Margin Improvement
Q: What's driving the margin improvement?
A: Jason Clemens explained that cost of products and supplies are significantly better than the first quarter of last year. This improvement is due to supplier negotiations and product mix, including growth in diabetes and other areas. They are pleased with the 2024 contracting cycle, which is largely complete, and expect to continue delivering improved cost of products and supplies throughout the year.

Free Cash Flow Guidance
Q: Is the free cash flow guidance sustainable?
A: Jason Clemens stated they are confident in the free cash flow guidance for the year. He mentioned that interest is running almost 4% of revenue, and as they continue to deleverage and drive down interest expense, it will add benefit. Their CapEx as a percent of revenue was down 90 basis points over the first quarter of last year, and they committed to about 0.5 point of improvement year-over-year.

Diabetes Revenue Outlook
Q: Should we adjust diabetes growth expectations?
A: While pleased with the diabetes beat in Q1, Jason Clemens noted they do not expect a pronounced step-up in the second quarter due to tough comparables from the prior year. They are making progress in sales and starting to take more orders in pharmacy. The prior year's system conversion led to a large sequential increase that won't repeat.

Capitated Revenue and Humana Ramp-Up
Q: How did capitated revenue change with the Humana ramp-up?
A: In the first quarter, they reported $32 million in capitated revenue, including the entire Humana per member per month (PMPM) revenue and other longstanding capitated arrangements. Sequential increases last year reflect the ramp-up of the Humana contract.

Q2 Outlook and Margin Pressures
Q: Why is Q2 expected to be softer?
A: Jason Clemens indicated that tougher comparables in Q2, especially in diabetes and sleep revenue, are a factor. They are monitoring potential supply chain slowdowns in sleep resupply and facing increased costs from the Change Healthcare issue, which requires manual processing.

Sleep Resupply Supply Chain Issues
Q: What are the supply chain issues in sleep resupply?
A: The issue pertains to a slowdown in distribution, not raw materials or manufacturing capacity. Some suppliers have publicly cited impacts like the Red Sea incident, causing distribution delays. They are working with suppliers and using options like air freighting, despite higher costs, to meet patient needs.

Investments in Diabetes Sales Force
Q: How is the expansion of the diabetes sales force progressing?
A: Richard Barasch reported adding around 40 new reps, all trained and active in the field. They are seeing promising results from the majority of new hires. Crucially, they are deploying reps in target-rich markets like New York City, where there's a high prevalence of diabetes.

Investments in Sleep Sales Force
Q: Why invest in the sleep sales force?
A: Richard Barasch stated that they are the #1 in sleep with increasing market share. By adding sleep reps in target-rich areas, they aim to capitalize on growth opportunities. He emphasized the large number of undiagnosed obstructive sleep apnea patients, suggesting strong growth potential.

Debt Repayment and Term Loan Maturity
Q: How are you planning for the upcoming term loan maturity?
A: Jason Clemens noted they exited Q1 at 3.12x leverage and expect to be below 3x before the end of 2024, possibly sooner. The Term Loan A will come current in January 2025 and is due in January 2026. Their bank group is actively working on options, and they plan to address it this year while continuing to pay down debt.

Change Healthcare Impact
Q: What's the impact of the Change Healthcare issue?
A: Resolving the Change Healthcare matter is costly due to manual processing requirements. Applying payments now requires significant labor, as systems are manual rather than electronic. This was unplanned, but they believe they'll overcome it during the year. They confirmed that patient admissions and resupply processing are not affected.

CapEx Expectations
Q: Are CapEx expectations still the same?
A: Jason Clemens confirmed that CapEx is expected to remain in the same range as previously discussed. The higher percentage in Q1 is a matter of timing.

Pharmacy Channel Shift in Diabetes
Q: Is there any contribution from the pharmacy channel in diabetes?
A: There was no incremental contribution in Q1 from the pharmacy channel. A modest contribution is expected in Q2 as they opened four key markets late in Q1. While not yet material, they plan to expand into more markets.

Organic Growth and Capitated Revenue Calculation
Q: How is capitated revenue calculated in organic growth?
A: Capitated arrangements are 100% organic, not acquired. Previous acquisitions have been anniversaried, so all capitated revenue contributes to organic growth calculations.