AdaptHealth Corp.

Good day, everyone, and welcome to today's ADAPT Health third quarter 2023 earnings release call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. It is now my pleasure to turn today's call over to Richard Barrage, Chairman and Interim CEO. Please go ahead.

Good morning, everyone. Thank you for joining us today to discuss ADAPT Health's third quarter performance. Before we begin, I'd like to remind everyone that statements included in this conference call and in the press release issued today may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements include but are not limited to comments regarding financial results for 2023 and beyond. Actual results could differ materially from those projected in forward-looking statements because the number of risk factors and uncertainties which are discussed at length in the company's annual and quarterly SEC filings. ADAPT Health Corp should have no obligation to update the information provided on this call to reflect such subsequent events. Additionally, on this call, the company will reference certain financial measures such as EBITDA, adjusted EBITDA, and free cash flow, all of which are non-GAAP financial measures. This morning's call is being recorded, and a replay of the call will be available later today. We are pleased with the results of the third quarter. Powered by our sleep business, we generated 6.3% growth over last year. leading to record revenues for the quarter. Equally important, we generated cash flow from operations of 98.8 million and free cash flow of 21.7 million. Adjusted EBITDA fell short of our expectations, largely as a result of unplanned delays in the implementation of the Humana contract. Jason and I will get into more detail on why this happened, but these results do not reduce our optimism that this will be a profitable contract for Adapt Health, nor does it diminish our enthusiasm for more enterprise sales of this type. Other than this contract, we would have met our expectations for revenue, adjusted EBITDA, margins, and cash flow in the quarter. Our sleep product line continues to outperform, resulting in 17% increase over last year. Our new PAP starts were consistent with our expectations, and our PAP resupply business generated record order volumes. An important metric is that our resupply census has grown 12% over the past year and now totals over 1.5 million patients. Among the reasons we continue to grow is that we have focused on electronic ordering, which reduces friction and enhances the patient experience. The relationship that we've established with these patients is a critical aspect of our strategy to become more than just a provider of devices and supplies. Building on the strong trends in the first half of the year, we grew our respiratory net revenue by over 8% year on year. This growth was driven by increased patient census coupled with stabilization in the length of time patients remain on oxygen Diabetes continues to be a work in progress, as discussed last quarter. While the results in the third quarter were a bit softer than we had planned, we are encouraged by the progress we are making to improve this vital product line. To resume growth, we are focusing our sales effort toward the growing government business, especially in areas where diabetes is prevalent. The government market for CGMs and pumps is large and growing, and we are continuing to shift our strategy to specifically focus on the acquisition and retention of these patients. Government sponsored payers are now 79% of our CGM census, up 200 basis points versus last quarter. We are rapidly recruiting dedicated diabetes representatives. in the areas of high diabetes prevalence, leveraging the scale and capability of the entire ADAPT Health sales team. Our objective is to double the number of diabetes sales reps over the next several months. We're also exploring strategies to participate profitably in the growing pharmacy sales channel. This will allow us to regain some of the share that we relinquished as more commercial payers move to the pharmacy channel. Finally, and quite promising, is that we are beginning to execute a strategy to use the data generated from CGMs to create a better patient experience while generating information that is important for their providers and payers. This will enhance our value proposition to all of our constituents. Our experience in the early days of the Humana implementation has not diminished our optimism about the value that this contract will provide to all parties to the transaction. We've established a very strong relationship with Humana, and we've been working to make the transition process as seamless as possible for Humana members who will ultimately benefit from better service for their HME needs. Unfortunately, however, we underestimated the size and complexity of the patient transition process. Onboarding members as taking longer than we had anticipated resulted in a reduction to our expected cap revenues from Humana. Nevertheless, we remain confident that this agreement will achieve positive results for ADAPT Health. Since ADAPT Health went public in 2019, we've increased revenue and adjusted EBITDA each year and have recently improved our cash flow and strengthened our balance sheet. However, we must take responsibility for issues, some self-inflicted, that have caused a reduction in investor confidence, including setbacks around the CEO search. The top priority for our board is to fill the CEO job with the best candidate as soon as possible. We are currently talking to highly capable candidates with the goal of having the post filled by year end. In the meantime, we're not slowing down, and I'd like to describe the key initiatives and goals that our board and management are aligned on. Further increases in cash flow from operations and free cash flow is a high priority. The company continues to focus on better collections, better inventory management, and more efficient capital spending, all of which have contributed to our improved cash flow results. We recently used some of our free cash to buy back stock, but we were also addressing our balance sheet. During 2023, we paid down our revolver and reduced our leverage from 366 to 351 times. We are fortunate to have a comfortable debt structure in terms of rates and maturities, but we intend to delever further with the goal of reducing our leverage to under three times by the end of next year. As to the business itself, our short-term priorities are to solidify our diabetes line and resume a market rate of growth, expedite the transaction of the human of business, and expand our enterprise sales effort, continue to reduce the cost of operations through automation and better processes, and implement our strategy to become even more relevant in the healthcare ecosystem. Finally, I'd like to comment on the effect of GLP-1s in our sleep and diabetes product lines. Most important, we are seeing no current impact on our sleep product line. Our total sleep census, which is a combination of new starts, and ongoing PAP resupply patients continues to grow at a pace that bodes well for continued revenue growth. Further, we have seen recent analysis that indicates that the effect of GLP-1s on PAP utilization may have been overstated in some earlier analysis and resulting market reactions. For example, one recent study indicated that only 3% of GLP-1 users with obstructive sleep apnea were able to stop using their PAP therapy. Another recent piece highlighted the lack of adherence to GLP therapy over time. Others, ourselves included, think that the sleep TAM may actually grow as a result of more awareness and increased diagnosis of OSA as a result of the publicity around GLP-1. Our working assumption, though, is that GLP-1 drugs will likely have a significant impact on obesity over time, which may cause some leakage to the current sleep time. How large and how soon are the subject of much speculation, but we will proactively respond to this potential pressure. If there is a net reduction in sleep TAM, we can overcome it by continuing to increase market share, decrease costs through automation and better processes, and focus on patient retention. We've improved on each of these measures over the past few years, and the GLP-1 conversation will accelerate our efforts in these basic areas. There is more consensus that GLP-1 usage may accelerate growth more GLP usage may accelerate growth in CGM usage. We believe that diabetes patients on GLP-1s are actively engaged in their health and will be inclined to monitor their A1C levels through CGMs. We also believe that increased insurance coverage of CGM, especially in the government sector, is a strong tailwind. Adapt Health is at the epicenter of efforts to improve the health of people with chronic conditions like obesity, diabetes, sleep apnea, and COPD. We occupy a unique position connecting providers, patients, and payers. We currently have an ongoing relationship with over 1.5 million people with sleep apnea, roughly 170,000 diabetics, and 300,000 people with chronic respiratory conditions. We interact with these folks on a regular basis to help them with adherence to their therapies by supplying and resupplying needed equipment and coaching them as to better usage. Better adherence alone will improve outcomes and reduce downstream costs, but we are just now beginning to understand how we can compliantly use the data we are generating to do even more to improve the health of our patients, especially those with with comorbidities. One early example is that we recently surveyed 10,000 people who set up on PAPs last month. Of these, 7% of those who responded, and by the way, the response rate was over 40%, so we think this is a reasonably good sample. Of these, 7% are taking GLP-1s, which indicates that GLP-1 usage can coexist and will coexist with CPAP therapy. Further, 20% of this group has diabetes, but only 15% of the diabetics are using CGMs to monitor their results. If we extrapolate these findings to our entire population, we will find many opportunities to identify and better service patients with comorbidities.

Thank you, Richard, and thanks to all for joining our call today. Let me begin by reviewing our third quarter results. We achieved record revenue of $804.0 million, an increase of 6.3% over the third quarter of 2022. Other than the Humana details that Richard described, this quarter met our expectations for top-line growth and adjusted EBITDA, and cash flow exceeded our expectations. Our total sleep revenue of $315.4 million increased 17% against a year ago, driven by PAP equipment setups and increasing resupply. Our new PAP equipment starts were consistent with our expectations in the third quarter. Our PAP resupply business achieved record order volumes. Our resupply census now totals over 1.5 million patients, and our electronic ordering utilization broke company records. Respiratory revenue of 151.1 million increased 8% over the third quarter of 2022. As we continue to revamp our diabetes product category, CGM census was up 4.3% year-over-year, resulting in flat CGM revenue. As expected, pump and pump supply revenue was down $9 million year-over-year, as our tube-based pump volumes remain under pressure from tubeless pumps. We expect this pressure to continue into the fourth quarter. As Richard said, we are bolstering our sales force and focusing on growth in the government sector. Outsized growth in our sleep product category largely offset a shortfall in diabetes and a modest increase in operating expenses. So overall, except for the unexpected losses on the Humana startup, our top line and bottom line results were in line with our expectations for the quarter. The primary reason for the shortfall on the Humana contract was a delay in patient transitions in corresponding capitation deductions, resulting in a $10 million top and bottom line miss against our expectations. It will take longer than originally expected to transition all patients, but we believe that we will indeed get substantially transitioned by early next year. As we continue transitioning patients, we expect sequential improvement in both our top and bottom lines. Our adjusted EBITDA was $161.2 million in the quarter, resulting in an adjusted EBITDA margin of 20.0%, down from 21.6% in the second quarter, primarily related to the patient transition backlog. Cash flow from operations in the third quarter was $98.8 million. CapEx was $77.1 million, or 9.6% of revenue, resulting in free cash flow of $21.7 million. For the first three quarters of 2023, we generated $76.6 million of free cash flow, which was more than 2.5 times the first three quarters of 2022. We re-arrayed our full-year free cash flow goal of between 3% and 4% of revenue. For the third quarter of 2023, BSOs of 42.1 days were down over a day against 2022. And for the first three quarters of 2023, BSOs were 42.5 days, down from 44.8 days for the first three quarters of 2022. We continue to realize the benefits of our refining of revenue cycle process and investments we've made in our technology and workflow. Our net leverage ratio at the end of the quarter was 3.51 times, down slightly from the second quarter. During the third quarter, we made principal payments of $10 million, and after the end of the quarter, we repurchased approximately 2.5 million shares in the open market for a total cost of $19.4 million. As part of our third quarter results, we recorded a $511 million impairment to Goodwill, as we discussed in our earnings release this morning. This non-cash pre-tax charge was triggered by our stock price as of September 30th. Turning to guidance, we are revising our prior outlook as follows. We are narrowing our expected revenue range to 3.160 to 3.185 billion. We are updating our expected adjusted EBITDA range to 630 to $650 million. and we are maintaining our expectations for total capex, representing 10% to 12% of revenue, which should yield free cash flow of 3% to 4% of revenue. To close our comments today, we believe we're well-positioned heading into the final weeks of the year. We are turning around diabetes. We are focused on transitioning patients as part of our new relationship with Humana, and we are optimistic about our business overall. With that, we will open the call for questions. Operator?

Thank you. At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. And once again, that is star 1 to ask a question. We will pause for just a moment to allow questions to queue. And we have our first question from Brian Tanquillette with Jefferies.

Thank you for taking my question. So going back to the Humana contract, I really appreciate the color on the updated implementation timeline. But as we think about the profitability ramp, maybe you can provide some detail around your expectations around that and maybe outline the levers that will drive profitability at an accelerated rate.

Thank you for the question. We're delayed. We're talking about that. But we think once the transition occurs, we're going to head to a situation where the profitability of the contract is more consistent. We are ramping up our efforts to transition this quarter. It's likely going to take us through the beginning, perhaps next quarter, but we feel very good that once that happens, we will resume the contract as we originally planned it.

And, Taji, this is Jason. I would say that at a unit economic or a patient level, from this stage forward, profitability as a percent will ramp very rapidly. The reason for that is, you know, a cap deduction on, let's say, an oxygen patient, you know, the allowables, the fee schedules for that patient is around $120 a month. You know, so for a full quarter, you got 360, and you got thousands and thousands of patients on that oxygen allowable from competitors that still need to be transitioned. So as each and every one is transitioned, that entire amount, it comes back as cap revenue for us and it drops 100% to our bottom line. So we do expect a good ramp from this stage forward as we continue staying focused on transitioning patients.

Appreciate the detail there. Just another follow-up, you know, as I think about your guidance, looking at the midpoint, it implies a margin step up in Q4. Just curious, you know, the different you know, puts and takes that are going to help you get that margin of creation in Q4.

Yeah, sure, Taji. So firstly, we do historically enjoy a step up in patient demand, particularly in our resupply categories as insurance plan changeovers that occur in January as well as deductible resets. Patients are hoping to get in front of that and stock up the resupply they need to carry them through the end of the year and into the new year. So we are expecting in our resupply lines, specifically sleep and diabetes, to be up over $20 million sequentially in Q4 from Q3. We expect that to flow at our typical purchase margin, call it about 40% of that. stepping down. So that's the first sequential step up in profitability in Q4. The second, you know, Humana, as we said, kind of patient by patient as we are transitioning patients, we do expect a material step up in-cap payments and that bottom line that we spoke about as we've made key investments just over the last several weeks in additional resources and capability to ensure smooth patient transition.

Great. Appreciate the time.

And we have our next question from Matthew Blackman with Stiefel.

Good morning, everybody. Thanks for taking my questions. I've got two two-parters. Maybe, Jason, if I could just start with you. I'm just curious to frame the guy down on revenues. How much of it was diabetes versus the Humana contract delay and then the same impact on EBITDA? The second part of the first question is, did the Humana contract disproportionately impact any specific franchise and Does it impact any specific franchises in 4Q as we think ahead? And then I'll wait for the follow-up.

Yeah, sure, Matt. So the first part of that question is, you know, the vast majority, as we look towards Q4, is Humana-related. You know, diabetes, we did expect out of CGMs a little bit more in the third quarter, so we fell a bit short of that. And so certainly we're rolling a touch of that into Q4. um but but again the vast majority of this was uh was humana related just you know rolling the uh the timing um and you've got the compounding effect going into into the fourth quarter um and for the second can you rephrase the second part of your question did the humana and we think about the revenue uh yeah does it disproportionately impact any specific franchise well it it I don't know that I'd say it impacts any franchise in terms of the earning power and the go-forward. I will say that when you think about the second quarter revenue that we earned from the 33 states and the District of Columbia where we won the Humana HMO contract, you know, there was substantial revenue earned within the second quarter prior to the contract going into effect. And so, you know, much of that revenue was in the rental lines, specifically respiratory, and then a little bit in pap and sleep and HME. And so, starting July 1, you know, 100% of that revenue is eliminated, right? It's no longer a fee-for-service revenue that we're billing to Humana. And it converts to a patient per month uh revenue-wise of course you've got the new patients coming on that also generate pmpm but it does create a timing disconnect of your dropping out top and bottom line uh rental revenues and until you convert uh the competitor patients um to bring that into the census you're you're left with this gap that we're um that we're focused on today got it i appreciate that and then second question

Part one, can we zoom in a little bit more on the diabetes franchise? And I appreciated some of the color you gave us on the pump and CGM franchises. But just what are you seeing in terms of new patient starts and attrition? Is there anything that stands out, I think, specifically on the attrition side relative to historical trends, just given all the noise we're hearing with GLPs? And then the second part to that question is what does have to happen for you to be able to push more aggressively into the pharmacy channel? Are you specifically horse trading anything with payers? And to the extent that this does ultimately play out, is that patient worth a little bit less from a revenue and profitability standpoint through the pharmacy channel versus the DME? Just help us think through that opportunity and what sort of the moving parts are. Apologies for the long-winded question, but thanks.

Okay. This is Richard. First off, we're not seeing any attrition and any effect in diabetes relative to any perception of GLP-1 utilization. The issue that we have been dealing with is the shift in channels more than any attrition. What our strategy is to work in the pharmacy channel with payers, but the key to that will be to add value in the way that we generate data for the utilization of the payers. We believe that both manufacturers and payers will care about this and will help us to improve our margins in the pharmacy channel.

Yeah, Matt, and I'd add a little color, certainly a top and bottom line. financials on a unit economics of a pharmacy patient is typically less than the traditional medical benefit or DME channel. But as Richard said, we see tremendous value in aggregating patients and covered lives within diabetes. In Richard's prepared remarks, he spoke about the first steps that we've taken this quarter in actively monitoring CGM data produced from devices of our patients. We have deployed certified diabetes coaches. With that data engaging with patients, initially really focused on, you know, sensor and overall utilization. And so, you know, what are the reasons that a patient was set up last month and, you know, you'd expect a new sensor to be applied in the first 10 to 14 days, depending on the manufacturer. But a month later, we're not seeing the data communicated on that CGM. And so we're working hand in hand with those patients And we're learning a lot about patients that are on initial setup that might not be in compliance. You know, so compare this to the capability we already have with over 350 sleep coaches in our business that all day, every day are monitoring data produced from equipment and equipment. and these devices to help patients along their journey with resupply. We intend to do more there, additionally monitoring A1C levels, hypoglycemia levels, just the rich level of information that's produced from these CGMs. We don't think that needs to be a medical benefit channel strategy or a pharmacy channel strategy. We think it's an all-encompassing diabetes strategy.

Got it. Thank you, and apologies again for the chunky questions. Thanks so much.

And just a reminder, that was Star 1 if you'd like to ask a question. And our next question comes from Pito Chickering with Deutsche Bank.

Yeah, good morning, guys. So I apologize for another question on Humana. Maybe I'm just being dense here. So for that, I do apologize ahead of time. So this is a capitated arrangement, and you have to capture the patients back, the competitors, in order to build PMPM, and that's what you sort of mismodeled. So if I understand it, to get the payments, you have to recap those payments back within ADAPT. I'm just thinking, like, how are you able to ship those patients? Can you do it without the patient's consent? From a patient perspective, if I have a DME provider for one or two years, I guess, why would I want to change?

Sure, Peter. Good question. Well, firstly, if you've been the DME provider for a number of years, you absolutely will not want to change. However, you know, it's part of the mechanism of the contract. uh you know those competitors in in these 33 states in the district of columbia you know as we stand here today are are not authorized i mean they're out of network right they're not authorized to bill fee for service for these patients um you know on the rental lines however you know that's really where the nuance is uh the uh you know lifting and shifting a patient is it is more complicated than we anticipated now we in some cases expected just either better or more thorough documentation um maintained by by competitors um you know that just isn't there and so in that instance that requires us to work directly with the patient and with the patient's provider uh to work backwards if you will like on an oxygen patient you know tracking down um the saturation testing to support the therapy and the referral. And so without getting into just layers and layers of detail, that is an example of what needs to happen in order to transition those patients. But we have invested in additional resource and capability just in the last several weeks, and we are already seeing ramp week over week in our patient transitions.

Okay, fair enough. And then shipping to diabetes, this is going to be sort of multi-part, so I apologize again. What percent of revenues in diabetes are CGM versus pumps at this point? What's the breakout between commercial and Medicare within the segment? And if I look at CGM, what did Medicare and CGM grow this quarter? What did

uh commercial m8 gm goes quarter i'm trying to bridge dexcom's u.s revenue growths for what you guys saw with the medicare business sure yeah that's a that's a complicated question i'd say firstly um the delineation between pump and pump supplies versus our cgm business you know we we've been on record uh saying that uh pump and pump supplies was about 160 million of revenue last year, and that we believe it will be about $120 million of revenue this year. That's the $30 million to $40 million compression we've been talking about, just that headwind created by the MedTech and the tubeless-based pump on the market. The rest of the business is CGM business. As Richard said in his prepared remarks, government payers made up now 79% of that census. So that's up another two full points sequentially from the second quarter. I mentioned that CGM census was up 4.3% in the third quarter and resulted in about flat revenue. And so what you're seeing there is continued but less reimbursement pressure created by a movement of traditional government payers and the medical benefit channel versus commercial payers. So as we're taking care of fewer commercial patients in exchange for taking care of more government patients, we will continue to see a reimbursement headwind. But for this quarter, you know, our volume was enough to offset that pressure.

Okay. So specifically looking at CGM Medicare, I guess how much should that grow, that segment grow year over year?

it was up about higher single digits and then offset by lower single-digit commercial, and then you've got the rate equation to get you to about flat revenue.

Okay, so from a market share, again, only focusing on Medicare, ignoring sort of commercial and A for second, do you think you're gaining or sort of losing share within the Medicare CTM market? Thanks so much.

Sure, you know, we are gaining patients certainly. I think it's tough to delineate are we gaining share or not from that, but certainly we're gaining patience. We're very aggressively recruiting new sales reps for really selling CGM and other diabetes products, but really selling CGM in just key markets, key geographies. We spend a lot of time thinking through the data over the last two quarters about where we want to go strong in adding sales reps. So we do expect that government business growth to resume in the fourth quarter. Great. Thanks so much.

And we have our next question from Richard Close with Canaccord Genuity.

Yes. Thanks for the questions. Jason, I'm just curious. if you've reaped all the benefits from the system upgrades and restructure and from the last couple of years if you can give us an update there sure richard i would i would tell you that um from the last year specifically yes uh during the third quarter we um we

have met the earnings commitment, the cost out commitment of $25 million in year for 2023 and $40 million annualized. So that program, we put a bow on that. The final reductions were made in early September. And so those dollars will start flowing. um in terms of the overarching ability to uh to get cost out by leveraging technology um you know we absolutely believe there is there is there is more to go um you know we we've made reference in the last 90 days of you know when we guide in in um in 2024 for 2024 we will expect to have a commitment on cost management and it's as you said it's it's it's a result of these technology investments that we've made as well as the the heavy integration work that we've been we've been focused on throughout the year okay that's helpful

And then with respect to the strategy on expanding enterprise sales, can you just go maybe more in detail on that strategy and, you know, potentially sizing the opportunities there?

Yeah, sure. This is Richard. You know, the traditional ADAPT sales model has been an individual sale generated by a referral from a provider which results in a prescription, which results in a fulfillment of a prescription. So we're dealing with literally millions of individual transactions. An enterprise sale, like what we are doing with Humana, aggregates patients in one place. And the issues that we've got with Humana aside, which, by the way, are going to be great learnings, I just want to reemphasize that our relationship with Humana is in great shape of working together on all these issues. So I make that very, very clear. But by having a large relationship with a payer or a hospital system to aggregate all in a particular category, like CGMs, like PATHs, like respiratory, that we can achieve savings for the system, the most important Most importantly, reduce friction by having a set of parameters that are not individual prescriptions being fulfilled by individual providers. So we think the market is large. We think every payer is a potential customer for this. We think that every health system is a potential customer for this. We're generating a pipeline, even in a very short time, that we're very happy with. And, you know, quite frankly, expect to see a lot of good results in this category in 2024.

Great. Thank you. And once more, that was star and one, if you would like to ask a question. And our next question comes from Joanna Gajik with Bank of America.

Good morning. Thanks so much for taking the question. So I guess a couple of questions. because different follow-ups, and if I may, I guess to come back to diabetes, so I guess this quarter sounds like slightly lower than expected, down 8% earlier in the quarter, and previously you talk about kind of flat for the year so do you still expect it or is it more kind of down slightly for the year and i guess for next year how should we think about diabetes revenue i guess for previously talk about a slight growth and then i guess as it ties to um you know your previously expressed uh long-term outlook for that business growth any any changes there

Hey, Joanna. Thanks for the question. This is Jason. I'd say firstly, you know, on the pump and pump supply revenue, you know, again, we expect about a $9 or $10 million year-over-year headwind in the fourth quarter. As we think about 24 on pump and pump supplies, and I'll get back to CGM in a moment, I think we need to look towards the pump manufacturers, Insulet with their OP5 product that is continuing to take share. And we are indeed a distributor of OP5s on our pharmacy channel. So we do intend to continue to grow that. Medtronic and Tandem are continuing to come to market with you know, upgrades to existing product. And, you know, all that in the mixer. We do think that pump and pump supplies will be another headwind in 24 over 23, but not as much as it was this year. So perhaps half. So that's still our expectation. In terms of CGMs, year to date, we grew about 3% year over year. Again, that's short of our expectation of where we want to be. We were flat in Q3, planning about the same, maybe up a point or two in Q4. But we do expect the effect of the big investment in Salesforce to start yielding results as we get into 24. I think it's a little early for us to comment on specifics of what we think CGM growth will be. But I do think it's safe to say with the large investment we're making, we do anticipate a return to growth.

uh for cgm in 2024 um and and that's that that's the data that we're we're able to share today okay that's helpful and i guess uh sleep obviously much better uh but i create stuff comes for next year so i guess how should we think about the sleep business into next year uh and when it comes to growth because i guess this year shipping up to be a you know um or maybe even better for the year

Yeah, absolutely, Jana. You know, I would say that as you think about the full year, the first half in particular, we'll have a tougher comp, particularly on PAP equipment. You know, as we had record setup levels in the first quarter as well as the second quarter of 2023. due to that 13-month reimbursement cycle, those patients will come off of the rental reimbursement. However, they will come into our resupply reimbursement, and we're continuing to grow that double-digit year over year. So we certainly expect sequential growth in our census as we go from here through 2024.

And if I may, on the flea business, so I guess you talk about some surveys you've done on the GLP-1 use by CPAP patients. And you did say something to the effect of potentially could at some point, I guess, if the utilization of these drugs increases meaningfully, could impact that business, but, you know, any thoughts, you know, in terms of how you think it might change, say, you know, your long-term growth outlook for that business versus how you were thinking about this previously? Does it change at all, or at this point you're kind of still at a similar growth? And when we look out, I'm not talking, you know, next year, but longer term. Thank you.

You know, I think what I try to express is that there's – a lot of speculation from a lot of people, including something that came out from Bank of America, which was the stat about the 3%, which we thought was incredibly good for thinking about the growth of our business going forward. But we just don't know. We just don't know how fast the adoption, what the adherence of the adoption of GOP-1s is going to be. And we do know that if there are fewer people who are obese, there are likely to be on the margins some level of fewer people who are going to use pap therapy. What we need to do is to, even if we assume that's the case, what we need to do is take steps internally to make sure that we don't lose from any reduction in TAM that might occur. And, you know, we've got tools. We're the largest provider. provider of sleep equipment. So we start with a position of great strength. We can afford to keep investing in technology to get our costs down. We've increased share every year over the past several years. The investments we made in 2022, as painful as they were at the time, have yielded benefits to us. We also are highly focused on patient adherence and retention. And that has a couple of different flavors to it. One is we want to keep these people as patients that we can keep resupplying to, but we also believe that we can, by increasing adherence, increase downstream results for these patients and reduce downstream costs. So all of the things we're talking about are geared toward keeping our business intact and growing well but also using our size and our data capabilities to improve outcomes for our members.

That all makes sense. Thank you. I appreciate those details.

And we have our next question from Eric Coldwell with Baird.

Okay, thanks. Just a technical on diabetes. I think you said pumps were down 9 million and CGM revenue was flat. But I'm seeing a $13.4 million year-over-year revenue decline. So I'm curious where the additional $4.5 million came from.

Yeah, sure. Just a little bit of supplies. So these are like traditional BGMs, test strips, wipes, things like that. That's continuing as expected to be just a smaller part of the business.

Okay. And then on TAP, the comments on first half 24, tough comparison on equipment. Are you indicating simply lower growth versus the tough comparison or actual revenue decline on the equipment side of PAP as the 13-month rentals start to phase out?

No, the former. We're just expecting, you know, the 17% growth that we achieved in this quarter, right? I mean, I don't expect we're putting up 17% growth in Q1 and Q2 of next year on already, you know, very high comps. That's all we're saying, Eric.

Okay. And then on Humana again, I think it was 1.1, 1.2 million lives that you inherited with the 33 states and DC, you had some of those patients previously and you're not doing all of the HME DME for those patients. But if you'll bear with the difficult to ask question, I'm trying to get a sense on how many of those Humana lives that you have access to, how many of those people are actually using DME that you are going to be the exclusive on in those states? How many of those patients were you previously serving? And what is your penetration on the incremental opportunity? I don't know what the number is, but, you know, let's say just for a baseline, if it's 100,000 lives that you picked up incrementally, what percent of that have you actually onboarded at this point so you're fully operational on?

Yeah, good question, Eric. I have a couple things to offer. firstly uh you know utilization is uh in line with expectations so far so that that means you know you know pick the 1.2 million um patients uh or or more you know we classify that as and uh you know the number of them utilizing equipment and then kind of the size and shape of that equipment by category is is largely in line with uh with what we modeled with the data that was shared as part of the award uh and within our expectations I would tell you that the number of patients is higher than anticipated. I mean, I know Humana reported, I think last week, you know, they're showing huge growth over 2022. So we've got, you know, some of that coming on as well. So just more patients than anticipated overall. which frankly is a very good thing. It didn't help us from a timing perspective as it just creates more and more patients that we need to push through with the capacity we've got on transition. But overall, that's a very good thing as we expect to continue to grow with humanity. The last thing I'd say is in terms of the pace of that transition, I mean, we did expect to buy out equipment as well as the supporting records that came with that. from several competitors. But frankly, some of those deals did not materialize. And so that means we need to work patient by patient on transition. So again, we're very confident that we will get through the transition in the early part of 2024. But that's a little more color on what's created more patients to transition than we expected.

And once more, if you would like to ask a question, please press star 1 on your telephone keypad now. And once more, that was star 1 if you'd like to ask a question. And at this time, I'm currently showing no questions in the queue. I'll go ahead and turn the call back over to today's presenters for any closing remarks.

Hi, this is Richard. First of all, thanks to everyone for their very good questions that helped us articulate what we think are the very positive things that are going on in ADAPT Health. We look forward to more interaction, and thank you for your time this morning.

This does conclude today's program. Thank you for your participation. You may now disconnect.