AdaptHealth - Earnings Call - Q4 2020
March 4, 2021
Transcript
Speaker 0
Greetings, and welcome to the Adapt Health Corp. Fourth Quarter and Full Year twenty twenty Financial Results Conference Call. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Chris Joyce.
Please go ahead, sir.
Speaker 1
Thank you, Kevin. I'd like to welcome everyone to today's Adapt Health Corp conference call for the quarter ended 12/31/2020. Everyone should have received a copy of our earnings release earlier this morning. If not, I'd like to highlight that the earnings release as well as a supplemental slide presentation regarding Q4 twenty twenty results is posted on the Investor Relations section of our website. In a moment, we'll have some prepared comments from Luke McGee and Steve Griggs, Co Chief Executive Officers of Adapt Health Josh Parnes, President of Adapt Health and Jason Clements, Chief Financial Officer of Adapt Health.
We'll then open the call for questions. Before we begin, I'd like to remind everyone that statements included in this conference call and in our press release may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act. These statements include, but are not limited to, comments regarding our financial results for 2021 and beyond. Actual results could differ materially from those projected in forward looking statements because of a number of risk factors and uncertainties, which are discussed at length in our annual and quarterly SEC filings. Adaptellus Corp.
Shall have no obligation to update the information provided on this call to reflect such subsequent events. Additionally, on this morning's call, we'll reference certain financial measures such as EBITDA, adjusted EBITDA, and adjusted EBITDA less patient equipment CapEx, all of which are non GAAP financial measures. This morning's call is being recorded, and a replay of the call will be available later today. I'm now pleased to introduce our Co Chief Executive Officer, Luke McGee.
Speaker 2
Thanks, Chris, and thanks everyone for joining our call. I'd like to start with a quick thank you to all of our Adapt Health employees. I continue to be impressed by the heroism of our frontline employees, clinical teams, and delivery drivers who have continued to meet the critical needs of our patients in the face of the COVID nineteen crisis. Our patients' home health needs have only grown throughout the duration of 2020, and now that Adapt Health and ArrowCare have combined, we have amplified our ability to empower our patients to live their best lives out of the hospital and in their home. To put that in context, on a combined basis, we provided home medical equipment to more than forty three thousand patients with a COVID diagnosis.
On top of that, we provided hundreds of ventilators, thousands of oxygen concentrators, and hundreds of thousands of pulse oximeters and thermometers to our hospital partners. We, along with our HME peers, were a critical part of the health care system in responding to COVID. Not only did ADAPT step up to meet the needs of our patients, payers, and referrals throughout 2020, but we did so while delivering record financial results. As Jason will detail later, our full year results beat the high end of our updated guidance that we published in November 2020 across revenue, adjusted EBITDA, and adjusted EBITDA less CapEx. We continue to grow our business with accretive acquisitions through the year, including the transformational acquisition that acquisition of Aerocare that closed on 02/01/2021.
In total, we acquired 22 companies in 2020. As we've demonstrated over the past several years, our team has the ability to integrate acquisitions into a cohesive and comprehensive platform to deliver health care in the home. The acquisition of ArrowCare will only enhance and accelerate our goals here. Our management teams have a shared have shared a common view of success for a long time, a business that is powered by technology, connectivity, and ease of doing business with our referring providers, efficient logistics and turnaround times, and patient satisfaction with our products and services. We continue to invest in these important areas, and the team will talk about progress in our prepared remarks.
Following the EraCare closing, we remain focused on strengthening our geographic footprint, product mix, and patient access through strategic and accretive acquisitions. In late February, we closed on the acquisition of Alina Health Alina Health Home Oxygen and Medical Equipment in Minneapolis. And earlier this week, we closed on two other acquisitions, further complementing our existing HME businesses in the Midwest and Southern California. We continue to build out our rapidly growing diabetes supply business to complement the acquisition of Solara last year. We are pleased to announce the acquisition of Louisiana based Diabetes Management and Supply, a leading supplier of CGM and diabetes management supplies throughout Louisiana and the Southeastern United States.
We've also added additional scale with a small acquisition in Upstate New York at the 2020. To support our acquisitions with appropriate financing, we've been active in the capital markets. We are pleased with the recent success of these activities, including our $500,000,000 unsecured note issuance, our $700,000,000 refinancing of our senior secured credit facilities, and our successful $275,279,000,000 equity raise in January 2021. In total, we expect these acquisitions to deliver a 130 to a 150 of incremental revenue in 2021, and we are increasing our guidance accordingly. Jason will talk about the components of our guidance later.
But for now, I'll turn the call over to Steve to talk about what we've accomplished together in our first thirty days.
Speaker 3
Thanks, Luke. I'll start by acknowledging the tremendous cooperation our teams have demonstrated since meeting each other. Our mentalities were aligned from the beginning, so we are off to a very fast start. From the announcement through the closing date, our team spent time learning the details of our respective businesses, processes, and systems. That was time well spent as it resulted in detailed operating plans to implement best practices, accelerate growth and drive cost savings.
Importantly, we remain on track to deliver $50,000,000 in annual run rate synergies. I'll touch on the progress on the revenue side, and Joss will talk about our cost synergies. Prior to closing, we expected to see achieve revenue synergy in a few key areas focused on helping patients stay adherent to their prescribed protocols, ensuring patients get their resupplies they need when they need it, and streamlining the revenue cycle.
Speaker 2
First, Pap
Speaker 3
adherence within our sleep business. The first ninety days of Pap therapy is critical to patient success. Accordingly, we have significant opportunity to install our combined best practices for patient setup procedures to focus on the first thirty days of therapy. In addition, we're aligning our resources across our sleep coaches and compliance teams to drive increased Pap appearance for the next sixty days of therapy. We have also installed common reporting and visibility across the enterprise so we make efficient decisions to train and educate our teams to drive improvement.
Second is PAP resupply. There's an opportunity to improve patient outcomes by ensuring regular, efficient, and dependable resupply. This requires streamlining eligibility requirements to enhance technology and optimizing shipping costs while ensuring timely delivery. We're working to install a common platform for our entire company. Third is patient collections.
We're focused on implementing the best practices at the very beginning of the patient setup process to ensure an autopay is enabled and monitored over the RCM life cycle. Many of these revenue projects will take time to materialize, but the hard work is underway to integrate best practices and hardwire our processes. Importantly, while we work on these revenue synergies, we remain focused on winning new business each and every day. Next, we'll turn to cost synergies. I'll let Josh discuss the details.
Speaker 4
Thanks, Steve. On direct purchasing, we've reached agreement with all our major manufacturer partners on new purchasing terms that recognize the enhanced scale of the combined company. We expect these new purchasing terms to combine to contribute significantly to our $50,000,000 cost synergy target with the majority of these savings already being realized in q one. Indirect vendor consolidation is also well underway with some early wins in shipping costs, office supplies, and insurance. The back office consolidation will be methodical and should result in elimination of some duplicate roles as our functions get integrated.
Although the geographic footprints of Adapt and ArrowCare were largely complementary, there are dozens of locations with overlap based on our time to deliver to patients. We are already in process of consolidating locations, jobs, vehicles, and resources across the country. We have tremendous opportunity for improved efficiency in our combined centralized business functions, including our revenue cycle, customer service, and resupply operations. We are bridging technology and best practice across all areas of our central functions. Finally, our initiatives to advance e prescribing continue to yield results.
Specifically, our diabetes business is already generating twenty percent of new starts through our e prescribe platform, up from 0% at the beginning of the fourth quarter. We have growing demand for e prescribe from our referring providers, and we've made investments in sales training and commission programs to accelerate conversion to this workflow. Overall, we're extremely pleased with the results and proud of our teams. With that, I'll turn it over to Jason.
Speaker 5
Thanks, Josh. Good morning and thanks for joining our call. Turning to our results for the 2020. Adapt Health generated net revenue of 348,400,000.0 an increase of 133% from the 2019. Adjusted EBITDA was $79,400,000 an increase of 136% from the 2019.
Adjusted EBITDA less patient equipment CapEx was $58,500,000 an increase of 168% from the 2019. Our financial results include $14,300,000 of funds that we qualified against the Provider Relief Fund reporting update that HHS announced on 01/15/2021. The remaining funds will be returned to the government. As Luke mentioned earlier, we are very proud of our Q4 and full year 2020 results. During a time of tremendous change in our business and an operating environment made more challenging due to the pandemic, we delivered record financial results while also expanding our platform and setting ourselves up for future success.
Compared to a year ago, we're a much larger company with an expanded geographic footprint and product reach, including an exciting diabetes business that is well positioned in a fast growing category. For the full year, we closed on 22 acquisitions, which does not include the acquisition of AeroCare that closed in February 2021. These acquisitions added exposure in high growth HME markets like the Southeast and Southwest, provided additional density and geographies in the Northeast and expanded our product portfolio, particularly in Supplies and Diabetes. While we have a strong M and A pipeline and will continue to assertively deploy capital via acquisition, we remain focused on growing our business organically. On that note, our new start business has rebounded nicely from the pandemic lows in mid Q2.
Specifically, our path new start business, which declined more than 30% from pre pandemic highs in Q2, has nearly reached those pre pandemic highs. The uptick in COVID cases in December 2020 and so far in 2021 has slowed down some of that recovery, but we remain confident we will be above high water for new starts for PAP and other HME like wheelchair and walkers by the end of Q1 twenty twenty one. Our resupply business has remained steady throughout the pandemic, and we are encouraged by continued growth in the CGM resupply business. Lastly, our oxygen business was elevated throughout 2020 with a significant increase in the back half of Q4 and year to date 2021. We expect oxygen new starts to remain above pre pandemic levels for at least the balance of the first quarter.
Emphasize all of the trends above and as detailed on a slide in our Q4 twenty twenty earnings supplement, our organic growth for full year 2020 was 8.6% when including the COVID B2B business and 5.6% when excluding B2B. For the fourth quarter, organic growth was 5.7% when compared to the 2019, including the COVID B2B business and 4.9% when excluding B2B. With our PAP census rebuilding after the depressed new starts in midyear, increase in oxygen business in Q4 and continued market expansion in CGM, we remain confident in our organic growth prospects between 810% for 2021. With that context on organic growth, I'd like to turn to our guidance for 2021. As announced this morning, we are increasing our 2021 full year guidance for net revenue, adjusted EBITDA and adjusted EBITDA less patient equipment CapEx.
Our previous 2021 full year guidance for net revenue was $2,050,000,000 to $2,200,000,000 adjusted EBITDA was $480,000,000 to $515,000,000 and adjusted EBITDA less patient equipment CapEx was 300,000,000 to $330,000,000 As a reminder, the previous guide assumed eleven months of contribution from Aerocare as well as $25,000,000 of in year synergy delivery. We closed the acquisition on schedule and believe integration is running ahead of plan. As such, our increased guidance assumes $30,000,000 of 2021 synergy realization. Our increased guidance includes a full year of contribution from the DMS acquisition and a partial year contribution from Alina and the other acquisitions Luke mentioned earlier. We expect to be an active acquirer over the coming months and believe acquired revenue on an annualized basis will exceed $200,000,000 in 2021 when including DMS, Alina, previously closed and future acquisitions.
As a reminder, our guidance does not include any contribution from acquisitions that have not yet been closed. We are guiding to net revenue of $2,180,000,000 to $2,350,000,000 adjusted EBITDA of $510,000,000 to $550,000,000 and adjusted EBITDA plus patient equipment CapEx of $320,000,000 to $350,000,000 With that, I'll turn the call back over to Luke.
Speaker 2
Thanks, Jason. Before we open the call for questions, I'd like to summarize our key focus areas over the coming quarters. First, we will be focused on the integration of ArrowCare and Adapt. We are pleased by progress thus far and are running ahead of plan, but we will remain focused on completing the plan. Second, we will continue to find ways to drive organic growth.
We will learn from ArrowCare best practices and also seek to capitalize on growth opportunities as life returns to a more normal cadence throughout the course of 2021. Third, we plan to pursue additional value creating acquisitions in both HME and diabetes. We believe we're an acquirer of choice with a deep track record of successful integrations. And fourth, we will invest in technology to improve our internal processes, better the patient experience, and expand our ability to monitor our patient's health through connected care. Investment in technology has been a key part of our success to date, and we know there are exciting technology initiatives that will be a key part of our future success.
Finally, I'd like to thank all the Adapt Health employees for their contributions over the past year. They've been real heroes in helping our country deal with the COVID nineteen pandemic, and I am deeply grateful for all of their efforts. On a personal note, my wife and I are expecting our second child, a little baby girl in the next few days. With her arrival, I plan to take a family leave to spend time with her, my son, and my wife. I am fully confident that Steve, Josh, and Jason will drive Adapt Forward during my absence.
Operator, please open up the lines for questions.
Speaker 0
Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue,
Speaker 5
question
Speaker 0
session. One moment please while we poll for questions. Our first question today is coming from Brian Tanquilut from Jefferies. Your line is now live.
Speaker 6
Hey. Good morning, guys. Congrats. And, Luke, congrats on the upcoming baby. I guess my first question, you know, obviously, during the quarter, there were a lot of investor concerns or questions about the the stories.
I I figured I'd hit some of those. You know, volumes were strong during the quarter, but, you know, there were questions about whether COVID was impacting you from a mortality perspective. Is that an issue that you're seeing? And then I guess on the flip side, what are you seeing on oxygen as a result of COVID? So, you know, just broadly speaking, kinda get your growth outlook given all the noise around, happening right now.
Speaker 2
Yeah. So we've been pretty consistent that we haven't seen, you know, the crossover between the the end state renal patients, and having mortality in our patient base. There just really isn't much correlation. As a reminder, you know, most of our patients have chronic diseases, are are in the home. And so we haven't seen increased mortality sort of whatsoever across our patient base.
You know, what I'd say is, you know, what we have seen, particularly, in the last ninety to a hundred and twenty days is a big influx of oxygen, prescribing, you know, related to, yes, COVID. But, you know, as as Steve, Greg, you know, and I've discussed, it's not just actually COVID diagnosis. It's patients who are stage one, stage two COPDers who were just more cognizant of their respiratory issues and going in and and getting sort of diagnosed with, you know, the need or the or prescribed the need for oxygen. So we think that that's a very, very nice tailwind for us. Our census has built, you know, pretty materially, you know, in the last ninety days.
And, also, you know, the cadence of oxygen, you front load the CapEx cost. You also front load the operating cost to get the patient set up, and you kinda reap what you you know you know, your harvest, yeah, as the patient stays on oxygen longer. You know, outside of oxygen, you know, really across all of our key products, we saw a pretty straight line rebound, and this is true at Adapt and AeroCare from June till early November. From then, we've seen it kind of a it flatlined a little bit as you've seen the the sort of second wave or third wave, whatever you wanna call it, of COVID. And so we're, for PAP, we're not quite at pre pandemic levels.
We're getting close. For some categories like beds, we're back above pre pandemic levels. Wheelchair is within a couple points. But particularly the way we sort of see, you know, the the vaccines rolling out, we're pretty sure that we'll be above pre pandemic levels sort of at the '1 for almost probably all of our key products will have the benefit of the auction census. And so we're pretty excited about the growth for 2021.
Speaker 6
No. It's awesome. And then, Luke, you know, diabetes is another area that people have been focused on in the last few weeks. So if you don't mind just reminding us the strategy when you decided to go into diabetes, number one. And then I know you have long term growth guidance for diabetes or for CGM as a group.
So what is the assumption that you're embedding in that in terms of the PBM or the pharmacy shift that's happening within the CGM, space?
Speaker 2
Yeah. When we acquired Solara, it was about adding sort of another product category, that that felt like it was in our wheelhouse. It's a very similar patient base. There's actually quite a bit of comorbidity between a diabetic patient and a lot of our other patients. The resupply cadence is very similar to our PAP resupply business, and so we thought that we could use similar technology, similar processes.
And I I think we've been right about that. Certainly, the, you know, the headwind that people talk about in advanced diabetes is, you know, a shift to the pharmacy benefit. You know, we're not seeing it in our numbers. That's not to suggest there aren't more plans that are opening up a die a pharmacy benefit. You know, we certainly see that.
But in terms of the new setups that we're seeing and to remind our business is about 90% medical benefit, 10% pharmacy. We are in network with all the big PBMs. We can service a pharmacy benefit, but we're just seeing spectacular growth on a unit basis. We're seeing pricing normalize. There has been some compression, but the the unit growth is more than, surpassing any any pressure pricing headwind that's happened here.
And so we look across all of the diabetes business. I think we bought five diabetes business now, and we're working to get them all sort of integrated into a coherent platform. They're already all on Brightree. You know, then the unit growth is you know, I think when we look at q four to q four, it was well in excess of 50% year over year unit growth, across all of those businesses. And so, you know, we are very excited about, the growth in our advanced diabetes business.
We really haven't scratched the surface yet about marketing and using our Salesforce, that has sold, to things that are people or prescribers like PCPs. ArrowCare just has a fantastic footprint in that market. So we think that there's actually a lot more upside in our diabetes business. We haven't done as many insulin pumps as we should do. We've just started to, you know, roll out a bigger focus at in q one twenty twenty one.
The e prescribing trends, which Josh mentioned, have been fantastic, you know, from a standing start seeing up to, you know, 20% of our new starts now being e prescribed. It just may it shortens the turnaround time, and we actually think kinda narrows the difference in patient experience between a pharmacy and a medical benefit. That's a long answer saying we're still really excited about diabetes business. In our in our guidance, we assume ten to fifteen percent. It contributes to that eight to ten percent target.
That is certainly conservative to the unit trends and even the net revenue trends that we are seeing. And so we're excited about diabetes.
Speaker 6
No. That's awesome. And then third question for me, Luke. Emerging technology and sleep, you know, obviously, there's Inspire Medical there, and then AppNamed is something that people are talking about. How are you thinking about, you know, how your business could change as these sleep developments occur?
Speaker 2
Yeah. In general. And, you know, Steve can can hop in here if he has anything to add. I mean, more awareness of of sleep hygiene and and the need for sleep, you know, you see, you know, across sort of whether it be in the venture space or, you know, in sort of the more traditional medical space, the importance of sleep to overall health, we think is, is a great trend for us. And something like Inspire, that's a surgical procedure.
We still think, you know, most patients are gonna start on Pap. And, you know, it's a tough therapy for some folks. And if they can't make it on Pap, we want them to have other options. You know, we want to make sure that we're helping our patients, you live their best life. And if that's a surgical alternative like Inspire where we don't participate financially, that's just fine because more people being aware of sleep apnea, more people being you know, taking sleep tests, whether it be in lab or at home, likely means, you know, growth in our business even if Inspire grows as well.
And, Steve, do you have anything else to add there?
Speaker 3
Yeah. You know, pap therapy is still the, you know, mode of choice, and it's gonna be that way for a long, long, long time. You know, maybe the the surgical procedures get really, really fine tuned. We've had the same thing with dental appliances that, you know, some patients prefer and that kind of stuff. But but, again, I think the the awareness of sleep is only gonna help us not just in the short term, but in the long term.
So these procedures will be for a small select portion of the patients, but the vast, vast majority of patients will be on the traditional pap therapy through a CPAP or BiPAP machine.
Speaker 6
Got it. And then last question for me, Luke. The comp bidding rates were released by CMS even though comp bidding obviously did not happen. How are you reading into that? I mean, how or how should we read into what the comp bid rates came out as?
Speaker 2
Yeah. So, I mean, I think, it's tough to read too much into. You know, obviously, CMS came out when they postponed this round of competitive bidding and said they weren't gonna get any savings. I think the rates that were released probably six, eight weeks ago at this point sort of prove that out. I mean, across almost every product category, which we had predicted some of this, you know, rates were gonna go up because there's been a a a lessening of the number of providers.
The existing rates across some product categories are certainly have you know, a lot of people won't do the products like walk their wheelchair beds, and so rates are gonna go up. Now there are certainly some anomalies. You know, the auction would have been up, like, a 100%, I think, in Chicago and Miami. And that that I would acknowledge is probably directly related to moving to our clearing price versus a median. But I think the key takeaway is rate was going to go up.
And I'd also remind you, I believe when OMB had scored the new competitive bid program, they had actually anticipated rate going up. And so it'll be interesting to see you know, we're gonna stay in touch with CMS about, you know, whether they're gonna pursue the program in 2024 and changes they'll make. But I think that, you know, in general, it sort of validated our belief that across most of our product categories, you know, we are at sort of a rate bottom. And if anything, there's probably some slight rate inflation to come. Awesome.
Speaker 7
Thanks again. Congrats.
Speaker 2
Thanks, Brian.
Speaker 0
Thank you. Our next question today is coming from Pito Chickering from Deutsche Bank. Your line is now live.
Speaker 8
Good morning, guys. Thanks for taking my questions and nice quarter. A couple of quick ones here. On the 2021 guidance raise, you talked about the eight to 10% organic growth rate. So just to double check, is the guidance raise solely coming from M and A done since your last guidance?
Speaker 2
So on the revenue side, we didn't change any revenue. So that would be the revenue raise is related to the acquisitions, the adjusted EBITDA, and adjusted EBITDA less patient CapEx. We have moved forward some of the synergy guidance. At this point, we haven't, you know, raised what we think the full total will be. You know, we'll certainly comment on that probably when we release q one earnings, and we have a better sense.
But we do have visibility. We were able to sort of realize some of the cost synergies faster than we anticipated. So $5,000,000 of the updated sort of guidance raise relates to the acceleration of synergies.
Speaker 8
Okay. Got it. And as you bridge the fourth quarter organic revenues your 2021 guidance, can you give us some color on the organic revenue growth from sleep and diabetes, what you saw in fourth quarter? And has it changed at all on your sort of 2021 guidance one way or another?
Speaker 2
Yeah. So what and, Jason, you can hop in here if you wanna clarify me. What I in q four, sleep was not a contributor to organic growth just, you know, basically because so much of our, you know, sleep revenue is from the rentals. We saw continued depressed census in q four, and so my guess is that sleep was probably a zero contributor to organic growth in q four just because we're still working through the depressed census. We should come out of that in q one, sort of back half of q one and into q two.
And so for the guy, we think sleep is back to normal, to be honest, Like, that's what we're seeing in new start trends. In diabetes, yeah, diabetes, you know, we beat, our internal plan on the top line, you know, in q four. Q four does, because of deductible resets, it tends to be sort of, heavier compared to the other quarters, particularly December. You know, we'll we'll continue to monitor diabetes. And if we have to raise guidance because diabetes continues to outperform, we'll do that.
But right to you know, right now, you know, we still feel pretty good with that ten to fifteen percent contribution right now for the full year 2021.
Speaker 8
Okay. There obviously was a lot of concern around the COVID spike in January and February. It's hard to look at your seasonality of the business due to the amount of M and A you've done over the last couple of years. Is there any chance to give us some color on sort of what, you know, in just a general range of what what percent of your annual EBITDA is actually coming in the first quarter just so we don't, you know, so the models can catch that appropriately?
Speaker 2
Yeah. And so I think that, you know, the business isn't, yeah, isn't isn't, you know, very seasonal. There is some seasonal effect. You know, first quarter tends to be the weakest quarter, just as deductibles reset, some resupply doesn't get ordered. You know, we are a little bit more conservative in revenue recognition, making sure that we're reserving appropriately on bad debt because we know we'll have more patient deductible and more patient co pay.
But I would say if if you looked at sort of a $100 of of earnings through the year, you're gonna you know, 55% of that's gonna be weighted to the back half of the year, with q four being the strong, biggest contributor because of the the resupply ordering in tap and diabetes. 45% would come, q one, q two, and probably just a little bit more in q two than q one. Hopefully, that helps, Shida.
Speaker 8
Okay. Great. And and then last quick one here. The contingent consideration with the the common shares liability, will that create more dilution than than you were thinking, you know, like, originally? Can you just walk us through how that impacts dilution if it does?
Thanks so much. Yeah.
Speaker 2
No. God bless the accountants on this one. No. Listen. It's the same amount of dilution.
It was it was 3,000,000 shares. A million was earned, as we expected based on the stock price being above $15 at the end of the year. Nothing has changed from the business perspective. And and, again, Jason can hop in here, if he wants to correct me. This is just related to some updated guidance.
The SEC put out a comment letter for another SPAC. As everybody knows, there's just a tremendous amount of focus on SPACs and, with the SEC sort of focusing more on some of the accounting. It's just some clarification. No more dilution whatsoever. You know, based on where the stock price is, we expect those, you know, additional 2,000,000 shares to be kinda earned when we're in an, EPS positive position, which we would have been, but for this sort of accounting, nonsense, if you will.
And that's the accounting, implication. You know, they it's already in factored into our diluted share count. So alright. Jason, if if you wanna add anything, Eric, go ahead.
Speaker 5
No. I don't have anything to add to that, Luke.
Speaker 0
Luke. Our next question is coming from Whit Mayo from UBS. I
Speaker 9
wanted to go back to the manufacturing and contract savings opportunity. I think Steve talked mostly about this. It it sounds like you guys are finding some opportunities maybe above and beyond what you had previously contemplated or at least communicated. Anyway, maybe to to frame that, I would I would think you guys have pretty good line of sight into where you could be tracking, at this point.
Speaker 2
Yeah. So, you know, Steve and I both both took the lead on that part of the the synergy realization effort. And so I think, you know, the the recognition of of accelerating and moving $5,000,000 into fiscal twenty twenty one, the recognition that we just we did it earlier than we thought. The quantums, you know, are probably a little bit higher than we expected, but it's still a little bit early. We wanna see invoices come through.
We wanna make sure we didn't miss anything. As I said, I think we'll be back to investors in, you know, in two months when we release q one. But, yeah, we're we're pretty happy with the way sort of, the manufacturer negotiations turned out. They've been great partners to us. They're supporting us.
We're making sure it's not just a price discussion, but, you know, we're ordering in ways that they can, fulfill more efficiently. Steve, do wanna add anything there?
Speaker 3
No. I think that's right. You know, as those contracts come up, you know, those pricings will come through for us. And a lot of it's based on, you know, Luke alluded to it, you know, our purchasing patterns and processes. And so, you know, I think all that's headed in in the perfect direction, so we're very comfortable with the 50,000,000.
Speaker 9
Okay. So if if I circle the 5,000,000 that you're moving forward in in the guide, that's primarily from the the manufacturing contract opportunity.
Speaker 2
Yeah. So I think that you could it would be fair to say that's exclusively related to us. Just hitting that ahead of time.
Speaker 9
Other question I had, there's, you know, some very well documented supply challenges that the industry is seeing across oxygen. And I'm just sort of curious as you look at what's happening in the market, what does this mean for you? Is this, an opportunity? I I I feel like it it should be a little bit of an opportunity, but kinda how you've responded and what you're seeing.
Speaker 2
Yeah. I mean, oxygen was hard to buy in the fourth quarter, concentrators. I mean, it all goes back to you know? I think you can trace a pretty direct line to competitive bidding pushing the price for oxygen. So down so far that, you know, the provider community wasn't buying as much of it, and then the manufacturers sort of reduced their capacity.
And so when we had this pandemic and this spike, there's just a global shortage. I think to to Steve and the ArrowCare's team credit, they they built inventory throughout the year smartly thinking ahead to, you know, what could happen if there was a big spike. You know, Adapt had done some of that, not to the same quantum of of ArrowCare, but we were able to utilize some of those supply, sort of excesses to make sure we met demand. I mean, new starts were up almost a 100%, at at sort of during certain weeks in December and January. And so there was this shock to the system.
We did not have to we never turned anybody down. We were able to get product. In fact, we were actually we had some emergency calls from a very well known hospital system in California looking for concentrators. We were able to make good on that and deliver that for them. You know, the the o two shock has subsided a bit.
There's still backlogs for the manufacturers, but we feel like we have sufficient inventory to meet all the needs. We've met every single need that's been asked of us. And we've actually been able to help not only some health systems, but even some smaller competitors who call looking to buy sort of wholesale auction. We're able I think, we we we were able to get 50 concentrators to a a small supplier in need, last week.
Speaker 9
I know that's helpful. One last one for me. Just, Solaris and ActiveStyle, I think the old target was 55,000,000, including 7,000,000 of synergies. Has that number moved at all? And that's all I got.
Thanks.
Speaker 2
You know, I say to be honest with you, we've been, very focused on the diabetes business and adding to it. And so, it's it's hard to think about that number now. You gotta stack on all the acquisitions. What I can comment is ActiveStyle is running absolutely at plan. Solara and our diabetes business, we're actually probably more excited about now than we were when we bought Solara.
And so not not meant to not answer your question. It's just I think that particularly for the Solara, we now have to look at it on a combined basis with BSCM, with Pinnacle, with the PCS diabetes business that we inherited from McKesson. But Okay. You know, we are very excited about diabetes.
Speaker 9
Okay. At least in line with plan. If not ahead, that's okay. I appreciate it, guys. Thanks.
Speaker 0
Thank you. Our next question today is coming from Matthew Blackman from Stifel. Your line is now live.
Speaker 10
Good morning, everyone, and and congrats on a a solid end to the year. Maybe to start, Steve, how quickly do you think you can realize some of the Aerocare revenue synergies you highlighted? Clearly, work is underway. I appreciate there's still work to be done as you mentioned. But could we see any of these revenue synergies start to play out in the back half of 2021, or is that more of a '22 and beyond event?
And I have a couple of follow ups.
Speaker 3
No. You we will certainly see, you know, some of that happen in the back 2021. We're proceeding along right now. And so, you know, they just grow slowly, but, you know, it's all incremental as you add patients on top of patients on the rental base. So, you know, yeah, I think by the end of 2021, we should be, you know, seeing some some nice contributions from all those efforts.
Speaker 10
Okay. I appreciate that. One for for Jason. I just wanted to clarify. So the the the entirety of the, the revenue, guidance range left is, is driven by the, the the new M and A, but the the, raise on EBITDA is entirely from the faster realization of some of those cost synergies.
What does that say about the opportunity in some of these businesses that you've acquired to drive margins higher? Is that, I guess, it would just sort of imply that those sub corporate type margin businesses? Any help there as we think about the contribution from EBITDA from some of these new acquisitions? And then one final question after that for Luke.
Speaker 5
Yes. Sure. Sure, Matt. So on the revenue side, mean, you've got that right. I mean, we increased the organic growth in the revenue guide when we came out with the Arrow announcement in late twenty twenty.
So no real change there, just kind of confirming evidence that we feel rock solid about our organic growth. To your point, the increased revenue is from the acquisitions mentioned by Luke that we're very excited about. I think when you run the math, take out the 5,000,000 of if increase in your synergy, I think I think what you're getting at is is really just a ramp in some of these businesses. I mean, these are very recently acquired businesses. I mean, some synergy and and scale, know, we get out of the gate such as some of the some of the, you know, vendor negotiation that we've talked about.
Some, you know, some just has a longer tail, kind of, you know, labor cost out and and things like that coming downstream as well as, like, revenue synergy, the things that Steve's talking about, those programs. I mean, those those those things really have a longer tail, and that that's the reason you're seeing the the margin profile difference.
Speaker 10
Okay. Makes sense. And then final question for for Luke, a bigger picture question. I'm curious. Do do you feel like you have the scale and the assets now to more aggressively pursue what what's called the connected care strategy you've talked in the past?
If not, what else might you need? And and how do we think about when these initiatives might be potentially visible incremental contributors to growth?
Speaker 2
Yeah. No. I I I don't think we're we're lacking in scale to to go tackle this. I mean, we launched a pilot sort of this quarter, with a portion of our diabetes population to do more than just sort of deliver them product to to give them sort of more technology to be able to manage their disease. It's just so early, in that.
I mean, I think that, admittedly, there's we have a lot to do, on the technology side, which is all exciting, which will all sort of create future value, and Connected Care is on that. You know, I would hope that if this pilot goes well, then we can expand it in a bigger way later this year. We're also you know, we're we're gonna make some hires on the Connected Care side. I think what we're finding is and and it's a good problem to have is there's so many opportunities that, like, we have to sort of start prioritizing them. And on Connected Care, we remain as bullish as we've ever been.
We're we are sort of in these patients' homes. We are, you know, helping patients, you know, care with their chronic diseases. And so a long way to say we launched a pilot, this quarter. You know, we will continue and and may have an update on that sort of next quarter as we start to see results. I don't expect it to be a financial contributor at all in 2021.
You know, hopefully, we start to see some impacts in 2022. You know, with the caveat that it may not be explicit, you know, contribution from a connected care revenue line. It may just be enhanced volumes. Right? If we can differentiate ourselves you know, we already think we're differentiated from our peers.
We offer a better customer experience. You know, we sort of have led with technology both internally and externally on things like e prescribing, and it may be that we go to a health plan and offer connected care as part of a bundled offering just to get more volume.
Speaker 10
Alright. Makes sense. Really appreciate it. Thanks so much.
Speaker 0
Thank you. Our next question today is coming from Anton He from h I'm sorry. RBC Capital Markets. Your line is now live.
Speaker 11
Thanks. I just wanna add my con congrats to the team and to to Luke on the family news. Just a couple left here. One on on competitive bidding, obviously, probably changes the dynamic for a lot of the kind of downstream operators. Have you seen that affect your M and A pipeline at all?
It doesn't sound like it, what you've been able to, you know, execute on,
Speaker 3
but just if you could
Speaker 11
get some some some color there.
Speaker 2
Yeah. No. I mean, we see a great we have a really, really good pipeline. Obviously, we've been active as, we foreshadowed a little bit. You know, last time we spoke to investors, you know, with both Adapt and ArrowCare having deep pipelines.
No. If anything, we're seeing, you know, we're seeing lots and lots of opportunity out there. You know, we get asked questions, well, isn't it more competitive? You have other competitors who are more well funded now. Does that mean, you know, it's gonna be harder to do m and a?
And I think the answer is we don't feel that way whatsoever. We have a great pipeline. We will remain disciplined to make sure that these acquisitions are, you know, most importantly, value contributing and value creating. You know, financially accretive is nice as well. And as I said, we have a track record of being very disciplined on that.
But we're really excited. I mean, I will say just a shout out to the ArrowCare team. They they do a really good job on integration too. Dan Bunting, our COO of branch operations, is is great, on the integration side for acquisitions. And so I think you're gonna continue to to see us be acquisitive throughout the year.
Speaker 11
Okay. And, Luke, earlier in a previous question, you talked about the dynamic between diabetes patient growth and and or and unit growth versus a a pricing. Can you give a little bit of color what's going on there?
Speaker 2
Yeah. So, know, it's still so new in the grand scheme of being the diabetes advanced diabetes, primarily CGM, has really you know, was approved by Medicare, I believe, in 2017 for reimbursement. And so what you're seeing is there's been some shift to a pharmacy channel, which we acknowledge, and, you know, it hasn't at all slowed our top line growth numbers. We've seen some payers switch to, the the Medicare payment methodology, not necessarily the rate, but the k codes versus a codes. And so we continue to see this as, know, we've been underwriting these acquisitions.
We're underwriting kind of gross margin settling in the, you know, low thirties range, which is we think completely appropriate for the category. And so nothing that we're concerned about whatsoever. I mean, I think we're just we're really excited because we're still early in the compounding of the census, which is because a lot of people who are coming on CGM are still new to the therapy. You know, we think that there's gonna be a pretty long length of stay on this therapy, which means that not only are we seeing kind of growth in new starts, but, you know, we are seeing, you know, compounding in the census, which should persist for years. I mean, it's we're we're really excited about the diagnosis.
Speaker 11
Okay. And then final one for me. I know Texas and Tennessee were a couple of AeroCares' strongest organic growth states. Can you talk a little bit about some of the disruptions you may have experienced there with the winter storms we've had in
Speaker 3
the past couple of weeks? Thanks.
Speaker 2
Sure. I'll let Steve handle that one.
Speaker 3
Yeah. I mean, certainly, the the storms that came through Texas disrupted our you know, it ran up our cost to take care of patients to get oxygen to them and stuff like that. And, certainly, our new starts for that, you know, week and a half, you know, declined dramatically. But all those patients that could have been started in those week and a half will get started, you know, over the next, you know, two to three, four weeks. So just a delay in, in new revenues, but the recurring revenue hasn't really changed.
So, you know, our Texas operations will report, you know, just fine results. Expenses will be up a little bit, but insignificant, and they'll be bounced back in March very nicely. Same in Tennessee. So, for the quarter, you know, our operations won't be affected by it. Maybe February will be a little bit heavy on expenses, and March will be a little bit heavier on revenue.
Thank you.
Speaker 0
Thank you. Our next question is coming from Eric Colwell from Baird. Your line is now live.
Speaker 7
Thanks very much. The age old question when 2020 in front of you is do you bow out gracefully or you make something up? But I guess I'll squeeze in a couple here. First one, Luke, you mentioned the combination synergies. There would be obviously, you guys have hundreds of facilities around the country.
I think I heard you say you had the potential to consolidate a number in the dozens. Was hoping to get a finer point on that, specifically what kind of facilities might be consolidated and what the when you look at your, 50,000,000 synergy goal, how how much of that actually comes from rent, real estate, facility management, things of that sort?
Speaker 2
Yeah. And so, I'll answer the last question first. I mean, it's it's not a big number. It's a couple million bucks maybe. Yeah.
I mean, most we we don't you you know, we have 500 combined or 500 plus combined locations. Most of these are a couple 100 or a couple thousand square feet. These aren't big leases. You know, we generally kept lease terms pretty short. You know, three to five years is our our preferred, if not year sort of month to month or year to year.
You know, I think and, Josh, you can hop you can hop in here. But I think it's 75 facilities that, you know, we we identified were close enough to each other. I think it's also important to know. I mean, the 75, yeah, we we can close one location, but, like, in every market, and maybe Steve can comment on this, every market, we're not looking to kinda cut costs on the sales side and the customer service side. We wanna there's so much business for us to go out and get.
So, yes, there is the rent savings. There might be an extra delivery truck to get some utility savings. But, you know, in these markets, I mean, we're actually we wanna sort of reinvest in growth. We're gonna deliver that $50,000,000 cost synergy number. It's just not a big number that comes from the the branch consolidation.
And Josh and Steve, do you guys wanna hop in there?
Speaker 4
Yeah. No. I agree I agree with that. I mean, I think it's more than what we would initially have thought just in terms of considering our our locations are pretty much complementary that we did have, you know, some locations that could be consolidated. But even when we consolidate locations and and the rent, obviously, the big driver is the labor expense and the vehicle expense and and the delivery expense.
And since we're reinvesting in kind of organic growth foundational things, we're putting
Speaker 5
some of those dollars back to to help us grow. So it's gonna
Speaker 4
be a nice number, but it's not gonna be the the big driver of our synergy case.
Speaker 7
Appreciate And those I just I had one other one, a little, again, a little off the beaten path today. But Luke, you reminded me of something when you talked about Q1 seasonality and how you maybe reserve a bit more just to be cautious going into the year. I've always thought of a longer term opportunity with Adapt being the ability to improve upon your bad debt profile, collectability. The flip side is you're growing so fast, you have to focus where you have to focus, and maybe that wasn't the biggest focus in the past. I am curious where you stand on collections and bad debt and what initiatives may be underway with ArrowCare and other acquisitions that you're doing to improve upon historic trend because I I again, I always felt like there was maybe two or three points of opportunity there for you.
Speaker 2
Listen, man. I think how we would agree with you that there there is definitely some upside. I'm gonna let Steve talk about some of the numbers of specifics. I think he can get some data points on, you know, pay new new patient pay setups. Because, really, a lot of our you know, there's two things.
One is just having better processes when you drop a claim and make sure you have the right insurance on file on file. You're not oversupplying versus quantity. And that's more on the commercial insurance reimbursement, and we're gonna get we we have gotten better at that. We continue to put better systems in place. But then it's about the new patient setup.
Because if you can educate the patient appropriately, you know, about their deductible and their copay and how they're gonna need to have a card on file with us, it's a big opportunity. Aerocare did a better job. And so I'll let Steve talk about some of the trends because we're seeing real quantitative evidence that we're getting better sort of month over month.
Speaker 3
Yeah. There's there's no question that we're making great improvements in in patient pay in in particular. So now the policy is for the combined company. When a patient comes in comes on to service, one of the first conversations is the financial responsibility. So right away, we're making decisions on what we have to do with that patient.
If there is, you know, a reduced waiver or anything like that, if there's financial need and all those things that we have to, you know, you know, go to right at the beginning. So as of today, over 80 plus percent of new starts that have a co that have a co pay private pay attachment to it, 80% of those are be over 80% are being put on a on a credit card for autopay. That's a big, big deal. And now that'll take time to work its way through through the process, but we're up to, you know, the mid thirties of all of our bills going out from the adapt side, going out on on a for autopay for credit card. That number's in the mid sixties for Aerocare, so you'll see those get closer and closer as the year goes on.
As those new starts, you know, come in there and that 80%, 80 plus percent, you know, come and keep adding up in there. So you'll see that narrowing, which just continues to improve the patient pay side of it. But in addition, you know, Luke mentioned, you know, the RCM function that Adapt has is pretty superior was superior to, you know, Aerocares in the identification of the right getting the right, you know, payment mechanism, the right authorization, the right reauthorization, and those processes are superior. So we're implementing those, which is gonna help our, you know, collection percentage on the insurance basis. And so those combination of those two, I think, will have, you know, significant effect.
But, again, it's a building thing. So, really, in 2022, you know, you should see, you know, increased percent or lower percentage of bad debt and increased collection percentage.
Speaker 7
Thanks very much, guys. I appreciate it. Congrats on the performance.
Speaker 2
Thanks, Eric.
Speaker 0
Thank you. Our next question today is coming from Richard Close from Canaccord Genuity. Your line is now live.
Speaker 12
Great. Congratulations. Thanks for the question here. Mine is primarily some housekeeping. Jason, I was wondering on the 2021 guidance, just to be clear, based on Steve's comments earlier on revenue synergies and I guess to the last question here, does the 2021 guidance include any of the revenue synergies?
Or should we think of that as potential upside?
Speaker 5
It does not include any revenue synergy. Over the course of the year, as, you know, we get the visibility, I mean, we'll we'll talk about that. I mean, if there's if there's confirmed synergy to be had, we'll we'll make those adjustments as the year goes on. So in in this guide, it does not include any revenue synergy.
Speaker 12
Okay. Great. And then, Jason, I guess, again, on the guidance, I think Lou, Luke, referenced 130,000,000 to $150,000,000 in terms of the acquisitions that were completed already for the 2021. And then in your comments, you talked something about a $200,000,000 number. What's the difference in those two, if you could just clarify that?
Speaker 5
Yeah. Sure, Richard. The the the difference is that in the 01/30 to January, those are acquisitions that have closed. They're part of Adapt Health today, and, you know, we we include them in our guide as as such. The 200,000,000 is really we're working to give some visibility to expectations for acquisitions.
None of that is included other than the 130,000,000 to 150,000,000 that is already part of Adapt Health.
Speaker 12
Our
Speaker 0
next question is coming from Kevin Fischbeck from Bank of America.
Speaker 13
Great. Thanks. I guess just a couple of modeling questions. First, is there any CARES money in your guidance? Second, how should we think about taxes for 2021?
Speaker 5
Hey, Kevin. It's Jason. So no, there are no CARES funds in the guidance. What we reported this morning was that we qualified $14,300,000 of those funds from the Provider Relief Fund. So we recognize that in the fourth quarter, and there are no funds included in the guide.
In terms of tax, we're projecting to be probably a mid-twenty percent taxpayer once we cross that bridge. Based we on what we reported for Q4 and the impact from the contingent shares, we won't have that impact.
Speaker 13
Okay. That's helpful. And then I guess I just wanna get a little bit more color on the on how to think about your growth rate of 8% to 10% because this year is gonna be a little bit of a wonky year given all the the comp issues. It sounds like you'd probably be below that in q one, but then maybe well above that in q two just because of the comp you're going against. I mean, how do we think about eight to 10?
Is that eight to 10 for the year? Is that your exit rate kind of back half of the year? Any thoughts there?
Speaker 2
I would think of it you know, Jason will handle this, and then you can hop in. I would think of it as for the full year, you know, to your point, the the comp in q two, it it should be easy for us to hit that comp, you know, ex b two b, if you if you took out the, sort of b two b growth, yeah, on that, and even q three. And so, yeah, I would think that q one, it's gonna be a little bit harder to hit to put up a big number just because q one last year was also strong. You also have the rolling in of AeroCare, and so it is gonna be a bit of a wonky year. But I would think of the eight to 10.
If you look full year '21 versus full year '20, that's eight to 10. You're right reference point.
Speaker 13
Okay. And then I guess this last question. It wasn't a 100% clear to me what you were oxygen comment that that it wasn't just COVID, that there was really more COPD patients coming through. Are you I I guess my was that, you know, you would probably see oxygen down this year as COVID went. Are you saying that that is is not necessarily gonna be the case because of underlying demand, or are you just saying it it it still might be down, but not maybe not as much as you would think because, you know, a lot of this has been for COPD?
Speaker 2
Yeah. I think if you think about you know, auction is a census driven business, and so we've we've seen relatively rapid buildup in the census in November, December, January, and even into February. And so and and probably through q one, new starts will be elevated, so the census will continue to build. Know, some of these COVID patients will fall off through the year. And so, you know, auction revenue in the back half of the year, yeah, it's probably lighter than compared to the first half.
But I think the overarching point is the co it's not just a onetime COVID bump where all of these you know, if our if our census coming into COVID was a 100, it's gonna go back to a 100. We actually think it's gonna remain elevated, hopefully, because a lot of these people who needed oxygen anyway and they just didn't realize it, they go you know, they they put on a pulse ox hundred there that they've tested, and lo and behold, their blood fat sort of is is 89 to 90. And, Steve, do you wanna comment on that at all?
Speaker 3
Yeah. So there's two two components. One is what are the long term effects of COVID? And I don't think we have the answer to that, but we know the solution to that is gonna be oxygen. So that that would extend the the, you know, the life on service of these patients more than we thought.
But in addition to it, when you go out there and you talk to the physicians and the medical community, the attention to COPD and putting patients on oxygen has heightened during this during this pandemic. The pandemic will, you know, by the government, go through the full year, I believe, and maybe even beyond that. So I think there's gonna be still be a lot of tension on the COPD patient. And so with that, I think there'll be more early identification of patients than it had been in the in the past years, and I think there'll be more scrutiny towards that with these health systems and these doctor groups. So I suspect, you know, oxygen will still, you know, have a nice, you know, growth rate, through 2021.
Speaker 13
Okay. That's helpful. Thanks.
Speaker 0
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Luke for any further closing comments.
Speaker 2
Thank you, everyone, for participating. We look forward to going out delivering results and talking to you guys in a few months. Thanks so much.
Speaker 3
Thank you.
Speaker 13
Thanks, Ben. Thank you.
Speaker 0
That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation
Speaker 13
today.