Quipt Home Medical Corp.

This is the Conference Operator. Welcome to the fiscal second quarter 2024 earnings results conference call for Crooked Home Medical Corp. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. We remind you that the remarks today will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reader advisory at the bottom of the company's results news release. The company's actual performance could differ materially from these statements. At this point, I would like to turn the call over to Chairman and Chief Executive Officer, Greg Crawford. Please go ahead.

Thank you, Operator, and thank you all for joining us on the call. My name is Greg Crawford, and I'm the Chairman and Chief Executive Officer of Quip Home Medical. Joining me today is Hardik Mehta, our Chief Financial Officer. Quip Home Medical is a diversified healthcare services company providing a full spectrum of home medical equipment and services to patients in the home setting across the United States. At Quip, our model is centered around delivering clinical excellence, and we drive this through our patient-centric ecosystem. Leveraging technology, enabled equipment solutions in conjunction with our specialized clinical respiratory programs to effectively treat patients at home in a way that best suits their needs. Currently, respiratory care accounts for approximately 80% of our product mix, demonstrating our commitment to serving the needs of people with pulmonary and cardiovascular diseases. Our core strength is our incredible team, which consists of over 1,200 individuals. With the ongoing dedication to patient care and scale we are achieving, we are poised to capitalize on the expanding need for respiratory care delivered in the home setting. This need for respiratory care is driven by an aging population, significant COPD target patient group of over 16 million Americans, and a significantly under-penetrated sleep apnea market with OSA impacting 80 million adults across the United States. On this call, we will provide updates on our fiscal second quarter 2024 performance and provide strategic insights into our core business and our new capital flexible allocation strategy. As it relates to our flexible capital allocation strategy, we look at all ways to allocate our capital to promote growth and create value. To this effect, we are pleased to have initiated a share repurchase program through a normal course issuer bid or NCIB. after quarter end for up to 10% of our public float. The NCIB program reflects our continued confidence in our business model, operating cash flow generation, and ongoing commitment to create shareholder value and shows our belief that our valuation in the marketplace does not reflect the ongoing strong fundamentals of the business. In fiscal Q2 2024, we saw revenue of $64 million marking a 10% year-over-year increase while maintaining a robust margin of 23.3%. This resulted in an adjusted EBITDA of $14.9 million, representing growth of 14%. Our strategy, focusing on generating economies of scale and effective cost management, enabled the strength in our margin profile. While we are pleased with the overall margin profile and strength of our underlying operation, Fiscal Q2 presented us with a range of challenges that we absorbed in the quarter, which negatively impacted our financial performance. The end of the Medicare 7525 relief as of January 1st, which had been providing rate relief for certain geographies, was discontinued. Although this change is still under legislative review and could return, its immediate cessation was a negative impact on the quarter. Also, in certain regions, we experienced withdrawal of Medicare Advantage members due to a capitated agreement engaged on with other providers in the industry. Additionally, the recent cyber attack on Change Healthcare, which significantly impacted the healthcare industry, hindered the ability to process and build claims in the back half of the quarter, creating a short-term drag in our cash flow. In real time, we continue to work diligently through this with thousands of claims being recently submitted, and we expect cash collections to normalize in the coming months as the backlogs of claims are adjudicated and future claims are adjudicated in a timely manner. Despite these setbacks, we have observed several positive trends indicating a recovery path for the remainder of the year. We continue to see strong equipment setups in real time, and there has been no change in the favorable referral patterns in our relationships with healthcare providers and payers remain solid. Moreover, we are working diligently to make up for the lost revenue with ongoing organic growth initiatives, which we hope will provide benefit in the quarters to come. Our primary objective remains to be at an 8% to 10% annualized organic growth rate, which we believe can be attained with the incorporation of our updated and enhanced capital allocation strategy. Our organic growth strategy remains focused on growing into continuum markets, enhancing cross-selling of our product offerings, and expanding our insurance portfolio, which provides a barrier of entry in the marketplace. This strategy has been crucial in our positioning towards achieving our target of 8 to 10 percent annualized organic growth, reflecting our confidence in our internal capabilities, resources, and strength of our core business model. Our emphasis on utilizing our current infrastructure and economies of scale to generate margin consistency have been bearing fruit as we continue demonstrating our ability to drive a strong margin profile in any operating environment, all thanks to a careful and flexible approach to capital management. Our strategy of providing a comprehensive range of end-to-end respiratory solutions with our diverse product mix is critical to sustaining our success and playing a major role in the expansion of our core markets as we carry out our long-term strategic expansion plans. By concentrating on our main sales channels, such as hospital systems and physicians offices, we can increase overall volume growth, which is the main driver of our organic growth. Now, I would like to provide you another real-time update on our sleep business with reference to GLP-1s. Referral patterns for new device setups and replacement supplies remain strong. And recent positive data shared from the leading sleep device manufacturer involving 660,000 patients shows those on GLP-1s are 10.5% more likely to start sleep therapy PAP compared to those not on GLP-1s, highlighting their impact on treatment adherence. Additionally, data showed more frequent resupply orders for these patients over 12 and 24 months. Furthermore, we believe a significant new consumer-driven trend that will promote more diagnoses of sleep apnea are tracking wearables. We are very excited to see one of the largest phone manufacturers in the world receive de novo FDA clearance to screen for sleep apnea on their watch. Our hope is that similar capabilities become available from other major tech companies. We think that the availability of these medications for treatment of obstructive sleep apnea may lead to a rise in the number of cases diagnosed with the illness and a rise in the market demand for pap therapy. It is significant to remember that 80 million adults in the U.S. have OSA, of whom over 20 million have moderate to severe OSA. Furthermore, it's estimated that 85% of cases of OSA remain undiagnosed and untreated. The total addressable market is extremely large for this segment of patient and allows for multiple treatment modalities. We believe based on early data and positive developments of more motivated patients entering the healthcare system as they work towards their health goals, the introduction of GLP-1s can be a tailwind for our sleep business over time. As it relates to the ongoing CID known as civil investigative demand, I want to note that while we have not received a CID before, companies in our industry are subject to CIDs from time to time. And a CID is a request for information which is designed to gather facts that are necessary for regulatory authorities to make an informed decision about whether a violation has occurred. In real time, we continue working in a timely and transparent manner to provide information requested And at this time, the government has not reached a conclusion that any wrongdoing has occurred. We believe we have effective internal controls around billing and compliance procedures in place and are confident in our practices. Our priority is to resolve this matter as quickly as possible, and we are working diligently to do so. Turning back to the business, our approach to managing debt and leveraging our strong balance sheet enables us to pursue strategic initiatives that drive long-term value for our shareholders. As we continue to implement our strategic growth strategy, we are confident in our ability to deliver exceptional patient care, establish strong payer alliances, and achieve consistent and sustained growth. With that commentary, I'd like to hand the call over to Hardik to discuss our fiscal second quarter 2024 financial results. Thanks, Greg.

On Wednesday evening, we announced our fiscal second quarter 2024 financial results representing the three months ended March 31, 2024. Please note that all financial values are in U.S. dollars. Here are some key highlights. The company's customer base increased 8.1% year-over-year to 148,874 unique patients served in Q2 2024, up from 137,000 748 unique patients in Q2 2023. Compared to 198,101 unique setup deliveries in Q2 2023, the company completed 210,279 unique setups and deliveries in Q2 2024, an increase of 6.1%. This includes 116,023 respiratory resupply setups and deliveries for the three months ended March 31, 2024, compared to 106,486 for the three months ended March 31, 2023, an increase of 9%, which the company credits to its continued use of technology and centralized intake processes. Revenue for fiscal Q2 2024 was $64 million compared to $58.1 million for fiscal Q2 2023, representing a 10% increase in revenue year-over-year. Organic growth contributed approximately $6.4 million or 6.5% year-over-year. Revenues for the six months ended March 31, 2024 increased to $129.3 million representing an increase of 31% for the six months ended March 31, 2023. Recurring revenue as of fiscal Q2 2024 continues to be strong and is approximately 80% of total revenue. Adjusted EBITDA for fiscal Q2 2024 was 14.9 million or 23.3% margin compared to adjusted EBITDA for fiscal Q2 2023 of $13.1 million or a 22.5% margin, representing a 14% increase year-over-year. Adjusted EBITDA for six months ended March 31, 2024 increased to $30.2 million, representing an increase of 37% from the six months ended March 31, 2023 and represents 23.4% of the revenues. Cash flow from continuing operations was $17.1 million for the six months ended March 31 compared to $14.8 million for the six months ended March 31, 2023, an increase of 15.6%. For fiscal Q2 2024, bad debt expense improved to 4.2% compared to 4.3% for fiscal Q2 2023. This exemplifies the company's ability to scale without compromising billing and collection capabilities. CapEx defined as transfers of rental equipment from serialized inventory to fixed assets when we deploy the equipment on patients was 11.2% for the six months ended March 31, 2024. We expect CapEx to stay consistent the remainder of the year. Operating expenses for the three months ending March 31, 2024 was 48%, which was flat compared to the corresponding period in 2023. The company reported 14.6 million of cash on hand on March 31, 2024, compared to 18.3 million as of December 31, 2023. The decline in cash was due to seasonality in collections and the recent cyber attack on Change Healthcare, which impacted the ability to process and build claims in the back half of the quarter. creating a short-term drag in cash flow. In real time, the company continues to work through this, with thousands of claims being submitted, and the company expects cash collection to normalize in the coming months as the backlog of claims are adjudicated and future claims are adjudicated in a timely manner like they have been historically. The company had total credit availability of $39.3 million as of March 31, 2024, with $18.3 million available towards the revolving credit facility and $21 million available pursuant to the delayed draw loan facility. The company maintains a conservative balance sheet with net debt to adjusted EBITDA leverage of 1.4x. Our commitment is to ensure long-term value creation for our shareholders. We dive this through our prudent capital management approach that aims to economically scale our business. Our long-term strategy emphasizes maximizing our existing resources, including our strong balance sheet, operating strengths, sales capabilities, and infrastructure we have built out to date. This strategy is particularly centered around long-term stability and resilience as it focuses on building already rock-solid foundation from which we grow. Subsequent to quarter end, we initiated a share repurchase program with the initiation of an NCIB. We consider the NCIB as a welcome addition to our capital allocation plan, given our ongoing confidence in our business model, future growth prospects, our solid balance sheet, and our belief that our current valuation does not accurately reflect the company's fundamentals. As Greg mentioned earlier, in the second quarter, we observed the impact of the end of the Medicare 7525 relief as of January 1 in certain geographies and experienced the withdrawal of Medicare Advantage members in certain regions due to the capitated agreements engaged on with other providers in the industry. Despite this, we are proud of the efforts of our team in mitigating the overall revenue impact and leveraging our strong operating platform to post a consistent adjusted EBITDA margin profile of 23.3%. We have full confidence in our margin profile throughout the remainder of the fiscal year. Moreover, our priority remains on driving long-term organic growth, which continues to be achieving a target of 8 to 10% on an annualized basis. The company also utilizes free cash flow, a non-IFRS measure as a method of measuring its cash available to pay interest and repay the company's senior credit facility or to make acquisitions. In looking at free cash flow, we define free cash flow as adjusted EBITDA less capital expenditures both in cash and those financed through equipment loans and repayments of leases. In fiscal Q2, we had $5.9 million of free cash flow or 9% of revenue prior to interest expense and working capital adjustments outperforming expectations. On a go-forward basis, we continue to anticipate 6% to 8% free cash flow following CapEx and or lease payments, but prior to any payments relating to debt service and acquisition price payable. We see this as our baseline scenario going ahead, with the long-term objective of improving on this as we continue to expand our business. We are confident in our ability to grow our net cash flow inclusive of our CapEx needs. Our robust balance sheet with $32.9 million in cash and revolver availability puts us in an exceptionally well-positioned to navigate through an environment of high interest rates and to strategically pursue both organic and strategic inorganic growth avenues. With a prudent leverage ratio of 1.4 times, we are strategically positioned to utilize a balanced mix of debt and cash, reflecting our commitment to a disciplined approach to growth. Maintaining our capital allocation discipline is crucial to our continued financial success, and we will continue to adhere to our strict approach. Lastly, I would like to highlight an upcoming change related to financial reporting toward investors. The company has determined that it no longer qualifies as a foreign private issuer, and as a result, effective October 1, 2024, the company will transition from International Financial Reporting Standards, aka IFRS, to U.S. generally accepted accounting principles, aka GAAP. This means starting with our fourth quarter of fiscal 2024 and our auditor financials for the year ending September 30, 2024, the financial statements will be prepared under U.S. GAAP. It also means that effective October 1, 2024, the company will be subject to the same reporting and disclosure requirements applicable to domestic U.S. companies, and the company will be required to file periodic reports and financial statements with the SEC on Form 10-K and Form 10-Q as applicable, as well as filing current reports on Form 8-K. We are looking forward to this transition as we believe it is important to align our accounting standards with the geography of our operations being all within the United States, as well as improving compatibility to our peers in the industry. Thank you, and with that update, I'll turn the call back to Greg.