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Operator: Thank you for standing by. This is the conference operator. Welcome to the Fiscal Second Quarter 2023 Earnings Results Conference Call for Quipt Home Medical Corp. 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 as well as the MD&A, which we can find on SEDAR and EDGAR. The company’s actual performance could differ materially from these statements. At this point, I’d like to turn the call over to Chairman and Chief Executive Officer, Greg Crawford. Please go ahead.

Greg Crawford: Thank you, operator. And thank you all for joining us today on the call. My name is Greg Crawford, and I’m the Chairman and Chief Executive Officer of Quipt Home Medical. Joining me today is Hardik Mehta, our Chief Financial Officer, Tom Roehrig, our Executive Vice President of Finance; and Cole Stevens, our VP of Corporate Development. Quipt Home Medical is a rapidly growing healthcare company, providing a full suite of home medical equipment and services to predominantly respiratory patients across the United States. Our mission is to provide patients with accessible, efficient and personalized care that empowers patients to take control of their health and ensures they receive the support they need to live their lives to the fullest.

We believe we have established ourselves as the fifth largest revenue-producing provider of respiratory and home medical equipment in the United States. Thanks to our aggressive organic and inorganic growth strategy, continued focus on technology to streamline operations, the strong patient-centric ecosystem we have in place and the end-to-end respiratory solutions we provide. The over 1,000 members of the Quipt, team who dedicate their efforts each day to providing exceptional patient care in order to enhance the quality of life for each and every patient who receives our services are the engine that keeps our business performing so strongly. Our staff is the reason why we are able to successfully operate in an ecosystem that is focused on the patient’s needs.

We are committed to providing equipment solutions that are focused towards cardio and pulmonary disease conditions and these solutions reduce the burden that is being imposed on the traditional healthcare system, saving the healthcare system hard dollars. In the year 2022, we were able to improve the quality of life of over 200,000 patient lives. And in 2023, we have more than 270,000 active patient lives under our care. The significant momentum we are currently experiencing across the entire organization is a result of a number of factors, including the ongoing successful integration of our largest acquisition to date, the recently announced execution of our second national insurance contract with Aetna and the robust performance of our core business.

With that backdrop, we are thrilled to report, we have surpassed our run rate revenue and adjusted EBITDA estimates of $220 million and $49 million, respectively. Our fiscal Q2 resulted in revenue of $58.1 million or 73.2% year-over-year revenue growth, including very strong sequential organic growth and margin acceleration as we carried out our strategic growth plan and future vision. For us, it goes without saying, that providing a complete line of end-to-end respiratory solutions is crucial to upholding our success and a fundamental driver of growth in our key markets. Our team is focusing on healthcare institutions such as hospitals, doctors’ offices, long-term care facilities, home health agencies and rehab facilities, as they are our main sales touch points.

One of our team’s main goals is to surpass historic levels of organic growth. Thus, we are excited to have experienced 2.5% sequential organic growth in the second fiscal quarter and have high hopes for continuing strong organic growth patterns throughout the year. As a refresher, our organic growth has typically ranged between, 8% to 10%, but given the strong tailwinds that are in our favor, we have had an excellent opportunity to improve our organic growth performance, as a result of our focus on expanding the continuum of care, growing our sales teams and reaping the benefits of the normalized supply chain and operating in an extremely bullish regulatory environment. We are focusing our efforts on regions with the high-COPD prevalence and on hospitals with high-readmission rates in order to meet our organic growth goals.

On this call, we will discuss our record-breaking fiscal second quarter 2023 performance, recent positive real-time business developments, and we will provide an update on the regulatory landscape, which remains the best in over a decade. We are operating in an extremely favorable regulatory environment which was most recently evident by the Medicare Fee Schedule adjustments, resulting in significant CPI increases for DME providers that began January 1st, 2023, and of 6.4% to 9.1%. The percentage depends on, weather product service are competitive bidding items or in a former competitive bidding area. We recognize a combined increase of roughly 8% when we look at our product mix directly related to our Medicare business. Moreover, the long-standing necessity for oxygen patients to obtain A Certificate of Medical Necessity was eliminated by CMS in 2023, reducing administrative costs on healthcare providers and enhancing patient accessibility.

It is now possible for patients with acute or chronic respiratory disorders, who visit the emergency room to be covered for Home Oxygen Therapy, which is very advantageous for service providers like Quipt. Finally, the decision reached by CMS to halt the 2021 competitive bidding program for 13 product categories, serves as an anchor for overall favorable regulatory environment. We appreciate the ongoing regulatory reforms, at a time when the demand for the home healthcare sector appears to be at an all-time high. Looking at the financial performance for the second quarter of fiscal 2023, we can see that our team of operators has once more produced outstanding results, most notably the strong and increasing margin profile experienced during this period of higher than usual inflation.

We surpassed our expectations seen revenue increase by 73.2% from fiscal Q2 2022 to fiscal Q2 2023, totaling $58.1 million and an 85.9% increase in adjusted EBITDA amounting to $13.1 million. Our adjusted EBITDA margin, which reached 22.5% continued to accelerate, and our operational cash flow increased. Our margin profile is expected to remain very strong through the fiscal year as we continue to see the benefits of increased scale across the business. With the continued seamless integration of our recent milestone acquisition to start the year, we are thrilled to have finished fiscal Q2 with another record-breaking quarter. We have identified and executed on the low-hanging cost saving and synergies of $2 million ahead of schedule, and we are eager to expand our strong footprint across the US.

Together, we have expanded to 115 locations throughout 26 states with more than 270,000 active patients. It is important to note that we look at our new geographical footprint, and we have plenty of runway to organically expand into continual markets and source additional acquisition targets. We are proud of what we have accomplished to-date and are extremely excited for the future as we continue to benefit from significant business tailwinds, a deep acquisition pipeline, and a very strong balance sheet further bolstered by the recent equity financing we completed. We have all the tools needed to execute our strategy and look forward to continuing to build shareholder value. With that commentary, I’d like to hand the call over to Hardik to discuss our fiscal second quarter 2023 financial results

Hardik Mehta: Thanks, Greg. On Monday evening, we announced our fiscal second quarter 2023 financial results representing the three months ended March 31, 2023. In reviewing the fiscal second quarter 2023 numbers, please note that all financial values are in the US dollars and the full results are available on SEDAR and EDGAR. Here are some key highlights. Through the company’s continued use of technology and centralized intake processes, respiratory resupply setups, and/or deliveries increased to 106,486 for the quarter ended March 31, 2023 compared to 50,713 for the quarter ended March 31, 2022, an increase of 110%. The company’s customer base increased 76% year-over-year to 147,748 unique patients served in fiscal year-to-date Q2 2023 from 78,273 unique patients in fiscal Q2 2022.

Compared to 118,878 unique setups deliveries in fiscal Q2 2022, the company completed 198,101 unique setups and deliveries in the fiscal Q2 2023, an increase of 67%. Revenue for fiscal Q2 2023 was $58.1 million compared with $33.6 million for fiscal Q2 2022, representing a 73.2% increase in revenue year-over-year. Organic growth increased by 2.5% sequentially compared to fiscal Q1 2023. Revenues for the six months ended March 31, 2023 increased to $98.9 million or 56.8% from the six months ended March 31, 2022. Recurring revenues as of fiscal Q2 2023 continues to be strong and exceeds 78% of total revenue. Adjusted EBITDA for fiscal Q2 2023 was $13.1 million or 22.5% margin compared to adjusted EBITDA for fiscal Q2 2022 of $7 million at 21% margin, representing 85.9% increase year-over-year.

We expect to continue seeing strong margin performance. Cash flow from continuing operations was $14.8 million for the six months ended March 31, 2023 compared to $11.8 million for the six months ended March 31, 2022. For fiscal Q2 2023, bad debt expense was at 4.2% compared to 9.4% in fiscal Q2 2022. This decrease is primarily due to improved collections and exemplifies our ability to scale and add more revenue to add-on acquisitions without compromising our billing capabilities. For the three months ended March 31, 2023, operating expenses were $27,686,000, an increase of $11,440,000 from $16,256,000 for the three months ended March 31, 2022. Acquisitions contributed approximately $1.571 billion of the increase. The company reported $2.1 million of cash on hand and total credit liability of $28 million as of March 31, 2023, with $7 million available towards the line of credit and $21 million available on DDTL.

Subsequent to quarter end, the company completed a bought deal offering and concurrent private placement of net proceeds of US$28.9 million. The company’s pro forma balance sheet contains $18 million of cash and $41 million available on the senior credit facilities. Pro forma, on net leverage ratio is 1.5x. The continuation of our successful start to the year has further accelerated, which is evident in robust performance for the second quarter of fiscal year, where all of our key metrics outperformed. Our adjusted EBITDA margin has reached 22.5% as a result of the ongoing scaling of our business, and we anticipate that this trend will continue into the foreseeable future. We are increasing our margins by placing a strong emphasis on our heavily weighted respiratory product mix and services as well as focusing on operational efficiencies and expected cost management.

In addition, we are encouraged by the strengthening of organic growth trends, which reached 2.5% sequential growth in fiscal second quarter. We anticipate that this better organic growth will persist. Notwithstanding the current economic situation, our business continues to produce consistent financial results driven by our highly recurring revenue model at 78% of our revenue mix, which continues to indicate the stability of our business model. Subsequent to quarter end, we continue to strengthen our already solid balance sheet so that we would have plenty of them to implement our rapid strategic growth strategy in a higher rate environment. Our current leverage is an extremely modest 1.5x, and we have ample flexibility to use a mix of debt and cash as needed for the execution of our acquisition pipeline.

As we entered calendar 2023, we announced our largest acquisition-to-date covering eight states, seven of which were new to Quipt with our 1.5 million suffering from COPD across those states it operates. Integration has done extremely well, and we are very pleased to have recognized the initial $2 million of cost savings and synergies, nearly a full quarter ahead of schedule. We now have more opportunity to build on our successful acquisition and integration strategy, with highly accretive tuck-in acquisitions for our whole portfolio of respiratory products and services. Thanks to the large geographic and breadth we have undertaken. Additionally, with the low hanging fruit capture, our operational team is working towards capturing additional cost and revenue synergies over time in particular through the biggest cross-selling opportunities, including ventilation and oxygen.

Also, the significant opportunity to increase resupply revenue once re-patients are on order to push the supply program. Moving forward, we have a robust acquisition pipeline, and we will continue to be committed to the systemic acquisition approach and proven integration method that we have developed, which has been the driving growth behind our dependable growth demonstrated on an annual basis. We are in a great position to carry out our expansion and acquisition plan going forward to drive shareholder value. Thank you. And with that update, I’ll turn the call back to Greg.

Greg Crawford: Thanks, Hardik. In each and every one of our markets, providing exceptional patient care is our number one goal centered around the treatment for conditions such as sleep apnea, COPD and other chronic respiratory diseases. We are continuously developing methods to expand our patient base and gain access to lucrative geographies by establishing new markets and cultivating partnerships with referral sources, patients and payers. Our growing footprint and market position provide a competitive advantage and enable us to benefit from economies of scale as a result of our effective execution of the important components of our growth strategy we believe that our strong momentum will continue into the foreseeable future.

To refresh your memory, these components consist of growing our health care network across the country completing accretive acquisitions and investing in the future organic expansion of our business, a major milestone for us in the successful completion of national insurance contracts with major commercial payers. This is a significant factor that is driving the expansion of our health care network across the country. To that end, our most recent announcement, which took place on April 4, 2023, was that we had secured our second national insurance contract with Aetna which is ranked among the top five payers in the United States based on membership size. This comes in addition to our already signed insurance contract with UnitedHealthcare, the largest provider in the nation signed in 2022.

We are actively engaging with major commercial payers to assist them in understanding the benefits of our strong patient-centric strategy for both patients and payers. In order to increase our referral sources and hence, benefit of our business, we will continue to apply our high-touch service model and rely on the utilization of technologies such as remote patient monitoring in our automated subscription-based resupply program. Investments in our scalable health care platform produce a healthy operating cash flow, increased margins allow for accretive acquisitions and drive organic sales growth, all of which enhances patient outcomes and compliance. Payers gain from early interventions, reduce hospital stays and monitoring of therapeutic outcomes.

At this point, I would like to review with you the three components of our core growth strategy as we move into 2023. First is organic growth, which came in at a robust 2.5% sequentially in fiscal Q2 and has historically run 8% to 10% annually. As shown by our results, we anticipate 2023 will meet and surpass this. Initiatives on this front, includes growing our sales teams which is how we reach important touch points like hospital networks, doctors’ offices, long-term care facilities and rehabilitation facilities. Moreover, extending patient accessibility by signing additional national health insurance contracts with significant payers in the United States. Looking at the overall operating environment, the aging population and rising prevalence of individuals with multiple chronic conditions constitute a favorable demographic trend for Quipt as the population ages, there is greater need for home medical supplies and services, which presents a long-term growth opportunity for us to capture.

Also a great deal of work is being made to ensure that a patient receives care at home whenever it is practical. Second, we are constantly working to increase the organization-wide usage of technology in order to continuously enhance our operational performance, we are concentrating on using data analytics and mining techniques to increase productivity and profitability. Included in this, are our strong REIT supply platform, which not only enables us to be at the forefront of the market, but also offers us significant revenue synergies with regard to acquisitions. The third component of our growth strategy is building continued scale through the execution of strategic acquisitions, coupled with our proven integration model that has successfully integrated 19 acquisitions since 2018.

We are focused on respiratory companies that can be effectively integrated into our scalable infrastructure. Our strategic goal is increasing our payer base and expanding our geographical reach into favorable states with the high prevalence of COPD including those that are already a part of our network. Our acquisition pipeline offers us the ability to continue growing our revenue, EBITDA, patient base and overall geographic reach and our very strong balance sheet will help us to take advantage of these opportunities. Our momentum in 2023 on the capital markets front has continued with the recent announcement of our conditional approval to list on the TSX Big Board, which we believe will foster more liquidity and institutional ownership over time.

It is important to note that investment dealers with global headquarters account for 40% of TSX trading. This upcoming achievement for us is unquestionably a result of our historical and current financial success, which has allowed us to take advantage of this fantastic opportunity. As always, we are diligently connecting with US and Canadian investors to share our captivating narrative and have the exciting chance to talk to investors about our future growth ambitions. The rest of the year will be very active as we visit in-person and virtual investment conferences and look forward to sharing information about our expanding business with a wide array of investors. Moreover, we are continuing to strategically position the company for ongoing strong growth in light of the extremely bullish industry environment, the normalized sleep device supply chain and all the organic tailwinds at our back.

We must continue to be aggressive in seizing the numerous opportunities that are available to us. Our operational excellence and 1.5 times leverage balance sheet provides us with all the resources we need to execute on our Board expansion plan. We cannot be more excited for the future equipped and more than 270,000 patient lives we care for. Finally, I want to take this opportunity to once again thanks the entire Quipt team for their diligent efforts and its stakeholders for their unwavering support.

Operator: We will now begin the analyst question-and-answer session. The first question is from Doug Cooper with Beacon Securities. Please go ahead.

Doug Cooper: Hi, good morning guys, and congratulations on a great quarter. Couple of things I just want to dig into. First of all, bad debt, I know you mentioned 4.3% of revenue. This is historically, I guess, the period of the year that has the highest bad debt provisions just because of circumstances, native people change in insurance companies and deductibles and so forth. So what do you — and usually, it trends lower as the year progresses. What do you project for about debt provisions as we progress throughout the year?

Greg Crawford: I mean, you’re right in terms of some of the seasonality, but I think for the year, we are expecting somewhere in the 4% to 5% range in terms of the debt that would look like. I mean, this quarter, obviously, is a good indicator what it looks like post acquisition, because of significant size, I think we still expect it to be around 4% to 5% for the year.

Doug Cooper: Okay. Just to talk about operating leverage. We’re talking EBITDA minus amortization. So operating income this quarter was, I guess, 6%, and maybe if I add back the amortization of intangibles, I get to 8.5%, what kind of operating leverage and what kind of targets could you — we expect on operating income?

Greg Crawford: Yes. I mean, obviously, it’s a slightly related question there, but I’ve got a few variables there that influences that number. But I guess, nonetheless, we have said this in the past that our factor was to be somewhere in the neighborhood 81% and the long-term year somewhere between 5% to 15%. But I think for now, we will stick to our short-term goal in terms of what we are hoping to achieve.

Hardik Mehta: Yes, this is a slightly — slightly related question. There’s a lot of variables in that number.

Doug Cooper: And I guess, a couple of final quick one. Just what do you think the impact on revenue was of the CPI adjustment in the quarter?

Greg Crawford: I think we have it was somewhere in the neighborhood of 2%, maybe slightly lower.

Doug Cooper: Okay. And a final one, Greg, just on the Russell 3000, I understand they’re doing a rebalancing should be announced shortly. It is — the numbers that we’ve heard is the market cap threshold is $157 million. You guys are well above that. Do you have any comments on your potential inclusion in the Russell 3000? And then I’ll leave it there and I’ll circle back. Thank you.

Greg Crawford: Yes, sure. Actually, a really good question in that, Doug, and that it’s actually going to be the Russell 2000 in that, but we do believe in that that we fit that criteria in that. There will be some additional needs it will come out on that and that likely on next week, and that so we would anticipate in that that we kind of get the initial hit, the initial list anyway in that. And then it goes through like a four-week period, and that they kind of keep coming out in that as it refreshes and that that you hit the criteria and that before it officially happens, I believe it’s on June 23.

Doug Cooper: Thanks. I will it there. I will circle back in the queue. Thanks.

Greg Crawford: All right.

Operator: The next question is from Rahul Sarugaser with Raymond James. Please go ahead.

Rahul Sarugaser: Good morning, guys. How are you doing? Thanks so much for our question. Congratulations on the Aetna deal you announced today. Can you sort of describe any structural differences between the United and the Aetna contract?

Greg Crawford: No, they’re both very similar in that. I mean they’re both fee-for-service and that across the entire US. So I mean, they’re both covering the same type of items and things that are covered by the insurance. They both are very similar and they’re probably in the number of patient lives in that that they’re almost covering from our research that we’ve been able to find. I think that Aetna and that is likely going to be a little bit more larger effect in that on us and that as we get out into 2023, because we had more locations that did not accept Aetna versus when we had signed United that they had already kind of accepted United in that. So those would be the two biggest differences.

Rahul Sarugaser: All right. Terrific. Thanks. That’s good color. And then now thinking about sort of the balance sheet cash and debt and the recent capital equity raise and also combined with the relatively large acquisition that we’ve made with Great Elm Healthcare. And so could you give us a sense for how to be great at that? Could you give us a sense for how we should be thinking about the cadence of M&A going forward given that you obviously want to be ensure that, that acquisition is tucked in properly. And so how should we think about acquisitions for the rest of the year?

Hardik Mehta: Sure. This is Hardik. I guess our focus for the first two quarters was certainly integration of GEH. But having said that, we were also looking at the net of the deal and preparing our M&A pipeline, so that we could put that money to work. So I think we’ve been working on both our M&A pipeline as well as GEH integration is actually well ahead of schedule, and we have seen some good results, which are reflected in our financials for the quarter. And as far as M&A goes, we would see some activity through the rest of the year.

Rahul Sarugaser: Okay. That’s great. Thanks very much. I’ll get back in the queue.

Greg Crawford: Thank you.

Operator: The next question is from Stefan Quenneville with Echelon Capital Markets. Please go ahead.

Stefan Quenneville : Hi, guys. Congrats on the quarter. Thanks for taking the question. Seeing as you guys it sounds like you’ve largely integrated Great Elm very quickly, and you’ve gotten the sort of $2 million synergy target. How much more do you think you can drive in terms of synergies from the deal now that you’ve gotten the — maybe the low-hanging fruit done? I don’t know if you want to put a number on that, but that would be helpful. And I also wanted to ask you about your ATM facility that you announced today as well. What — what’s the logic behind doing that? It’s a bit unconventional for a company with your market cap and where you’re at. And just does it signal some extremely imminent M&A or it’s just sort of part of getting your ducks in order for M&A that you’re looking at in the future? Thanks.

Greg Crawford: Yes, sure. As far as the integration of that, I mean, we did hit the $2 million in that as we kind of described in that with the integration, the low-hanging fruit in that. It’s hard for us to kind of put a number in that on what else we think we can get out of that. We do believe, there are significant efficiencies in that likely on the labor side on that. Traditionally, our labor as a percentage of revenue has ran around 30%, 31%. And on the acquisition and that their labor was running in the high 30s. So we do think at some point, as we continue to get more efficient there, we continue to implement technology and automated ordering platforms that we will eventually and that kind of get the labor down from that perspective.

As far as the ATM, we’re a very acquisitive company. This was really more of a housekeeping type opportunity for us in that. We wanted to have the ATM in place in that should we decide in that to execute in that on additional M&A and that’s just another tool in our tool belt in that to bring on an additional accretive acquisitions.

Hardik Mehta: This is Hardik. I just wanted to add to what Craig said on the GES requisition part. As far as the payroll and the timing on how that rationalizes our typical approach, especially for GES has been, they do come with a good set of talented people. So we certainly don’t want to go in and try to take the steps immediately. We would rather focus on also the revenue growth on GES side and then which would help bring the payer as a percentage in line with it. So, that’s kind of what that process on how we are looking at payroll at GES and how do we kind of think about rationalizing that cost structure there.

Stefan Quenneville: Great. That’s all for me, guys. Thanks.

Operator: Thank you. The next question is from Ty Collin with Eight Capital. Please go ahead.

Ty Collin: Hey guys, thanks for the question. I just wanted to ask another one on the balance sheet, get your thoughts there. I mean, it looks like you paid down a bit of the credit facility after quarter end, but obviously kept about $18 million of cash on hand after the equity financing. I’m just wondering, if you’re planning to pay down a little more of the debt, or do you kind of want to keep that level of cash on hand for M&A or other investments?

Hardik Mehta: Sure. Thank you for asking that question. Our media plans is to not put down any more cash towards our DDTL or term loan, we would most likely use the net cash at this point towards acquisition. Obviously, we can change that strategy depending on how the interest rates and everything else changes. But for now, we do not plan to put down additional cash towards our DDTL.

Ty Collin: Okay. Great. Appreciate that. And then back to the subject of M&A, I mean just given how smooth the Great Elm integration seems to have gone so far, is there anything that would kind of stop you from doing another large acquisition like that in the next year or so, or do you need a catcher breath a little and maybe focus more on tuck-ins or add-ons to existing markets?

Greg Crawford: No. This is not from an integration perspective and that would not hesitate to not to do a larger acquisition.

Ty Collin: Thanks, guys.

Greg Crawford: Thank you.

Operator: The next question is from Julian Hung with Stifel. Please go ahead.

Julian Hung: Hi, good morning. This is Julian speaking on behalf of Justin today. My first question is regarding the recent changes to Medicare enrollment and if that has any potential impact on the business?

Greg Crawford: We don’t expect any material impact or anything in the auto business in that with any upcoming changes or anything in that from Medicare or any third-party insurances that we have any insight on at the moment. We think right now, we’re operating in one of the best regulatory and reimbursement environments that we’ve been in in well over a decade.

Julian Hung: All right. Thank you. And my second question is, so the business is currently in 26 states and has you’ve mentioned that you’re focusing on areas with high COPD. I was wondering if — how many of the remaining 25 states would fall into that category?

Greg Crawford: Yeah. We think there’s probably about another 12 to 15 states in that that would kind of fit the bill there for us that have a high prevalence in that of cardio and pulmonary disease states, especially COPD that we’d like to get into.

Julian Hung: All right. Thank you so much for taking the question today.

Greg Crawford: Thank you.

Operator: This concludes the question-and-answer session. I’d like to turn the conference back over to Greg Crawford for any closing remarks.

Greg Crawford: Thank you, operator, and thank you all for joining us today. As always, you can find us on the web at ww.quiphomemedical.com where we will be posting a transcript of this call and also our updated investor deck. Thank you, and have a great day.

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