AdaptHealth Corp. Q1 FY2024 Earnings Call

Good day, everyone, and welcome to today's AdaptHealth First Quarter 2024 Earnings Release. Today's speakers will be Richard Barasch, Chairman and Interim CEO of AdaptHealth; and Jason Clemens, Chief Financial Officer of AdaptHealth. Josh Parnes, President of AdaptHealth, will join Richard and Jason for the question-and-answer portion of today's call. Before we begin, I'd like to remind everyone that statements included in this conference call in the press release issued today 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 financial results for 2024 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 the company's annual and quarterly SEC filings. AdaptHealth Corp. should have no obligation to update the information provided on this call to reflect such subsequent events. Additionally, on this morning's call, the company will 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 am now pleased to turn the floor to Chairman and Interim CEO of AdaptHealth, Mr. Richard Barasch. Please go ahead, sir.

Thank you. Good morning, and thank you all for joining AdaptHealth's first-quarter 2024 earnings call. Simply stated, we had a terrific first quarter, highlighted by 6.2% non-acquired revenue growth and an 18% increase in adjusted EBITDA over last year's first quarter. Our sleep and respiratory product lines continue to deliver strong results. We are pleased to see our diabetes business start to improve as well. We continue to de-lever and are on target to hit our cash flow targets for the year. Jason will go through the numbers in detail, so I'd like to discuss some of the underlying improvements that give us confidence that our performance is sustainable. During the past year, AdaptHealth faced several internal and external challenges, and the company has addressed each one in a constructive way. This isn't a victory lap and our new CEO has plans to make her mark on the strategic future of the company. However, I'd like to highlight some of the more impactful improvements that have occurred, which should serve the company well going forward. AdaptHealth originally built its business on M&A, which was facilitated by attractively priced capital. Opportunistically, we took on mostly long-term debt at very attractive rates. Our overall leverage was more than desired, especially in the newer, higher interest rate environment. As a result, the entire company successfully galvanized around generation of cash flow, which has allowed us to reduce our leverage ratios and our absolute level of debt. Even with the difficulties regarding the Change Healthcare issues, we yet again paid down debt in excess of required payments and expect to have meaningful additional cash to deploy through the year for further de-levering. I'm quite confident that we'll meet our 2024 goal of less than three times leverage in short order. Over the past year, we discussed the challenges in our diabetes business. We still have a way to go, but the improvements have been tangible. We have strong new leadership and are building an efficient operating platform that will support our growth ambitions. We have more than doubled our sales force and can finally state that we are activating the profit through the pharmacy channel to supplement our growth. Our sleep business continues to perform well. We're mindful of the challenges that may arise from GLP-1. We are now actively surveying more than 1.5 million sleep patients for evidence of change in behavior. So far, we have not seen any material changes, but we'll be vigilant to address any issues should they occur. We know the real-world study described by ResMed could show the positive correlation between GLP-1 usage and CPAP compliance. I was also delighted to see the recent Lilly announcement that described the enormous size of the addressable OSA market, more than double the already large estimates of undiagnosed OSA patients provided by the American Academy of Sleep Medicine. Our underlying thesis is that increased awareness of OSA is going to more than offset any potential impact to our sleep business. After a slow start, the Humana contract is performing both operationally and financially as we had originally projected. We are pleased to report that the patient transition is essentially complete. This experience gives us confidence to actively market to potential payors as an important component of our growth plans. I would expect to see additional contract wins in the near term. Payers and providers want to see that the therapies we provide are having a positive impact on their members and patients. We have nearly 1,000 professionals who work with our patients every day to improve their experience with the equipment and devices we provide. We are highly focused on adherence to therapy as the essential first step to better outcomes, and we believe that our adherence statistics for sleep are the best in our industry. We are especially proud of the work that our advanced respiratory therapists do to reduce avoidable hospitalizations, and we are developing the tools and data to show that we are positively affecting outcomes. Finally, we have resolved lingering concerns about permanent leadership. Our diligent search for a new CEO was well worth it since we found the ideal candidate. Suzanne Foster joins us from Danaher Corporation, where she served as President of Beckman Coulter Life Sciences. She has over 25 years of healthcare experience, including experience in the HME business, and has a strong track record of leading growth businesses in the healthcare market. Our Board made a very wise choice, and the management team is looking forward to welcoming Suzanne to AdaptHealth. I will be around to help Suzanne have a smooth transition to her new role. Now I'm going to turn it over to Jason.

Thanks, Richard, and thanks to all for joining our call. In the first quarter of 2024, we built on momentum from last year across a few key areas that we'll review today. First, we'll cover some details regarding the Change Healthcare situation that Richard touched on. Starting at the end of February, we began holding claims for certain payers where one of our third-party software providers utilized Change Healthcare to process claims. Health claims peaked at approximately $150 million a few weeks later. As related, cash flows decreased, we drew $75 million on our revolver and carried that balance as we ended the first quarter. Our revenue cycle team has acted swiftly and decisively to mitigate that impact. Since the end of the quarter, our health claims for this matter have compressed to approximately $30 million. As a result, cash inflows have started to normalize and we paid off the balance on the revolver near the end of April. With delayed payments largely caught up, we are reiterating our free cash flow guidance for the first half of 2024 and for the full year. Now turning to our results. Net revenue of $792.5 million increased 6.4% compared to the first quarter of 2023. Sleep revenue of $306.2 million grew 4.0% compared to a year ago. Sleep sales revenue was up 5.6%, driven by our resupply census, which reached a new record of 1.58 million patients. Sleep rental revenue was flat over the prior year, and we were pleased with that result following the record setups from late 2022 through mid-2023. Diabetes revenue of $149.3 million was up 2.0% against the first quarter of 2023, outperforming our expectations and resulting in our first year-over-year increase since the second quarter of 2023. CGM performed significantly better than expected, driven by increased patient census. We are making steady progress ramping up our new sales force team members and new technology deployed in our resupply operations is resulting in more touchless reorders. As expected, we absorbed $4.3 million of revenue pressure in our pump and pump supply categories as the market shifts towards tubeless pumps. Encouragingly, we again delivered more revenue from tubeless pump starts than from tube-based pump starts. Oxygen and non-invasive ventilation new starts continued to be very strong, building on the momentum from the end of 2023. As Richard mentioned, the transition of Humana patients is substantially complete. Starting this quarter, we are now reporting revenue from capitated arrangements in a separate revenue category. This includes Humana as well as several other existing capitated arrangements. Turning to profitability. First-quarter adjusted EBITDA of $158.5 million reflects an adjusted EBITDA margin of 20.0%, a 200-basis point improvement over Q1 of 2023. This improvement was driven by three things. Number one, improved cost of products and supplies as a percentage of revenue resulting from continued efforts to drive efficiencies in our supply chain. Number two, improved salary, labor, and benefits as a percentage of revenue, reflecting the flow-through of our 2023 cost management program. And number three, expected increases to other operating expenses related to continuing infrastructure investments in fleet and warehouse operations. Cash flow from operations of $49.0 million was impacted by the Change Healthcare matter covered earlier. Capex of $87.9 million, representing 11.1% of revenue was almost a full point better than the first quarter of 2023. Although free cash flow for the first quarter was negative $38.9 million, we are reiterating our full-year free cash flow guidance of $150 million to $180 million, and we are reiterating our expectation to deliver at least $55 million of that in the first half of 2024. We continue to make progress towards our plan to get leverage below three times before the end of 2024. In fact, even with the Change Healthcare impacts, we compressed net leverage from 3.16 times at the end of 2023 to 3.12 times at the end of Q1 2024. During the quarter, we paid $25 million towards our balance exiting Q1 at $695 million. After the end of the quarter, we paid an additional $15 million toward the TLA balance, and we expect to make our $10 million required payment before the end of next quarter. We expect the TLA balance to be $670 million at the end of Q2, down $80 million from the balance at the end of Q2 2023. For Q2 2024, we expect revenue growth of about 1% over the prior year, surpassing very tough 2023 comparables. Additionally, we're keeping a close eye on extended shipping lead times for certain sleep resupply products, which could impact growth for the quarter, so we're accounting for that risk in these numbers. Adjusted EBITDA margin of approximately 20.5% up from Q1 2024 margin but pressured by added expense associated with recovering from the Change Healthcare situation discussed earlier. These expenses should dissipate in the coming months, but we do expect an impact in Q2. Free cash flow to be at least $94 million, which meets our expectations for the first half. For the full year, we are maintaining our original guidance and expect revenue to be in the range of $3.25 billion to $3.35 billion, adjusted EBITDA to be in the range of $650 million to $710 million, and free cash flow to be in the range of $150 million to $180 million.

Thanks, Jason. When I took the job as Interim CEO approximately a year ago, it was intended as a short-term role while we installed a new CEO. As things have developed, this turned into one of the most impactful and rewarding years of experience in my career. I've been able to observe firsthand the professionalism and dedication of our nearly 11,000 team members as they deliver high-quality care to the 4 million people we serve. As we compliantly generate more actionable data from our patients, I'm even more convinced that AdaptHealth will have an increasingly important role in the health outcomes of our patients. After another clean quarter of continued growth, I'll be leaving the CEO job with a great deal of optimism for the company. The future is bright for AdaptHealth and I look forward to watching and helping Suzanne and our talented team deliver on the opportunities ahead. I'll now open the call to questions.

We'll take our first question today from Brian Tanquilut at Jefferies.

Good morning, guys. Thanks for taking the question. It's Jack Slevin on for Brian. Congrats on the strong results. Maybe to kick it off, I wanted to touch on the margin pieces that were particularly impressive. Are you able to give any color on what's driving that improvement in cost of products by category? I'm wondering here if it's diabetes margins leveling out with payer mix. Any color there would be great.

Sure. This is Jason. I'd be glad to add some color. So as you pointed out, we referenced the cost of products and supplies as frankly significantly better than the first quarter of last year as well as salary, labor, and benefits, which was part of our 2023 management cost management program that we were able to deliver on. Within cost of products and supplies, a couple of things are going on there. Of note, within our supply chain operations, so that includes certainly specific supplier negotiations that we will offer a lot of detail on and product mix that you alluded to, either from diabetes or other areas growing faster versus slower. Overall, we're very pleased with the 2024 contracting cycle. The contracting cycle is largely complete, so we do expect to continue to deliver improved cost of products and supplies throughout the course of the year.

Got it. That's helpful. And then maybe on the capitated piece, commentary around Humana being ramped now is really helpful. Can you give a sense of what that move in capitated revenue was quarter over quarter or I guess like versus the benchmark in the back half of the year that looks particularly strong on the quarter?

Sure. It's not a precise calculation, but I want to clarify that capitated revenue was reported across various categories in the first half of 2023, including sleep, respiratory, HME, and others. Starting in the second half, we did report our Humana per-member-per-month revenue in the other category. If you look at the sequential increase from Q2 to Q3 last year and from Q3 to Q4, you'll notice significant growth. This highlights the ramp-up period of the Humana contract and the transition of Humana patients. In the first quarter, we reported the entire Humana PMPM revenue in capitated, totaling $32 million. Additionally, we have had several other capitated arrangements that we have been managing and expanding for many years. Therefore, the revenue reporting now in comparison to Q1 of last year will be challenging until we have more quarters to evaluate the capitated trend. I hope that clarifies things.

Yeah, very helpful. And last one for me. Maybe looking forward, there's a lot of moving pieces and I appreciate all the commentary around change on the cash flow side of things. But as you think about the full-year guide, does this feel like the right level of free cash conversion or a normalized stabilized version of what we should expect from the business in terms of how much cash generation you can get relative to how the P&L is growing?

We are confident in our free cash flow guidance for the year. Regarding your question about our cash generation capacity, we believe it will be significantly greater than what we anticipate delivering in 2024. Currently, interest expenses account for nearly 4% of our revenue. As we continue to reduce our debt and lower interest expenses, which we are actively focused on, this will provide additional benefits. It's worth noting that our capital expenditures as a percentage of revenue decreased by 90 basis points compared to the first quarter of last year. We are aiming for about a 0.5 point improvement year over year as the deployment of Oracle's perpetual inventory system accelerates nationwide. This will bolster our confidence in achieving our capital expenditure targets. Overall, we are very confident about our free cash flow expectations for the entire year.

The next question comes from the line of Pito Chickering at Deutsche Bank.

Good morning, guys. Thanks for taking the questions and nice job on the quarter. Diabetes, we diabetes were down year over year for the first half of the year and then up and back half the year to get basically flat growth year over year. 1Q is definitely above our expectations. Should we be thinking about the cadence differently for the year for what changed versus your original thoughts around diabetes? And is this just the split between pharmacy growing faster than DME?

Yeah, Pito. Good question. I'd start with just a review of the comparable periods in the prior year. It's important to note that Q1 of 2023 and the sequential step-up into Q2 2023, I mean if you see that huge step-up in diabetes revenue year over year going from , we did not expect such a pronounced step-up in the second quarter. So although we're very pleased with the diabetes beat in Q1, pump and pump supplies came right down the middle of the fairway of what we expected and CGM did outperform our expectations. I mean we had diabetes down for Q1, but we're making some progress and sales. We're starting to take more orders in pharmacy. So things are going according to plan, but it's really that tough comparable in the prior year. There were some system conversion activities and other items that affected just such a large sequential step-up that we don't expect to repeat. So that's really the only change to think about the full-year quarterly numbers.

Okay, great. And then for 2Q, you talked about some margin pressures from Change and from investments. Can you give us any color on how 2Q consensus looks versus your expectations? A quick one on organic growth. How does capitated get calculated as convert from fee-for-service into capitated for organic growth?

Sure, Pito. In terms of organic growth, the capitated arrangements are 100% organic or non-acquired because we did acquire some of these capitated arrangements, but we've anniversaried the years of those acquisitions. So it's 100% organic. In terms of how the Street is thinking about the full year, I guess I'd just summarize it by saying, look, we did better in Q1. We're pleased with it. We think that Q2 is going to be a little softer than what we expected two months ago when we guided. But zooming out to Q3, 4, we feel very good about the full-year guide. We feel very good about and so I think it's really a bit of a swap between Q1 and 2 would be my observation of where the Street's at as well as what we were thinking a couple of months ago.

Should we consider what we see in Q1 to adjust the expectations for the Q2 consensus, just as a rough estimate?

I mean, generally it's a fair way to think about it. Practically, obviously, it doesn't work exactly like that.

Great. Thanks so much, guys. Nice job on the quarter. The next question comes from the line of Eric Coldwell at Baird.

I want to start off with making sure we understand the growth comps in the product categories here in first quarter '24 versus first quarter '23 because I think you've suggested that some of the Humana work was in those categories in the first quarter of last year, but now it's in the capitated lines. So is there any additional detail you could give to quantify as we look at the segment growth rates ex-capitated compared to what was reported last year? Is there any way you could quantify that impact?

Great question, Eric. It's going to be tough to quantify since we're not breaking it out specifically in our filings or reporting. However, the way that we're thinking about it and attempting to message things is thinking about sleep as a revenue category, diabetes as a revenue category, and then everything else, which includes capitated and includes HME and respiratory and the other revenue categories. It's not perfectly precise to think of it that way but it does help simplify. And so what we've said is we expected sleep to grow about mid-single digits over the prior year. We saw that in Q1 at 4%. We also said that we expected rental to have a tough comparable year. And if we ended flat, we'd be thrilled for the full year. Might be down a touch, might be up a touch, but we'd be pleased to flat. We've said in diabetes, as someone mentioned earlier, that we had expected to be down to potentially flat in the first half of this year and then adding maybe 1 point and hopefully another 2 or 3 points of growth in the third and fourth quarter of this year. And then for the rest of the revenue categories, the average growth makes up the full-year guide number at a little over 3%. So hope that helps, Eric.

Okay. Regarding the second quarter, I understand that during the Humana transition, you may not be able to provide specific numbers. Is there still a year-over-year comparison issue in Q2 for the product categories, or has that been completely resolved as we moved into Q2 2023?

Yeah, it won't be a material difference in Q2, Eric. I mean, we committed to substantially transitioning all patients by the end of the first quarter. We executed on that. I mean, as we stand here today, I think we're down to about 130 or so patients left. So we're down to the nitty-gritty. We did transition within the quarter faster than we had anticipated. And so what that means is you've got nearly a full clean quarter for Q1, so we don't expect that capitated number to really move too much as we're looking into Q2 as it relates to transition.

And then in terms of the capitated payments across Humana and your other existing accounts, is there any an outlook you could give us for, and maybe you did and I missed it, but is there a revenue target for 2Q or the year? Is there a seasonality in these payments? Just two new line we're trying to figure out how to model.

Good question, Eric. The best way to view it is that we expect generally flat revenue. This is because the per member per month rate is determined at the start of the calendar year, and membership typically aligns with the calendar year as well, leading to shifts in utilization. We anticipate that utilization will increase seasonally, similar to other areas of our business, which could affect our bottom line. However, for the top line, that’s our expectation. Richard has mentioned that we foresee more growth in capitated wins, but we haven't factored any of that into our guidance and do not plan to include potential wins in our forecasts. Nonetheless, we are allocating resources to pursue those opportunities.

Okay. The revenue outlook for Q1 was very strong and better than expected, and the margin for Q2 looks good. Overall, the commentary for the year is positive. However, Q2 does not seem as promising. What is happening this quarter?

It's really comparable. That's what is driving Q2. The revenue comparisons are significantly tougher in Q2 compared to Q1, particularly related to the diabetes step-up and sleep. Last year, sleep rentals increased by $7 million in the first quarter of '23. We expect performance from Q1 to be generally flat. We would be satisfied with flat performance in Q2 for sleep rentals, which would indicate that we are starting more patients than we are transitioning from the 13-month rental cycle from last year when we had record setups. That's one important point regarding revenue. Additionally, we are monitoring some supply chain slowdowns in sleep resupply. While it’s not causing significant concern regarding the annual figures, it is something we are considering from a timing perspective in the Q2 numbers. Finally, while we are pleased with our revenue cycle team's performance related to the Change Healthcare issue, it is proving to be very expensive on the backend. As payment inflows normalize, we now have to apply those payments in our systems manually rather than electronically, and we need to ensure patient accountability. This involves multiple procedures and has required labor to handle tasks one by one, like logging into portals and downloading information manually, which is costly and wasn't anticipated at the start of the year. However, given our strong performance in Q1 and our positive outlook for the rest of the year, we believe we can address these challenges moving forward. Much of this situation is more about timing rather than any structural changes occurring.

I have one more question. Returning to the second quarter, it seems you aren't indicating any changes in market demand, customer losses, or sales force issues. I just want to confirm whether that's the case or if there are other factors affecting the 1% revenue growth outlook. We can all see the year-over-year comparisons and understand those, but I want to ensure there's nothing more fundamental or concerning that you would highlight.

There's nothing structural or fundamental to mention. We are facing a few short-term issues that we expect to resolve in the second quarter. We are taking a cautious approach in our outlook. I want to emphasize that there has been no change in customer demand. For instance, any potential slowdown in sleep resupply is related to supply issues, not demand. We are being careful and strategic as we prepare for the second quarter.

The next question comes from the line of Richard Close at Canaccord Genuity.

Congratulations on the quarter. Could you provide more details about the supply chain issues related to sleep resupply? Specifically, what is happening and how confident are you that these issues are short term rather than long term?

Sure, Richard. This is Jason. So without getting into specific commercial arrangements or naming names, this is firstly not related to raw materials supply. It's not related to our manufacturing capacity of the suppliers that we purchase products from. This is related to a slowdown in distribution that some of these suppliers have called out publicly and just dragging out some distribution. Now there's things we can do with those suppliers to get around some of that by airfreighting and such, which obviously increases costs. So it's a supplier-versus-cost question. But at the end of the day, we're doing everything we can to get the product that our patients are asking for.

Okay. That's helpful. Can you provide an update on diabetes? You mentioned the pumps earlier, so could you clarify how you expect this to impact revenue as the year progresses? Additionally, can you give us an update on the plan to double the sales force in diabetes and where that stands in terms of productivity expectations?

Sure. Richard, I'll speak a little bit in pump dynamics and then pass it to Richard for some comments on CGM and sales force. Pumps and pump supplies, I mean, we had expected that to be down $15 million to $20 million for the full year as part of our guide at the beginning of the year. We also messaged an expectation for that to ramp sequentially from down from Q1 until the end of the year as we're working to set up and start more tubeless pumps versus tube-based pumps. We did a little better than we thought for Q1 than we would do. So look, it's one quarter. We're not going to get excited about it, but we do intend to continue that trend. So it's the second quarter in a row that we put out more tubeless pumps and more revenue from tubeless pumps than we did from tube-based pumps. So it will take time for that to continue to cycle through the overall patient portfolio. But we're very focused on it. Richard?

We have recently increased our distribution by adding about 40 new representatives. They have all been trained in the field, and we are seeing positive results from most of the new hires. We are fully operational and well-trained. Importantly, we are placing these new reps in areas with high potential, such as New York City, where diabetes is prevalent, along with other major cities. This strategy combines not only an increase in our sales team but also a targeted approach to markets that we believe will yield significant results.

The next question comes from the line of Kevin Caliendo at UBS.

Thank you for taking my question. It's interesting to see that one of your public peers is investing in their fleet sales force, and you are doing the same. I'm curious if you believe there is an underlying business that is gaining traction, or if you see new growth opportunities in the marketplace that you are looking to seize. Are you also trying to get ahead of the sleep data and GLP-1 developments? This seems particularly noteworthy, especially in light of your recent comments. Could you discuss the competitive dynamics and the strategy you have in place?

So look, we're in a competitive business to start with that. But we're the number one in sleep by good margin and our market share is increasing each year, each quarter. So we're starting from a very, very good place. We are adding sleep again target-rich places where we think we have an opportunity to grow. So we believe that we can continue to grow very nicely that no one disputes the fact that there's a huge number of undiagnosed OSA folks out there. As I said, when Lilly had made their announcement a couple of weeks ago, they talked about a number that we have even startling to us and it's size of the number of potential OSA patients. So we think that there's still nice tailwinds to the sleep business. And given our market leadership and our strength in the market, we're going to make the best use we can.

That's helpful. I appreciate that. And just one quick question on diabetes. You discussed the pharmacy channel shift in that marketplace. Was there any contribution there at all? Like how should we think about that? Did it contribute in the quarter in any way, shape, or form?

It did not contribute significantly in Q1. We anticipate a small contribution in Q2 as we have opened up four important pharmacy markets, and the team did well in achieving that towards the end of Q1. While it won't be substantial, the team is focused on it, and we plan to expand into more markets as the year progresses.

The next question comes from the line of Joanna Gajuk at Bank of America.

A couple of follow-ups on Change and the impact in Q2. I just want to clarify. It's pretty much of the costs, and I understand I'm just processing things manually versus out of automated systems that you normally use, but I just want to clarify and make sure, are there any impacts to the admission process in terms of just having more patients that I guess, processing the existing patients and rest of the supply because of the Change outage.

No, we and/or third-party suppliers do not rely on Change for either of those areas of patient.

Okay, good. And when it comes to diabetes and you just mentioned the pharmacy rollout and also on the last quarter, you talked about looking for a partner to ramp up your participation in this channel to talk back things that are happening there. So any update there in terms of finding a partner, are you doing it yourself?

Well, we're continuing to do it ourselves. We are exploring a partnership as an outsourcing opportunity to compress costs on the back end, so we haven't yet made a determination on that, but we are still evaluating. But the four markets I mentioned that have been opened up, that's entirely organic and done with our own internal capabilities.

Okay, great. Regarding diabetes and the pharmacy channel, can you provide an update on any additional payers? Is there anyone left who could potentially shift from managed Medicaid or Medicare Advantage to using the medical benefit or moving to the pharmacy benefit? Is there still an opportunity there, or have you exhausted those options?

Sure. It is still potential. I would say that our percent of government business is up 81% within diabetes for the quarter. And so we continue to drive more and more new start activity towards that channel, if you will, which we believe is better insulated from pharmacy shift risk. We say within the quarter, we detected three payer changes moving from commercial and making it more medical benefit to a pharmacy benefit. One of them was an upper Midwest regional company. The other two were state Medicaid offices. The four markets I mentioned where we've opened pharmacy operations is in one of those state Medicaid offices. So we're working to continue to get after that business. So we didn't see a material impact of pharmacy shift to our business in the first quarter of '24.

So would you say you are in the aggregate, I guess, in your business when it comes to pharmacy versus DME benefits?

It is very small. It's still in the 5%-or-so range for pharmacy in the vast majority in medical benefit distribution.

Okay. If I could just ask two more questions. Regarding CapEx, you've reaffirmed your free cash flow guidance, which makes sense given some changes in CapEx. Revenue is down compared to last year, but for the full year, it seems like the guidance is around a 10% rate. Is this just a matter of timing, and is CapEx still expected to fall within the same ranges you mentioned earlier?

Yes, you've got it.

Okay. You're continuing to pay down debt, which is great for reducing your interest expenses and improving cash flow. I assume you plan to further reduce it, especially with the term loan maturing in January 2026. Do you have any initial thoughts on how you plan to tackle this? It appears you'll need to address it later this year.

For the first quarter, we finished with a leverage ratio of 3.12 times. We have mentioned our intention to be below 3 times, which is our target for leverage, before the end of 2024, and we believe we will achieve that sooner rather than later. You are right that the term loan will become current in January 2025 and is due in January 2026. As you can imagine, our banking partners are engaged, and we are actively exploring our options. We plan to take action this year while continuing to pay down the debt in the meantime, and we will keep that approach in mind as we report for the second quarter.

Great. It makes sense. Thank you so much for taking the questions.

And at this time, we have no further questions from our audience, I'll turn it back to our management team for any additional or closing remarks.

Thanks, everyone, for joining our first-quarter conference call. Jason and the team will be available as I see myself as well to answer any questions that you've got. Thank you.

This does conclude today's teleconference, and we do thank you all for your participation. You may now disconnect your lines.