Quipt Home Medical Corp (QIPT) 2025 Q1 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the first quarter of 2025 earnings results conference call for Quipt Home Medical Corporation.

As a reminder, all participants are in listen-only mode, and the conference is being recorded. (Operator instructions)

At this point I'd like to turn the call over to Chairman and Chief Executive Officer Greg Crawford.

Thank you, operator, and thank you to everyone joining us today. I'm Greg Crawford, Chairman and CEO of Quipt Home Medical. I'm pleased to have Hardik Mehta, our Chief Financial Officer; and Tom Roehrig, our Chief Accounting Officer joining me today.

Quipt Home Medical is a diversified healthcare services company delivering a comprehensive range of home medical equipment and services to patients across the United States. Our commitment to clinical excellence powered by a patient-centric model and advanced technology enabled solutions.

These combined with our specialized respiratory programs allow us to effectively meet patient needs in the comfort of their own homes. At present, WIP has expanded to 135 locations across 26 states with over 314,000 active patients, which has enabled us to strengthen our coast-to-coast reach.

Our go to market strategy is rooted in providing an integrated end to end respiratory care solution complemented by a diverse portfolio of durable medical equipment. As a trusted partner for patients and healthcare providers alike, we have developed a scalable model that addresses the complexities and evolving demands of the durable medical equipment ecosystem.

Respiratory care comprises approximately 77% of our product mix, demonstrating our unwavering commitment to patients with pulmonary and cardiovascular conditions. This strategic focus aligns with critical macro trends such as the aging population, the rising prevalence of chronic respiratory disease like COPD, and the significant untapped opportunities in the sleep apnea market. These drivers combined with our operational expertise and expanding scale, position equipped to meet the growing demand for high quality in-home respiratory care solution.

On today's call, we will review our fiscal first quarter 2025 performance as well as provide insights into emerging demand trends, operational highlights, and strategic initiatives shaping our growth trajectory for the remainder of fiscal '25. For the first quarter of fiscal '25, we experience consistent demand across all major product categories and steady referral patterns.

We achieved stable revenue generation of $61.4 million alongside a strong sequential improvement in adjusted EBITDA margin, which reached 22.8%, leading to adjusted EBITDA of $14 million. We are particularly encouraged by the meaningful improvement in our adjusted EBITDA margin sequentially during fiscal Q1 2025. This progress reflects the proactive steps we've taken to streamline our operations and optimize our organizational structure.

These enhancements are enabling us to operate more efficient efficiently while maintaining our commitment to high quality patient care. As we continue to execute on our growth initiatives, we expect this operational discipline is to support steady margin expansion throughout the year.

Shifting the focus to our sleep business, we are pleased to report that GLP-1 medications continue to have no impact on demand. Referral activity for new device setups remain solid, while replacement supply volumes continue to demonstrate strong and consistent performance.

Recent real-world data is shared by the leading sleep device manufacturer involving nearly 1.2 million patients. Underscores the positive effects of GLP-1s on treatment adherence. The study found that individuals with an obstructive sleep apnea OSA diagnosis who were prescribed the GLP-1 were 10.7% more likely to start positive airway pressure therapy compared to those not on GLP-1s. Additionally, these patients exhibited higher resupply order rates over both 12 months and 24-months periods.

These data points have now been steady with the same trend, plus or minus a couple of tens of a basis points as the leading manufacturer has grown their analysis from a year ago with approximately 300,000 patients to now tracking nearly 1.2 million patients.

On January 17, 2025, the American Academy of Sleep Medicine released a quick reference guide for providers discussing the use of novel pharmotherapies in the treatment of OSA. The AASM continues to emphasize positive airway pressure therapy as the frontline treatment for OSA. Additionally, the guide suggests that weight loss medications may serve as useful, adjunctive, or combination therapies.

We believe GLP-1 medications will serve the long-term tailwind for our sleep business, introducing more motivated patients into the healthcare system as they focus on improving their overall health.

Additionally, the regulatory environment remains stable, and we are not seeing any significant headwinds over the near term. This stability allows us to operate with greater efficiency and confidence, supporting both margin performance and continued strategic execution. With this regulatory clarity, we are well positioned to sustain long-term growth as we expand our footprint and deepen partnerships across the healthcare ecosystem.

We continue to manage our balance sheet prudently with net leverage at 1.5 times, which gives us the flexibility to invest in strategic initiatives. As we move forward, we are confident in our ability to deliver exceptional patient care, strengthening relationships with payers, and execute on a disciplined, scalable growth strategy.

Through these efforts, we are well positioned to drive consistent long-term value for our shareholders. With that commentary, I'd like to hand the call over to Hardik to discuss our fiscal first quarter 2025 financial results.

Thanks, Greg. On Monday evening, we announced our fiscal first quarter 2025 financial results for the three months ended December 31, 2024. Please note that all financial values are in US dollars and are now reported under GAAP accounting principles, with comparison periods also reported under GAAP for consistency.

Here are some key highlights from the quarter.

We completed 221,000 unique setups and deliveries in the fiscal first quarter 2025, an increase of 3% from 215,000 unique setups and deliveries in fiscal Q1 2024.

Respiratory resupply setups and deliveries increased to 124,000 for the quarter, reflecting growth of 1% year -over-year driven by our centralized intake processes and technological innovations.

The customer base grew by 1%, serving 157,000 unique patients as of December 31, 2024, compared to 155,000 unique patients as of December 31, 2023. Revenue for fiscal Q1 2025 was $61.4 million compared to $62.6 million in fiscal Q1 2024. This represents a 2% decrease year-over-year. Revenue for Q1 2025 was flat compared to Q4 2024.

The Medicare 7,525 blended rate, which had been providing rate relief for certain geographies, was discontinued as of January 1, 2024. Although this change is still under legislative review and could return, its immediate cessation had a negative impact on our revenue and operating results. Moreover, in certain regions, we also experienced the withdrawal of Medicare Advantage members due to a capitated agreement engaged with other providers in the industry.

In November 2024, a disposable supply contract was not renewed. The cumulative annual impact of these three events is estimated to be approximately $8 million.

With a reduction of approximately $1.5 million for the three months ended December 31, 2024 as compared to the three months ended December 31, 2023, recurring revenue for Q1 2025 was very strong and was approximately 77% of total revenue.

Adjusted EBITDA for Q1 2025 was $14 million at 22.8% margin compared to $15.3 million at 24.5% margin for Q1 2024, representing an 8.7% decrease.

Adjusted EBITDA sequentially increased by 4.5% from Q4 2024 in which the company reported adjusted EBITDA of $13.4 million at 21.8% margin.

Net loss improved from Q1 2025 to $1.1 million or 0.03 per diluted shares compared to net loss of $1.5 million or 0.04 per diluted share for Q1 2024.

Operating expenses as a percentage of revenue came in at 49.5% in fiscal Q1 2025 compared to 47.6% the corresponding period in 2024.

CapEx, also known as rental equipment, transferred from inventory for fiscal Q1 2025 was $9.4 million compared to $7.3 million in fiscal Q1 2024. Cash flow from continuing operations was $9.3 million for the three months ended December 31, 2024 compared to $10.6 million in the prior period.

The company reported $15.5 million in cash on hand as of December 31, 2024, compared to $16.2 million in cash on hand as of September 30, 2024. The company has total credit availability of $32.4 million, including $11.4 million available on revolving credit facility and $21 million on delayed fraud term loan facility. We maintain a conservative balance sheet with a net debt to adjust a little with the leverage of 1.5 times.

Our financial performance in fiscal Q1 2025 demonstrates the stability of our business model. We delivered an improvement in just a bit the margin compared to previous quarter, reflecting the initial benefits of the structural optimization efforts we began implementing at the start of the fiscal year.

These initiatives are focused on enhancing operational efficiency across the organization, reducing inefficiencies and unlocking marginal expansion opportunities. We are pleased with the results so far and we plan to deliver steady margins throughout the year as we continue to refine our processes and optimize our cost structure.

We continue to see steady referral activity demonstrating the durability of our operating model and our ability to meet evolving market needs. This consistent demand trends reinforce the strength of our business, which continues to benefit from macro tailwinds such as the aging population and the rising relevance of chronic respiratory conditions. While some headwinds persisted. We are pleased with our ability to build upon the foundation established in prior quarters and position ourselves for growth in the calendar year ahead.

The strength and consistency of our revenue base was underpinned by our recurring model, which accounted for over 77% of total revenue in fiscal Q1 2025. A cornerstone of this model is our resupply program, which has grown to support more than 174,000 patients as of December 31, 2024. This program not only extends the duration of each patient's relationship but also reinforces the value of our high touch patient centered care model.

Our financial position remains a critical driver of growth with $47.9 million in liquidity and a net leverage ratio of 1.5%, we are well equipped to advance our growth initiatives. As capital market dynamics evolve, we remain confident in our ability to see strategic opportunities that align with our long-term goals, all while safeguarding our strong financial foundation.

As we progress through calendar 2025, we are energized by the opportunities before us. Our commitment to the operational excellence, discipline, growth, and patient focused care remains the cornerstone of our approach, positioning us for continued success.

With that, I will now turn the call back to Greg.

Thank you, Harding for that comprehensive overview of our financial performance and operational highlights. Our top priorities for fiscal 2025 and beyond are driving organic revenue growth, achieving operational net profit, generating positive cash flow, and expanding both adjusted EBITDA and adjusted EBITDA margin. We are focused on expanding our presence in both existing and new markets, leveraging our scalable business platform to broaden our product offering.

And service reach to support these objectives, we continue to optimize our organizational structure, enhancing operational efficiencies by reducing redundancies and centralizing back-office processes. These measures are streamlining operations, improving scalability, and positioning the business for sustainable long-term growth.

At the heart of our strategy is our commitment to addressing chronic respiratory conditions including sleep apnea, COPD, and other pulmonary diseases, while ensuring patients can access high quality care in the comfort of their homes. As demand for home-based healthcare solution grows, we are exploring new ways to expand our reach, including entering into untapped markets and fostering strategic partnerships with payers, referral sources, and healthcare providers.

Our competitive strengths lie in the unique combination of our expanding national footprint, growing market share, and deep clinical expertise. These advantages enable us to operate at scale, creating efficiencies while delivering a seamless, patient-centric experience that meets the rising demand for home-based care solutions.

As it relates to the execution of our growth strategy, we are committed to leveraging technology in every way we can to consistently improve our operational performance. We are also focused on enhancing our workflow processes which creates efficiencies and removes friction points. We believe the keys to success are strong organizational efficiency and building economical scale to create long term value.

Looking ahead, we're continued to maintaining active engagement with our investors across both US and Canada as we focus on delivering value through an expected return to consistent organic growth in calendar 2025. Importantly, despite trading well below the valuation levels at which recent acquisitions have occurred within our space, our business fundamentals remain solid.

We are pleased that the margins have been steady and improved nicely on a sequential basis this quarter, reflecting the positive impact of our operational initiatives. Having effectively navigated recent challenges, we are well positioned to capitalize on growth opportunities.

With steady demand across our product portfolio, we are optimistic about the balance of calendar 2025. And excited to share continued progress with you. We look forward to reporting our fiscal Q2 results in May. In closing, we remain committed to exploring and pursuing all avenues to drive increased shareholder value, and I would like to take this chance to thank the entire team for their tireless work and our stakeholders for their continued support.

We will now begin the analyst question and answer session. (Operator instructions)

Richard Close, Canaccord Genuity.

Yeah, thanks for the questions and I apologize if there's any background I'm traveling, I appreciate the providing the calendar 2024 revenue headwind impact of $8 million on those moving parts. I was wondering if you could provide us some background on the contract termination, the disposable supply. And how much of a headwind do you think that's going to be in the remainder of this fiscal '25? That's my first question.

Yeah, sure. So that was an incontinence supply contract and that we had with a state that we operate in, through a home health agency, and it ended up getting terminated there on November 1st. So we expect that to be about a $2.5 million headwind and that kind of look at it, say in calendar '25.

Okay, and that includes the first quarter impact that $2.5 million?

Well, that's the total and that for the entire calendar year. So, if you, it, it's probably a little more heavily weighted in that in the first quarter than it would be going out into say our physical Q1 '26.

Okay, that's helpful. And then, also on the decapitated contract, that, shifted, I guess at the end of 2023, that was MA mostly, but you also, I think, have, PPO, patients, as well, with them, and I, how should we be thinking about like that headwind. Maybe those some of those PPO patients rolling off, in the remainder of fiscal '25. I'm really just trying to get a feel of how much of the headwinds are behind you because you'll be lapping essentially January 1, (75) '25, and how much of the headwinds are sort of continuing this year and obviously the 2.5 that you just mentioned is part of that.

Hey Richard, this is Hardik. Yeah, great question. So you're right, as we kind of go into, fiscal 2025, so, sorry, calendar 2025, so fiscal Q2, Q3 and Q4, you would see the larger impact year-over-year in the first couple of quarters, versus, the later half because Humana's impact to us was really. It kind of scaled up and so Q2, Q3 of last year, we saw the most impact of Humana. So quarter-over-quarter, year-over-year you will probably see about somewhere in the neighborhood of a million dollars in Q2 maybe, $750 to $800 in Q3. Q4 similar and then Q1 '25 might be much lesser. So if again, if you take that 2.6, it's probably weighted towards the front couple quarters, then the second of the quarter, second, the two quarters in Canada 2025.

Okay. And then.

My final question, I think I'll just add to that, Richard, and that is that it's important to note that the con the TPO and that has stabilized and that as far as and that what we've seen fall off and we're starting to make some progress in the referral community with the sales team and that of some initiatives in that to let them know that hey we still can take the PPO plans.

Okay, so it sounds.

Like not much from Humana PPO rolling off in calendar '25 and you just have this, very small disposable contract termination, so most of the headwinds are behind you.

That's what we that.

Would be a, yeah, that would be a good characterization.

Okay, that little.

Bit of will be in the first.

It will be in the first half.

That's all it is it is certainly stabilized.

Okay, yeah, perfect, and then final question is, good job on the margins, and interested in some of the cost efficiencies or optimization that you're talking about and how much of that's. Still to come, just curious, Hardik in terms of how you're thinking about the progression of margins as we go through the year, should we think about steady stair step, as we progress through the year and then how do you guys think about, 25% adjusted give it the margins, is that at attainable this year or, a timeline to get in there?

I would say so definitely stabilize from where we are I think we made some adjustments you know if needed we could make some more we have always tried and staffed this company to kind of, allow for, more revenue growth and that has certainly been our strategy and. So with that said, for 2025, of course our goal is here to, get more organic growth, that's our primary focus here, but, in the event that's not going to happen, then we will have to certainly readjust our cost structure. But for now we are certainly planning for, revenue growth and stabilization of EBITDA is kind of where we see things are. Of course, with growth we would be probably we certainly will be seeing that step increases in EBITDA margins as well.

So I think we are certainly stabilized from a dollar perspective, with some opportunities should we have to take some.

And is 25% still a long-term target?

Yes, certainly, long term and achievable target, maybe not in the near, first next three quarters, but again, certainly it's a target we believe can be achieved, with a little bit more of scale, that, we hope to bring in 2025, but yeah, it's certainly achievable target, but just not in the next near future.

Okay. Thank You

Doug Cooper, Beacon Securities.

Hey, good morning, everybody. I just want to look at the so EBITDA minus patient CapEx started you said patient CapEx was $9.4 million in the quarter or total CapEx so.

That gets me in a margin, adjusted margin of 7.5% versus 12.8% last year. I just, I don't have a number for Q4 for patient CapEx. Do you have that number and what would I...

Yeah, Yes I do

Okay, yeah. So patient CapEx in Q4 of 2024 fiscal year, Q4, I mean, Q1 of 2024 fiscal year was suddenly on the lower end, and that was kind of an anomaly for that particular quarter, which shows you we are to be at a much larger, percentage points. So last year. This quarter our medical equipment CapEx was around $7.3 million versus $9.3 million $9.2million $9.3 million that we reported this year but if you look at our Q2,Q3 and Q4 of 2024, those respective quarters were 7.10 and 9.1. So what we have is kind of more, along the lines we are also in the middle of, swapping out some, recall for Phillips on ventilators. So we do expect that will impact us for another couple of quarters, as we kind of turn over this, the Philips Resperonic, ventilators.

I see. So it would seem to me, a target of 10% plus should be a target there to generate some real free cash flow. Is that fair?

Sorry, can you ask that one more time, please?

Yeah, the adjusted EBITDA down margin or EBITDA minus patient CapEx margin to generate some material free cash flow, that's got to be over 10%, correct?

That, yes.

Yeah, okay. And when would we expect to have that over 10%? I mean, obviously it helps if you get EBITDA margin towards the 25%.

Right, I mean.

Sure, I mean if you look at, fiscal 2024, we were at 10% right, for the whole year, again, we might have to replace some ventilators here for the next couple of quarters as I just mentioned earlier, but we should be kind of heading back to that margin rate, sooner than later.

Okay.

We're not saying that we are deviating from what historically we have performed at least like if you look at the whole fiscal 2024, I think that is a good, measurement of what to expect overall in 2025, of course quarters might, move here and there, but, to keep that as a goal for 2025 suddenly what we would look, we would consider steady state.

Okay, moving on, the resupply business, hasn't gained a lot of traction, I would say over the past 5 or 6 quarters. It ended fiscal '23 at 169,000 patients ended fiscal '24 at 172, and now we're 174. What can you do to drive that business, because in my opinion, I guess that's a real generator of free cash flow.

Yeah, this is Greg, really good question and that I think one of the, several things that we've actually been working on is one, we've been, working to improve and we've started to see slight improvements in our catchment rates and that for new setups.

So, we're trying to exceed 80% plus on our catchment rate for new setups, so that's going to drive more patients in there also our sleep compliance and that we're doing some transitions there we've already seen a couple percentage points in that of increasing compliance which ultimately and that also and that more patients into the resupply program.

So, we do have several, handles that we're kind of pulling there for that. The other piece too is there's some other pockets, within that resupply and that and that we focused on that we haven't traditionally focused on for compliance, would be getting, so we've got a really high catchment rate of patients in that ordering their first order after a new set up.

And then these patients kind of fall off in that after the 90 days because we don't necessarily need compliance and that for the continuation of the rental, so now we have started to focus and on patients and that to kind of follow them all the way out for a year because we're seeing that we've got a large drop off and that during like months 5 to 10. So we expect in that that should, continue to add more patients and that within the system.

Okay, I, my final question, maybe this might be a bit of an off the wall question, but the doge Department of Government Efficiency, is obviously in there looking around. I you think Medicare is somewhere that they're looking to save money and what would could possibly be the impact on reimbursement if under such a scenario.

Yeah, I mean, as it stands right now and we don't know of anything, that would affect us. I mean, right now and that I mean we're still expecting there could be some positive news on on the 75/25. The reinstatement, it seems like there is a lot of momentum in that within the industry on the 75/25 and then I think finally in that the discontinuation in that, finally kind of putting the nail in the coffin on the competitive bid, but other than that, and that we haven't had anything from updates from up from a regulatory front.

Okay, great. Thanks Very much.

Julian Hung, Stifel.

Hi, this is Julian sitting in for Justin today. My first question is with the switch from IFRS to US GAAP, bad debt expense is now embedded in revenue. Can you just give us a reminder of how, historically how much bad debt expense made up and if you see that percentage going down over time.

Yeah, historically, I mean we did make that switch in, last quarter of 2020 fiscal 2024, but try to get that we were running around 4% 4.5%. I think you will see that, for we kind of saw similar numbers for this quarter and, Q2 of, which is calendar Q1 is always, the roughest months of all, pharmacyclical perspective. We do expect those percentages to drop, going into the second half of 2025 calendar year, with some of the improvements that we are making on our RCM team and, some of the resources that we are allocating to our RCM team.

So I think for now, you would say we would say that we were around the same percentages in Q1, we would probably be around similar percentages in Q2 and then maybe we'll see some decline in Q3, Q4.

Okay, and on the organic growth and I think last quarter there was, you alluded to maybe returning to 8% to 10% organic growth in '25. Is that still a good expectation for now?

Yes, I mean that's what our goal is that's what the team is currently working towards is to get back to that historical sequential, 2% or so and that organic growth.

All right, thank you so much for taking my question.

Thank you.

Bill Sutherland, The Benchmark Company.

Thanks and good morning guys. Greg, back to that organic growth question for a second.

Do you, when the, now that you've anniversary 75/25.

Where does that kind of put you regardless of all your other initiatives in terms of organic growth and do you think it's just a steady progress to the last quarter of the year to get to the 2% or so target that you've had?

Yeah, it's certainly in that a steady progress to get there. We've got a lot of different levers that we're pulling. We have a new therapy in that for a respiratory that's hitting our respiratory category and that we've seen some early signs in that of utilization.

We've, also created an internal, equip accelerator academy and that for our sales team and that for our current sales team and then for any potential new hires, like I spoke in that, we're expecting to see our catchment rate and that on new orders and that increase in that, through some technological and that, things that we put in place and that's we're seeing some good early results there.

Also, in that we're looking to reduce the attrition rates and that also on our resupply and that's we have a lot of different levers in that that we're starting to see some good early signs. So just internally in that those things there and that we anticipate and that, we could get back to that historical or organic growth that we've previously seen.

Okay, and then just the removal of the 75/25, anniversary and I should say, what does that do for your?

Growth.

Okay.

Every year.

Yeah, I mean that is, yeah.

I mean year-over-year and that the quarters and that I mean that is, certainly in that going to help and that as we especially as we're kind of in our physical Q2 right now.

I think that part of the impact you've had was in the ballpark of on an annual basis $3 million. Was that I'm looking back at my notes.

Last year that that's about right, yeah, just about $3 million for the 75/25.

Okay, that's good. Health expense you called out last quarter, is that I assume that is still something that's weighing on the margin a bit.

What is the expense again? I'm sorry.

Health, you, your self-insured plan was running a little high, right, expense wise.

I'll let Hardik take that.

I'm, I'm.

Just making sure. Are you talking about our internal health insurance costs?

Yeah, your own.

I thought like employee employee health insurance cost, yes.

Yes, sorry, yes.

We did have, related to our, so we did a plan consolidation we also. Well, self-insured last year, and that was our first year. So, against the initial estimates, we were running a little, higher on our health costs, but as far as where we stand today, it seems to have been stabilized over the last couple of quarters. We are not, I mean we are budgeting for, the nominal annual increases that, everybody's seeing in the market, so in the neighborhood of, 6% to 9%. But we are, we expect at this point. The first you are. I guess ramp up is kind of stabilized.

Okay.

And Balance sheet is in good shape, any commentary on.

How we should think about capital deployment in the coming three or four quarters.

I mean. The, we, as we've kind of said in the past, I mean, the company does evaluate other strategic growth opportunities, we will certainly do that is on our radar, we have some good opportunities in front of us that we are actively engaged in looking at.

Well, I mean, apart from that, I don't think so there's anything, dramatically different, from what we have done historically. I mean it, we will definitely, look at deploying capital, towards, inorganic growth opportunities, as well as, trying to fund our organic growth.

Okay.

Thanks Hardik. Thanks, Greg. I appreciate it.

Thank you.

This concludes the question-and-answer session, excuse me. I would like to turn the conference back over to Mr. Crawford for any closing remarks.

Thank you, operator, and thanks everyone for your participation today. As always, you can find us on the web at www.quiphomedical.com, where we will be posting the transcript of this call and also our update our updated investor day. 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 brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.