AdaptHealth Corp. Q1 FY2023 Earnings Call

Good day, everyone and welcome to today's AdaptHealth 1Q 2023 Earnings Release. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note this call may be recorded. It is now my pleasure to turn the conference over to Chris Joyce, General Counsel.

Thank you, operator. I'd like to welcome everyone to today's AdaptHealth Corp. conference call for the first quarter ended March 31, 2023. Everyone should have received a copy of our earnings release yesterday evening. If not, I'd like to highlight that the earnings release as well as a supplemental slide presentation regarding Q1 2023 results is posted on the Investor Relations section of our website. In a moment, we'll have some prepared comments from Richard Barasch, Chair of AdaptHealth; Steve Griggs, Chief Executive Officer of AdaptHealth; Josh Parnes, President of AdaptHealth; and Jason Clemens, Chief Financial Officer of AdaptHealth. We will then open the call for questions. Before we begin, I'd like to remind everyone that statements included in this conference call and in our press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements include, but are not limited to comments regarding our financial results for 2023 and beyond. Actual results could differ materially from those projected in forward-looking statements because of a number of risk factors and uncertainties, which are discussed at length in our annual and quarterly SEC filings. AdaptHealth Corp. shall have no obligation to update the information provided on this call to reflect such subsequent events. Additionally, on this morning's call, we’ll reference certain financial measures such as EBITDA, adjusted EBITDA and free cash flow, all of which are non-GAAP financial measures. This morning's call is being recorded and a replay of the call will be available later today. I'm now pleased to introduce the Chair of AdaptHealth's Board of Directors, Richard Barasch.

Good morning, everyone. Thanks for joining us on our first quarter conference call. As you know this morning, we announced that Steve Griggs will step down as CEO of AdaptHealth as of June 30, 2023. He will be leaving the company in sound financial condition and much improved operational shape. Further, AdaptHealth is blessed with a high-quality senior leadership team that will continue to lead the company forward in the areas we will be discussing today. On behalf of the Board I thank Steve for the critical leadership role he's played at AdaptHealth to help build a market-leading provider of sleep, diabetes, respiratory and other healthcare solutions. As CEO, he has led the company through the successful integration of AdaptHealth and AeroCare overseeing more than two dozen acquisitions and helped us navigate the challenges of COVID-19 and the CPAP shortage resulting from the Philips recall. The Board has begun an extensive search process and so far has been quite pleased with the quality of the candidates to become CEO. We're optimistic that we can fill the role over the next several months, but if there's a gap the Board has asked me to step in as interim CEO until the role is officially filled. I will now turn the call over to Steve.

Good morning, and thank you for joining our call. AdaptHealth is a full-service nationwide provider of products and services for patients at home and in the community empowering them to live their healthiest lives. I want to start as I always do by expressing my appreciation to our 10,802 employees operating in 47 states for their tireless efforts to respond to the needs of the more than 3.9 million patients we serve. As a company, we continue to adapt to our changing environment, expand our reach and capitalize on emerging opportunities. We are the nation's leading provider of sleep equipment-related supplies. And we had another exceptional quarter in this business delivering 18% growth in net revenues. We believe that the extraordinary efforts we undertook to maintain our supply and setup of PAP units during the Philips recall and pandemic have resulted in increased market share and accelerated segments. In March, our PAP setups were more than 50% higher than at any time during the Philips recall. Our census of PAP renal patients is up 53% from our lowest point in February 2022, while our census in our much larger population of resupply patients is up 10% from the same period. Our first quarter also reflected the continued evolution of our Diabetes and CGM business, largely driven by the pharmacy channel shift. Despite these headwinds, the Diabetes and CGM product lines remain attractive, due to the continued growth in patients through expanded Medicare coverage. We expect improved profitability of this important product line through a number of ongoing operational and strategic initiatives including, lowering costs. It is important to note that our unit sales continue to grow and now we have a census of approximately 138,000 patients and an 8.3% increase in the past 12 months. As Josh will describe, we are now beginning to take the steps to connect our diabetes members in a way that puts us squarely in the middle of the healthcare ecosystem. In our respiratory line of business, we are proud of the part we played during the pandemic, going through extraordinary efforts to get oxygen to health systems and patients. Most of these patients have recovered and no longer need oxygen. Our Respiratory business now turns to a steady state, where we expect to see sequential quarterly growth. We remain confident that our Purpose Built National Network, supplying a full spectrum of sleep, respiratory, diabetes and HME products allows us to gain market share and drive sustained growth in these product lines. For example, as discussed in previous calls, we believe value-based care is a key piece of our long-term strategy to evolve beyond the traditional home care distribution model into what we now call, AdaptHealth 2.0. During 2022, we added value-based agreements with two managed care providers to cover certain home care products and supplies for their beneficiaries on an exclusive basis. These agreements help drive better patient outcomes and a better overall experience for both patients and payers with clear and simple billing arrangements that put a premium on service to patients. We remain optimistic that this strategy will be a key contributor to our success moving forward. Shortly, we expect to announce more of these arrangements including our largest to date that will showcase how AdaptHealth's supply network, best-in-class technology and full spectrum of home care solutions, can be deployed to serve patients in designated geographical areas on an exclusive basis. These arrangements are expected to deliver incremental market share revenue and EBITDA growth across a number of our operating regions. And we'll improve our patient satisfaction by removing many of the administrative burdens associated with supply and home care equipment and supplies today. AdaptHealth's national scale and product diversity is simply unmatched across the HME industry. And we have continued to invest in infrastructure and expertise to position the company to capitalize on the significant long-term opportunities in the markets we serve. These are highlighted in our RCM improvements that have led to faster cash collections thus reducing our DSOs to 42.7 days down five days from Q1 2022. We are seeing signs that we are collecting not only faster but also better. As these trends continue, we hope to see higher net revenue and contributions to EBITDA in the upcoming quarters. Sales reps and leaders from territories all over the country recently gathered at our national sales meeting, where we provided opportunities to learn about new enhancements and improvements we have made to the tools we provide them, for servicing patients and referral sources. We also honored the most productive members of our sales teams shared best practices and offered expanding training and performance incentives to help them further grow their businesses. We believe an energized sales organization with strong centralized support is a critical element to our immediate and long-term growth ambitions. Now I'll turn the call over to our President Josh Parnes, to discuss strategic developments in further detail.

Thank you, Steve. As Steve mentioned, Adapt 2.0 continues to focus on an innovative care model, purpose-built for payers and patients. The foundation of this care model is technology that connects payers, suppliers, and patients. Adapt myApp is our foundational patient-facing app that provides logistics, billing, chat, and some clinical data to help patients manage their chronic diseases. The initial launch of myApp was focused on the diabetes product line and has seen strong adoption with 50,000 downloads and 7,500 actual orders transacted through the app. The downloads to date represent more than one-third of our diabetes patient census in just a few months. We will continue to iterate as we further refine and scale the app across other parts of our business. It is important to note that we have focused our efforts on our diabetes population which represents 96% of the myApp participants. There is strong consensus now supported by Medicare that proper usage and monitoring of the data generated by CGMs leads to better outcomes. As we continue to scale and refine the application, we expect it to become a powerful resource for patients to access data on their connected medical devices and believe it will enable more clinical interactions for our chronic disease management programs, leading to a transformative patient experience, further reduction in healthcare costs and bridging of the gaps in care that frequently incur in the populations we serve. The next phase of the development of myApp will focus on our sleep and oxygen populations where real-time data will enable Adapt to continue the evolution of its ultimate value proposition to be a low-cost clinically enabled provider of chronic disease patients healing at home. Now, I'll turn the call over to our CFO, Jason Clemens for the financial review.

Thanks, Josh. Good morning and thank you for joining our call. For the quarter ended March 31, 2023, AdaptHealth reported net revenue of $744.6 million, an increase of 5.4% from $706.2 million in 2022. Non-acquired net revenue growth for the first quarter was 4.7%, again led by sleep our largest product category. Sleep patient rental census continues to reach record levels and is now up 53% from the lows reached during the worst of the PAP shortage. This reflects continued strong patient demand for sleep products that we expect will continue in 2023. Additionally, our PAP resupply business continues to outperform also reflecting strong demand and execution. The shortfall in non-acquired net revenue growth reflects the acceleration of the headwinds affecting our diabetes product line that we have previously discussed. Specifically, while CGM patient census grew 8.3%, an increasing number of payers have shifted their diabetes patients out of the DME channel and into dual benefit and pharmacy only partially offsetting that volume growth. Additionally, diabetes revenue for pumps and supplies was down $9 million year-over-year. We very recently seen a negative impact from share shift toward integrated pumps sold to patients through the pharmacy channel as well as the effect from manufacturers retaining some of their DME distribution in-house. Adjusted EBITDA for the quarter was $134 million, which declined 2.7% from the first quarter of 2022 and was below internal expectations. Adjusted EBITDA margin declined 150 basis points year-over-year to 18% in the first quarter of 2023, primarily reflecting these pressures in the diabetes business. While we continue to experience inflationary headwinds we were generally pleased with our ability to keep labor expense contained at 25.9% of net revenue up from 25.4% in the prior year. Within cost of goods, in addition to the factors previously highlighted within our diabetes business, we continue to incur elevated distribution expense. However, this is trending in the right direction and should further normalize over the course of the year. Operating expense and G&A expense were both in line with our internal expectations. Cash flow from operations was $140.2 million. CapEx was $89.1 million and free cash flow was $51.1 million. The quarter benefited from timing of key contract payment term negotiations as well as large one-time purchases of patient equipment and supplies. We anticipate the first half of 2023 to generate $15 million to $20 million in free cash flow, the third quarter to be a modest source of free cash and for the bulk of our $96 million to $128 million range for free cash flow to come in the fourth quarter. Turning to working capital, we had cash on hand of $101.4 million with net leverage of 3.6 times, as defined under our bank covenants. Approximately 77% of our total debt is fixed including our swaps. Day sales outstanding for the first quarter was 42.7 days, a full five-day compression from first quarter of 2022, reflecting the benefits from refinements to the revenue cycle process and our technology and workflow investments, which have resulted in increased adoption of e-prescribe and faster cleaner claims. During the first quarter, we completed $9.2 million in share repurchases under our previously announced buyback program, leaving approximately $177 million remaining under authorization. Even though our first quarter did not meet our expectations, we are not changing our full-year guidance at this point. The first quarter results have us projecting toward the lower end of our published guidance, but we think we have the tools and programs in place for the balance of the year to get back closer to the midpoint, namely our cost management program and the new contracts that Steve mentioned earlier. Management is taking decisive actions to reduce our cost structure. Specifically, through organizational operating model changes, rationalization of footprint, renegotiation of certain supplier contracts and other means staged throughout 2023, we believe we can generate annualized cost savings of approximately $40 million, with $25 million expected to be realized in calendar 2023. The actions we have already taken to date represent approximately $30 million in annualized savings, of which $20 million will be realized this year. Importantly, we do not anticipate any of these actions to negatively impact the high service levels we are committed to delivering for our patients, referral providers and payer partners as well as the commitments that we have made to our employees. Finally, for the second quarter, we believe we will maintain the product category revenue trends we experienced in Q1 2023. And we believe we will achieve improvement in adjusted EBITDA margin driven by cost of goods labor and other operating expenses. Specifically, we expect net revenue growth in the mid-single-digits over Q2 of 2022 and we expect adjusted EBITDA margin to come in just under 20%. This expectation for the quarter does include benefit from our cost management program, but it does not include benefit from the contracts that Steve outlined, as they won't be effective until the third quarter.

Thanks Jason. I'll wrap up by underscoring our team's high level of confidence that AdaptHealth is well-positioned to capitalize on the opportunities ahead of it. We expect to drive significant shareholder value as we make further progress across a number of important strategic initiatives within our core markets and through expanded opportunities under Adapt 2.0. To the 10,802 employees of AdaptHealth, it certainly has been my pleasure to work with each and every one of you, some for only a short period, all the way to some for 35 years. A lot has been accomplished over the years, and I'm excited to see the future that you will deliver to not only our patients but also our referral partners, managed care entities, suppliers, and other stakeholders. Thank you, again. At this time, I would like to open the lines for Q&A.

Thank you. And we'll take our first question from Brian Tanquilut with Jefferies.

Hey. Good morning. Steve thanks for working with all the time that we worked together. Good luck with the next move. I guess my first question as I think about the guidance and all the moving parts here right? I appreciate where you're coming from as you look at the cost cuts. But on the revenue side, maybe I'll start there. What gives you confidence that we're close to seeing the end of it or any sort of visibility into the shift that's happening on the diabetes side of things? And as it relates to the guidance like what are you baking in, in terms of assumptions that will give us confidence in the validity of maintaining any guidance ranges for the year?

Yes. Hey Brian, Steve. Certainly on diabetes, let's start there because I think that's the biggest surprise to people. Without that reduction the quarter would have looked much different. So there's significant market change mainly the shift to pharmacy as we indicated, and it happened much quicker with the advent of a few more products, particularly for manufacturers. So, we went from an organization in diabetes posting double-digit growth to negative growth. That obviously has some cost concerns to us. But it also resulted in just a larger percentage going forward of government and more stable business for us and obviously a decrease in the pump business. So, the cost structure for the government business differs. It differs in process, differs in products and differs in costs, which are all net positives for us. So going forward, we should look at sequential improvement in the diabetes business. We're very confident that Q2 will be over Q1. Q3 will be over Q2 and Q4 will be over Q3. And so the impact of the pharmacy, the questions we ask ourselves, is it fully into the Q1 numbers? And we believe so that materially so. So we shouldn't see any more degradation from that pharmacy shift. People that have shifted have already shifted. And so there's just not that many more that can shift over there. All of the government products, products that we need to be looking for, certainly they're very profitable on the way we do it and so we'll be a more government-centric business. And then so do we think we'll have sequential growth? Absolutely. We'll grow in the government products to be offset a little bit by some continued pharmacy shift. But again, most of it is done and offset a little bit by some pump business. But again, the pump business is now such a small part of the business, so it shouldn't have a material effect. So well we look for the diabetes is increased revenue and improvement in margins. And I think that's the main issue with guidance going forward that if we solve that should be handled nicely. Jason, do you want to add to that?

Yes. Thank you, Steve. Brian, regarding your second question about guidance and assumptions, we anticipate that the trends from Q1 will continue into Q2 across all product categories, including diabetes. We expect pumps and pumping-related supplies to remain down in the range of $9 million, similar to Q1. Based on market observations, Insulet and their Omnipod are experiencing rapid growth, with their pharmacy component increasing from 80% in Q4 to 85% in Q1. We expect these trends to persist, as indicated by management. We also anticipate Tandem, Medtronic, and other pump manufacturers to follow their current trends and guidance. Consequently, we expect ongoing compression in pumps and supplies, which currently accounts for just over 20% of our diabetes business. Regarding CGM, as mentioned by Steve, we expect to see some anniversary of channel mix and payer pressures in the second half of the year. By the fourth quarter, we anticipate returning to mid-single-digit year-over-year growth, which we believe will continue to normalize into early 2024.

Got it. And then, I guess in your prepared remarks, you talked about value-based care and how you've got some contracts coming up. So, just curious, what the setup is, what the revenue model is for you guys in value-based here? And just any details that you can share with us in terms of how that works? And how do you see that driving growth for you guys going forward?

Well, we can't mention too much about the specific contracts until they're finalized and they are announced, but that should become shortly. But the contracts that we're seeing will be much more on capitated and value-based than ever before by AdaptHealth. And it will give us some advantages in marketing the other products for those companies. So yes, I mean it's very, very significant. It's back part of the biggest contract that we have ever even come close to landing. So, we're very, very excited, but the team has done an incredible job and more to follow as we're able to announce it shortly.

And we'll take our next question from Kevin Caliendo with UBS.

Hi, thanks for taking my question. I want to discuss cash flows. Initially, I believe Jason mentioned that most of the cash flow would be allocated to fund mergers and acquisitions. I'm curious if that plan is still in place. While the cash flow was solid this quarter, there appeared to be a significant change in the liabilities line. Could you explain that a bit?

Sure, Kevin. This is Jason. Just one maybe misinterpretation of use of cash. I think you had mentioned, to predominantly be deployed to M&A. We would expect extremely modest M&A during this environment, only for very small and incredibly accretive deals. The remaining of cash, I mean the bolus of free cash that we will generate this year, you can expect that to be returned to shareholders or debt orders, as we deem appropriate at that time. I would say in terms of the Q1 timing benefit, I described in our prepared remarks, again DSO we're just incredibly proud of now under 43-day sales outstanding. We do believe that we'll maintain that five-day compression, through the next quarter or two until we lap many of the improvements that we deployed late last year, across our rev cycle, our technology and our processes. Turning to the other elements of working capital. Really, the key factor are the updated payment terms that we've negotiated within some of our very key supplier agreements. And so we are getting a one-time benefit of essentially that cash plot, that cash through the new extended payment terms, as well as some strategic product acquisitions we made in the first quarter that because of the extended payment terms you're looking at a Q2 cash flow impact, as opposed to Q1. So this is just timing. We still believe in our original expectation of delivering between $15 million and $20 million of free cash flow, in the first half of this year.

Okay. That's super helpful. If I can ask, a quick follow-up. It seems like a long time ago, you put out this long-range plan in 2022. And obviously, things have changed a little bit and the results haven't been what you wanted since then. But if we think through that long-range plan, are there still parts of it that you're comfortable with or fully comfortable with or less comfortable with? If you can just maybe talk to that a little bit, would be really helpful.

The short answer is yes. We believe that the growth of diabetes will settle at a mid- to high single-digit growth rate for us, as we mentioned during our Capital Markets Day last year. The shift in channel and payer mix occurred more quickly than we expected, leading to faster compression on the commercial side of the business. On the positive side, our government business is performing exceptionally well, with growth in the upper double digits, consistent with some of the CGM manufacturers. This segment is a strong source of margins for us, and we remain confident in its growth rates and earning potential. Regarding the contract we discussed with Steve, we will share more details soon. In terms of Adapt 2.0, we're changing our revenue profile and enhancing our ability to secure large-scale arrangements that benefit patients, referring providers, payers, and ourselves. It's not a completely new initiative, but we are proving our capability in this area. Sleep performance is exceeding expectations, and as the leading sleep provider in the country, we see continued growth. While it’s still too early to refine our projections for 2025, we remain confident in achieving our financial goals, though the timing might shift by a quarter or two. We will update our guidance as we progress further into the year.

Thanks so much.

And we'll take our next question from Philip Chickering with Deutsche Bank.

Good morning, everyone. It's great to be here with you, Steve. I have a few questions regarding diabetes. To start, DexCom experienced a 17% growth in the US during the first quarter, while Vivo grew by 50% and Omnipod by 49%, with a decline of 6% in the diabetes sector. My first question is about the revenue exposure between pumps and continuous glucose monitoring systems. Secondly, you mentioned some challenges in the pharmacy channel. Can you provide details on how much pricing may be reduced to help patients navigate between the two options? Lastly, could you clarify the breakdown of your commercial versus government revenue in the diabetes area? I also have one follow-up question.

Sure Pito. This is Jason. I'll start maybe with question one and three. So, as you said, DexCom US is up 17% in the quarter. That is very consistent with our government CGM portfolio we are also up high teens exactly in line with what DexCom is saying. I would tell you that the mix of pump for CGM of the $146 million of diabetes revenue in Q1 2023. Pumps and pump supplies is just a touch over 20% of the portfolio. That's down obviously over the prior year due to the $9 million compression that we've experienced. I'm going to take a stab at your second question around really the mix of pharmacy versus the other channels. We still maintain a pharmacy business. We are growing it. For us it is on a growth engine, but to a bit of a mitigation strategy as plans shift to either a dual or a complete pharmacy benefit that is an option that we leverage to keep the patient on census to continue taking care of them and to flip them to their channel of choice to keep them on our census.

So, when someone shifts from a unit to pharmacy kind of what is the economic impact on both revenues and profitability?

Well, at a patient level or a unit level, if a patient on our census, their plan changes design or policy and they ship 100% to a pharmacy channel, we will work to continue distributing to them on that pharmacy channel. It is at a lower reimbursement rate. I don't know that we'll get into too much detail on that, but it's a patient worth keeping in every sense.

Okay. And then a follow-up question here. I guess why are you so convinced that the shift to pharmacy has done at this point? I think it was literally. And in February on my question last quarter that you said you aren't seeing sort of a shift here. So, I mean I guess a little if you use is for three days later where you've seen such a huge dramatic shift? Thanks so much.

Yes. To clarify, we are observing a significant shift in the channel mix of the pump and supplies market, influenced by the dynamics we discussed regarding Insulet, Tandem, and Medtronic. In the CGM space, the situation is quite complex. When a plan changes channels, the transition isn't always straightforward. For instance, transitioning completely from a medical benefit to a pharmacy benefit typically does not include grandfathering patients who are currently on a medical benefit. We will continue to monitor and care for those patients over time. Some plans might switch completely and deny all claims, which could prevent patients from accessing their CGM through the medical benefit channel. The situation is even more intricate when considering patients with dual benefits, as it raises questions about how many of those patients will choose the medical benefit over the pharmacy channel. We are still collecting data since we are in the early stages of this transition. This uncertainty poses challenges in making predictions. However, as we evaluate the situation in May, many plan design changes occur effectively on January 1st, and we feel confident managing this for the remainder of 2020.

And we'll take our next question from Joanna Gajuk with Bank of America.

Good morning. Thank you so much for taking follow-up. So on diabetes did I hear you say the organic growth actually negative in the quarter? And then how does this impact the full year. So I guess previously you going to lower the guidance for the year. So how do you expect this to play out for the full year when it comes to organic growth for diabetes?

Sure, Joanna. So for the pump and supplies business, we said we were down $9 million in the quarter. We are expecting that trend within the pump and pump supplies portfolio to continue. Related to CGM, we do believe we'll maintain about a flat growth profile, inching up in the second half of the year and exiting at mid-single digits for the end of the year for the full year guidance the total diabetes revenue year-over-year, we expect it just about flat.

Overall, we expect to see flat growth for the year. Regarding the value-based contract, we anticipate sharing specific details soon, but it seems that you are expecting it to positively impact EBITDA. Can you explain how this works? Is it about acquiring new business or adjusting existing contracts with this payer? Additionally, why do you believe it will be beneficial in the first year, given that value care contracts typically require ramp-up time and initial investments? I'm trying to grasp the economics of this contract. Thank you.

Well, Joanna, any contract certainly there is ramp up. But when you have a significant one then you'll get some benefit during the year. And then obviously next year we'll get the full benefit of that. So we expect some benefit in 2023 with the balance with most of it coming towards the end of the year, but then in the course of 2024 it will be fully baked.

I'm sorry. So that is already included in the guidance, or your commentary for the full year that you expect this to be a positive contributor in second half?

Yes, good question, Joanna. We have not factored in the advantages of these wins in our expectation that we will deliver near the lower end of the current range. However, we believe we have the necessary tools and programs in place to return to the midpoint that we are aiming for. These are two key factors. The cost benefit is already in play and growing, and there is also the advantage from these contract wins, on which we have internal expectations. We want to be cautious until all the data exchange is complete and everything is officially announced, but we see this as a major factor that will help us reach the midpoint.

Yes, Richard Close, Canaccord. Steve's good working with you as well. Jason, I was wondering if you can just go over the cost savings and provide a little bit more details as the or on the various levers there? And just go over the total savings that you expect? I think you said, $40 million in cost savings, $25 million realized this year. And then you said something about a $20 million realized from the stuff you already did. So if you can just go over the puts and takes on that that would be helpful.

Sure, Richard. So yes the $20 million number of in-year EBITDA has already been achieved. It's been validated whether that is a process or a real estate or a contract or changes in organization. That is all tracked at a very detailed level and has been confirmed as flowing if you will. So that's already been accomplished. We are still aiming at $10 million annualized and $5 million in year of the final phase of the program. We'll provide an update on that at the end of next quarter but we're very confident in achieving the benefit.

Okay. And then with CapEx, you talked about some I guess certain purchases. Can you just go over the CapEx, how you're thinking about it the rest of the year please?

Yes, absolutely. So maintaining guidance at 11% of revenue for Q1 as expected we were at 12% of company revenue. I will tell you that the nuance of the capital equipment that we're acquiring there was about a $10 million increase in fixed assets that are not yet in service, but we do expect to have in sort of soon. Frankly, that was pulling levers to ensure that we're continuing to capture market share within the sleep business. If you adjust for that you're at a 10.6% of revenue. I expect that's going to be the ballpark for Q2 that call it 1.5% to 11% of revenue and we do think it will dial back to a more normalized 10% of revenue in the second half of the year. So we feel very comfortable at 11% of revenue for the full year.

Yeah. Yeah. And then final question, obviously a smaller piece of your business but on the HME, can you talk a little bit about the I guess the year-over-year decline there? I mean obviously not huge but anything to call out?

Yeah. I mean, I'd say that some of this is related to the new sales commissions and programs that we discussed last quarter as going effective on March 1. We are making changes and adding commission for e-prescribe and electronic ordering on our DME. The complexity on paper or faxed orders whether it's wheelchairs, walkers, beds et cetera throughout the DMV catalog. It's a substantial cost to work through documentation and pre-authorize everything that it takes to qualify that equipment on patients. And we've demonstrated incredible benefits for just efficiency and cost of obtaining electronic orders when you prescribe for that equipment. We are essentially spiffing and adding commission for that type of order. So what you're seeing is a profile change at the revenue line we are maintaining and starting to improve the bottom line from that category.

And it appears that we have no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks.

Thanks all. We appreciate everybody's time this morning on the call and we look forward to accomplishing the tasks ahead of us for the remaining part of this year. And thanks all. Appreciate it.

That concludes today's teleconference. Thank you for your participation. You may now disconnect.