QIPT - NASDAQ

Thank you for standing by. This is the conference operator. Welcome to the Fiscal Second Quarter Results Conference Call for Quipt Home Medical Corp. [Operator Instructions] 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 company's MD&A, which you can find on our website, SEDAR and as may be included on EDGAR. The company's actual performance could differ materially from these statements. At this time, I'd like to turn the call over to Chairman and Chief Executive Officer, 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. I would like to begin today by extending my appreciation to the over 700 dedicated Quipt employees across now 18 states for their tireless efforts in helping us significantly advanced in our strategic plan of expanding from a regional to national provider of at home respiratory services in the United States. As we have progressed through fiscal 2022, we have continued to focus on expanding our organizational capabilities, continuing to grow our employee base with additional talented new team members at each facet of the company and have made significant strides on this front. Importantly, as we have begun to move into the post pandemic environment, we have accelerated the hiring of additional sales professionals, which we anticipate will be a key driver of future organic growth. It is Quipt service-intensive model centered around improving the quality of life for all of our patients, which has driven our consistent growth. Our model is focused on constant patient education, device compliance through remote patient monitoring and the use of our interconnected health care platform to drive early interventions. This clear service-driven model is helping us to grow our market share as healthcare providers such as hospitals, physicians and long-term care facilities look for partners that can offer a range of products and services that improve outcomes, reduce hospital admissions and help control costs. Quipt fills this need by delivering a full suite of products and services to achieve these goals. The continued focus on compassionate care, coupled with the numerous secular tailwinds such as a growing trend of Americans with multiple chronic conditions and aging U.S. population and the need for healthcare to be delivered and monitored in the home has fostered continued robust growth. With a best-in-class service model in place and all the operational tools needed to position our organization to capitalize on our increased scale, it is the execution of our robust team that will continue to drive growth forward and allow us to take advantage of the opportunities across our product categories and markets. At present, Quipt operates out of more than 80 locations in 18 states across the United States, completing hundreds of thousands of deliveries each year to more than 180,000 active patients with over 19,000 referring physicians. We have seen accelerating momentum year-to-date as we have executed on our core growth strategy. We strengthened our healthcare network throughout the country, including Arkansas, Georgia, Indiana, Massachusetts, North Carolina, Ohio, Texas and California. We have added important insurance contracts, including a new national contract with a top 5 insurance payer in the United States, added significant infrastructure and personnel, all of which has enhanced our national coverage fear over an area that includes over 5 million COPD sufferers in the United States. Our ongoing focus on technology utilization, improve workflow processes to improve our operating efficiencies and the build-out of our robust resupply program has contributed to the robust financial performance. With the financial flexibility we have, the operational resilience and the strongest regulatory environment we have had in a decade behind us, there was plenty of opportunity to expand our geographical footprint into new and existing attractive markets throughout 2022. Turning to the current supply chain dynamics. We have begun to see early signs of improvement with timely allocations leading to our highest CCAP inventory level to start fiscal Q3 since the recall began. For those not aware, in June of 2021, Philips Respironics announced a voluntary recall of certain respiratory devices related to the polyurethane foam used in those devices. The inventory trend has remained positive in real time, and we continue driving patient setups to ease the backlog as we move through fiscal Q3. We believe there is reason to be cautiously optimistic about the supply chain pressure continuing to alleviate as we continue through the calendar year. We are pleased to have strengthened our relationships with our suppliers, which has allowed us to better navigate the supply chain challenges while also fostering a foundation to support our future expansion plans as the supply chain normalizes. Moreover, we are constantly striving to drive new setups and other product categories to mitigate the impact of the recall, which is seen in our record financial results consisting of a return to 2% sequential organic growth quarter-over-quarter. On the regulatory front, we continue to operate in an extremely bullish environment. One of the major tailwinds driving the industry comes from the decision made by CMS to cancel the 2021 competitive bidding program for 13 product categories. The cancellation of this program has provided us a clear margin outlook across our product mix and ensure our patient stability for the foreseeable future. Moreover, in September, Medicare finalized a national coverage determination for oxygen that will expand coverage and potentially reduce some of the administrative load. Turning our attention to recent CMS actions announced a 5% plus CPI adjustment for DME in 2022. Typically, the consumer price index increases for DME have been 1% to 3%. Last year, the inflation adjustment was less than 1%. Moreover, legislation was passed to delay a 2% cut to Medicare payments that was created under sequestration, but has been put on hold over the past two years due to the pandemic. Congress has also delayed a 4% cut to Medicare reimbursement triggered by the pay-as-you-go law until 2023. The importance of the home medical equipment industry has never been more prevalent and we are pleased to see these continued positive regulatory developments. Turning to the underlying business. We are thrilled with the robust financial performance seen in fiscal Q2, which saw revenue of $33.6 million, improving organic growth over fiscal Q1 2022, strong operating cash flow and adjusted EBITDA margin acceleration to 21%. Our team has been laser-focused on the efficiency of our operations, leveraging our capabilities to move us up the chain of value-based care and our results reflect this. The continued focus on superior patient outcomes and satisfaction was also a major factor in receiving the national insurance contract recently announced. There is no doubt we are seeing strong momentum as we move into a post-pandemic landscape and have actively resumed our hiring of sales professionals, a key to future organic growth generation. Moreover, our performance was driven by our heavily weighted respiratory product mix highlighted by ventilation therapy and continued strength in our oxygen therapy. We are extremely encouraged about the growth path we are on, carving out a special segment of the home care industry and we are well positioned to seize the growth opportunity ahead of us. Looking at our current acquisition pipeline, it remains very exciting with a wide range of targets that meet our stringent criteria, and we expect to remain very active over the near term. With that commentary, I'd like to hand the call over to Hardik to discuss our second quarter financial results.

Thanks, Greg. We just announced our fiscal second quarter 2022 financial results, representing the three months ended March 31, 2022. In reviewing the fiscal second quarter 2022 numbers, please note that all financial values are in U.S. dollars and the full results are available on SEDAR and EDGAR. Here are some key highlights. The company generated revenue of $33.6 million in second quarter of fiscal 2022, up 38.4% from second quarter fiscal 2021. Not factoring acquisitions, the organic growth year-over-year was approximately 8% and sequentially quarter-over-quarter organic growth was a very strong 2%. As of March 31, 2022, the company's backlog was approximately in the range of 6,000 to 7,000 patients in the queue to be set up on sleep devices compared to a more typical 1,000 backlog historically. As Greg mentioned, the company began fiscal Q3 2022 with the most capped inventory since the week all began, and we are cautiously optimistic that sleep device allocations will increase through the second half of 2022, which will release the backlog, generating a lift in revenue from this impacted segment of the business. The sleep segment revenue impact was approximately $1 million to $1.5 million in fiscal Q2 2022. Adjusted EBITDA for the second quarter of fiscal 2022 was $7 million compared to $5.4 million for the second quarter of fiscal 2021, representing a 31% increase year-over-year. Adjusted EBITDA margin for the second quarter of fiscal 2022 was very strong at 21% for the quarter. Revenue for the six months ended March 31, 2022, increased to $63 million or 34% compared to the six months ended March 31, 2021. Adjusted EBITDA for the six months ended March 31, 2022, increased to $13.1 million or 23.5% compared to the six months ended March 31, 2021, and represented 20.7% of the revenue. In the fiscal quarter 2022, we've completed 118,878 setups or deliveries compared to 83,606 in the corresponding period last year, an increase of 42%. In the fiscal second quarter 2022, we have completed 5,713 respiratory resupply setups or deliveries compared with 35,702 in the corresponding period last year, an increase of 42%. The company's recurring revenue continues to grow, and it is about 77%. For the 6 months ending March 2022, bad debt expense was 8.8% compared to 9.1% for the same period in 2021. This exemplifies our ability to scale and add more revenue through add-on acquisitions without compromising our billing capabilities. For the six months ending March 2022, operating expense, excluding bad debt expense, was 47% of revenue compared to 43% for the same period in fiscal 2021. The increase was due to inflation, higher fuel costs and some onetime and nonrecurring corporate expenses, including expenses related to acquisitions. Cash flows from operations for the six months ending March 2022 was $12.2 million compared to $6.6 million in the corresponding period ending March 2021, an increase of 84%. Current assets totaled more than $44 million compared to $28.5 million in net short-term liabilities, demonstrating continuing strength in our liquidity. At the end of second quarter fiscal 2022 cash balance was $17.4 million. At the end of second quarter of fiscal 2022, the company has an undrawn revolving credit facility of $20 million. In addition to this, the company is actively working to significantly increase its credit facility to further accelerate our acquisition strategy. We are seeing positive momentum across the organization, and I'm very pleased to see revenue reaching $43.6 million for our fiscal second quarter with a strong adjusted EBITDA margin at 21% as we continue through the integration process of our recent acquisitions. The strong performance was driven through elevated demand for oxygen ventilation therapy and our other supply businesses leading to larger volumes and continuing to support the business with lower operating costs. The infrastructure we have in place today allows us to position ourselves as a market leader in at home respiratory care and gives us the flexibility to add locations organically to the platform, as well as efficiently integrated acquired assets. We also continue to see solid cash collections with second quarter resulting from a continuous effort to better our revenue cycle management process. Going forward, we will continue to find ways to grow our patient base and penetrate attractive markets while continuing to streamline our operational platform. Our revenue base during fiscal Q2 2022 remains strong with recurring revenue representing approximately 77% of our overall revenue. This recurring revenue base provides us further stability and consistency as we look at our growth outlook, business model and financial reporting. We are also extremely pleased with the ongoing results of our acquisition strategy. Integration is the key to our ongoing financial and operating success as it allows us to continue the strong pace of growing strategic acquisitions, and we have been enthused with the integration efforts today. Looking at our two most recent transactions on January 1, 2022, we announced the acquisition of At Home Health Equipment, a business with operations in Indiana, reporting trailing 12-month annual revenues of approximately $14 million, $1.6 million in net income and anticipated adjusted EBITDA of $2.9 million, reflective of a 22% margin post integration. The acquisition added 15,000 active patients and created PRIPs single largest market from a revenue standpoint, covering the entire coverage per of Indianapolis. We are nearing full integration of At Home. On April 19, 2022, we announced the acquisition of Cutlite Medical, a business with operations across 7 U.S. states, reporting trailing 12-month annual revenues of approximately $7 million and with anticipated adjusted EBITDA of $1.5 million, reflective of a 20% margin post integration. The acquisition added locations across 7 U.S. states, including Arkansas, Georgia, Massachusetts, North Carolina, Ohio, Texas and California. Massachusetts, North Carolina and Texas, our new U.S. states for fit and include important new commercial insurance contracts. Integration efforts for Goodnight Medical are well underway. We remain extremely prudent, ensuring we follow our stringent acquisition criteria along our proven integration process, which has been the driver of our consistent revenue growth display on an annual basis. As it relates to our current pipeline, we currently are reviewing a wide range of targets in terms of size and scale, which will help continue to drive our opportunity to penetrate existing and new states. We are also looking at potential expansionary opportunities into synergistic verticals of service that will enhance our end-to-end product and service offering. We are incredibly excited about our value proposition and potential sellers in the marketplace and look forward to having exciting targets come through the funnel to closing, increasing our scale across the United States. Thank you. And with that update, I'll turn the call back to Greg.

Thanks, Hardik. Quipt is in the midst of experience and significant growth as we continue to successfully navigate our operations through a challenging supply chain environment driving solid operating performance. We are proud to have reached a run rate revenue of $135 million as we continue progressing on our ongoing national expansion effort. We have now grown our coverage sphere to 18 states with the goal of continuing to grow that operating footprint into attractive regions to serve as a leader in respiratory home care driven by our service-intensive model across the United States. To date, we have executed on our strategic acquisition strategy while continuing to invest in ongoing organic growth initiatives, including adding and expanding into synergistic verticals of services and leveraging our significant infrastructure platform. We are laser-focused on efficiently integrating our acquired assets to drive meaningful cost synergies and revenue growth opportunities that drive resilient financial results. We have an unparalleled scalable platform, driven by the patient-centric ecosystem we have created, and this strategy is allowing us to grow market share in new and existing markets. We have been very active year-to-date with a multistate expansion occurring, including new states such as Massachusetts, North Carolina, Texas. Moreover, we have added 25,000 active patients and picked up meaningful insurance contracts. To this end, on April 26, we announced the execution of a national insurance contract with a top 5 payer in the United States. This is a significant milestone for Quipt as we scale across the country as it gives us the ability to immediately leverage the national contract when we acquire a provider to capture more eligible patients accelerating expansion efforts. We also feel there is more opportunity for us to secure additional national contracts, and we will continue to work with other large commercial payers to help them better understand our strong patient-centric model and the benefits to patients and payers alike. Whether it be patients, referral sources, payers or lawmakers, it is clear the structural shift is well underway to ensure a patient is treated in a home care setting whenever possible. It is important for us to continue finding optimal ways to grow relationships with referral sources, and we are seeing the benefits of this across the organization by focusing our efforts here. Moreover, we continue to invest in technology in order to improve our operating efficiencies, whether through the ongoing use of our automated ordering platform, revenue cycle management or through our automated subscription-based resupply program. These actions drive sustained value to the company and allow us to continue to increase our productivity. These investments into our scalable connected health care platform, drive organic sales generation, accretive acquisitions, targeted margin expansion and cash generation. This model also encourages compliance, improved outcomes and drive engagement with patients. Moreover, we can drive early interventions, reduce hospitalization and monitor treatment plan effectiveness, which all serves as a benefit to the payers. The COVID-19 pandemic has demonstrated that at home medical care with a focus on respiratory patients is a crucial portion of the healthcare continuum of care. As we move into a post-pandemic environment, we are enthused our accelerated pace of hiring sales reps, which was put on hold for much of the pandemic will help on the organic growth front in the future. I would now like to review with you the three components of our core growth strategy. First, we are laser-focused on growing market share economically and profitably through our organic growth initiatives. This includes expanding our sales team, which are quick boots on the ground, reaching key touch points such as hospital systems, physicians' offices and rehab centers. Moreover, opening de novo locations where it makes sense, leveraging the numerous cross-selling opportunities that exist, adding new verticals of service and continuously optimizing our processes. Secondly, we continue to lead the industry in technology deployment driven by our robust respiratory resupply platform, which provides meaningful revenue synergies for us on the acquisition front. We expect our resupply program to be a driver of continued growth for us. The third component of our growth strategy is acquisitions. We are looking for turnkey respiratory operations that can be seamlessly integrated into our highly scalable platform. As we look at M&A, we have three facets to our acquisition approach. The first being a focus on scale and hence, targeting companies in the revenue range of $5 million to $20 million consistent annual EBITDA margins between 10% and 20% and large distribution volume, which can be leveraged by our platform. The second fastest being focused on our ambition of being a national provider. This segment focused on acquiring sub-million revenue targets with the strategic goal of expanding our payer mix and expanding our geographical footprint across new states. The third facet being a focus towards larger opportunities that would be more meaningful from a revenue, EBITDA, patient-based and geographical reach standpoint. On the capital markets front, we have remained extremely active after a historic year for Quipt completing our most significant milestone to date with the commencement of trading on the NASDAQ in late May of 2021. Since that time, we have attended industry-leading small cap conferences, non-deal roadshows and have grown our research coverage base. We feel we are very early in getting our story out there, which provides us plenty of opportunity to grow our shareholder base and are working diligently to ensure our vision and continued strong performance is echoed to the investment community. At this time, I want to reiterate our outlook for calendar end 2022, representing fiscal Q1 2023 based on the current operations, market trends and completed and prospective acquisitions, we are reiterating our outlook for annual run rate revenue of $180 million to $190 million with $38 million to $43 million in run rate adjusted EBITDA. Once again, I would like to take a moment to thank the entire Quipt team for its tireless efforts and its stakeholders for all their continued support.

[Operator Instructions] The first question comes from Doug Cooper with Beacon Securities. Please go ahead.

Hi, good morning, Greg. Hardik, congratulations on a great quarter. A couple of things. First of all, just on the gross margin side, it looks to me like 78% gross margin. I think if I'm not mistaken, is a record for the company, at least going back as far as I can see going back. What do you attribute that to? Is it the resupply platform kicking in scale? Maybe you can just expand on that a little bit.

Sure. This is Hardik. Yes, we had some favorable things that took place in the quarter. Resupply definitely being one. But I would take a moment here to make sure that everybody understands that we are not anticipating those gross margins to continue the way they are. We encourage people to look at our last six months in totality or maybe the last nine months to average out what the gross profit margins would look forward going forward. We did have some favorable things -- this quarter.

Okay. On the OpEx side, professional fees $1.34 million versus $600,000 in Q1, $560,000 in Q2 last year. Is there -- what would that attribute to build? And do you anticipate -- what level of professional fees do you anticipate going forward?

Sure. Yes, we had almost about -- if you compare to previous quarter, we almost had about $700,000 in additional professional fees that were expensed in the quarter. We don't expect those to be continued, certainly not within a quarter. Some of them were attributed to overages on audit fees, some legal and other expenses that were related to acquisitions in southern capital market activities, again, in preparation of things that you typically do being public, we don't expect this kind of expense going forward at this level. What we do expect would be a smaller proportion of that to be kind of spread out over the year. This quarter was definitely hit an anomaly.

Okay. Just sticking on the OpEx expenses. The payroll was 29.7% of revenue up 50 basis points from Q1 and maybe up or 100 basis points year-over-year. Have you started hiring of people already? So that increase in payroll is reflective of maybe growth to come?

Yes, we started adding additional management within our operations and then also on the sales side. So we kind of expect that number in that to get back more normalized plus we also had acquisitions within that quarter that come with additional payroll and that, that wasn't realized fully yet and that once the businesses are integrated.

Okay. And my last question on OpEx $1.84 million of all other versus $1 million last year. Is there something in that $1.8 million that we should be sort of transitory in nature or just expand just a little bit.

Sure. Can you repeat the question one more time? I was a little more unclear.

The OpEx expense, there's an all other line of $1.8 million versus $1 million last year. So it's up $800,000 year-over-year just.

Sure. Yes, it's a combination of a few things. One of the biggest driver of that was D&O insurance, but you are also seeing some inflationary pressure on there in terms of auto fuel stuff like that. To the -- that literally Matt would reconcile between the $1 million and $1.7 million is really D&O and some inflationary pressure from auto expenses, both in terms of fuel and repairs and stuff like that. Those two were the biggest driver in the alps.

Okay. And Greg, my final one, just on the regulatory environment. One of your I guess, in your peer group indicated on their call maybe a few weeks ago that they're hearing that the next competitive bidding program, I guess, which is scheduled for 2024. Is it going to be canceled as well. Do you have any insight on that or thoughts on that?

That's kind of been our thought. The entire time is that the program would end up being canceled and that permanently. We have nothing that we can really point to that says that other than just kind of rationally thinking through in that where the rates and that came out and that when they were actually published in early '21, and that should have they implemented the program, they would have been significantly higher. So I think that's the best indication to look towards.

The next question comes from Sepehr Manochehry with Eight Capital. Please go ahead.

Good morning. Congrats on the quarter. First, a question from me. Obviously, you guys have compliance as a key for your patient outcomes. And I was wondering if you're seeing any developments in terms of the equipment updates that are enabling you to do more in terms of remote monitoring? And also more broadly, if you see potential for partnerships or maybe acquisitions on the health tech side, given that health tech valuations have pulled back, that's a feature in your acquisition strategy.

Yes, sure. This is Greg. We're not seeing any new technology in that that we haven't already deployed here over the past, say, 12 to 18 months or so on the remote monitoring side. We do continue to enhance our program and that as far as how we utilize that data and what we're actually doing with those outcomes. As far as some acquisition down a vertical like that, I mean, anything is possible. We've always got our ears to the ground and that kind of listening in that of what can be out there and looking for different opportunities that can help us improve on that front.

Got it. And does the new billing codes that came online earlier this year open up any new opportunities for you? Or do you need staffing changes to implement those? Or is that something you entered through acquisition?

That would likely be something that we would enter through acquisition. None of those currently apply and that to the services that we're actually providing to where we can build directly in that without a third party of some sort of position or something doing some of the monitoring involved.

Understood. The next one for me is on your recent acquisition that congrats on the growth that, that brings for you. I noticed that Massachusetts is the third most population dense stay in the country. So with the kind of near-term pressures on fuel costs. I was wondering if you are focusing more on regions where you do have that population density and also maybe adjacent distribution centers where it can service through your existing footprint or if you're still looking at entering new states during this near-term period?

Yes. So we're definitely looking to build out our existing locations that we've acquired. For example, Massachusetts being a continuum area of recurring operations in May and New Hampshire. So we're pretty excited about being able to add that as a continuum area. So we'll continue to focus on that with our hiring of additional sales reps as we expand into those new areas.

Got it. And then just a last one for me. Are there any sort of service contracts that you could be exposed to on the kind of value-based health side? I know you obviously have KPIs around compliance and that leads to better patient outcomes. Is that a form of new contracts that you could gain with payers? Or how does that work? Would that be something that you'd get through some sort of partner in terms of like a Medicare Advantage partner, for example? Or is this something you'd be scaling out yourself and securing payer relationships?

Yes. So we're utilizing in that our data in that, that we have from our remote monitoring services in that to work with payers and that to obtain national insurance contracts, which recently we've been successful. We do expect some things in the second half of the year that will come out of us kind of displaying and that the different services that we're providing outside of just putting that piece of equipment inside of the patient's home. It's also in that the remote monitoring capabilities, and that has allowed us to work towards increasing our length of stay for these different devices in that, that are eligible for the remote monitoring.

Yes. And I recall you mentioning from like 9 months to 12 months. Is there an update on that KPI, for example, for [indiscernible]?

Nothing to update on that at this point in time.

Okay. Congrats on the quarter and the continued growth outlook looks favorable. So happy to be involved in the story.

Thank you, Sep.

The next question comes from Tania Armstrong-Whitworth with Canaccord Genuity. Please go ahead.

Good morning, gentlemen. Just a couple for me. So you've already talked about your hiring for new sales representatives since you started in fiscal Q2. I'm wondering if you can talk to competitiveness to getting new salespeople on Board in terms of their availability and how much like compensation-wise based on what we're seeing in the labor market?

Yes, sure. So we've been targeting clinicians, and it's actually worked out pretty well for us because we have kind of caught on that a lot of clinicians and that being nurses that refers, for example, and that are really looking to get out of the long-term healthcare setting and really into a new career. So those are the types of candidates that we've been onboarding. As far as salaries in that, absolutely, we've seen salaries increasing in across all spectrums and that of all positions that we have opened.

Perfect. Thank you. And then I think you mentioned in your prepared remarks that you could look to M&A to acquire synergistic product and our service verticals. Can you give us some examples of what -- I guess, can services or products you're targeting would look like?

Yes. So I think, for example, in that, we had recently in that in November '21 had required the BioMed repair service. So we look at that particular line of business being a good vertical also potentially something on the tech side that would have to do with remote tissue monitoring or potentially other product lines in that -- such as wound care and things along those lines.

Excellent. That's great color. Thank you. And then lastly, given this new UnitedHealth contract and the potential to add additional national payers, are there any states that you have wanted to extend into, but perhaps there were no grade targets to acquire. Could you highlight what those states are now that potentially you could look at de novo expansion?

No state in particular in that, that we feel that we couldn't interview acquisition. I think on the acquisition front, it's just timing of lining up and that's the potential target when they're ready to sell and when we would be ready to close on it. As far as the national insurance contract, really what that allows us to do is the ability as we continue to acquire is that we can immediately and not start accepting that particular payer in that at all of our locations. For example, around 65% of our sites had already accepted the insurance, but the -- so this opened up the additional 35% of our sites that could immediately and that start taking that insurance. And even with the recent acquisition, that opened up some of their particular locations that we would be able to start accepting that national payer. So -- and then it allows us to build through one particular contract rather than separate regional contracts, which from an administrative standpoint and that is very beneficial for our billing department.

The next question comes from Raul Sarugaser with Raymond James. Please go ahead.

Good morning, Greg. Good morning, Hardik. Thanks so much for taking our questions. Congrats on the quarter. So just following on a little bit on the national insurance contract. How does that potentially shape your M&A strategy? Are you looking at doubling down the singular jurisdictions? Or you're really looking to leverage this into newer jurisdictions?

I think it's a combination of both. When you look at the M&A landscape, if that particular company does not accept in that the payer. And that once we close, we would immediately be able to add their provider numbers in that -- to that contract and start accepting the insurance. So we'd be able to really kind of leverage the contract that way without really adding any additional infrastructure within that location.

Okay. That's very helpful. And then switching back to the backlogs that you've experienced. So when do you expect to get back to a steady state? And do you feel like that you may have left revenue on the table as a result of the backlog.

As far as getting back to a steady state, we hope that's in the second half of the year, if not going into '23. We do continue to see our allocations come timely, which I think is very key in that rather than increasing in that at one point in that the manufacturers were behind probably 6 to 8 weeks on shipping the devices that were allocated. So we have seen that come back on. There are also in that same indication that some additional devices in that could be coming on the line that we've seen -- gotten some recent news on in that. So we're tightly anticipating and that going into the second half of the year that we will see increases in these allocations as kind of indications been given by the manufacturers. But I would sure hate to put a time on when that's exactly going to be, say things are going to be back to normal.

The next question comes from Paul Stewardson with IA Capital Markets. Please go ahead.

Good morning and congratulations on the quarter, just calling in for Chelsea. Wondering about -- in terms of the pipeline that you're looking at with all of the rates rising, all the weakness in the markets, are you seeing any impact either on the level of competition for the targets you're going after or potentially the multiples?

This is Hardik. Not really. If anything, we are seeing some people taking -- some people in the acquisitions spear probably taking a little bit of a backstep year. We don't really see any material change in the landscape. There are potentially more companies contemplating cell given the inflationary pressure and shortage of PEP devices. But I wouldn't say there has been a significant shift in the -- over the last 12 months, one way or another.

Okay. And most of our questions were asked, but maybe just one more from me. In terms of the inflationary cost of fuel and labor and accelerating hiring of sales professionals -- can we think about this as being essentially equivalent from a margin perspective to the inflationary increases in reimbursement rates that we've been seeing as well? Or is that something that's outpacing it and it's going to take until kind of next year when reimbursement rates get reset again to inflation for those to balance out.

Sure. So great point, right. I mean, certainly something that we also hope that next year, when the CPI index rate adjustment comes in, they do factor in what's currently going on, and we do expect that it would be some kind of increase as a result of what we are seeing here in the market, right? So that's definitely that. But always keep in mind, right? I mean, what you are seeing on the CPI index was only representative of Medicare, Medicaid and governmental agencies, right? So unless the rest of the payer pool also adjusts their the reimbursement accordingly, there will be a transitionary time frame where, as a company, we would have to absorb some of it. And we -- or we would have to get smarter and better. And that's what we are focusing on and how do we change our operational strategies, how do we maximize what we currently do and optimize what we currently do to maximize our gross margins and our operating and minimize our operating costs despite the inflationary pressure and try to deliver what we've been delivering over the last few years. So that's obviously a challenge, and we take it in the spirit of it.

This is Greg. I'll also add in that is that it's important and that's for us to continue to build scale and that which is why you've kind of seen that margin maybe not particularly grow, but you have seen us maintain that 20% plus adjusted EBITDA margin even despite the inflationary pressure. I think also, and that the point to this quarter and that is that we did regain our organic growth in that for three years in a row, we've been just at just under or right at 10% organic growth, and we're kind of back on track for that here. And should the supply chain continue to at least remain intact with where we are today and that we're very optimistic in that that we would do maintain that. All of those things will help us continue to maintain our margins despite the inflationary pressure.

The next question comes from Justin Keywood with Stifel. Please go ahead.

Good morning. Thanks for taking the call. First, just a clarification on the run rate mentioned earlier of 135. Does that include Goodnight Medical?

No.

Okay. So a little higher than 135, but still below the reiterated guidance of $180 million to $190 million. So that implies that there's a lot of M&A opportunity in the back half of the year. How confident are you in executing on that M&A? And what are some of the factors that could defer some of those processes into the next year?

Sure. So one thing to just make sure, I think we are accurate that the guidance that we have is what an annualized run rate would look like as we exit 2022 and end of 2023, right? And so yes, you're right, between now and the rest of the year, we do expect M&A and organic growth to get us to the annualized run rate that we have forecasted or given guidance on. We feel pretty confident that we would be able to get into that range. Our pipeline is pretty solid. We continue to enter into LOIs and execute on those. And there are no indications for us to believe that something will stall or we won't be able to get to that point as we stand today.

I think -- this is Greg. I think it's also worth noting in that historically in that if you go back and look over the last three-plus years, we've been very active on the M&A front in the back half of the year and expect to even be here in the near term.

Understood. We'll look forward to that. And as far as the target multiples, I know there is some discussion prior, but it seems like these multiples have been pretty reasonable, especially on EV to EBITDA. Is that a range that you would see continuing for potential acquisitions in the back half of the year?

Yes. As I previously mentioned, we don't really see a substantial change in the landscape here. We don't see a substantial change in the way we were doing M&A before and the way we continue -- plan to continue to do it through the next 12 months. At this point of time, we don't see any material changes to how things were done and we'll plan to continue doing what we have done.

[Operator Instructions] The next question comes from Stefan Quenneville with Echelon Capital Markets. Please go ahead.

Thanks for taking my questions and congratulations on the quarter. I have a question about the national insurance contract. Obviously, if your footprint and your relationship is good enough to get a national contract with UnitedHealth. Certainly it appropriate for you to probably do something with some of the other -- a handful of other large national players as well. So has something changed in the dynamic in your conversations with those other large players, given that you've signed something with United. And of course, no pressure here guys, but I assume that a couple of other national contracts are going to be coming in the next coming quarters. If those come to pass, what does that mean for your longer-term growth trajectory and strategic positioning in the marketplace?

Yes. We do expect and that additional contracts to come sometime in the second half of the year. We're actively in that working through those. As far as positioning ourselves in that, we're really positioning ourselves as a clinical respiratory company with improving outcomes, not necessarily leveraging with one payer that we have a national contract with one of their competitors or anything in that we really more just talk about what we can do for their patient census and things. So -- but once again, in that the -- truly the national contracts and that really allow us in that to enter into continuum areas in that and also on the acquisition front, when we acquire a company, if they don't already accept that insurance contract that we're immediately able to start accepting the insurance through the infrastructure, which allows us to kind of leverage in that those operations and build that scale that we've been talking about.

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

Thank you, operator, and thank you all for your participation today. As always, you can find us on the web at www.quipthomemedical.com where we will be posting a transcript of this call and also our updated investor deck. On the site, you can also view some of the exciting products and developments discussed on this call. Thank you, and everyone, have a great day.