1. 2014 HME News / SRA Financial Benchmarking Survey Presented by: Rick Rector, Publisher | Executive Vice President HME News GAMES Annual Meeting | August 16 - 18, 2015 Legacy Lodge at Lake Lanier

2. Objectives Review results of current industry survey. Identify trends and discuss assumptions derived from data. Address areas of immediate concern. Use this information to go back and immediately implement changes in your own company!

3. Consolidation continues. Revenue growth starts to turn up for some, despite severe reimbursement pressures for many in 2013. Patient pay and sleep products lead 2013 growth areas. Employee efficiency and acquisition cost trends continue to improve. Profits remained relatively stable, but EBITDA as % of revenues slipped into single digits. Audits continue to negatively impact collections. Strategic plans favor growth vs. improved efficiency. Cash/retail remains primary growth focus, but complex rehab, expanded service areas and non-invasive vents also sources of strong interest. Executive summary:

4. Business size - Respondent revenue comparison (fiscal years)

5. Business size - # of employees comparison

6. Respondent comparison by number of locations

7. Consolidation continues. Most have multiple locations and greater than 20 employees for the first time in our annual survey. Still, 37% have less than $2M revenue. We anticipate this trend will continue and increase as competitive bidding rates roll out to the balance of the country in 2016. Business size (Summary)

8. Trends – Revenue growth 201320122011201020092008 Declined 32.0%29.4%32.7%27.4%39.8%19.7% Stayed the same 8.7%14.7%14.0%21.0%11.0%16.8% Increased 1-10% 33.0%30.8%35.7%31.2%28.8%30.1% Increased 11-20% 18.5%14.0%11.1%13.4%8.9%19.1% Increased 20+% 7.8%11.2%6.4%7.0%11.5%13.3%

9. Revenue growth - Historic

10. Payer type increases (comparison)

11. Revenue by payer type – Historical percentage comparison

12. Revenue by employee type Independent HMEHospital owned HME Intake/CSR$559,000$717,000 Billing/collections$791,000$1,177,000 RT’s$1,645,000$1,907,000 Delivery techs$670,000$1,039,000 Marketing$1,401,000$1,986,000 Other$625,000$618,000 All employees-2013$151,000$186,000 All employees-2012$147,000$136,000 All employees-2011$138,000$160,000

13. Revenue per employee

14. Revenue by employee type Independent HME

15. Oxygen revenue as % of total 2013 2012 2011 2010 2009 2008 2007 2006 Don’t provide oxygen 24% 30% 20% 28% 25% 25% 26% 25%.

16. Oxygen census by modality 1/1/141/1/131/1/121/1/111/1/101/1/09 Concentrator & gaseous portable40%50%41%62%55%53% Concentrator only32%30%35%10%24%21% Home transfill system14%10% 8%10%15% Portable concentrator6%7%5%6%4%2% Concentrator & liquid portable4%1%2%1%2%3% Liquid stationary & liquid portable3%1%5%2%4%5% Liquid stationary only1% 2%0% 1%

17. Oxygen census (non-capped) by payer as of 1/1/14 201320122011201020092008 % of total Medicare41%55%57%58%56%52% Other insurance19%15%8%11%17%16% Managed care14%18%22%13%12%13% Medicaid14%8%7%10%8%10% SNF/Hospice7%3%4%7%6%7% Patient paid5%1%2%1% 2%

18. Sleep revenue as % of total 2013 2012 2011 2010 2009 2008 2007 2006 Don’t provide sleep 33% 39% 26% 32% 24% 28% 30% 31% Sleep revenue by type: Equipment59% (57% last year, 60% in ‘11, 67% in ‘10) Supplies41% (43% last year, 40% in ‘11, 33% in ‘10)

19. HME rental revenue as % of total 2013 2012 2011 2010 2009 2008 2007 2006 Don’t provide HME rentals 25% 21% 15% 23% 20% 17% 19% 18%

20. Power mobility revenue as % of total 2013 2012 2011 2010 2009 2008 2007 2006 Don’t provide 50% 55% 58% 51% 50% 50% 46% 46%

21. Revenues – Product lines that increased (as % of revenues)

22. Revenues – Fastest growing product lines (as % of revenues) Other includes retail sales (15%) and non-invasive vents (12%)

23. Discontinued product lines 2013 2012 2011 2010 2009 2008 2007 2006 Did not discontinue any lines : 72% 75% 60% 65% 64% 79% 46% 46% Other includes O&P and beds & w/c (4% each) and sleep and retail (3% each).

24. Rehab revenues as % of total 2013 2012 2011 2010 2009 2008 2007 2006 Don’t provide rehab 74% 72% 73% 69% 71% 78% 70% 65%

25. Operating Metrics: 2013 20122011201020092008 Average monthly revenues/RTS $43,300$52,700$49,000$42,500$61,500$51,250 Monthly completed eval./RTS 20 2122172118 Avg. % (of annual rev.) in WIP 14% 12%13%14%12% Avg. days from eval. to delivery 54 days 55 days58 days53 days 52 days Average commission paid per new rehab patient $75n/a Rehab technology

26. Profitability trends – Profit dollars

27. Profitability trends – Profit as % of revenues

28. Gross profit, expenses & EBITDA 201320122011201020092008 Revenues100% Gross profit66%63%65%68%64%63% Operating expenses57%53%55%52%51%49% EBITDA9%10% 16%13%14%

29. Acquisition cost trends

30. Acquisition cost trends IncreasedDecreasedNo change Oxygen22%37%41% Sleep18%51%31% Beds & wheelchairs17%35%48% Supplies30%24%46% Power mobility29%24%47% Complex rehab28%15%57% All equipment24%32%44%

31. Expense benchmarks 10 th PercentileAverage90 th Percentile Employee related - 201345.4%31.4%14.0% Employee related - 201250.3%33.0%16.7% Employee related - 201160.1%33.9%11.8% Employee related - 201045.8%31.7%18.2% Employee related - 200947.8%33.7%19.6% Employee related - 200844.2%32.5%19.1% Occupancy related - 201311.8%6.4%1.9% Occupancy related - 201222.2%7.3%2.0% Occupancy related - 201118.8%6.0%1.1% Occupancy related - 201017.6%8.1%3.0% Occupancy related - 200910.9%5.6%1.8% Occupancy related - 20089.6%5.1%1.7%

32. Downsizing – Where have you downsized as a result of revenue declines? Did not downsize: 36% (51% in 2012 and 45% in ‘11 and ‘10)

33. Compensation of marketing staff 201320122011201020092008 Salary only 39%34%35% 32%35% Salary + incentive based on set-ups 26%27%29%32%36%40% Salary+incentive based on collections 18%24%19%22%21%20% Salary+other incent. (or combo of above) 8%4%6% 5%0% Incentive only 2%3%5%2%3%4% Other (hourly or no dedicated sales staff) 7%2%6%3% 1%

34. Compensation of marketing staff (Cont’d) Equip. 201320122011201020092008 Avg. comm./set-upO2 $68$85$77 $88$87 CPAP $45$40$49$42$49$39 Vents $271n/a Power W/C $48n/a % of total marketing comp. that is incentive based 23%25%31%21%27%23% Avg. O2 set-ups/marketing rep. 201815131512 Avg. CPAP set-ups/marketing rep. 312921n/a

35. Outsourcing – Current outsourcing 201320122011201020092008 None 48% 51%56% 59% Collections 27%24%32%22%24%21% Billing service 24%20%17%10%13%17% Deliveries 7%8% 9%7%8% Regulatory/compliance 1%4% 9%4%5% Other 4%6% 9%7% Other includes accounting, HR/payroll and home mods.

36. Sleep supply outsourcing - % of respondents that outsource sleep supply services 2013201220112010 Both fulfillment and compliance/reorder calls 15.8%11.8%14.0%9.1% Compliance/reorder calls only 5.9%6.9%4.5%7.0% Fulfillment 5.9%5.6%4.5%5.4% Total 27.6%24.3%23.0%21.5%

37. -46% reported that DSO increased/worsened in 2013 -Collections averaged 85% of allowable revenues, consistent with recent years. -69% say that CMS audits have increased their DSO with one-third reporting increases of greater than 10 days DSO

38. 20132012201120102009200820072006 Internal cash flow62%57%59%61% 56%n/a Bank lines of credit39%34%37%36%34%48%49%54% Equipment leases36%39%31%33%36%47%42%48% Bank term notes26%20%24%16%23%30%29%20% Shareholder loans 25%17%19%17%15%21%17%21% Private investors3% 5%9%7%5%9%7% Factoring A/R0%3%4%3% 2%n/a Capitalization – What sources are we using?

39. What’s Next ? Primary strategy for next 12 months Activity2013201220112010200920082007 Grow cash/retail sales17%22%15% 13%25% Grow revenues-other or non specific16%11%17%18% 28%15% Efficiency/productivity, reduce costs13%11%18%13%30% Increase respiratory revenues11%14%4%5%17%11%16% Improve collections10%-2%1%9%8%2% Expand service area/locations7%5%4% 5%4% Survive6%12%10% 8%14%10% Reduce dependence on Medicare6% 4%3%22%6%7% Disease management/outcomes5%n/a New payer contracts4%7%5%2% 8%5% Diversify product mix4%15%6%9%7%13%10% Audit/compliance2%1% 5%3%5% Strategic partnerships1%2%-----

40. Activity2013201220112010200920082007 Cash/retail sales30%35%25%31%21%13%25% Complex rehab/mobility11%5%9%1%3%1%3% Increase service area/new locations11%7%10%5%6%5%4% Clinical respiratory NIV vents8%6%----- Sleep8%9%5%4%14%6%11% Oxygen8%6%5%6%9%5% Home modifications /accessibility5%------ Supplies5%2%-4%--- Insurance/managed care contracts3%6%11%4%3%9%7% Commercial contracts3%4%2%3% -- Maintain/improve service3%1%2%4%3%1%5% Diversify product lines2%7%13%19%9%13%10% Strategic partnerships2%3%----- Orthotics1%4%2% 3%-- Competitive bidding-2%9%7% -3% Increase marketing/advertising-1%-2%6%-5% Internet--4%3%--- What’s Next ? We need to grow but how?

41. Eight-year-old business focused on respiratory (85%) was faced with large 2013 reimbursement cuts in Round 1 rebid and Round 2 (95% of business in Rounds 1 & 2). Historical growth was 25%-30% per year. MCR is 60%. Company responded with a relentless focus on improving both efficiency and accelerated growth; made substantial investments in their goals. Revenues flat in 2013 vs. 2012, at $7M, reflecting increased unit growth in the face of substantial Round 1 rebid and Round 2 cuts. The payoff came in 2014 with nine locations, and revenues running YTD at a $12.5M pace and 30% EBITDA. How they did it: –Efficiency consultant to review all processes, now hired full time. –Technology investments Upgraded IT and billing systems Tablets for drivers and marketing –Non-delivery focus Alternative O2 systems PAP supplies and web-based transactions –Selective diversification into clinical respiratory NIV –Aggressive expansion of marketing reps and locations –Only outsourced business function is PAP supply fulfillment Top performer case study:

42. Top performer metrics: Financial results:TPIAVE Revenues100% Gross profit77%66% Operating expenses47%57% EBITDA30%9% Revenue per employee: Billing/collection$1,388K$791K RT$3,125K$1,645K Delivery tech$782K$670K Marketing$833K$1,401K Total$156K$151K Product mix: Concentrator only50%32% Alternative/traditional delivery mode %50%/50%30%/70% Equipment/supplies PAP %50%/50%59%/41%

43. Top performer metrics: TPIAVE Marketing: -% marketing comp based on incentive31%23% -Commission on setups: O2$90$68 PAP$45 Vent$1,000$271 -Set-ups per rep per month O220 Pap2531 Payer mix: Medicare60%29% Medicaid1%15% Managed care/insurance33%32% Patient paid6%18% Hospice/other-6%

44. Final discussions - Reimbursement pressures continue. Remaining providers need to continue growth and build profitable scale by increasing unit rentals and sales as others exit. Success requires continued investment in both marketing and improved operational efficiencies. The future still looks bright as baby boomers age, but only for those that can adapt and change fast enough.