Q3 2023 AdaptHealth Corp Earnings Call
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Good day, everyone and welcome to today's adapt health third quarter 2023 earnings release call.
At this time all participants are in a listen only mode. Later, you will have an opportunity to ask questions. During the question and answer session.
Registered to ask a question at any time by pressing star one on your telephone keypad.
It is now my pleasure to turn today's call over to Richard Barasch, Chairman and interim CEO. Please go ahead.
Yeah.
Good morning, everyone. Thank you for joining us today to discuss.
Adapt house third quarter performance.
Before we begin I'd like to remind everyone that statements included in this conference call and in the press release issued today 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 financial results for 2023 and beyond actual.
Results could differ materially from those projected in forward looking statements because of number of risk factors and uncertainties, which are discussed at length in the company's annual and quarterly SEC filings.
Health Corp should have no obligation to update the information provided on this call to reflect subsequent events. Additionally on this call. The company will reference certain financial measures such as EBITDA, adjusted EBITDA and free cash flow all of which are non-GAAP financial measures. This morning.
Call is being recorded and a replay of the call will be available later today.
We are pleased with the results of the third quarter powered by our sleep business, we generated six 3% growth over last year, leading to record revenues for the quarter.
Really important we generate cash flow from operations of $98 8 million and free free cash flow was $21 7 million.
Adjusted EBITDA fell short of our expectations largely as a result of unplanned delays in the implementation of the Humana contract, Jason and I will get into more detail on why this happened, but these results do not reduce our optimism that this will be a profitable contract for adapt health nor does it does.
Finish our enthusiasm for more enterprise sales of this type.
Other than this contract we would have met our expectations for revenue adjusted EBITDA margins and cash flow in the quarter.
Our suite product line continues to outperform resulting in 17% increase over last year for.
<unk> starts where consistent with our expectations and our Pap resupply business generated record order volumes.
An important metric is that our resupply sensus has grown 12% over the past year and now totals over 1.5 million patients.
Among the reasons. We continue to grow is that we are focused on electronic ordering which reduces friction and enhances the patient experience.
The relationship that we've established with these patients is a critical aspect of our strategy to become more than just a provider of devices and supplies.
Building on <unk>.
Excuse me building on the strong trends in the first half of the year, we grew our respiratory net revenue by over 8% year on year.
This growth was driven by increased patient census, coupled with stabilization and the length of time patients remain on oxygen and Vince.
Diabetes continues to be a work in progress as discussed last quarter, while the results in the third quarter were a bit softer than we had planned we are encouraged by the progress we are making to improve this vital product line.
To resume growth we are focusing our sales efforts towards the growing government business, especially in areas where diabetes is prevalent.
The government market for CGM and pumps is large and growing.
We are continuing to shift our strategy to specifically focus on the acquisition and retention of these patients government sponsored Payors are now 79% of our CGM census, up 200 basis points versus last quarter.
We are rapidly recruiting that dedicated diabetes representatives in the areas of high diabetes prevalence leveraging the scale and capability of the entire adapt health sales team.
Our objective is to double the number of diabetes sales reps over the next several months.
We're also exploring strategies to participate profitably in the growing pharmacy sales channel.
Will allow us to regain some of the share that we relinquished is more commercial payers move to the pharmacy channel.
Finally, and quite promising is that we are beginning to execute our strategy to use the data generated from cgm's to create a better patient experience, while generating information. There's port that is important for their providers and payers. This will enhance our value proposition to all of them.
Our constituents.
Yeah.
Our experience in the early days that Humana implementation has not diminished our optimism about the value that this contract will provide to all parties to the transaction.
We've established a very strong relationship with Humana and we've been working to make the transition process as seamless as possible for Humana members, who will ultimately benefit from better serve as further HIV needs.
Unfortunately, however, we underwrite estimated the size and complexity of the patient transition process. Onboarding members is taking longer than we had anticipated resulted in a reduction to our expected cap revenues from humana.
Nevertheless, we remain confident that this agreement will achieve positive results for adapt health.
Since <unk> went public in 2019, we've increased revenue and adjusted EBITDA each year and have recently improved our cash flow and strengthen our balance sheet.
However, we must take responsibility for issues. Some self inflicted that have caused the reduction in investor confidence, including setbacks around the CEO search.
Top priority for our board is to fill the CEO job with the best candidate as soon as possible.
We are currently talking to highly capable candidates with the goal of having the post filled by year end.
In the meantime, we're not slowing down and I like to describe the key in nature key initiatives and goals that our board and management are aligned.
Further increases in cash flow from operations and free cash flow is a high priority. The company continues to focus on better collections, better inventory management and more efficient capital spending all of which have contributed to our improved cash flow results.
We recently used some of our free cash to buy back stock, but we're also addressing our balance sheet.
During 2023, we paid down our revolver and we reduced our leverage from $3 66 to $3 51 times.
We are fortunate to have a comfortable debt structure in terms of rates and maturities, but we intend to delever further with a goal of reducing our leverage to under three times by the end of next year.
As to the business itself.
Our short term priorities are to solidify our diabetes line and resuming market rate of growth.
Expedite the transaction of the Humana business and expand our enterprise sales effort.
Continued to reduce the cost of our operations through automation and better processes.
And implement implement our strategy to become even more relevant in the health care ecosystem.
Finally, I'd like to comment on the effective G. L. P. One sit in our sleep and diabetes product lines.
Most important we are seeing no current impact on our suite product lines. Our total sleep sensus, which is a combination of new starts and ongoing Pap resupply patients continues to grow at a pace that bodes well for continued revenue growth.
Further we have seen recent analysis that indicates that the effective GOP ones on Pap utilization may have been overstated in some earlier analysis and resulting market reaction.
For example, one recent study indicated that only 3% of G. L. P. One users with obstructive sleep apnea, we're able to stop using their pap therapy.
Another recent piece highlighted the lack of adherence to G O P therapy over time.
Others ourselves included I think that the sleep Tan may actually grow as a result of more awareness and increased diagnosis of OSA as a result of the publicity around <unk>.
Our working assumption, though is the <unk> one drugs will likely have a significant impact on obesity overtime, which may cause some leakage to the current suite.
How large and how soon are the subject of much speculation, but we will proactively respond to this potential pressure.
If there was a net reduction in sleep Tan, we can overcome it by continuing to increase market share decreased cost through automation and better processes and focus on patient retention.
We've improved on each of these measures over the past few years and the G. L. P. One conversation will accelerate our efforts in these basic areas.
There is more consensus that G. O P. One usage may accelerate growth more G. L. P usage may accelerate growth in CGM usage, we believe the diabetes patients on <unk> are actively engaged in their health and will be inclined to monitor the ray one C levels through CGS.
We also believe that increased insurance coverage of CGM, especially in the government sector is a strong tailwind.
At that health is at the epicenter of efforts to improve the health of people with chronic conditions like obesity diabetes sleep apnea and COPD, we occupy a unique position connecting providers patients and payers.
We currently have an ongoing relationship with over $1 5 million people with sleep apnea, roughly 170000, diabetics and 300000 people with chronic respiratory conditions conditions, we interact with these folks on a regular basis to help them with adherence to their therapies.
Supplying in resupplying needed equipment and coaching them as two better usage.
Better adherence alone will improve outcomes and reduce downstream costs.
We're just now beginning to understand how we can comply and we use the data we are generating to do even more to improve the health of our patients, especially those with with with Comorbidities.
One early example is that we recently surveyed 10000 people who set up on perhaps last month.
Of these 7%.
Those who responded and by the way the response rate was over 40%. So we think this is a reasonably reasonably good sample of the 7% are taking G. L. P ones, which indicates the G. L. P. One usage can coexist and will coexist with CPAP therapy.
Further 20% of this group has diabetes, but only 15% of the diabetics are using CGM to monitor their results.
If we extrapolate these findings to our entire population we will find many identified many opportunities to identify and better service patients with comorbidities.
Thank you Richard and thanks to all for joining our call today.
Let me begin by reviewing our third quarter results.
We achieved record revenue of $804.0 million, an increase of six 3% over the third quarter of 2022.
Other than the Humana details that Richard described this quarter met our expectations for top line growth in adjusted EBITDA and cash flow exceeded our expectations.
Our total sleep revenue of $315 4 million increased 17% against a year ago, driven by Pap equipment setups and increasing resupply.
Our new Pap equipment starts were consistent with our expectations in the third quarter.
Our Pap resupply business achieved record order volumes, our resupply census, now totals over $1 5 million patients in our electronic ordering utilization broke company records.
Respiratory revenue of $151 1 million increased 8% over the third quarter of 2022.
As we continue to revamp our diabetes product category CGM census was up four 3% year over year, resulting in flat CGM revenue.
As expected pump and pump supply revenue was down $9 million year over year.
As our two based pump volumes remain under pressure from toothless pumps.
We expect this pressure to continue into the fourth quarter.
As Richard said, we are bolstering our sales force and focusing on growth in the government sector.
Outsized growth in our sleep product category, largely offset a shortfall in diabetes and a modest increase in operating expenses.
So overall, except for the unexpected losses on the Humana startup our topline and bottom line results were in line with our expectations for the quarter.
The primary reason for the shortfall on the Humana contract was a delay in patient transitions and corresponding capitation deductions, resulting in a 10 million dollar top and bottom line Miss against our expectations.
We will take longer than originally expected to transition all patients, but we believe that we will indeed get substantially.
Transitioned by early next year.
As we continue transitioning patients we expect sequential improvement in both our top and bottom lines.
Our adjusted EBITDA was $161 2 million in the quarter, resulting in an adjusted EBITDA margin of 20.0% down from 21, 6% in the second quarter, primarily related to the patient transition backlog.
Cash flow from operations in the third quarter was $98 8 million.
Capex was $77 1 million or nine 6% of revenue.
<unk> and free cash flow of $21 7 million.
For the first three quarters of 2023, we generated $76 6 million of free cash flow, which was more than two five times. The first three quarters of 2022.
We reiterate our full year free cash flow goal of between three and 4% of revenue.
For the third quarter of 2023 Dsos of 42, one days were down over a day against 2022.
And for the first three quarters of 2023 Dsos were 42 five days down from 44 eight days for the first three quarters of 2022.
We continue to realize the benefits of our refining of revenue cycle process and investments we've made in our technology and workflow.
Our net leverage ratio at the end of the quarter was $3 five one times down slightly from the second quarter.
During the third quarter, we made principal payments of $10 million and after the end of the quarter, we repurchased approximately two 5 million shares in the open market for a total cost of $19 4 million.
As part of our third quarter results, we recorded a $511 million impairment to goodwill as we discussed in our earnings release. This morning.
This noncash pre tax charge was triggered by our stock price as of September 30th.
Turning to guidance, we are revising our prior outlook as follows.
We are narrowing our expected revenue range to $3 160 to three $1 85 billion.
We are updating our expected adjusted EBITDA range to $630 million to $650 million.
And we are maintaining our expectations for total capex, representing 10% to 12% of revenue, which should yield free cash flow was 3% to 4% of revenue.
To close our comments today, we believe we're well positioned heading into the final weeks of the year. We're turning around diabetes. We are focused on transitioning patients as part of our new relationship with Humana.
We're optimistic about our business overall.
That we will open the call for questions operator.
Thank you at this time, if you would like to ask a question. Please press the star and one on your telephone keypad.
You may remove yourself from the queue at any time by pressing star two and once again that is star one to ask a question, we'll pause for just a moment to without questions to queue.
And we have our first question from Brian <unk> with Jefferies.
<unk> got Taj Johnson, Brian. Thank you for taking my question, so going back to the Humana contract I really appreciate the color on the updated implementation timeline.
Think about the profitability ramp maybe can you provide some detail around your expectations around that and maybe outline the levers that will drive profitability at an accelerated rate.
Yes.
For the question.
Were delayed where we're talking about that but we think once the transition occurs we're going to head to a more.
Uh huh.
Situations, where the profitability of the contract is more consistent.
We are ramping up our efforts to transition this quarter is likely going to take us through is beginning.
<unk> next quarter, but we feel very good that once that happens we will resume the.
Contract as we originally planned it.
<unk> this is Jason.
I'd say that at a unit economic or a patient level.
From this stage forward profitability.
As a percent will ramp very rapidly the reason for that is.
A cap deduction on let's say an oxygen patients.
The allowable fee.
<unk> schedules for that patient is around $120 a month so.
For a full quarter, you've got 360, and you've got thousands and thousands of patients on that oxygen.
Allowable from competitors that still need to be transitioned so as each and every one has transitioned that entire amount.
As it comes back as cap revenue for us and it drops 100% to our to our bottom line. So we do expect a good ramp from this stage forward as we continue staying focused on transitioning patients.
I appreciate the detail there just another follow up as I think about your guidance looking at the midpoint implies a margin step up in Q4 just curious.
Different.
Puts and takes that are kind of help you get that margin accretion in Q4.
Yeah sure Todd So so first firstly, we do historically enjoy a step up in patient demand, particularly in our resupply categories.
As you know insurance plan changeovers that occur in January as well as deductible resets.
Patients were hoping to get in front of that and stock up the resupply.
Need to carry them through the end of the year and into the new year.
So we are expecting in our resupply lines.
Specifically sleep and diabetes to be up over $20 million sequentially in Q4 from Q3 weeks.
We expect that to flow that our typical purchase margin call it about 40% of that.
Stepping down so that's that's the first sequential step up in profitability in Q4.
The second you know Humana as we as we said kind of patient by patient as we are transitioning patients we do expect a.
A material step up.
And cap payments and in that bottom line that we that we spoke about as we've made key investments just over the last several weeks and additional resources and capability to ensure smooth patient transition.
Great I appreciate the time.
And we have our next question from Mathew Blackman with Stifel.
Good morning, everybody. Thanks for taking my questions I've got two two partners.
Maybe Jason if I could just start with you just curious the frame the guide down on revenues how much of it was diabetes versus the Humana contract delay and then.
The same impact on EBITDA in the second part of the first question is did the Humana Humana contract disproportionately impact any specific franchise and does it impact any specific franchises in <unk> as we think ahead and then I'll wait for the follow up.
Yeah sure Matt So the first part of that question is.
The vast majority.
As we look towards Q4 as Humana related.
Diabetes, we did expect out of CGM as a little bit more in the third quarter. So we fell a bit short of that and so certainly we're rolling a touch of that into into Q4.
But again the vast majority of this was with Humana related just rolling the timing.
And you've got the compounding effect going into into the fourth quarter.
And for the second key rephrase the second part of your question.
The humana and when thinking about the revenue.
The franchise.
Yes, it does it disproportionately impact any specific franchise.
Well it is.
I don't know that I'd say impacts any franchise.
Terms of the earning power in the go forward I will say that when you think about the second quarter revenue that we earned from the 33 states and the district of Columbia, where we won.
Humana HMO contract.
There was substantial revenue earned within the second quarter prior to the contract going into effect and so much of that revenue was in the rental lines specifically respiratory.
And then a little bit in Pap and HR asleep and HMA.
Starting July one 100% of that revenue.
Is eliminated right, it's no longer a.
Fee for service revenue that we're going to humana and it converts to a.
Patient per month.
Revenue line of course, you've got the new patients coming on that that also generate P. M. P M. But it does create a timing disconnect of you're dropping out top and bottom line rental revenues and until you convert the competitor patients to.
To bring that into the sensus Youre left with this gap that we're that we're that we're focused on today.
Got it I appreciate that and then second question part one can we zoom in a little bit more on the diabetes franchise and I. Appreciate some of the color you gave us on the pump and CGM franchises, but just what are you seeing in terms of new patient starts and attrition is there anything that stands out.
I think specifically on the attrition side relative to historical trends just given all the noise for hang with GL piece and then the second part to that question is what does have to happen for you to be able to push more aggressively into the farmer at the pharmacy channel.
Specifically horse trading anything with Payors and to the extent that this does ultimately play out.
Is that patient worth a little bit less from a revenue and profitability standpoint through the pharmacy channel versus the Danny just help us think through that opportunity and what sort of the moving parts our apologies for the long winded question, but thanks Okay.
This is Richard.
First off we're not seeing any attrition.
Any effect in diabetes relative to any perception of <unk>, one <unk> the issue that we have been.
Dealing with is this is the shift in channels more than.
Any attrition.
Well our strategy is to work is to work in the pharmacy channel with payers with the key to that will be to add value in the way that we generate data for the utilization of the payers we believe that.
Both manufacturers and Payors will care about this and we will help us to improve our margins in the pharmacy channel.
Yes.
Yes, Matt I would add a little color.
Certainly our top and bottom line.
<unk>.
Financials on unit economics of a pharmacy patient is.
Typically less than the traditional medical benefit or <unk> channel.
But as Richard said.
We see tremendous value in aggregating.
Patients in covered lives within diabetes.
In Richard's prepared remarks, he spoke about.
The first steps that we've taken this quarter and actively monitoring.
CGM data produced from.
Devices of our patients we have.
Deployed certified diabetes coaches.
With that data engaging with patients.
Initially really focused on.
Sensor.
Overall utilization.
And so what are the reasons that a patient was set up last month.
And you would expect a new sensor to be applied in the first 10 to 14 days, depending on manufacturer, but a month later, we're not seeing the data communicated and that CGM and so we're working hand in hand with those patients.
And we're learning a lot.
About patients that are that are on the initial setup that might not be in compliance.
So compare this to the capability, we already have with over 350 sleep coaches in.
In our business that all day everyday are monitoring.
Data produced from equipment and.
And these devices to to help patients along there along their journey with with resupply we intend to do more there.
Additionally, monitoring <unk> levels hypoglycemia levels, just the rich level of information Thats produced from these cgm's, we don't think that needs to be a medical benefit channel strategy or a pharmacy.
Channel strategy, we think it's an all encompassing diabetes strategy.
Got it thank you and apologies again for the chunky questions. Thanks, so much.
And just a reminder that was star one if you'd like to ask a question and our next question comes from Peter Chickering with Deutsche Bank.
Hey, good morning, guys. So I apologize for another question on Humana, maybe I am distinct dense here. So for that I do apologize ahead of time, but this is a complicated arrangements.
Catherine patients back from competitors in order to build <unk>, and that's where you sort of mis modeled so if I understand it to get the cash payments you have to go recapture payments backwards and adapt.
Just thinking like how are you able to ship as patients can you do that without the patients' consent.
Patient perspective, <unk> provider for one or two years I guess, what I wanted to change.
Yes.
Sure. Good question, well, firstly, if you've been the dnb provider for a number of years you absolutely will not want to change.
However, as part of the mechanism of the contract.
Those competitors in these 33 states and the district of Columbia as we stand here today are not authorized I mean, they're out of network either they're not authorized to bill fee for service for these patients.
On the rental lines, however, that's really where the nuances.
Sure.
Lifting and shifting of patient is.
It is more complicated than we anticipated now we in some cases expected just either better or more thorough documentation.
<unk> maintained by by competitors.
That just isn't there and so in that instance that requires us to work directly with the patient and with the patients provider.
To work backwards, if you will like on an oxygen patients tracking down.
The saturation testing.
To support the therapy, and the referral and so without getting into just.
Layers and layers of detail that is an example of what needs to happen.
In order to transition those patients, but we have invested in additional resource and capability just in the last several weeks and we are already seeing ramp week over week and our patient transitions.
Okay Fair enough and then shifting to diabetes, it's a multi part so I apologize again.
What percent of revenues in diabetes, our CGM versus pumps at this point, what's the breakout between commercial and Medicare.
So within the segments.
Look at <unk>.
CGM.
Medicare CGM grew in this quarter what did.
Our commercial Ma's, Jim gross quarter, I'm trying to bridge Tex Tom's U S revenue growth sort of what you guys solved in the Medicare book of business.
Sure Peter Yes, Thats, a complicated question I'd say, firstly, the delineation between pump and pump supplies versus our CGM business.
Been on record, saying that pump and pump supplies was about $160 million of revenue last year and that we believe it will be about $120 million of revenue. This year, that's the $30 million to $40 million of compression. We've been we've been talking about just that headwind created by the med tech in the tubular based pump on the market.
The rest of the business is is CGM business.
As Richard said in his prepared remarks.
Government payers made up now 79% of that.
That census.
That's up another two four points sequentially from the second quarter.
I mentioned that CGM census was up four 3% in the third quarter.
And resulted in about flat revenue and so what youre seeing there is.
Continued but less.
Reimbursement pressure created by a movement of traditional government payers and the medical benefit channel.
Versus versus commercial comps so as we're as we're taking care of fewer commercial patients and.
In exchange for taking care of more government patients, we will continue to see a reimbursement headwind, but for this quarter, our volume was enough to offset that pressure.
Yes.
Specifically looking at CGM Medicare I guess, how much did that grow that segment grow year over year.
Yes.
Yes.
It was up about <unk>.
Higher single digits.
And then offset by.
By lower single digit commercial and then you've got the right.
The rate equation to get you to about flat revenue. Okay. So then from a market share again, only focusing on Medicare ignore ignore assurance commercial in EMEA for a second do you think youre, gaining or losing share within the Medicare CGM markets. Thanks, So much.
Sure.
We are gaining patients certainly.
<unk>.
It's tough to delineate are we gaining share or not from that.
But certainly we're gaining patients.
We are very aggressively recruiting.
New sales reps for for really selling CGM and other diabetes products early sell in CGM and just key markets key geographies, we spent a lot of time.
Thinking through the data over the last two quarters about where we want to go strong in <unk>.
Adding sales reps, so we do expect.
That government business growth.
To resume in the fourth quarter alright, thanks, so much.
And we have our next question from Richard close with Canaccord Genuity.
Yes, thanks for the questions Jason Im just curious.
If you've reap all the benefits from the system upgrades and restructuring.
From the last couple of years, if you can give us an update there.
Sure Richard I would I would tell you that from the last year specifically, yes.
During the third quarter.
We have met the the earnings commitment the cost out commitment of $25 million in year for 2023 and $40 million annualized.
So that program, we've put a bow on that the final.
Reductions were made in early September and so.
Those dollars will start flowing.
In terms of the over arching ability.
Ability to to.
To get cost out by leveraging technology, we absolutely believe there is there is more to go.
We've made referenced in the last 90 days.
When we guide in.
2024 for 2024, we will expect to have a commitment on cost management.
You said, it's a result of these technology investments that we've made as well as the heavy integration work that we've been we've been focused on throughout the year.
Okay. That's helpful and then with respect to the strategy on expanding enterprise sales can you just go maybe more in detail on that strategy.
Potentially sizing the opportunities there.
Yes sure this is Richard.
Yes.
Traditional adapt sales model has been a individual sale generated by a referral from a provider.
Which results in a prescription results in a fulfillment of a prescription so we're dealing with literally millions of individual.
Transactions and enterprise sale.
What we are doing with humana aggregate patients in one place.
<unk>.
Yes, the issues that we've got with Humana side, which by the way are going to be great learnings and just want to reemphasize that our relationship with Humana is in great shape, we're working together on all of these issues.
So.
That very very clear, but by having a large relationship with a payer or a hospital system to aggregate all of the in a particular category like Cgm's bike paths like respiratory.
We can achieve savings for the for this system, but most important most importantly reduce friction we're having.
A set of parameters.
Parameters that are not individual prescriptions being fulfilled by individual providers.
We think that we think the market is large we think every every payer is a potential customer for <unk>.
This.
We think that every health system is a potential customer for this we're generating a pipeline even in a very short time that we're very happy with.
And quite frankly expect to see a lot of good results in this category.
In 2024.
Great. Thank you.
And once more that was star and one if you would like to ask a question and our next question comes from Joanna <unk> with Bank of America.
Hey, good morning, Thanks, so much Jeff for taking the question. So I guess a couple of them.
Because if I follow ups. Thanks.
If I may I guess coming back to diabetes.
So I guess this quarter sounds like slightly.
Lower than expected.
8%.
Quarter end previously you talk about.
Flat for the year, such do you still expect that or is it more kind of flattish for the year and I guess for next year, how should we think about diabetes revenue I guess previously you talked about slight growth and then I guess as it ties to.
You previously expressed.
The long term outlook for that business growth.
The changes there.
Hey, Joanna Thanks for the question. This is Jason I'd say firstly.
On the pump and pump supply revenue again, we expect about a nine or $10 million year over year headwind in the fourth quarter.
As we think about 'twenty four on pump and pump supplies and I'll get back to CGM in a moment.
I mean, I think we need to look towards the the pump manufacturers.
But there will be five product that is continuing to take share.
And we are indeed, a distributor of <unk> zone, our pharmacy channel.
So we do intend to continue to grow that.
Medtronic and tandem are continuing to come to market with.
Upgrades to existing product.
And all of that in the mix of we do think that pump and pump supplies will be another headwind in 'twenty four over 'twenty, three but not as much as it was this year so perhaps half.
So that's still our expectation in terms of Cgm's year to date, we grew about 3% year over year again, that's short of our of our expectation of where we want to be.
We were flat in Q3, it planning about the same maybe up a point or two in Q4.
But we do expect the effect of the big investment in sales force.
To start yielding results as we get into 'twenty four.
I think it's a little early for us to comment on specifics of what we think CGM growth will be.
But I do think it's safe to say with the large investment we're making we do anticipate.
Our return to growth for.
For CGM in 2024.
And.
That's the data that we're able to share today.
Okay, that's helpful and I guess.
Obviously much better.
We it's tough comps for next year. So I guess, how should we think about the seat business into next year and when it comes to growth because I guess this year is shaping up to be.
Mid teens or maybe even better for you.
Yes, absolutely Jana I.
I would say that as you think about the full year the first half in particular.
We will have a tougher comp, particularly on Pap equipment.
As we had record set up levels in the first quarter as well as the second quarter of 2023 due to that 13 month attrition.
The reimbursement cycle.
And those patients will come off of the rental reimbursement. However, they will come into our resupply reimbursement and we're continuing to grow that.
Double digit year over year, So we certainly expect sequential.
Growth in our census.
As we as we go from here until through 2024.
And if I may.
On the fee business. So I guess you talk about.
Some surveys you've done on.
<unk> one used by patients.
Patients and <unk>.
Say something to the effect of potentially could.
Some point I guess is the stabilization of these trucks.
<unk> meaningfully could impact that business, but any thoughts in terms of how you think it might change.
A long term growth.
Our outlook for that business versus how you were thinking about this previously does it change at all at this point do you kind of still.
Similar.
Now when we look at them.
Next year, but thank you.
I think what I tried to express is that there is a lot of speculation from a lot of people, including something that came out from bank of America, which was the stat about to 3%.
Which we saw was incredibly hoped.
Good for you know for thinking about the growth of our business going forward.
But we just don't know, we just don't know how fast.
The adoption how would the adherence of the adoption of GOP lines is going to be and we do know that if there are fewer people, who are obese or likely to be on the margin. Some some level of fewer people who are going to use Pat.
Pat therapy well.
We need to do is to even if we assume that's the case, where we need to do is take steps internally to make sure that we don't lose from any reduction in Tam that might occur.
We've got tools, where we're the largest.
Providers sleep equipment, so we start with a grip position of great strength.
We can afford to keep investing in technology to get our costs down we've increased share every year over the past several years. The investments we made in 2022 as painful as they were at the time are yielding have yielded benefits to us.
We also are highly focused on.
On patient adherence and retention.
And I guess a couple of different flavors here. One is we want to keep these people as patients that we do we can keep resupplying too, but we also believe that we can by increasing adherence increased downstream.
Results for these patients and reduce downstream cost so all of the things where we're talking about are geared toward.
Keeping our business intact, and growing well, but also using our size and our data capabilities to improve outcomes for our members.
No that all makes sense. Thank you I appreciate those details.
And we have our next question from Eric Coldwell with Baird.
Okay. Thanks, just a technical on diabetes I think you said pumps were down $9 million in CGM revenue was flat.
But I'm seeing.
A $13 4 million year over year revenue decline, so I'm curious where the additional $4 5 million came from.
Sure just a little bit of supplies. So these are like traditional <unk> test strips wipes and things like that.
That's continuing is expected to be just a smaller part of the business.
Okay, and then on tap the comments on first half 'twenty four tough comparison on equipment.
Are you, indicating simply lower growth versus the tough comparison or app.
Actual revenue to decline on the equipment side of Pappas, the 13 month rentals start to phase out.
No the former we're just expecting.
17% growth that we achieved in this quarter right I mean, I don't expect we're putting up 17% growth in Q1 and two of next year on already very high comps that that's all we're saying.
Okay, and then on Humana again, I think it was 111 2 million lives that you inherited with the.
33 States and D C.
You had some of those patients previously and you're not doing all of the <unk> for those patients but.
If youll bear with the difficult to ask question I'm trying to get a sense on how many of those humana lives that you have access to how many of those people are actually using <unk> that you are.
Going to be the exclusive on in those states.
Many of those patients where you previously serving and what is your penetration on the incremental opportunity and I don't know what the number is but.
Let's say just for a baseline of its 100000 lives that you picked up incrementally what percent of that.
What percent of that have you actually on boarded at this point, so you're fully operational one.
Yep Yep. Good good question, Eric a couple of things to offer <unk>.
Firstly utilization is in line with expectations, so far so that means.
Pick the $1 2 million.
Patients.
Or more we classify that as and the.
The number of them utilizing equipment, and then kind of the size and shape of that equipment by category is largely in line with with what we modeled with the data that was shared as part of the award.
And within our expectation.
I would tell you that the number of patients is higher than anticipated I mean, I know Humana reported I think last week, they're showing huge growth.
Over 2022, so we've got some of that.
Coming on as well, so just more patients than anticipated overall.
Which frankly is a very good thing.
Didn't help us from a timing perspective is it just creates more and more patients that.
We need to push through with the capacity, we've got one transition, but overall that's a very good thing is we expect to continue to grow.
With Humana.
The last thing I'd say is in terms of the pace of that transition I mean, we did expect to.
Buyout equipment.
As well as the supporting records that came with that.
From several competitors, but frankly.
Some of those deals do not materialize.
And so that means we need to work patient by patient on one transition. So so again, we're very confident that we will get through.
The transition in the early part of 2024, but that's a little more color on.
Whats created more patients to transition than we than we expected.
And what's more if you would like to ask a question. Please press star one on your telephone keypad now.
And once more that was star one if you'd like to ask a question.
And at this time I'm currently showing no questions in the queue. I'll go ahead and turn the call back over to today's presenters for any closing remarks.
Yes, Hi, this is Richard Thanks first of all thanks to everyone for their for their very good questions that helped us articulate.
What we think are the very positive things that are going on in adapt health.
We look forward to more interaction and thank you for your time this morning.
This does conclude today's program. Thank you for your participation you may now disconnect.
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