Quipt Home Medical Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 15, 2023

There are 8 speakers on the call.

Operator

You for standing by. This is the conference operator. Welcome to the Fiscal Third Quarter 2023 Earnings Results Conference Call for Quip Thome Medical Corp. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions.

Operator

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 as well as the MD and A, which you can find on SEDAR and EDGAR. The company's actual performance could differ materially from these statements. At this point, I'd like to turn the conference over to Chairman and Chief Executive Officer, Greg Crawford. Please go ahead.

Speaker 1

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 QuipTol Medical. Joining me today is Hardik Mehta, our Chief Financial Officer. Quiptome Medical is a rapidly expanding healthcare services company that offers a complete spectrum of home medical equipment and services to patients in the home with a focus on those suffering from respiratory conditions. Quip has strengthened its coast to coast reach with 115 locations across 26 states with over 270,000 active patients.

Speaker 1

At QuipT, we work hard to deliver top notch patient care and we succeed in this mission by giving patient access to healthcare services that are convenient, effective and tailored to their unique needs. The more than 1,000 Quip team members who dedicate their daily efforts to delivering our core mission of outstanding patient care in order to improve the quality of life for each and every patient who uses our services are the driving force behind our company's success. The strength of our team across all business functions allows us to successfully drive our differentiated clinical service models that is having QuipT emerge as a growing force in the industry. In order to relieve the burden on the traditional healthcare system and generate financial savings for the system, we are committed to providing equipment solutions for patients with cardio and pulmonary conditions in the home environment. As we have continued to execute on our strategic growth strategy, we believe to have positioned ourselves as the 5th largest revenue producing provider of respiratory and home medical equipment in the United States.

Speaker 1

This is thanks to our ongoing focus on technology to streamline operations, the strong patient centric ecosystem we have in place and the end to end respiratory and equipment solutions we offer. We are certain that our strong operational foundation and infrastructure, show, along with our aggressive organic and inorganic growth strategy, have placed us in a very favorable position to take advantage show the numerous opportunities for further meaningful expansion. On this call, we will discuss the robust performance of our record and fiscal Q3 2023 performance, the positive real time business trends we are seeing, an update on the regulatory landscape, which remains the best in over a decade and also provide details on our investment into DME Scripps, an independent ePrescribe company. In real time, we continue to fire on all cylinders. Seeing significant momentum across the entire organization is a result of a number of factors, including the continued penetration of our key sales touch points, the successful integration and outperformance of our largest acquisition to date and the underlying performance of our core business.

Speaker 1

During fiscal Q3 2023, we surpassed our expectations, reporting record sequential organic growth of 4% compared to fiscal Q2 2023 ahead of our baseline expectations of 2% sequential organic growth. We have had a great opportunity to improve our organic growth performance as a result of our focused on expanding the continuum of care, gaining from the benefits of the normalized supply chain and working in an incredibly strong regulatory environment. To achieve our objectives for organic growth, we have been concentrating our efforts on areas with the high prevalence of COPD and penetrating our key sales touch points into continual markets. We anticipate continued consistent strong organic growth throughout the rest of the year, exceeding the 8% to 10% average organic growth we've seen annually. When considering our new geographical footprint covering 26 states, It is crucial to keep in mind that we have plenty of room for organic growth into additional markets and the acquisition of new accretive targets to build out scale.

Speaker 1

Our fiscal Q3 2023 revenue came in at a record $60,300,000 or 64% year over year growth with strong margin acceleration to 23%, equating to adjusted EBITDA of $13,900,000 or growth of 80%. As we continue to implement our long term strategic expansion plan, It goes without saying to us that offering a full range of end to end respiratory solutions is essential to maintaining our success and a significant factor and the expansion of our key markets. Through the focus on our main sales touch points, which are healthcare institutions and earnings like hospital systems, doctors' offices, long term care facilities, home health agencies and rehab facilities, We continue to increase overall volumes and drive the growth in our automated resupply program for sleep supplies. Looking at the incredibly favorable regulatory environment, we have witnessed many positive changes in the past year, such as the easing of restrictions through the elimination of the long standing requirement for providers to obtain certificates of medical necessities, CMN for home oxygen, which reduces the administrative burden on healthcare providers. Moreover, we have witnessed the opening of for patients who visit the emergency room care setting and are identified as having either acute or chronic respiratory diseases and they can now order home oxygen equipment.

Speaker 1

Additionally, we are given a favorable change to the Medicare fee schedule, which resulted in and a sizable CPI increase that took effect on January 1, 2023. In the past, our products were not subject to CPI adjustments during the competitive bidding program. Historically, CMS has begun any competitive bidding processes roughly 18 months before contract and prices take effect. The likelihood of this happening is decreasing because CMS hasn't indicated how and the ongoing operational fortitude we have shown QuipT is well protected from any long term inflation pressures and economic downturns. Subsequent to the end of fiscal Q3, we are thrilled to have made an investment of $1,500,000 to purchase approximately 10 of DME Scripps, an independent ePrescribe company dedicated to improving the patient, prescriber and provider experience by eliminating inefficiencies and reducing paperwork.

Speaker 1

The investment we have made is to align our participation in the future growth of e prescribe usage within the DME industry. This investment aligns us with the major peers in our industry to further collaborate and innovate. Electronic prescribing is essential to the durable medical equipment industry as this technology can serve to boost productivity, cut down on errors, boost compliance and improved patient outcomes. As we continue to enjoy significant business tailwinds, a robust pipe line of acquisitions and a very solid financial position. We are pleased by what we have accomplished thus far in fiscal 2023 and are incredibly optimistic about the future.

Speaker 1

We are prepared to carry out our strategy and eagerly work towards maximizing shareholder value as we continue to drive growth. With that commentary, I'd like to hand the call over to Hardik to discuss our fiscal Q3 2023 financial results.

Speaker 2

Thanks, Greg. On Monday evening, we announced our fiscal Q3 2023 financial results representing the 3 months ended June 30, 2023. In reviewing the fiscal Q3 2023 numbers, please note that all financial values are in U. S. Dollars and the full results are available on SEDAR and EDGAR.

Speaker 2

Here are some key highlights. The company's customer base increased 58% year over year to approximately 141,000 unique patients held in fiscal Q3 2023 compared to approximately 89,000 unique patients in fiscal Q3 2022. Compared to approximately 134,000 unique setups deliveries in fiscal Q3 2022, the company completed approximately 203,000 unique setups deliveries in fiscal Q3 2023, an increase of 52%. There were approximately 108,000 respiratory resupply setup deliveries during fiscal Q3 2023 compared to of $63,000 during fiscal Q3 2022, an increase of 73%. Revenue for fiscal Q3 2023 was $60,300,000 compared to $36,700,000 for fiscal Q3 2022, representing a 64% increase in revenue year over year.

Speaker 2

The company witnessed great organic growth this quarter at 4% compared of Q2 2023, the previous quarter. Revenues for the 9 months ended June 30, 2023 increased to $159,200,000 or 60% from the 9 months ended June 30, 2022. Recurring revenue as of fiscal Q3 2023 continues to be strong and exceeds 80% of total revenue. Adjusted EBITDA for fiscal Q3 2023 was $13,900,000 at 23% margin compared to adjusted EBITDA for fiscal Q3 2022 of $7,700,000 at 21% margin, representing an 80% increase year over year. We expect to continue seeing strong margin performance in fiscal Q4 and beyond.

Speaker 2

Adjusted EBITDA for the 9 months ended June 30, 2023 increased to $36,000,000 representing an increase of 73% from the 9 months ended June 30, 2022 and represented 22.6 percent of revenues. Cash flow from continuing operations was $27,000,000 for the 9 months ended June 30, 2020 read compared to $19,400,000 for the 9 months ended June 30, 2022, a substantial increase of 42%. For fiscal Q3 2023, bad debt expense was at 4% compared to 9% in fiscal Q3 2022. This significant decrease is primarily due to improved collection processes and exemplifies our ability to scale and add more revenue through add on acquisitions without compromising our billing capabilities. For the 3 months ended June 30, 2023, operating expense was 27,000,000 an increase of $10,000,000 from the 3 months ended June 30, 2022.

Speaker 2

Acquisitions contributed approximately $8,500,000 of the increase, remaining increases related primarily to payroll. The company reported $20,000,000 of cash on hand and $41,000,000 available on its senior credit facility as of June 30, 2023, with $20,000,000 available on the revolving line of credit and $21,000,000 available on the delayed draw term loan. The company continues to maintain a very healthy net leverage ratio at just 1.4 times. In the fiscal Q3 of 2023, all of our key metrics outperformed our baseline expectations. Momentum has continued to build throughout of the year and we are seeing the robust organic growth and margin expansions we have been working towards.

Speaker 2

Our adjusted EBITDA margin has reached 23%, driven by our heavily weighted respiratory product mix and services as well as focusing on operational savings and effective cost management. In addition, we are thrilled by the acceleration of organic growth trends with reached 4% sequential growth in the fiscal third quarter compared to the fiscal second quarter. We anticipate the strong organic growth will persist as we continue to drive volume through the cross selling of products and expand the continuum of care in adjacent markets. In the fiscal Q3, the company also demonstrated robust net cash flow from operations. In some of the previous conference call Q and A sessions, the company had stated that its near term target was to consistently achieve 3% to 5% net cash flow from operations after CapEx and or lease payments and before any debt service related and purchase price related payments.

Speaker 2

On the heels of strong performance for the 9 months ending June 2023, the company has revised its near term goals upwards and would aim to consistently achieve 6% to 8% cash flow from operations after CapEx and or lease payments and before any debt service related and purchase price related payments. The continued consistency of our revenue base is driven by our highly recurring revenue model, which accounts for 80% of our total revenue mix as of fiscal Q3, in line with fiscal Q2. During the quarter, we further improved our already robust balance sheet in order to ensure that we will have sufficient room to execute our plan for rapid strategic expansion in an environment with higher interest rates. Our present leverage is a very modest 1.4 times, giving us considerable flexibility to deploy a combination of debt and cash for the execution of our acquisition pipeline in accordance with our prudent acquisition approach. As we entered calendar 2023, we announced our largest acquisition to date covering 8 states, 7 of which were new to QuipT with over $1,500,000 suffering from COPD across those states.

Speaker 2

We are seeing exceptional performance with the acquisition. Integration is near complete and we are focused on longer term revenue synergies through cross selling of products, expansion of markets and opportunities to leverage our significant existing resupply program. We continue to drive economies of scale through centralization processes and reducing overlapping functions. As mentioned on our fiscal Q2 call, we recognized the initial $2,000,000 of cost savings and synergies nearly a full quarter ahead of schedule and have continued to build off that. Because we have undertaken such a significant geographic land grab, we now have Great opportunities to build on our acquisition and integration strategy with the previous tuck in acquisitions, expanding our portfolio of respiratory products and services.

Speaker 2

We have a solid plan for continued robust organic growth, a deep acquisition pipeline and we continue to committed to the systemic acquisition approach and proven integration process that we have built over many years. These are the factors that have been the driving force behind our steady growth that has been shown on an annual basis and the strengthening the company's position in the industry. We have all the tools to carry out our expansion and acquisition plan moving forward in order to generate increased value for our shareholders. Thank you. And with that update, I'll turn the call back to Craig.

Speaker 1

Thanks Hardik. Our first priority in every single one of our markets is to provide great patient care with a focus on the treatment of disorders, including sleep apnea, COPD and other chronic respiratory diseases. By penetrating new markets and foregoing alliances with payers, patients and referral sources, we are always devising strategies to increase the number of patients we serve and gain entry to attractive geographic areas. Our robust Clinical Services expanding reach and growing market share provide us a competitive edge and allow us to take advantage of economies of scale. We anticipate that our strong momentum will continue into the foreseeable future as a result of our successful execution of the key elements of our growth strategy.

Speaker 1

These include expanding our healthcare network across the nation through the execution of national insurance contracts, completing accretive acquisitions and making investments in our company's future organic growth. Moreover, we are confident that the successfully completed acquisitions help us to accelerate our organic growth model overall. At this point, I would like to review with you the 3 components of our core growth strategy as we move into 20 23. First is organic growth, which came in at a robust 4% sequentially in fiscal Q3, surpassing the 2% to 2.5% sequential pace or 8% to 10% annually we have strived for. As shown by our results, we anticipate fiscal 2023 will surpass this.

Speaker 1

Growing our sales team is one of the core initiatives on this front, which is continuing to go very well and is how we connect with key touch points like hospital networks, doctors' offices, long term care facilities and rehab centers. Furthermore, the aging population and significant increase in the number of people with multiple chronic diseases across the United States are positive demographic trends for Quip when looking at the operating environment. Home medical equipment and services are becoming more necessary as the population ages, which gives us with a very sustainable long term growth opportunity. Additionally, A lot is being done to make sure that the patients receive care at home whenever it is feasible. 2nd, in order to consistently improve our operational performance.

Speaker 1

We are always focused on the usage of technology across our business functions in order to boost production and profitability. We are primarily focusing on applying data analytics and data mining techniques. A key example of usage of technology is our automated resupply platform, which not only helps us drive organic growth, but also provides us with considerable revenue synergies when we make strategic acquisitions. The third element of our growth plan is expanding scale by making smart accretive acquisitions in conjunction with our tried and true integration approach, which has effectively integrated 18 acquisitions since 2018. Our attention is on heavily weighted respiratory businesses, which can be successfully incorporated into our scalable infrastructure.

Speaker 1

Our strategy objective is to increase our payer base and geographic reach into advantageous states with a high COPD prevalence, including those that are already within our healthcare network. Thanks to our robust balance sheet, will we be able to take advantage of the opportunities presented by and pipeline to grow our revenue, EBITDA, patient base and overall geographic reach. With the start of trading on the TSX Big Board as well as our inclusion into the Russell 2,003,000 indexes, Our momentum in capital markets has continued in 2023. Both occurrences, in our opinion, will lead to increased institutional and ownership and liquidity over time. It is significant to note that 40% of the TSX trading is conducted by investment dealers with global headquarters.

Speaker 1

As always, we are aggressively reaching out to U. S. And Canadian investors to tell our compelling story and have and a wonderful opportunity to discuss our long term growth goals. The remainder of the year will be very busy as we plan to attend a record number of in person and online investment conferences and anticipate informing a wide range of investors about our growing company. In addition, we are continuing to strategically position the company for continued sustained growth in light of the extremely bullish industry environment, the strong demand for respiratory products and services and all the organic tailwinds we are experiencing at our back.

Speaker 1

We will remain prudent yet aggressive in our pursuit of the and numerous opportunities available to us. Our operational excellence and 1.4x leverage balance sheet provide us with all the resources necessary to execute our expansion strategy. Finally, I would like to take a moment to thank the entire Quip team for their tireless work and our stakeholders for their continued support.

Operator

We will now begin the analyst Question and

Speaker 2

Answer

Operator

You'll hear a tone acknowledging your request. To withdraw from the question queue. Our first question is from Doug Cooper with Beacon Securities. Please go ahead.

Speaker 3

Hey, good morning guys and congrats on a terrific quarter. Just first of all, on the organic growth, roughly 4% sequentially, that's terrific work. At 16% annualized, Greg, obviously exceeding the 8% to 10%. How long can you keep that pace going, you think?

Speaker 4

Yes. Thanks, Doug, for joining this morning in that. I mean, we've seen robust organic growth and that kind of come back into the business on the back side of the pandemic and the supply chain and that kind of normalizing. I mean, we take out a minimum in that, that we can beat our historic levels of that 9%, 10% in that that we've seen. One of the big drivers behind that has been The markets that we've obtained through acquisitions over the past couple of years or so and that we've added to our sales force on that front.

Speaker 4

We think we're going to see continued momentum on the organic growth side for the foreseeable future. Okay.

Speaker 3

So I looked at the actual sales. So sales of equipment, I guess, was up 3% sequentially. Rentals was up 4.9% sequentially. I'm not sure if that It's meaningful, that's something that go forward. But can you just talk about where you're seeing the organic growth?

Speaker 3

Is it geographical, More penetration within the states, maybe just expand them just a little bit.

Speaker 4

Yes. It's primarily in the states and that the new states that we've entered in that over the past 18 months to 24 months or so, we probably added about 11 to 13 states. So it's really kind of penetrating in that new continuum markets within those states.

Speaker 3

Okay. How

Speaker 2

many states are you in there?

Speaker 4

26. We've got over 115 locations.

Speaker 3

Okay. Just on the operating leverage, I would say, the EBITDA margin expanded this quarter, part of it was driven by Payroll as a percentage of sales dropped to 30% from 32% in Q1. It has been as low as 28%, 29% in the past. How much leverage can you get on that payroll as a percentage of revenue?

Speaker 2

Hey, Doug, this is Hardik. So on use of What Greg just said, we are investing in some sales force expansion, which obviously was reflected in our top line growth as well. And so we will continue to do so. So just to say that, put differently, I think the dollar amount might day there. The hope would be to reduce the percentage of revenue as we actually unleash the top line revenue as a result of adding the sales

Speaker 3

force. Okay. And Hardik, while I got you, just on the free cash flow, you talked about raising your expectations, call it, 6% to 8% of revenue. My back of the envelope in the quarter was net debt dropped to $32,000,000 sequentially and you raised $27,900,000 give or take. So that difference is $4,200,000 of Increased cash or lower debt, whichever way you want to look at it, which is roughly 7% of revenue.

Speaker 3

Is that sort of in the ballpark of what you generated for free cash flow in

Speaker 2

That's pretty close. I mean, my maybe sharpened pencil was 7.9%, so to speak. Yes. So I think we're pretty close.

Speaker 3

Okay. And my final one, Greg, this is just sort of This may be a weird one, but obviously lots of focus on weight loss drugs like Ozempic and so forth, certainly being marketed as a wonder drug and Everybody is going to be skinny from now on and maybe that will have an impact on sleep apnea. Can you just sort of talk to it from your perspective what's happening with that and The impact it might have on the industry? Yes.

Speaker 4

I mean, from my perspective in that, I mean, we've done a lot of investigating here in that and CPAP devices and BiPAP devices are still the gold standard treatment and that as of today and that for sleep apnea, I mean, continues to be very, very strong demand in that for those products. And I think even the manufacturers have even spoken to that about the global Demand in that for sleep products.

Speaker 2

Okay, perfect. That's it for me. Thank you.

Speaker 4

Thanks.

Operator

The next question is from Richard Close with Canaccord Genuity. Please go ahead.

Speaker 5

Yes, thanks. Congratulations on a strong quarter and continued performance this fiscal year. Just wanted to go back on the strong organic growth and obviously a lot of optimism here going forward. So Adapt talked a little bit about normalizing growth in Sleep beginning this Q3, their Q3. They had strong setups beginning last year in the Q3.

Speaker 5

So they're just lapping some higher comps. And I guess you guys I started to see the improved supply at the beginning of January. So just trying to understand if you're going to encounter the same situation Jim, maybe or how we should think about Quip being different as compared to Adapt on that front?

Speaker 4

Yes, we think on our front that our sleep device in that setups and that are going to remain relatively strong in that. I mean, I don't think there's any particular peak or anything that's coming for that because it's really came back for us. I think additionally though, we have set we did set up a lot of patients in the 1st part of the year that will are ending up in the resupply program and will stay there in that. So we're going to really probably see a ramp up in our resupply with the additional setups that were done prior.

Speaker 5

Okay. That's helpful. And then just to go back, Hardik, maybe on your comment in terms of with respect to the free cash flow, but also talking about or I guess it was on the payroll, but continuing to invest in the sales force. Could you guys just let us know the status of the current sales force expansion and are you increasing that here? Is that and what we should believe based on those comments?

Speaker 2

Yes. We certainly, For example, at twelvethirty one, about 8 months ago, we had 50 ish in our sales force that increased 62 at the end of March and it's north of 70 as of 6:30. So You can see directionally we are having more boots on the ground. And I mean there's a whole cyclical process to adding sales teams, some will click, some won't, then you try to rehire the ones that don't work and you continue down the path. So We expect to do that in the near future, yes.

Speaker 5

Okay. And is that only The newer acquired markets or are you doing any of that in the core existing Quip markets?

Speaker 2

It's definitely a combination, for sure. I mean, it is based on where the opportunity is. If we are already well penetrated, whether it's a new market or an old market, then you probably don't want to spend There may not be that much of a marginal benefit, but if you are in a market where there is an opportunity to penetrate further, whether it's in the form of a new product line or Existing product line, but more doctors and hospital coverage and kind of you make those decisions accordingly.

Speaker 5

Okay. That's helpful. And just a couple of modeling questions here really quick. I guess With respect to inventory levels, I see it went down a little bit 2nd quarter to 3rd quarter. And just Curious, is this a good level going forward or should we assume some growth there?

Speaker 2

I think it's a stable level. We did some adjustments to inventory in this quarter, which kind of this Q3 numbers. But I think within the margin that is a steady state for the current revenue base.

Speaker 5

All right. And final one also modeling. On equipment loans, you paid some off, obviously, added some, I think, around $7,800,000 Is that a good level going forward as well now that Great Elm's completed and sort of operating Full force

Speaker 2

here. Yes. I mean, in this particular quarter, we, there were some huge swings in that category to the normal. But again, if you look at the 9 months period and if you look at or even if you want to just look at the last 6 months, I think that's a good average, since that already reflects a great down. Whenever we do an acquisition, we do acquire some liabilities as part of our purchase price allocation.

Speaker 2

So it does skew it a little bit, but again, if you look at averages, I think you'll get a good average of the last 6 months.

Speaker 5

Okay. Thanks.

Operator

The next question is from Rahul Sarajacar with Raymond James. Please go ahead.

Speaker 6

Hi, good morning, Greg. Good morning, Hardik. This is Mike on for Rahul. First question is going to be on the acquisition pipeline. I wonder if you could Describe the general profile of that pipeline and describe what you're seeing in terms of market pricing?

Speaker 2

Sure. Our pipeline includes companies that are somewhere in the $3,000,000 to $15,000,000 in top line revenue, some on the higher end of it, some at the lower end of it. I think the 3 pronged strategy that we have laid out, I think that continues to hold for us. We do see smaller tuck in opportunities, which are extension of our existing geography, but within the same state, which probably you can acquire those at lower multiples, and then you will see the higher end, maybe 10,000,000 plus minus and those might demand a little bit higher in terms of valuation, but overall, the valuation seems to be slightly depressed than what we have seen in the past.

Speaker 6

Okay, great. That's helpful. Now I wonder if you could provide an update on the Great Elm integration. Wondering if there is more headroom for optimization of that ASIC moving forward and if that might factor into future adjusted EBITDA growth. And then describing with a bit more precision the ambitions around growth around that asset, what are some areas that you would like to

Speaker 2

I'll take the synergy part and then I'll let Craig Respond to the growth opportunity part. Just to rephrase your question, you're saying, are there more synergies to be unleashed And hence more margins to be, unleashed. And Gretam, is that did I get that correct? Yes. Of 2019.

Speaker 2

Yes. I think what you are seeing is mostly maturity on the synergy side. We Kind of whatever was previously identified, we were able to we were hoping to unleash that in, of course, 9 months, we were able to do that so sooner. So I think what you're seeing is Probably more of a steady state if there are some more synergies to be squeezed out. I mean, they might be gradual, but they may not be meaningful in the scheme of things.

Speaker 2

So I would consider Q3 as a very good baseline.

Speaker 4

Yes. And this is Greg. I'll just add in that. It's primarily going to be the cross selling of additional products in the future in that across those particular geographical areas. And then kind of follow after that will be expansion into continuum areas.

Speaker 6

Okay, great. And then just one modeling question to be part for the course. I noticed D and A climbing over the last three quarters. I wonder if you could describe what we should be thinking about moving forward?

Speaker 7

G and A,

Speaker 2

given the fact that we do acquisition, I think That's one thing it's very hard to model. We totally appreciate that from a modeling perspective. As far as steady state business goes, one way to look at it is look at our PP and E as a percentage of revenue And then maybe you use that to do the roll forward on for depreciation at least, right. Amortization is on the books. You can take that on a straight line.

Speaker 2

Having said all that, As soon as we do another acquisition, that baseline asset value changes and the depreciation numbers changes. So That's kind of the tough part. And again, we appreciate the challenge from an analyst perspective, but that's my 2¢ on how I would model if I was to look at in the steady state business.

Speaker 6

All right. Thanks very much and congratulations on all this growth. Thanks. Thank you.

Operator

The next question is from Ty Bollin with 8 Capital. Please go ahead.

Speaker 7

Hey, good morning guys. Thanks for the question. My first one regarding the investment you guys made in DME script, Is that something you might look to upsize as you get more familiar with that business? Are you kind of comfortable keeping that as a minority position just to keep your toes in the water? Yes, I think that remains to be determined at this point.

Speaker 4

In that, I mean, we definitely see ePrescribe as a big part of the future in that, that's going to allow us to scale our business. It's going to create efficiencies really on all fronts for the ordering physician. You know the company here as we process orders and ultimately and that improve the patient experience so they can get their products quicker and get under service and keep them in the home setting.

Speaker 7

Okay, got it. Great. And then just for my follow-up, I appreciate the confidence around the cash flow conversion and the updated guidance there. I guess I'm just wondering if you could maybe articulate or or provide a little more color around what kind of gives you the confidence at this moment to increase that guidance and kind of hold that into the future.

Speaker 2

Yes, I think a combination of things, Great Elm acquisition plus working on the business, some tailwinds that we have previously discussed on the conference call. But I think more importantly, the fact that things are kind of stabilizing, we are seeing that top line growth that we expect to and with the presumption that inflation has kind of stabled out and we are not going to see any file swings and and then obviously confidence in the execution of our strategy is what makes us believe in those numbers. Okay, great.

Speaker 7

Thanks for the questions, guys. Congrats.

Speaker 2

Thank you.

Operator

We have a follow-up from Richard Close with Canaccord Genuity. Please go ahead.

Speaker 5

Yes, thanks for the follow-up. Greg, I was wondering if you could talk a little bit about your thoughts on resupply, maybe corequip as compared to great Elm and what's the opportunity There is for further penetration and just timelines possibly?

Speaker 4

Yes, sure. Actually, a really good question in that. We've just converted in that those operations in that post in that this quarter here of 6.30 over to the current platform that we're utilizing in that. So we would expect to see some nice growth come out of that over the next couple of quarters in that as those patients get transferred over and start ordering more frequently, which is what we've historically seen when we've transferred acquisitions over to this platform.

Speaker 5

All right. Are there any like percentage of patients that are Yes, doing resupply or any metrics that you can provide?

Speaker 2

No, we really We don't publish any of those metrics. Obviously, you can see the volume metrics that is included in our PR as well as the remarks today. Generally, an increase in new setups leads to an eventually increase in our resupply patient base and then the revenue that falls into that. I think the other advantage of moving into the platform that we use for the rest of Quip when it comes to Play Down is So retention, I think our platform has a higher retention rates for patients that are getting converted into a resupply patient. And so over time, you are building value under the platform that we are.

Speaker 2

So that's all I can say in terms of why we would expect to have further growth in resupply revenue for Great Elm.

Speaker 5

Okay, great. Thanks.

Operator

And we have a follow-up from of Salazar with Raymond James. Please go ahead.

Speaker 6

Hey, gents. Mike here again. Wondering just a quick question on national insurance contracts. You've added 2 national insurance contracts. I wonder if you how you could describe the impact of these on your organic growth formula.

Speaker 6

And then a quick follow-up on the deal we saw struck in May between Adapt Health and Rotech on DME generally with Humana. I wonder if like does that take Humana off the table for Quip Or is there in your specific areas of focus in respiratory, if there is some opportunity with that particular insurance provider?

Speaker 7

Yes, I mean the national insurance contracts

Speaker 4

in that have a very long sales cycle. We do have others that we're in not only national contracts, but also some regional and state contracts and that would add additional patient lives And that could potentially need our services.

Speaker 2

So we would expect that

Speaker 4

that's going to continue. That is one of the levers and that that we continue to pull in that to see the strong organic growth and still believe in that that we've got plenty of runway on that front. As it relates to Humana and to the best of our knowledge in that contract and that is for HMO plans, which only affects about 40% and that of the enrolled member lives in that under that Humana plan. So we've still got a good strong relationship with Humana.

Speaker 6

Okay. Thank you very much.

Operator

Thank you. This concludes the question and answer session. I'd like to turn the I'll turn it back over to Greg Crawford for any closing remarks.

Speaker 4

Thank you, operator, and thank you all for joining today. As always, you can find us on the web at www.quipthomemedical.com, where we will post a transcript of this call and our also updated investor deck.

Speaker 1

Thank you and have a great day.

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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Key Takeaways

  • Quiptome reported record Q3 revenue of $60.3M (up 64% YoY) and adjusted EBITDA of $13.9M (23% margin, up 80% YoY), driven by 4% sequential organic growth above baseline.
  • The company now operates 115 locations in 26 states with over 270,000 active patients, positioning it as the 5th largest U.S. provider of respiratory and home medical equipment; integration of its largest acquisition and investment in ePrescribe provider DME Scripps underline expansion efforts.
  • Quip highlighted a favorable regulatory backdrop—including elimination of the CMN requirement for home oxygen, expanded ER-to-home oxygen eligibility, and a CPI-driven Medicare fee schedule increase—that eases administrative burdens and supports margins.
  • Financially, Quip maintains a strong balance sheet with 1.4x net leverage, ~$20M cash and $41M in undrawn credit, while reducing bad debt from 9% to 4% and raising its free cash flow target to 6–8% of revenue.
  • The growth strategy hinges on three pillars: expanding organic sales through enhanced sales touchpoints in high-prevalence COPD markets, leveraging technology such as the automated resupply platform, and executing accretive M&A within a disciplined pipeline.
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Earnings Conference Call
Quipt Home Medical Q3 2023
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