Quipt Home Medical Corp. Q2 2023 Earnings Call
Thank you for standing by this is the conference operator welcome to the fiscal second quarter 2023 earnings result conference call her quipped home medical cart.
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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 B M. DNA, which you can find on SEDAR and Edgar.
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.
Fred Crawford. Please go ahead.
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 of quick pull medical joining me today is Hardick NATO, our Chief Financial Officer, Tom Rhetoric, our executive Vice President of Finance and KOL Stevens, our VP of corporate.
Development Crypto medical is a rapidly growing health care company, providing a full suite of home medical equipment and services to predominantly respiratory patients across the United States. Our mission is to provide patients with accessible efficient and personalized care that empowers patients too.
Take control of their health and ensure they receive the support they need to live their lives to the fullest.
We believe we have established ourselves as the fifth largest revenue producing provider of respiratory and home medical equipment in the United States. Thanks to our aggressive organic and inorganic growth strategy continued focused on technology to streamline operations.
Strong patient centric ecosystem, we have in place and the and then respiratory solutions we provide.
The over 1000 members have quip team, who dedicate their efforts each day to providing exceptional patient care in order to enhance the quality of life for each and every patient who receives our services are the engine that keeps our business performing so strongly.
Our staff is the reason why we were able to successfully operate in an ecosystem that is focused on the patient's needs. We are committed to providing equipment solutions that are focused towards cardio pulmonary disease conditions and these solutions reduce the burden that has been imposed on the traditional health care system saving the healthcare system.
System hard dollars.
In the year 2022, we were able to improve the quality of life of over 200000 patient lives and in 2023, we have more than 270000 active patient lives under our care the.
The significant momentum we are currently experiencing across the entire organization is a result of a number of factors, including the ongoing successful integration of our largest acquisition to date that recently announced execution of our second national insurance contract with Aetna and the re.
Bus performance of our core business with that backdrop, we were thrilled to report we have surpassed our run rate revenue and adjusted EBITDA estimates of $220 million and $49 million respectively.
Our physical.
Q2 resulted in revenue of $58 $1 million or 73, 2% year over year revenue growth, including very strong sequential organic growth and margin acceleration as we carried out our strategic growth plan and future vision.
For us it goes without saying that providing a complete line of Indian respiratory solutions is crucial to upholding our success and a fundamental driver of growth in our key markets. Our team is focusing on health care institutions, such as hospitals doctors offices long term care facilities home Health agency.
CS and rehab facilities as they are our main sales touch points.
One of our team's main goals is to surpass historical levels of organic growth. Thus we are excited to have experienced 2.5% sequential organic growth in the second fiscal quarter and have high hopes for continuing strong organic growth pattern throughout the year.
As a refresher our organic growth has typically range between 8% to 10%, but given the strong tailwind that are in our favor we.
We have had an excellent opportunity to improve our organic growth performance as a result of our focus on expanding the continuum of care early in our sales teams and reaping the benefits of the normalized supply chain and operating in an extremely bullish regulatory environment.
We are focusing our efforts on regions with a high C. O P D prevalence and on the hospitals with high readmission rates in order to meet our organic growth goals.
On this call we will discuss our record breaking fiscal second quarter 2023 performance recent positive real time business developments and we will provide an update on the regulatory landscape, which remains the best in over a decade.
We are operating in an extremely favorable regulatory environment.
Which was most recently evidenced by the Medicare fee schedule adjustments, resulting in significant CPI increases for D&A providers that began January one 2023 of 6.4 to nine 1% the percentage depends on weather product serviced our competitive bidding items or in AR.
Former competitive bidding area.
We recognized a combined increase of roughly 8% when we look at our product mix directly related to our Medicare business.
Moreover, the long standing necessity for oxygen patients to obtain certificates of medical necessity was eliminated by CMS in 2023, reducing administrative costs on health care providers and enhancing patient accessibility. It is now possible for patients with acute or chronic.
Roenick respiratory disorders, who visit the emergency room to be covered for home oxygen therapy, which is very advantageous for service providers like quipped. Finally, the decision reached by CMS to halt the 2021 competitive bidding program for 13 product categories.
Serves as an anchor for overall favorable regulatory environment. We appreciate the ongoing regulatory reforms at a time when the demand for the home health care sector appears to be at an all time high.
Looking at the financial performance for the second quarter of fiscal 2023, we can see that our team of operators has once more produced outstanding results, most notably the strong and increasing margin profile experienced during this period of higher than usual inflation, we surpassed our X.
Vacation seeing revenue increased by 73, 2% from fiscal Q2, 2022 to fiscal Q2, 2023 totaling $58 $1 million and then $85 nine increase in adjusted EBITDA amounted to $13 $1 million.
Our adjusted EBITDA margin, which reached 22.5% continued to accelerate and our operational cash flow increased our margin profile is expected to remain very strong through the fiscal year as we continue to see the benefits of increased scale across the business.
With the continued seamless integration of our recent milestone acquisition to start the year. We are thrilled to have finished fiscal Q2 with another record breaking quarter.
We have identified and executed on the low hanging cost savings and synergies of $2 million ahead of schedule and we are eager to expand our strong footprint across the U S. Together, we have expanded to 115 locations throughout 26 states with more than 270000 active pace.
It is important to note that we look at our new geographical footprint and we have plenty of runway to organically expand into continual markets and source additional acquisition targets.
We are proud of what we have accomplished to date and are extremely excited for the future as we continue to benefit from significant business tailwind a deep acquisition pipeline and a very strong balance sheet further bolstered by the recent equity financing. We completed we have all the tools needed to execute our strategy.
And look forward to continuing to build shareholder value.
With that commentary I'd like to hand, the call over to Hardy to discuss our fiscal second quarter 2023 financial results.
Yeah.
Thanks, Gregg on Monday evening, we announced.
Thank you.
I can show themselves or something but he was indeed, Boston you want.
Yeah.
Yeah.
What I'd like it to be.
H, though all Microsoft values are in U S dollars.
The results are available on SEDAR and Edgar.
Here are some key highlights.
Two the company's continued use of technology and centralized intake processes respiratory resupply setups and our deliveries increased 206486 for the quarter ended March 31, <unk> compared to 50700 <unk> for the quarter ended March 31, 2022 and <unk>.
Kris.
10%.
The company's customer base increased 76% year over year to 147748 unique patients so.
Year to date Q2, 'twenty three from 78273 unique patients in fiscal Q2 'twenty to 'twenty two.
Compared to 118878 unique set up still at least in fiscal Q2 2022.
We did 198101.
Unique setups and deliveries in the first thank you to when you're trying to treat an increase of 67%.
Revenue for fiscal Q2, maybe three plus $58 1 million compared with how do you keep on $6 million or fiscal Q2.
Representing a 73, 2% increase in revenue year over year.
Organic growth increased by two 5% sequentially competitive bespoke Q1.
Sure.
Revenues for the six months ended March 31, when you're twenty-three increased to $98 9 million or 56, 8% of the six months ended March 31, 2022.
Recurring revenues as a pistol.
Q2, and it continues to be strong in that 78% of total revenue.
Adjusted EBITDA for fiscal Q3 was $13 1 million or 22, 5% margin.
Debt to adjusted EBITDA for Q2, 2022 7 million at 21% margin.
Representing 85, 9% increase year over year, we expect to continue seeing strong margin performance.
That's all from continuing operations was $14 8 million for the six months ended March 31.
T.
The $11 8 million for the six months ended March 31, two.
Well, if we spoke to you two or three bad debt expense was at four 2% compared to nine 4%.
Q2, when you're talking to.
This decrease is primarily due to improved collections and exemplifies our ability to scale and add more revenue to add on acquisitions without compromising our billing capabilities.
For the three months ended March 31.
Operating expenses were 27 million citizen at an 86000.
And in.
Increased 11.440 million from $16 million and 256000 for the three months ended March 31 two.
Acquisitions contributed approximately $10 million 571000 of the increase.
The company reported $2 1 million of cash on hand totaled eight.
8 million as of March 30, 127 million of available towards the lineup ready and $21 million available on D. D D L.
Subsequent to quarter end the company completed a bought deal offering in Ponca lymphatic placement for net proceeds of $28 9 million USD.
The company pro forma balance sheet gains 18 million of cash and 41 million available under its senior credit facilities.
Our net leverage ratio is one five apps.
The continuation of our successful start to the yard has further accelerated which is evident in robust performance for the second quarter fiscal year.
All of our key metrics outperformed our adjusted EBITDA margin reached 22, 5%.
I love the ongoing scaling of our business and we anticipate that the spend will continue into the foreseeable future.
Increasing our margins by placing a strong emphasis on our heavily weighted the respiratory product mix and services as well as focusing on operational efficiencies and effective cost management.
In addition, we are encouraged by the strengthening of organic growth trends, which reached two 5% sequential growth in fiscal second quarter, we anticipate that this better organic growth will persist.
Notwithstanding the current economic situation our business continues to produce consistent financial results driven by our highly recurring revenue model at 78% of our revenue mix, which continues to indicate the stability of our business model.
Subsequent to quarter end, we continued to strengthen our already solid balance sheets. So that you would have plenty of room to implement our rapid growth.
Gross strategy.
We did widen our current leverage is an extremely modest one five apps and we have ample flexibility to use a mix of debt and cash as needed or that kitchen apart what does your pipeline.
As we enter calendar 2023 we announced our largest acquisition to date, probably eight states up seven which are known to play with over $1 5 million in shepherding them COPD across both states operates.
Integration has gone extremely well and we're really pleased to have recognized the initial 2 million of cost savings and synergies.
It'll be a full quarter ahead of schedule.
I'll have more opportunity to build on our successful acquisition and integration strategy highly accretive tuck in acquisitions for our owned portfolio of respiratory products and services. Thanks to the large geographies land breadth you have undertaken.
Additionally, with the low hanging fruit capture our operational team is working towards capturing additional cost and revenue synergies over time.
In particular to the Vegas cross selling opportunities, including ventilation Nazism.
Also a good portion of it in English we supply revenue once.
I'm, sorry, I'm going to push the supply for that.
Moving forward, we have a robust acquisition pipeline and we will continue to be committed to the systemic acquisition approach and for what integration method that you have tablets, which has been the driving force behind our dependable growth demonstrated on manual basis.
We are in a great position to carry out our expansion and acquisition plans going forward to drive shareholder value.
Thank you and the database all done all back to Greg.
Thanks Kartik.
Each and every one of our markets providing exceptional patient care is our number one goal centered around the treatment for conditions, such as sleep apnea COPD and other chronic respiratory diseases. We are continuously developing methods to expand our patient base and gain access to lucrative geographies by.
Pushing new markets and cultivating partnerships with referral sources patients and payors are growing footprint and market position provide a competitive advantage and enable us to benefit from economies of scale as a result of our effective execution of the important components of our growth strategy. We believe.
That our strong momentum will continue into the foreseeable future to refresh your memory. These components consist of growing our health care network across the country, completing accretive acquisitions and investing in the future organic expansion of our business.
A major milestone for us and the successful completion of National insurance contracts with major commercial payers. This is a significant factor that is driving the expansion of our health care network across the country.
To that end, our most recent announcements which took place on April four 2023 was that we had secured our second national insurance contract with Aetna, which is ranked among the top five payers in the United States based on membership size. This comes in addition to our already signed insurance contract with United Health.
Care the largest provider in the nation signed in 2022, we are actively engaging with major commercial payers to assist them in understanding the benefits of our strong patient centric strategy for both patients and payers in order to increase our referral sources and hence benefit of our business.
We will continue to apply our high touch service model and rely on the utilization of technology, such as remote patient monitoring and our automated subscription based resupply program investments in our scalable health care platform produce a healthy operating cash flow increased margins allow for accretive acquisitions and drive.
Organic sales growth all of which enhances patient outcomes and compliance.
Payers gain from early interventions reduce hospital stays and monitoring of therapeutic outcomes.
At this point I would like to review with you the three components of our core growth strategy as we move into 2023.
First is organic growth, which came in at a robust 2.5% sequentially in fiscal Q2 and has historically run 8% to 10% annually as shown by our results. We anticipate 2023, we'll meet and surpass this initiatives on this front includes growing our sales teams, which is how we reach important.
Touch points like hospital networks, Doctors' offices long term care facilities and rehabilitation facilities. Moreover, extending patient accessibility by signing additional national health insurance contracts with significant payers in the United States.
Looking at the overall operating environment, the aging population and rising prevalence of individuals' with multiple chronic conditions constitute a favorable demographic trend for equipped as the population ages. There is greater need for home medical supplies and services, which presents a long term growth opportunity for us to capture.
Also a great deal of work is being made to ensure that a patient receives care at home whenever it is practical.
Second we are constantly working to increase the organization wide usage of technology in order to continuously enhance our operational performance. We are concentrating on using data analytics and mining techniques to increase productivity and profitability.
Included in this are a strong REIT supply platform, which not only enables us to be at the forefront of the market, but also offers us significant revenue synergies with regard to acquisitions.
A third component of our growth strategy is building continued scale through the execution of strategic acquisitions, coupled with our proven integration model that has successfully integrated 19 acquisitions. Since 2018, we are focused on respiratory companies that can be effectively integrated into our <unk>.
Cable infrastructure, our strategic goal is increasing our payer base and expanding our geographical reach into favorable states with a high prevalence of COPD, including those that are already a part of our network.
Our acquisition pipeline offers us the ability to continue growing our revenue EBITDA patient base and overall geographic reach and our very strong balance sheet will help us to take advantage of these opportunities.
Our momentum in 2023 on the capital markets front has continued with the recent announcement of our conditional approval to list on the T. S X Big Board, which we believe will foster more liquidity and institutional ownership overtime. It is important to note that investment dealers with global headquarters a cow.
For 40% of T S X trading.
Upcoming achievement for US is unquestionably a result of our historical and current financial success, which has allowed us to take advantage of this fantastic opportunity.
As always we are diligently connecting with U S and Canadian investors to share our captivating narrative and have the exciting chance to talk to investors about our future growth ambitions. The rest of the year will be very active as we visit in person and virtual investor conferences and look forward to sharing information.
<unk> about our expanding business with a wide array of investors.
Moreover, we are continuing to strategically position the company for ongoing strong growth in light of the extremely bullish industry environment, the normalized sleep device supply chain and all the organic tail winds at our back we must continue to be aggressive and seizing the numerous opportunities that are available to us.
Our operational excellence and one five times leveraged balance sheet provides us with all of the resources, we need to execute on our boat expansion plan, we cannot be more excited for the future equipped and more than 270000 patient lives. We care for finally I want to take this opportunity to once again thanks.
The entire quip team for their diligent efforts and its stakeholders for their unwavering support.
We will now begin the analyst question and answer session.
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First question is from Doug Cooper with Beacon Securities. Please go ahead.
Hi, Good morning, guys and congratulations on a great quarter, a couple of things I just wanted to dig into first of all bad debt. I know you mentioned that four 3% of revenue this was historically.
I guess the period.
The year that has the highest.
Bad debt provisions, just because of circumstances, maybe people change insurance companies and deductibles and so forth. So.
What do you usually a trend lower as the year progresses, what what do you project for bad debt provisions as we progress throughout the year.
Okay.
This is Robert.
I mean youre right in terms of some of this is now with me, but I think that will be.
We expect until late in the call the 5% range.
I'm, sorry about the bad debt would look like.
I mean this quarter, obviously is a good indicator.
Okay.
Looks like.
The age acquisition with bolt on.
Thanks.
I think we still expect it to be armed with all of them all.
For the year.
Okay.
Just to talk about operating leverage.
You know we've talked to EBITDAR minus.
Amortization and so our operating income this quarter was a 6% and maybe if I add back the amortization of intangibles I get to 885%.
What kind of operating leverage.
What kind of target could you we expect them on operating income.
Okay.
Uh huh.
So yeah I mean, obviously, it's all just fall slightly little question there Paul.
Quite a few variables there that consensus that number but.
Nonetheless.
All we have said this in the past that all shots on goal was to be somewhere in that neighborhood.
Yeah.
All mall with a long term wall somewhere between.
All in all.
Yes.
So 15%.
I think for now.
Stick to our shots on goal.
In terms of what we are hoping to achieve.
Okay.
Okay.
Yeah, that's actually just slightly slightly more of a question, there's a lot of variables in that.
Number.
Okay.
And I guess a couple of quick.
Quick one is just what do you what do you think the impact on revenue was of the CPI adjustment in the quarter.
I think we haven't.
Oh.
Somewhere in the neighborhood of 2%.
[laughter].
Maybe slightly lower.
Uh huh.
Okay.
And my final one Greg just on the Russell 3000, and I understand that they are doing at rebalancing that should be announced shortly.
You know the the numbers that we've heard is the market cap threshold of $157 million you guys are well above that.
Do you have any comments.
Comments on your potential inclusion in the Russell 3000, and then I'll Oh I'll leave it there and I'll circle back.
Okay.
Yes, sure actually a really good question that Doug and that its actually going to be the Russell 2000, and that's what we do believe in that we fit that criteria and that there will be some additional news that will come out on that.
Likely on next week and that's what we would anticipate in that that we kind of get the initial.
Hit the initial list anyway in that and then it goes through like a four week period, and that's they kind of keep coming out and that is it refreshes and that that you hit the criteria.
And that before officially happens I believe its on June 23rd.
Okay.
So leave it there I'll start I'll circle back in the queue. Thanks.
Alright.
The next question is from Rahul Saragossa with Raymond James. Please go ahead.
Good morning, Greg Kartik. Thanks, so much for taking my questions.
Congratulations on the Aetna deal you announced today.
So describe any structural differences between the United and Aetna contracts.
They're both very similar in that I mean, they are both fee for service and that is across the.
Entire U S.
Yeah.
So I mean, they are both covering the same type of items and things that are covered by the insurance.
They both are very similar and then it probably in the number of patient lives and that that they're almost covering.
From our research that we've been able to find I think that aetna and that is likely going to be.
Be a little bit more larger effect and that all of us in that as we get out into 'twenty three because we had more locations in that but that did not accept that versus when we had signed United that they had already kind of accepted United in that.
So those would be the two biggest differences.
Alright terrific. Thanks.
The color and then now thinking about sort of the balance in cash and a debt.
Recent capital.
What do you raise.
And also combined with the relatively large acquisition that we made with them.
And so could you give us a sense for how it started with great all right.
Could you give us a sense for how we should be thinking about the cadence of M&A going forward given that obviously you want to give I'm sure I'm sure that that that acquisition is packed and properly.
So you know how do we actually think about that.
Acquisitions for the rest of the year.
Sure This is Harley.
Well I guess.
For the first two quarters was suddenly integration of G H O, but having said that.
We were also looking at an equity deal and depending on M&A.
Our pipeline so that we could put that money to work. So I think we have been working on both our M&A pipeline as well as strategy, yet indication Oh Gee GH integration is actually well ahead of schedule and we have seen some because its also which are reflected in our financials for the quarter.
And that's.
As far as M&A goes.
We would certainly see some activity.
Yeah.
It has to be yet.
Okay. That's great. Thanks, Thanks, very much I'll get back in the queue.
Thank you.
The next question is from Stefan Quenneville with echelon capital markets. Please go ahead.
Hi, guys congrats on the quarter and thanks for taking the question.
She knows you guys. It sounds like you've you're largely integrated great al.
Very quickly.
And you've got into sort of 2 million synergy target.
How much more do you think you can do.
Drive in terms of synergies from the deal now that you've gotten the maybe the low hanging fruit done I don't know if you want to put a number on that but that that would be helpful.
And I also wanted to ask you about your your ATM facility that you announced.
Today as well.
You know what.
What's the logic behind doing that it's a bit unconventional for a company with your.
Your market cap.
Where youre at.
And just.
Just.
Does it signal some extremely imminent M&A or it's just sort of a part.
Part of getting your ducks in order for M&A that youre looking at in the future.
Thanks.
Yeah sure as far as the integration of that I mean, we did hit the $2 billion in that as we kind of described.
And that with the integration quote the low hanging fruit in that its hard for us to kind of put a number in that on what else. We think we can get out of that we do believe there are significant efficiencies and that likely on the labor side is that traditionally our labor as a percentage of revenue has ran around 30, 31%.
And on the acquisition and that their labor was running in the high 30. So we do think at some point as we continue to get more efficient there we continue to implement technology and automated ordering platforms.
You know that we will eventually and that kind of get the labor down from that perspective.
As far as the a T M.
We're very acquisitive company. This was really more of a housekeeping type opportunity for us and that we wanted to have the ATM in place and that should we decide and then have to execute and that on additional M&A and that's just another tool in our tool belt and that to bring on an additional occur.
<unk> acquisitions.
Yeah.
And then just hard again, just wanted to add to what Greg said on the GH acquisition.
Uh huh.
As far as the payroll and the timing on how best rationalize is our typical approach, especially for GDS has been that they do come with a good set of talented people. So we certainly don't want to go in and try to take the steps you need to get maybe with other.
Focus on also the revenue growth side, and then which ones.
And that payroll as a percentage are in line with quite so.
So that's kind of what are called smart thoughtful on how we are looking at payroll entry way again.
How do we kind of think about rationalizing our cost structure there.
Great. That's all for me guys. Thanks.
Yeah.
Thank you.
The next question is from try calling with eight capital. Please go ahead.
Hey, guys. Thanks for the question I just wanted to ask another one on the <unk> the balance sheet that I get your thoughts there I mean, it looks like you paid down a bit of a credit facility after quarter end, but obviously kept about $18 million of cash on hand after the equity financing I'm just wondering if you're planning to pay down a little more of the debt or do you kind of want to keep it.
That level of cash on hand for M&A or other investments.
Sure. Thank you for asking that question our immediate plan is to not put down any more cash going forward.
The P P L or a pump alone.
We would most likely yes.
That's at this point what was.
Acquisition.
Obviously, we can change that strategy, depending on all the interest rates and everything else changes.
For now we do not plan down additional cash to work.
Yeah.
Okay, Great appreciate that and then back to the subject of M&A.
I mean, just given how smooth the great Elm integration seems to have gone. So far is there anything that would kind of stop you from doing another large acquisition like that in the next year or so or do you need a catch your breath, a little and maybe focus more on that on tuck ins or add ons to existing markets.
No. This is not from a integration perspective in that and that would not hesitate to not have to do a larger acquisitions.
Okay. Thanks, guys.
Thank you.
The next question is from Julian hung with Stifel. Please go ahead.
Hi, Good morning. This is Julian speaking on behalf of Justin Today. My first question is regarding the recent changes to Medicare enrolment.
And if that has any potential impact on the business.
We don't expect any material impact or anything in the auto business and that with any upcoming changes or anything in that for Medicare or any third party insurance carriers that we.
Have any <unk>.
Insight on at the moment.
We think right now we're operating one of the best regulatory and reimbursement environments that we've been in well over a decade.
Got it. Thank you and my second question is so the business is currently in 26 States and has you've mentioned that you're focusing on areas with high C. O. P. D. I was wondering if how many of the remaining 25 states would fall into that category.
Yeah, we think there's probably about another 12 to 15 states in that that would kind of fit the bill there for us.
I have a high prevalence and that of cardio and pulmonary disease states, especially COPD that we'd like to get into.
Alright. Thank you so much for taking my question today.
Thank you.
This concludes the question and answer session I'd like to turn the conference back over to Greg Crawford for any closing remarks.
Thank you operator, and thank you all for joining US today as always you can find us on the web at Www quipped home medical Dot Com, where would we be posting a transcript of this call and also our updated investor deck.
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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