Apria, Inc. (APR) 2020 Q4 法說會逐字稿

Good afternoon, and welcome to Apria's Fourth Quarter and Full Year 2020 Earnings Conference Call and Webcast. (Operator Instructions) Please note this event is being recorded.

Leading today's call are Dan Starck, Chief Executive Officer; and Debby Morris, Chief Financial Officer.

Before we begin, we would like to remind you that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC, including the Risk Factors section of the prospectus for our initial public offering filed with the SEC on February 12, 2021, and in subsequent periodic filings, including our upcoming annual report on Form 10-K for the year ended December 31, 2020.

In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website.

With that, I'd like to turn the call over to Apria's CEO, Dan Starck. Please go ahead.

Welcome, and thank you all for joining us this afternoon to discuss our fourth quarter and full year earnings results. To begin the call, I'll touch briefly on the year's financial results and the highlights from fiscal year 2020. Debby Morris, our Chief Financial Officer, will provide a more detailed review of the financials later on the call.

We closed out 2020 with solid results coming in at the high end of the ranges we provided during our IPO process. I'm pleased to report that our full year revenue grew to $1.109 billion, a 2% increase over fiscal 2019. Adjusted EBITDA grew to $227 million, a 30% increase over fiscal 2019. And adjusted EBITDA less patient equipment CapEx grew to $134 million, a 67% increase over fiscal 2019. We believe these financial results indicate a company that is well positioned to capitalize on the tailwinds of growth in the home care setting.

We had the opportunity to meet many of you on our recent IPO road show. And we thank you for your continued interest in the Apria story. For those of you who are new to Apria, I'd like to start the call today with a brief overview of our company. Apria's mission statement is to improve the quality of life for our patients at home. We have been executing on our mission since the company's inception, and we remain steadfast in that commitment. While this past year has presented us with unique challenges, the compassion and resiliency of the Apria team allowed us to rise to the occasion and continue to deliver on our mission in the most difficult of times. As the vision of a post-COVID environment begins to take shape, we're proud of how we've managed through this past year, and we are excited about the future.

Apria has a seasoned management team steeped in DME as well as other service industries. This team, along with our 6,500 teammates, has managed growth, earnings improvement and margin improvement throughout the historical pricing pressures that have reshaped our industry.

We accomplished this through many initiatives, including changing our payer and product mix, streamlining our management structure, implementing technology capabilities and leveraging our national infrastructure. Our 275 local branches and nationally scaled infrastructure allows us to consistently provide home respiratory equipment and services, obstructive sleep apnea treatment, negative pressure wound therapy and other home medical equipment to our patients. As the shift to home care increases, we are well positioned to deliver consistent organic growth as well as take advantage of M&A opportunities now that we believe the major price compression events are behind us.

That's Apria at a high level, but I now want to dig in deeper to what we accomplished as an organization during 2020. We are now over a year into the COVID-19 pandemic. And while a lot of the changes we made at Apria occurred in early 2020, I want to say how proud I am of how our team adapted and responded to the unusual circumstances surrounding this health crisis. We made a number of operational changes to ensure we were best positioned to handle the increased demand for providing oxygen therapy to patients in their homes and to act as a relief valve for hospitals to keep their beds available for the more critically ill patients.

Just for a bit of perspective, our new patient oxygen starts increased 77% in the fourth quarter of 2020 compared to a year ago, and we provided services to over 44,000 patients with COVID-19 during calendar year 2020.

A number of the operational changes we implemented were designed to optimize the organization's effectiveness and to ensure the safety of our employees, including procuring the necessary PP&E and sanitizing supplies, prebuying on equipment and cylinder filling, moving over 60% of our nonfrontline workforce to remote work and implementing appointment-only branch pickups and enabling contact-free delivery and paperwork processes. All of these changes were largely implemented earlier in the year, but they have enabled us to adapt quickly with each wave of COVID throughout 2020 and into early 2021.

We also leaned on our logistics expertise to shift equipment and people to areas where they were most in need. For example, last spring, we moved thousands of rental assets from around the country to help meet the needs in New York and the rest of the Northeast. And as we face the surge crisis at the end of 2020, our Apria teammates from around the country volunteered to travel to the most severe locations in order to help meet the nearly overwhelming increases in places like Southern California.

Before the COVID pandemic hit the U.S., specifically in the fourth quarter of 2019, we implemented Project Simplify, which was a series of initiatives designed to transform our order-to-billing process, order fulfillment strategy and organizational structure. Project Simplify started yielding immediate results upon implementation, so we are very confident in its effectiveness. The value of these innovations became even more apparent amid the pressures of the pandemic. For example, our efforts enabled us to manage our variable cost more effectively throughout the year as new patient volumes ebbed and flowed due to COVID-19.

While Project Simplify was initially conceived as a revenue growth initiative, the impact of the pandemic did offset any revenue acceleration in 2020. As I mentioned earlier, we experienced significant increases in our oxygen patient starts. However, new patient starts in our other therapies were suppressed by the effects of COVID-19 and the decrease in normal patient flow in the health system. Ultimately, we continue to believe in Project Simplify's effectiveness and sustainability. And that as healthcare-seeking patient volumes normalize over the course of 2021, we will realize the growth aspects of the project that we were seeing in early 2020 prior to the onset of COVID-19.

Looking ahead to 2021, we are well positioned as a mature organization to move quickly and adapt whether patient volumes return gradually over the course of this year or if we see a rapid rebound due to pent-up demand. Additionally, we have a stable regulatory environment outlook for the next few years. As many of you are aware, the Centers for Medicare and Medicaid Services embarked upon a competitive bidding program for companies providing services within durable medical equipment, prosthetics, orthotics and supplies.

Since its implementation in 2011, subsequent rounds of competitive bidding reduced reimbursement rates for the products included in the bid process until around 2021 when competitive bidding contracts were only awarded for 2 of the 15 product categories that were originally marked for competitive bidding, off-the-shelf back braces and off-the-shelf knee braces, neither of which we provide. Due to a lack of substantial savings, CMS did not award competitive bidding contracts for the other 13 product categories, some of which we provide: oxygen, CPAP and CPAP supplies, negative pressure wound therapy and some home medical equipment. We view the outcome of the CMS round 2021 competitive bidding largely as a positive for Apria as we will continue to have full access to all Medicare beneficiaries for the products we provide. Secondarily, earlier this month, CMS permanently removed the budget neutrality rate adjustment for oxygen equipment that has resulted in a reimbursement rate increase for some oxygen systems that will take effect with dates of service on or after April 1, 2021.

Budget neutrality was an artifact from the precompetitive bidding era that allowed for a higher reimbursement rate for evolving technologies, namely portable oxygen concentrators and home transfill units by reducing the price for traditional oxygen equipment. The budget neutrality fix, coupled with the competitive bidding round 2021 outcome, provides the industry with an increase in oxygen reimbursement rates from CMS and stable reimbursement rates for the other products that were formerly subject to the competitive bidding rate adjustments.

From a big picture, our priorities for this year can be categorized into 3 buckets: execution, growth and leveraging technology. We will continue to execute on the operational aspects of the business: meeting referral source expectations and patient needs; managing costs; collecting our receivables; and gaining operational efficiencies in our order processing, billing and collections and other administrative and distribution functions. We will grow both organically and through M&A in 2021. We believe that the investments we made in 2019 and 2020 into our sales efforts and service capability has us well positioned.

As the more normal patient flow returns to the U.S. health care system, we expect to see our organic growth rate increase. The increase in the organic growth rate will take some time as a compounding effect of new patients on service builds and our patient census grows. We also expect to become more active in M&A in 2021, albeit we are starting slowly.

We have invested in an M&A team and have an active pipeline. We closed a small tuck-in acquisition in Southern California already in Q1 and expect to continue to pursue strategic opportunities throughout the course of the year.

And finally, we will continually leverage our technology to drive operating efficiencies. We have systematically made strides in our internal systems and processes, enabling improved workflow for our teams and increasing throughput. As an organization, we have embraced telehealth and believe there will be long-lasting benefits to Apria in our patient base.

2020 was a challenging year, but we made great strides as an organization. And I'm looking forward to pursuing continued flawless execution in daily service of our patients in 2021 and beyond.

I am honored to be a part of this company, and I thank each and every one of our team members for their resiliency, hard work and dedication this past year. They are the heartbeat of Apria. And every day, they help us deliver our mission of improving the quality of life for our patients at home.

I'll now turn the call over to Debby to review our financial performance in more detail and provide our outlook for 2021. Debby?

Thank you, Dan, and thanks to everyone for joining the call today. Before we open the call to questions, I'll share some highlights around 2020, and then I'll share our outlook for Q1 and full year '21.

We delivered full year 2020 results at the high end of the range that we included in our recently filed S-1 on all key measures, including net revenues, net income, adjusted EBITDA and adjusted EBITDA less patient CapEx. Full year revenue of $1.1 billion increased 2% year-over-year. Net income of $46 million increased 195% year-over-year. Adjusted EBITDA of $227 million increased 30% year-over-year. And adjusted EBITDA less patient equipment CapEx of $134 million for full year '20 increased 67% year-over-year.

Our results do not include any funds from the government as we returned all provider-released funds allocated to the company shortly after they were received. Overall, we had a remarkable year in spite of COVID-19, thanks to the extraordinary efforts of our employees, some regulatory tailwinds and deliberate and effective cost management throughout the year.

The fourth quarter of 2020 was a record quarter for Apria. Net revenues of $294 million increased 5% year-over-year, all of which was organic. While there was some slowdown in new patient setups for noninvasive vents, sleep and negative pressure wound therapy late in the quarter following the post-holiday COVID surge, the quarter was nevertheless solid in all 3 of our core service lines and buoyed by strong cash collections. Home respiratory revenue was up 8%, largely driven by oxygen as a result of the COVID surge, along with strong cash collections and relaxed documentation and authorization requirements during the public health emergency.

Sleep was up 4%, mainly due to sleep supplies, despite experiencing a reduction in demand from new patient sleep starts during the pandemic. And negative pressure wound therapy was up 4% year-over-year, despite some COVID headwinds in the fourth quarter. Other equipment and services was down 2%, largely due to lower patient flows. As Dan mentioned, Project Simplify has not only meaningfully improved our cost structure, but it has made us more nimble with the ability to serve our patients consistently and reliably while also enabling more control over our variable costs.

In addition, our focus on continuous improvement and investment in technology, including leveraging robotics and further automating workflow as well as our deliberate cost management during COVID has continued to reduce our cost as a percent of revenue and create operating leverage.

Our adjusted EBITDA in the quarter of $64 million increased 17% from Q4 '19, while adjusted EBITDA less patient equipment CapEx of $35 million was up slightly from $34.9 million. CapEx was significantly higher year-over-year due to the increase in oxygen concentrators required to meet the demand resulting from the surge in COVID cases late in the fourth quarter.

Moving on to the balance sheet. As of December 31, we had $195 million in cash and $401 million in debt. This correlates to a leverage ratio on our adjusted EBITDA less patient equipment CapEx of 1.5x.

Turning to our outlook for 2021. I want to provide some color on what we expect this year. In Q1, we continue to see volatility associated with COVID-19 with a surge in oxygen and sleep supplies and some slowdown in noninvasive vents, negative pressure wound therapy and other equipment services. We continue to see strong cash collections; benefits from the PHE, the public health emergency, in terms of Medicare reimbursement rates and relaxed documentation requirements, and we continue to manage our cost structure effectively.

While Q1 is generally the lowest quarter from a net revenue and adjusted EBITDA perspective, given our patients are generally responsible for a greater percentage of the cost of their therapy during the early months of the year due to deductibles and therefore may defer certain therapies such as sleep apnea, we, nevertheless, are having a record quarter and have increased our Q1 guidance over that provided during the IPO process.

For the first quarter of 2021, we expect net revenues of $268 million to $272 million, adjusted EBITDA of $45 million to $48 million, and adjusted EBITDA less patient equipment CapEx of $21 million to $24 million.

For full year '21, we've increased our guidance from that provided during the IPO to account for the removal by CMS of the budget neutrality rate adjustment, which Dan discussed earlier. While we are out of the gate with a solid first quarter and we are confident in the full 2021 numbers we're sharing today, we are nevertheless maintaining our prior guidance outside of the impact of the budget neutrality, given the uncertainty around the timing and the pace of the COVID recovery.

With the rental nature of our business, should, as an example, the recovery accelerate growth due to pent-up demand, our costs could increase ahead of growth in revenue and patient census. Likewise, there is uncertainty around when the public health emergency will end as well as uncertainty around whether the suspension of sequestration will be continued through the end of the year. Both or either of these events would be beneficial to the industry and our results. We believe maintaining a conservative outlook on 2021 until the future of COVID unfolds further is prudent at this time. We remain confident we will manage and communicate effectively through whatever occurs.

As such, for the full year 2021, we are increasing our guidance to net revenue of $1.11 billion to $1.14 billion, adjusted EBITDA of $203 million to $212 million and adjusted EBITDA less patient equipment CapEx of $108 million to $115 million.

As Dan mentioned, we closed the strategic tuck-in acquisition in Q1. We have a solid pipeline, and we expect to pursue additional acquisitions, which grow our core business throughout '21. Our financial projections exclude any M&A activity at this point.

To close out our prepared remarks today, I want to echo Dan's sentiment that we ended 2020 on a solid footing to build upon. We're finishing up a good first quarter, and we're ready to capitalize on opportunities at hand.

Finally, I also want to thank our employees for such a strong 2020 and for taking care of our patients throughout the pandemic.

Operator, we'll now open the call to questions.

(Operator Instructions) Our first question comes from Ralph Giacobbe with Citi.

First, I guess I just wanted to clarify. You had noted that the recent positive CMS oxygen bump beginning on April 1 due to the removal of budget neutrality. I guess are you including that in guidance? Or you weren't -- it sounded like you said you were conservative. I just didn't -- I wasn't clear on if you sort of included it or just leaving yourself cushion on the other side. And if you could just quantify what that benefit is to 2021.

Ralph, it's Debby. Yes, we have included it in our annual guidance. Obviously, it doesn't affect Q1. So we have included it in our full year, and it's similar to what you had projected in the report you recently issued, in the $3 million to $4 million range for the year for '21.

Got it. So if everything goes to plan, the $3 million to $4 million is potential upside, but you're just choosing not to flow that through simply given the COVID backdrop. Is that fair?

No, we are flowing that through. We are -- excuse me, can you repeat your question? Because we are flowing it into our annual guidance. So we basically took what was provided during the IPO process, and then we have increased it for the budget neutrality that was announced by CMS a few weeks ago.

Got it. Okay. Okay. Fair enough.

And then -- go ahead.

Does the new CMS rate impact commercial rates, either directly for some piece of your business or indirectly via negotiations, where perhaps you'll be able to capture those higher rates as well?

Ralph, it's Dan. It does not directly impact commercial rates. What it does is -- my opinion is continues to send the right message to the commercial payers that prices going up. And so between the outcome of competitive bidding not producing results that would drive any savings plus the budget neutrality, it does impact Medicare specifically, but not the commercial payers. But I think it continues to send the right message through the payer community.

Okay. Fair enough. And then just one more, if I could. As things hopefully get back to normal, can you just talk about the competitive landscape? Do you think smaller players can sort of try to get back on their feet? Or how quickly do you see a more active M&A backdrop?

Well, we see a pretty active M&A backdrop currently, and it really hasn't slowed down that much. For us, it's really about getting started and getting started on the right foot with a small deal to start in Q1 and pursue more here as we go through the rest -- remainder of the year, really making sure that we get our muscle memory back, for lack of a better term, from doing acquisitions and doing integrations. So I think we'll slowly build here, but there's pretty active M&A throughout the industry right now.

Our next question comes from Jamie Perse with Goldman Sachs.

Congrats on getting this first one out of the way. I wanted to start just first with guidance for the year and the cadence that looks like the first quarter you're guiding to about minus 50 basis points to plus 1, and then that implies about 50 basis points positive to 4% for the remainder of the year. Just wondering if you could talk us through some of the key drivers that accelerate growth in the back half. I know you touched on the budget neutrality. You talked about Project Simplify and that being a growth driver in the later part of the year. But just help kind of bridge the acceleration that you expect from 1Q to the remainder of the year.

Jamie, you're talking about '21 as we look forward?

Yes, your guidance for 2021.

Yes. So if you look at our Q1, what we're providing for Q1, we're coming out of the gate with a strong first quarter. So while there's not significant seasonality in the business, typically, our Q1 is the lowest. And what we're seeing is Q1 being strong, we expect to continue to have some of the normal seasonality.

However, as we said, we haven't taken up the full year guidance at this point in time, just as we -- remaining kind of where we were when we met with you earlier as we see how COVID unfolds. So there's a lot of activity that could still occur. But just in our normal course, typically, Q4 is the strongest. So we would see from Q1, just Q1, the lowest, Q2 and 3 about equal and then Q4, slightly higher. So as far as the year, that's how it will unfold. There's a lot of events that may occur that we talked about.

Obviously, with the public health emergency, should that be expended -- excuse me, extended, we've currently assumed that gets extended one more quarter through July since it's just scheduled to end. If it gets extended further and then the delay of sequestration, those are some possible upsides that could occur, as well as obviously volume. There's lots of activity that can happen with volume that could fluctuate between products. Does that answer your question?

Yes, that's helpful. I'll jump to margins just for a second, again, on guidance. Your 2021 guidance implies roughly 18% to 19% EBITDA margin, adjusted EBITDA margin. That's a big improvement from where you were a couple of years ago. I know Project Simplify was part of that.

But first question is really if you could just talk to whether there's any onetime things in there from COVID. I know you had some moving pieces in '20. Are there any of those occurring in 2021 that we should be thinking about that won't repeat in the future?

And then the second piece of that is, is there just any more, I guess, meat left on the bone? Or is there opportunity from here to continue expanding margins? Or is this what we should be thinking about longer term as the run rate for the business?

Yes. I'll hit on the first part and then the second. So as far as our margins, yes, as you've noted, we've had significant improvement from '19 to '20. And as you may recall, '20, we ended the year with an adjusted EBITDA margin of about 20.5%.

And COVID, we can precisely measure certain activities around COVID as far as price, for example, and reduced costs. And then others, we estimate as far as volume impact. So I think as we talked about during the IPO process, on a normalized kind of outside of COVID basis, we'd say we're in the mid-18% adjusted EBITDA range.

So as you look at '21, we are -- sticking with where we were, there's opportunity, as I said, for events that could drive that higher, before I get to kind of initiatives in your other part of your question. But so there's pluses and minuses currently in '21 in regard to COVID because we anticipated some events would go away, as I mentioned, with the public health emergency, which has continued. We've assumed the sequestration has not extended. Obviously, oxygen has been surging along with sleep resupply, like some of the other products, including noninvasive vent has been a little bit slower in sleep.

So I wouldn't say there's any precise COVID onetime that you could take out at this point. We are currently, in our numbers, giving you where we said we'd be on a more normalized basis. And '21 is still a bit of a -- see how it turns -- see what happens with COVID over the next few weeks, even of what's going to happen.

Okay. And then -- go ahead.

I was going to say in part 2 of your question, we have -- as again, as you've pointed out, during periods there's expensive price pressure in the past, and we've proven that we can continue to make improvements. And we are committed to a company, an environment of continuous improvement. So we will continue on an ongoing basis to invest in initiatives which will drive margin improvement. And that's before we talk about M&A, obviously. I'll hit on that in a second. But from a pure operational efficiency, we have been very focused on, I think I mentioned robotics and process automation. And we do focus on our order-to-cash process as well as our billing and collections rev cycle process.

There is ample opportunity as good as we've done for continual improvement enhances and leveraging of current technology in those areas. We've done a tremendous amount, but I wouldn't for a second say that there's no additional opportunity for further expansion.

In addition, our infrastructure, we have, as we've talked about, a very mature chassis that has one system, all orders go through and it can handle increased volume. So we have a very scalable infrastructure capable of handling growth. So when we look at layering on M&A, and as Dan talked about, we plan on starting a little bit slower and then speeding up that we expect to have some margin improvement naturally, given our scale.

Okay. That's good color. Just one last one for me, and then I'll jump back in the queue, but just the diabetes business that you recently launched. Just curious what you're seeing early on here if the early traction is encouraging, if there's challenges that are coming out that were unforeseen or just an update on the diabetes business and how we should think about that contributing to 2021 would be great.

Yes, Jamie, this is Dan. So we've had a -- I'd say it's both encouraging, but also some challenges that go with like the launch of any business. It started pretty slow as we expected. But -- what we are doing is obviously learning a lot about the patient experience, how to get patients and the friction actually that exists in either moving providers or getting patients started on CGM.

So we don't expect it to be a material impact to this year. We hadn't expected it when we provided any forward-looking information and -- but we do expect to start to pick up a little speed on that business here over the course of the year.

Our next question comes from Kevin Fischbeck with Bank of America.

Great. Just want to follow up on the neutrality number, the $3 million to $4 million. Is that a 9-month number impact?

Yes, Kevin.

Okay. Is there any reason not to flow through $4 million to $5 million then into the outyears?

No.

okay. And then sequestration sounds like not in the numbers. How should we think about that if you do get that for the rest of the 9 months?

I think about it pretty strongly at this point, Kevin. There is actually -- there was actually a notification sent out about 15 minutes before this call started that CMS was going to initiate a claims hold because they anticipate that the House will approve the Senate-approved sequestration language when they return on April 12.

And so I guess, can you quantify then how much that would be? Is it just taking too on your Medicare business? Or is there any other impact to the (inaudible) rate or any other lines of business?

Yes. I'd say that, that, again, will be in the $3 million to $4 million range for sequestration, should it go through the rest of the year. So another 9 months. We've obviously got development...

Yes. Okay. That's helpful. And then I guess when we -- I think in your prepared remarks, you kind of talked about the organic growth rate continuing, you think, to improve as the year goes on and build and ultimately normalize.

I mean how should we think about that? I mean when do you guys think if that happens, is it just a matter of kind of anniversarying the last kind of tough COVID quarter? Or is that something that happens even Q4?

Yes, Kevin, I think it will largely depend on how the virus ebbs and flows. And maybe I'll talk a little bit about what we've seen so far in the first quarter. What we saw was patient volumes that got impacted in January and really through February with oxygen being up significantly and the other products being impacted negatively. But literally, as soon as the trajectory of the virus started trending down, the other products started trending up again. And we think we'll exit really Q1 here at not quite pre-pandemic levels but close to pre-pandemic levels.

So the volume indicators are positive. Now from a total revenue standpoint, we have to replace the census and keep the census moving forward and growing so that we start lapping the census that we had at the time last year when the impact started. But I think that my sense is that what we'll see is the organic growth rates slowly increase and whether it's Q4 of this year or early next year that we kind of return to a more normalized mid-single-digit number or expected maybe mid-single-digit number, I think we'll just build gradually towards that would be my impression.

Okay. And then I guess, just based upon how Q1 is coming in a little bit stronger, I mean is the right way to think about it that if there's, I guess, some concern that we were at the start of another COVID spike, if there is another COVID spike, that the impact to you guys would be actually probably outperformance in the quarter, but then it might just delay that normalization of the rest of the businesses back a quarter? Is that the right way to think about it, that actually kind of upside in the near term, but you kind of all else equal or better that things get back to normal?

Yes, I think that's exactly the right way to think about it.

(Operator Instructions) Our next question comes from Chris Neamonitis with Piper Sandler.

Great. And congrats on a nice first quarter, guys. I want to switch gears a bit and ask maybe about e-commerce sales. Curious about the momentum kind of in that area. How do you get patients to really engage with that offering? Are there any sort of metric we can think about as far as seeing traction there?

And then just one of your manufacturers came out a couple of weeks ago with its own e-commerce offering. So wondering, too, how you think about that in terms of your plans for ApriaDirect in the longer term?

Yes, Chris, that's a very good question. So as we -- so last -- really back half of '19, early '20, we retooled both the management team, the platform and the strategy with our e-commerce business. We have been very, very heavily dependent on a lot of the sleep accessories. And as COVID impacted anything to do with travel, it really took an impact on our business. So we retooled and have -- are starting to see some of the early returns on that.

A strong management team was brought in. They're executing on the strategy. And I'd say -- and diversifying product availability. We're seeing nice growth off of a small base so far the first quarter of this year versus first quarter of last year. And so we're pleased with where it's headed.

From how do we get eyeballs, if you will, on ApriaDirect, there's really 2 ways we do it. One is a cross-sell for anything we do from a new patient setup if there's an opportunity there. And secondarily, it's search engine optimization and SEM and SEO.

So we don't spend a tremendous amount of money on that yet at this point. We're still trying to make sure that our strategy and our performance is there. But that's really how we start thinking about the future in driving folks to the site.

Great. And then just one more from me on compliance. You announced the hire of a new General Counsel about a month ago. Maybe give us a sense on your go-forward direction for compliance, especially post the settlement back in December.

I know there was some confusion that ultimately led to that, in particular. But maybe if you could share a little more to give us some comfort around the historical, call it, maybe a misperception of kind of questionable billing practices that people might tend to associate with the industry.

Yes. I think -- so I don't -- I mean I can comment briefly on the settlement that, one, we're just happy it's behind us. And really, we're not -- we don't want to comment publicly. In fact, we can't.

So I think from a compliance standpoint, there's 2 aspects. One, I would think of compliance as -- historically, the industry struggled with its compliance profile, if you will, in -- with CMS. We tend to think that it's -- and not think, but we know it's improved significantly, the industry overall, as far as a number of the compliance efforts are concerned and especially when we get into the CERT reports. The fact that medical necessity is less than 1% of the denials, and literally, everything above that is something to do with the -- something to do administratively.

So we feel much better as an industry, and I think the companies that are driving are doing a great job.

If you look at Apria's track record historically, it's very strong in compliance. We take it very seriously. Our new General Counsel brings very good compliance background. And I think he'll do nothing but help drive a compliance culture even more than we have today.

I'm showing no further questions in queue at this time. I'd like to turn the call back to Dan Starck for closing remarks.

Great. Thanks, operator. And thank you, everybody. We certainly appreciate everybody joining the call. And I'd just like to wrap up one more time with a big thank you to all of the Apria teammates. It takes 6,500 of us to get the job done every day, and they've done one heck of a job, and I couldn't be more proud of them, and I can't wait for '21 and future years here. It's an exciting opportunity and exciting time to be in our space. So thank you, everybody, and we'll talk to you again soon.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.