By WCPO investigative reporter Dan Monk and WCPO multimedia producer Brian Neisz
Greg Crawford had less than $1 milion to make payroll in 2017 when he became CEO of Quipt Home Medical Corp., a supplier of sleep machines and respiratory equipment in Wilder, Ky.
So, he followed the advice of Chief Financial Officer Hardik Mehta.
“Within a week, I went back to Greg and said, ‘Greg, I don’t think you and I should take any salary until we straight line this thing,’” Mehta recalled. “That’s the level of commitment we were ready to do. We knew what needed to be done. We had a path. We just had to execute on it.”
That was the start of a five-year comeback for Quipt, which was listed on the Nasdaq exchange last May and last month reported its fifth straight quarter with sales growth above 30%.
Quipt’s board rewarded those efforts with a $4.4 million compensation package for Crawford in 2021, while Mehta received $3.7 million, according to the company’s proxy statement to shareholders. Crawford’s 907% raise was the largest in Greater Cincinnati, according to the WCPO 9 I-Team’s analysis of executive pay at 23 publicly traded companies. Mehta ranked second with a raise of 870%.
Crawford and Mehta declined to comment on the specifics of their pay plans.
“I’m just a Northern Kentucky guy,” Crawford said. “I’m not looking for the fame. I’m just looking to take care of the company, my stakeholders and that, which includes all my employees.”
Quipt is part of an unusual twist for local public companies: Ten of the 20 biggest raises went to executives that led their companies onto the Nasdaq exchange last year.
Real estate developer Phillips Edison & Co., which completed an initial public offering last July, had five executives with pay raises between 80% and 386%. Hillman Solutions Corp., a hardware distributor, had three executives with raises between 112% and 178%. Hillman joined Nasdaq last July after it was acquired by a publicly traded shell company in a specialty purpose acquisition company, or SPAC, transaction.
Hillman and Phillips Edison did not respond to questions about their pay plans.
“It’s not surprising that a lot of the big raises went to the executives of newly public companies,” said Pete Blackshaw, CEO of Cintrifuse, an Over-the-Rhine-based startup accelerator. “For a lot of CEOs, that’s what they’re angling towards.”
Blackshaw said Cincinnati’s startup economy gains new energy when companies go public. It allows early investors to realize a return on their capital and redeploy cash to other companies. It also gives experienced employees some cash and stock that could fund new startups.
“We’ve seen a lot of that here in Cincinnati, where you’ve got someone who has kind of made some money but is also very entrepreneurial by nature and they want to do it again,” Blackshaw said. “And this is part of the secret sauce of the Silicon Valley.”
Cincinnati startup companies raised about $800 million in 2021, which is three times the prior year. But Blackshaw said rising interest rates and turbulence in the stock market will keep Cincinnati from matching last year’s feat of bringing five companies to Nasdaq.
“Cincinnati has never had a stronger pool of startups that are, I think, positioned for hockey stick growth,” Blackshaw said. “Then the question is, ‘What is the lever that they want to pull?’ Is it the IPO market? Is it strategic M&A (mergers and acquisitions) or is it just continued organic growth?”
The big picture
This is the 10th year the WCPO 9 I-Team has analyzed executive pay trends in the Tri-State, using data pulled from regulatory filings by S&P Global Market Intelligence. Among this year’s top trends:
- Five companies added 17 new executives to this year’s list of the highest paid public company employees. In addition to Quipt, Hillman and Phillips Edison, this year’s list includes payroll processing firm Paycor HCM Inc. and Blue Water Vaccines Inc., which is using research from Cincinnati Children’s Hospital Medical Center to develop a universal flu vaccine.
- The new Nasdaq-listed companies reversed a three-year trend toward a shrinking number of public companies in the Tri-State. The region now has 23 public companies, down from 26 in 2018.
- WCPO’s searchable database (below) has 89 executives who made at least $1 million last year, down from a peak of 108 executives who reached the same levels in 2016. Much of the drop came from the departure of large public companies from Cincinnati, including Ashland, Macy’s, Vantiv and Convergys Corp.
- Among executives who held the same job for the last two years, median pay – or the midpoint of all compensation packages – increased 42% to $2.3 million. That’s more than double the 17.1% increase for CEOs in the S&P 500, as reported by the compensation firm Equilar.
- The CEO pay ratio – which compares CEO compensation to each company’s median worker – showed signs of improvement in 2021. Kroger CEO Rodney McMullen took a 12% pay cut in 2021, while the company’s median pay increased slightly. So, Kroger’s pay ratio improved to 679 to 1, down from 909 to 1 in 2020.
- Ten companies increased median pay in 2021 and eight of those increases exceeded last year’s 6% rate of inflation, said Janet Harrah, an economist at Northern Kentucky University.
Average Joe vs IPO
This was the first year that all local companies reported a median pay figure that exceeded the federal poverty guideline. But only four companies reported median pay figures above Ohio’s living wage for families, defined by MIT researchers as the amount a working adult must make to support a family of four.
WCPO has used the same number since 2016 to put local median pay rates in context with other data points. MIT substantially increased living wage estimates this year, due to inflation and other factors.
“We added cellphone and broadband, we also added a civic engagement variable that allows families to buy books go to the movies, have children in sports, and adult physical activity,” MIT Professor Amy Glasmeier wrote in an email response to WCPO’s inquiry.
But the year’s biggest changes involved pay disclosures at once-private companies, including Phillips Edison, where CEO Jeffrey Edison became the 10th highest paid local executive with $8.8 million in total compensation – including a restricted stock grant worth $5.8 million. President Devin Murphy ranked 24th in total pay at $4.5 million, while Robert Myers became the second-highest paid chief operating officer with total pay of $3.7 million.
At Hillman Solutions Corp., Chief Financial Officer Robert Kraft became the highest paid boss in his company with a $3.6 million compensation package that included stock options worth $3.1 million. Kraft’s total pay was $212,000 more than CEO Doug Cahill, whose compensation plan raised a red flag for Rosanna Landis Weaver.
“Hillman Solutions has something in its proxy that is generally not a good practice,” said Landis-Weaver, senior manager of the Wage Justice & Executive Pay Program at As You Sow, a California -based non profit. “It’s a very strong severance that happens just with a change of control, whether or not he’s terminated.”
Hillman’s proxy says its five highest paid executives could receive payments totaling $17 million if the company is sold. Landis-Weaver said shareholders prefer severance to be paid only if an executive is fired by the acquiring company. Hillman’s payments would come “regardless of termination, according to the proxy, which estimates Cahill’s potential severance at $11 million.
“It’s considerably higher than his pay,” Landis-Weaver said. “So, when you talk about what’s being incentivized, he might very well be incentivized to sell the company because the change in control is so generous.”
Hillman Chief Marketing Officer Jerrod Streng said “company policy prohibits us from making public statements concerning employee salaries.”
Questions about Quipt
Landis-Weaver also questioned pay arrangements at Quipt, where the CEO already owns about 4% of the company’s stock but received a restricted-share grant and option awards that could boost his ownership to nearly 5%.
“He’s already well positioned” to benefit from a rising stock price, Landis-Weaver said. “It doesn’t seem like an additional award is truly necessary.”
The stock awards at Quipt made Mehta the third-highest paid chief financial officer in the Tri-State, outranking CFOs from Procter & Gamble Co., Fifth Third Bancorp. and Cintas Corp. Crawford had higher pay than eight CEOs at local companies larger than Quipt, based on the total value of each company’s stock at the end of their 2021 fiscal years. For example, Paycor shares were worth $4.3 billion, or 29 times more than Quipt. But Paycor CEO Raul Villar made $3.3 million less than Crawford.
Among industry peers, Crawford had a bigger pay plan than the CEOs of Apria Inc. and AdaptHealth Corp., which are eight to 10 times larger than Quipt. Mehta made more than the CFO at AdaptHealth, less than Apria Inc.
Is Quipt’s pay justified? Here are some things to consider.
Quipt Vice President Cole Stevens said the dollar value attached to any stock grant is an estimate that can change over time. The actual value depends on a company’s future stock price and how many shares vest over time.
“The option has an exercise price for $8.48 and has zero value” at present, Stevens said via email. The restricted share award, “while granted last year, it has (a) 3 years vesting period and can be withheld upon termination.”
Quipt stock, which trades on Canadian and U.S. exchanges, closed at $4.75 May 31. It hasn’t traded above $8.48 per share since 2015. But that could change in the coming years because analysts are predicting Quipt will rise to between $10 and $16. If that happens, Quipt options would be worth up to $7.52 per share – the difference between a $16 market value and the exercise price of $8.48.
Company performance is another factor to consider. Quipt ranked third in Greater Cincinnati with a total shareholder return of 59.3% in 2021, more than doubling the S&P 500 return of $26.61% for the year. It also had the third-best shareholder return for local companies over three years, posting gains of 138%.
Quipt sells respiratory equipment and CPAP machines in 18 states, with 87 locations serving 180,000 patients with about 19,000 referring physicians. Its goal is to become a national medical equipment company by acquiring smaller rivals. It has announced 12 acquisitions since Crawford and Mehta took charge of the company and signed a national insurance contract with United Healthcare.
“We see (Quipt) as having a recession-resilient business, where respiratory services will continue to be in demand with demographic trends to support,” wrote Stifel Nicholas analyst Justin Keywood in a May 25 report.
Raymond James analyst Rahul Saraguser called Quipt “one of our best value names” in a May 17 report.
“(Quipt) indicates that its (acquisition) pipeline remains strong, with a wide variety of strategic opportunities in view as the company drives ahead at growing its national network,” Saraguser wrote.
Such plaudits seemed unlikely five years ago, when Crawford became CEO after a corporate divorce in which Crawford’s former boss formed a new company, Viemed Healthcare Inc., in a spinoff from Quipt’s predecessor, Patient Home Monitoring Corp.
“They left with the cash and we got stuck with the debt,” Crawford said.
The spinoff happened two years after Crawford sold his privately held company, Patient Aids Inc., to PHM for $33.9 million. It was one of seven acquisitions announced by PHM in 2015 and it led to massive losses in 2016.
“They weren’t operators,” Crawford said of his former bosses. “They were more financial engineers. They had the vision. There’s no question about that. But they just didn’t have an operator sitting at the top that could kind of run the business for them.”
Crawford renegotiated his sale price in 2016 in a deal that made him a major shareholder. He served as chief operating officer until Viemed separated from the company in December 2017.
Five years and two name changes later, Quipt debuted on the Nasdaq exchange May 27, 2021. Then it announced four straight record quarters with sales growth of 30% or more.
“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,” Crawford told investors in a May 16 earnings release.
The recovery isn’t complete yet. The company still owes about $10 million to a publicly traded debenture that expires in March 2024. And despite its rapid revenue growth, it has yet to post a profit.
Quipt finished its 2021 fiscal year in September with a $6.2 million loss on revenue of $102.4 million. But that loss includes a $16 million depreciation expense on assets acquired since 2018. That’s why the company prefers to tout its revenue and EBITDA growth in communications with investors. EBITDA stands for earnings before interest, taxes, depreciation and amortization. And it was up 38% to $21.4 million in 2021, while revenue increased 41%.
“Our goal here is to really build out one of the best home-care companies in the country and continue to expand,” Crawford said. “We believe we’re probably in the top 10 from a revenue standpoint in the country, if not in the top five. (And) there’s estimated to be 6,000 mom-and-pop providers out there which own a lot of the space.”
So, Crawford aims to continue the company’s pattern of finding small- to mid-sized competitors willing the cash out like he did in 2015. How long will it take to accomplish his goals?
“I thought I was done seven years ago and I’m still here today,” Crawford said. “I’ll be here as long as I continue to get elected every year by my shareholders.”