Q4 2023 AdaptHealth Corp Earnings Call

Operator: To begin, should you require operator assistance, please press star zero. Good day, everyone, and welcome to today's Adapthealth fourth quarter and full year 2023 earnings release. At this time, all participants are in a listen-only mode.

Acquire operator assistance, Please press star zero.

Yeah.

Good day, everyone and welcome to today's adapt health fourth quarter and full year 2023 earnings release 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. You may have registered to ask a question at any time by the press release.

Operator: Later, you will have an opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one on your telephone keypad. Today's speakers will be Richard Barish, chairman and interim CEO of Adapthealth, and Jason Clemmons, chief financial officer of Adapthealth. Josh Parts, president of Adapthealth, will join Richard and Jason for the question and answer portion of today's call. 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 the forward-looking statements because of a number of risk factors and uncertainties, which are discussed at length in the company's annual and quarterly SEC filings. Adapthealth Corp. should not have any obligation to update the information provided on this call to reflect such subsequent events.

Star one on your telephone keypad.

Today's speakers will be you, Richard Barasch, Chairman and interim CEO of adapt health.

Houston Clemens Chief Financial Officer of adapt talk Josh cards, President of adapt held well joined Richard and Jason for the question and answer portion of today's call.

Before we begin I'd like to remind everyone that statements included in this conference call and in the press release issued today because did you 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 our forward looking statements because of a number of risk factors and uncertainties, which are discussed at length in the company's annual and quarterly SEC filings adopt health Court shall have no obligation to update the information provided on this cultural reflect such slipped.

Frequent events. Additionally, on this morning's 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 call. This mornings call is being recorded and a replay of this call will be available later today I have no. Please.

Operator: Additionally, on this morning's 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's call is being recorded, and a replay of this call will be available later today. I am now pleased to introduce the chairman and interim CEO of Adapthealth, Richard Barish. Good morning, everyone, and thank you for joining us this morning to review Adapthealth's fourth quarter and full year 2023 performance. Stated simply, we had a terrific fourth quarter and ended 2023 with a great deal of positive momentum throughout our business. For the year, our net revenue grew by 7.7%, and adjusted EBITDA grew 13% compared to the prior year.

To introduce the chairman and interim CEO of adapt help Richard bearish.

Good morning, everyone and thank you for joining US this morning to review adapt health's fourth quarter and full year 2023 performance.

Stated simply we had a terrific fourth quarter and ended 2023 with a great deal of positive momentum throughout our business.

For the year, our net revenue grew by seven 7% and adjusted EBITDA grew 13% compared to the prior year. This is the fourth year in a row.

Richard Collamer Close: This is the fourth year in a row that Adapthealth grew both top and bottom lines, and it's especially notable that nearly 95% of the 2023 revenue growth was not acquired. We finish the year with a very favorable quarter, driven by continued strength in our sleep and respiratory product lines and the expected improvement in our humanic contract. It's also noteworthy that adjusted EBITDA grew faster than revenue, largely as a result of the cost-out program and technology-driven operating improvements. Another highlight of 2023 was a significant increase in cash flow from operations and free cash flow, even absorbing elevated interest rates on the floating rate portion of our term loan. As a result, our net leverage decreased from 3.69 times to 3.16 times, and we expect it to be below three times before the end of this year.

<unk> health grew both top and bottom line and it's especially notable at nearly 95% of the 2023 revenue growth was not acquired.

We finished the year with a very favorable quarter driven by continued strength in our sleep and respiratory product lines and the expected improvement in our Humana contract.

It's also noteworthy that adjusted EBITDA grew faster than revenue largely as a result of the cost out program and technology driven operating improvements.

Another highlight of 2023 was a significant increase in cash flow from operations and free cash flow, even absorbing elevated interest rates on the floating rate portion of our term loan.

As a result, our net leverage decreased from $3 six nine times to 316 times and we expect to be below three times before the end of this year.

Richard Collamer Close: We have a favorable debt structure with a good portion of our debt in longer terms at attractive fixed rates, but as we generate further increases in free cash flow in 2024, we will lean into reducing our overall indebtedness. Turning to our product lines, our Sweet product line was the primary driver of full year and fourth quarter performance. Jason will give you more detail, but our top line for the year was 16%, powered by a 12% increase in our resupply census, which resulted in record volume. Based on reliable industry data, we have yet again increased our market share and are clearly the number one provider of CPAPs and related supplies in the United States. The increase in our census is a direct result of our intentional efforts to improve our adherence rates, which we believe are best in the industry. We have more than 300 sleep coaches whose job is to improve the patient experience, which we also believe is best in class.

We have a favorable debt structure, but a good portion of our debt and longer terms at attractive fixed rates, but as we generate further increases in free cash flow in 'twenty 'twenty four we will.

Lean into reducing our overall indebtedness.

Turning to our product lines are our sleep product line was the primary driver for our full year and fourth quarter performance, Jason will give you more detail, but our topline for the year grew 16% powered by a 12% increase the resupply census, which resulted in record volumes.

Based on reliable reliable industry data, we have yet again increased our market share here are clearly the number one provider of CPAP and related supplies in the United States.

The increase in our census is a direct result of our intentional efforts to improve our adherence rates, which we believe are best in the industry. We have more than 300 sleep coaches, whose job is to improve the patient experience, which we also believe.

It's best in class.

Richard Collamer Close: Our respiratory business also exceeded our expectations. Revenue for the year increased by nearly 8% over last year, with a 10% increase in the fourth quarter. Here again, driven by the expertise of our respiratory therapists, we believe we have increased our share and are striving to become number one in this product category, too. Diabetes continues to be a work in progress, but the progress is tangible. We have enhanced the management team, including the recent hiring of a new head of diabetes, revamped the operations of the product line, and have reinvigorated our selling efforts by doubling the size of our sales. While we are still feeling the pressure of the compression on pumps and some continued mix shift to the pharmacy channel, government business continues to be our focus, and government-sponsored payers accounted for 79% of the CGM census in the fourth quarter, up another 30 basis points from last quarter.

Our respiratory business also exceeded our expectations revenue for the year increased by nearly 8% over last year with a 10% increase in the fourth quarter.

Here again, driven by the expertise of a respiratory therapist. We believe we have increased our share and are striving to become number one in this product category too.

Diabetes continues to be a work in progress, but the progress is tangible we have enhanced the management team, including the recent hiring of a new head of diabetes.

Revamped the operations of the product line and have reinvigorated, our selling efforts by doubling the size of our sales force.

While we are still feeling the pressure of the compression on pumps and some continued mix shift to the pharmacy channel.

Government business continues to be our focus and government sponsored payers accounted for 79% of CGM sensors in the fourth quarter up another 30 basis points from last quarter.

Richard Collamer Close: In addition, as I mentioned last quarter, we are ramping up to participate in the Growing Pharmacy Challenge. Finally, as we predicted last quarter, the Humana contract is now performing as we had originally expected. The transition is now largely behind us, but we are on track to substantially complete patient conversion this quarter. We value our relationship with Humana and are working hard to be a good partner. We've learned valuable lessons in onboarding these types of agreements and are now in a position to do more of the same. Now, I'd like to continue the discussion about the possible effect of GLP-1 drugs on our business. First, there seems to be a consensus that GLP-1s will not have a negative effect on CGM growth.

Further as I mentioned last quarter, we are ramping up to participate in the growing pharmacy channel.

As we predicted last quarter. The Humana contract is now performing as we had originally expected.

The transition is now largely behind US we are on track to substantially complete patient conversion this quarter, we value our relationship with Humana and are working hard to be a good partner, we've learned valuable lessons and Onboarding. These types of agreements and are now in a position to do more of the same.

Now I'd like to continue the discussion about the possible effect of G. L. P. One drugs on our business.

First there seems to be a consensus the G. L. P ones will not have a negative effect on CGM growth excuse me, it's logical to assume that patients on G. L. P ones are actively engaged in their health and will be acquired to mine or was there a one C levels through C. G apps. We also believe that increased.

Richard Collamer Close: It's logical to assume that patients on GLP-1s are actively engaged in their health and will be inclined to monitor their A1C levels through CGM. We also believe that increased insurance coverage of CGMs, especially in the government sector, is a strong tailwind. S.S. Sleeve.

Insurance coverage of <unk>, especially in the government sector is a strong tailwind.

That's just sleep.

Richard Collamer Close: First and most important, we see no current impact on our business. Our sleep census, which is a combination of new starts and ongoing PAP resupply, continues to grow at a pace that bodes well for future revenue growth. Further, we take particular note of the real-world study recently conducted by Rez... This study shows a modest increase in adherence when CPAP users also take GLP-1.

Excuse me first and most important we see no current impact on our business.

Sleep Sensus, which is a combination of new starts and ongoing Pap resupply continues to grow at a pace that bose bodes well for future revenue growth.

Further we take particular note of the real work real World study recently conducted by resume this study shows a modest increase to adherence when CPAP users also take G. L. P wants.

Richard Collamer Close: This is consistent with what we are seeing in our population. A recent survey suggests that 16% of our current CPAP users are already using GLP-1. We want our patients to be healthier, so this is good news. We believe that greater awareness and diagnosis of obstructive sleep apnea will offset the potential of reduced usage of CPAPs resulting from GLP-1. It's also reasonable to assume that increased awareness of obesity will also increase awareness of related comorbidities like OSA.

This is consistent with what we are seeing in our population.

Recent surveying suggests that 16% for current CPAP users are already using G. L. P wants.

We want our patients to be healthier. So this is good news.

We believe that greater awareness and diagnosis of obstructive sleep apnea will offset the potential of reduced usage of C pass, resulting from J P. G. L. P. Once.

It's also reasonable to assume that increased awareness of obesity will also increase awareness of related comorbidities like OSA. These trends are beneficial for everyone.

Richard Collamer Close: These trends are beneficial for everyone. That said, we're not dismissive of the potential issues from GLP-1s, and we are proactively responding to this possible long-term pressure. We believe we can overcome any reduction in the growth of CPAP usage by continuing to increase our share of the market through enhanced traditional sales efforts and enterprise, increased operating costs through automation and better processes, and increased focus on patient adherence and retention. We've improved on each of these measures over the past few years, and the GLP-1 conversation has expedited our progress in these basic areas. The recent focus on GLP-1s has also accelerated our efforts to enhance our role in the ecosystem of providing care in the home and community. Adapthealth is at the epicenter of the movement to improve the health of people with chronic conditions like obesity, diabetes, sleep apnea, and COPD.

That said, we're not dismissive of the potential issues from G. O P ones and we are proactively responding to this possible long term pressure.

We believe we can overcome any reduction in the growth of CPAP usage by continuing to increase our share of the market through enhanced traditional sales efforts and enterprise sales.

Decreased operating cost through automation and better processes and increased focus on patient adherence and retention.

We've improved on each of these measures over the past few years and the G. L. P. One conversation is expedited our progress in these basic areas.

The recent focus on G. L. P ones has also accelerated our efforts to enhance our role in the ecosystem are providing care in the home and community.

Adapt health is at the epicenter of the movement to improve the people of proved to help people with chronic conditions like obesity diabetes sleep apnea and COPD.

Richard Collamer Close: We occupy a unique position connecting providers, patients, and payers. We also generate and have access to reams of data that, when curated properly, will assist providers and payers in providing better care more efficiently. We currently have ongoing relationships with more than 1.5 million people with sleep apnea, more than 230,000 people with diabetes, and more than 300,000 people with chronic respiratory conditions. We interact with these patients on a regular basis to help them with adherence to their therapies by teaching them how to use their devices properly and supplying and resupplying needed equipment. Our initial work on adherence indicates that we can improve proper utilization of the devices and therapies.

<unk> unique position connecting providers patients and payers, we also generate and have access to reams of data then when curated properly who assist providers and payers and providing better care more efficiently.

We currently have ongoing relationships with more than $1 5 million people with sleep apnea.

230000 people with diabetes and more than 300000 people with chronic respiratory conditions, we interact with these patients on a regular basis to help them with adherence to their therapies by teaching them how to use their devices properly and supplying and resupply needed equipment.

Our initial work on adherence indicates that we can improve property utilization of the devices and therapies.

Richard Collamer Close: We believe we are also improving outcomes, and we are beginning to use the data that we are generating to prove it. I'd also like to provide a brief update on the ongoing CEO search. We now have a couple of very promising candidates who are currently advancing through the recruiting process.

Believe we are also improving outcomes and we are beginning to use the data that we're generating to prove it.

I'd also like to provide a brief update on the ongoing CEO search we now have a couple of very promising candidates who are currently advancing through the recruiting process. We will keep you updated as we move forward, but as you can see from our results our progress has not slowed down during this process.

Richard Collamer Close: We will keep you updated as we move forward, but as you can see from our results, our progress has not slowed down during this process. I'll now turn it over to Jason to take you through the.

Yes.

I'll now turn it over to Jason to take you through the numbers Jason.

Jason.

Jason Clemmons: Thank you, Richard, and thanks to all for joining the call. Like Richard, I was very pleased with the fourth-quarter results. We made significant investments in the business during the year, and they are beginning to bear fruit. We will look to build on that momentum across the business in 2024. Adapthealth's net revenue grew 7.7% over 2022, and non-acquired growth was 7.3%, led by our sleep and respiratory product category. Adjusted EBITDA grew 13% over that same period as we delivered on the cost management program that we announced in early 2023. Cash flow from operations of $480.7 million grew 28.6% over the prior year.

Thank you Richard and thanks to all for joining the call like Richard I was very pleased with our fourth quarter results. We made significant investments in the business during the year and they are beginning to bear fruit.

I'll look to build on that momentum across the business in 2024.

Adapt health net revenue grew seven 7% over 2022 and non acquired growth was seven 3% led by our sleep and respiratory product categories.

Adjusted EBITDA grew 13% over that same period as we delivered on the cost management program that we announced in early 2023.

Cash flow from operations of $487 million grew 28, 6% over the prior year.

Jason Clemmons: Free cash flow of $143 million improved significantly over 2022, led by a DSO improvement of 1.5 days and significantly improved CapEx. Our net leverage ratio finished the year at 3.16 times, down half a turn from 2022. Turning to fourth-quarter results, net revenue of $858.2 million increased 10.0% compared to the fourth quarter of 2022, and sleep revenue of $328.8 million grew 15.2% compared to a year ago. Patient demand for new PAP equipment was steady and up slightly from the third quarter.

Free cash flow of $143 million improved significantly over 2022 led by DSO improvement of 1.5 days and significantly improved Capex management.

Our net leverage ratio finished the year at 3.16 times down half a turn from 2022.

Turning to fourth quarter results net revenue of $858 2 million increased 10.0% compared to the fourth quarter of 2022.

Leap revenue of $328 8 million grew 15, 2% compared to a year ago.

Patient demand for new Pap equipment was steady and up a touch from the third quarter.

Jason Clemmons: New starts for PAP equipment met our expectations, our adherence performance met our expectations, and resupply continues to be very strong. Our resupply census has reached 1.55 million patients, with electronic reordering now over 40% of total orders. Not only is electronic reordering easier for the patient, but it also drives more efficiency in our operation. Respiratory revenue of $151 million increased 10.1% year over year. Our oxygen census is the highest it has ever been, now with over 315,000 patients.

New starts for Pap equipment met our expectations, our adherence performance met our expectations and re supply continues to be very strong.

Our resupply census has reached 155 million patients with electronic reordering now over 40% of total orders.

Not only is electronic reordering easier for the patient, but it also drives more efficiency in our operations.

Respiratory revenue of $151 million increased 10, 1% year over year.

Our oxygen sensors is the highest it has ever been now over 315000 patients.

Jason Clemmons: For oxygen as well as for non-invasive ventilation, industry data shows that we continue to take market share in these important categories. However, our diabetes revenue was down 3.8% against the fourth quarter of 2022. As expected, we continue to absorb pressure in our pump and pump supply revenue as the market shifts toward tubeless pumps. We believe the pressure will start to ease in the second half of 2024 as the transition stabilizes and as we grow our tubeless pump revenue. As expected, CGM Census was up a few points; we overcame some reimbursement pressure from the shift to the pharmacy benefit, resulting in 1% CGM revenue. Turning to profitability, fourth quarter adjusted EBITDA of $204.6 million reflects an adjusted EBITDA margin of 23.8%. We outperformed our expectations due to increased revenue, especially in high-margin categories.

For oxygen as well as for non invasive ventilation industry data shows that we continue to take market share in these important categories.

Our diabetes revenue was down three 8% against the fourth quarter of 2022.

As expected, we continued to absorb pressure in our pump and pump supply revenue as the market shifted towards toothless pumps.

We believe the pressure will start to ease in the second half of 2024 as the transition stabilizes and as we grow our tubular pump revenue.

As expected CGM sensors was up a few points.

We overcame some reimbursement pressure from shift to the pharmacy benefit, resulting in 1% CGM revenue growth.

Turning to profitability fourth quarter adjusted EBITDA of $204 6 million reflects an adjusted EBITDA margin of 23, 8%.

We outperformed our expectations due to increased revenue, especially in high margin categories.

Jason Clemmons: Improvement in our Humana contract to original expectations. Improvement in Cogs and Improvements in Labor and Operations. Cash flow from operations of $155.3 million grew 60.2% over the fourth quarter of 2023. CapEx of $88.6 million, representing 10.3% of revenue, beat our expectations, resulting in free cash flow of $66.6 million in the fourth quarter. For the full year, free cash flow was $143.2 million, or four and a half percent of total revenue, exceeding our goal of three to four percent. As Richard noted, most of our debt is long-term with favorable interest rates.

Improvement in our Humana contract to original expectations.

Improvement in Cogs and improvements in labor and operating expenses.

Cash flow from operations of $155 3 million grew 62% over the fourth quarter of 2023.

Capex of $88 6 million, representing 10, 3% of revenue beat our expectations, resulting in free cash flow of $66 6 million in the fourth quarter.

For the full year free cash flow was $143 2 million or four 5% of total revenue exceeding our goal of 3% to 4%.

As Richard noted most of our debt is long term with favorable interest rates, we are highly focused on generating free cash flow and reducing our overall debt load.

Jason Clemmons: We are highly focused on generating free cash flow and reducing our overall debt load. During 2023, we paid down $45 million of our term loan, including a $10 million voluntary payment in the fourth quarter, as a result of our strong free cash flow. During the first quarter of this year, we expect to pay down our TLA by approximately $25 million. As mentioned earlier, our net leverage ratio at year-end decreased by more than half a turn to 3.16 times, down from 3.69 times a year ago, and our goal is to reduce our leverage to below three times during the course of 2024. As part of our fourth-quarter results, we recorded a $318.9 million pre-tax write-down to Goodwill, as we announced in our earnings release this morning. This non-cash pre-tax charge was triggered by the reduction in our stock price as of December 31st.

During 2023, we paid down $45 million of our term loan, including a $10 million voluntary repayment in the fourth quarter as a result of our strong free cash flow.

During the first quarter of this year, we expect to pay down our T L. A by approximately $25 million.

As mentioned earlier, our net leverage ratio at year end decreased by more than half a turn to 316 times down from $3 six nine times, a year ago and our goal is to reduce our leverage to below three times in the course of 2024.

As part of our fourth quarter results, we recorded a $318 9 million pretax write downs of goodwill as we announced in our earnings release. This morning.

This noncash pre tax charge was triggered by the reduction in our stock price as of December 31.

Jason Clemmons: We also recorded a $25 million pre-tax charge to settle a pending securities action filed in 2021 premised on allegations regarding disclosures related to our former CEO and organic growth. Turning now to guidance for 2024. We currently anticipate revenue to be in the range of $3.25 to $3.35 billion, adjusted EBITDA to be between $650 and $710 million, and free cash flow to be between $150 and $180 million. Let me share with you some assumptions that support our views on guidance. The 7525 reimbursement for non-competitively bid, non-rural MSAs expired on January 1st.

We also recorded a $25 million pre tax charge to settle a pending securities action filed in 2021 premised on allegations regarding disclosures related to our former CEO inorganic growth.

Turning now to guidance for 2024.

We currently anticipate revenue to be in the range of $3 two five to $3. Three 5 billion adjusted EBITDA to be between 650, and $710 million and free cash flow to be between 150 and $180 million.

Let me share with you some assumptions that support our views on guidance.

The $75 25 reimbursement for noncompetitive really bad non rural MSA has expired on January one.

Jason Clemmons: And although it is possible the rates will still be extended, we are budgeting approximately $25 million of headwinds to revenue and to adjusted EBIT. We expect revenue for our sleep category to grow mid-single digits over 2023, a very tough comparable period that benefited from the backlog of demand pent up following the supply chain shortages faced in 2022 and early 2023. We recently doubled our dedicated sales force for our diabetes products, and although we expect limited growth in the first half of 2023, as that ramps up, as that team ramps production, we expect to bridge to low single-digit growth in the second half of the year. We anticipate the rest of the product categories to deliver the remaining top-line growth. As we look to 2024, we expect a very similar quarterly slope to full-year revenue and adjusted EBITDA that we experienced in 2023.

And although it is possible the rates will still be extended we are budgeting approximately $25 million of headwind to revenue and to adjusted EBITDA.

We expect revenue for our sleep category to grow mid single digits over 2023, a very tough comparable period that benefited from the backlog of demand pent up following the supply chain shortages faced in 2022 in early 2023.

He recently doubled our dedicated sales force for our diabetes products and although we expect limited growth in the first half of 2023 is that ramp as that team ramps production, we expect to bridge to low single digit growth in the second half of the year.

We anticipate the rest of the product categories to deliver the remaining topline growth.

As we look to 2024, we expect a very similar quarterly slope to full year revenue and adjusted EBITDA that we experienced in 2023.

Jason Clemmons: We expect to improve free cash flow generation over 2023 by 15% at the midpoint, as we're already securing efficiencies in procuring and managing our CapEx and inventory. For Q1 2024, we expect revenue and adjusted EBITDA to grow about 3% over the first quarter of 2023. Free cash flow is expected to be approximately zero as we absorb the seasonal effects of patient deductible receipts on our cash inflows, as well as interest, bonus payments, and cash related to the previously mentioned shareholder lawsuit settlement.

We expect to improve free cash flow generation over 2023 by 15% at the midpoint as we're already securing efficiencies in procuring and managing our capex and inventory.

For Q1, 2024, we expect revenue and adjusted EBITDA to grow about 3% over the first quarter of 2023.

Free cash flow to be approximately zero as we absorbed the seasonal effects of patient deductible resets on our cash inflows as well as interest bonus payments in cash related to the previously mentioned shareholder lawsuit settlement.

Richard Collamer Close: We ended the year in a position of strength and have built a solid foundation to grow. We look forward to keeping you updated as the year unfolds. I'll turn it back to Richard for his closing remarks. Thank you, Jason.

We ended the year in a position of strength, we've built a solid foundation to grow we look forward to keeping you updated as the year unfolds.

Turn it back to Richard for his closing remarks, Thank you Jason.

Richard Collamer Close: And now, I'd like to add some color to Jason's remarks on 2024 guidance. We know that one of the risks in health care is reimbursement changes. And the non-extension of the 75-25 rate relief masks growth rates that would have been more expected in 2024, considering the tough comparables in sleep and respiratory. Here's how we can improve on these numbers over the base that we've established for 2024 and into the future. We can close on the strategic relationships in our pipeline, not as large as Humana, but certainly large enough singly and in the aggregate to boost growth.

<unk> like to add some color to Jason's remarks on 2024 guidance, we know that one of the risks and the health care reimbursement changes and the non extension of the 70 525 rate relief masks growth rates. There would have been more expected in 2020 for considering the tough comparables in sleep and respiratory.

Sorry.

Here's how we can improve on these numbers over the base that we've established for 2024 and into the future. We can close on the strategic relationships in our pipeline, none as largest humana, but certainly large enough singly and in the aggregate to boost growth.

Operator: We can continue to pick up share in the sleep and respiratory categories. And we can bring our diabetes category back to market rates of growth. And finally, we can continue to get more efficient. If we accomplish this basic blocking and tackling, we can achieve our target of mid to upper single-digit non-acquired growth in 2025 and beyond. Before I turn it over to questions, I'd be remiss if I didn't thank our nearly 11,000 employees who are focused on improving the lives of the 4.1 million people who rely on us for needed medical devices and supplies. Operator, please open the line for questions now.

We can continue to pick up share in the sleep and respiratory categories. We can bring our diabetes category back to market rates of growth and finally, we can continue to get more efficient.

If we accomplish this basic blocking and tackling we can achieve our target of mid to upper single digit non acquired growth in 2025 and beyond.

Before I turn it over for questions I'd be remiss, if I didn't thank our nearly 11000 employees who are focused on improving the lives of the $4 1 million people, who rely on us for needed medical devices and supplies.

Operator, please open the line for questions now thank you.

Operator: Thank you. 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.

Thank you at this time, if he 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 to once again that is star. One if you would like to ask a question. We will take our first question from Brian <unk> with Jefferies. Your line is now open.

Brian Gil Tanquilut: Once again, that is star and one. If you would like to ask a question, we'll take our first question from Brian Tanquilut with Jeffrey's. Your line is now open. Brian, please check the mute function on your phone.

Brian Please check the mute function on your phone.

Yes.

Operator: Can you hear me, guys? Can you hear me? Yes. Yes. Loud and clear.

Can you hear me guys.

Hello can you hear me, yes, yes, a lot of color.

Awesome congrats on the quarter.

Richard Collamer Close: Oh, there you go. It's awesome. Congratulations on the quarter. I guess, the first question I would ask you, just for Richard, as we think about, you know, kind of like a normalized run rate as we get past 2024. How are you thinking about the growth rates for the business, maybe either by product category or just in totality? You know, what I said in my prepared remarks is that our target is mid to upper single-digit growth in 2025 and beyond. I don't want to get more specific than that, but I kind of alluded to some of the building blocks.

I guess first question no doubt just for Richard as we think about you know kind of like a normalized run rate as we get past 2024, how are you thinking about the growth rate for the business, maybe either by product category or just in totality.

Yeah.

Said in my prepared remarks is our target.

Is mid to upper single digit growth in 2025 and beyond.

I don't want to get more specific than that but I kind of alluded to some of the building blocks and one of the key issues for us is to bring diabetes is back to <unk>.

Jason Clemmons: And one of the key issues for us is to bring diabetes back to, you know, closer to a market rate of growth, maintain our dominance, and sleep. And then, you know, respiratory, as an example, was a pleasant surprise for us this year. We think we have the tools to continue. So, you know, the broad, you know, we can talk about the broad, but, you know, let's get through 2024 to get to the specifics thereafter. I appreciate that.

Closer to a market rate of growth maintain or maintain our dominance in sleep.

And then.

Respiratory as an example, which was a pleasant pleasant surprise for US. This year, we think we have the tools to continue so.

We could talk about the broad book.

Let's get through 2024 to get to the specifics thereafter.

I appreciate that and then maybe Jason just as I think about.

Brian Gil Tanquilut: And then maybe, Jason, just as I think about the cadence for the year, I know you gave guidance for Q1, anything to call out as it relates to cash flow in terms of, you know, any seasonality factors there that we need to be considering? Thank you.

The cadence for the year I know you gave guidance for Q1 anything to call out as it relates to cash flow in terms of how.

Any seasonality factors, there that we need to be considering thank you.

No nothing unusual for 'twenty for Brian.

Jason Clemmons: You know, we should expect approximately a third of our free cash to get generated in the first half of the year and the remainder to be generated in the second half of the year, much like we did in 2023. If you're getting down to the quarter level, certainly Q1 is pressured, as we called out, but Q2 is historically stronger as there are no interest payments that quarter.

We should expect approximately a third of our free cash you could generate in the first half of the year and the remainder to be generated in the second half of the year much like we did in 2023.

If you're getting down to the quarter level, certainly Q1 has pressured as we called out.

Q2 is historically stronger as there is no interest payments that quarter.

Jason Clemmons: Q3's got interest, so there's a shift there. And then Q4, as usual, is the big quarter, as we just demonstrated. Awesome. Thanks, and congrats again.

Q3 has got interest so there's there's there's a shift there and then Q4 as usual is the is the big quarter.

We just demonstrated.

Awesome, Thanks, and congrats again.

Brian Gil Tanquilut: Thanks, Brian. Thanks, Brian. Thank you. We'll take our next question from Eric Coldwell with Baird. Your line is open. Thanks very much. I have a couple here.

Thanks, Brian Thanks, Brian.

Thank you we'll take our next question from Eric Coldwell with Baird. Your line is open.

Thanks, very much I have a couple here first one on pumps.

Eric Coldwell: First one on pumps. In the past, you did give some revenue numbers and headwind expectations for 2023. Hoping we could get the final tally on pump revenue in 2023 and how much that was down. And then in 2024, what your expectation is for the full year, how much of a net headwind still, but maybe not. Sure, Eric. This is Jason.

In the past you did give some.

<unk> revenue numbers and a headwind expectations for 2023, I was hoping we could get the final tally on pump revenue in 'twenty, three and how much that was down and then.

In 2020 for what your expectation is for the full year, how much of a.

Are you assuming that headwind still but maybe not just hoping you could give us some color on that.

Sure Eric This is Jason so firstly as we have.

Jason Clemmons: So firstly, you know, as we have reported previously, pump revenue in 22 was about $160 million, and we expected about $120 million in 2023. So we came right in line with that expectation. You know, we had previously talked about a $35 to $40 million headwind, and it literally came scoring in the middle of that. We think, as we stand here today, that the headwind in 24 will be about half that. So called in the range of, you know, high teens to $20 million.

Reported previously pump revenue in 'twenty, two was about $160 million and we expected about 120 in.

2023.

So we came right in line with that expectation you previously talked about a 35% to $40 million headwind and it literally came square in the middle of that.

We think as we stand here today that.

The headwind in 'twenty four it will be about half that so called in the range of.

High teens to $20 million.

Jason Clemmons: We do think that the second half of the year will do a bit better than the first half. The reason for that is, as discussed in the prepared remarks, some of the transition is stabilizing. So in other words, if you were on a tube-based pump and you wanted to move to a tubeless pump, you've already made that decision.

We do think that the second half of the year, we will do a bit better than the first half. The reason for that is as discussed in the prepared remarks.

Some of the transition is stabilizing so in other words. If you were one of two base pump and you wanted to move to it was pump you've made that decision.

Already and then secondly, we are growing our tubular pump revenue.

Jason Clemmons: And then secondly, we are growing our tubeless pump revenue. We had a solid quarter in new starts related to tubeless pumps, and for the first time, we overcame tuba-based pumps in terms of new starts. And so, again, it'll take some time for that to work through the system, if you will, but those are our thoughts on pump-on-pumps supplies for the year. That's a great detail.

We had a we had a solid quarter in new starts related to pumps and for the first time, we overcame.

Tuba based pumps in terms of new starts and so again it will take some time for that to work through the system. If you will but those are the thoughts on the pump and pump supplies for.

For the year.

Great detail. Thank you and then on the sleep mid single digit growth not a not a surprise there at all but I am curious, how does resupply or sales growth compared to rental.

Jason Clemmons: And then on the sleep mid-single-digit growth, not a surprise there at all. But I am curious, how does resupply or sales growth compare to rental performance in 2024? I would think the resupply would be up stronger than mid-single-digit rental, maybe flat to down, but I was hoping to get a little more detail on that. Yeah, you got that exactly right, Eric.

<unk> performance in 2024.

I would think the resupply we'd be up stronger than mid single digit rental maybe flat to down but I was hoping to get.

A little more detail on that if you will yes, yes, you got that exactly right, Eric we're expecting higher single digit in the <unk> operations.

Jason Clemmons: We're expecting a higher single digit in the resupply operations as we just continue to increase the average sales price and number of products per order, as well as improve our adherence rates. So just continuing to compound that census. So we feel great about resupply in 2024. To your point on rental, our new start growth is strong. Patient demand is strong, frankly, as strong as it's ever been. However, within rental revenue, the nuance of the 13-month rental cycle means that the record setups we reported in the first half of 2023 are rolling off of that rental revenue in 2024. And so it's creating just a tough comp.

As we just continue to increase the average sales price.

And number of products per order.

As well as improving our adherence rates. So just continuing to compound that census, so we feel great about resupply in 2024.

To your point a rental.

Our new start growth is strong patient demand is strong.

Frankly as strong as it's ever been.

Within rental revenue the nuance of the 13 months rental cycle means that the record setups. We reported in the first half of 2023 are rolling off of that rental revenue.

In 2024, and so it is creating just a tough comp rental revenues probably around flat.

Jason Clemmons: Rental revenue probably around flat is what we're expecting for the year. But again, this is not anything other than a tough comp period and just a larger number of patients rolling off from a year ago. That's great. And then last one for me.

It is what we're expecting for the year, but again this is not.

Uh huh.

Anything other than a tough comp period and just larger.

Number of patients rolling off from from a year ago.

That's great and then last one from me. Thank you for all the details here.

Jason Clemmons: Thank you for all the details here. The efficiencies you've cited in patient CapEx, could you dig into that a little bit? Was there any unusual timing or items in the fourth quarter? And then, you know, what are the major structural or thematic changes in your CapEx requirements that, you know, perhaps could be sustained? Sure. So maybe start with a level setting of 23 by quarter.

<unk>.

The efficiencies you've cited in patient Capex could you could you dig into that a little bit but was there any unusual timing or items in the fourth quarter and then.

What are the major structural or somatic changes in your capex requirements that perhaps could be sustainable.

Sure So maybe start with a level setting of 23 by quarter.

Jason Clemmons: In Q1 and 23, CAPEX represented 12% of revenue, and as reported, that was related to a purposeful stockpile of CPAPs that we felt was necessary to meet the continued demand for sleep therapies. And then that dialed off to kind of a high 10%, mid 10%, and then low 10%, 10.3% for Q4. And so that kind of mid 10% range is a good run rate. We think we'll get half a point out in 24, which is why free cash flow conversion is up half a point. Structurally, what's changing here is technology, really related to the Oracle fixed assets and inventory digitalization project that we've been hard at work on for about a year now. That is taking hold. We just went live within the last few weeks on our first sites for HME.

Q1 in 'twenty, three capex represented 12% of revenue.

And as as reported that was related to a purposeful stockpiling of <unk>.

That we felt was necessary to meet the continued demand in sleep therapies, and then thats out off to kind of high 10, percents mid 10% and then low 10%.

3% for Q4.

And so that kind of mid 10% range is a good run rate, we think will get half a point out in 2004, which is why free cash flow conversion is up half a point.

Structurally what's changing here is technology.

Really related to the.

The Oracle fixed assets and inventory digitalization project that we've been we've been hard at work on for about a year now.

That is taking hold we just went live.

Within the last few weeks in our first sites for HMA.

Jason Clemmons: And we're finding benefits there of compressing our day's hand on inventory and just getting more efficient about the way we order, how we order, and just kind of what we're comfortable with in terms of mins and maxes. And we expect to bring more improvement throughout the year. Thanks very much.

And we're finding benefit there.

Compressing our days hand on inventory and just getting more efficient about the way we order how we order and just kind of what we're comfortable with in terms of into Max's.

And we expect to to bring more improvement throughout the year.

Thanks, very much nice scenes of good progress here congrats.

Eric Coldwell: It's nice to see good progress here. Congratulations. Thanks, Eric. Thank you. We'll take our next question from Matthew Blackman with Steeple. Your line is open. College.

Thanks, Eric.

Thank you we'll take our next question from Mathew Blackman with Stifel. Your line is open.

Good morning, guys. This is colin on for Matt.

Mathew Justin Blackman: I thought I'd start by asking for a bit of, I've particularly on the, Are you seeing any lift from basal patients? coverage, or any new center openings this year?

I thought I'd start by asking for a bit of a state of a union of sorts on the diabetes franchise.

Particularly on the CGM side are you seeing any lift from basal patients, particularly the Medicare cut.

Coverage decision that went through last year or any new sensors like the G seven launch and as the government mix going.

Operator: It's a compound question. Let me start and then I'll turn it over to Richard. We're not seeing the benefits yet from the extensions in Medicare and in some of the other governmental programs, but we think we will in 2024. So that's a pillar of why we think we can ultimately get back to more growth. So that we see it as the upside for going forward. Jason, why don't you repeat? You asked a compound question. Jason's got it.

Going to stabilize this year what are your thoughts around that I know that's still a priority.

Compound question.

Let me start and then I'll turn this is Richard I'll turn it over to Jason.

We're not seeing the benefits yet from the extensions in Medicare and then some of the other governmental programs, but we think we will in 2024. So that's that's a.

Our pillar why we think we can ultimately get back to.

More growth so that we see is as upside for going forward.

Jason wondering once you repeat you, yes, a compound question Jason's got it yes, I'd say Colin on as it relates to newer products in those trends.

Jason Clemmons: Yeah, I'd say, Colin, as it relates to newer products and those trends, you know, we are distributing the newer models for both Dexcom and Abbott. They've been great partners, and we're continuing to run that transition, frankly, faster than we had planned for or expected. And we think that's a good thing, obviously, for our patients and then certainly for our economy. I guess I'd say in terms of the government split, we think that we will grow that government census a touch more in 2024, and the reason is the doubling of the sales force, you know, is really intended to go after geographies that we've never been in before, and so as you'd expect, a lot of data and analysis went into, you know, where the business is, what we think, you know, these geographies, particularly urban areas, will produce, and we're pointed directly at a primary care sale, which happens to be a very heavily government patient population, and so again, we do expect to grow in that area in 2024, and particularly in the second half of the year, we expect to get back to growth, and I had one follow-up on... Is that primarily a function of.., and Adapthealth. How should we think about that? You know, I'd say all the above, Colin. I mean, we were just pleased. I mean, frankly, we beat on essentially every assumption, every measure.

Our distributing.

The newer models for both <unk> and Abbott they've been great partners and we're continuing to.

Run that transition frankly faster than we had planned for or expected.

And we think that's a good thing obviously for our patients.

And then certainly for our economics.

I guess I'd say in terms of the government split.

We think that we will grow that government census, a touch more in 2024 and the reason is the doubling of the sales force.

It was really intended to go after geographies that we've never been in before and so as you would expect a lot of data and analysis went into where the business is what we think.

These geographies, particularly urban areas will we will produce.

And we are pointed directly at our primary care sale.

Which which happens to be a very heavily government.

The patient population and so we again, we do expect to to grow in that area in 2024, and particularly in the second half of the year, we expect to get back to growth mode.

And then I have one follow up on the gross margin outperformance during the quarter was that primarily a function of the humana.

Dynamic or any one time items or was it just the underlying business and the Cogs efficiencies that you've put in place. This year, how should we think about that kind of progressing into 2024 I'd.

I would say all of the above collyn.

We were just pleased I mean, frankly, we beat on essentially every every assumption every measure.

Jason Clemmons: You know, QMATA, to your point, we have done a good job transitioning patients, and we have gone faster than we committed to, which is resulting in a big improvement in Q4 over Q3. Secondly, you know, in reference to the cost management program, when you look across labor, OPEX, and G&A, I mean, Q4 is essentially flat over the prior year. And so, you know, the company was able to deliver on that cost containment program and then also deliver what I think is about $80 million of growth over the prior year. So, I mean, those couple of factors that drove the performance in the quarter and many more.

Yes <unk>.

To your point, we have done a good job.

Transitioning patients.

And we have gone faster than we are committed to which is resulting in a in a big improvement in Q4 over Q3.

Secondly in reference to the cost management program. When you look across labor Opex and G&A I mean, Q4 is essentially flat over the prior year and so the company was able to deliver on that that cost containment program and then also deliver what I think was about $80 million of growth over the prior.

So I mean, it's it's really those couple of factors that drove the performance in the quarter.

Thank you so much.

Jason Clemmons: Thank you. We'll take our next question from Peto Chickering with Deutsche Bank. Your line is open.

Okay.

Thank you we'll take our next question from Peter Chickering with Deutsche Bank. Your line is open.

Peto Chickering: Good morning, thanks for taking my questions. Going back to sleep rental for a second, I understand the flat growth guidance for 2024 just due to really tough comps in 2023. If I just sort of plug 2024 into a CAGR from 2022, it's about 12%. Is that the right growth we should be thinking about for 2025? Parentals.

Hey, good morning, Thanks for taking my questions.

Going back to sleep rentals for a second I understand the flat growth guidance for 2024, just do two really tough comps in 'twenty three.

If I just sort of plugged 'twenty 'twenty four into a CAGR from 'twenty two it's about 12% is that the right growth, we should be thinking about for 2025 for seek rentals.

Jason Clemmons: Well, I'd say, Peter, sleep as a category, you know, mid to upper single digit, as Richard alluded to, across the enterprise. We think that sleep growth will continue to be healthy. You know, once you get to a point where your comparable period is clean, then yes, I mean, both whether it's rental or resupply, it should grow at approximately the same rate. Okay, great. And then a few follow-ups here on diabetes. What percent of your pumps today are tubeless versus tubed?

Well I'd say, Peter sleep as a category.

Mid to upper single digit as Richard alluded to across the enterprise.

We think that sleep growth will continue to be healthy.

Once you get to a point that you are comparable period is clean.

Then, yes, I mean, both whether it's rental or resupply it should grow at approximately the same rate.

Okay, Great and then a few follow ups here on diabetes.

What percent of your pumps today are two lists versus two whats.

Jason Clemmons: What's the cost severance for patients if they get a tubeless pump in a pharmacy versus a DME? And then what do you think the payer mix ends up being at the end of the year? for 24. Yep. Yeah, I'd say, to take that last part first, it's probably up a point or two. So the 79% that we just reported, we think it's up a couple of points as we exit 24. Regarding pumps, the tubeless pumps that we are putting out, which are Omnipod 5s as well as a new entry, Betabionics, I mean, we're running those through the pharmacy.

What's the cost difference for patients if they get a <unk> pump in the pharmacy versus the <unk>.

And then what do you think that the payer mix.

And the year.

Yes.

24.

Yes.

To take that last part first it's probably up a point or two so the 79%.

That we just reported we think it is up a couple of points.

We exit 'twenty four regarding pumps.

The tubular pumps that were putting out which our omnipod fives as well as a new entry beta bionics I mean, we're running those through the pharmacy I mean that we're tapping our pharmacy capability and running those through the pharmacy channel today. So.

Jason Clemmons: I mean, we're tapping our pharmacy capability and running those through the pharmacy channel today. So there really is no differential versus, like, a DME channel because these products are really going through the pharmacy. Okay, so what percent of your revenues for diabetes are pharmacy versus DB, and I guess if you're guiding... the whole sector to be flat for the first half of the year and the back half of the year, any sort of color on how you would deem growing versus farming? Yeah, I'd say, you know, Peter, we haven't, we're not ready to put out a split of revenue on pumps, tubeless versus pump, I'm sorry, tubeless versus tube based. But I will say, you know, for the quarter, our new starts, it was outweighed by tubeless.

There really is no differential versus like a D E channel because.

Products are really going through going through pharmacy.

So.

What percent of your revenues for diabetes, our pharmacy versus <unk> and I guess, if you regarding.

The the whole sector to be flat for the first half of the year. The growing list of winners in the back half of the year any sort of color on how we should think modini growing versus pharmacy.

Yes, I would say you know Peter we haven't we're not ready to put out a split of revenue.

Right.

Tom's tubular.

Pump I'm, sorry, <unk> two based.

But I will say for the quarter, our new starts it was outweighed in two bliss and so that will take some time as you've got a pretty long length of stay for foundations that will take some time for that to start equalizing.

Jason Clemmons: And so that will take some time, as you get a pretty long length of stay for pump patients, you know, that will take some time for that to start equalizing. In terms of getting back to growth in the second half, really, you've got two factors. You've got the pump pressures we think will be heavier in the first half and lighter in the second half.

In terms of the you know getting back to growth in the second half really you got two factors you got the the pump pressures, we think will be heavier in the first half and lighter in the second half and then <unk>.

Jason Clemmons: And then secondly, in CGMs, we think growth will be lighter in the first half as the sales team starts ramping up, and then we'll deliver in Q4. So, Q3 and Q4. So we think the second half is going to be stronger than the first.

Liam Cgm's, we think growth will be lighter in the first half at sales team starts ramping and and then we will deliver in Q4, So Q3 and Q4. So we think the second half is going to be stronger than the first.

Peto Chickering: Okay, great. And then sort of two more sort of quickies here, like other revenues are sort of a pretty big driver in the quarter. Can you remind me what that other revenue is? And then free cash flow conversion, is this like the right ratio for the next couple years, about, you know, sort of 24% free cash flow conversion versus adjusted EBITDA? Yes, on free cash.

Okay, Great and then could you see here.

Other revenues are pretty big driver in the quarter can you remind me what other is and then free cash flow conversion is this like your rate ratio for next couple of years about 24% free cash flow conversion versus adjusted EBITDA.

Jason Clemmons: That's an easy one. And the reason is we think, you know, that conversion from EBITDA down to cash flow from operations and then just, you know, better CapEx efficiencies, you know, you're getting to that same place. And I'm sorry, Peter, the first part of the question was related to... It's revenues and other, I guess. Can you just email me?

Yes.

Free cash that that's that's an easy one and the reason is we think that conversion from EBITDA down to cash flow from operations and then just better capex efficiencies.

You get to that same place.

And I'm sorry, the first part of the question was related to.

Got it.

Revenues and other I guess can you just.

Jason Clemmons: Yeah, so historically, and currently, Other included items such as e-commerce, hospice, orthotics. It's kind of a grouping of various lines of business. Since July, it also includes the PM-PM revenue from capitated agreements. And so that's why you're seeing a large growth in Q4 over Q3 sequentially. Makes sense.

Sure. So let me take this quarter.

Yes, so historically and currently other included.

Items, such as e-commerce.

Hospice orthotics.

So.

It's kind of a grouping of various lines of business.

Since July it also includes the PM TM revenue.

From Capitation agreement and so Thats why youre seeing a large.

In Q4 over Q3 sequential.

Makes sense. Thank you so very much.

Kevin Calinaro: Thank you so very much. Thank you. Thank you. We'll take our next question from Kevin Calinaro with UBS. Your line is open. Hi, good morning, everybody. It's Andrea Alfonso on behalf of Kevin.

Thanks Peter.

Thank you we'll take our next question from Kevin Hello, narrow with UBS. Your line is open.

Hi, Good morning, everybody I'm, Danielle for Ontario for Kevin. Thanks, So much for taking the question.

Operator: Thanks so much for taking the question. I actually just have a follow-up to those last set of questions. You know, I guess on free cash, well, you've talked about some of the moving parts there that underlie your expectations for 24. But if we sort of just single out certain improvements, like cash collections, for example, how do you think about, you know, the next tranche there of capturing some of those benefits? And maybe if there are any working capital commitments from, you know, from the ramp of Humana, how do you balance those improvements against that? And then I had another follow-up. Sure, Andrea, good morning.

I actually just had a follow up to this last set of questions.

Free cash flow you've talked about some of the moving parts there that underlie your expectations for 'twenty four.

If we sort of just single out certain improvement slight cash collections. For example, how do you think about.

The next tranche there of capturing some of those benefits and maybe if there are any working capital.

The ramp ups of matter, how do you balance those improvements against that and then I have one more follow up question.

Sure Andrea good morning.

Jason Clemmons: I'd say firstly, you know, in terms of DSO and kind of on the AR side of things, I mean, we, you know, we brought DSOs down considerably over the last 12 months. And, you know, as previously discussed, that was really a result of a big investment in technology, particularly the claims editor engine that we built. It's proprietary tech that we own and operate. And, you know, that was just a home run of an investment.

Say firstly.

In terms of DSO and kind of on the AI side of things I mean, we.

We brought we brought dsos down considerably over the last 12 months and.

As previously discussed that that was really.

A result of big investments in technology, particularly claims editor engine that we've built for <unk>.

Our trade tax that we own and operate.

And that that was a just a just a home run of an investment and Thats really the people and the processes within the Rev cycle.

Jason Clemmons: And that's really, you know, the people and the processes within the rev cycle that brought down DSOs. We're not anticipating much of a shift in DSOs versus 2023 by quarter. We are, however, actively investing in, particularly the denial management portion of rev cycle. We've got big tech and new processes going in there. And so we're not ready to talk about it.

Youre not anticipating much.

Much of a shift in dsos versus the 2023 by quarter. We are however, actively investing in particularly the denial management portion of Rev cycle, We've got big Tech and new process going in there.

So we're not ready to talk about it but again, we're investing millions and we will expect DSO improvement from that point, but you're really looking more 2025, but when you look at the other areas of working capital.

Jason Clemmons: But, you know, again, we're investing millions. And, you know, we will expect DSO improvement from that point on, but you're really looking more towards 2025.

Jason Clemmons: But when you look at the other areas of working capital, you know, you'll see, you know, inventory a little bit, a little better job in inventory management over the course of 23, particularly the end of 23. We're expecting that, you know, whether you call it inventory management or CapEx improvement, we're expecting half a point better on revenue over the course of 2024. Thanks.

You'll you'll note inventory being a little bit better job of inventory management over the course of 'twenty three particularly at the end of 'twenty three.

We're expecting that whether you call it inventory management, our Capex improvement, we're expecting half a point better on revenue over the course of 2024.

Thanks.

Andrea Alfonso: And just again, a follow-up question on Tito's prior question about the other revenue line. So, you know, if I look at kind of that 77 million or so that you reported on the failed line, is that, how do we think about the cadence going forward? Was there some sort of a capture of an accelerated benefit that's not expected to recur?

And just again a follow up question on <unk> part of your question about the other revenue lines so far.

If I look at kind of about 77 million are assumed that you reported on the sales line.

Is that.

How do we think about the cadence going forward.

There are some sort of a capture of an <unk> related benefit that's all expected to recur. Thanks, so much for taking my question.

Jason Clemmons: Thanks so much for taking my question. Sure. So, you know, that other revenue category, if you look at the third quarter of 23 sales, we reported $64 million of revenue. And that's now up in Q4 to $77 million of revenue. So again, the PMPM revenue from capitated agreements is inside of that category. And so, as we, you know, far outpaced the patient transitions that we committed to as part of a key agreement in Q4, those cap deductions came down significantly. And that's a top line and bottom line impact. So, both are good guys.

Sure. So you know that other revenue category. If you look at the third quarter of 23 sales other we reported $64 million of revenue.

And Thats now up in Q4 to $77 million of revenue. So again the PM TM revenue from caffeinated agreements is inside of that category and so as we are.

Far outpaced the patient transitions that we committed to.

The key agreement in Q4, those capped deductions came down significantly and Thats, a topline and bottomline impact. So both both good guy. So that's the predominance of what Youre seeing there in that sales other growth.

Jason Clemmons: So, that's the predominance of what you're seeing there in that other growth. Thanks so much. Operator, is there another question?

Thank you very much.

Okay.

Operator is there another question.

Ben Hendricks: Yes, Sarah, as I apologize, we'll take our question from Ben Hendricks with RBC Capital Markets. Hey, guys. I wanted to just get a little deeper into the Humana contract conversion. I just want to get an idea of where we are in that process.

Yes, Sir I apologize, we will take a question from Ben Hendrix with RBC capital markets.

Hey, Thanks, guys.

Just get a little deeper into the Humana contract conversion I just wanted to get an idea of where we are in that process.

Jason Clemmons: And you said you've had some good success lately in getting that ramped up. If you could quantify, perhaps, the PMPM contribution to that $77 million and, then again, just how that does, you know, how you expect that portion of it to track through the year. Hey, Ben. This is Jason.

<unk> said <unk> had some good success lately and getting that ramped up.

You could quantify perhaps the <unk> contribution to that $77 million and.

And then again just how that does how you expect that portion of it to track through the year.

Hey, Ben this is Jason.

Jason Clemmons: We won't comment much on the economics of the arrangement, but to help you out, I would tell you that we have committed to being substantially complete with patient transitions by the end of this quarter, at the end of this first quarter, and if we are able to execute on that, you'll see a fully loaded quarter where we've essentially removed those cap deductions, so it's, in other words, kind of a fully loaded quarter And then just to follow up on the diabetes and pharmacy channel shift commentary, if you could describe a little more detail about your efforts and, you know, penetration into the pharmacy channel, what that looks like, and kind of where we are in that process and timing. Yes, but we should have something more significant to say about that in the first quarter.

We won't comment much on the economics of.

The arrangement.

But to help out I would tell you that we are committed to being substantially complete with patient transitions by the end of this quarter at the end of this first quarter.

And if we are able to execute on that Youll see a fully loaded quarter that we've.

Essentially remove those cap deductions. So it's in other words kind of a fully loaded quarter and then you can run the math from there.

Okay. Thank you and then just to follow up on the diabetes and pharmacy channel shift commentary.

If you could describe or detail about your efforts.

The penetration into the pharmacy channel, what does that look like and kind of where are we in that process and timing.

Yes.

Should have something more significant to say about this in the first quarter were working in first quarter call. We're working diligently to identify appropriate partners to work with us on this entering the pharmacy channel.

Richard Collamer Close: We're working, in the first quarter call, we're working diligently to identify appropriate partners to work with us on this. You know, entering the pharmacy channel is not a small enterprise for us. We've got a 50-state pharmacy, but we do need the backup tools and pipes in order to do this as efficiently as some of our competitors.

Is not a small enterprise for us we've got 50 state pharmacy.

We do need.

The backup tools and pipes in order to do this this as efficiently as some of our competitors. So we are going to we are in fact spending time and resources to get ramped up in this quarter and hope to have something to talk about in a couple of months.

Jason Clemmons: So we are going to, we are, in fact, spending time and resources to get ramped up in this quarter and hope to have something to talk about in a couple of months. Thank you. Thank you. We'll take our next question from Joanna Gajunk with Bank of America. Your line is open.

Thank you.

Thank you we'll take our next question from Joanna <unk> with Bank of America. Your line is open.

Hi, good morning, Thanks for taking the questions. So I guess first a follow up on up excuse me on that.

Joanna Gajunk: Thanks for taking the questions. So I guess first a follow-up on, excuse me, the questions around the Humana contract and the other revenue. So there was the $92 million in revenue in this quarter in Q4. That sounds like there's still more ramp up.

My question is on the Humana contract and other revenue.

So there was the $92 million I guess revenue in this quarter in Q4, it sounds like there's still more ramp up to the question is this.

Jason Clemmons: So the question is, you know, is this $92 million a good starting point or if there's more? And I guess when it comes to thinking about this being a strong quarter overall, was there some sort of pull forward of this revenue from Humana with some adjustments, you know, from 24 into 22 into Q4? There were no adjustments or unusual items in the quarter.

This $92 million a good starting point.

And I guess when it comes to thinking about this being a strong quarter overall, what does some sort of pull forward.

This revenue is from Joanna <unk> with some adjustments from 24 into 2020 into Q4.

There were no adjustments or unusual items.

At the end of the quarter.

Jason Clemmons: The 92 you're referencing is the total other revenue. I think earlier, we were talking about the other sales revenue at $77 million. But as we said, Joanna, we expect to be substantially complete with patient transitions before the end of the first quarter, 2024. And if we're able to execute on that, that should give you a good run rate within that other category of what we believe is our baseline, are newbies. Okay, great.

The 92 Youre referencing the total other revenue I think earlier, we were talking about the other sales revenue at $77 million.

But as we said, China, we expect to be substantially complete with patient transitions before the end of the first quarter 2024.

And if we're able to execute on that that should give you a good run rate within that sales other category of what we believe is our baseline.

Our new baseline.

Okay, great. Thank you I appreciate that.

Jason Clemmons: Thank you. I appreciate it. And so I guess just coming back to the performance in the quarter, so you said, you know, it came and EBITDA came in well above your higher end of your range. And you said, you know, your revenue that came with higher margins and obviously the Humana contract and a couple of other things. Any way to quantify any of these things?

So I guess just coming back to the performance in the quarter. So you said.

It came and EBITDA came in at or above the high end of your Rev.

Branch.

And you said.

Revenue.

Came with higher margin and obviously the Humana contract a couple of other things any way to quantify any of these things. So you would say that.

Jason Clemmons: Or would you say that, you know, they equally contributed to the outperformance? Yeah, I mean, a little bit here, a little bit there, a little everywhere, you know, adds up to some real real numbers, I guess. You know, I'd say if we look back at what we said in Q3, we had expected, you know, sleep and diabetes sequentially, their resupply growth to be about $20 million. I mean, it was 40, right?

Equally contributed to the outperformance.

Yeah.

A little bit here, a little bit there a little everywhere.

Adds up to some real real numbers.

I would say if we look back what we said in Q3, we had expected.

Sleep in diabetes sequentially, the resupply growth to be about $20 million.

40% right and so you've got all the flow through on that I mean, we had various other lines that would be and like I said, it's kind of a couple of million here a couple of million there.

Jason Clemmons: And so you've got all the flow through on that. I mean, we had various other lines that beat, and like I said, it's kind of a couple million here, a couple million there. Certainly on labor and OPEX, we put out conservative expectations, and we beat them, you know, so that was about another $5 million of sequential improvement across labor and OPEX. Thank you. And another, I guess, follow-up question: when it comes to the expiration of the 75-25 rule, which product category will be hit the most? Would it be, I guess, respiratory and sleep?

Certainly on labor and Opex, we put out conservative expectations.

And we beat them.

So that was about another $5 million of sequential improvement across labor and Opex.

Yes.

Thank you and then another I guess a follow up.

When it comes to the exploration of that 70, 525, ROE, which I guess product category will be hit the most would it be I guess respiratory and steep.

Jason Clemmons: Yeah, I mean, it would it would generally fall in line with, you know, the size of those businesses, right? So sleep being almost about 40% of our revenue, right, would arguably be the most affected. But you know, this is down at an MSA level and actually a product hiccup level. And so there's a lot of detail and nuance there. But for a proxy, it's safe to assume that it spreads across the business based on the size of the product.

Yes, yes.

It would generally fall in line with.

The size of those businesses right, so sleep being almost be about 40% of our revenue rate would arguably be impact most.

But this is down at an MSA level and actually in product hick pick level, and so theres a lot of detail and nuance there, but for a proxy it's safe to assume that it spreads across the business based on the size of the products.

Jason Clemmons: All right. Thank you for that. I'm just talking about, I guess, government exposure as it relates to the diabetes business, right? So, you talk about the census being almost 80 percent and, I guess, growing from here.

Alright, Thank you for that and just talking about I guess the government exposure.

As it relates to diabetes business right. So when you talk about the sense of being almost 80% and I guess growing from here. So.

Jason Clemmons: So, when you talk about government payer exposure, how much, I guess, in that bucket is from, you know, Medicare free for service versus Medicare Advantage, managed Medicaid, and also, when it comes to these payers, managed Medicare and managed Medicaid, are those payers largely in the pharmacy benefit or medical benefit? You know, is there, I guess, still potential for some movement in some of these payers that are actually in the government bucket, but they have, you know, more flexibility versus the fee-for-service model? Thank you. You know, Jane, I'd say that, I mean, we're not going to provide a lot of detail about the components, you know, that you're asking for to make up the total.

So when you when you talk about these government payer exposure how much I guess in that bucket is.

From Medicare fee for service versus Medicare advantage managed Medicaid and also when it comes to these payers managed Medicare.

Manage Medicaid.

Are those payers.

<unk>.

And the pharmacy benefit or medical benefit is there I guess still potential for some movement in some of these players.

In the government.

But they they have more flexibility versus the fee for service. Thank you.

Jan I would say that I mean, we're not we're not going to provide a lot of detail of the components.

You are asking for it to make up the total.

Jason Clemmons: The reason that we're categorizing it as government-sponsored payers is that we believe that, you know, this part of the business is fairly well insulated from the risks that you're highlighting. And so that's the reason we're reporting. Thank you. Thanks so much for taking the question. Thanks, Joanna. Thank you. We do have a follow-up from Eric Coldwell with Barrett. Your line is open.

The reason that we are categorizing it as government sponsor payers is that we believe that this part of the.

Business is fairly well insulated from the risks that you're highlighting.

And so that's the reason we're reporting it that way.

Thank you. Thanks, so much for taking the question.

Thanks Joanna.

Thank you we do have a follow up from Eric Coldwell with Baird. Your line is open.

Eric Coldwell: Thanks. I wanted to go back to the reimbursement and regulatory environment in... In the recent past, CMS has issued a few final rules that help rein in Medicare Advantage and managed Medicaid programs for things like improper denials, unnecessary or improper prior authorizations. Also, CMS is forcing these plans to cover everything covered under fee-for-service, provide faster appeals resolution, and also more transparency. I mean, it would seem like those would all be good guys for ADAPT and the rest of the industry, but I'm curious.

Thanks, I wanted to go back to the reimbursement and regulatory environment in.

In the recent past CMS has issued.

<unk> private final rules that.

Help bring in Medicare advantage and managed Medicaid programs for things like improper denials unnecessary or improper prior authorizations also CMS is forcing these plans to cover everything covered under fee for service provide faster Appeals resolution and also more transparency I mean it would.

Seem like those would all be.

Good guys for adapting to the rest of the industry.

I'm curious it's very early here, obviously with the last final rule I'm curious have you seen any benefit or change in in payer behavior. Since since this came out and what are you. What are you expecting thank you.

Richard Collamer Close: It's very early here, obviously, with the last final rule. I'm curious, have you seen any benefit or change in payer behavior since this came out, and what are you expecting? None of them. We haven't seen anything so far, but you know, your intuition that this is all positive for us is, I think, correct.

No we haven't seen nothing so far but your intuition that this is all positive for US is I think correct.

Have you.

Incorporated in the <unk>.

Jason Clemmons: Have you, uh... Adapthealth.org. That's right. OK. Yep. You got it right.

<unk> forecasting of a potential lift or benefit in your guidance.

Yes, yes.

<unk> would be upside potential.

That's right okay.

Alright.

Eric Coldwell: Thanks very much. Thanks, Eric. Thank you, and we have no further questions in the queue at this time. I would now like to thank everyone for joining today's call. You may now disconnect your line at any time, www.adapthealth.com. Aaaah! Do not forget to subscribe and visit www.adapthealth.org. I'll see you next time, www.adaptheauth.com.

Thanks very much.

Thanks, Eric.

Thank you and we have no further questions on the in the queue. At this time I would now like to thank everyone for joining today's call. You may now disconnect. Your line at any time.

Okay.

Mhm.

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