Q2 2021 Adapthealth Corp Earnings Call
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Upheld corp shall have no obligation to update the information provided on this call to reflect subsequent events. Additionally on this mornings call, we will reference certain financial measures such as EBITDA and adjusted EBITDA and adjusted EBITDA less patient equipment, Capex, which are non-GAAP financial measures. This mornings call is being recorded and a re.
Play of the call will be available later today.
Im now pleased to introduce our CEO Steve Griggs.
Thank you, Chris and thanks to everyone for joining our call.
This week marks the first 6 months for the combination of adapt health to narrow care. Our original thesis has been confirmed we are in a business with secular tailwind since more and more health care is being delivered and monitored in the home.
And we have proven that we can go both through acquisitions and organically occur.
Accordingly by combining our companies, we envisioned we would improve patient access patient experience and clinical outcomes.
With this vision in mind, we continue to execute on our strategy of organic growth improving operations and closing accretive acquisitions we.
We do this by leveraging technology and workflow to improve our operations and have already achieved significant direct and indirect cost savings via purchasing volumes.
In addition, 6 months into the combination.
We've seen great progress towards our synergy plan, including consolidated 88 locations and implementing our digital logistics and RCM platforms.
Our synergy activities are substantially complete we remain confident.
Confident in our previously communicated synergy target of $50 million annually and $30 million in 2021.
On the sales front, we made strong progress reorganizing and focusing on a combined 615 person sales force.
As part of this reorganization, we have taken the best training tools and practices and apply them across the entire business.
We believe through the through our sales efforts and the resupply engine, we will maintain an organic growth rate of 8% to 10% over an ever increasing base.
Most importantly by combining our operational teams and leaders at all levels across the country. We believe that we will be more powerful than the sum of our parts and pursuing our mission to empower our patients to live their best lives out of the hospital and in the.
The success of our combined team as evidenced and reaching our highest reported revenue and adjusted EBITDA margin for this quarter.
So far in 2021, we have accelerated our acquisition pace when we acquire a company we not only evaluate the near term and longer term cash flow characteristics of the target, but equally or more importantly.
How it will fit into the ongoing organic growth profile of the company and an example of this is our Q2 acquisition of Spiro healthcare in New England.
Prior to the acquisition, neither <unk>, nor adapt had significant operations of this geography as a result, we expect to grow significantly in this region.
In addition, we completed 3 more acquisitions in the second quarter, 1 being the acquisition of healthy living medical supply based in Michigan.
We're very excited as we continue to expand our diabetes presence with this acquisition.
Already in the third quarter, we have closed 6 more acquisitions, each 1 meeting our criteria for earnings and strengthening our strategic presence in existing regions with these additions we expanded our operations in Kentucky, Ohio, West, Virginia, New Jersey, New York, South Carolina and Florida.
The second quarter started with broad COVID-19 vaccine access across the country and the reopening of our economy.
The reopening was evident in the referral patterns of our hospital health system partners as elective procedures came back.
And pent up sleep study demand was met.
However, the emergence of the Delta variant of COVID-19 has raised concern and our economies overall recovery.
We demonstrated our ability to respond since the beginning of COVID-19, pandemic and we are confident in our ability to continue to respond as necessary.
In addition, we generated $9 million of revenue in the second quarter from <unk> sales supporting our hospital and health system partners and provided much needed oxygen and ventilation equipment.
Although we do not expect this revenue to be recurring it continues to demonstrate the commitment of our workforce and serving the needs of our partners on patients and.
In summary, we are very proud that the past 6 months has validated the future that we envisioned for our patients referral sources employees and shareholders now.
Now I'll turn it over to our President Josh Parks.
Thanks, Steve.
My remarks will focus on the key aspects of our strategic roadmap, including operational technologies chronic disease management and how these capabilities help enhance our overall business I'll also comment on our diabetes integration and growth progress, but first I'd like to discuss the operational impacts of the restaurant.
On X recall announced by Philips on June 14th 2021 that is affecting the entire sleep health industry.
Philips Respironics has been a great partner of ours for years, and we're committed to working through these challenges together for our business. There are 2 operational areas. The first is patients currently on billable census, with products on recall and the second is the supply chain for the new devices that could potentially impact our ability.
To meet new start demand.
We have several levers available to mitigate the potential shortage, including inventory management asset recovery and alternative suppliers.
There was no financial impact to Q2, but we believe the potential impact to the second half of 'twenty, 1 could be up to $30 million of net revenue.
We expect much of the shortfall on setups would be delayed until 2022 and likely recaptured and we'll have a better perspective on this by the time, we report next quarter.
Turning to the key aspects of our strategic roadmap, we're very pleased with our continued adoption of our <unk> prescribed technology.
For example, in our diabetes product line approximately 40% of new orders are currently flowing through this technology and more importantly, our cycle times are down significantly this reduction in cycle time drove improved patient and provider satisfaction.
We have advanced 1 of our key technology synergies between adapt and arrow care.
Our proprietary real time end to end logistics delivery platform enables mobile friendly order tracking and communication with our patients. This technology is the backbone of our CRM system used by our sales reps and has been rolled out across the vast majority of the organization.
Continuing with our strategic roadmap our long term goal is a leading homecare provider is to continue evolving our service model to more efficiently help patients manage chronic illness in the comfort of their own homes. Several programs are underway focused on our sleep COPD and diabetes patients.
Including technology enabled coaching and chronic disease management to drive a better disease outcome over time for.
1 example, we have enrolled several thousand patients and our COPD disease management program, which develops individualized plans of care and provides patient clinical data reporting to physicians.
This technology has already proven significant reductions in hospital Readmissions statistics.
Additionally, this program simplifies workflow and drives efficiencies for our several hundred clinicians who serve patients in their homes.
Improving patient experience and outcomes is a core principle at adapt health.
Accordingly, we will continue to invest in both talent and technology to further improve outcomes and reduce the overall cost of care.
With these investments in technology and chronic disease management, we are accelerating growth in all of our product categories. Most dramatically in diabetes, our fastest growing product category, coupled with our <unk> prescribed platform and proprietary <unk> technology. We believe we are growing in line with the overall end market.
We have combined our national diabetes sales force with our hard earned expertise and <unk> resupply operations through accelerated organic growth in each of the 6 businesses. We've purchased since last July we continue to be extremely excited about the future opportunities within this product category with that I'll turn it over to Jason to <unk>.
Discuss our financial results.
Thanks, Josh good morning, and thanks for joining our call for the second quarter ending June 2021, adapt health reported net revenue of $617 million, an increase of 166% from the second quarter of 2020 as.
As detailed on defined in our Q2.2021 earnings supplement adapt health organic growth for the quarter was 10, 1% supporting our long range organic growth estimate of 8% to 10%.
This growth was again led by new starts in our diabetes product line and continued strengthening in our sleep business. Following the law of new starts impacted by the pandemic in mid 2020.
As a frame of reference pro forma net revenue for the quarter was $632 million driven.
Merrily by Spiro health services and healthy living.
Beginning in Q1.2021, our pro forma net revenue disclosure in our form 10-Q includes all acquisitions completed in the period as opposed to just material acquisitions, which were previously disclosed we intend to maintain this increased level of disclosure going forward.
Turning to profitability, our adjusted EBITDA was $148 million for the quarter, resulting in an adjusted EBITDA margin of 23, 9% up from 21, 6% in the first quarter.
We benefited from a full quarter of Aero care that historically delivered higher margins and the Standalone adapt health business. Additionally, our synergy program continues to roll along and is absolutely on track contributing to higher margins for the quarter.
On the regulatory and governmental front there have been a series of positive announcements across our industry first with the extension of the public health Emergency announced on July 20th.
Extension will provide continued reimbursement benefit for the next 90 days when the extension will be reevaluated. Our updated guidance includes the current phe extension, but it does not include any future extensions.
Additionally, CMS announced relax standards for CGM qualification, removing the 4 per day test strip requirement.
Some commercial carriers have already followed suit.
During the CMS policy.
Finally, and very importantly, CMS published a proposed rule, calling for relaxed qualification standards for oxygen, including possible elimination of the chronic stable state requirement and possible elimination of the <unk> or certificate of medical necessity the.
The industry has supported this changed for many years and we're pleased with the proposed changes.
We think it's unlikely for these guideline changes to result in a material increase to revenue in 2021, but as we get more data behind US we will certainly evaluate these announcements as part of our 2022 financial planning cycle that just kicked off.
Turning to the balance sheet, we prepaid half of the outstanding principal on our 12% interest promissory note.
We expect to pay down the remaining principal between now and September 30.
We had $175 million outstanding on our revolver at the end of the quarter. We're pleased to take this next step forward in simplifying our capital structure and refinancing expensive debt.
We are also focused on driving increased conversion of adjusted EBITDA to cash flow from operations.
Speaking of that metric, we generated $147.6 million of cash flow from operations for the first half of 2021.
This included $15.9 million of cash outflows associated with cares Act recruitment during the second quarter, representing about a third of the 2020 advanced payment that will be returned to CMS.
For all we are very pleased with the amount of cash our business is generating and remain in range of our previously discussed expectation of converting approximately 2 thirds of adjusted EBITDA to cash flow from operations.
I'd like to turn to our updated guidance for 2021 as.
As announced this morning, we are increasing our 2021 full year guidance for net revenue adjusted EBITDA and adjusted EBITDA less patient equipment Capex.
We are guiding to net revenue of $2.3.8 billion.
To $2.48 billion.
Adjusted EBITDA of $555 million to $580 million and adjusted EBITDA less patient equipment capex of $360 million to $375 million.
This increase includes $90 million to $100 million of in year revenue for the additional acquisitions announced today as a reminder, our previous guidance included in your revenue for Spiro Health services. We also included in our estimate a potential Philips respironics device shortage of up to $30 million of revenue. This.
The situation is fluid, but we are confident we will have enough clarity to assess any possible impact to 2022 by the time, We report next quarter.
As a reminder, our guidance does not include any contribution from acquisitions that have not yet closed.
I have 1 more important topic to discuss we continue our progress transforming our back office operations, including the installation of new technology and capabilities. Our ERP met our phase 1 go live on June <unk> and all other transformation streams remain on track with that I'll turn it back over to Steve.
Thank you Jason before we turn to questions I'd like to thank our 9068 employees across our 678 locations for their contributions to a successful second quarter.
Also we appreciated there.
<unk> commitment passion and excellence toward advancing our strategy of organic growth improving operations and accretive acquisitions.
Thank you and now let's open up for questions.
Thank you.
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Our first question comes from Brian <unk> with Jefferies. Please proceed with your question.
Hey, good morning, guys, congrats on a very solid quarter.
I guess I'll start off with a question.
The elephant in the room I guess for Jason a lot of people have been asking us about your organic growth that.
Any clarity or any other color you can share with us and then is on.
Visibility into.
What Q on Q2 would have looked like.
Are you using more traditional organic growth just because the address debt.
<unk> debt.
A lot of investors have been focused on.
Sure Brian Good morning.
First I'd start with the continued and increasing disclosure that we're bringing to our 10 Qs.
You probably heard that in my prepared remarks.
As part of Q1 right. So this is this is prior to any of the various reports that might be out on the market over the last several weeks, we made a change to how we disclose acquired revenue.
We have now included every dollar of acquired revenue in the quarter. Historically the company had included only material acquisitions and so not all dollars were included so that is a change we think it is just better visibility and transparency.
We will expect to see that in our 10-Q that we will file following the call.
And also going forward.
So the second thing we did in terms of added disclosure, you'll see on our Q2 supplement that we posted to the adapt health website. Early this morning under our Investor Relations page Youll see page 7 a.
Continued bridge of organic growth.
We start with reported net revenue growth right. So that's the 617 that we reported this quarter against the prior year of $2.32.
The next step that we're demonstrating is pro forma net revenue.
So that again is included in our Q.
The definition that you would expect that's just the standard ASC 805 definition of pro forma revenue and Thats, showing 632 of Q2 against $5.72 on the prior year.
The next step in our definition of organic growth for the company we've made 2 adjustments.
The first is <unk> revenue I mean, I think it's no surprise, we continue to exclude that from our kind of analytics. It's not recurring revenue. We're very proud of it as Steve said in the prepared remarks, but we don't include it or assume it's a go forward contribution to the company.
The second thing we demonstrate is.
There is a difference between pro forma the formal definition of pro forma revenue.
Versus the acquisitions that <unk> made from January 2020 until we acquired Aero care.
As you all know air care was highly acquisitive and so we've pulled those acquisitions out we think it gives a somewhat started view of growth if that's counted in and so thats. The thats. The final adjustment. We've made so again that will bridge is included on page 7 of our supplement.
In terms of I think when you say traditional same store you might be alluding im sorry, when you say traditional organic growth you might be alluding to same store.
I'm going to pass that Thats right, yes.
Yes, I'm going to pass it to Steve to reiterate.
Why that is.
A metric that we use to run our business.
Yeah, Thanks, Jason and Brian too for the question.
So first I just want to be clear and reiterate our belief that our business will grow 8% to 10%, we expect existing businesses and including the acquisitions to grow 8% to 10%.
So our managers out in the field are incentivized to grow their revenue level not what they had 3 or 12 months ago.
So if a regional leader has 100 million dollar revenue base and we acquire $20 million on revenue in the region. We're looking on incentivizing them to grow $120 million in revenue and so whatever that point as we look out.
12 months, I'd say that should grow 8% to 10% or whatever level, we have in store for them.
So when you talk about same store growth, we just don't manage that way and we don't account for it that way I'll give you. An example in the state of Texas.
Ted business in Texas in 2019, and in 2020, they acquired a very good business and health line.
Almost immediately the integration process started combining locations from legacy adapt into.
Health line and back and forth and then Theyre doing few other smaller acquisitions and all of those got combined into existing operations. Then on February <unk> purchase we had a very large presence in Texas almost equal to the adapt and as we indicated the arrow care and adapt combining.
Offices, Texas was no exception multiple offices, where merge together, so our Texas regional leader doesn't try to manage growth for particular lowes location on a particular time. She manages the entire region and now the merged region.
Significant for her and her goal for her and her sales manner is to grow the combined our <unk>, 8% to 10% and while at the same time, making it more efficient so that process right. There makes it extremely difficult I would argue almost impossible to calculate a same stores.
Growth because there is no more same stores they've all been merged them together and so that's why we look at what are we at today and we want to grow that business does that makes sense.
Yes, no that's great I really appreciate that.
Thank you for all that color I guess my next question from the have you Steve.
At the beginning of the year when we were looking at your long term growth targets..1 of the things you guys vessel was trying to buy 100 day $150 million worth of revenue a year youre already at 300 this year so clearly.
Demonstrated your ability to acquire your intent to maintain robust phase of M&A. So.
Okay.
Thinking that there is more on the pipeline and how you're thinking about.
Integration of these deals.
The ability to bring them in and continue growing east assets that you're acquiring.
Yes, I mean, so right now the pipeline is as very large surprising to me somewhat debt. We have this many of really really quality assets.
On that Aero care coveted day have a chance it prior to this and adapted to.
So I think the acquisition activity is going to be.
Pretty robust for us for that.
For the rest of the year and into 2021.2022.
So how do we combine them well the the acquisition work and the.
And the.
Part of that is already done for <unk>. So that team is available to work on other acquisitions and then when we start.
Combining them and integrating them well, that's mostly done by the local managers and the regional managers. So for instance, if theyre going on if theyre working on that and they are working on this particular acquisition in the state of Texas for example, and they get that done well, we might have on acquisition going on in Tennessee.
That's a whole different team, that's making sure that that gets combined and integrated into our operations. So as long as we're not pile them up on top of of an operational team 1 after another which we don't do.
We should be able to handle that.
Fairly efficiently.
Got it and then my last question for Josh.
On your prepared remarks, you talked about how you feel like you can grow in the diabetes space together with the market and I think debt comes out there with sort of a 5 year guidance of like 20% volume growth. So.
Is that I know your guidance is in the 10% to 12% range for long term growth your diabetes business. So.
Is that just still being conservative view on diabetes.
It is a 20% good near term number to be thinking about.
Yeah. Thanks, Brian So I think our diabetes businesses as a reminder is a smaller portion of our overall business. So even if youre going to get a higher.
Organic growth number there at net center kind of 8% to 10% over the entire organization.
But diabetes for us has been weak.
We've been in it for about a year now and it's been great out of the gate, we've been pushing a prescribed and all the things that we've learnt on the HMA side of the business I think about resupply E. Prescribing some efficiencies on intake technology, and that's really allowing our prescribing partners and physicians to reach.
We get a much more efficient experience.
And then also on under the medical benefit as well to really drive efficiencies in that process on the documentation process. So thats been allowed us really to grow with the market index common and others are out there, saying, it's 2020%. We believe that we can grow in line with that over.
Over time, our goal certainly is going to be to take market share, but obviously, we are generally new on the business and we're learning as we go but it's been a it's been a really great start so far yeah, and I would add Brian that Josh his comments, we've got 6 fantastic businesses that we're now running on an integrated platform, but the first 1 was.
<unk> just July 1 of last year. So we're just getting into this business now for for little over a year as we had said on previous calls as we get a little more data behind us if it continues our trend to continue.
And we are indeed above that 10% to 12% you can expect us to refresh that perspective, as we start talking about 2022 guidance as we will do in about 90 days from now.
Awesome. Congrats again, thank you guys.
Yeah.
Thank you. Our next question comes from Peter Chickering with Deutsche Bank. Please proceed with your question.
Hey, good morning, guys. Thanks for taking my questions.
2 quick ones here to start off with looking.
At the revenue guidance from December when you guys acquired Aero care.
To your point on $5.2 billion of revenues and then compare that to the new guidance of $2.38 versus $2.48.
You said in your press release that you have acquired $3.2 million of annualized revenues, which are the day.
I'll close the first quarter just.
How much how much revenue from you guys acquired since that announcement I'm, just trying to sort of bridge bridge organic growth rate versus the acquired growth from the.
December.
Today's guidance.
Hey, Peter this is Jason.
I'd be glad to take that so we had 3 separate raises since the <unk> announcement in terms of revenue.
If you recall Q4.2020, we raised.
$130 million to $150 million of revenue that was for the 5 deals we acquired from December 30 through through that earnings call.
The next raise was the last call we've talked about Spiro and there's also there are some dollars on there for the CMS oxygen fee schedule rate increases that went in effect April 1 that was a $40 million raise.
And then today in my prepared remarks, I talked about raising $90 million to $100 million for acquisitions. So I think if you take that altogether youre looking at $2.60 to 290 <unk>.
Ballpark for acquisition rates.
That's in year, so to the point of we've acquired over $300 million of annualized that's where that.
Where that's coming from but the 1 item I will call out is the Philips impact rate that's netted in there but otherwise.
Those are the acquisition numbers.
Okay.
Which is a sort of bridge to the next question about guidance you raised the midpoint of guidance by 25 million beat the quarter by 17.4.
It provides the back half of the year should grow by about $5 million.
And the number of deals since last quarter's guidance.
On.
So can you just help me bridge that.
Youll close versus the Philips recall, if I take a 30% margin on $15 million, it's a 5 <unk> EBITDA impact or sales at the right. We are thinking about that basically have to understand what would happened to guidance yet.
This year.
Sure. So I'll answer the second part of that.
First so in terms of the acquisition portfolio.
It is very in line with the rest of the business and so you can think of the continue adjusted EBIT margin that we're driving.
That tells on what we reported for the quarter debt Thats in line with what were acquiring I mean, we're the numbers on what we are raising for acquisitions is right in line with with the base business. If you will.
Fill ups its a little murkier I would say, we set up to $30 million of a revenue impact for the second half.
I don't think the numbers zero I don't think it's 30.
Likely somewhere in between there that's on a revenue number.
We have not and we will not talk about our gross margins on that business, but even if you assumed 50% of that dollar dropping down. So if it's $30.15 drops down if it's 15.7 5 drops down and so on that's the reason you're seeing the change in the margin profile otherwise we're very.
On the margin profile would be just as we've said.
Alright, perfect and then last Super quick question here.
Adding topic of Dsos DSO.
Dsos dropped very nicely.
So you know currently on going forward.
So as we say on his prepared remarks, we are right in line with that number.
If you try to run that math on Q1, I think we said last quarter, it's going to be a little choppy just due to the transaction costs and the nature of Q1, but if you look at the first half of the year right in line with that 2 thirds of every dollar of adjusted EBITDA converting to cash flow from operations.
Cora, who we are as a company we stay laser focused on it and we're very proud of it.
Great. Thanks, so much I appreciate guys.
Thank you.
Our next question comes from Matthew Blackman, What Stifel. Please proceed with your question.
Hi, Good morning, everyone. Thanks for taking my questions I've got a couple from for Jason and the first 1 is a bit of a repeat of the prior question, but I Wanna make sure I'm thinking about the new guidance correctly. So.
He he added instead of roughly 100 million and this is sort of relative I guess to the the last guidance range raised.
But you added about roughly 100 million in M&A you raised at the mid point by about 130 million and that's despite the 30 million dollar headwind from Respironic is that sort of the right way to think about it to the underlying business. It looks like contributed a reasonable amount of the of the guidance range. The guidance range range is that right.
That's the right way to think of it I point operating on the bottom of the the range. We brought it up 165, and so what you're seeing there is as we get later into the year. We are tightening the range, we're bringing it all up the bottoms coming up significantly more than the top despite headwinds that we are expecting with Phillips, we feel great about the race.
Okay I appreciate that and then Jason I'm not on for you how should we think about the second half cadence and there's a lot of moving parts with.
Potentially seasonality Delta virus the deals you've completed obviously, the respironic recall, which may so disproportionately impact the third or the fourth quarter any way you can help us to think about a reasonable range for the third quarter again, given all these moving parts.
Yeah sure on that so so I'm gonna reference some some kind of shape and seasonality discussion, we talked about last quarter.
And I'm also going to reference the Q1 pro forma revenue number that I gave you a 564, because if you use the 482 that we reported that's missing a month of Arrow care and it's gonna throw your numbers of debt so and using the 564. If you just add that to our to the to the top of our guide you're going.
Be in that 23, 22, 23% ballpark for Q1 for the total company in the amount of revenue that we produced as part of the annual revenue.
Again, as we said historically.
That's gonna bump up about a point in queue to about another point, maybe point and a half in Q3 and then the balance so that's gonna be in queue for you should be at 26% to 27% of the annual revenue will be delivered in queue for.
Again as as discussed in diabetes that is a much more pronounced slope within that book of business Q.
Q1, you're going to be closer to an 18% or so on you're going to exit the year closer about 2728% or so so again, just a more pronounced slope, but in terms of the overall business that's what to expect.
Really helpful and if I could sneak 1 last 1 for Joshua you touched on all the progress being made on the sort of the cost side of of Arrow care any update on how you're progressing on on sort of the revenue synergy opportunities for for Arrow care, but I guess also for Solara as well any updates there would be helpful. I really appreciate it. Thanks.
Sure. So I'll address the lower revenue synergy as well so I think a lot of the a lot of the revenue synergies that I mentioned previously that we got from our experience and resupply with with a lot of these acquisitions, particularly the 6 on the diabetes that we've done over the last year.
That's been really driving and we believe will continue to drive organic growth in that in that product category.
On the Arrow care side, I think we're seeing 2 things, we're seeing obviously the cost synergies and contributing tar increased margins.
But also we're seeing really the arrow care organic growth engine that essentially consolidated with or adapt health sales sales efforts, which are driving organic growth across across both organizations obviously.
The sales synergies as you know generally take a little bit longer than than cost synergies and we definitely feel like it's starting to kick into gear somewhat 6 months into the integration and definitely should have an impact on on our 20 on early 21.22 numbers.
Thank you.
Thank you.
Our next question comes from Kevin Fischbeck with Bank of America. Please proceed with your question.
Hey, guys. This is that Courtney on Tuesday on for Kevin How's It been doing thanks for taking the question just I got to be a bit on on the guide can you flesh out you know what is your guide to the iced tea on them in terms of any COVID-19 impact on the back half of the year I guess, especially with you know the research into the Delta variant how are you thinking about that that progressing through which with oxygen and then.
[noise] later volumes.
Hey, going on good morning. This is this is Jason.
It is included in right. It's net it I mean, you've got some some other positive tailwinds as well as some.
Some some some headwinds.
That are in the revenue raised that we included I mean, the big dollars are really from acquisitions and from the Phillips numbers that we previously discussed.
But I'd say that in terms of tailwind I mean, we did include the.
Public health emergency extension dollars as part of this guide.
That will run through here for another 90 days until until that will be reconsidered.
That's included that's that's that's on the positive side on the negative side of your point there are some dollars on here for Covid resurgent risk.
You can think of that similar to to Phillips and that for balance of year those aren't going to be huge dollars just due to the compounding effect of our business. So if there is a COVID-19 impact in Q3.
Right it would likely be slight as the as you Miss out on resupply of those Ms patients in queue for that gets a little could get a little bigger and so we've accounted for all that I mean against similar to the Phillips math of what we've produced but for Covid. It's I can't say, it's overly material number.
Okay. Yeah. That's that's really helpful. And then it gets 1.1 quick 1 on on organic growth I guess, you guys mentioned that diabetes, you feel like you're going in line with market I don't know if I. If I misheard. This comment that I thought you said that specifically relating to diabetes I guess could you comment on other segments like how do you think the organic growth is checking for adapt compared to the market.
Sure sure I'd I'd say that.
First 1 we talked about the kind of traditional Dear me or that we sometimes refer to that as of that metal.
That's in line with with our overall and market expectations think of that as we said, 2% to 4% somewhere in that ballpark consistent with kind of any stats, you'll see from from CMS on aging population and elective surgeries and such.
When you get to the supplies to the home business.
A very steady business I mean that that has continued to be about 2% to 3% or so.
Organic grower and that's that's all that's all in line.
Respiratory we saw a bit of a pop in Q1.
We spoke about previously that was really related to kind.
Kind of Covid impacts starting on on Thanksgiving through call. It mid to late February, but those numbers of normalize and you're going to see that as of mid single digit grower.
Sleep is a touch light I mean, we've got that at 7% to 9% is our end market expectation is still a little bit late but new starts of absolutely come back so.
We're still kind of filling the census, if you will for the for the Covid impact in mid 2020 that I discussed in the prepared remarks.
And then diabetes as we said we've said.
On the net.
Impact of and market growth in that in that business line is about 10% to 12% is Josh said.
Current data right. This quarter in particular were tracking against what you're hearing from others about a market growth, which is a number of quite north of that and as we get more day to behind US you should expect us to refresh those refresh those numbers.
Okay. Thank you Susan.
Thank you. Our next question comes from Eric Caldwell with third. Please proceed with your question.
Thanks, Good morning, I have quite a few actually they're all around the Phillips 3 calls on Jason first it sounds like you've put in a range of estimates for.
The impact somewhere between zero and 30 on the low end of your guidance increase did you use the low end of the Phillips impact or the high end of the Phillips impact on I'm, just trying to get a sense on how would that be added into the range.
It's the higher so 30 on the bottom of the range.
I think we've got about 10 on the top.
I don't I don't think it's zero I mean, we've set up to 30, but if you if you unpack the acquisition raise as well as the filter is it's 30 of risk on the bottom and 10 of risk on the top.
Great and then is it possible to get a sense on how that played out between <unk> and <unk>.
Sure I mean.
Yeah, it's very back weighted.
So so again theoretically if you if either there's just less patients to service or if there's an impact that you don't have product to service a patient.
In Q3, that's going to impact your rental revenue in that quarter, but really there would be no impact to resupply revenue for the quarter as you get into the queue for you know again. This is theoretical you you'd still have potential impacting around the revenue, but now the Q3 patients you would've brought on census aren't there to resupply so <unk>.
Supply starts compounding in queue for so that's a lot of words to say, it's very back weighted.
And then that leads to my question on mix, which is I guess our.
<unk> is that the primary impact would be on equipment as long as we had good patient adherence compliance and not a lot of drop offs on any new patient concerns out there I'm curious what you can tell us about what you're seeing on resupply right now and and what kind of culture getting to your centers or with your reps are are you sent.
Being patient concern or not so much.
Steve Josh you guys want to add.
This is Dave I'll take that.
Surprisingly.
With any patient that says or stop using their equipment, we stopped billing whether it no matter what that is of course and it's been surprisingly low.
Few hundred patients really that have said they have stopped using their respironic machine. So I think that after the initial panic that referral sources and health systems of.
Contact to these patients and calmed him down and said.
Here's some mitigation techniques that you can do to relieve some of the risk on the restaurants unit and then hopefully you'll get a new unit relatively soon so it's been very little and then on the resupply side.
Spin also very little where are you headed just haven't had that many patients again in the hundreds.
That it said that they're not going to order there.
Their resupply because they are not using their machine any more so the first numbers on it.
Active rentals, where we're getting rental revenue.
And on that peels off his you know after 10 to 13 months when it becomes a purchased.
Purchased unit and then on the resupply as those patients after that time period and again, so very little.
Yeah, and then on the equipment versus re supply I know you don't want to break out margin per se, but on.
R.
I guess, our preconceived notion was that the equipment was low margin in the resupply is high margin is that is that the safe approach.
Yes, yes, and then pay it pay your discussions.
With this kind of a supply chain situation and and at least another distribution type channels, you typically see <unk>.
Changes in payer behavior or chair changes in market prices I know this is different because a lot of it is controlled under preset contracting but.
What kind of discussions are you, having with payers right now and are you seen any changes or potential changes in the pricing dynamics in the market given.
The situation at hand.
Well not not yet, but we are having discussions with them. So.
Medicare CMS will announce their inflation indicator here relatively soon.
It will adjust our Medicare prices and I think that's going to lead to a lot more discussion, but we are in discussion with him but very.
Very little movement, I mean, you would have some isolated things we've seen a medic aid plan or to make positive adjustment to the rates, but it's pretty insignificant to date, but we are in discussions with them and talking with them.
So.
Not much to report yet.
Last couple 1 sorry for all of this but I thought this was a bigger topic. So.
We've heard Bresma, it's been giving higher allocations too large established providers in the marketplace. We've heard numbers of 20%, 25% you may not want to quote a number but have you been able to gain.
Incremental allocations above historical purchasing patterns from from other players in the market whether or not it's resume.
Well first the Rasmus they.
They've made it very clear and we've agreed with this that they are taking their customers historic purchases and that's where they base. It and then they take what they are able to produce it.
To the historical demand and that creates a percentage that percentage was less than historical for July and it's going to be less than historical for August and then that percentage is applied to all providers regardless of size.
So you know adapt apria lincare rotateq whoever's getting the same percentage as the smallest player in the in the market.
As far as other suppliers are some that are trying to come in there, but they have such low market share. We had a few equipment manufacturers that thought they might grab it back up but they've declined.
So right now.
You're obviously see in the new patients to shortage from Phillips and then historic shortage from restaurant that we hope at least they'll be able to get back to their normal demand by the end of the quarter.
And then hopefully increase that in the fourth quarter. So that's what we're hoping that there is a national or global wyche shortage of components.
Entailed announced that there the chip shortages real and it's going to last for an extended period of time so.
That's in all all products not just <unk> yeah.
And then.
I guess last 1 well maybe maybe still another have you had any consideration of working with some of the Chinese manufacturers that have eua's.
Yes, yes, we're in early early early discussions.
Okay, and then the last 1 I promise unused product on the channel product and the number of sites that you have you have done a lot of M&A, you've you've probably acquired companies that had some inventory what what have you been able to find whether it's you know under the patients better in their closet or or I'm..1 of your 1 of your facilities if <unk>.
Have been able to find more supply than perhaps you thought you had or or maybe some safety inventory.
Just curious what kind of.
What kind of a safety net do you have at this point <unk>.
Considering this could go on for awhile.
Yeah, we're we're confident that inventory can help us out on the third quarter for sure and then some of the fourth quarter and so just a really dependent on how far that inventory goes based on what Resmed can do I, just don't see new new equipment come from Respironic anytime this year so.
I think I'll squeak is through the year.
But I suspect the demand is going to drop a little bit too as as health systems start, saying, Okay Kimberley.
Should we be even trying to get these patients into the sleep labs and tried to get pieces of equipment that orders piece of equipment to possibly can't get so I think the demand side is going to be challenged also so that's the as we go and we learn more and more through this process I think.
No.
We'll get more information.
D. A came out and was had a positive statement or a better statement of how to handle this crisis go see your Doctor and then discuss the use of your machine versus the opposite that Phillips Respironic put out was just stop using a machine and go see the doctor, but they still haven't given Phillips the green light on the.
Reiteration policy things that they want to do.
So hopefully that's going to come out here in the next 30 to 60 days I would hope and then that gives us a lot more clearance and guidance on how long this is going to last.
Okay I I appreciate all the answers I'll leave it at that thanks again.
Thanks.
Thank you. Our final question comes from Richard close with Panic like annuity. Please proceed with your question.
Yeah. Thanks, Josh.
Joshua is I wonder if you could talk a little bit more about that the C. O B C. O P. D program that you've talked about and you know, what's the opportunity with stuff like that.
Sure Yeah, so happy to take that so on the COPD program essentially what we're doing is we're enrolling our our high on respiratory event patients in a particular part of the country on a program that really helps clinicians monitor on a real time outcomes.
There is that data puts it into kind of a technology that allows us to share that technology that data with both the clinician in the health system.
And really what what essentially we're doing is we're tracking not.
Not just as a patient adherence to the actual therapy of the ventilator, but how they're doing kind of on a longer term basis and how that relates to their plan of care. So that's really kind of just early innings I'd say of how we're thinking about chronic disease management across multiple different product categories that we believe should.
Real real good runway on that particularly sleep and diabetes.
Already on on on sleep, we're managing and coaching patients on on adherence. Our goal is to do that over a longer period of time with those patients as well as on the diabetes side really.
We're working on some things with coaching on on Cgm's and working on how.
How do we get that patient essentially not just adhering to the advice, but really how do we get data around us being able to manage how well they're doing on their diabetes therapy and how we can be helpful to all stakeholders within that which is physicians.
Insurance companies, obviously, the customers on the patients, but really we we sit at the intersection of being able to gather that data, but also impact that patient by leveraging the existing relationship where we have with that patient and a trusting relationship and also being able to be cost effective at doing that at the same time without a really large.
Investment in infrastructure to be able to do that so.
It's early innings on that but I'd say, it's something that I'm going to be focused on and I'm going to be pushing to drive that over the next couple of quarters.
Great. Thank you.
Thank you ladies and gentlemen, we have reached the end of the question and answer session I will now to on the call over to Steve Greg for clothing on Mark.
Thank you and thanks to everybody for participating in your in your questions on your interest we really appreciate it and again, thanks to all of our incredible.
Incredible employees throughout our organization that are helping us with our continued mission to better serve our patients and improve outcomes. So thanks, a lot everybody have a great day. Thank you.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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