our call adapt health as a full service nationwide provider of products and services for patients at home and in the community empowering them to live their healthiest lives.
I want to start as I always do by expressing my appreciation to our 10802 employees operated in 47 states for their tireless efforts to respond to the needs of the more than $3 9 million patients we serve.
As a company, we continue to adapt to our changing environment expand our reach and capitalize on emerging opportunities, where the nation's leading provider sleep equipment related supplies and we had another exceptional quarter in this business delivered 18% growth in net revenues, we believe that the extraordinary.
So we undertook to maintain our supply and setup of Pap units. During the film's recall and pandemic have resulted in increased market share and accelerated setups in March our Pap setups for more than 50% higher than at any time during prior to the commencement of the filter recall, our census of Pap rental patients.
As up 53% of our lowest point in February 2022, while our census, and our much larger population of resupply patients is up 10% from the same period.
Our first quarter also reflected the continuing evolution of our diabetes and CGM business, largely driven by the pharmacy channels yet. Despite these headwinds the diabetes and CGM product lines remain attractive due to the continued growth in patients through expanded Medicare coverage.
We expect improved profitability of this important product line through a number of ongoing operational and strategic initiatives, including lowering costs. It is important to note that our unit sales continue to grow and now we have a census of approximately 138000 patients in the eight 3% increase.
In the past 12 months as Josh will describe we are now beginning to take the steps to connect our diabetes members in a way that puts us squarely in the middle of the health care ecosystem.
And our respiratory line of business. We are proud of the part we played during the pandemic going to extraordinary efforts to get oxygen to health systems and patients.
Most of these patients have recovered and no longer need oxygen our respiratory business now turns to a steady state where we expect to see sequential quarterly growth.
We remain confident that our purpose built national network supplying a full spectrum of sleep respiratory diabetes and HMA products allows us to gain market share and drive sustained growth in these product lines.
For example, as discussed in previous calls, we believe value based care as a key piece of our long term strategy to evolve beyond the traditional home care distribution model and entered into what we now call adapt health to point out.
During 2022, we added value based agreements with two managed care providers to cover certain homecare products and supplies for their beneficiaries on an exclusive basis.
These agreements help drive better patient outcomes and a better overall experience for both patients and payers with a clear and simple billing arrangements. They put a premium on service to patients.
We remain optimistic that this strategy will be a key contributor to our success moving forward. Shortly we expect to announce more of these arrangements, including our largest to date that will showcase how adept health supply network best in class technology, and full spectrum of home care solutions can be deployed to serve patients.
And designated geographical areas on an exclusive basis.
<unk> arrangements are expected to deliver incremental market share revenue and EBITDA growth across a number of our operating regions and will improve our patient satisfaction by removing many of the administrative burdens associated with supplying homecare equipment and supplies today.
Adapt health National scale and product diversity is simply unmatched across HMA industry.
And we have continued to invest in infrastructure and expertise to position the company to capitalize on the significant long term opportunities in the markets. We serve these are highlighted in our RCM improvements led to faster cash collections, thus, reducing our dsos to 42 seven days down five days from Q1.
<unk> 2022, we are seeing signs that we are collecting not only faster, but also better as these trends continue we hope to see higher net revenue and contributions to EBITDA in the upcoming quarters.
Sales reps and leaders from territories all over the country recently gathered at our National sales meeting, where we provided opportunities to learn about new enhancements and improvements we have made to the tools, we provide them for servicing patients and referral sources. We also honor the most productive members of our sales teams shared best practices and offer to expand.
<unk> training and performance incentives to help them further grow their businesses.
We believe an energized sales organization with a strong centralized support is a critical element to our immediate and long term growth ambitions now I'll turn the call over to our president Josh part as to discuss strategic developments in further detail.
Thank you Steve as Steve mentioned adapt to point O continues to focus on and innovative care model purpose built for payers and patients. The foundation of this care model is technology that connects payers suppliers and patients adapt my App is our foundational patient facing app that provides logistics billing chi.
And soon clinical data to help patients manage their chronic diseases. The initial launch of my Apple was focused on the diabetes product line and has seen strong adoption with 50000 downloads and 7500 actual orders transacted through that then.
The downloads to date represent more than one third of our diabetes patient census in just a few months.
We will continue to iterate as we further refine and scale the app across other parts of our business.
It is important to note that we have focused our efforts on our diabetes population, which represents 96% of the my App participants.
There is strong consensus now supported by Medicare that proper usage and monitoring of the data generated by CGM leads to better outcomes.
As we continue to scale and refine the App, we expect it to become a powerful resource for patients to access data on their connected medical devices and believe it will enable more clinical interactions for our chronic disease management programs, leading to transformative patient experience further reduction in health care costs.
And bridging of the gaps in care that frequently incur in the populations we serve.
The next phase of the development of my Apple focus on our sleep and oxygen populations, where real time data will enable adapt to continue on the evolution of its ultimate value proposition to be a low cost clinically enabled provider of chronic disease patients healing at home.
Now I'll turn the call over to our CFO , Jason Clemons for the financial review.
Thanks, Josh Good morning, and thank you for joining our call for the quarter ended March 31, 2023 adapt health reported net revenue of $744 6 million, an increase of five 4% from $706 $2 million in 2022.
Non acquired net revenue growth for the first quarter was four 7% again led by sleep, our largest product category.
This reflects continued strong patient demand for sleep products that we expect will continue in 2023. Additionally.
Additionally, our Pap resupply business continues to outperform also reflecting strong demand and execution.
The shortfall in non acquired net revenue growth reflects the acceleration of the headwinds affecting our diabetes product line that we've previously discussed.
Specifically, while CGM patient census grew eight 3% and increasing number of payers have shifted their diabetes patients out of the dnb channel and into dual benefit and pharmacy, only partially offsetting that volume growth.
Additionally, diabetes revenue for pumps and supplies was down $9 million year over year.
We very recently seen negative impact from share shift towards integrated pumps sold to patients through the pharmacy channel as well as the effect from manufacturers retaining some of their dnb distribution in house.
Adjusted EBITDA for the quarter was $134 million.
Which declined two 7% from the first quarter of 2022 and was below internal expectations.
Adjusted EBITDA margin declined 150 basis points year over year to 18% in the first quarter of 2023, primarily reflecting these pressures in the diabetes business.
While we continued to experience inflationary headwinds we were generally pleased with our ability to keep labor expense contained at 25, 9% of net revenue up from 25, 4% in the prior year.
Within cost of goods. In addition to the factors previously highlighted within our diabetes business. We continued to incur elevated distribution expense. However, this is trending in the right direction and should further normalize over the course of the year.
Operating expense and G&A expense were both in line with our internal expectations.
Cash flow from operations was $142 million Capex.
Capex was $89 $1 million in free cash flow was $51 $1 million.
Quarter benefited from timing of key contract payment term negotiations as well as large one time purchases of patient equipment and supplies.
We anticipate the first half of 2023 to generate $15 million to $20 million in free cash flow.
Third quarter to be a modest source of free cash and for the bulk of our $96 million to $128 million range for free cash flow to come in the fourth quarter.
Turning to working capital, we had cash on hand of $101.4 million with net leverage of three six times as defined under our bank covenants approximately 77% of our total debt is fixed including our swaps.
Days sales outstanding for the first quarter was $42 seven days, a full five day compression from first quarter of 2022, reflecting the benefits from refinements to the revenue cycle process, and our technology and workflow investments, which have resulted in increased adoption of <unk> prescribed and faster cleaner claims.
During the first quarter, we completed $9 2 million in share repurchases under our previously announced buyback program, leaving approximately $177 million remaining under authorization.
Even though our first quarter did not meet our expectations, we are not changing our full year guidance at this point.
The first quarter results has is projecting toward the lower end of our published guidance, but we think we have the tools and programs in place for the balance of the year to get back closer to the midpoint, namely on our cost management program and the new contracts that Steve mentioned earlier.
Management is taking decisive actions to reduce our cost structure, specifically through organizational operating model changes rationalization of footprint renegotiation of certain supplier contracts and other means staged throughout 2023, we believe we can generate annualized cost savings of approximately $40 million with 25.
$5 million expected to be realized in calendar 2023.
The actions, we have already taken to date represent approximately $30 million in annualized savings of which $20 million will be realized this year.
Importantly, we do not anticipate any of these actions to negatively impact the high service levels, we are committed to delivering for our patients referral providers and payer partners as well as the commitments that we've made to our employees.
Finally for the second quarter, we believe we will maintain the product category revenue trends, we experienced in Q1 2023, and we believe we will achieve improvement in adjusted EBITDA margin driven by cost of goods labor and other operating expenses, specifically, we expect net revenue growth in the mid single digits over Q2 of 2020.
This expectation for the quarter does include benefit from our cost management program, but it does not include benefit from the contracts that Steve outlined as they won't be effective until the third quarter.
I will now pass the call back over to Steve for his concluding thoughts before we open it up for Q&A.
Thanks, Jason.
I'll wrap up by underscoring our team's high level of confidence that adapt health is well positioned to capitalize on the opportunities ahead of it.
We expect to drive significant shareholder value as we make further progress across a number of important strategic initiatives and initiatives within our core markets and through expanded opportunities under adapt to point out.
To the 10802 employees of adapt health. It certainly has been my pleasure to work with each and every one of you some for only a short period all the way to some for 35 years.
What has been accomplished over the years and I'm excited to see the future that you will deliver two not only are patients, but also our referral partners managed care entities suppliers and other stakeholders. Thank you again at this time I'd like to open the lines for Q&A.
Thank you at this time, if you would like to ask a question. Please press the star and one on your Touchtone phone you may remove yourself from the queue at any time by pressing star two.
Once again that is star one to ask a question, we will pause for a moment to allow questions to queue.
And we will take our first question from Brian <unk> with Jefferies.
Hey, good morning, Steve Thanks for working with all the time that we worked together and good luck with the next I.
I guess my first question as I think about the guidance and all the moving parts here right.
I appreciate you know like where you are coming from as you look at the cost cuts, but on the on the revenue side, maybe let's start there.
Gives me confidence that we're close to the end of it.
Visibility into the shift that's happening on the on the diabetes side of things.
As it relates to the guidance like what are you baking in in terms of assumptions that will give us confidence in the validity of maintaining the guidance ranges for the year.
Yeah, Hey, Brian it's Dave.
Yes, certainly on diabetes, let's start there because I think thats the biggest.
Surprise to people you know without that reduction quarter would look that much different.
There is significant market change, mainly the shift to the pharmacy as you know as we indicated and it happened.
<unk> quicker with the and then a few more products, particularly from some manufacturers. So we went from a organization in diabetes has posted double digit growth to negative growth.
That obviously has some cost.
Concerns to us, but it also resulted in just a larger percentage going forward, our government and more stable business for us and obviously a decrease in the pump business. So the cost structure for the government business differs differs in process different products and different costs, which are all net positives.
Chris.
So going forward you know we should look at sequential improvement in the diabetes visits were pretty very confident that Q2 will be over Q1, Q3 will be over Q2, and Q4 will be over Q2, Q4 will be able to Q3 and so the impact of the pharmacy the questions we asked ourselves.
Is it fully into the into the Q1 numbers and we believe so that materially. So so we shouldnt see any more degradation from that pharmacy shift the people that have shifted have already shifted.
And so there's just not that many more that they can shift over there or the government products. The products that we need to be looking for certainly they're very profitable with the way we do it and so it will be a more government centric business and then so do we think we'll have.
The sequential growth absolutely will grow in the government.
<unk> will be offset a little bit by some continued pharmacy shift, but again most of it's done it will offset a little bit by.
Some pump business, but again the pump business is now such a small part of the business that it shouldnt have a material effect.
So when we look toward the diabetes as increased revenue and improved margins and I think that's the main.
The.
Issue with with guidance going forward that if we solve that should be handled nicely. Jason you want to add to that yeah. Thanks, Steve Brian to your question. Your second question on guidance and assumptions, we're expecting Q2 to hold the same trends frankly across all product categories.
But including diabetes for the second quarter. So we do expect pumps to be down pumps and related supplies to be down in that $9 million ballpark that it was down in Q1.
Based on what we are observing from the market.
Insulet and their omnipod is growing incredibly fast.
Component has moved from 80% in Q4 to 85% in Q1, we do expect those trends to continue because that's what management, saying.
We expect our tandem medtronic the other pump manufacturers too.
Continue on their trend lines and their guidance. So we think the result will be continued compression in pumps and supplies, which today represents just a touch over 20% of our diabetes business.
Turning to CGM and the discussion that Steve outlined we do expect to anniversary some of the channel mix and payer pressures at the second half of the year, we believe that by the fourth quarter, we will start returning to single.
Mid single digit growth year over year, and we do believe that that will continue to normalize as we bridge into early 2024.
Got it and then I guess in your prepared remarks, you talked about value based care.
And how you've got some contracts coming up so just curious what the setup is what the revenue model is for you guys in value based care.
Just any details that you can share with us in terms of.
How that works and how you see that driving growth for you guys going forward.
Well, we can't mention too much about the specific contracts until they are finalized and they are announced but that should become shortly.
But the contracts that we're seeing will be much more on catheter and value base than ever before by adapt health.
And it'll give us.
Advantages in marketing the other products for that for.
For those companies so yeah, I mean, it's very very significant.
Backlog the biggest contract that that we have ever even come close to the landing. So we're very very excited but the team has done an incredible job and.
More to follow as we are able to announce it shortly.
Awesome. Thank you.
And we will take our next question from Kevin Caliendo with UBS.
Hi, Thanks for taking my question.
I wanted to talk a little bit about the cash flows originally I think Jason had said that.
Mostly all of the cash flow is going to be used to fund M&A I'm just wondering if that's still the plan.
While the cash flow was strong in the quarter. There was it looked like a big benefit on the liabilities line that changed if you can maybe explain a little bit of that.
To start with.
Sure Kevin This is Jason just one.
Maybe misinterpretation of use of cash I think you had mentioned.
To predominantly be deployed to M&A.
We would expect extremely modest M&A during this environment only for very small and incredibly accretive deals.
The remaining of cash I mean, the bolus of free cash that we will generate this year you can expect that to be returned to shareholders.
Or debtholders.
We deem appropriate at that time.
I would say in terms of the Q1 timing benefit I described in our prepared remarks.
You know again DSO were just incredibly proud of now under 43 days sales outstanding.
We do believe that we will maintain that five day compression.
Turning to the other elements of working capital.
Really the key factor or the updated payment terms that we've negotiated within some of our very key supplier agreements and so we are getting a one time benefit of SM.
Essentially that cash hold onto that cash through the new extended payment terms as well as some strategic.
Product acquisition, we made in the first quarter that because of the extended payment terms youre looking at a Q2 cash flow impact as opposed to a Q1. So this is just timing we still believe in our original expectation of delivering between 15 and $20 million of free cash flow in the first half of this year.
Okay.
Super helpful. If I can ask a quick follow up.
Seems like a long time ago, you put out this long range plan in 2022, and obviously things the world has changed a little bit and the results haven't been what you wanted since then but.
If we think through that long range plan or there's still parts of it.
<unk> with or are fully comfortable with or less comfortable with if you can just maybe talk to that a little bit would be really helpful.
Sure I mean, the short answer is yes.
I would tell you that.
Yeah.
The growth of diabetes, we still believe as we said back in late last year at capital markets day that it will land at a mid to high single digit growth business for us.
As discussed channel and payer mix shift came faster frankly than we anticipated and so the.
The compression we're taking on the commercial side of the business is happening faster than thought now the upside there is our government business.
Growing very very well I mean upper upper double digits your upper teens consistent with what you might see out of some of the.
Very very strong margins, we're very we're very pleased with that business and we still believe very strongly in those growth rates and the earnings power of the business.
The contract that we just discussed.
In terms of adapt to point, Oh, and how our revenue profile is changing how our ability to.
Landed secure large scale.
Arrangements that I think are preferable for first and foremost the patient referring providers.
The payers and for us.
This is a I wouldn't call it a new aero in the quiver, but we are absolutely demonstrating our ability to execute there so certainly some ins and outs.
<unk> performing frankly above expectations and is the largest sleep provider in the country. We expect that growth to continue so I think it's too early for us to really reapplying on 2025.
But we still feel very confident about achieving those financial goals.
<unk> could slide.
A quarter or two here or there, but as we get deeper into the year, we'll refresh that God.
Thanks, so much.
And we will take our next question from Peter Chickering with Deutsche Bank.
Hey, good morning, guys and Steve It's a pleasure working with you here.
And that's a series of questions here on diabetes.
Setting the stage here <unk> Com grew 17% in the U S. My first quarter Libre, 50% Omnipod for 49% and gears for diabetes declines were 6%. So I guess question number one can you guys refresh us on the exposures that you have.
I was just kind of revenues between pumps and CGM.
Number two you talked about sort of the pharmacy channel pressure any color on how much youll be decreasing pricing in order to make the patient channel diagnostic between the two.
And number three.
Can you quantify what is your commercial mix with government mix and.
In diabetes I have one follow up question.
Sure. Peter This is Jason I'll start maybe question one and three so as you said the ex Comm U S is up 17% in the quarter that is very consistent with our government CGM ports.
Portfolio were also up.
High teens.
Exactly in line with with what with what <unk> Com.
You're saying.
Portfolio, that's down obviously over prior year due to the $9 million.
Impression that we've experienced.
I'm going to take a stab at your at your second question around <unk>.
Really the mix of.
Pharmacy and versus the.
The other the other channels.
We still maintain a pharmacy business we are growing it.
For us. It is it is it is one of growth engine, but to a bit of a mitigation strategy as planned shift to either a dual or complete pharmacy benefit.
You know that that is that is an option that we leverage to keep the patient on census to continue taking care of them and to flip them to their channel of choice.
To keep them on our census.
So when someone's shifts from Jamie in the pharmacy, you kind of what is the.
Economic impact on both revenues and profitability.
Well at a patient level, where our unit level, if a patient on our census.
Their plan changes design or policy and they shipped a 100% to a pharmacy channel.
We will work to continue distributing to them.
So on that pharmacy channel. It is at a lower reimbursement rate I don't know that we'll get into too much detail on that but it's a patient worth keeping.
In every in every sense.
Okay, and then final question here.
I guess why are you sort of convinced that this shift of pharmacy is done at this point I think he was literally and in February on my question last quarter that you said you aren't seeing a shift here. So I'm I guess I'm little confused wise for three days later, we have seen such such a huge dramatic shift. Thanks, so much.
So again not to confuse against the pump and supplies market, which we're seeing a very very large channel mix shift.
Fair shift.
Due to the dynamics, we talked about with Insulet tandem and Medtronic now in the CGM space.
Tell you that it is very nuanced as you might expect as a plan moves of channels.
There's different ways of doing that even a 100% move from a medical benefit to a pharmacy benefit. It most often doesn't come without grandfathering in of Ah patients that are already on a medical benefit. So we'll maintain them on census, and continue to take care of that patient.
As the quarters and years go on.
Some can switch entirely and deny all claims and essentially block block those patients from.
Achieving their CGM through a medical benefit channel.
Even more nuanced so what percent of patients on a dual benefit from referring providers on the dual benefit will.
Not elect the pharmacy channel and go to a medical benefit channel that that is.
We're still getting data on that it's still early in.
And so.
To your question on the just the unknown and the challenge in predicting I mean, those are the reasons why.
As we sit here in May.
A lot of plan.
Policy or design changes happen effectively January one so we're very comfortable that we have our arms around it for the balance of 2023.
Great. Thanks, so much.
And once again, if you would like to ask a question. Please press star and one on your Touchtone phone.
We will take our next question from Joanna <unk> with Bank of America.
Hey, good morning. Thank you so much so first I guess a follow up.
So on diabetes. So today did I hear you say.
The organic growth actually.
Negative in the quarter and then how does this impact the full year. So it gets previously.
You kind of lowered the guidance for the full year. So how do you expect this to.
Play out for the full year when it comes to organic growth for diabetes.
Sure John so for the pump.
And supplies business.
We said, we were down $9 million in the quarter.
We are expecting that trend within the pump and pump supplies portfolio to continue.
Related to CGM.
We do believe will maintain about a flat growth profile.
Inching up in the second half of the year and exiting at mid single digits.
For the end of the year for the full year guidance. The total diabetes revenue year over year, we expect it just about flat.
Okay. So flat for the year overall, okay and then on this.
Value based contract that I guess, we can here.
The specifics it.
It sounds like very soon but I guess it sounds like you expect this to be actually accrete to EBITDA. So how does it work you said kind of bringing completing your business or is it kind of changing.
Some of the contracts you have with this particular payer in place and can you explain.
Why do you expect this to be accretive in year, one I guess when it comes to this value based care contracts.
It tends to be a ramp up time and some investments upfront. So I'm just trying to understand that.
The economics of that contract. Thank you.
Well go ahead any contract certainly there is ramp up but when you have a significant one.
Then you'll get some benefit during the year and then obviously.
Next year, we'll get the full benefit of that but so we expect some benefit in.
2023 with the <unk>.
Balance that with the most of it coming towards the end of the year, but then of course in 2024 will be fully fully baked.
Yes, Im sorry, so that is already included in the guidance sounds like your commentary.
For the full year that you expect this to be a pause.
Positive contributor in second half.
Yeah. Good good question Joanna So we have not included the benefit from from these wins.
In our description of believing we will deliver near the lower point of the current range.
Also as we've said we do believe we have the tools and programs in place to get us back to the mid point that we are maintaining.
Those are those are two factors, it's the cost benefit that is already in and growing frankly.
And then it's the it's the it's the benefit from from these contract wins that again, we have internal expectations on that where we want to be cautious until all of the data exchange is complete and everything is finally announced.
But that's that's really the big the big tailwind that we that we believe will get us back to the mid <unk>.
Okay. So the cost cutting and that this new contract will or would you would expect to help you get back to the midpoint.
Yes.
Okay. Thank you.
And it appears we do have one more question and just as a reminder, if you would like to ask a question. Please press star and one on your Touchtone phone now at this time.
We'll take our next question from Richard close with added health.
Yes, Richard close of Canaccord.
Steve Good working with you as well.
Jason I was wondering if you can just go over the cost savings and provide a little bit more details.
Our on the various levers there and just go over the total savings that you expect I think you said $40 million in cost savings 25 galleon realize this year and then you said something about a 20 million realized from the stuff you already did so.
If you can just go over the puts and takes on that would be helpful. Sure.
Sure Richard So, yes, the $20 million number of in year.
EBITDA has already been achieved.
It's been validated.
Whether that is a.
A process or a real estate or where contract or changes in.
Organization.
That is all attracted a very detailed level and has been confirmed as flowing if you won't be enough. So that's already been accomplished.
We are still aiming at $10 million annualized and $5 million in year of the final phase of the program. We will provide an update on that at the end of next quarter, but we're very confident in achieving the benefit.
Okay.
And then with Capex you you talked about some.
I guess certain purchases.
Yes can you just go over the Capex.
How are you thinking about it the rest of the year. Please.
Yes, absolutely so maintaining guide at 11% of revenue for Q1 as expected.
We were at 12% of company revenue.
I will tell you that the nuance of the capital.
The equipment that we are we are acquiring.
There was about a $10 million increase in.
Fixed assets that are not yet in service, but we do expect to have in service soon.
Frankly that was that was pulling levers to ensure that we're continuing to capture market share within the sleep business.
If you adjust for that you're at a 10, 6% of revenue.
I would expect that's going to be the ballpark for Q2 is that call. It seven 5% to 11% of revenue and we do think it'll dial back to a more normalized 10% of revenue in the second half of the year. So.
So we feel very comfortable.
At 11% of revenue for the full year does that makes sense, yes.
Yep Yep.
And then final question, obviously, a smaller piece of your business, but on the H M. B can you talk a little bit about the.
I guess the year over year decline, there I mean, obviously not huge but anything to call out.
Yeah, I mean, I'd say that.
Some of this is related to the new sales commissions and programs that we discussed.
Last last quarter is going effective on March one we are making changes and adding commission.
Commission for prescribing electronic ordering on our DNA.
The complexity on paper or faxed orders, whether its wheelchairs walkers beds et cetera throughout the team of catalog.
It is a it's a it's a.
A substantial cost to work through.
On patients.
Obtaining electronic orders through <unk> prescribed for that equipment, we are essentially stepping in adding commission for that type of order. So what youre seeing is a profile change at the revenue line.
We are maintaining and starting to improve the bottom line from that category.
Okay. Thank you.
And once again, if you'd like to ask a question. Please press star and one on your Touchtone phone.
We will pause for a moment to allow questions to queue.
And it appears that we have no further questions. At this time I will now turn the program back over to our presenters for any additional or closing remarks.
Thanks, Tom I appreciate everybody's time this morning on the call and we look forward to accomplishing the tax the.
Tasks ahead of us for the remaining part of this year.
Thanks, Paul I appreciate it.
Yes.
That concludes today's teleconference. Thank you for your participation you may now disconnect.
Hum.
Mhm.
[music].
Uh-huh.
Okay.
Hello.
[music].
Okay.
[music].
Hum.
[music].
Okay.
[music].
Okay.
[music].
Hum.
[music].