Q4 2020 Adapthealth Corp Earnings Call
[music].
Greetings and welcome to the adapt Health Corp, fourth quarter, and full year, 2020 financial results conference call at.
At this time all participants are of the assembly mode. If anyone should require operator assistance. Please press star zero under the telephone keypad as a reminder of this conference is being recorded it is now my pleasure to turn the call over to Chris Choice. Please go ahead Sir.
Thank you Kevin.
And welcome everyone for today's of DAP Health Corp Conference call for the quarter ended December 31 and 2020.
Everyone should have received the copy of our earnings release earlier. This morning, if not I'd like to highlight that the earnings release as well as the supplemental slide presentation regarding Q4, 2020 results is posted on the Investor Relations section of our website.
And a moment, we'll have some prepared comments from loop Mcgee and Steve Greg's co Chief Executive officers of adapt tell Josh Parnes President of of DAP Health and Jason Clemens Chief Financial Officer of adapt health well 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.
Any forward looking statements because of the number of risk factors and uncertainties, which are discussed at length, and our annual and quarterly SEC filings and desktop of Corp shall have no obligation to update the information provided on this call to reflect subsequent of that additional.
Additionally, on this mornings call, we will 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 mornings call is being recorded and a replay of the call will be available later today and.
Now pleased to introduce our co Chief Executive Officer Luc Magee.
Thanks, Chris and thanks, everyone for joining our call I'd like to start with the quick. Thank you to all of our of desktop plays and I can't think of impressed by the heroism of our frontline employees clinical teams and delivery drivers for continued to meet the critical needs of our patients and the face of the COVID-19 crisis.
Our patients home health needs of only grown throughout the duration of 2020, and now that adapts health and Arrow care have combined we have amplified our ability to empower patients to live their best lives out of the hospital and in their home.
But that of contacts on the combined basis, we provided home medical equipment and to more than 43000 patients with the Covid diagnosis.
On top of that we provided hundreds of ventilators thousands of oxygen concentrators and hundreds of thousands of the pulse oximeter and thermometers to our hospital partners.
And we along with our Asian EPS were a critical part of the health care system and responding to Covid.
Not only did and App 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 2000, Twenty's across revenue and adjusted EBITDA and adjusted EBITDA less Capex, we continue to grow our business with accretive acquisitions through.
The year, including the transformation of the acquisition.
Ladies and Aero care the closed on February one 2021 in total we acquired 22 companies and 2020.
And 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 and the home the acquisition of Arrow care will only enhance and accelerate our goals here.
Our management teams have of shared.
Share the common view of success for a long time the business that's powered by technology connectivity and ease of doing business with are referring providers.
Especially on the Capex and turnaround times and patient satisfaction with our products and services, we continue to invest and these important areas and the team will talk about progress and our prepared remarks.
Following the Eric of closing, we remain focused on strengthening and our geographic footprint product mix and patient access through strategic and accretive acquisitions and me.
February we closed on the acquisition of the lineup health one of the health home oxygen and medical equipment, and Minneapolis and earlier this week and closed on two other acquisitions further complementing our existing businesses and the Midwest and Southern California.
Continue to build out of our rapidly growing diabetes supply of business to complement the acquisition of Solara last year were.
We are pleased to announce the acquisition of Louisiana based diabetes management and supply a leading supplier of CGM and diabetes management and supplies throughout Louisiana, and the south Eastern United States.
We've also added is that from a scale with the small acquisition of upstate New York and at the end of 2020.
The support our acquisitions with the appropriate financing, we've been active and the capital markets.
We're pleased with the recent success of these activities, including our $500 million unsecured note issuance of $700 million refinancing of our senior secured credit facilities and our successful 275 279 million equity raise in January of 2021.
In total we expect these acquisitions to deliver a 130 to 150 of the incremental revenue and 2021, and we are increasing our guidance and Gordon Jason.
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 and our first 30 days.
Thanks, Luke I'll start by acknowledging the tremendous cooperation our teams have demonstrated since meeting each other are mentality's where line from the beginning so we're off to a very fast start.
From the announcements through the closing day, our team spent time learning the details of of our respective businesses processes and systems that was time well spent as it resulted and detailed operating plans to implement best practices and accelerate growth and drive cost savings and importantly, we remain on track to deliver 50.
Millions in the annual run rate synergies.
I'll touch on the progress on the revenue side, Josh will talk about the cost synergies prior to closing we expect you to see the chief resident synergy and a few key areas of focus on helping patients stay adherent to their for right.
Prescribed protocols and sure.
Current patients get their re supplies they need when they need it and streamlining and the revenue cycle.
First half of the here, it's within our sleep business. The first 90 days of Pap therapy is critical the patients' success.
Accordingly, we are of significant opportunity to install our combined best practices for patient setup procedures. The focus on the first 30 days of therapy and edition, we're aligning our resources across our sleep coaches and compliance teams to drive and Greece that parents for the next 60 days of therapy, we of all sorts of salt common reporting.
And visibility across the enterprise, so we make decisions decisions to train and educate our teams to drive improvement.
Second as Pap resupply and Theres, an opportunity to improve patient outcomes by ensuring regular efficient and dependable resupply district.
And this requires streamlining the eligibility requirements through enhanced technology, and optimize and shipping costs, while ensuring timely.
Every day.
And we're working to install a common platform for our entire company.
And the artist nation collections for focus on implementing the best practices at the very beginning of the patient setup process to ensure and auto pay has enabled and monitored over the RC and lifecycle.
Many of these revenue projects will take time to materialize for the hard work is underway to integrate best practices and hard wire our processes and.
Accordingly, while we work on these revenue synergies, we remain focused on winning new business each and every day.
Next I'll turn the call center, and a jeans and I'll, let Josh discussing the details.
Thanks, Steve.
And 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 combined to contribute significantly for $50 million cost synergy target with the majority of the savings already being realized in Q1.
Indirect vendor consolidation is also well underway with some early wins and shipping costs also supplies and insurance.
The back office consolidation will be methodical and should result, and elimination of some duplicate roles as our functions get integrated.
Although the geographic footprints of adapt and arrow care, where larger complementary there are dozens of locations with the overlap.
Just on our time to deliver to patients we are already in process of consolidating locations jobs vehicles and resources across the country.
Of tremendous opportunity for improved efficiency, and our combined centralized business functions, including our revenue cycle customer service and resupply operations we.
We are bridging technology and best practice across all areas of our central functions for.
Finally, our initiatives to advance E. Prescribing continue to yield results, specifically, our diabetes business is already generating 20% of new starts through our E prescribed platform up from zero percent of at the beginning of the fourth quarter.
We have growing demand for it you prescribed from our referring providers and we've made investments and sales training and commission programs to accelerate conversions and its workflow.
Overall, we're extremely pleased with the results and proud of our teams with that I'll turn it over to Jason.
Thanks, Josh good morning, and thanks for joining our call.
Turning to our results for the fourth quarter of 2020 adapt.
Adapt health generated net revenue $348 4 million and increase of 133% from the fourth quarter of 2019 and.
Adjusted EBITDA was $79 4 million and increase of 136 per cent from the fourth quarter of 2019 and.
Adjusted EBITDA less patient equipment, Capex was $58 5 million and increase of 168% from the fourth quarter of 2019.
Our financial results include $14 3 million of funds. The we qualified against the provider relief fund reporting update that HHS announced on January 15th 'twenty 'twenty, one and.
The remaining funds will be returned to the government.
And as Luc mentioned earlier, we're very proud of our Q4 and full year 2020 results during a time of tremendous change and our business and and 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.
Two a year ago, we're a much larger company with an expanded geographic footprint and product reach including and exciting diabetes business that is well positioned in the fast growing category.
For the full year, we closed on 22 acquisitions, which does not include the acquisition of Arrow care of the closed in February 2021 of.
These acquisitions added exposure and high growth H M. Even markets like the southeast and southwest provided additional density and geographies and the northeast and expanded our product portfolio, particularly and supplies and diabetes.
Well, we have a strong M&A pipeline and we will continue the assertedly 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 and mid Q2.
Typically our Pap, new start business, which declined more than 30% from pre pandemic highs and Q2 has nearly reached those pre pandemic highs.
The uptick and Covid cases, and December 'twenty, and 'twenty and so far in 2020, one has slowed down some of that recovery, but we remain confident we will be we will be above high water for new starts for <unk> and other H M me like wheelchair and walkers by the end of Q1 2021.
Our resupply business has remained steady throughout the pandemic and we are encouraged by continued growth and 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.
Synthesize all of the trends of above and a detailed on the slide in our Q4, 2020 earnings supplement our organic growth for full year, 2020 was eight 6% when including the Covid beat of the business and five 6% when excluding b to B for.
For the fourth quarter organic growth was five 7% when compared to the fourth quarter of 2019, including the Covid beat of B business and for 0.9% when excluding beat of B.
With our Pap census, rebuilding after the depressed new starts and mid year increase and oxygen business and Q4 and continued market expansion and C. G. M. We remain confident and our organic growth prospects between eight and 10 per cent for 2020 one.
With that context of organic growth I'd like to turn for a guidance for 2020 one.
As announced this morning, we are increasing our 'twenty 'twenty, one 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 $2.05 billion to $2.20 billion.
Adjusted EBITDA was $480 million to $515 million and adjusted EBITDA loss patient equipment, Capex was $300 million to $330 million.
As a reminder, the previous guide assumed 11 months of contribution from Arrow care as well as $25 million of and your synergy delivery.
We closed the acquisition on schedule and believe integration is running ahead of plan.
And as such our increased guidance assumes $30 million of 'twenty 'twenty, one synergy realization.
Our increased guidance includes a full year of contribution from the Dms acquisition and a partial year contribution from of lineup and the other acquisitions Luke mentioned earlier.
We expect to be and active acquirer over the coming months and believe acquired revenue for an annualized basis will exceed $200 million in 2020, one and including the M. S lineup 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 2.18 billion to 2.35 billion and.
Adjusted EBITDA of 510 million to $550 million.
And adjusted EBITDA loss of patient equipment, capex of $320 million to $350 million.
With that I'll turn the call back over to Luke.
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 arrow care 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 arrow care of best practices and also seek to capitalize on growth opportunities of life returns to a more normal cadence throughout the course of 2021.
Third we plan to pursue additional value, creating acquisitions and both <unk> and diabetes. We believe we are an acquirer of choice with the deep track record of successful integrations and.
And fourth we will invest and technology to improve our internal processes that are the patient experience and expand our ability to monitor our patients health through connected care.
The investment and 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 of the adapt health employees for their contributions over the past year <unk> been real heroes and helping our country deal with the COVID-19, pandemic and I am deeply grateful for all of their efforts.
On a personal note my wife, and I are expecting our second child of Little Baby Girl and the next few days with her arrival I plan to take the family and spent time with her my son and my wife.
I am fully confident that Steve Josh and Jason will drive the dot for it during my absence.
Operator, please open up the lines for questions.
Thank you and I'll be conducting a question and answer session, if you'd like to be placed and the question queue. Please press star one on your telephone keypad of confirmation tone will indicate your line is and the question queue. You May press star two to remove yourself from the queue for participants using speaker equipment may be necessary to pick up of your handset before pressing.
The star one one moment, please while we poll for questions.
First question today is coming from Brian <unk> from Jefferies. Your line is now live.
Hey, good morning, guys and congrats and look congrats on the upcoming baby.
I guess my first question you know obviously during the quarter there were a lot of the investor concerns or questions about the the stories I figured I'd hit some of those volumes.
Volumes were strong during the quarter, but there were questions about it.
And whether Covid was impacting you from a mortality perspective is that and issue that you're seeing and then I guess and the flip side. What are you seeing on oxygen as a result of Covid and and so broadly speaking just kind of like of your growth outlook, given all the noise around happening right now.
Yeah, So we've been pretty consistent.
We haven't seen the.
Cross over between the end state renal patients and having mortality and our patient base. There just really isn't much correlation and as a reminder, most of our patients have chronic diseases.
And are in the home.
And so we haven't seen the increased mortality sort of whatsoever of across our patient base and what I'd say is what we have seen particularly and the last 90 to 120 days is a big influx of auction for.
Ascribing them related to the yes, COVID-19, but you know as Steve Greg.
And I have the start so it's not just actually COVID-19 diagnosis, it's patients who are stage one stage two COPD Ers, who were just more cognizant of the respiratory issues and going in and getting sort of diagnosed with.
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 is built pretty materially in the last 90 days.
And also the cadence of auction you Frontload. The Capex cost you also frontload the operating cost to get the patient setup and you kind of reap what you yeah Youre harvests as the.
Patient stays on auction longer outside of oxygen.
And really across all of our key products, we saw a pretty straight line rebound and this is true and adapt and oral care from June until early November.
And then we've seen the kind of flatline, a little bit as you've seen the the sort of second wave of our third way of whatever you want to call. It of Covid So were for.
And for Pap, we're not quite at pre pandemic levels, we're getting close for some categories like beds were back above pre pandemic levels and wheelchairs within a couple of points.
Particularly the way, we sort of see the.
And the vaccines rolling out, we're pretty sure and it will be above pre pandemic levels sort of at the end of Q1 for almost probably all of our key products will have the benefit of the auction sensus and so we're pretty excited about the growth for 2020 one.
No. It's awesome and then look at the diabetes is another area that people have been focused on in the last few weeks. So if you don't mind, just reminding US you know 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.
And what is the assumption that you're embedding in that in terms of the P. B M or the pharmacy shift that's happening within the CGM space.
Yeah, when we acquired the Laurie it was about adding sort of another product category.
And that felt like it was in our wheelhouse. It's at the very similar patient base and there is actually quite of bit of comorbidity between the diabetic patient and a lot of other patients the <unk>.
The supply of cadence is very similar to our Pap resupply of business and.
And so we thought that we could use similar technologies similar processes and I think we've been right about that.
Certainly the you know the headwind that people talk about and advanced diabetes is a.
And a shift to the pharmacy benefit.
And we're not seeing it in our numbers and thats not the suggest there arent more plans that are opening up and die of pharmacy benefit we certainly see that.
But in terms of the new setups that we're seeing and the remind our business and about 90% medical benefit of 10% pharmacy, we are and network with all of the Big Pbms. We can service of pharmacy benefit, but what are you seeing spectacular growth on the unit basis Youre seeing pricing normalize there has been some compression.
But the the unit growth is more than surpassing and any push for a pricing headwind that's happened here and so and we look across all of the diabetes business. So I think we bought five diabetes business now and.
And we're working to get the mall sort of integrated until the coherent platform the already all on bright tree.
The mix of unit growth as you know I think when we look at Q4 for Q4, it was well in excess of 50% year over year unit growth across all of those businesses and so we are very excited about and.
The growth and our advanced diabetes business, we really havent scratched the surface yet.
Marketing and using our sales force and that has sold to things like our people of prescribers like P. C. P. R. O carrier, just hesitant and fantastic footprint and that market. So we think that theres actually a lot more upside and our diabetes business. We haven't done as many insulin pumps and we should do and we've just started to roll out of a bigger focus at and Q1 2021 and <unk>.
Prescribing trends with shocks mentioned have been fantastic from a standing start seeing up to 20% of our new starts now being prescribed it just made it shortens the turnaround time, and we actually think kind of narrows the difference and patient experience between the pharmacy and medical benefit that's the long answer of saying, we're still really excited of our diabetes business and our in our guidance we assumed.
And to 15% and contributes to that 8% to 10% target.
And that is certainly conservative to the unit trends and even the net revenue trends that we're seeing and so we're excited about diabetes.
And that's awesome and then third question from me Luc the emerging technology and sleep and obviously theres inspire medical there than App and the med is something that people are talking about.
How are you thinking about how your business could change as the sleep developments occur.
Yeah, and general and Steve can can hop in here, if he has anything to add more and more awareness of <unk>.
Hygiene and the need for sleep you see.
Across sort of whether it would be and the venture space or.
And sort of the more traditional medical space the importance of sleep to overall health and we think as is of great trend for us and.
Something like inspire and Thats a surgical procedure, we still think most patients are going to start on path and now it's a tough therapy for some folks and if they can't make it on patent we want them to have other options and we want to make sure that we're helping our patients live the best of life and if that's the surgical alternative like inspire where we don't participate financially and that's just fine.
Because more people being aware of sleep apnea of more people being taking sleep test whether it'd be in lab for at home likely means growth and our business, even if inspire growth as well and Steve you of any answer either.
Yeah.
Pap therapy is.
Still the you know mode of.
Of choice and it's gonna be that way for a long long long time, you know maybe the surgical procedures get really really fine tune the that the same thing with dental clients is that.
Some patients prefer and that kind of stuff, but but again and thank the the awareness of the sleep is the only going to help us and.
Not just in the short term, but and the long term. So these procedures will beat for us small select.
Portion of the patients for the vast vast majority of patients will be on the traditional pap therapy through of CPAP of Bipap machines.
Got it and the last question for me Luc the bidding rates were released by CMS and even though the comp bidding obviously did not happen how are you reading into that or how should we read into what the comp bid rates came out as.
Yeah. So I mean, I think it's tough to read too much into obviously CMS came out when they postponed and.
Round of competitive bidding and said they weren't kind of get any savings I think the rates that were released the probably six to eight weeks to go at this point sort of prove that out and across almost every product category, which we had predicted some of this low.
The rates were going to go up because there has been a a.
A lessening of the number of providers the existing rates across some product categories are certainly have a lot of people won't do the products like Walker wheelchair beds.
And so rates were going to go up now there are certainly some anomalies.
The Oxford and would've been up like 100% and I think and Chicago, and Miami and that that I would acknowledge is probably directly related to moving to a clearing price versus the median and I think the key takeaway is rate was going to go up and.
And I'd also remind you I believe went OMB and scored the new competitive bid program, they had actually anticipated rate going up and.
So it'll be interesting to see how we're going to stay in touch with CMS about.
And whether they're going to pursue the program and 2024 and changes it will make and I think that in general it sort of validated our belief that across most of our product categories. We are at sort of a rate bottom and if anything there's probably some slight rate inflation to come.
Awesome, Thanks, again and congrats.
Thanks, Brian.
The next question today is coming from Peter Chickering from Deutsche Bank. Your line is now live.
Good morning, guys. Thanks.
Thanks for taking the questions and nice quarter, a couple of quick ones here on the 2021 guidance raise you.
And I talked about the east Hampton and organic growth rate. So just the double check is the guidance range solely coming from M&A done since your last guidance.
And so on the revenue side, we didn't change any revenue so that would mean, the the revenue range and led to the acquisitions and the adjusted EBITDA and adjusted EBITDA loss of patient Capex. We have moved forward some of the synergy guidance.
We haven't raised what we think the full total will be certainly comment on that and probably when we release Q1 earnings and one of 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 million of the updated sort of guidance range relates to the acceleration of synergies.
Okay got it and as the bridge the fourthquarter like organic revenues to you shouldn't be in 2020. One guidance can you give us sort of color on the organic revenue growth for sleep and diabetes, what you saw and fourth quarter and.
And has it changed at all on your for 2020, one guidance, one way or another.
<unk>.
Yeah.
And Jason you can hop in here, if you want to clarify me, but in Q4 sleep was not a contributor to organic growth just basically because so much of our sleep revenues from the rentals. We saw continued depressed census, and Q4 and so my.
And my guess is the sleep was probably of zero contributor to organic growth in Q4, just because we're still working through the depressed sensus, we should come out of that and Q1 sort of back out from Q1 and into Q2.
And so for the Guy and we think sleep is back to normal to be honest. The that's what we're seeing and the neustar trends and diabetes.
And we beat.
Our internal plan on the top line in Q for Q4 does because of the deductible resets and tends to be sort of.
Heavier compared to the other quarters, particularly in December.
We will continue to monitor and diabetes and if we have to raise guidance because of diabetes continues to outperform we will do that right now right now we still feel pretty good with that 10% to 15% contribution right now for the full year 2021.
Okay.
There was a lot of concern around the Covid Spike of January and February it's hard to look at your seasonality of the business due to the lack of M&A you've done of over the last couple of years is there any chance you can give us some color.
What interest.
The general range of what what percentage of your EBITDA coming in the first quarter just so we don't.
And the models kind of catch up appropriately.
Yeah, and so I think that the.
And the busy.
Yeah It isn't.
And very seasonal there is some seasonal effect and the first quarter tends to be the weakest quarter, just as deductibles reset some resupply of doesn't get ordered.
We are a little bit more conservative and revenue recognition of 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 you looked at sort of a $100 of of earnings through the year you're going to.
The 55 per cent of that's going to be weighted to the back half of the year.
With Q4 being the.
The biggest contributor because of the resupply ordering and tap and diabetes, 45% would come.
Q1, Q2, and probably just a little bit more in Q2 than Q1, hopefully that helps you. Okay. Great and then last quick one here the.
Contingent.
Consideration of the other common shares of liability for that.
And create more dilution than than you were thinking and the originally just walk us through how the impact solution. If it does thanks so much.
Yeah, No God bless and accountants on this one.
No listen this is the same amount of dilution of as it was 3 million shares of $1 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 again, Jason can hop in here if he wants to correct me.
And is just related to some updated guidance the FCC put out of comment letter for another specs as everybody knows there's just a tremendous amount of focus on specs and the with the SEC sort of focusing more and some of the accounting. It's just some clarification no more dilution whatsoever based on where the stock price is and we expect this additional 2 million shares to be kind of earned when we're in and.
EPS positive position, which we would of been bought for this sort of accounting and.
Non sense, if you will spend but some of the accounting implication.
It's already and factored into our diluted share count and so Jason if you want to add anything go ahead.
And I don't have anything out of that Luke.
Great. Thanks, so much guys.
Thank you. The next question is coming from Whit Mayo from UBS. Your line is now live.
Hey, Thanks, I wanted to go back to the manufacturing and contract savings opportunity I think Steve talked.
Mostly about this it sounds like you guys are finding some opportunities maybe above and beyond what you had previously contemplated at least communicated any way maybe to frame that and I would think of you guys have pretty good line of sight into where you could be tracking at.
At this point.
Yeah, So Steve and I took the lead on that part of the the synergy realization efforts and so I think the the recognition of accelerating the moving $5 million and the fiscal 2021 and the recognition that we just we did it earlier than we thought the quantum's, you'll probably a little bit higher than we expected but.
It's still a little bit early won't see invoices come through and we want to make sure we didn't miss anything.
And it will be back to investors and you know.
And two months when we released Q1.
Yeah, we're we're pretty happy with the way sort of the manufacturer negotiations turned out they've been great partners to ask for supporting US, We're making sure that's not just the price discussion, but you know, we're ordering and ways that they can.
Fulfill more efficiently and Steve.
Do you want to add anything there.
No I think that's right you know and as those contracts come up you know those pricings will come through for us.
And a lot of it's based on the Luke alluded to it you know of.
And our.
The purchasing patterns and processes and so I think all of that tension and the perfect direction. So we're very comfortable with the $50 million.
So if I circle, the 5 million that you are moving forward and and the Guy that's primarily from the the manufacturing contract opportunity.
Yes, so I think that and you can book.
And it would be fair to say that's exclusive of anything related to us just.
Putting that ahead of time.
Other question I had there is some of them very well documented supply challenges that the industry of seeing across the oxygen and I'm just sort of curious as you look at what's happening and the market. What does this mean for you is this and opportunity I feel like it should be a little bit of and opportunity, but kind of how you've responded and and what youre seeing.
I mean, akshay and it was hard to buy and the fourth quarter of concentrate or so I mean, it all goes back to them.
I think you can trace of pretty direct line to competitive bidding pushing the price for auction sort of down so far of that.
And the provider community wasn't buying as much of it and then the manufacturers sort of reduce their capacity and so when we had this pandemic and the spike there's just a global shortage.
And I think to Steve and the Arrow care of steam credit they built inventory throughout the year.
Partly thinking ahead to what could happen. If there was a big spike adapt had done some of that and not to the same quantum of the out of the oral care, but we were able to utilize some of those supply and sort of excesses and make sure. We met the man I mean, new starts were up almost 100%.
And that started during certain weeks and December and January and so there was this shock to the system. We do not have to and we never turned anybody down we were able to get product and in fact, we were actually we had some emergency calls for and a very well non hospital system and California looking for concentrated and we were able to make good on that and deliver that for them.
And the O. Two shock has subsided a bit there's still a backlog for the manufacturers, but we feel like we have sufficient inventory to meet all of the needs. We've met every single need this got asked of us and.
And we've actually been able to help not only from health systems, but even the smaller competitive free call looking to buy sort of wholesale auction and we were able we were able to get 50 concentrated to a small supplier of need last week.
And I know that's helpful. One last one for me just and <unk>.
IRA and active style I think the old target was $55 million, including $7 million of synergies has that number moved at all and that's all I got thanks.
Yeah.
And to be honest and we've been very focused on the diabetes business and.
Adding to it and so.
And it's hard to think about that number and now you've got a stack on all of the acquisitions. When I can comment is at the style is running absolutely and plan to Lora and our diabetes business, we're actually probably more excited about now than we were when we bought for Lora and so and not.
And not mentioned I'll answer your question and that's just I think particularly for the Solara. We now have to look at it and a combined basis with the SCM with pinnacle with the Tcs diabetes business that we inherited from Mckesson book.
We are very excited about diabetes.
Okay at least in line with plan if not ahead of this okay. I appreciate it guys. Thanks.
Thank you. The next question today is coming from Matthew Blackman from Stifel. Your line is now live.
Good morning, everyone and congrats on the solid engine of year, maybe just start.
Steve how quickly do you think you can realize for some of the Aero care revenue synergies you highlighted clearly work is underway and I. Appreciate there is still work to be done as you mentioned when can we see any of these revenues and you can start to play out and the back half of 2020, one or is that more of a 'twenty two and beyond event and then I have a couple of follow ups.
No you will certainly see you know some of that happened in the back half of 2020.
2021.
And 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 yeah.
Yeah, I think by the end of second half of 2021, we should be seeing some.
Some nice contributions from all of those efforts.
Okay, I appreciate that and one for Jason I, just want to clarify so the the the entirety of the the revenue guidance.
The guidance range left is.
It is driven by the new M&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 and some of these businesses that you've acquired.
<unk> margins higher.
I guess it would just.
And sort of implied that the reserve those are sub corporate type.
And businesses any any help there as we think about the the contribution from EBITDA from some of these new acquisitions and then one final question after that for Luke.
Yeah sure sure Matt So on the revenue side I mean, you've got that right I mean, we we increase the organic.
Growth and the revenue guide when we came out with the Euro and.
<unk> and late 2020, so no real change there just kind of confirming evidence that we feel rock solid about our organic growth.
To your point, the the increased revenue and it's from the acquisitions.
<unk> mentioned by Luke and we're very excited about I think when you run the math take out the $5 million of increased and your synergy I think I think what you're getting at is really just the ramp and some of these businesses. I mean these are very recently acquired businesses I mean, some synergy and and scale, we get out of the gate such as some of them.
And some of the vendor negotiation that we've talked about some of it. So I'm just had the longer tail kind of labor cost out and and.
Things like that coming downstream as well as like revenue synergy of the things of Steve's talking about and those programs I mean the.
And those things really have a longer tail and that that's the reason you're seeing the the margin profile difference.
Okay makes sense and then the final question for Luca and bigger picture question. I'm curious do you feel like you have the scale and the assets now to more aggressively pursue with let's call. It the connected care strategy you've talked in the past if not what else might you need and how do we think about when these initiatives might be potentially visible incremental contributors to growth.
Yeah, No I don't think where we're lacking and scale 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 and give them sort of more technology to be able to manage their disease. It's just so early.
And that I think that.
Admittedly there is and 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.
And I would hope that if this pilot goes well then we can expand it and a bigger way later this year. We're also we're going to make some hires on the connected care side I think what we're finding and.
And it's a good problem to out of is there. 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 are sort of in the patients' homes, we are helping patient care with our chronic diseases.
And so how long would you say we launched the pilot.
This quarter, we will continue and may have an update on that for next quarter as we start to see results.
Aren't expected to be of financial contributor at all and 2021, hopefully we start to see some.
Impacts in 2022, and with the caveat that it may not be explicit contribution from our connected care revenue line. It may just be enhanced volumes right. If we can differentiate ourselves we already think we're differentiated from our peers, we offer a better customer experience, 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 of connected care as part of the bundled offering just to get more volume.
And it makes sense really appreciate it thanks so much.
Thank you. Our next question today is coming from Anthony <unk> from H I'm, sorry of RBC capital markets. Your line is now live.
Yeah.
Thanks, and just want to add my congrats to the team and two to Luca.
Just a couple left here.
One on on competitive bidding.
And obviously that probably changes the dynamic for a lot of the kind of downstream operators have you seen that affect your M&A pipeline at all it doesn't sound like it once you've been able to.
To execute.
Cute on but just if you could get some some some color there.
Yeah, No I mean, we see of great. We havent really really good pipeline and obviously, we've been active as we foreshadowed a little bit last time, we spoke to the investors.
And with both adapt and Aero care, having deep pipelines.
And if anything we're seeing.
We're seeing lots and lots of opportunity out there and we get asked question of oil isn't it more competitive you have other competitors, who are more well funded now does that mean.
Is gonna be harder to do M&A and I think the answer is we don't feel that way whatsoever, and we have a great pipeline.
We will remain disciplined to make sure that these acquisitions are.
Most importantly value contributing and value creating.
Financially accretive as nice as well out of line.
And as I said, we have a track record of and being very disciplined on that but we're really excited me and I will say just a shout out to the auto care team. They do a really good job on the integration to Dan Bunting.
Full of branch operations and is great on the integration side for acquisitions, and so I think youre going to continue to see us the acquisitive throughout the year.
Okay and look earlier in of the previous question you talked about the dynamic.
The dynamic between the.
Diabetes.
Patient growth and end of ore and unit growth versus the of pricing can you give a little bit of color of what's going on there.
Yes. It is.
Phil So nearly and the Grand scheme of being out of the diabetes and advanced diabetes, primarily CGM.
And really you know was approved by Medicare I believe and 2017 for reimbursement and so what Youre seeing is theres been some shift to the pharmacy channel, which.
Which we acknowledge and it hasnt at all slowed our top line growth numbers and seen some payers switch to the Medicare payment methodology, not necessarily the rate, but the K codes versus a code.
And so we continue to see this as you know we've been underwriting these acquisitions were underwriting kind of gross margin settling in the low.
Low thirty's range, which is completely appropriate for the category.
And so nothing that we're concerned about what's already and I think we're just we're really excited and because we're still early and the compounding of the surplus which is because a lot of people who are coming on CGM and still new to the therapy. We think of it is gonna be pretty long length of stay on this therapy, which means that not only are we seeing kind of growth and new starts, but we are seeing.
Compounding and the census, which should persist for years I mean, it's.
We're really excited about the debt and Houston.
Okay, and then final one for me, I know and Texas, and Tennessee, where a couple of air carrier strongest.
The organic growth States can you talk a little bit about some of the disruptions you may have experienced there with the of winter storms, we had in the past couple of weeks. Thanks.
Sure I'll, let Steve handle that one.
Yeah, I mean certainly the.
The storms that came through Texas disrupted our you know and ran up our cost to take care of patients to get the oxygen to them and stuff like that and certainly our new starts for that you know we.
And of half decline.
The decline dramatically.
But all of those patients that could have been started and those week and a half we will get started.
Over the next two to three or four weeks, so just the delay and the.
And new revenues from the recurring revenue and that hasn't really changed so you know our Texas operations will report.
And just fine results expenses will be up a little bit, but insignificant and there'll be bounce back in March very nicely same and Tennessee. So for the quarter you know our operations will be affected by it.
Maybe february you'll be a little bit of heavy on expenses and March will be a little bit of heavier of revenue.
Thanks, Dave.
Thank you for the next question is coming from Eric Coldwell from Baird. Your line is now live.
Thanks very much the.
And the age old question, when 'twenty 'twenty 'twenty and front of you is few bow out gracefully or you make something up but I guess I'll squeeze in a couple of here.
Our 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 and the dozens I was hoping to get a finer point on that.
Specifically, what kind of facilities might be consolidated and what.
What the.
When you look at your.
The $50 million synergy goal, how and how much of that actually comes from rent real estate facility management things of that sort of.
Yeah, and so I'll answer the last question first I mean, it's not a big number it's a couple of beyond maybe yeah. I mean, most we don't.
We have 500 and combine our kind of around and POS combined locations. Most of these are a couple of hundred a couple of thousand square feet. These aren't big and he says you know we've generally kept lease terms pretty short three to five years as our preferred if not near the sort of month to month or year to year.
Yes.
And Josh you can and you can hop in here and I think it's about 75 facilities that we identified for close enough to each other.
It is also important and all I mean, the 75 yeah.
We can close one location, but like in every market and maybe Steve can comment on this every market, we're not looking to kind of cut costs on the sales side and the customer service side and we want it. There's so much business for us to go out and get so yes. There is of the rent savings and there might be and extra delivery trucks and get from utility savings.
And these markets and we're actually we wanted to sort of reinvest and growth, we're going to deliver that $50 million cost synergy and that number its just not a big number that comes from the the branch consolidation and Johnson, Steve you guys and I'll hop in there.
Yeah, and I agree I agree with that and I think it's more than what we would initially of thought.
And I'm just in terms of considering all of our locations of pretty much complementary that we did have some locations that could be consolidated but even when we consolidate locations and and the rent. The obviously the big drivers of the labor expense and the vehicle expense and and the delivery expense and since we're reinvesting and kind of organic growth foundational things.
We're putting some of those dollars back to to help us growth. So.
Going to be a nice number, but it's not going to be the the big driver of our synergy case.
I appreciate those comments and I just.
And I had one one other one of 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 of 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 as you're growing so fast.
And you have to you have to focus where you have to focus and maybe that wasn't the biggest focus and the past I am curious, where you stand on collections and bad debt and what initiatives may be underway with arrow care and other acquisitions that youre doing to to improve upon the historic trend because again I always felt like there was maybe two or three points of opportunity.
And therefore you.
And that's something I think we would agree with you and that there there is definitely some upside and then I'll, let Steve talk about some of the numbers of specifics I think he can give some data points on peg.
The new patient setups.
Really a lot of our there's two things one is having better processes. When you dropped the claim and make sure the other REIT insurance and.
File youre not over supplying versus quantity and.
And that's more on the commercial insurance reimbursement and we're going to get we have gotten better at that and continue to put better systems of play, but then it's about the pay new patient setup, because if you can educate the patient and appropriately.
About their deductible and their co pay and how theyre going to need to have the card on file with us it's a big opportunity out there and did a better job and so I'll, let Steve talk about some of the trends and we're seeing real quantitative evidence that we're getting better sort of month over month.
Yeah. There's no question that we're making great improvements and in patient pay and <unk> and.
In particular, so now the policy is for the combined company when a patient comes in and comes on the service one of the first concert conversations is the financial responsibility so right away and we're making decisions on what we have to do with that patient if there is.
And reduced waiver or anything like that of financial need and all of those things and we have two.
You know go to the right at the beginning so as of today.
And over 80 plus percent of new starts that have the code and then have a copay of private pay attachment to it 80% of those are be over 80% are being put on on the credit card for auto pay that's a big big deal and now that'll take time to work its way through the through the process but.
We're up to the mid thirties of all of our bills going out from the DAP side going out on all of them for auto pay for credit card that numbers and the mid sixties for Aero care, So you'll see those get closer and closer as the year goes on as those new starts.
Come in there and that 80% 80, plus percent come and keep added up it there so you'll see that narrowing which just continues to improve the patient pay side of it but in addition of you know Luke mentioned you know the RCM function that adapt has pretty superior was superior to.
Aero cares and the identification of the right.
And the right and you know payment mechanism of the right authorization of the REIT reauthorization and those processes are superior. So we're implementing those and we're just gonna help are you know the.
Collection percentage on the insurance space and so those combination of those two I think we'll have you know.
Significant effect, but again, it's a building thing so it really in 2022, you should see incur.
The increased.
Per cent or lower for.
And your bad debt and increased collection percentage.
Thanks, very much guys I appreciate it congrats on the performance.
Thanks, Eric.
Thank you. Our next question today is coming from Richard close from Canaccord Genuity. Your line is now live.
Great Congratulations and thanks for the question the year mine the primarily from housekeeping.
And I, just wonder and on the 'twenty 'twenty, one guidance just to be clear based on Steve's comments earlier on revenue synergies and I guess.
To the last question here does the 'twenty 'twenty. One guidance include any of the revenue synergies or should we think of that as potential upside.
It does not include any revenue synergy you know 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 because of the year goes on so and this guide. It does not include any revenue synergy.
Okay, Great and then Jason and I guess again on the guidance I think Luke Luke.
Luke.
Referenced of 130 to 150 million in terms of the acquisitions that were completed.
And already for the <unk> 'twenty 'twenty, one and then and your comments you talked something about 200 million number what's the difference and the those.
Two if you could just clarify the ore.
Sure Richard the the differences and the $1 30 to $1 50 of those are acquisitions that have closed.
And part of adapt health today and.
And you know we include them in our guide.
And as such.
The 200 is really.
And we're working to give some visibility to expectations for acquisitions.
None of that is included in other.
Other than the 130 to $1 50 that is already already part of the dovetail.
Okay, great. Thank you congratulations again.
Thanks Richard.
Thank you as a reminder, that star one to be placed and the question queue. Our next question is coming from Kevin Fischbeck from Bank of America. Your line is now live.
Great. Thanks, I guess, just a couple of modeling questions first is there any cares money and your guidance and second how should we think about taxes for 2021.
Hey, Kevin it's Jason So so no there are no cares funds in the guidance.
What we reported this morning was that we qualified $14 3 million.
Of those funds from the provider relief fund.
So we recognize that and the fourth quarter and there are no funds.
<unk> and the guide.
In terms of tax we.
And we're projecting to be probably a mid 20%.
And the taxpayer and once we once we cross that bridge.
But we.
We.
Based on what we reported for Q4 and the impact from the contingent shares.
And we won't we won't have that that impact.
Okay.
It's helpful.
And then I guess just wanted to get a little more color on the <unk> and how to think about the growth rate of 8% to 10% because this year is going to be a little bit of.
Lucky year, given all of the comp issues it sounds like you'd probably be below that and Q1, but then maybe well above that and Q2, just because of the comp for going against.
How do we think about it depends on each of them for the year or is that your exit rate kind of.
For me.
The box there.
I would think of it and then Jason I'll handle this and then you can hop in and I would think of it as for the full year to your point the the comp in Q2 and it should be easy for us to hit that comp.
<unk>.
And if you took out the sort of BTB growth yeah.
And even in Q3, and so yeah, I would think that Q1.
It's going to be a little bit harder.
And put up a big number just because Q1 last year was also strong and you also have the rolling and of Aero care.
And so it is going to be a bit of a of wonky here, but I would think of the eight to 10. If you look full year 'twenty, one versus full year 'twenty of that space and time right reference point.
Okay, and then I guess just last question it wasn't 100% clear to me what you were.
Correct.
The oxygen comment that that it wasn't just COVID-19 that there was really more of COPD patients coming through are you and I guess my expectation was that you would probably see oxygen down this year and.
Covid what are you, saying that that is still.
And to be the case because of underlying demand or you're just saying, it's still might be down, but not maybe not as much as you would think because a lot of this has been for the.
Great.
Yeah, I think you should think about the auction or sort of thing just driven business and so we've seen relatively rapid buildup and defensive and November December January and even into February and so and probably through Q1, the new starts will be elevated for the census for continuing to build.
Some of these COVID-19 patients will fall off for the year and so.
Yeah, the auction revenue and the back half of the area, that's probably lighter than compared to the first half of them, but I think the overarching point is the current.
It's not just of onetime COVID-19 bump where all of these price.
Interest coming into Covid was 100, it's going to go back day 100, we actually think it's going to remain elevated hopefully because of all of these people who needed oxygen and anyway and they just didn't realize it they go.
And they put on and pulse oximeter and they're the best estimate and on the whole of their buds that sort of is the 89 to 90 and Steve do you want to come and I'm not at all.
Yeah.
So there's two there.
And there are components. One is one of the long term effects of Covid and I don't think we have the answer to that but.
But we know the solution to that it's gonna be oxygen.
So that now and extend the.
For the life on service of these patients more than we thought.
But in addition to that when you go out there and you talk to the physicians and the medical community the attention to COPD and putting patients on the hearts and has heightened during this.
And this pandemic the pandemic will you know by the government and go through the.
The full year I believe.
And maybe even beyond that so I think there's going to be still be a lot of attention on the COPD patient and.
So with that I think there'll be more early identification of patients than it had been and in the past years, and I think there'll be more scrutiny towards that with the cell systems and the doctor groups. So I suspect you know oxygen and we'll still have a nice growth rate through 2021.
Okay. That's helpful. Thanks.
Yes.
Yeah.
Thank you we've reached the end of our question and answer session and I'd like to turn the floor back over to Luke for any further closing comments.
Yeah.
And thank you everyone for participating we look forward to going out and delivering results and talking to you guys and a few months. Thanks so much.
Thank you.
Thank you for that does conclude today's teleconference and webcast and may disconnect. Your lines at this time and have a wonderful day. We thank you for your participation today.