Q3 2024 Quipt Home Medical Corp Earnings Call
Speaker Change: [music]
Speaker Change: Thank you for standing by. This is the Conference Operator. Welcome to the Fiscal Third Quarter 2024 Results Conference Call from Quipped Home Medical Corp.
Speaker Change: As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions.
Speaker Change: To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then 0.
Speaker Change: We remind you that the remarks today will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reader advisory at the bottom of the company's results news release.
Speaker Change: The company's actual performance could differ materially from these statements.
Speaker Change: At this point, I'd like to turn the call over to Chairman and Chief Executive Officer Greg Crawford.
Speaker Change: William Sutherland, Richard Close.
Greg Crawford: Thank you operator and thank you all for joining us today on the call. My name is Greg Crawford and I'm the Chairman and Chief Executive Officer of Quipton Medical. Joining me today is Hardik Mehta, our Chief Financial Officer.
Speaker Change: Quipt Home Medical is a diversified healthcare services company providing a full spectrum of home medical equipment and services to patients in the home setting across the United States. At Quipt our unwavering commitment is to provide clinical excellence through our patient-centric ecosystem.
Speaker Change: Leveraging technology-enabled equipment solutions in conjunction with our specialized clinical respiratory programs to effectively treat patients at home in a way that best suits their needs.
Speaker Change: Our core go-to-market strategy drives market penetration through providing an end-to-end respiratory care solution with complimentary durable medical equipment products to our key sales touch points, serving as a one-stop shop in the marketplace.
Speaker Change: At this time, respiratory care accounts for approximately 80% of our product mix, showcasing our ongoing commitment to serving the needs of patients with pulmonary and cardiovascular diseases.
Speaker Change: With our ongoing dedication to patient care and the scale we are achieving, we are poised to capitalize on the expanding need for respiratory care delivered in the home setting.
Speaker Change: This need for respiratory care is driven by an aging population, significant COPD target patient group of over 16 million Americans.
Speaker Change: in a significantly under-penetrated sleep apnea market with OSA impacting 80 million adults across the United States.
Speaker Change: On this call, we will provide updates on our fiscal third quarter 2024 performance.
Speaker Change: provide strategic insights into our core business and our strategic growth roadmap.
Speaker Change: In FYSBQ3 2024, we reported revenue of $64 million, marking a 6.1% year-over-year increase and adjusted even margin of 22.3%.
Speaker Change: This resulted in adjusted EBITDA of $14.2 million, representing growth of 2.7%.
Speaker Change: We increased revenues to $193.3 million for the nine months ended June 30, 2024.
Speaker Change: an increase of 21.4 percent compared to the prior period and generated adjusted EBITDA of 44 and a half million dollars representing 23 percent of revenue compared to 22.6 percent for the corresponding period.
Speaker Change: Our strategy focusing on generating economies of scale and effective cost management enabled the consistency in our margin profile.
Speaker Change: We are very pleased with the progress made in the fiscal third quarter in the face of the challenges faced year to date.
Speaker Change: We saw year-over-year organic growth of 3% and flat sequential organic revenue growth in the quarter. This represented a solid sequential improvement from the 2% sequential decline seen in fiscal Q2.
Speaker Change: We are proud of the improvement given the absorbed impact of the end of the Medicare 7525 relief as of January 1st.
Speaker Change: which had been providing rate relief for certain geographies. The changed healthcare cyber attack and the withdrawal of Medicare Advantage members due to a capitated agreement engaged on with other providers in the industry.
Speaker Change: We have observed strength in our product offering in real time which has helped to mitigate the impact and we anticipate a return to historic levels of organic growth in time.
Speaker Change: Turning to our sleep business as it relates to the continued emphasis on GLP-1s, we have not seen any negative impact from GLP-1s whatsoever to date.
Speaker Change: We have seen referral patterns for new device setups remain consistent and replacement supplies very strong. In the quarter, we saw our resupply program perform very well with an increase of 2.2 million, or 9%.
Speaker Change: Moreover, additional positive data shared from the leading sleep device manufacturer recently involving 811,000 patients
Speaker Change: showed those with an OSA diagnosis and prescribed a GLP-1 are 10.7% more likely to start pap therapy compared to those not on GLP-1s.
Speaker Change: highlighting their impact on treatment adherence. Additionally, data showed more frequent resupply order rates for these patients over 12 and 24 months.
Speaker Change: The data shared demonstrates the GLP-1s are having a positive impact on patients both seeking and adhering to positive airway pressure therapy.
Speaker Change: We think that the availability of these medications for the treatment of obstructive sleep apnea will lead to a rise in the number of cases diagnosed with the illness and a rise in the market demand for pap therapy.
Speaker Change: It is important to remember that 80 million adults in the U.S. have OSA, of whom over 20 million have moderate to severe OSA.
Speaker Change: Furthermore, it's estimated that 85% of the cases of OSA remain undiagnosed and untreated. The total addressable market is extremely large for this segment of patients and allows for multiple treatment modalities.
Speaker Change: CPAP is also well tolerated with approximately 87% of patients meeting U.S. Medicare criteria for CPAP adherence using modern technology.
Speaker Change: We believe, based on early data, our real-time performance and the positive developments of more motivated patients entering the healthcare system as they work towards their health goals, the introduction of GLP-1s will be complementary, serving as a tailwind for our sleep business over time.
Speaker Change: As it relates to the ongoing CID, known as the Civil Investigative Demand, we continue to make progress providing information and are working diligently to resolve this matter as quickly as possible.
Speaker Change: At this time, the government has not reached a conclusion that any wrongdoing has occurred. We have effective internal controls around billing and compliance procedures in place and remain confident in our practices.
Speaker Change: In Fiscal Q3, we were laser-focused on working through the short-term working capital impact of the changed healthcare cyberattack, ensuring cash collections normalized and the processing of outstanding claims was prioritized.
Speaker Change: Now, as we begin to move on to the other side of this impact, we continue to look at ways to allocate our capital to promote growth and create value.
Speaker Change: To this effect, we have seen the M&A landscape evolve over recent months.
Speaker Change: with plenty of strategic opportunities in the marketplace that would fit our stringent mandate. Our pipeline is growing, and we are committed to economically building scale with the flexibility to deploy capital in a thoughtful manner as it relates to synergistic acquisitions at reasonable multiples.
Speaker Change: Moreover, as it relates to the M&A environment as a whole, we believe the recent sale of one of our larger peers, which is significantly higher than our current trading multiple, underscores how undervalued our company is at this time.
Speaker Change: Additionally, we anticipate that dislocation will occur in the marketplace from the M&A activity and will lead to organic growth opportunities for us to take advantage of and we are ready to pick up market share.
Speaker Change: Finally, we will continue managing debt conservatively and leveraging our strong balance sheet which stands at a conservative 1.5 net leverage, enabling us to pursue strategic initiatives that drive long-term value for our shareholders.
Speaker Change: As we continue to implement our strategic growth strategy, we are confident in our ability to deliver exceptional patient care, establish strong pair alliances, and achieve consistent and sustained long-term growth.
Speaker Change: With that commentary, I'd like to hand the call over to Hardik to discuss our fiscal third quarter 2024 financial results.
Hardik Mehta: Thanks, Greg. On Wednesday evening, we announced our fiscal third quarter 2024 financial results representing the three months ended June 30, 2024.
Hardik Mehta: Please note that all financial values are in U.S. dollars.
Hardik Mehta: Here are some key highlights. The company's customer base increased 9% year over year to 153,223 unique patients. So, in Q3,204, up from 140,515 unique patients, in Q3,203.
Hardik Mehta: Compet to 547,000 and 38 unique setups are deliveries in Q3, 20, 23, the company completed 641,786 unique setups and deliveries in Q3, 2024. An increase of 17.3%.
Hardik Mehta: This includes 120,118 respiratory resupply setups.
Hardik Mehta: for the three months ended June 30, 2024, compared to $108,391 for the three months ended June 30, 2023, an increase of 10.8%, which the company credits to its continued use of technology and centralized intake processes.
Hardik Mehta: Revenue for Fiscal Q3 2024 was $64 million compared to $60.3 million for Fiscal Q3 2023, representing a 6.1% increase in revenue year-over-year.
Hardik Mehta: Organic growth contributed approximately 1.7 or 3% year-over-year.
Hardik Mehta: Revenues for the nine months ended June 30, 2024 increased to $193.3 million, representing an increase of 21.4% from the nine months ended June 30, 2023.
Hardik Mehta: Organic growth contributed approximately 8.1 million or 5%.
Hardik Mehta: Recurring revenues as of fiscal Q3 2024 continues to be strong and is approximately 82.1% of the total revenue.
Speaker Change: Adjusted EBITDA for fiscal Q3 2024 was $14.2 million or a 22.3% margin compared to $13.9 million or a 23% margin for Q3 2023.
Speaker Change: The EBITDA grew by 2.7% year-over-year.
Speaker Change: The company generated adjusted EBITDA of $44.5 million for the nine months ended June 30, 2024, a 23.7% increase from the nine months ended June 30, 2023.
Speaker Change: This represents 23% of revenue for the nine months ended June 30, 2024, an increase from 22.6% for the nine months ended June 30, 2023.
Speaker Change: Cash flow for continuing operations was $28.6 million for the 9 months ended June 30, 2024, compared to $27.3 million for the 9 months ended June 30, 2023, an increase of 4.9%.
Speaker Change: For fiscal Q3 2024, bad debt expenses increased to 5% from 4% due to the direct and indirect effects of the changed healthcare cybersecurity incident, resulting in a diversion from normal collection efforts.
Speaker Change: CAPEX defined as transfers of rental equipment from serialized inventory to fixed assets when we deploy the equipment on patients was 12.7% for the nine months ended June 30, 2024 in line with historical levels.
Speaker Change: We experienced higher capex for the three-month period ending June 30, 2024, due to the purchase of new ventilators to replace the old Trilogy model in our fleet.
Speaker Change: Operating expenses for the three months ended June 30, 2024 was 47.8% and increased from 45.4% in the three months ending June 30, 2023.
Speaker Change: Acquisitions accounted for approximately $900,000 of the increase and $723,000 of professional fees related to CID.
Speaker Change: Remaining increase was incurred to support organic revenue growth with payroll being the largest component.
Speaker Change: The company reported $14.4 million of cash on hand on June 30, 2024, compared to $14.6 million as of March 31, 2024.
Speaker Change: The company had total credit availability of $38.1 million as of June 30, 2024 with $17.1 million available on the Revolving Credit Facility and $21 million available pursuant to the Delay Draw Term Loan Facility.
Speaker Change: The company maintains a conservative balance sheet with the net debt to adjust the EBITDA leverage of 1.5x.
Speaker Change: We are pleased with the steady progress made throughout this quarter, and we are confident that our ongoing growth initiatives will translate into sustained long-term value for our shareholders.
Speaker Change: A key component of our strategy is our prudent approach to capital management as this allows us to economically scale our business while maintaining efficiency.
Speaker Change: Our focus is on ensuring that every investment we make is geared towards sustainable growth.
Speaker Change: Our long-term strategy is built on maximizing the resources we already have in place, including leveraging our strong balance sheet, operational strength, sales capabilities, and the infrastructure we have developed so far.
Speaker Change: By doing so, we are able to build a more resilient and stable foundation for future growth, margin acceleration, and cash flow generation.
Speaker Change: We are proud of the efforts of our team in growing our overall revenue year-over-year and mitigating the temporary headwinds we faced with continued volume growth to produce flat growth sequentially, an improvement from sequential 2.1% decline seen from fiscal Q1 to fiscal Q2.
Speaker Change: Our priority remains on achieving organic growth target of 8-10% on an annualized basis.
Speaker Change: Our conservative balance sheet featuring $31.5 million in cash and revolver availability positions us exceptionally well to navigate an environment of higher interest rates and strategically pursue both organic and inorganic growth opportunities with a prudent leverage ratio of 1.5 times.
Speaker Change: We are strategically positioned to utilize a balanced mix of debt and cash, demonstrating our commitment to disciplined growth.
Speaker Change: As it relates to working capital, we generally do not have any significant seasonal working capital fluctuations. However, during the nine months ended June 30, 2024, the changed healthcare cybersecurity incident created a reduction in our cash flow and increased our working capital needs.
Speaker Change: We estimate the working capital impact from CHANGE Healthcare has been approximately $4 million. As we continue collecting outstanding claims, it should mitigate this impact and reduce our higher working capital that we currently have.
Speaker Change: On a go-forward basis, we continue to anticipate 6-8% free cash flow following CAPEX and or lease payments, but prior to any payments relating to debt service and acquisitions price payable.
Speaker Change: We see this as our baseline scenario going forward, with the long-term objective of improving on this as we continue to expand our business.
Speaker Change: We are confident in our ability to grow our net cash flow inclusive of our CapEx needs.
Speaker Change: Maintaining our capital allocation discipline is crucial to our continued financial success.
Speaker Change: We will continue to adhere to our strict approach, focusing our investments on creating value by building scale within the business to drive operating leverage. This disciplined strategy ensures we maximize financial flexibility and long-term shareholder value.
Speaker Change: Lastly, as a reminder, this is our last fiscal quarter reporting under International Financial Reporting Standards, also known as IFRS.
Speaker Change: Starting with our full year fiscal 2024 results, we will transition to U.S. Generally Accepted Accounting Principles, also known as GAAP.
Speaker Change: This means starting from our fourth quarter of fiscal 2024 and our audited financials for the year ending September 30, 2024, the financial statements will be prepared under U.S. GAAP.
Speaker Change: It also means that effective October 1, 2024, the company will be subject to the same reporting and disclosure requirements applicable to domestic U.S. companies.
Speaker Change: and the company will be required to file periodic reports and financial statements with the SEC on Form 10-K and Form 10-Q as applicable, as well as filing current reports on Form 8-K.
Speaker Change: We are looking forward to this transition as we believe it is important to align our accounting standards with the geography of our operations being all within the United States, as well as improving comparability to our peers in the industry.
Speaker Change: Thank you, and with that update, I'll turn the call back to Craig.
Craig: Thanks Hardik. Our strategic focus on leveraging our existing infrastructure and economies of scales has yielded a consistent adjusted even margin.
Speaker Change: By demonstrating a sustained and solid margin profile across various operating environments, we have showcased our thoughtful and adaptable capital management approach.
Speaker Change: our comprehensive range of end-to-end respiratory solutions.
Speaker Change: coupled with a diverse product mix is pivotal to our sustained success and market expansion.
Speaker Change: Concentrating on key sales channels such as hospital systems and physicians offices drives volume growth, which remains the primary catalyst for our organic growth. This strategy underpins our long-term expansion plan and solidifies our market position.
Speaker Change: Our investment in creating operational efficiencies is central to our overall strategy. By automating key processes and enhancing our operational infrastructure, we aim to boost productivity, reduce costs, and improve patient outcomes.
Speaker Change: This focus on efficiency not only supports our long-term organic growth objectives, but also ensures we remain competitive and agile in our markets nationwide.
Speaker Change: Looking at our strategic growth roadmap, we are focused on driving long-term organic growth, enhancing cash flow generation, and margin, as well as retaining financial flexibility to seize on emerging opportunities.
Speaker Change: We are committed to driving long-term organic growth by leveraging our unique market positioning in clinical respiratory care.
Speaker Change: Our goal of achieving 8% to 10% annualized growth is underpinned by the expanding demand for home-delivered respiratory services. This demand is driven by an aging population, significant prevalence of COPD, and an underpenetrated sleep apnea market.
Speaker Change: To support this growth, we focus on market expansion and strategic sales initiatives. We continuously explore opportunities to broaden our product portfolio, cross-sell our comprehensive product solutions, and penetrate new markets.
Speaker Change: Our targeted efforts aims to drive volume-based growth through enhanced sales strategies, stronger relationships with health care providers and payers, and access to key geographic areas.
Speaker Change: Recently, we announced the rollout of an expanded offering to include the Diabetes
Speaker Change: Market Segment, featuring continuous glucose monitors.
Speaker Change: also known as CGMs and related supplies. This initiative has shown promising early results and represents a significant opportunity to add value to our existing patient base without increasing SG&A expenses.
Speaker Change: By addressing an unmet need, we can leverage our established relationships and deep understanding of patient needs to cross sell new products effectively. This move enhances our product offering and strengthens our position as a comprehensive care provider in the home medical equipment ecosystem.
Speaker Change: The diabetes patient population complements our existing patient base well. Clinical research indicates that up to 48% of individuals diagnosed with type 2 diabetes also have sleep apnea, highlighting the synergistic potential of our expanded portfolio.
Speaker Change: Second, we are committed to achieving economies of scale and continuous margin improvement. By streamlining our operations and optimizing our cost structure as we grow, we aim to enhance our margins and overall cash flow, enabling us to invest in growth initiatives and drive positive cash flow generation.
Speaker Change: Furthermore, we are dedicated to promoting the long-term adoption of electronic prescribing, also known as e-prescribe, within our industry. Our commitment to the adoption of this technology positions us well to benefit from its numerous advantages.
Speaker Change: including increased productivity, reduced errors, improved compliance, and better patient outcomes.
Speaker Change: Our automated resupply platform is another excellent illustration of how we use technology. It not only helps us achieve higher margin recurring revenue and organic growth, but it also offers us significant revenue synergies when we make strategic acquisitions.
Speaker Change: The resupply program also plays a crucial role in extending a patient life cycle with us, as well as driving compliance rates and long-term adherence to therapy, which all benefits the patient.
Speaker Change: Lastly, we are committed to maintaining a conservative balance sheet to ensure ample flexibility, allowing us to allocate capital towards synergistic acquisition candidates that meet our stringent criteria.
Speaker Change: Since 2018, we have successfully integrated 19 acquisitions contributing more than $150 million in revenue.
Speaker Change: Our disciplined approach to debt management coupled with strategic investments in our operating platform and market expansion will support our long-term objectives of positive net cash generation and modest leverage.
Speaker Change: This strategy enhances our capacity to invest in synergistic acquisition opportunities that bolster our go-to-market strategy centered around our comprehensive end-to-end respiratory offering.
Speaker Change: On the capital markets front, we are actively interacting with investors from the United States and Canada to discuss our long-term growth ambitions and ongoing disconnect in our valuation compared to our fundamentals.
Speaker Change: This includes attending various investor conferences and investor roadshows throughout the remainder of 2024. As always, we will continue to work to build our investor audience and overall shareholder base.
Speaker Change: Importantly, I want to again note the recent announcement of the potential sale of a larger industry peer at a significantly higher multiple than our current market valuation, which we believe does not reflect our overall business fundamentals.
Speaker Change: Based on historical developments, when large M&A take place, we anticipate dislocation to likely occur, and we are very confident in our ability to seize upon this opportunity to further our organic growth initiatives.
Speaker Change: Looking to the future, our methodical approach to synergistic acquisitions along with our strategic focus on organic growth
Speaker Change: puts us in a strong position for long-term success. Our dedication to developing a robust and scalable company strategy is demonstrated by our capacity to utilize internal resources and operational efficiencies.
Speaker Change: Our commitment to providing value to our shareholders will not waver as we manage the operational environment and stick to our flexible capital allocation strategy.
Speaker Change: In summary, while Fiscal Q3 posed lingering challenges, our sequential improvement from the decline in revenue seen in Fiscal Q2 shows the improving trend and the underlying strength of our current market positioning.
Speaker Change: scaled operational platform, and the resilience of our business model to mitigate the impact. We appreciate the continued support of our investors, and we are extremely well positioned to seize the opportunities for further expansion.
Speaker Change: Finally, I want to take this chance to thank the entire Quipt team once again for their tireless work and our stakeholders for their continued support.
Speaker Change: We will now begin the analyst question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You'll hear a tone acknowledging your request.
Speaker Change: If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 1, 2 rather.
Speaker Change: The first question is from Richard Close with Kennecore Genuity. Please go ahead.
Speaker Change: Great, thanks for the question. I'm just curious how you're thinking about fourth quarter, the opportunity for sequential growth, you know, given 75-25 and the capitation contracts that were signed last year.
Speaker Change: by competitors.
Speaker Change: Yeah, thanks Richard for the question. We anticipate and are diligently working in that to overcome the challenges in that that we face with the 70 the decline in the 75-25 and then also the withdrawal of the MedAdvantage plans.
Speaker Change: We are starting to see our volumes grow as we get into the back half of the calendar year here.
Speaker Change: Okay, and maybe as a follow-up, obviously good growth metrics on the patient service, equipment setups, and respiratory resupply. I think there was slight improvement in growth.
Speaker Change: from the second quarter, and then what you put up here in the third quarter. I'm just curious, you know, if we look at the revenue, it was flat sequentially, but the, you know, number of the metrics increased. Is there anything on pricing, or what would be...
Speaker Change: The reason for that, the patient metrics and deliveries and all that goes up, but you don't really see that sequential bump in revenue from second quarter.
Speaker Change: Yeah I guess this is this is Hardik and I guess this you are seeing the impact of
Hardik Mehta: the 75-25 rate card, you are essentially delivering the same product but doing it at a lower rate.
Speaker Change: A cumulative impact of that as far as the capitated
Speaker Change: insurance that we lost, I think there's
Speaker Change: I would say there is a lot more depression due to that in terms of margins, but sometimes your cross-selling abilities get impacted when you lose a contract with a referral source.
Speaker Change: but I would say most likely most not most likely it's mostly contributed towards the fact that you know there was a rate cut on 75 25 and then
Speaker Change: some point, the plans that point towards Medicare reimbursement would also have a similar impact.
Speaker Change: So that's really the one. OK, so it's just maybe a little bit more from 7025 than what occurred in the March quarter.
Speaker Change: Yes.
Speaker Change: I guess that okay
Speaker Change: All right. I think the change healthcare and everything was happening at the same time so we yeah we kind of like tried to take a look at it as a six months period rather than a three-month and a three-month which we would have otherwise been taking it but at this point
Speaker Change: The management kind of looks at six months ending June as a more, I guess.
Speaker Change: as a period for the operating results rather than quarters.
Speaker Change: Okay, and then my final question, I appreciate the comments on the referral patterns and obviously the metrics that I just cited seem to
Speaker Change: Back that up, Greg, as we think about the 8% to 10% organic growth sort of target out there that you've done well on the last, I guess, couple of years,
Greg Crawford: Is it just a matter of lapping 75-25 and then the Humana shift and then we can pop back up to that level?
Greg Crawford: Yeah, absolutely. Most of it in that that we've seen has been driven in that by those two factors and that the 75-25 and the withdrawal of the Humana.
Speaker Change: So the sales team in that has really had to kind of pivot in that and try to pick up other referrals in that to continue to drive the revenue forward. And we've also, in that, have been expanding into continuum areas in that with additional sales coverage in that throughout our territories.
Speaker Change: Okay, thank you. I'll jump back in the queue.
Speaker Change: Thank you.
Speaker Change: Once again, if you have a question and you're an analyst, please press star then 1.
Speaker Change: The next question is from Richard Close with Canaccord Genuity. Please go ahead.
Speaker Change: Okay, I'll take another one here.
Speaker Change: With respect to the comments, Greg, in terms of picking up market share...
Richard Close: You know, with the dislocation that is likely to occur from Owens and Miner and the Rotec deal, do you have any past experience that you can, you know, point to in terms of...
Speaker Change: You know where this has occurred and you you saw some meaningful pickup in certain Geographic markets just curious there
Speaker Change: Yeah, absolutely. And that I mean, just historically, over the years, when we've seen M&A, we've seen dislocation, especially when there's consolidation. And I'll also in that say that we've been on the flip side of that and have lost business, too, and had to make up in that kind of post-acquisition.
Speaker Change: but we think that you know we stand to benefit with in that that dislocation of that when and if it does happen in the market.
Speaker Change: Okay, that's helpful. And then maybe on the bad debt, just going over that really quickly.
Speaker Change: You know, I guess it's attributed to change in terms of going up a hundred basis points year over year and...
Speaker Change: may be up slightly here sequentially.
Speaker Change: You know, what are your guys' thoughts on bad debt? Cause obviously the trend was, you know, pretty favorable moving down below the 5% level previously. So just thoughts on how we should think about bad debt.
Speaker Change: Yeah, this is, I think, I think it's a, it's a, it's a fair risk given the way, the intricacies of the change healthcare.
Speaker Change: I mean, part of us, I mean, we have to still see some data coming in over the next quarter or so, but we believe maybe we might see the elevated 5%.
Speaker Change: So hopefully it's just a matter of, you know, going through the next four quarters, let the data come in in terms of how how much we collect on the outstanding AR related to change healthcare holdup and go from there. But again, as far as...
Speaker Change: the baseline processes and baseline RCM outcomes, we are not seeing any kind of deviations there.
Speaker Change: Okay, thank you.
Speaker Change: The next question is from Justin Keywood with CFL. Please go ahead.
Justin Keywood: Good morning. Thanks for taking my call. Not sure if I missed it. Is this a good EBITDA margin level to assume going forward in the near term?
Speaker Change: I would say...
Speaker Change: hundred percent or certainly very positively. I mean if you kind of think about it if all of our drop from the revenue
Speaker Change: kind of has flushed into our EBITDA for the most part. And I mean, despite of that, we have kind of maintained a 22 plus EBITDA margin. So...
Speaker Change: Thank you.
Speaker Change: If we are able to bring back that revenue without having to increase the workforce and the fixed cost, this seems like a very good support for where the EBITDA margin should stay.
Speaker Change: Okay, thank you. And then the Kotlin on the free cash flow conversion target of six to eight percent, is that something that's achievable in fiscal Q4 or will be more into next year?
Speaker Change: I mean, we did have a couple of quarters where we did hit that. I mean, there's quite a bit of moving parts with CID, the legal expenses that goes with it.
Speaker Change: which has, you know, impacted.
Speaker Change: that the fact that change healthcare is still affecting our cash flow a little bit, which will all get ironed out. So I would say between the next two quarters, again, it should all level out. And then what we will see is more of a steady, that 6% to 8% that we've been hoping for it.
Speaker Change: Actually, we haven't tuned in for the last couple of quarters.
Speaker Change: Okay, that's clear. And then on the large acquisition in the industry of the peer, first, if you have any valuation metrics that you could point to there.
Speaker Change: And then also for QIPT, if there's a target multiple level that is appropriate to acquire at, assuming that the targets are smaller in size.
Speaker Change: Yeah, so I think that as it relates in that to the deal that we were referring to and that the multiple was 6.3 and that times EBITDA and that according to the press release there so we don't have any other further information or anything on that but that's where the multiple and that seemed to be. We think that we can still acquire and that companies in this four to four to five range prior to any synergies which is where we've historically and that acquired companies will say in the 20 million and under space and that's where we see a lot of opportunity for us in the future and that will be those tuck-ins.
Speaker Change: and then historically in that we've gotten one to two turns of synergies.
Speaker Change: So we think ultimately in that it's all about building that long-term value in that. So even if we come out and then our stock right now is probably trading at less than three and a half times, so we're still going to end up creating long-term value in that which is our goal.
Speaker Change: What's the potential timing for M&A? Is that something that could occur this calendar year?
Speaker Change: Yeah, we're diligently working the pipeline and we've actually are quite surprised in that and that with the pipeline and that that we've been able to reinvigorate in that after pivoting around the challenges and that that we faced in the first part of the year in that. So we'll diligently be working on deals and closing them as quick as possible.
Speaker Change: And then just one more question, there was a mention of pretty good leverage on the balance sheet at 1.5, what's the comfort range as far as bringing up that leverage rate, still considering somewhat high interest rates?
Speaker Change: Yeah, so...
Speaker Change: I mean, mathematically, the company can still survive if we went up to two easily. So, I mean, that is with a blink of an eye. I think that comfort comes in. Can it be stretched a little further? It can be. Would we, maybe, maybe not.
Speaker Change: So, I think there's definitely availability from that perspective, even though, as part of our credit agreement, we can go up to three, but we don't intend to do that.
Speaker Change: By the way, one clarification on the free cash flow that you had asked earlier, you know, our year-to-date, if you look at the free cash flow as defined by the company here, it is around 7%. We're still within that 6% to 8% range that we are seeking for year-to-date. Now, the quarter date come out as…
Speaker Change: as strong, but for the year-to-date number, I think we are still in that range. So just wanted to clarify that.
Speaker Change: Thank you for taking my questions.
Speaker Change: Thank you, Justin.
Speaker Change: Once again, any analysts with a question can press star then 1. The next question is from Stéphane Cohennevue with Ventum Financial. Please go ahead.
Stéphane Cohennevue: Hi, guys, and thanks for taking the question.
Stéphane Cohennevue: I just have a question on this sort of GLP-1.
Stéphane Cohennevue: impact.
Stéphane Cohennevue: You said you're not seeing any operational impact on your CPAP starts and all that. You know, given the GLP-1s are, if they're being prescribed for sleep apnea, it's being prescribed off-label currently.
Speaker Change: Are you seeing anything on the insurance side that is requiring patients to start with CPAP first before GLP-1s are being prescribed?
Speaker Change: just given the typically good results you get with CPAP and it's obviously a lot less expensive to keep someone on CPAP rather than GLP-1s or are they reimbursing for both? So just sort of, do you see any trends there from an insurance perspective?
Speaker Change: Yeah, yeah, you know that's that's actually a really good question in that we we're not seeing that trend yet but we're not pharmacy based either in that but have been asking around to different peers.
Speaker Change: and that's not been presented yet. I think when you look at the most recent study that was released by the largest device manufacturer and that for CPAP
Speaker Change: is that the study they had with that 800,000 recipients in it, in that they've seen a 10% increase in...
Speaker Change: devices and that being prescribed and that for a patient that's on GLP-1 versus one that is not.
Speaker Change: So I think that, you know, that kind of indicates that this is, GLP-1 is really driving more people into the health care system and ultimately they're not just going to take care of their weight problem, they're going to take care of everything and that they need to get taken care of in order to live a healthier, happier life.
Speaker Change: Yeah, that's great. That's it for me. Thanks.
Speaker Change: This concludes today's question and answer session. I'd like to turn the conference back over to Mr. Crawford for any closing remarks.
Mr. Crawford: Thank you, Operator, and thank you all for your participation today. As always, you can find us on the web at quippedhomemedical.com where we will be posting a transcript of this call and also our updated investor deck. On the site, you can also view some of the exciting products and developments discussed on this call. Thank you and have a great day.
Mr. Crawford: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.