Q3 2023 Quipt Home Medical Corp Earnings Call
Speaker 1: Thank you for standing by. This is the conference operator. Welcome to the fiscal third quarter 2023 earnings results conference call for Crypt Home Medical Corp.
Speaker 1: As a reminder, all participants are in listen-only mode and the conference is being recorded.
Speaker 1: After the presentation, there will be an opportunity for analysts to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then 0.
Speaker 1: We remind you that the remarks today will include forward-looking statements that are subject to important risks and uncertainties.
Speaker 1: For more information on these risks and uncertainties, please see the Reader Advisory at the bottom of the company's results news release, as well as the MDNA which you can find on CDAR and EDGAR. The company's actual performance could differ materially from these statements.
Speaker 2: the company's position in the industry. We have all the tools to carry out our expansion and acquisition plan moving forward in order to generate increased value for our shareholders. Thank you and with that update I'll turn the call back to Greg. Thanks Hardik. Our first priority in every single one of our markets is to provide great patient care.
Speaker 2: with a focus on the treatment of disorders, including sleep apnea, COPD, and other chronic respiratory diseases. By penetrating new markets and forgoing alliances with payers, patients, and referral sources, we are always devising strategies to increase the number of patients we serve and gain entry to attractive geographic areas. Our robust clinical services, expanding reach and growing market share, provide us a competitive edge and allow us to take advantage of economies of scale. We anticipate that our strong momentum will continue into the foreseeable future as a result of our successful execution of the key elements of our growth strategy. These include expanding our healthcare network across the nation through the execution of national insurance contracts, completing the creative acquisitions, and making investments in our company's future organic growth. Moreover, we are confident that the successfully completed acquisitions will help us to accelerate our organic growth model overall. 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 4% sequentially in fiscal Q3, surpassing the 2-2.5% sequential pace or 8-10% annually we have strived for. As shown by our results, we anticipate fiscal 2020. 2023 will surpass this. Growing our sales team is one of the core initiatives on this front, which is continuing to go very well and is how we connect with key touch points like hospital networks, doctors offices, and doctors offices.
Speaker 2: of in-person and online investment conferences and anticipate informing a wide range of investors about our growing company. In addition, we are continuing to strategically position the company for continued sustained growth in light of the extremely bullish industry environment, the strong demand for respiratory products and services, and all the organic tailwinds we are experiencing at our back. We will remain prudent yet aggressive in our pursuit of the numerous opportunities available to us. Our operational excellence and 1.4 times leverage balance sheet provide us with all the resources necessary to execute our expansion strategy. Finally, I would like to take a moment to thank the entire Quip team for their tireless work and our stakeholders for their continued support. We will now begin the analyst question-and-answer session.
Speaker 2: To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speaker phone, please pick up your handset before pressing any keys. To withdraw from the question queue, please press star then two. Our first question is from Doug Cooper with Beacon Securities. Please go ahead. Good morning, guys. Congrats on a terrific quarter. Just first of all, on the organic growth, roughly 4%, that's a terrific work. At 16% annualized, Greg, obviously feeding the 8 to 10. How long can you keep that pace going? Yeah, thanks Doug for joining this morning. We've seen robust organic growth and that kind of come back into the business on the backside of the pandemic and the supply chain and that kind of normalizing. I mean, we take out a minimum in that that we can beat our historic levels of that 9%, 10% in that that we've seen. One of the big drivers behind that has been the markets that we've obtained through acquisitions over the past couple of years or so in that that we've added to our sales force on that. So, you know, we think we're going to see continued momentum on the organic growth side for the foreseeable future. Okay, so I looked at the actual sales. So sales of equipment, I guess, with up 3% sequentially.
Speaker 2: CPAP devices and BiPAP devices are still the gold standard treatment in that as of today. And that for sleep apnea, I mean, continues to be very, very strong demand and that for those products. And I think even the manufacturers have even spoken to that about the global demand and that for sleep products. Okay, perfect. That's it for me. Thank you. Thanks. The next question is from Richard Close with Kenic Gorge Annuity. Please go ahead. Yes, thanks. Congratulations on a strong quarter and continued performance this fiscal year. Just wanted to go back on the strong organic growth and obviously a lot of optimism here going forward. So ADAPT, you know, talked a little bit about normalizing growth in sleep beginning this third.
Speaker 2: that so we're going to really, you know, probably see a ramp up in our resupply with the additional setup that were done prior.
Speaker 3: Okay, that's helpful. And then just to go back, Hardik, maybe on your comment in terms of, with respect to the free cash flow, but also talking about, or I guess it was on the payroll, but in, you know, continuing to invest in the sales force. Could you guys just, you know, let us know the status of, you know, the current sales force.
Speaker 2: at the end of March, and it's north of 70 as of 630. So you can see directionally we are having more boots on the ground. And I mean, there is a whole cyclical process to adding sales teams. Some will click, some won't. Then you try to rehire the ones that don't work, and you continue down the path. So we expect to do that in the near future, yes. Okay, and is that only in the newer acquired markets? Or are you doing any of that in the core existing Quip markets? It's definitely a combination for sure. I mean, it is based on where the opportunity is. If we are already well-penetrated, whether it's a new market or an old market, then you probably don't want to spend additional. There may not be that much of a marginal benefit. But if you are in a market where there is an opportunity to penetrate further, whether it's in the form of a new product line or existing product line, but more doctors and hospitals cover it, then you kind of make those decisions accordingly. Okay, that's helpful. And just a couple modeling questions here really quick. I guess with respect to inventory levels, I see it went down a little bit, second quarter to third quarter. And just curious, is this a good level going forward?
Speaker 2: from Rahul Saragathar with Raymond James. Please go ahead. Hi, good morning, Greg. Good morning, Hardik. This is Mike on for Rahul. First question is gonna be on the acquisition pipeline. I wonder if you could describe the general profile of that pipeline and describe what you're seeing in terms of market pricing. Sure. You know, a pipeline includes, you know, companies that are somewhere in the, you know, three to $15 million in top line revenue. Some on the higher end of it, some at the lower end of it. I think the three prong strategy that we have laid out, I think that continues to hold for us. We do see smaller tucking opportunities, which, you know, are extension of our existing geography, but within the same state, which probably you can acquire those at lower multiples, and then you will see the higher end, maybe 10 million plus minus, and those might demand a little bit higher in terms of valuation, but overall, you know, the valuation seems to be slightly depressed than what we have seen.
Speaker 2: able to do that sooner. So I think what you're seeing is probably more of a steady state. There are some more synergies to be squeezed out. I mean, they might be gradual, but they may not be meaningful in this scheme of things. So I would consider Q3 as a very good baseline. Greg Piazza Yeah, and this is Greg. I'll just add in that it's primarily going to be the cross-selling of additional products in the future and that across those particular geographical areas. And then kind of follow after that will be expansion into continuum areas. David Wilson Okay, great. And then just one modeling question to be part of the course. I noticed, you know, DNA climbing over the last three quarters. I wonder if you could describe what we should be thinking about moving forward. Greg Piazza And DNA. David Wilson Okay.
Speaker 4: But I think more importantly, the fact that things are kind of stabilizing. We are seeing the top line growth that we expect to, and with the presumption that inflation has kind of stabled out, and we are not going to see any file swings. And then obviously confidence in the execution of our strategy is what makes us believe in those numbers.
Speaker 2: Okay great thanks for the questions guys, congrats. Thank you. We have a follow-up from Richard Close with Kennacore Genuity, please go ahead. Yeah thanks for the follow-up. Greg I was wondering if you could talk a little bit about your thoughts on resupply, maybe you know CoreQuipped as compared to great elm and you know what's the opportunity there there is for further penetration and just timelines possibly? Yeah sure actually a really good question in that we've just converted in that those operations in that post in that this quarter here of 630 over to the current platform that we're utilizing in that so we would expect to see some nice growth come out of that over the next couple quarters and that as those patients get transferred over and start ordering more frequently which is what we've historically seen when we've transferred acquisitions over to this platform.
Speaker 4: Are there any, like, percentage of patients that are, you know, due in resupply or any metrics that you can provide? No, we really, A, we don't publish any of those metrics. Obviously, you can see the volume metrics that is included in our PR, as well as the remarks today. Generally, an increase in new setups leads to, you know, an eventual increase in our resupply patient base and then the revenue that falls into that. I think the other advantage of moving into the platform that we use for the rest of QIP when it comes to Greydown is retention. I think our platform has a higher retention rate for patients that are getting converted into a resupply patient. And so, over time, you are building value under the platform that we are. So, that's all I can say in terms of why we would expect to have further growth in resupply revenue for Greydown. Okay, great. Thanks. And we have a follow-up from Rahul Saragathir with Raymond James. Please go ahead. Hey, Jen. Mike here again. I'm wondering, just a quick question on national insurance contracts. You know, you've added two national insurance contracts. I wonder how you could describe the impact of these on your organic growth formula. And then, you know, a quick follow-up on the deal we saw struck in May between ADAPTEL and AKA ADAPTEL data. Sorry, Opinon. Thanks for everybody listening.
Speaker 1: 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.