Quipt Home Medical Corp.

significant progress made. We have expanded our organizational capabilities, continuing to grow our employee base with additional talented new team members at each facet of the company, including many vital corporate functions. Additionally, as disclosed last quarter, we have accelerated the hiring of additional sales professionals which we anticipate will be a key driver of future organic growth. The model we have built has a consistent and robust track record for driving growth and we are very enthused by the continued operating results. The key differentiator for Quip in the marketplace is the high-touch service model we utilize catered to improving the quality of life for all of our patients. Our model is focused on constant patient education, device compliance through remote patient monitoring, and the use of our healthcare platform to drive early interventions and reducing hospitalizations. alleviating stress on the traditional healthcare system. This clear service-driven model is helping us to grow our market share organically as healthcare providers, such as hospitals, physicians, long-term care facilities, look for partners that can offer a range of products and services that improve outcomes, reduce hospital admissions, and help control costs. QUIP fills this need by delivering a one-stop solution for our sales touchpoints, offering a full suite of products and services to achieve these goals. The continued focus on economically scaling the business organically and inorganically with a focus on clinical excellence is having a very positive impact on our operating and financial results. The scale we are achieving, coupled with strong secular winds, such as a growing trend of Americans with multiple chronic conditions and aging U.S. population, and need for healthcare to be delivered and monitored in the home has fostered continued robust growth, which we are extremely proud of. On this call today, I will provide a summary of our significant growth activities year to date and update on the continued bullish regulatory landscape, the current supply chain environment, which has been improving and update our core business, with a focus on our record-breaking third quarter fiscal 2022 results. We have seen accelerating momentum year-to-date executing on the key pillars of our growth strategy, including making attractive acquisitions to advance our scale, investing in future organic growth, and further building out our healthcare network throughout the country. To this end, we were awarded a national contract with UnitedHealthcare the largest healthcare insurance provider in the United States. This UnitedHealth contract significantly expanded patient accessibility and continues our aggressive growth path. Moreover, as we make acquisitions, we can leverage this national contract where applicable to expand patient access as another synergy for us. Our growth initiatives focused on expanding our continuum of care, continued with the recently announced supply contract with Cardinal Health. This contract is extremely meaningful for QIP as it provides us the ability to produce meaningful cross-selling opportunities, including additional product lines to go after in the future. Additionally, any new acquisition will benefit from being able to immediately leverage the contract at new locations across the country, providing further synergies With the expectation this contract will give us stronger buying power for disposable medical supplies. Turning to the current supply chain dynamics, we have continued to see signs of steady improvement with timely allocations of CPAP devices through physical Q3 and real-time into physical Q4. For those not aware, in June of 21, Philips Respironics announced a voluntary recall of certain respiratory devices related to polyurethane foam used in those devices. The inventory trend has remained positive in real time, and we continue driving patient setups to ease the backlog as we move through fiscal Q4. The backlog now stands at approximately 6,000, down from a peak of over 8,000 in fiscal Q1. It is important to note a patient joins the resupply program three months after being set up on a device, which creates a lag in revenue, even as we continue to make headway on the backlog. Over the coming quarters, as the backlog continues to ease, that represents a nice tailwind for us. We believe there is a reason to be optimistic about the supply chain pressure continuing to alleviate as we continue through the calendar year, and moreover, We have not factored in any supply from Phillips at this time in our forecasting. On the regulatory front, we continue to operate in the best environment in well over a decade. The cancellation of the 2021 competitive bid program has provided us a clear margin outlook across our product mix and ensured our patient stability for the foreseeable future. Furthermore, CMS announced a 5% CPI adjustment for DME in 2022. Typically, the consumer price index increases for DME have been between 1% to 3%. Last year, the inflation adjustment was less than 1%. We are also anticipating a significant increase in the CPI adjustment for 2023, which would have a favorable impact on our margin profile. The importance of of the home medical equipment industry has never been more prevalent, and we are pleased to see these continued positive regulatory developments. Turning to the underlying business, our strong team led by operators continue to navigate this inflationary environment extremely well, and we have seen positive momentum in our hiring initiatives as we have progressed through the year. In particular, on the clinical services side, We have also seen continued margin strength and believe we have turned the corner on the worst of the supply chain impact. These positive trends and continued operating resilience led to another record financial performance in our fiscal Q3, which saw revenue of $36.7 million, 2% sequential organic growth from fiscal Q2. Strong operating cash flow and our adjusted EBITDA margin solid at 21%. I am proud of the continued robust margin profile our team of operators have maintained in a high inflation environment. Our overall performance is a result of the robust demand for our full suite of respiratory products highlighted by ventilation therapy and oxygen therapy. We are also seeing very strong demand for sleep therapy, which we anticipate will be a nice tailwind as the supply chain environment continues to improve, allowing to place more devices. Moreover, as we have moved out of the pandemic environment, we have seen more unrestricted access to referral sources, which will also assist in our organic growth initiatives. We continue to leverage our capabilities to move us up the chain of value-based care, and our results reflect this. This continued focus on superior patient outcomes and satisfaction was also a major factor in receiving the national insurance contract recently announced. Looking at our current acquisition pipeline, it remains very deep with targets that meet our stringent criteria, and we expect to remain very active over the remainder of the year. With that commentary, I'd like to hand the call over to Hardik to discuss our third quarter fiscal year results.

Thanks, Greg. Last evening we announced our fiscal third quarter 2022 financial results representing the three months and nine months ended June 30, 2022. In reviewing the fiscal third quarter 2022 numbers, please note that all financial values are in US dollars and the full results are available on CDAR and EDGAR. Here are some key highlights. The company generated revenue of 36.7 million in the third quarter fiscal 2022, up 40 percent from the third quarter fiscal 2021 and sequential quarter over quarter growth of two percent as of june 30th 2022 the company's backlog was approximately 6 000 patients in the queue to be set up on sleep devices compared to a more typical 1000 patients historically as greg mentioned we have seen timely allocations of cpa devices progressing in fiscal Q4 and are cautiously optimistic that sleep device allocations will continue to increase through the remainder of the year, which will relieve the backlog, generating a lift in revenue from this impacted segment of the business. Adjusted EBITDA for the third quarter of fiscal 2022 was $7.7 million compared to $5.3 million for the third quarter of fiscal 2021, representing a 44% increase year-over-year. Adjusted EBITDA margin for the third quarter of fiscal 2022 was strong at 21% for the quarter. Revenue for the nine months ended June 30th, 2022 increased to 99.8 million, a significant increase of 36.2% compared to the nine months ended June 30th, 2021. Adjusted EBITDA for the nine months ended June 30th, 2022 increased to 20.8 million or 30.4% increase compared to the nine months ended June 30, 2021, and represented 20.8% of the revenue. In the fiscal third quarter 2022, QIP completed 133,704 setups or deliveries compared to 95,192 in the corresponding period last year, an increase of 40%. In the fiscal third quarter 2022, we have completed 62,815 respiratory resupply setups or deliveries compared to 40,580 in the corresponding period last year, an increase of 55%. The company's recurring revenue continues to grow and it is about 77%. For the nine months ending June 2022, the operating expense was 46.7% of revenue compared to 43% for the same period in fiscal 2021. The increase was due to higher wages, fuel costs, as well as some one-time and non-recurring corporate expenses, including expenses related to acquisitions. Cash flow from operations for the nine months ending June 2022 was 19.4 million compared to 11.2 million in the corresponding period ending June 2021. Current assets totaled more than 47.3 million compared to 46.5 million in the net short-term liabilities, demonstrating continuing strength in our liquidity. At the end of third quarter fiscal 2022, cash balance was 18.5 million. We are continuing to build momentum across the organization led by the significant expansion of our infrastructure in favorable geographical areas throughout the country driven by our acquisition and organic growth strategy. I'm very pleased to see revenue reaching $36.7 million for our fiscal third quarter with a strong adjusted EBITDA margin at 21% as we continue through the integration process. of our recent acquisitions and anticipate these margins remaining stable. Our operating model continues to shine, further proving its strength during this challenging period of high inflation where our margins have continued to remain rock solid. The strong performance was driven by elevated demand for oxygen, ventilation therapy, and continued strength in our automated resupply program. We also continue to see solid cash collections through the third quarter, resulting from a continuous effort to better our revenue cycle management processes. The infrastructure we have in place today allows us to position ourselves as a market leader in at home respiratory care that quits formally within the top 10 providers by size in the country. Going forward, we will continue to find ways to grow our patient base and penetrate attractive markets with continuing to streamline our operational platform. Our revenue base during fiscal Q3 2022 remains strong, with recurring revenue representing approximately 77% of our overall revenue. This recurring revenue base provides us further stability and consistency as we look at our growth outlook, business model, and financial reporting. We are also extremely pleased with the ongoing results of our acquisition strategy. Integration is the key to our ongoing financial and operating success as it allows us to continue the strong pace of closing strategic acquisitions, and we have been enthused with the integration efforts to date. Since April 19, 2022, we have closed four acquisitions, adding locations across nine U.S. states, including Arkansas, Georgia, Massachusetts, Mississippi, North Carolina, Ohio, Texas, California, and Louisiana. Louisiana represented the 19th state of service for us, and the total geographical area represented over 5.5 million COPD patients, our key target group. The four acquisitions added over 30,000 active patients equate to over 25 million in revenue and over 4.5 million of adjusted EBITDA post integration. We are extremely focused on the successful integration of our recent acquisitions, which are all on schedule. It is our proven integration process, which has been the driver of our consistent financial and operating performance displayed on an annual basis. As it relates to our current pipeline and future growth, we currently do have a significant pipeline of acquisition candidates across all three tiers of our strategy, which will help continue to drive our opportunity to penetrate existing and new states. Moreover, we are looking at potential expansionary opportunities into synergistic verticals of service that could enhance our end to end product and service offering. We anticipate the recently disclosed Cardinal Health Supply Contract will have a significant role in any potential new product offering. On heels of strong performance, we were able to successfully convert the debentures notice of which has been provided. We believe this to be a very favorable event, strengthening our balance sheet and positioning us for future growth. On August 12, CIT committed to provide 100% of the senior secure credit facilities in the aggregate amount of up to $80 million, which comprises of a term loan facility of $5 million, a delayed draw term facility of $55 million, and a revolving credit facility of $20 million. We expect to close this facility in the next 30 days. It is important to note that this credit facility will expand with additional growth as long as we are within covenants. meaning while the current commitment is 80 million, as we continue to grow, the credit facility will increase beyond 80 million. With the robust balance sheet we have and the fresh capital commitment from that market, we will continue to solicit BME operators with the strong value proposition we have towards potential sellers in the marketplace. We are very enthused about our future prospect as we continue increasing our scale across the United States. Thank you, and with that update, I will turn the call back to Greg.

Thanks, Hardik. During this continued period of substantial expansion, QUIC has now grown its operating footprint to more than 90 locations in 19 states across the United States, completing hundreds of thousands of deliveries to more than 200,000 active patients with over 21,500 referring physicians. As Hardik mentioned, since April, we have closed four attractive acquisitions, adding over 30,000 active patients, equating to over 25 million in revenue and over $4.5 million of adjusted EBITDA post-integration. Moreover, we have now reached a run rate revenue of approximately $160 million on the heels of the hometown acquisition announced in July putting us well on our way to meet our financial outlook year to date. We have added important insurance contracts, added significant infrastructure and personnel, all of which has enhanced our national coverage sphere over an area that includes over 5 million COPD sufferers. We have built a scalable healthcare platform that allows for aggressive expansion organically and inorganically driven by the patient-centric ecosystem we have created, and this strategy is allowing us to grow market share in new and existing markets. Moreover, we are able to leverage the National United Health Contract when we acquire a provider to capture more eligible patients, accelerating expansion efforts. Notably, we are working on securing additional national contracts, and we will continue to work with other large commercial payers to help them better understand our strong patient-centric model and the benefits to patients and payers alike. With our valuable commercial insurance contracts, strong referring physician network, and significant patient base, we have accumulated in the state give us the opportunity to take a land and expand approach towards future growth. As we look at the current landscape, there is significant push underway to ensure a patient is treated in a home care setting whenever possible. It is important for us to continue finding optimal ways to grow relationships with referral sources, and we are seeing the benefits of this across the organization by focusing our efforts here. I would now like to review with you the three components of our core growth strategy. First, we are laser focused on growing market share economically and profitably through our organic growth initiatives. This includes expanding our sales team, which are quips, boots on the ground, reaching key touch points such as hospital systems, physicians' offices, and rehab centers. Moreover, opening de novo locations where it makes sense, leveraging the numerous cross-selling opportunities that exist, adding new verticals of service, and continuously optimizing our processes. Signing additional national healthcare insurance contracts with major commercial payers in the United States, further expanding our patient accessibilities. looking at opening de novo locations to complement existing infrastructure across our markets. Secondly, we continue to lead the industry and technology deployment driven by our robust respiratory resupply platform, which provides meaningful revenue synergies for us on the acquisition front. We expect our resupply program to be a driver of continued growth for us. The third component of our strategy is acquisitions. We are looking for turnkey respiratory operations that can be seamlessly integrated into our highly scalable platform. As we look at M&A, we have three factors to our acquisition approach. The first being a focus on scale and hence targeting the revenue range of $5 to $20 million, consistent annual EBITDA margins between 10 to 20% plus, and large distribution volume, which can be leveraged by our platform. The second facet being focused on our ambition of becoming a national provider, This segment focuses on acquiring sub $5 million revenue targets with the strategic goal of expanding our payer mix and expanding our geographical footprint across new states. The third facet being a focus towards larger opportunities that would be more meaningful from a revenue, EBITDA, patient base, and geographical reach standpoint. On the capital markets front, 2022 has continued to be a very exciting time for the company. as we have returned to in-person roadshows, investor and industry conferences. This has represented the first opportunity in the United States to meet with investors in person on the heels of our NASDAQ listing in May of 2021. Our ongoing success led to QUIP being included on the Russell Micro Cap Index at the conclusion of the 2022 Russell Index's annual reconstitution on June 27, 2022. Russell indexes are widely used by investment managers and institutional investors for index funds and as benchmarks for active investment strategies. Approximately $12 trillion in assets are benchmarked against the Russell's U.S. indexes. Through the remainder of the year, we will continue to attend leading small cap conferences, participating in non-deal roadshows, and work with our covering analysts to get the quick name in front of as many eyeballs as we can. We feel we are very early in getting our exciting story out there, which provides us plenty of opportunity to grow the quality and geographical diversity of our shareholder base. As we move through the balance of the year, our top priorities remain investing in technology-driven platform in order to improve our operating efficiencies We're through the ongoing use of our automated ordering platform, revenue cycle management, and through our automated subscription-based resupply program. These actions will continue to drive sustained value and allows us to increase our productivity. These investments into our scalable connected healthcare platform drive organic sales generations, accretive acquisitions, targeted margin expansion, and cash generations. This model also encourages compliance, improves outcomes, and drives engagement with patients. Moreover, we can drive early interventions, reduce hospitalizations, and monitor treatment plan effectiveness, which all serves as a benefit to the payers. Once again, I would like to take a moment to thank the entire QIP team for its tireless efforts and its stakeholders for all their continued support.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star and 1 on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. The first question is from Doug Cooper with Beacon Securities. Please go ahead.

Good morning, everybody, and congratulations on a nice quarter. First of all, Gregor Hardig, can you talk about the cardinal relationship and when that might start to generate sales?

Hi, Doug. Thanks for joining us today. Yeah, so we're pretty excited about the cardinal contract in that. We just got that implemented in that throughout the organization in that over the past month or so. So we're really looking forward in that for our locations in that to be able to start providing certain disposable products and things of business that we're typically in that passing on. So we would expect as we go into 23 in that that could help in that with some organic revenue growth, especially on the backside of – providing these products for our national insurance contract with United Healthcare as we're starting to see a lot of inbound calls for those types of supplies. And Cardinal's a great distribution arm for us.

And do you think those will be available through all 90 locations that you have?

Yes, that's our intent.

Okay. This quarter obviously didn't include a full quarter contribution from Access Respiratory and none from Hometown Medical. Um, you keep talking a little bit about the operating leverage, uh, you know, those two would add in going forward. And what do you think, uh, even though margin has steadily ticked up over the past, uh, few quarters, how hard do you think, uh, you can get that over the next two quarters or a few quarters?

Sure. But this is how it, thanks for the question. Uh, uh, I guess for the short run, uh, Something we've always mentioned is when we make an acquisition in the short run, if anything, there could be a slight depression in the margins contributed from the new acquisition revenue. But overall, for the longer run, keeping in mind the inflationary pressures and uncertainty in the market, we would encourage everyone to just believe that we would be in the 20 to 21 to 21.5 EBITDA market range for the for the next, you know, few quarters.

Okay. And my last one question is just on your resupply business. ResMed on their conference call was talking about their resupply, I guess, masks and hoses and so forth. A mask in particular, I guess, was a 13% growth market. I'm guessing that's sort of almost double the general market. How quickly can, when you make an acquisition, can you get guys set up on the resupply program And is the resupply program for you guys growing at a greater clip than your general business is the question.

Yeah, good question in that. As far as an acquisition to get that target and that fully integrated and that onto our platform and that is typically for the resupplies in the three to six month timeframe, just depends on a lot of different factors and that of what type of system and that that target's on. We are seeing our resupply grow from our current base in that the piece that we're really missing and that is really that lag and resupply for that backlog of setups that we have and then also in that kind of some of the missed opportunities and that on the setup. And I think as we get out into 23 and and kind of look at the macro-level environment in that of device setups and that it's underserved right now and that we would really expect a boost in that going into 23 and that in our resupply. Okay, great. Thanks very much.

The next question is from Seper Minosheri with Eight Capital. Please go ahead.

Good morning and congrats on the continued growth My question is on your comment on de novo locations. When we think about organic growth opportunities and your ability to leverage your national pair contracts to basically establish new locations, should we think about these locations being in states where you currently operate, or would these be in new states?

Yeah, they would. This is Greg. They would primarily be in states that we currently operate in, where we're able to kind of expand our geographical footprint in that so we can get the best operating leverage.

Understood. Okay, so basically just giving you more, putting you more adjacent to your end markets, essentially, in that sense?

Yeah, yeah, absolutely. And keep in mind in that, I mean, we've been targeting states that have a high acuity of COPD patients in that, so... Most of the new states that we've entered in that really kind of fall in the top 15, having the highest prevalence in that of COPD, just over 5 million people. So that's our target market. So we've been very selective on that front.

Understood. And you touched on some of the recent experienced sales personnel that you've been adding. Are these sales personnel similar in characteristics and qualifications to those you've had historically, or are you adding – personnel with additional areas of focus, or are they focusing on new customer target segments? Can you kind of give us color on that?

Yeah, they've got similar backgrounds in that. We do hire a lot of clinicians. That's really our target. But we do also hire experienced sales representatives and that that have experience somewhere in the healthcare field, whether it be home health or inside the HME industry.

Understood. Okay. And then just one last one on the national pair contracts. I understand some national pairs do have certain regions of focus. So do you think about potential next waves of expansion for your business being linked to additional national pair contracts, or does that not necessarily go hand in hand?

We definitely think it goes hand in hand with these national insurance contracts. We do feel in that there's additional contracts in that that could be coming over the near to medium term in that. It's hard to put the timing on it. There's also a lot of other regional-type contracts in that that we signed in that, for example, in that we had a smaller contract that we added for some additional hospice patients in the state in that that we think bodes very well for us to continue to add additional patients in adjacent states. Those things in that we really don't announce, but that's part of what's driving our organic growth. But we still have a lot of runway with some of these other national payers.

Interesting. Well, thanks for the insight, and congrats on the continued growth.

Yeah, thank you.

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

Good morning, Greg Hardick. Thanks so much for taking the questions, and that's a really prolific quarter. So, Greg, I believe you were talking a little bit about the CMS inflation adjustment being significantly higher than prior, around 5%. Could you please sort of give us a little bit more color in terms of how you think that will flow into your margins, which have been sort of increasing, sort of improving over time? And then combine that with how margins would likely be also positively impacted by Cardinal and your other insurance contracts. So how should we be thinking about gross margin profile going forward?

Hey, Raul, this is Hardik. Could you repeat the first part of your question where you mentioned some number? We couldn't hear it.

Sure, sorry, and forgive me if I got it wrong, because I believe that I wrote down that CMS inflation adjustment's been around 5%, is what you said, Greg. So if you could please maybe flow that through, including the benefit you'll see from Cardinal as well as from the insurance contracts to the directionality of your gross margins going forward.

Understood, understood. Thanks for clarifying, Rahul. I think... We believe the margins that you are seeing for the year-to-date number for 2023, we believe that it would be in that range, plus and minus a point or so. That does factor in the CPI increase. For example, this year we already had the CPI increase, but along with that CPI increase, there were some increases in the cost of goods to our vendors from an inflation perspective. So I think what you are seeing in the year-to-date number is a mature baked-in number. Of course, the disclaimer here would be we are forecasting that the market will continue to be where it is right now in terms of inflation. If the vendor increases their prices substantially over and above the CPI index, then there could be a potential decrease in the gross margin. But at this point, we would just say, to summarize, we would say look at our year-to-date number, and then hopefully we stay in that range plus or minus half a point to a point.

Got it. That's really helpful. Thanks, Hardik. So effectively, it's a wash. And then just sort of a quick follow-on question from that, then, is given your disclosed organic growth rate of 2%, again, using these factors and all of the activity that has been undertaken the last couple quarters, do you foresee that organic growth rates changing potentially upward over the next few quarters.

So I think the biggest driver of the organic growth rate would be how quickly we are able to recover and reestablish on the sleep side. That is really one thing that is holding us a little bit backward right now. So to the extent we are able to get good allocation on the PAP devices and the overall PAP devices continues to flow through we would definitely be able to beat that 2% that we have been able to do for quite a while now. Obviously, the cardinal health and other providers, insurance provider contracts that we talked about earlier would help our organic growth, but that would be kind of slow and steady. And you would see that, but it would be incrementally. That may not be a lot of percentages point. So I think the key would be on the sleep side.

Great, that's also helpful. And then one last question for me on the inorganic growth. So if I'm doing my math correctly, based on the last acquisition of Hometown Medical, that gets you to the bottom end of your guidance of $180 million annualized through the end of the calendar year. Now, should we be thinking about you guys staying, hitting that bottom end, or given the pipeline you referred to, Greg, that you might actually kind of hit the top end of that, potentially to hit the top end of that guidance.

Yeah, sure.

Well, right now, with the most recent acquisition in that, we're sitting at about 155, 160 run rate revenue. So we still have about four and a half months or so here. We've got a high confidence level in that around our ability in that to be on that run rate revenue by the close of our Q123. you know, recently in that we, just yesterday in that we announced the credit facility in that. So we think that'll help accelerate. So we, just kind of as mentioned, we got a very high confidence level around reaching that goal towards the end of the year to be on a run rate revenue of 180 to 190. Right.

You know, I'll apologize if I had the wrong numbers, but yes, it makes sense. You're at around 160 right now. Okay, that's all I needed. Thanks again. really helpful. Yeah, thank you.

The next question is from Paul Stewartson with IA Capital Markets. Please go ahead.

Good morning. Calling in for Chelsea. Congratulations on the quarter. Can you touch on the interest rate for the new credit facilities? I know you mentioned it was low cost of capital, but is it similar to the old credit facility? Is that kind of a reasonable way or is there a bit of margin given the increased size?

yeah sure we would certainly encourage people to kind of wait we would definitely be making a formal announcement once we close on the on the on the credit facility but it would be safe to say that the margin would be similar to what we had in the past except for as you all probably know the market moving towards so far versus you know prime rate or stuff like that so so that there would be some changes related to that, but as far as margins goes, they should be within similar pattern to what the previous line was.

Okay, great. And just in terms of the 10% or so of your revenue that comes from private pay, out of pocket patients, do you see, can you talk a little bit about kind of the economic sensitivity of that population, if we do end up in a sort of recessionary environment, do you see that, you know, 10% of the business contracting a little bit, or is that something where these patients are not very economically sensitive?

Yeah, I mean, traditionally in that, when you kind of look back at some of the other recessions I've been in the industry over 30 years, we haven't seen anything kind of material about and that kind of move in the financials of those co-pays. I mean, we're kind of in the business of providing these respiratory and medical supplies, and these patients kind of need it. So it kind of goes right to the top of their budget there. We do see occasionally in that we've seen shifts in insurance in that maybe if they're unemployed or something, they could move over. to a state Medicaid program where they don't have a copay or, you know, potentially they pick up Medicaid as a copay and that. So we do see a shift in the payer there slightly, but nothing material that we have any concerns around.

Okay, good to know. And I guess just one more from me. In terms of the, you know, positive trend of the regulatory environment, I know mostly it was pharmaceuticals and so forth that got the headlines for the Inflation Reduction Act, but did that legislation have any impact on your business?

Yeah. I mean, now that we're out of this competitive bid environment and that we would be subject to additional CPI increases next year, so we believe it's going to at least match in that what it was last year with that 5% and that we've even been involved in some meetings in that where it could actually match the high single digits in that and could match what the inflation run rate is right now. So that still remains to be determined. We got a few months before we probably find out, but we think it's very favorable for us.

Okay. Thanks for taking my question.

Thank you. The next question comes from Justin Keywood with Stifel. Please go ahead.

Hi. Thanks for taking my call. In the opening remarks, there was mention of possibly expanding into additional service verticals, if I heard that correctly. Are you able just to provide some color around what that could be?

Yeah, sure. You know, potentially in that into the supply business that we've kind of talked about, whether it be urological supplies, ostomy, incontinence, and things that we can directly sell into the current patient database. There's also always the potential in that for some type of technology, whether it be some remote monitoring type features or something that would be billable or a partnership in that potentially with someone.

Very interesting. And then as far as the pipeline, I also thought I heard a preference for acquisitions that are sub $5 million in revenue. Would that characterize most of the mix in the near-term pipeline, or are there still some medium or larger opportunities?

Yeah, I mean, we're focused on all three phases of our acquisition pipeline. I mean, to date in that we've closed, most deals have been $15 million or under in revenue. We haven't kind of touched that third phase yet. But we do believe in that, that we're in a position now with our balance sheet, with the forced conversion of that debt coming off the new debt facility that's put into place here now, and that it really puts us into a position in that to look at all phases of our acquisition strategy.

And are you starting to run up perhaps against some larger peers competing for the larger assets in that space? The acquisitions to date have been pretty favorable as far as a multiple point. Are you willing to maybe bid a little higher for some of the larger strategic assets?

Yeah, I mean, there's always competition in that. I mean, right now, I'll say in the space that we've been playing in, in this $15 million or under in that, you're right, we've had very favorable terms in that for us. But frankly, that's kind of where the market is. and we haven't seen it move too much on that front. What we have seen is on the larger deals, we've seen some of those that were on the market and that a year ago, they're still on the market. And, you know, we've gotten a chance to take a second look and, you know, potentially those multiples and that have potentially started to match here and that with where the public markets and that have kind of came due for companies in our peer group. Makes sense. Thank you. We still continue to remain very, very disciplined on that front to ensure that we're adding companies that will be very accretive in that to our shareholders.

Right. Thank you for taking my questions.

Once again, if you have a question, please press star, then 1. The next question comes from Stefan Quinville with Echelon Capital Markets. Please go ahead.

Hi, guys, and congrats on the quarter. I just wanted to circle back on the Cardinal deal. I think it's an important deal for you guys, and I just want to make sure I understand the sort of longer-term impact. So once this is up and running and sort of scaled up for you guys, approximately how much of an organic growth tailwind is this going to be, sort of in the 1 to 200 basis points type of thing, or more or less? per year, and then just on the margin profile of those products, I assume since they're doing the supplying and shipping, maybe these are slightly lower margin for you, but maybe just help me understand that in a little more detail.

Sure. Thanks for the question. We are not yet ready to provide any kind of guidance when it comes to what kind of contribution it would have to our organic growth. We are still, again, as Greg mentioned earlier, we are still in the phase of implementing and training our staff across our 90 locations. So I think this would be something we would be able to get a handle on over the next couple of quarters. As I previously mentioned to one of the questions from the other analysts, we don't really believe Conservatively, we would like to say that this would not impact materially on our organic growth in the short run. The sleep devices are probably the ones that moves our growth rate substantially if we are able to get more devices sooner here. As far as your second question, which was on the margin, you're right. These things tend to be slightly lower on the margin. But again, given that we are initially expecting lower volumes here in this next quarter or two, we don't really see any material impact to our cost of goods outpost margin here again in the next couple of quarters.

Okay, great. Thanks.

This concludes the question and answer session. I will now hand the call back to Greg Crawford for closing remarks.

Thank you, Operator, and thank you all for your participation today. As always, you can find us on the web at www.quipthomemedical.com, where we will be posting a transcript of this call and also our updated investor deck. On the site, you can also view some of the exciting products and developments discussed on this call. Thank you, and have a great day.

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