Q4 2024 AdaptHealth Corp Earnings Call
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Susanne Foster: Today's speakers will be Susanne Foster Chief Executive officer of adopt health and Jason Clemens Chief Financial officer of adopt health.
Susanne Foster: Before we begin I would 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.
Susanne Foster: These statements include but are not limited to comments regarding financial results for 2025 and beyond actual results could differ materially from those projected in forward looking statements because of a number of risk factors and uncertainties, which are discussed at length in the company's annual and quarterly.
Susanne Foster: SEC filings adopt health Corp has no obligation to update the information provided on this call to reflect such a subsequent events.
Susanne Foster: Additionally, on this morning's call the company will reference certain financial measures such as EBITDA adjusted EBITDA adjusted EBITDA margin and free cash flow all of which are non-GAAP financial measures you can find more information about these non-GAAP measures in the presentation materials accompanying today's call.
Susanne Foster: All of which are posted on the company's website. This mornings call is being recorded and a replay of the call will be available later today.
Speaker Change: It is now my pleasure to introduce the Chief Executive Officer of adapt help Suzanne Foster. Please go ahead.
Speaker Change: Good morning, everyone and thank you for joining the call as we close out 2024 I'm encouraged by the progress we've made towards strengthening our foundation and positioning the company for long term success and growth.
Speaker Change: Before I get into that I'd like to take a moment to review our fourth quarter results.
Speaker Change: We are pleased that revenue adjusted EBITDA and free cash flow each exceeded the high end of our guidance ranges for the fourth quarter of 'twenty 'twenty four.
Speaker Change: Acknowledging that this followed on the reduced expectations, we shared in early November.
Speaker Change: Fourth quarter revenue was effectively flat versus the prior year quarter, but beat the midpoint of our Q4 guidance range by 3%.
Our sleep health and respiratory health segments delivered year over year growth.
Speaker Change: Offsetting contractions in our diabetes health segment.
Her to prior year quarter by segment fourth quarter sleep health revenue increased three 4% respiratory.
Speaker Change: Respiratory health increased 1%.
Speaker Change: Wellness at home declined, 8% and diabetes health declined seven 3%.
Speaker Change: Fourth quarter, adjusted EBITDA contracted 2% from the prior year quarter, but was well above the high end of our guidance range.
Speaker Change: While our adjusted EBITDA margin was 23, 4% modestly narrower than the 23, 8% recorded in prior year quarter.
Speaker Change: Free cash flow was strong in the fourth quarter at $73 million up 10% from prior year quarter, and well above the high end of our guidance range.
Speaker Change: As you know last August we identified five areas of focus.
Speaker Change: Which included our one adopt initiatives.
Speaker Change: Celebrating the application of AI and automation.
Speaker Change: Increasing our clinical relevance delivering organic growth and strengthening our balance sheet and I'm pleased to and I'm pleased that we are already making progress on all fronts.
Speaker Change: Starting with one adopt we're taking action to standardize work and cultivate a mindset of continuous improvement to ensure that we deliver exceptional service and quality of care to patients.
Speaker Change: We began by assembling a team of talented and experienced leaders recruiting several senior professionals to the company over the last seven months.
Speaker Change: This includes new leaders for operations and strategy, who both joined in the second quarter.
Speaker Change: It also includes the appointment of a chief commercial officer, a new Chief legal officer.
Speaker Change: And an SVP of supply chain this past quarter.
Speaker Change: In the coming months, we are looking forward to welcoming our newly appointed senior leader to build out our adopt operating system or a O N E.
We made all of these additions while holding the line on our adjusted EBITDA margin.
Speaker Change: Just as important we are empowering these individuals and the teams they lead to an organizational structure that prioritizes accountability coordination and trust.
Speaker Change: Among other changes starting in the fourth quarter, we moved towards Steadman structure for managing the company.
Speaker Change: With general managers appointed to each of these four segments.
Speaker Change: This new structure provides visibility into the needs of our customers coordinate our efforts around service excellence.
Speaker Change: Arrives accountability throughout our organization and allows us to measure and improve our business performance.
Speaker Change: Further we are harnessing the abundance of talent and experience in our workforce by enlisting employees across all levels of the organization to participate in training on problem solving methods by challenging them to proactively identify opportunities for improvement in our processes and operations and by inviting Nacho.
Speaker Change: Work with their colleagues to implement changes that will increase the quality of the work we perform.
Speaker Change: One of them is about superior execution.
Speaker Change: It is about being the best operator in the industry and building an unrivaled reputation for patient service excellence and.
Speaker Change: In short it's about being the best version of what we already are.
Speaker Change: And at the same time, we recognize we must evolve how we do what we do today.
Speaker Change: And that means leading the home health industry, and innovation and expanding the value we deliver for patients.
Speaker Change: A prime example is our focus on harnessing the power of automation and AI.
Speaker Change: We have several initiatives underway that will simplify the patient experience streamlined the work, we do for them and free up resources that can be reinvested and creating additional patient value.
To name just two in October we introduced a self pay feature in our mobile application called my.
Speaker Change: And following through on and initiatives I mentioned last quarter in December we launched a CPAP self scheduling feature NII.
Speaker Change: Our self scheduling feature eliminates the need for patients to interact with our customer service representatives to schedule has been set up.
Speaker Change: These new features provide additional convenience and simplicity.
Speaker Change: Similarly, we see an immense opportunity to increase clinical relevance.
Speaker Change: We are already investing heavily in our adherence programs, helping more patients stay on critical therapies for longer and reducing the incidents of costly re hospitalizations.
Speaker Change: The next phase in our evolution is harnessing the massive quantities of physiological behavioral and environmental patient generated data from our in home equipment.
Speaker Change: And using that data to deliver actionable insights to patients physicians and payors.
Speaker Change: This is the direction, we will follow to build a best in class Health services business that drive improved health outcomes and reduce costs to benefit all of the stakeholders in the U S health care system.
Speaker Change: While we are in the early stages of realizing that ambition. We view our recent success with compensated arrangements as a strong vote of confidence in our ability to appropriately manage patient care and a solid indication that we have a path to an expanded role.
Speaker Change: Which brings me to the next area of focus delivering organic growth.
In the fourth quarter, we realigned our sales organization under our new Chief Commercial Officer, Russ you Sir.
Brings a wealth of experience and proven track record of growing large businesses.
Speaker Change: And who will oversee our commercial strategy and revenue generation.
Speaker Change: <unk> leadership, we also implemented sales quotas for the first time in many years.
Speaker Change: These quotas will provide clear performance benchmark and inject the proper incentives needed for driving sales effectiveness.
Speaker Change: Further we are strengthening the connective tissue between our commercial and operations teams, who are partnering to improve workflow around order intake and conversion of orders to revenue.
Speaker Change: We are also focused on resuming organic growth in our diabetes health segment.
Speaker Change: This said we commenced a diagnostic review of the causes of our underperformance.
Speaker Change: Notwithstanding structural reimbursement pressures that have weighed on all operators in the medical benefit channel, we simply weren't keeping pace with the competition.
Speaker Change: Among other causes our review determined that we had lost focus on how we manage patient interactions.
Speaker Change: That this patient outreach elevated our attrition rates rates with existing resupply patients and depressed diabetes, new start by damaging our standing with referring physicians.
Speaker Change: As I mentioned last quarter, we made swift moves to course, correct. Our diabetes business, we installed a new leadership team for the segments aligned under an experienced general manager and we integrated diabetes resupply into our sleep resupply operations to leverage the experience and leadership that has.
Speaker Change: Made sleek resupply our center of excellence.
Speaker Change: In the fourth quarter.
Speaker Change: We remodeled our diabetes patient outreach program using best practices from our sleep resupply operations to deliver an experience that makes sense for patients.
Speaker Change: I am pleased to report that we are beginning to see promising signs that these actions are working.
Speaker Change: On the resupply side, we grew orders year over year in December.
Speaker Change: Our Q4 2020 for attrition rate was the lowest we have seen in two years and we exceeded our Q4 2020 for diabetes resupply revenue forecast, albeit off of our reduced expectations.
Speaker Change: On new starts we are working hard to rebuild trust with our referral sources and we were encouraged to see a sequential increase in new diabetes patients during Q4, 2020 four.
Speaker Change: Which contrasts with the sequential contraction, we saw in the prior year quarter.
Speaker Change: One quarter does not make a trend and it's going to take some time to improve performance.
Speaker Change: But I have confidence that the team is executing well on its plan to shore up the processes and we are cautiously optimistic the diabetes will become less of a drag on our overall organic growth rate over time.
Speaker Change: Also related to delivering organic growth, we continue to see opportunities to grow our business through compensated fee arrangements with payers.
Speaker Change: And we are encouraged by how our existing arrangements are performing in terms of outcomes cost and satisfaction for both payers and patients.
Speaker Change: In fact, I am pleased to announce that this past week, we agreed.
Speaker Change: We agreed to a multiyear extension of our capitation contracts with Humana.
Speaker Change: Finally, turning to our objective of strengthening our balance sheet.
Speaker Change: In the last year, we reduced debt outstanding by 170 million, including another $50 million in the fourth quarter and at year end 'twenty 'twenty four our net leverage ratio stood at two eight times.
Speaker Change: Also during 2024, we refinanced our senior secured credit facility to extend our maturity and reduce our interest expense.
Speaker Change: Further we have continued to exit non strategic product lines.
Speaker Change: In the third quarter, we completed the transaction to sell certain costume rehab asset.
Speaker Change: In the fourth quarter, we reached a definitive agreement to sell certain incontinence assets to a third party.
Speaker Change: And in 2025, we will continue to explore the potential divestiture of an additional non core product line.
Speaker Change: We expect these divestiture in paragon to be accretive to our adjusted EBITDA margin and to generate proceeds for further debt reduction.
Speaker Change: In closing our five areas of focus are just the first steps along our journey to realize our full potential as a health care services company.
Speaker Change: In many respects it is an execution roadmap designed to help our new leadership team lock arms things to keep us focused on what we need to accomplish in the near term.
Speaker Change: Undoubtedly all of you are keenly interested in understanding more about the strategic direction of the company and I can assure you that is forthcoming our strategy teams already sharpening our vision for how best to create value from our opportunity and establishing a plan for resourcing and executing that vision over the next several years.
Speaker Change: I look forward to sharing more about that as 2025 progressive.
Jason: With that I will turn it over to Jason.
Jason: Thank you Suzanne and thanks to everyone for joining our call.
Jason: Today, I'm going to review full year and fourth quarter 2024 results.
Jason: All of that with a review of our balance sheet and our plans for capital allocation.
Jason: We're finishing with our outlook for 2025.
Jason: Starting in the fourth quarter.
Jason: Move to a multiple segment structure or reporting our results to align with how we are now managing the company.
Jason: We believe this reporting change will increase transparency into our business performance.
Jason: Look forward to sharing our segment results for the first time today.
Jason: For full year 2024, net revenue of $3 to 6 billion grew one 9% versus the prior year.
Jason: Notably our 2020 for revenue growth overcame pressure from the divestiture of certain custom rehab assets and the termination of the public health emergency $75 25 blended reimbursement rates originally introduced in response to the Covid pandemic.
Jason: Underneath these headwinds we produced growth for new Capex, either revenue and strong sleep resupply volumes, partially offset by weakness in the diabetes health segment, which reflected payer shifts to the pharmacy reimbursement channel for diabetes and as Suzanne discussed earlier operational missteps that we are in the process.
Jason: Correct.
Jason: By segment net revenue growth for full year, 2024 was four 5% and sleep health.
Jason: Six zero percent in respiratory health and.
Jason: And one 9% and wellness at.
Jason: Offset by a revenue decline of six 9% and diabetes.
Jason: Our fourth quarter revenue was roughly flat versus the prior year.
Jason: Landed just above the high end of the guidance range, we provided in November.
Jason: Our sleep health business continues to be an area of strength.
Jason: Sleep health net revenue increased three 4% year over year to $356 $5 million.
Jason: We upheld new start surpassed 120000 for the third consecutive quarter.
Jason: Our sleep Hall sensors now stands at $166 million of another 23000 sequentially and up six 5% from year end 2023.
Jason: Our CPAP survey now in the case that 15, 3% of respondents are using GOP wants to manage diabetes or weight loss.
Jason: We are still seeing a modest increase in CPAP adherence for GOP, one patients versus non GOP, one patients and we continue to see an immaterial difference in resupply work patterns between the two cohorts.
Jason: Respiratory health net revenue was $165 3 million in the fourth quarter.
Jason: 1% compared to the prior year quarter.
Jason: Despite a slower than normal start blue season, our oxygen sensors set another record.
Jason: <unk> thousand 330000 patients actively on surface.
Jason: We continue to help patients reduce time spent reorder angry goals by providing tools that eliminates the need to interact with and adapt to customer service representatives, including New technology launched and these are top of mind.
Jason: Fourth quarter diabetes help revenue of $171 3 million decreased seven 3% from the prior year quarter. However.
Sequential growth of $32 million over the third quarter was the most produced in the last three years.
Jason: But we are not satisfied with that performance results were better than we anticipated due partly to some early results from the operational changes Suzanne mentioned earlier and characterized by better than anticipated starts and patient retention.
Jason: For walnuts at home, which includes all other product categories fourth quarter net revenue was $163 5 million.
Jason: <unk>, 0.8% from the prior year quarter, driven by revenue dispose with the sale of certain customer you have assets.
Jason: The remaining products in this segment grew as expected.
Jason: Turning to profitability and starting with our full year results adjusted EBITDA was $688 7 million for 2024.
Jason: Two 7% from full year, 2023, and about 2% above the high end of the guidance range. We provided in November.
We hold the line on adjusted EBIT margin, which was 21, 1% for 2024 versus 21 zero percent for 2023, even as we made investments in leadership technology and processes that we expect to support our long term growth.
Jason: By segment adjusted EBITDA margin for full year 2024 was 25, 8%.
Jason: 37% and respiratory health.
Jason: Nine 9% and diabetes.
Jason: And 12, 3% and walnuts at home.
Jason: Our sleep health adjusted EBITDA margin contracted 120 basis points, driven predominantly by product and payer mix.
Jason: Our respiratory health adjusted EBITDA margin expanded 190 basis points as a result of a full year of key complicated contracts.
Jason: Our diabetes health adjusted EBITDA margin contracted 220 basis points on lower revenue as we maintained sales and operations capacity in anticipation of receiving revenue growth.
Jason: Walnuts at home adjusted EBIT margin expanded 200 basis points also benefiting from the full year of key complicated contracts as well as the disposition of certain custom rehab assets with lower margins.
Jason: For the fourth quarter, adjusted EBITDA was $200 6 million.
Jason: Adjusted EBITDA margin of 23, 4% contracted 40 basis points from Q4 2023.
<unk> driven by increased labor costs, reflecting the aforementioned investments, we are making to support growth.
Jason: Moving to cash flow balance sheet and capital allocation.
Jason: For full year 2024 cash flow from operations was $541 8 million up 12, 7% against full year 2023.
Jason: Capex was $306 1 million or nine 4% of revenue down from 10, 5% of revenue in 2023.
Jason: And free cash flow was $235 8 million compared to $143 2 million a year ago.
Jason: For Q4, 2024 cash flow from operations was $150 4 million.
Jason: Capex of $77 3 million was 9.0% of revenue.
Jason: Down from 10, 3% in the fourth quarter of 2023 and slightly below the run rate for 2024.
Jason: Free cash flow was $73 one.
Jason: $41 1 million above the high end of our guidance range provided in November.
Jason: Of the $73 1 million in free cash flow, we deployed $9 5 million to a tuck in acquisition in the southeast.
And we used $50 million to reduce the balance on the term loan.
Jason: The remainder went to unrestricted cash which stood at $109 $7 million in Europe.
Jason: Days sales outstanding for Q4, 2024 was 43 eight down from the previous quarter as accounts receivable continue to normalize following the change healthcare situation earlier in 2024.
Jason: We are working on opportunities to improve our revenue cycle management streamlining financial operations, improving inventory management and capturing cost efficiencies all of which are increasing the level of our cash flow.
Jason: As of year end 2024, net debt stood at $1 93 billion and our net leverage ratio was 279 times down from 287 times at the end of last quarter and down from three six times at the end of 2023.
Speaker Change: As Suzanne mentioned, we have been using free cash to reduce debt, resulting in a $170 million reduction our GLA balance over the last year.
Speaker Change: Recall that last quarter, we introduced a target of two five times net leverage.
Speaker Change: Between the progress we made in 2004.
Speaker Change: Our expectations for free cash flow generation in 2025.
Speaker Change: And our near term capital allocation priorities, we are already well along the path toward achieving this target.
Speaker Change: In terms of capital allocation, our current priorities are investing to accelerate accelerate organic growth.
Speaker Change: And reducing our debt to further strengthen our balance sheet.
Speaker Change: As noted earlier last quarter, we completed a transaction to sell certain custom rehab assets and in the fourth quarter, we reached a definitive agreement to sell certain continents assets to a third party.
Speaker Change: In 2025, we will explore the divestiture one additional similarly sized noncore product lines.
Speaker Change: In aggregate these noncore assets represent approximately $100 million statement.
Revenue.
For now we expect M&A activity to be modest.
Speaker Change: Further on the Horizon, we will continue to look for strategic acquisitions of home medical equipment providers to round out our geographic footprint and increased patient access.
Speaker Change: Turning to guidance for full year 2025, we expect revenue of $3. Two 2 billion to $3. Three 6 billion were negative 1% to positive 3% growth.
Speaker Change: This assumes approximately zero to 450 basis points and underlying growth.
Speaker Change: Partially offset by a 40 basis point drag related to the disposition of certain custom rehab assets.
Speaker Change: And a 90 basis point noncash drag from changes in the mix of purchase revenue versus rental revenue.
Speaker Change: Rental revenue requires amortizing assets over their useful life effectively deferring revenue into future periods.
Speaker Change: We expect this to disproportionately affected the first quarter and be smaller in the remaining quarters of 2025.
Speaker Change: We expect the shape of quarterly revenue to look similar to that of 2024.
Speaker Change: And as a reminder, our guidance does not include any impact from acquisitions or dispositions not yet closed.
Speaker Change: We expect full year 2025, adjusted EBITDA of $670 million to $710 million.
Speaker Change: We expect an adjusted EBITDA margin of approximately 21% in line with full year 2024.
Speaker Change: We expect to see the aforementioned 90 basis point impact to flow entirely to the bottom line in 2025.
Speaker Change: Finally, we expect full year 2025 free cash flow in the range of $180 million to $220 million.
Speaker Change: Similar to our results in 2024, we expect approximately one third of that estimate in the first half of the year and the remainder in the second half of the year.
Speaker Change: For the first quarter of 2020.
Speaker Change: We expect revenue to be down between 3% and 4% versus Q1 2024.
Speaker Change: We expect an adjusted EBIT margin of 16% to 17% for Q1 2025.
Speaker Change: These expectations reflect ongoing weakness in our diabetes health performance as well as the drag from a mix of purchase versus rental revenue, which has noted will disproportionately affect the first quarter and drops entirely to the bottom line.
As usual, we expect Q1 2025 free cash flow of Cmos.
Speaker Change: In summary, our fourth quarter results exceeded our expectations we.
Speaker Change: We expect 2025 to be another strong year for free cash flow generation and are making good progress on our balance sheet.
Speaker Change: While we expect 2025 to be somewhat of a transition year for growth. We are executing on our five areas of focus to strengthen our foundation and are confident that we're on a path to accelerated growth in 2026 and beyond.
Speaker Change: That brings me to the end of my remarks, operator would you kindly open up the call for questions.
Speaker Change: Yeah.
Speaker Change: Thank you at this time, if you would like to ask a question. Please press star one on your telephone keypad, you may remove yourself at the queue at any time by pressing star to once again that is star one to ask a question, we'll pause for just a moment to allow questions to queue.
Speaker Change: Thank you. Our first question will come from Ben Hendrix, with our VC capital markets. Your line is open.
Ben Hendrix: Great. Thank you very much can you talk more about the conversations you've been having with carriers over additional capitation arrangements. Specifically read are we at a point yet with the Humana arrangement, you can kind of demonstrate to payers clinical outperformance a reduction in admissions or other data to support more incremental adoption of those.
Speaker Change: Capa David programs. Thanks.
Speaker Change: Yeah. Thanks for the question I'll start with that.
Speaker Change: So two parts we have ongoing.
Speaker Change: Conversations going with a variety of proposed <unk> arrangements in our pipeline that are progressing well in terms of the data and conversations with Humana that relationship remains very strong.
Speaker Change: We meet regularly and review our performance, including some of the data of how co managing their patients and they've been very complementary.
Speaker Change: About the performance that we're having.
Speaker Change: I'd add that since the last quarter, we have in fact signed additional Compotator right. Now these are nowhere near the size and scale the humana arrangements, but we are making progress.
Speaker Change: In terms of kind of voting.
Speaker Change: If you will I mean humana has been.
Speaker Change: Clear I mean in signing a contract extension.
Both parties have said things are going quite well and we'd like to continue the relationship over over multiple years.
Speaker Change: Great. Thanks, and if I could just squeeze one more in real quick you noted revenue cycle and inventory measures as well as normalization in DSO. Following the change outage can you talk more about your working capital outlook, how much cash flow improvement, we can expect from your various efficiency initiatives and timing to reach.
Speaker Change: Those targets thanks.
Speaker Change: Sure Ben well first I'd say, we're incredibly pleased with our free cash flow performance.
Speaker Change: In 2024.
Speaker Change: Really all levers are working capital.
Speaker Change: Have made progress now on the DSO front, certainly we were.
Speaker Change: Handicapped by the by the change outage earlier in the year, but revenue cycle is starting to normalize following that impact.
Speaker Change: So we expect same or better.
Speaker Change: <unk> over the course of 2025.
Speaker Change: On the payables front.
Speaker Change: We had some significant move in payment terms throughout the course of the year now certainly we're not expecting all of that to recur in 2005, which is why you will notice that at the midpoint.
Speaker Change: We're committing to $200 million of free cash flow.
Speaker Change: And then on inventory you Capex.
Speaker Change: <unk> talked about our new Chief operating officer that joined Us very recently.
Speaker Change: We're thrilled to have him and the team that he's brought with them as well.
Speaker Change: The rest of the folks that are here to data that you use every day, and we're making demonstrable improvement inventory management.
Speaker Change: Excellent.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question will come from Mathew Blackman with Stifel. Your line is open.
Hey, Jason Hey, Suzanne I wanted to do a quick confirmation question upfront before I get to my follow up.
Speaker Change: On the guidance for this year, you talked about the 40 bip drag due to the disposal of assets. That's just the assets in the fourth quarter and not the planned disposal of one additional line in 2025 correct.
Speaker Change: Yes, you got it Okay, and then on the diabetes business I'm curious, what you're what you're thinking about for the contribution to 2025 guidance you've got.
Speaker Change: Some somewhat improving trends in pumps for the last several quarters I'm curious how that.
Speaker Change: How has that progressed during the fourth quarter and then also very obvious improvement in CGI Im curious what youre baking in.
Speaker Change: The guidance this year. Thank you.
Speaker Change: Sure Bob so for pumping pump supplies.
Bob: In the third quarter, we reported modest growth from first time over prior year by the tune of about $1 million might have been too in the fourth quarter. It was about the same we were down $1 million, but effectively flat. So I think as it relates to the pump and pump supplies.
Bob: We're at a stable revenue jump off point, and we do expect to start showing some modest growth in pumping pump supplies as it relates to CGM.
Sure.
Bob: The largest part of the diabetes segment.
Bob: We said last quarter that were not going to commit to growth in that segment.
Bob: Frankly until we've proven it we don't want to get too ahead of ourselves there are a lot of moving pieces the big business.
Bob: We're making progress and we will send you.
<unk> tend to do that for the for the balance of <unk>.
Bob: 2025, but we're not getting ahead of ourselves, we're not committing yet to growth in the diabetes segment. So we're able to prove it.
Bob: And you did see a minor uptick in cap potato revenue arrangement revenues during the fourth quarter should we expect <unk> to be a reasonable quarterly run rate for 2025.
Bob: Yes, we sign those agreements in the fourth quarter, they will actually start in.
Bob: In early 2025.
Bob: I think a very modest.
Bob: Increase in compensated revenue over the course of the year is that correct.
Bob: Great. Thank you.
Bob: Yeah.
Bob: Thank you our next question.
Brian: Will come from Brian <unk> with Jefferies. Your line is open.
Brian <unk>: Hey, good morning, and congrats on the quarter.
Speaker Change: And then maybe I'll just follow up to Jason's last comment not committing to growing the diabetes business, yet so from where you sit today I mean, you've been here to digest the whole enterprise and do you still see synergies and strategic value to owning diabetes at this point.
Brian <unk>: Yeah. Thanks for the question.
Brian <unk>: At this point I do with the hypothesis, we're proving out but for two reasons. One is we see the potential for growth coming from two areas. One is with our hospital customers and the value proposition of the one stop shop and the broad portfolio is is playing out for us well.
Brian <unk>: So that continues to be.
Brian <unk>: Good feedback that we're receiving from our bigger hospital systems, where we seem to be winning and will continue to track that to see if the full breadth of the portfolio has a value but at this point. We believe it is and the second reason for that is.
Brian <unk>: Teacher compensated arrangements, we think that there's an opportunity here as well where payers are intrigued by.
Brian <unk>: The breadth of our portfolio and our geographic reach that seems to be the value proposition and that value prop is holding up well as as I mentioned earlier with a strong pipeline. There. So at this point, if we can get diabetes performing well.
Brian <unk>: And the breadth of our portfolio, we think that's the winning combination.
Brian <unk>: I appreciate that and then maybe Jason My follow up I think about your guidance ranges the first free cash flow.
Brian <unk>: The midpoint of 2025 guide is below last years, and then you mentioned you're expecting margins to be flat I know you mentioned some of that is just a business that you sold but any other things we need to think about it puts and takes in terms of the cash flow guidance in EBITDA is it just conservatism or is there anything else we need to be considering there.
Brian <unk>: Yes.
Brian <unk>: Sure, Brian So so regarding free cash flow.
Brian <unk>: At the mid we are.
Brian <unk>: Showing about a $35 million last free cash flow in 2025, I mean really that's a result of.
Brian <unk>: The payment extensions payment term extensions that we talked about in 2024.
Brian <unk>: We did a lot.
Brian <unk>: Move the needle.
Brian <unk>: In important ways there.
Brian <unk>: To do that in a second year in a row, it's just not possible frankly, and so we've adjusted that free cash flow.
Brian <unk>: Expectation for that reason I think to the ups on free cash flow.
Brian <unk>: We're gonna have considerably less interest in.
Brian <unk>: 2025, I mean, we're making significant progress there and this is the first quarter and the fourth quarter in a long time, I mean interest expense was under $30 million.
Brian <unk>: And then keep going and we intend to continue to fuel the cash flow machine.
Brian <unk>: That we're building here.
Brian <unk>: I'd say in terms of margins.
Brian <unk>: We feel that.
Brian <unk>: We put out a very appropriate guide I mean, certainly if we can get revenue going in growth going into some of these areas of the company that will that will all contribute and that should flow through at higher margins.
Brian <unk>: But it's early in the year, we've made some key investments there is a lot of new people here at the company and we think they are all incredibly founded and Youre going to do great things, but we just got to let that play out a little bit.
Speaker Change: Awesome Congrats again, thank you.
Speaker Change: Thank you. Our next question will come from Richard close with Canaccord. Your line is open.
Richard Close: Yes, thanks for the questions.
Speaker Change: Good news on the diabetes progress can you soon.
Speaker Change: Susan just talk a little bit about the changes you've made there.
The reworking of the resupply outreach program and then process of rebuilding that trust.
Speaker Change: From the referral standpoint.
Speaker Change: Sure. Thanks for the question.
Speaker Change: So it started with the new leadership team, we put in a very experienced operator, Gary she handles.
Speaker Change: Once the CEO of Southern company and then just some remarkable work here. So he brought that <unk> <unk>.
Speaker Change: Jimmy thinking if you will and structuring the organization to the business. So there was a lot of just great blocking and tackling and getting back to the basics of how do you run a business that he brought on early.
Speaker Change: Q4. In addition at the same time shifting the resupply business over too.
Speaker Change: Matt Cox and Nashville entire sleep resupply.
Speaker Change: That engine was well pad had a good foundation for us to put in the diabetes business and what I mean by that is that team understands that patients like a variety of different outreach.
Speaker Change: And we had in the former diabetes, we supply business.
Speaker Change: Loud our processes to get out of control, where we where.
Speaker Change: Excessively contacting patients.
Speaker Change: And not providing the right.
Speaker Change: Look back if you will information to how to reach us back, but rather just continuing to reach out which caused frustration on there and now with a lot of attrition that has stopped and it was remarkable to see how quickly.
Speaker Change: Is that bleeding stopped but more importantly, with the right outreach program, how we were able to win back patients fairly quickly within the quarter. So im incredibly pleased with the expertise that that team down in Nashville has has been able to do on the so that that's around attrition and retention on the new starts.
Speaker Change: Our new sales leader Graham Lord came in has focused the team on.
Speaker Change: On better selling techniques that more importantly has partnered with our very large HMO team and has taken on one adapt approach, where they're going in and selling our value prop to hospitals.
Speaker Change: Improving the way that we communicate.
Speaker Change: What we need for a good referral.
Speaker Change: Sometimes we were getting information that we just couldn't process and so that team has been retrained on how to get the appropriate information. So that we can move that we file and get that patient.
Speaker Change: The types of product that they need.
So that team is partnering 50 or 70 or set sales team with our.
Speaker Change: Several hundred HMA team and they are now out there in force together.
Speaker Change: So on all fronts, both on the new starts the resupply and then the leadership I mean, Gary I'm pleased with the progress to just basic blocking and tackling and strong execution.
Speaker Change: That's very helpful. And then as a follow up you talked about implementing the sales quota first time.
Speaker Change: For that.
Speaker Change: Can you talk a little bit how that was received.
Speaker Change: Did that create any changes in the sales force anything along those lines.
Speaker Change: Yeah really excited about this initiative so Bakken.
Speaker Change: Really right. After I got here that was one of the first projects. We started originally our salesforce or at that time was just paid on volume.
Speaker Change: And no quota setting and so we kicked off a very deep.
Speaker Change: Deep analysis did the work upfront through 2020 four to make sure that this rollout would be done with as close to perfection as possible because we all know that that can be a delicate situation.
Speaker Change: The team rolled that out January one and it has been.
Speaker Change: Salesforce has responded very favorably they understand their program.
We did it in a way that it really.
Speaker Change: Over the next two years gets us to really where we want to be and so you always know when these go well, where there's pretty much silence from the sales force and that's what we've experienced as everyone understands it they have rallied around it it's allowed us to set quotas that will make our forecasting more predictable. So all in all this has been very successful really.
Speaker Change: Came through good leadership of our new sales leadership team and it also was supported heavily by our operations team who were managing the sales force.
Speaker Change: We're very supportive in the transition. So this is one of the highlights from a performance perspective of the team this past year.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question will come from Eric Coldwell with Baird. Your line is open.
Eric Coldwell: Thanks, Good morning.
Speaker Change: Congrats on the nice progress so far Susanne.
Eric Coldwell: So.
Eric Coldwell: On this purchase versus a rental situation.
Eric Coldwell: I'd like to dig in a little bit.
Eric Coldwell: Why is it happening what is happening what segment.
Eric Coldwell: It looks like if I understood the commentary correctly, you've got something in the ballpark of a I.
Eric Coldwell: I don't know maybe $25 million to $30 million impacting Q1 revenue and then I assume that revenue starts coming back in Q2 and beyond but just hoping you could dig in on that one a little bit.
Jason My: Sure. This is Jason well firstly is it was really focused in.
Speaker Change: In our sleep business I mean, all all components.
Speaker Change: Across all product lines I mean, there are reimbursed differently.
Speaker Change: For different reasons, I would say that as technology has evolved over time.
Speaker Change: Components that.
Speaker Change: In the past might have been separate ratable, but as tax improves they're really now core to the pieces of equipment.
Speaker Change: That's that's changed.
Speaker Change: The way not the way that we get reverse but it does change the way that we account for that revenue and so in sleep as an example.
Speaker Change: Sample as you know most most products or our I appreciate it a number of about 13 months cycle.
Speaker Change: So that's what we're looking at here is really changing that mix.
Speaker Change: And so the revenue that you got that counts correctly at about $25 million to $30 million top line.
Speaker Change: We really expect that to be delayed so it'll be it'll be.
Speaker Change: The bigger impact in the first quarter, it'll it'll wane in the second and the third in over the course of the year until we until we pass a 13 30 months cycle.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Alright.
Speaker Change: Uh huh.
Speaker Change: My next topic I was hoping we could get a final tally on.
Speaker Change: On the impact of 70 525 for the year and the fourth quarter.
Speaker Change: And just confirming that.
Or checking that there's no weather.
Speaker Change: Reimbursement or regulatory changes things out of D. C post phe impacts that are.
Speaker Change: Material to 2025 and beyond or if there are what might those be.
Speaker Change: Sure so.
Speaker Change: We've previously discussed about a $25 million.
Speaker Change: Top line.
Speaker Change: And bottom line pressure in 2024, we came right in that right in that area.
For the fourth quarter, frankly, just due to more revenue activity than the other quarters of the year that represented close to 30% of that pressure in the <unk>.
Speaker Change: Fourth quarter, and so as we looked at 25.
You would frame the reimbursement environment.
Speaker Change: Stable.
Speaker Change: There was a dummy those fee schedule increase awarded in early December that when in fact, it to January of this year.
Speaker Change: Thats accounted for entirely in our in our full year guidance.
And then across the payer landscape.
Speaker Change: Just normal course operations, we're working on.
Speaker Change: Contract by contract too.
Speaker Change: To get reimbursement, we think we're we think deserves.
Speaker Change: And our reimbursement, but overall, we view it as very very stable.
Speaker Change: And if I could do just one more you had a competitor that recently alluded to.
Speaker Change: The change in one of their capitation contracts and expect to change that.
Speaker Change: It seems like a bit of a headwind to them you've just.
Speaker Change: Extended the Humana deal and have announced some other wins you sound very happy with them. I'm curious are there any is there any color you can provide on the renewals here in terms of <unk>.
Speaker Change: Pricing concessions term changes.
Speaker Change: Limitations expansions of products or states as there is there any update or was it pretty.
Speaker Change: Pretty much a we like what we're doing we're going to keep doing it for longer agreement.
Eric Coldwell: Yeah Eric.
I don't know that we have comments on any of our competitors and their contracts I will say for us.
Eric Coldwell: The pipeline continues to be robust, we got a whole dedicated team.
Eric Coldwell: Focus is on <unk>.
Eric Coldwell: Selling the value proposition of these arrangements everyday.
Eric Coldwell: <unk>.
Eric Coldwell: Tracking the utilization management.
Speaker Change: I mean, we have built a real core capability here at the hotel.
Speaker Change: We're not accounting for any new wins for catheter arrangements in our in our 25 guidance. However, we are we are ought to work at it.
Speaker Change: And any any changes or updates on the the big contract that was extended.
Speaker Change: Anything you would yes, we're it's nuanced.
Speaker Change: I mean it is I mean, you can really think of this is just an extension of term that I think both sides of your very favorably. So it has no relationship I think youre talking about competitors and others thankfully for us and I think that the original deal makes a lot of sense. We're all very pleased with it and we're extending it for multiple years perfect. Thank you very much.
Speaker Change: Thank you once again, if he would like to ask a question. Please press star one to join the queue.
Speaker Change: Our next question will come from <unk> Chickering with Deutsche Bank. Your line is open.
Speaker Change: Yes.
Speaker Change: Hi, there this is Kieran Ryan on for Peter Thanks for taking my questions. Just wanted to start on diabetes I think you've commented on kind of the new starts and resupply sales dynamics already can you just talk a little bit about that other factor you called out in <unk> around pricing pressure from the shift.
Speaker Change: Two all pharmacy for certain payers just wanted to know if that was in line with your expectations for the quarter and if we should see that continue at a stable rate into 2025 absent any other expansion there.
Speaker Change: Sure Karen.
Speaker Change: If we look at 2024.
Speaker Change: As a whole.
Speaker Change: Payer reimbursement for diabetes when.
Speaker Change: Largely as we expected.
Speaker Change: We spoke about a couple of key states that within their Medicaid agencies made determinations on on reimbursement.
Speaker Change: So that is that again played out as expected.
Speaker Change: I think as we stand here today.
Speaker Change: We believe that any shifts to.
Speaker Change: Any kind of shift to pharmacy reimbursement will be.
Speaker Change: We will be muted versus what happened last year.
Speaker Change: But certainly as we you know your policy change at different wanted occurs.
Speaker Change: Be sure to update that in our guidance, but as the standards that we feel we feel very good it seems like a stable environment.
Speaker Change: Okay.
Speaker Change: Thank you and then and then just on sleep I just outside of that sales versus rental dynamic. If these semi color or puts and takes you can provide around how we should think about 2025 groups that are coming off of some.
Speaker Change: Two quarters in a row really strong underlying demand just want to understand how you're thinking about kind of in the range of outcomes and sleep through 2025. Thank you.
Karen: Sure Karen.
We've just introduced our segments I mean, we're not in a position to guide.
Karen: Segments in any way.
Karen: What we can offer for perspective, when you look at the enterprise growth for 2025.
Karen: Do expect.
Karen: Compression in diabetes.
Karen: We intend to do better but that is what we've modeled in our in our assumptions, we do expect respiratory and wellness at home to produce some modest but compounding and consistent revenue growth.
Karen: Each quarter over the prior year, and we do expect sleep to make up the difference.
From from diabetes to the enterprise.
Karen: That's what we can offer we're looking forward to a solid year in sleep and the other in motorcycles.
Karen: Thank you.
Speaker Change: It appears we have no further questions at this time I will now turn the program back over to Suzanne Foster for any additional remarks.
Suzanne Foster: Thank you everyone for participating in our call today, just to wrap up the key takeaways is that we've made a lot of progress on our five areas of focus.
Suzanne Foster: The relatively short time, and we have a lot to accomplish still but the team is invigorated and I'm confident that we're on the path to realizing our full potential as the health services company. So we look forward to meeting with you as many of you in person in the coming weeks. Thanks again.
Suzanne Foster: Thank you ladies and gentlemen. This concludes today's event you may now disconnect.
Suzanne Foster: Hum.
Suzanne Foster: [music].
Suzanne Foster: Mhm.
Suzanne Foster: Hum.
Suzanne Foster: [music].
Suzanne Foster: Okay.
Suzanne Foster: [music].
Suzanne Foster: Okay.
Suzanne Foster: Hum.
Suzanne Foster: Okay.
Suzanne Foster: [music].