Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Quipt Home Medical Corp (QIPT, Financial) reported a 6.1% year-over-year increase in revenue for fiscal Q3 2024, reaching $64 million.
- The company's customer base grew by 9% year-over-year, serving 153,223 unique patients in Q3 2024.
- Adjusted EBITDA for fiscal Q3 2024 was $14.2 million, representing a 22.3% margin, showing a year-over-year growth of 2.7%.
- Recurring revenues remain strong, accounting for approximately 82.1% of total revenue.
- The company maintains a conservative balance sheet with a net debt to adjusted EBITDA leverage of 1.5x, providing financial flexibility for future growth.
Negative Points
- The end of the Medicare 75/25 relief as of January 1 negatively impacted revenue, contributing to flat sequential organic revenue growth.
- Bad debt expenses increased to 5% from 4% due to the Change Healthcare cybersecurity incident, affecting normal collection efforts.
- Operating expenses for the three months ended June 30, 2024, increased to 47.8% from 45.4% in the same period last year.
- The company faced challenges from the withdrawal of Medicare Advantage members due to a capitated agreement with other providers.
- The ongoing civil investigative demand (CID) has incurred additional professional fees and remains unresolved, although no wrongdoing has been concluded by the government.
Q & A Highlights
Q: How are you thinking about fourth quarter opportunities for sequential growth given the 75/25 rate cut and capitation contracts signed by competitors?
A: We anticipate overcoming these challenges and are starting to see volume growth as we move into the back half of the calendar year. (Greg Crawford, CEO)
Q: Despite good growth metrics in patient services and equipment setups, revenue was flat sequentially. What caused this discrepancy?
A: The flat revenue is primarily due to the 75/25 rate cut, which means delivering the same product at a lower rate. Additionally, the loss of capitated insurance contracts has impacted margins. (Hardik Mehta, CFO)
Q: Can you elaborate on the potential for returning to 8% to 10% organic growth after lapping the 75/25 rate cut and Humana shift?
A: Yes, overcoming these two factors should help us return to our target organic growth rate. Our sales team is working to pick up other referrals and expand sales coverage. (Greg Crawford, CEO)
Q: How do you expect to benefit from market dislocation due to the Owens & Minor and Rotech deal?
A: Historically, M&A activity has led to market dislocation, and we expect to benefit from this by picking up market share. (Greg Crawford, CEO)
Q: What are your thoughts on the recent increase in bad debt expenses?
A: The increase is attributed to the Change Healthcare cybersecurity incident. We expect elevated bad debt levels for a quarter or so but aim to return to previous levels as we collect outstanding claims. (Hardik Mehta, CFO)
Q: Is the current EBITDA margin level sustainable in the near term?
A: Yes, maintaining a 22%+ EBITDA margin is sustainable, especially if we can bring back revenue without increasing fixed costs. (Hardik Mehta, CFO)
Q: When can we expect to achieve the 6% to 8% free cash flow conversion target?
A: We aim to achieve this target within the next two quarters as we iron out issues related to CID legal expenses and the Change Healthcare incident. (Hardik Mehta, CFO)
Q: What are the valuation metrics for recent industry acquisitions, and what is Quipt's target multiple for acquisitions?
A: Recent industry acquisitions have been at 6.3x EBITDA. We aim to acquire companies at 4x to 5x EBITDA, with potential for one to two turns of synergies. (Greg Crawford, CEO)
Q: What is the potential timing for M&A activity?
A: We are actively working on our pipeline and expect to close deals as quickly as possible. (Greg Crawford, CEO)
Q: What is your comfort range for leverage, considering high interest rates?
A: We are comfortable with leverage up to 2x EBITDA, although we can go higher if needed. Our credit agreement allows up to 3x, but we do not intend to reach that level. (Hardik Mehta, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
