AdaptHealth Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2024

There are 8 speakers on the call.

Operator

Good day, everyone, and welcome to today's Adapt Health Second Quarter 2024 Earnings Release. At this time, all participants are in a listen only mode. Later, you will have an opportunity to ask questions during the question and answer session Today's speakers will be Suzanne Foster, Chief Executive Officer of Adapt Health and Jason Clemens, Chief Financial Officer of Adapt Health. Before we begin, I'd like to remind everyone that these statements included in this conference call and in the press release issued today may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are not limited to comments regarding financial results for 2024 and beyond.

Operator

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 SEC filings. AdaptHealth Corp. Should have no obligation to update the information provided on this call to reflect such subsequent events. Additionally, on this morning's call, the company will reference certain financial measures such as EBITDA, adjusted EBITDA and free cash flow, which are non GAAP financial measures. This morning's call is being recorded and a replay of the call will be available later today.

Operator

I am now pleased to introduce the Chief Executive Officer of Adapt Health, Suzanne Foster.

Speaker 1

Thank you, and good morning for joining our Q2 earnings call. I'm pleased to report another consistent quarter with 2nd quarter results in line with expectations for revenue, adjusted EBITDA and free cash flow. With this being my Q1, I'd like to start by briefly sharing why I'm excited to be at Adapt Hub. I joined the team because I believe in our purpose and the vital role we play in improving healthcare. For too long, I have witnessed the increasing desire to extend high quality and prospective care to the comfort of one's home and I want to be part of solving this problem and accelerating this movement.

Speaker 1

I'm grateful for the learnings that have come from a 30 year career in healthcare that began on the front lines as a clinical social worker in a hospital setting. The learnings from obtaining a degree in public health policy focused on ways to bend the healthcare cost curve, followed by experiences in leading companies focused on medical devices, life sciences and distribution of healthcare supplies. Most recently, I led a business within a large corporation known for operational excellence and high performance through emphasizing standard work, standard metrics and a mindset of continuous improvement. I'm bringing these learnings and skill sets to the team at AdaptHealth, which I'm confident will result in improved performance and growth across our business. Over the last 2 months, I've spent most of my time traveling to meet our employees and see our operations.

Speaker 1

Here are a few of my early impressions. Overall, the business is performing well. Our patients and care programs are best in class, Digital orders are increasing, thereby reducing the number of faxes. Resupply demand is strong and our technology infrastructure projects are underway. I am especially impressed with the depth of commitment and knowledge of this team.

Speaker 1

The team at AdaptHealth formed through many acquisitions, brought together strong and entrepreneurial leaders in the industry with decades of experience. Our team knows the business and in many cases have grown up in the business. There are however some key areas where I see I can where we can improve to realize our full potential and growth. We're making several investments now in the areas of talent, strengthening our processes focused on organic growth, simplifying the business, developing a long term strategy for sustainable growth and technology adoption. Let me take these 5 areas of focus 1 at a time.

Speaker 1

1st, we are investing in clinical, commercial and operational talent to key areas of the organization and we are working to better align our teams, provide low clarity and remove duplication. We are investing in training that is focused on process improvement for critical workflows. We are having our first Kaizen event this month with several more scheduled this year. We have implemented standard work and metrics across the leadership team and are working to drive this through the rest of the organization. The alignment of roles and responsibilities and the standardization of how we do the work has become an important initiative for us and one we are excited about.

Speaker 1

In sum, we are coming together as one adapt. The team is eager to create and adopt standard work and understands that this work is work we must do ourselves. We have the knowledge and desire to do so. This work will help us drive leverage and position us for growth in the large end markets we serve. Our goal is to continuously improve on how we deliver cost effective, accurate and timely care to the home.

Speaker 1

2nd, we are working to strengthen the business to deliver organic growth in the 3 markets we serve: sleep, respiratory and diabetes. We are working to align our sales forces. We are expanding our national accounts and payer relations teams. On the operations side, we are taking steps to improve our throughput and conversion rates so that our sales teams have the confidence to deliver on the promise of reliable and accurate service. 3rd, we are simplifying our processes in our org structure while continuing to strengthen our balance sheet.

Speaker 1

We are evaluating non core assets, rationalizing our footprint and we are paying down debt. All these efforts are focused on increasing our free cash flow yield. 4th, we are building a strategy for long term sustainable growth, one that positions ourselves for increased clinical and payer relevance. To that end, we created a new leadership role and welcomed Doctor. Philip Parks as our Executive Vice President of Strategy and Healthcare Innovation.

Speaker 1

As an experienced military and civilian physician, strategist and leader, he is intimately familiar with the clinical, technological and logistical challenges of decentralized care on the battlefield and in the home. We are embracing our role as we are uniquely positioned to enable decentralized healthcare more broadly, reliably and with higher levels of clinical quality and improved patient experiences. Doctor. Park understands the important roles we play as a provider and facilitator of care and support to people living with acute and chronic diseases. I believe the unique lens his background and experiences afford him will be invaluable as we shape our strategy and picture of what this company can become.

Speaker 1

Finally, I have familiarized myself with our IT systems and infrastructure and I'm happy to report that the team made solid progress in this area over those past couple of years. I do however see significant potential for automation, AIs and other advanced technologies to improve our operations, increase our capabilities and drive efficiencies. We are currently conducting a few low cost experiments with AI that are progressing well around customer and clinical documentation. The technology is producing highly accurate structured data with predictable results. It is early days, but this is encouraging because we know that our critical functions can run more efficiently and effectively if we remove the work that otherwise slows us down.

Speaker 1

What is more compelling is that accurately and reliably transforming fast and digitally transmitted documents into structured data at scale can unlock potential to improve patient experiences and allow us to personalize our patient and provider interactions. We are just at the beginning of this journey, but we are confident that we will soon uncover more areas for operational improvement and efficiencies using AI, which will create a better experience for our employees, patients and providers that we support. We have already invested in key hires, initiated projects focused on increasing organic growth and are simplifying the business. We believe these short term investments will lead to longer term improved profitability and performance, ultimately fulfilling our mission to shift more care to the home and reduce overall healthcare costs. I would like to take this opportunity to express my sincere appreciation to the team at AdaptHealth, our partners and shareholders who have helped educate me on the state of the business and the markets we serve.

Speaker 1

I am optimistic about the road ahead and look forward to working as one Adopt, a unified team to simplify and standardize our operations, deliver growth, realize clinical and payer value and most importantly, support our patients in their homes. With that, I will turn it over to Jason.

Speaker 2

Thanks, Suzanne, and thanks to all for joining our call today. For the Q2 of 2024, we delivered against our expectations for revenue, adjusted EBITDA and free cash flow. Incremental expense associated with recovering from the changed healthcare situation came in line with what we projected. And shipping lead times for sleep resupply products improved in June over what we experienced in April and May. Net revenue of $806,000,000 increased 1.6% compared to the Q2 of 2023.

Speaker 2

Sleep revenue of $322,400,000 increased 6.5% over the prior year. New starts were strong, up over 5% sequentially from Q1. Notably, our sleep resupply census reached a new milestone in the quarter and now stands at over 1,600,000 patients. Over 30% of new patients responded to our GLP-one survey in the quarter, which showed that approximately 12% of those patients were prescribed GLP-one therapy, up a touch from the Q1. While we continue to closely monitor adherence and resupply ordering patterns in our GLP-one patient cohort versus patients not currently utilizing GLP-one therapy, we have not detected any notable difference to date.

Speaker 2

Diabetes revenue of 151,200,000 dollars was down $17,700,000 over the prior year. But as previously discussed, we faced a tough prior year CGM comparable this quarter due to timing of system conversions in 2023, so we expected year over year compression. For the first half of twenty twenty four, diabetes revenue $302,000,000 was down $13,200,000 over the first half of twenty twenty three. We expected pump and supplies revenue to decline by about $10,000,000 for the first half, but results were slightly worse as some patients held off on new tubeless pumps pending CGM compatibility that just recently launched. So we believe that starts should pick up in the second half.

Speaker 2

Also, we started supplying Handamovie during the Q2 and we expect this product to ramp up over the rest of the year. As expected, CGM revenue growth flat for the first half as our new sales reps made up for 3 payers that shifted to 100% pharmacy reimbursement earlier in the year. As of today, our pharmacy is now distributing products in each of those markets and we are working to grow. Since the end of this quarter, we have seen a modest shift in payer reimbursement channels, but encouragingly, we have seen shifts in both directions. We remain focused on building the capabilities to provide our diabetes products regardless of reimbursement channel and our sales force is focused on growing our share in a continuously increasing achievable market.

Speaker 2

Revenue from all other categories was $332,400,000 growing 3.3% over the prior year, led by respiratory. Much of our respiratory growth was driven by the onboarding the rest of our Humana patients and we were pleased with those results. Utilization is right in line with our expectations. For the HME and supplies to the home revenue categories, we continue to reevaluate products that do not fit our strategic roadmap and do not drive ancillary volumes into our core areas of sleep, respiratory and diabetes. To that end, we recently signed a definitive agreement to sell certain custom rehab technology assets to National Seating and Mobility, a well respected national mobility solutions provider with over 30 years of experience in the CRT category.

Speaker 2

For Adapt Health, these products represented a small amount of revenue from individual acquisitions over the years, but in aggregate represent about a point of enterprise revenue. Later, we will discuss our adjustments to full year guidance and we are looking forward to working closely with NSM to ensure a smooth transition. Turning to profitability. 2nd quarter adjusted EBITDA of $165,300,000 reflects an adjusted EBITDA margin of 20.5%, a slight improvement over the Q1. Our sequential margin expansion was driven by cost of products and supplies, primarily driven by outsized growth higher margin products and compression in diabetes products that are amongst the lowest product margins in our portfolio.

Speaker 2

Labor and other operating expenses performed as expected. Cash flow from operations was 198,000,000 dollars driven by cash inflows that were delayed from Q1 due to the changed healthcare situation. Day sales outstanding for Q2 was 48.9 percent, the month of June was 44.3 percent and we expect to be back to normal by the end of the Q3. CapEx of $81,300,000 representing 10.1 percent of revenue was down against 10.4% of revenue in the Q2 of 2023. Free cash flow of $116,700,000 outperformed our target of $94,000,000 We remain confident in delivering our full year guidance for cash flow.

Speaker 2

At the end of the second quarter, our TLA balance was 650,000,000 dollars a result of paying off $45,000,000 since the end of the quarter, including voluntary payments of 35,000,000 dollars Our net leverage ratio is now just under 3x, ahead of our goal to be under 3x before the end of 2024. We expect to further delever over the remainder of the year. For the Q3, we expect revenue to be flat sequentially from Q2 accounting for the disposition discussed earlier and in line with the seasonal effect we experienced last year. Adjusted EBITDA margin percent up 20.0 percent, down slightly from Q2 as we recently made key investments in people and technology that Suzanne discussed earlier. Free cash flow of at least $30,000,000 For the full year, we are adjusting our revenue midpoint to account for the disposition discussed earlier.

Speaker 2

However, we are maintaining our midpoint for adjusted EBITDA and we are increasing our midpoint for free cash flow. Our updated full year guidance is net revenue to be in the range of $3,255,000,000 to $3,315,000,000 adjusted EBITDA to be in the range of $660,000,000 to $700,000,000 and free cash flow to be in the range of 160 dollars to $180,000,000 With that, we'll open the call up for questions. Operator?

Operator

Thank you. And we will take our first question from Brian Tanalenkoek from Jefferies. Please go ahead.

Speaker 3

Hey, good morning. Thanks. It's Jack Sullivan on for Brian. Great work on the quarter to the team and welcome to Suzanne on the first earnings call here. I guess maybe starting with that, Suzanne, the one comment I just wanted to make sure I got clarity on your point on taking a look at non core assets.

Speaker 3

Could you just give a sense for kind of what you mean in terms of size and scope or boundaries that you might put around that? I just want to make sure I understood that correctly.

Speaker 1

Hi, there. Thanks for the warm welcome. I'm going to let Jason handle the size and scope, but let me clarify what I mean by non core assets. So as I looked at our portfolio, one of the benefits of course is we have a really nice broad portfolio that has helped us serve patients with sleep disorders, respiratory and diabetes. But then we have a bunch of other or a few other things that are around that that came in through the acquisitions that really strategically don't support us moving towards focus on those three areas.

Speaker 1

So as I looked across the portfolio, we challenged ourselves to say which of these is in furtherance of supporting patients with those chronic and acute conditions and if not and there is no other strategic imperative there then should adapt moving.

Speaker 2

Yes. And I'd round that out Jack by saying that as we qualify certain products, this is a very just targeted analysis and study that we've been working on for some time. Products that are no growth to low growth with no margin to low margin, taking free cash out of the company, I mean those certainly we are looking very hard at those products. Additionally, if the product does not provide ancillary revenue, An example is some of our businesses that we support are hospital systems. Well, those are not good candidates for disposition because that individual product on its own may not have a high growth profile or high margin.

Speaker 2

However, it feeds respiratory, it feeds the HME categories that we're focused on, it feeds sleep and diabetes. And so that's a little bit of how we're approaching this program. In terms of size or scope or what else to come, I mean we won't have much to say about that today. In the next quarter, I suspect that we will have something to discuss at that time. But at the end of the day, we're focused on simplifying this business and continuing to delever our balance sheet.

Speaker 3

Got it. Really, really helpful. And then, Jason, maybe just as a follow-up on some of the diabetes commentary. I just want to make sure I'm understanding sort of what the expectation is on the trajectory, both on the pump side of things and on the CGM side of things, as we look into the second half. So sort of got that things were ahead of expectation on pumps coming out of 1Q.

Speaker 3

Now 2Q lagging a little behind what's baked in the guidance. I guess

Speaker 2

when we

Speaker 3

think about jumping to the second half there, what's the how do we get confident that that's turning the corner? Any color there would be helpful. And then just how you're thinking about CGM with the sales force and other moving pieces into the second half? Thanks.

Speaker 2

Yes, sure. I'd say first on pump and pump supplies. I might remind you that at the beginning of the year when we set full year guidance, we had expected somewhere between $15,000,000 $20,000,000 top line compression, much of that driven by the continued shift from tube based pumps to tube Bliss pumps, which are primarily distributed through pharmacy operations and we've been playing a little bit of cash up, which we've been making progress on as reported last quarter. For this quarter, look, pumps fell a little behind. We believe it's timing related to the CGM compatibility.

Speaker 2

Some of this was just launched in June for Dexcom G7 as well as Libre 3. And so we think we'll call some of that back in the Q3. So that 15% to 20% still holds. If I had to say today, probably closer to 20%, but we're still within range to that. For CGMs, as discussed, we came in line with our full year guidance expectation of flat as we knew we had to overcome some payer policy shift earlier in the year.

Speaker 2

Based on what we're seeing today, we're feeling pretty good with the back half. On CGM, we have noted a small handful of shifts in the last month or 2, but encouragingly, as mentioned in our prepared remarks, some of this actually went the other way. There was a state Medicaid plan that had switched to the 100% pharmacy reimbursement a couple of years ago. And effective July 1 this year, they've reopened the DME benefit. So it's essentially a dual channel reimbursement, which we believe is an indication of the value that DME drives versus a pharmacy.

Speaker 2

It's that constant touch, it's the adherence, it's the relationship with the patient, it's the access to the data that's getting generated from the CGMs and where we have patient consent, we're monitoring. I mean after all a measurement for A1C every 6 months by a blood test is triple weighted STARS measure and look, these things matter to payers. And so we're continuing to do work to help educate the market, advise on that dynamic and of course be agnostic in our diabetes products regarding the how we get reimbursed. We want to take care of as many patients as possible because we think we do a great job of it.

Speaker 3

Got it. Really helpful. Thanks again and congrats.

Operator

Our next question will come from Richard Close with Canaccord Genuity. Please go ahead.

Speaker 4

Yes. Thanks for the questions. Susan, welcome. Jason, maybe just diving deeper on the diabetes side, obviously, DexCom had some mixed results that Com had some mixed results there. I guess if you could put it in context how you're thinking in terms of how the second quarter performed in the second half.

Speaker 4

Was there anything surprising in their commentary on the market versus what you have baked into your assumption?

Speaker 2

Richard, thanks for the question. I wouldn't say that there's anything surprising to us from Dexcom's comments. I'd say that if anything was surprising, it was a reference to relationships with D and E operators. Like for us, I mean we've maintained a long standing and I think very solid open relationship with DexCom. So that to us just it doesn't apply.

Speaker 2

Regarding their Dom guide and revenue changes, I mean, again, for us, like operating within this DME reimbursement channel, having very deep visibility now in the pharmacy channel and shifts as they occur. Can't say we had that a year ago or about a year and a half ago, but we did invest in a fair amount of detection, kind of forward looking detection capabilities. And so at this stage, it's to us, it feels like a slow moving but dynamic channel environment. And so based on the information we have today, we're feeling good with our full year guide.

Speaker 4

Okay. I appreciate that. And then maybe Suzanne, if you could talk a little bit about the sales teams. You made some comments there, I think, in your delivering better organic growth. Can you just provide a little bit more details on any changes to the sales teams and adding to national accounts?

Speaker 4

That would be helpful. Thank you.

Speaker 1

Sure. Thank you. Sales team is one of my favorite topics. So today, we have several different sales teams and we go to our customers in several different channels. And again, it's only been a little over 60 days.

Speaker 1

So I want to preface this with I haven't completely dug in, but I do have a hypothesis that we if we further align our commercial organization so that we're looking at it more holistically and what I mean by that is all of our referral sources, so all the different providers that refer to us, the big national accounts and the payers, if we look at that in a holistic way around what are we trying to accomplish and we align the team under that strategy, then maybe there's more to be had. So for example, we know that a lot of patients have multiple comorbidities and the hypothesis on the table is, do we look at a different way of going to market where we're capturing the referral both for the diabetic patients and who also may have a sleep disorder. And so that's work to be done in this next quarter, but the going in hypothesis is that we can do more with our current sales organization.

Speaker 4

Okay. Thank you.

Operator

Our next question will come from Matthew Blackman with Stifel. Please go ahead.

Speaker 5

Hi, this is Colin on for Matt. We saw a couple dynamics play out this quarter from both the pump and CGM companies that have already reported. We're still trying to fully wrap our head around it, but it sounds like things are okay on the CGM side. I'm curious on the pump side, things are now tracking more in line with your original expectations. Last quarter, you saw the pharmacy mix for Omnipod 5 actually exceed your DME pump mix, your durable pump mix for the first time, did that continue this quarter?

Speaker 5

And with the potential backup of patients looking to adopt the new integration, do you expect that to continue in the second half?

Speaker 2

Hey, Collyn, it's Jason. Good question. We did not see the strength in OP5 setups in the Q2 that we saw in the 1st and Q4 last year. We're very confident that that is related to just a delay, patients delaying, providers delaying on account of the CGM integrations. Our July numbers are up quite significantly for OV5 and so hard to say if that will be a trend or make a trend, but we are confident that it's a timing issue.

Speaker 5

Great. And then really quickly on the sleep business, you mentioned last quarter the potential for some supply constraints. It really didn't seem to play out in this quarter's results, but just wanted to confirm that that's not a worry going forward for the rest of the year? Thank you.

Speaker 2

Yes, good question, Colin. No, we're feeling good on supply across all products as we stand here today. Through April early May, so we reported on about the 2nd week in May, we were absolutely experiencing slowdown from some specific sleep resupply products. That did get better over the course of the quarter and we ended up coming in right in line with what we expected. That's not a spillover in any way for the rest of the year and as we stand here today, we've got the products that we need to take care of our patient demand.

Speaker 2

Great. Thank you.

Operator

Our next question will come from Eric Coldwell with Baird. Please go ahead.

Speaker 5

Thanks. I have a few, hopefully not too long. On the sleep, Jason, that you just responded to, I think the options that were laid out, if those previous constraints continued were that you could just wait and then hopefully the manufacturer, the shipping would clear up. You could shift to alternative suppliers or you could perhaps shift your strategy on getting supply into the market. Maybe I think at one point even mentioned renting a plane and flying stuff over.

Speaker 5

So I'm just curious what was the final tally? Was it just the manufacturing question got the problem resolved through the shipping lanes cleared? What actually changed in the second half of the quarter?

Speaker 2

Yes, Eric. Good question. We did not have to pull any levers operationally to deliver on the quarter as related to that item. The manufacturer supply chain did come through for us.

Speaker 5

Okay. On sleep, I think you said patient sleep starts were up over 5% and hopefully that's the right number that I got. If so, that's pretty good.

Speaker 2

Eric, that's sequential versus prior year. So Q over Q? Yes.

Speaker 5

Yes. Okay. So no change in your overall view on equipment rental run rate this year given working through the prior period supply constraints and then the patient backlog that came back in a year plus ago, you have a tough comp on equipment rental. What you saw this quarter doesn't change your view on equipment rental for the full year then?

Speaker 2

If anything changes, it's a modest improvement in outlook. Our census for rental bottomed in February and of course as a reminder that was related to healthy starts in the Q1, but record starts a year ago and as those patients as we start getting paid for that round device 13 months later, right. So it was really that phenomenon, but we bonded in February and we have continued to increase that census since. So we're feeling very solid on the rental line for sleep. If anything, we're feeling a little bit better than we did a quarter ago.

Speaker 5

1 or 2 more quick ones, if you will. First off, you maintained EBITDA guidance at the midpoint, but you also mentioned heightened investments. I was hoping you could walk through some of the mechanics there, selling the business, some other obvious progression in some of your other lines. Now you have some heightened investments you've called out. How does this all what are the pluses and minuses in that analysis?

Speaker 5

And maybe just how much is the incremental investment that was highlighted?

Speaker 2

Yes, sure thing, Eric. I might start on the disposition. The guidance change implies $15,000,000 of revenue for the rest of the year and $0 EBIT impact for the rest of the year. For us, again, these were kind of collections of businesses acquired over years. We didn't maintain like a product leader and a distinct focus on growing it or driving efficiencies in that business.

Speaker 2

We think that National Seating and Mobility is going to be a terrific owner for that business. We think they're going to take very good care of that patients. We think that they will find under their management and their focus improvement in growth, improvement in operating margin, I mean that business will be in good hands we believe. So that's the first piece. So on the even line, no impact for the full year.

Speaker 2

Now in terms of the Q3 and Suzanne's remarks, I mean, we have made several key investments, some just a week or 2 after Suzanne arrived. And so I frame that as a couple million in people within the 3rd quarter, a couple million in technology within the Q3. In the Q4, we have to counteract some of this and to make sure we deliver on our full year guide. We've got various tossed out streams that activated 2 weeks ago and so we'll get a little bit of that back in Q3, but the predominance we expect to get back in Q4. So think of the Q3 as well as Q4 as recurring expense, so it's left pocket, right pocket.

Speaker 2

I mean we feel very good about delivering on the full year numbers.

Speaker 5

All right, great. And if I could get one last one, how much diabetes revenue is going through pharmacy now?

Speaker 2

We have maintained it at just a touch over 5%. It has grown very slightly against the Q1, but of course we are continuing to ramp new markets with new salespeople sell and distribute in the pharmacy and so we do expect that number to grow.

Speaker 5

Thanks for all the questions and congrats on a smooth steady quarter here. Thanks guys. Thanks Eric.

Operator

Our next question will come from Peter Chickering with Deutsche Bank. Please go ahead.

Speaker 6

Hi, there. You've got Kieran Ryan on for Pito. Thanks for taking the questions. Thinking about 4Q revenue, usually diabetes is strong due to deductibles being hit and pulled forward from the first quarter. With diabetes pretty much flat year to date, do you still assume that seasonality in 4Q?

Speaker 6

And is there anything that you'd call out that might make that change?

Speaker 2

Yes, Karen. We absolutely expect a big pop sequentially from Q3 to Q4 from a percentage basis, pretty similar to what we saw last year.

Speaker 6

Got it. Thanks. And then just a quick follow-up. I was just wondering

Speaker 2

how we should think on the

Speaker 6

seasonality of the capitated revenues. I was just a little curious why 2Q was down just a touch versus 1Q?

Speaker 2

Thanks a lot. Yes, sure. You're going to see cap revenue right in that kind of $30,000,000 ballpark, touch higher. Essentially the cap payment works as the number, the membership number that's set at the beginning of the year through the payers that we're capped with. And then over the course of the year, certainly as there's changes to plan design, there could be life events, people change employers, things like that, it will bounce around a little bit, but we expect it to be in a very tight band.

Speaker 2

So up a1000000, down a1000000 from 1 quarter to the next is what you should expect going forward.

Speaker 5

Thank you.

Operator

And our last question will come from Joanna Gojek with Bank of America. Please go ahead.

Speaker 1

Hi, good morning. Thank you

Speaker 7

so much for taking the questions here. So I guess respiratory revenue there, I guess it sounds like you restated some of your numbers here, especially for Q1. So I guess when I look at that number, Q over Q, revenue is up like 1%. So yes, what's driving this change in the revenue versus how you reported in Q1? And also how do you think about the growth for the year for this service line?

Speaker 2

Yes. Joanna, firstly, I would provide a perspective on I think you said the word restatement. So just to clarify, nothing was restated. We did add disclosure detail in the Q2 to break out the capitated revenue by product line. We thought that made good sense.

Speaker 2

We've heard some feedback from The Street that that would be helpful data and so we applied to that. And so you can see now, you can look at the data both ways. You can look at it on a pure cap versus rental and sales. You can also look across the product category regardless of the nature of that revenue, rental where sales were capitated. And so it's just providing that extra disclosure in the Q2.

Speaker 2

Now in terms of growth, I mean we're thrilled with respiratory. I mean respiratory continues to outperform. Now some of that is Humana and we've just taken on more patients in respiratory as a result of that contract. But most of it is really because of new sales. I mean our market share data this quarter for the first time shows that we've overcome everybody in market share for respiratory.

Speaker 2

And so we're very confident we're taking share across those categories and includes oxygen as well as non evasive ventilation.

Speaker 7

Okay, great. Now this is one follow-up. Okay, so market share gains and Humana contract is helping you. So I guess on that end, since you mentioned that Humana contract, because I know last quarter, there was some discussion of maybe additional CapReco contracts. I didn't hear this being, I guess, part of the strategy.

Speaker 7

So I don't know if this is just kind of there or should we expect more or less commentary around additional capitated contracts?

Speaker 2

Should we expect additional commentary on capitated? Well, I think that we've offered that Humana certainly is the predominance of that capitated revenue. It's 33 states, it's a lot of patients, well over a 1000000 patients. For a number of years, we've maintained business with other payers, a lot of that's kind of West Coast focused as you'd expect. We do maintain a pipeline of incremental cap deals that we're working, but now that's included in guidance and not really much to discuss until or unless we secure additional cap yields.

Speaker 2

Does that answer your question?

Speaker 7

Yes. And I was just thinking about like any additional future contracts, whether this is part of the strategy too, trying to get additional ones. I mean, it sounds like you've had some, but they were much smaller. So I was wondering whether this is part of the strategy to pursue additional larger copy data contracts?

Speaker 2

Yes. To reiterate our strategy, we do have dedicated sales folks that are focused on cap deals exclusively. They're specialists in designing pricing, those are obviously a big pricing machine, cap deals. And so that will continue. We do intend to grow our share of CAFD deals and if or when we close deals, we'll be sure to talk about it.

Speaker 7

Great. If I may squeeze, very last one on the other business, diabetes and the commentaries around the channel shifts and I guess the sales force, but specifically around your ability to participate in the pharmacy channel? Or that business going through the pharmacy channel? And do you need more pharmacies? Are you using third parties?

Speaker 7

How are you kind of handling that, I guess, revenue stream going through the pharmacy channel? Thank you.

Speaker 2

Yes, sure. So I'd offer maybe an example to help bring the point home. Louisiana Medicaid was the state office that switched to a 100 percent pharmacy reimbursement earlier in 2024. We have worked to that's a great more safe, so you're required to have Rick Moore Pharmacy to distribute and so we've stood that up. We've got licensing in place.

Speaker 2

We're active. We are actively selling and distributing to Louisiana, say, Medicaid as well as the MTS. And so that's one example of the infrastructure that we're continuing to stand up and refine.

Speaker 7

So you're saying that there's actually more that you need? Or are you saying that you have the, I guess, infrastructure in place to service across the country that product through the pharmacy channel?

Speaker 2

We expect to continue to grow our pharmacy business.

Speaker 7

All right. Thank you so much for the question.

Operator

And with no further questions, I'd like to turn the call back to our presenters for any additional or closing remarks.

Speaker 1

Thank you. I just want again want to reiterate our appreciation for the support of Adapt Health. Hopefully, you can see from today's call that we are moving quickly, but methodically through improving the business and our performance and we're excited about the future. Thank you all again for joining today.

Operator

And this will conclude today's conference. Thank you for your participation and you may now disconnect.

Powered by Quartr
Earnings Conference Call
AdaptHealth Q2 2024
00:00 / 00:00