QIPT - NASDAQ

Thank you for standing by. This is the conference operator. Welcome to the Fiscal Third Quarter 2023 Earnings Results Conference Call for Quipt Home Medical Corp. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation there will be opportunity for analytics to ask questions. [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 MD&A, which you can find on SEDAR and EDGAR. The company's actual performance could differ materially from these statements. At this point, I'd like to turn the conference over to Mr. Chairman and Chief Executive Officer, Greg Crawford. Please go ahead.

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 Quip Home Medical. Joining me today is Hardik Mehta, our Chief Financial Officer. Quipt Home Medical is a rapidly expanding health care services company that offers a complete spectrum of home medical equipment and services to patients in the home with a focus on those suffering from respiratory conditions. Quipt has strengthened its coast-to-coast reach with 115 locations across 26 states with over 270,000 active patients. At Quipt, we work hard to deliver top-notch patient care, and we succeed in this mission by giving patient access to health care services that are convenient, effective and tailored to their unique needs. The more than 1,000 Quipt team members who dedicate their daily efforts to delivering our core mission of outstanding patient care in order to improve the quality of life for each and every patient who uses our services are the driving force behind our company's success. The strength of our team across all business functions allows us to successfully drive our differentiated clinical service models that is having Quipt emerge as a growing force in the industry. In order to release the burden on the traditional health care system and generate financial savings for the system, we are committed to providing equipment solutions for patients with cardio and pulmonary conditions in the home environment. As we have continued to execute on our strategic growth strategy, we believe to have positioned ourselves as the fifth largest revenue-producing provider of respiratory and home medical equipment in the United States. This is thanks to our ongoing focus on technology to streamline operations, the strong patient-centric ecosystem we have in place and the end-to-end respiratory and equipment solutions we offer. We are certain that our strong operational foundation and infrastructure, along with our aggressive organic and inorganic growth strategy have placed us in a very favorable position to take advantage of the numerous opportunities for further meaningful expansion. On this call, we will discuss the robust performance of our record-breaking fiscal third quarter 2023 performance, the positive real-time business trends we are seeing and update on the regulatory landscape which remains the best in over a decade and also provide details on our investment into DME Scripts and independent e-prescribed company. In real time, we continue to fire on all cylinders, seeing significant momentum across the entire organization is a result of a number of factors including the continued penetration of our key sales touch points, the successful integration and outperformance of our largest acquisition to date and the underlying performance of our core business. During fiscal Q3 2023, we surpassed our expectations, reporting record sequential organic growth of 4% compared to fiscal Q2 2023 ahead of our baseline expectations of 2% sequential organic growth. We have had a great opportunity to improve our organic growth performance as a result of our focus on expanding the continuum of care, gaining from the benefits of the normalized supply chain and working in an incredibly strong regulatory environment. To achieve our objectives for organic growth, we have been concentrating our efforts on areas with the high prevalence of COPD and penetrating our key sales touch points into continual markets. We anticipate continued consistent strong organic growth throughout the rest of the year, exceeding the 8% to 10% average organic growth we've seen annually. When considering our new geographical footprint covering 268, it is crucial to keep in mind that we have plenty of room for organic growth into additional markets and the acquisition of new accretive targets to build out scale. Our fiscal Q3 2023 revenue came in at a record $60.3 million or 64% year-over-year growth with strong margin acceleration to 23% equating to adjusted EBITDA of $13.9 million or growth of 80%. As we continue to implement our long-term strategic expansion plan, it goes without saying to us that offering a full range of end-to-end respiratory solutions is essential to maintaining our success and a significant factor in the expansion of our key markets through the focus on our main sales touch points, which are health care institutions like hospital systems, doctors' offices, long-term care facilities, home health agencies and rehab facilities, we continue to increase overall volumes and drive the growth in our automated resupply program for sleep supplies. Looking at the incredibly favorable regulatory environment, we have witnessed many positive changes in the past year such as the easing of restrictions through the elimination of the long-standing requirement for providers to obtain certificates of medical necessities, CMS for home oxygen, which reduces the administrative burden on health care providers. Moreover, we have witnessed the opening of access for patients who visit the emergency room care setting and are identified as having either acute or chronic respiratory diseases and they can now order home oxygen equipment. Additionally, we are given a favorable change to the Medicare fee schedule, which resulted in a sizable CPI increase that took effect on January 1, 2023. In the past, our products were not subject to CPI adjustments during the competitive bidding program. Historically, CMS has begun any competitive bidding processes, roughly 18 months before contract and prices take effect. The likelihood of this happening is decreasing because CMS hasn't indicated how returning to the program would result in savings. As a result of the positive operating environment and the ongoing operational fortitude we have shown Quipt is well protected from any long-term inflation pressures and economic downturns. Subsequent to the end of fiscal third quarter, we are thrilled to have made an investment of $1.5 million to purchase approximately 10% of DME Scripts, an independent e-prescribed company dedicated to improving the patient, prescriber and provider experience by eliminating inefficiencies and reducing paperwork. The investment we have made is to align our participation in the future growth of e-prescribe usage within the DME industry. This investment aligns us with the major peers in our industry to further collaborate and innovate. Electronic prescribing is essential to the durable medical equipment industry as this technology can serve to boost productivity, cut down on airs, boost compliance and improve patient outcomes. As we continue to enjoy significant business tailwinds, a robust pipeline of acquisitions and a very solid financial position we are pleased by what we have accomplished thus far in fiscal 2023 and are incredibly optimistic about the future. We are prepared to carry out our strategy and early work towards maximizing shareholder value as we continue to drive growth. With that commentary, I'd like to hand the call over to Hardik to discuss our fiscal third quarter 2023 financial results.

Thanks, Greg. On Monday evening, we announced our fiscal third quarter 2023 financial results representing the 3 months ended June 30, 2023. In reviewing the fiscal third quarter 2023 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's customer base increased 58% year-over-year to approximately 141,000 unique patients sold in fiscal Q3 2023 compared to approximately 89,000 unique patients in fiscal Q3 2022. Compared to approximately 134,000 unique setups deliveries in fiscal Q3 2022 the company completed approximately 203,000 unique setup deliveries in fiscal Q3 2023, an increase of 52%. There were approximately 108,000 respiratory resupply set up deliveries during fiscal Q3 2023 compared to approximately 63,000 during fiscal Q3 2022, an increase of 73%. Revenue for fiscal Q3 2023 was $60.3 million compared to $36.7 million for fiscal Q3 2022, representing a 64% increase in revenue year-over-year. The company witnessed great organic growth this quarter at 4% compared to Q2 2023, the previous quarter. Revenues for the 9 months ended June 30, 2023, increased to $159.2 million or 60% from the 9 months ended June 30, 2022. Recurring revenue as of fiscal Q3 2023 continues to be strong and exceeds 80% of total revenue. Adjusted EBITDA for fiscal Q3 2023 was $13.9 million at 23% margin compared to adjusted EBITDA for fiscal Q3 2022 of $7.7 million at 21% margin, representing an 80% increase year-over-year. We expect to continue seeing strong margin performance in fiscal Q4 and beyond. Adjusted EBITDA for the 9 months ended June 30, 2023, increased to $36 million, representing an increase of 73% from the 9 months ended June 30, 2022, and represented 22.6% of revenues. Cash flow from continuing operations was $27 million for the 9 months ended June 30, 2023, compared to $19.4 million for the 9 months ended June 30, 2022, a substantial increase of 42%. For fiscal Q3 2023, bad debt expense was at 4% compared to 9% in fiscal Q3 2022. This significant decrease is primarily due to improved collection processes and exemplifies our ability to scale and add more revenue through add-on acquisitions without compromising our billing capabilities. For the 3 months ended June 30, 2023, operating expense was $27 million an increase of $10 million from the 3 months ended June 30, '22. Acquisitions contributed approximately $8.5 million of the increase, remaining increases related primarily to payroll. The company reported $20 million of cash on hand and $41 million available on its senior credit facility as of June 30, 2023, with $20 million available on the revolving line of credit and $21 million available on the delayed draw term loan. The company continues to maintain a very healthy net leverage ratio at just 1.4 times. In the fiscal third quarter of 2023, all of our key metrics outperformed our baseline expectations. Momentum has continued to build throughout the year, and we are seeing the robust organic growth and margin expansions we have been working towards. Our adjusted EBITDA margin has reached 23%, driven by our heavily weighted respiratory product mix and services as well as focusing on operational savings and effective cost management. In addition, we are thrilled by the acceleration of organic growth brands, which reached 4% sequential growth in the fiscal third quarter compared to the fiscal second quarter. We anticipate the strong organic growth with persist as we continue to drive volume through the cross-selling of products and expand the continuum of care in adjacent markets. In the fiscal third quarter, the company also demonstrated robust net cash flow from operations. In some of the previous conference call Q&A sessions, the company has stated that its near-term target was to consistently achieve 3% to 5% net cash flow from operations after CapEx and/or lease payments and before any debt service related and purchase price related payments. On the heels of strong performance for the 9 months ending June 2023, the company has revised its near-term goals upwards and would aim to consistently achieve 6% to 8% cash flow from operations after CapEx and/or lease payments and before any debt service related and purchase price related payments. The continued consistency of our revenue base is driven by our highly recurring revenue model, which accounts for 80% of our total revenue mix as of fiscal Q3, in line with fiscal Q2. During the quarter, we further improved our already robust balance sheet in order to ensure that we will have sufficient room to execute our plan for CapEx strategic expansion in an environment with higher interest rates. Our present leverage is a very modest 1.4 times, giving us considerable flexibility to deploy a combination of debt and cash for the execution of our acquisition pipeline in accordance with our prudent acquisition approach. As we entered calendar 2023, we announced our largest acquisition to date covering 8 states, 7 of which were new to Quipt with over 1.5 million suffering from COPD across those states. We are seeing exceptional performance with the acquisition. Integration is near complete, and we are focused on longer-term revenue synergies through cross-selling of products, expansion of markets and opportunities to leverage our significant existing resupply program. We continue to drive economies of scale through centralization processes and reducing overlapping functions. As mentioned on our fiscal Q2 call, we recognized the initial $2 million of cost savings and synergies nearly a full quarter ahead of schedule and have continued to build off that. Because we have undertaken such a significant geographic land grab, we now have a greater opportunities to build on our acquisition and integration strategy with the accretive tuck-in acquisitions, expanding our portfolio of respiratory products and services. We have a solid plan for continued robust organic growth, a deep acquisition pipeline and continue to be committed to the systemic acquisition approach and proven integration process that we have built over many years. These are the factors that have been the driving force behind our steady growth that has been shown on an annual basis and the strengthening the company's position in the industry. We have all the tools to carry out our expansion and acquisition plan moving forward in order to generate increased value for our shareholders. Thank you. And with that update, I'll turn the call back to Greg.

Thanks, Hardik. Our first priority in every single one of our markets is to provide great patient care with a focus on the treatment of disorders, including sleep apnea, COPD and other chronic respiratory diseases. By penetrating new markets and foregoing alliances with payers, patients and referral sources, we are always devising strategies to increase the number of patients we serve and gain entry to attractive geographic areas. Our robust clinical services, expanding reach and growing market share provide us a competitive edge and allow us to take advantage of economies of scale. We anticipate that our strong momentum will continue into the foreseeable future as a result of our successful execution of the key elements of our growth strategy. These include expanding our health care network across the nation through the execution of national insurance contracts, completing accretive acquisitions and making investments in our company's future organic growth. Moreover, we are confident that the successfully completed acquisitions help us to accelerate our organic growth model overall. At this point, I would like to review with you the 3 components of our core growth strategy as we move into 2023. First is organic growth, which came in at a robust 4% sequentially in fiscal Q3 surpassing the 2% to 2.5% sequential pace or 8% to 10% annually we have strived for. As shown by our results, we anticipate fiscal 2023 will surpass this. Growing our sales team is one of the core initiatives on this front, which is continuing to go very well and is how we connect with key touch points like hospital networks, doctors' offices, long-term care facilities and rehab centers. Furthermore, the aging population and significant increase in the number of people with multiple chronic diseases across the United States are positive demographic trends for Quipt when looking at the operating environment. Home medical equipment and services are becoming more necessary as the population ages, which gives us with a very sustainable long-term growth opportunity. Additionally, a lot is being done to make sure that the patients receive care at home whenever it is feasible. Second, in order to consistently improve our operational performance, we are always focused on the usage of technology across our business functions in order to boost production and profitability. We are primarily focusing on applying data analytics and data mining techniques. A key example of usage of technology is our automated resupply platform, which not only helps us drive organic growth but also provides us with considerable revenue synergies when we make strategic acquisitions. The third element of our growth plan is expanding scale by making smart accretive acquisitions in conjunction with our tried and true integration approach, which has effectively integrated 18 acquisitions since 2018. And our attention is on heavily weighted respiratory businesses, which can be successfully incorporated into our scalable infrastructure. Our strategy objective is to increase our payer base and geographic reach into advantageous states with a high COPD prevalence, including those that are already within our health care network. Thanks to our robust balance sheet, will we be able to take advantage of the opportunities presented by our acquisition pipeline to grow our revenue, EBITDA, patient base and overall geographic reach. With the start of trading on the TSX big board as well as our inclusion into the Russell 2000 and 3000 indexes, our momentum in capital markets has continued in 2023. Both occurrences in our opinion, will lead to increased institutional ownership and liquidity over time. It is significant to note that 40% of the TSX trading is conducted by investment dealers with global headquarters. As always, we are aggressively reaching out to U.S. and Canadian investors to tell our compelling story and have the wonderful opportunity to discuss our long-term growth goals. The remainder of the year will be very busy as we plan to attend a record number of in-person and online investment conferences and anticipate in forming a wide range of investors about our growing company. In addition, we are continuing to strategically position the company for continued sustained growth in light of the extremely bullish industry environment, the strong demand for respiratory products and services and all the organic tailwinds we are experiencing at our back. We will remain prudent yet aggressive in our pursuit of the numerous opportunities available to us. Our operational excellence and 1.4 times leverage balance sheet provide us with all the resources necessary to execute our expansion strategy. Finally, I would like to take a moment to thank the entire Quipt team for their tireless work and our stakeholders for their continued support.

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

Just first of all, on the organic growth, roughly 4% sequentially. That's a terrific work and at 16% annualized, Greg, obviously, exceeding the 8% to 10%. How long can you keep that pace going in?

I mean we've seen robust organic growth and that kind of come back into the business on the backside of the pandemic and the supply chain in that kind of normalizing I mean, we take at a minimum in that, that we can beat our historic levels of that 9%, 10% in that, that we've seen. One of the big drivers behind that has been the markets that we've obtained through acquisitions over the past couple of years or so in that, that we've added to our sales force on that front. So we think we're going to see continued momentum on the organic growth side for the foreseeable future.

So I looked at the actual sales. So sales of equipment, I guess, was up 3% sequentially and rentals was up 4.9% sequentially. I'm not sure if that is meaningful, that's something that go forward. But can you just talk about where you're seeing the organic growth? Is it geographical more penetration within the states. Maybe just expand just a little bit.

Yes. It's primarily in the states and that the new states that we've entered in that over the past 18 to 24 months or so, we probably added about 11 to 13 states. So it's really just kind of penetrating in that new continuum markets within those states.

Okay. How many states do you win there?

26. You've got over 115 locations.

Just on the operating leverage, I would say the EBITDA margin expanded this quarter. Part of it was driven by payroll as a percentage of sales dropped to 30% from 32% in Q1. It has been as low as 28%, 29% in the past. How much leverage can we get on that payroll as a percentage of revenue?

Doug, this is Hardik. So on use of what Greg just said, we are investing in some sales force expansion, which obviously was reflected in our top line growth as well. And so we will continue to do so. So just to say that, but differently, I think the dollar amount might stay there, I hope would be to reduce the percentage of revenue as we actually unleashed the top line revenue as a result of adding the sales force.

And Hardik, while I got you. Just on the free cash flow, you talked about raising your expectations, call it, 6% to 8% of revenue. My back of the envelope in the quarter was net debt dropped $32 million sequentially, and you raised $27.9 million, give or take. So that difference is $4.2 million of increased cash or lower debt, whichever way you want to look at it, which is roughly 7% of revenue. Is that sort of in the ballpark of what you generated for free cash flow in the quarter?

That's pretty close. I mean my maybe shop on plan was 7.9%, so to speak, yes. So I think we're pretty close.

And my final one, Greg, this is just sort of maybe a weird one, but obviously, lots of focus on weight loss drugs like Ozempic and so forth, certainly being marketed as a wonder drug and everybody is going to be skinny for now on, and maybe that will have an impact on sleep apnea. Can you just sort of talk to it from your perspective, what's happening with that and the impact it might have on the industry?

Yes. I mean from my perspective in that, I mean, we've done a lot of investigating here and that in CPAP devices and BiPAP devices are still the gold standard treatment and that as of today and that for sleep apnea. I mean, continues to be very, very strong demand in that for those products. And I think even the manufacturers have even spoken to that about the global demand in that for sleep products.

The next question is from Richard Close with Canaccord Genuity. Please go ahead.

Congratulations on a strong quarter and continued performance this fiscal year. Just wanted to go back on the strong organic growth and obviously, a lot of optimism here going forward. So Adapt talked a little bit about normalizing growth in sleep beginning this third quarter, their third quarter. They had strong setups beginning last year in the third quarter. So they're just lapping some higher comps and I guess you guys started to see the improved supply at the beginning of January. So just trying to understand if you're going to encounter the same situation maybe or how we should think about Quipt being different as compared to adapt on that front?

Yes. We think on our front that our sleep device in that setup and that are going to remain relatively strong in that. I mean I don't think there's any particular peak or anything that's coming from that because it's really came back for us. I think additionally, though, we have set -- we did set up a lot of patients in the first part of the year that will are ending up in the resupply program, and we'll stay there and that. So we're going to really probably see a ramp-up in our resupply with the additional setup that were done prior.

And then just to go back, Hardik, maybe on your comment in terms of with respect to the free cash flow, but also talking about or I guess it was on the payroll, but continuing to invest in the sales force. Could you guys just let us know the status of the current sales force expansion? And are you increasing that here? Is that what we should believe based on those comments?

Yes. We certainly -- for example, at 12/31, about 8 months ago, we had 50-ish in our sales force, that increased to 62 at the end of March, and it's north of 70 as of 6/30. So you can see directionally, we are having more boots on the ground. And I mean there is a whole cyclical process to adding sales teams, some will click some will don't, then you try to rehire the ones that don't work, and you continue to get down the path. So we expect to do that in the near future, yes.

And is that only in the newer acquired markets? Or are you doing any of that in the core existing Quipt market.

It's definitely a combination for sure. I mean it is based on where the opportunity is. If we are already well penetrated, whether it's a new market or an old market, then you probably don't want to spend additional there may not be that of a marginal benefit. But if you are in a market where there is an opportunity to penetrate further, whether it's in the form of a new product line or existing product line, but more doctors and hospital coverage and kind of you make those decisions accordingly.

And just a couple of modeling questions here really quick. I guess with respect to inventory levels, I see it went down a little bit second quarter to third quarter. And just curious is this a good level going forward? Or should we assume some growth there?

I think it's a stable level. We did some adjustments to inventory in this quarter, which kind of dive you through Q3 numbers. But I think within the margin that is a steady state for the current revenue base.

And final one also modeling. On equipment loans, you paid some off, obviously, added some, I think, around $7.8 million. Is that a good level going forward as well now that Great Elm is completed and sort of operating full force here?

Yes. I mean, in this particular quarter, there were some new swings in that category to the normal. But again, if you look at the 9 months period and if you look at -- even if you want to just look at the last 6 months, I think that's a good average since that already reflects Great Elm. Whenever we do an acquisition, we do acquire some liabilities as part of our purchase price allocation. So it does cut a little bit. But again, if you look at averages, I think you'll get a good average of the last 6 months.

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

This is Mike on for Rahul. First question is going to be on the acquisition pipeline. I wonder if you could describe the general profile of that pipeline and describe what you're seeing in terms of market pricing.

Sure. Our pipeline includes companies that are somewhere in the $3 million to $15 million in top line revenue. Some on the higher end of it, some at the lower end of it. I think the 3-pronged strategy that we have laid out, I think that continues to hold for us. We do see smaller tuck-in opportunities, which are extension of our existing geography, but within the same state which probably you can acquire those at lower multiples. And then you will see the higher and maybe $10 million plus/minus, and those might demand a little bit higher in terms of valuation. But overall, the valuation seems to be slightly depressed than what we have seen in the past.

Now I wonder if you could provide an update on the Great Elm integration. I'm wondering if there's more headroom for optimization of that asset moving forward and if that might factor into future adjusted EBITDA growth. And then describing with a bit more precision the ambitions around growth around that asset. What are some areas that you would like to see expand specifically in Great Elm.

I'll take the synergy part, and then I'll let Greg respond to the growth opportunity part. Just to rephrase your question, you're saying, are there more synergies to be unleashed and hence, more margins to be unleashed in Great Elm. Did I get that correct?

Yes.

I think what you are seeing is mostly maturity on the synergy side. We kind of -- whatever was previously identified, we were able to -- we were hoping only that in at 9 months, we were able to do that sooner. So I think what you're seeing is probably more of a steady state, if there are some more synergies to be squeezed out. I mean they might be gradual, but they may not be meaningful in the scheme of things. So I would consider Q3 as a very good day line.

Yes. And this is Greg. I'll just add in that it's primarily going to be the cross-selling of additional products in the future in that across those particular geographical areas. And then kind of follow after that, we'll be expansion into continuum areas.

And then just one modeling question to be part for the course. I noticed G&A climbing over the last 3 quarters. I wonder if you could describe what we should be thinking about moving forward?

G&A. Given the fact that we do acquisition, I think that's one thing. It's very hard to model. We totally appreciate that from a modeling perspective, as far as a steady state business goes, one way to look at it is look at our PP&E as a percentage of revenue and then maybe you use that to do the roll forward on for depreciation at least, right? Amortization is on the books you can still take that on a straight line. Having said all that, as soon as we do another acquisition, that baseline asset value changes and the depreciation numbers changes. So that's kind of the tough part. And again, we appreciate the challenge from an analyst perspective. But that's my two cents on how I would model if I was to look at the steady-state business.

The next question is from Ty Collin with Eight Capital. Please go ahead.

My first one, regarding the investment you guys made in DME Script. Is that something you might look to upsize as you get more familiar with that business? Are you kind of comfortable keeping that as a minority position just to keep your toes in the water.

Yes. I think that remains to be determined at this point. And that, I mean, we definitely see e-prescribe as a big part of the future in that that's going to allow us to scale our business. It's going to create efficiencies really on all fronts for the ordering physician. The company here as we process orders and ultimately, and that improve the patient experience so they can get their products quicker and get under service and keep them in the home setting.

And then just for my follow-up, I appreciate the confidence around the cash flow conversion and the updated guidance there. I guess I'm just wondering if you could maybe articulate or provide a little more color around what kind of gives you the confidence at this moment to increase that guidance and kind of hold that into the future.

Yes. I think a combination of things, Great Elm acquisition plus working on the business, some tailwinds that we have previously discussed on the conference call. But I think more importantly, the fact that things are kind of stabilizing, we are seeing direct top line growth that we expect to and with the presumption that inflation has kind of stable out and we are not going to see any file swings and then obviously confidence in the execution of our strategies, what makes us believe in those numbers.

We have a follow-up from Richard Close with Canaccord Genuity. Please go ahead.

Yes. Greg, I was wondering if you could talk a little bit about your thoughts on resupply, maybe core Quipt as compared to Great Elm and what's the opportunity there is for further penetration and just time lines possibly?

Yes, sure. Actually, a really good question in that. We've just converted in those operations, in that post, in that this quarter here of 6/30 over to the current platform that we're utilizing in that. So we would expect to see some nice growth come out of that over the next couple of quarters in that as those patients get transferred over and start ordering more frequently, which is what we've historically seen when we've transferred acquisitions over to this platform.

Are there any like percentage of patients that are doing resupply or any metrics that you can provide?

No, we really -- we don't published any of those. Obviously, you can see the volume metrics that is included in our PR as well as the remarks today. Generally, an increase in new setups leads to an eventual increase in our resupply patient base and then the revenue that falls into that. I think the other advantage of moving into the platform that we use for the rest of Quipt when it comes to Great Elm is retention. I think our platform has a higher retention rates for patients that are getting converted into a resupply patient. And so over time, you are building value under the platform that we are. So those -- that's all I can say in terms of why we would expect to have further growth in resupply revenue for Great Elm.

And we have a follow-up from Rahul Sarugaser with Raymond James. Please go ahead.

It's Mike here again. Wondering just a quick question on national insurance contracts. You've added two national insurance contracts. I wonder how you could describe the impact of these on your organic growth formula? And then a quick follow-up on the deal we saw struck in May between AdaptHealth and Protech on DME generally with Humana. I wonder like does that take Humana off the table for Quipt? Or is there in your specific areas of focus and respiratory, if there is some opportunity with that particular insurance provider.

Yes. I mean the national insurance contracts and that have a very long sales cycle. We do have others that we're working on in not only national contracts, but also some regional and state contracts in that, that would add additional patient lives and that it could potentially need our services. So we would expect that, that's going to continue. That is one of the levers in that, that we continue to pull in that to see the strong organic growth and still believe in that, that we've got plenty of runway on that front. As it relates to Humana to the best of our knowledge in that contract and that is for HMO plans, which only affects about 40% and that of the enrolled member lives in that under that Humana plan. So we've still got a good strong relationship with Humana.

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

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